MMT: overcoming the political divide.

Discussion in 'Economics & Trade' started by a better world, Mar 12, 2020.

  1. a better world

    a better world Well-Known Member

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    https://theglobepost.com/2019/03/28/stephanie-kelton-mmt/

    Everything You Thought You Knew About Economics May Be Wrong.

    Modern Monetary Theory (MMT)


    Professor Stephanie Kelton explains the policy choices open to sovereign fiat-currency- issuing governments, in the above link.

    ………………...

    https://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

    In this link, Warren Mosler (former investment banker) explains the mechanics of public sector money creation, in this excerpt from his book: "The 7 Deadly Innocent Frauds of Economic Policy").

    (page 16)

    "The Chairman of the Federal Reserve Bank is telling us in plain English that they give out money (spend and lend) simply by changing numbers in bank accounts. There is no such thing as having to “get” taxes (or borrow) to make a spreadsheet entry that we call “government spending.” Computer data doesn’t come from anywhere. Everyone knows that!

    Where else do we see this happen? Your team kicks a field goal and on the scoreboard, the score changes from, say, 7 points to 10 points. Does anyone wonder where the stadium got those three points? Of course not!......

    We all know how data entry works, but somehow this has gotten turned upside down and backwards by our politicians, media, and, most all, the prominent mainstream economists. Just keep this in mind as a starting point: The federal government doesn’t ever “have” or “not have” any dollars.

    It’s just like the stadium, which doesn’t “have” or “not have” a hoard of points to give out. When it comes to the dollar, our government, working through its Federal agencies, the Federal Reserve Bank and the U.S. Treasury Department, is the score keeper. (And it also makes the rules!)

    You now have the operational answer to the question: “How are we going to pay for it?” And the answer is: the same way government pays for anything, it changes the numbers in our bank accounts. The federal government isn’t going to “run out of money,” as our President has mistakenly repeated. There is no such thing.

    ………...

    Currently, most of the population think government budgets are like their own household budgets, but nothing could be further from the truth.

    In fact, government issues the currency, whereas households (and other private sector players) are users of the currency.

    So when our friend Bluesguy says - speaking for most of the population - "the public sector can't fund itself, it has to do so through taxes" (or borrowing), he is entirely wrong.

    Because indeed classical economists have convinced us that wealth creation ONLY occurs in profit-seeking, private sector, "invisible hand" markets; whereas in truth a balanced economy - as opposed to a balanced budget ! - requires money creation in both sectors -public AND private - of the economy, if we are to avoid the "private affluence and public squalor" famously cited by JK Galbraith.

    Note: the constraint a nation faces is not money, but real resources, labour and productive capacity of the economy; so the issue resolves to avoidance of excess demand on available resources (to avoid inflation).

    Fortunately, by now MMT has the ear - if not the commitment - of central bankers the world over, so the coming crises will no doubt be dealt with more successfully than in the GFC, by central banks' monetary policies working in conjunction with governments' fiscal policies (including deficit spending), to avoid recession.

    ( ...and deficits don't worry Trump; at least Kelton is pleased about that; see her upcoming book: "The Deficit Myth" to be released soon).
     
    Last edited: Mar 12, 2020
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  2. Bluesguy

    Bluesguy Well-Known Member Donor

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    The only place the government can obtain revenues is through taxes and fees and why we have the tax and spend clause. And I can post article after article of how Galbraith was historically wrong.

    So I'm not sure what is your point here.
     
  3. a better world

    a better world Well-Known Member

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    Mosler: "We all know how data entry works, but somehow this has gotten turned upside down and backwards by our politicians, media, and, most all, the prominent mainstream economists. Just keep this in mind as a starting point: The federal government doesn’t ever “have” or “not have” any dollars.

    Education...but I am aware of the task, as forewarned by no less than Keynes:

    As Keynes wrote, "[Lerner's] argument is impeccable, but heaven help anyone who tries [to] put it across to the plain man at this stage of the evolution of our ideas." (Keynes to Meade, April 1943).

    Historical background: Mosler (and MMT) is a follower of Lerner's 'functional finance' concept.

    Functional finance is an economic theory proposed by Abba P. Lerner (in the early 1940's), based on effective demand principles and chartalism. It states that government should finance itself to meet explicit goals, such as taming the business cycle, achieving full employment, ensuring growth, and low inflation.

    Keynes became interested in Lerner's ideas, 8 years after Keynes' own Magnum Opus appeared in 1935: "General Theory of Employment, Interest and Money". Keynes (unlike Lerner) was still influenced by certain classical economic dictums at that time.


    But as Mosler stated above: "somehow this has gotten turned upside down and backwards by our politicians, media, and, most all, the prominent mainstream economists"

    Knowledge of truth is necesary to succeed, in economics as in any field of human endeavour.
    (That you yourself might be doing well, is not a satisfactory measure of "success" in the macroeconomy...).
     
    Last edited: Mar 12, 2020
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  4. Bluesguy

    Bluesguy Well-Known Member Donor

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    So I'm not sure what is your point here.
    Well go teach a class, I've read Keynes. Got lots of issues I'm discussing.
     
  5. squidward

    squidward Banned

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    100% false.
     
  6. a better world

    a better world Well-Known Member

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    Bear in mind Keynes' starting point was classical economics which had shown itself to be spectacularly erroneous in the Great Depression.

    So his acquaintance with Lerner in the 40's was very significant for the development of Keynes' ideas.

    And near the end of his life (1944) Keynes proposed his visionary "clearing union" to which all nations would belong post WW2.
    The US rejected it.....
     
  7. Lil Mike

    Lil Mike Well-Known Member

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    MMT again? Why do the worse ideas have such staying power?
     
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  8. a better world

    a better world Well-Known Member

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    As Keynes wrote, "[Lerner's] argument is impeccable, but heaven help anyone who tries [to] put it across to the plain man at this stage of the evolution of our ideas." (Keynes to Meade, April 1943).

    But I'll give it a go:

    (with acknowledgements to Stephanie Kelton).

    The beaver wants to build a dam. So he goes to River Bank Co. to borrow the money to build the dam (……..).

    Wrong; in fact he goes to the river bank to collect the materials to build the dam.

    Likewise, the currency-issuing government can purchase whatever resources are available for sale in the economy.

    IOW, The federal government does NOT need to tax or borrow to spend.

    https://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

    "Question: If the government doesn’t tax because it needs the money to spend, why tax at all?

    Answer: The federal government taxes to regulate what economists call “aggregate demand” which is a fancy word for “spending power.” In short, that means that if the economy is “too hot,” then raising taxes will cool it down, and if it’s “too cold,” likewise, cutting taxes will warm it up. Taxes aren’t about government getting money to spend, they are about regulating our (private sector) spending power to make sure we don’t have too much and cause inflation, or too little which causes unemployment and recessions".
     
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  9. a better world

    a better world Well-Known Member

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    Whether an idea has staying power or not is independent of the idea's relation to reality.

    However, when retiring ECB chief Mario Draghi (who is a better economist than you .....) says (as reported in a recent Bloomberg article): "We should be looking at new ideas like MMT", then maybe MMT is on the reality side of the ledger of ideas....
     
    Last edited: Mar 12, 2020
  10. squidward

    squidward Banned

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    now address the "government issues currency" part.
    100% false.
     
  11. a better world

    a better world Well-Known Member

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    Mosler: "7 Deadly Innocent Frauds of Economic Theory" (pg.16)

    "The Chairman of the Federal Reserve Bank is telling us in plain English that they give out money (spend and lend) simply by changing numbers in bank accounts. There is no such thing as having to “get” taxes (or borrow) to make a spreadsheet entry that we call “government spending.” Computer data doesn’t come from anywhere. Everyone knows that!
    Where else do we see this happen? Your team kicks a field goal and on the scoreboard, the score changes from, say, 7 points to 10 points. Does anyone wonder where the stadium got those three points? Of course not!


    We all know how data entry works, but somehow this has gotten turned upside down and backwards by our politicians, media, and, most all, the prominent mainstream economists. Just keep this in mind as a starting point: The federal government doesn’t ever “have” or “not have” any dollars. It’s just like the stadium, which doesn’t “have” or “not have” a hoard of points to give out. When it comes to the dollar, our government, working through its Federal agencies, the Federal Reserve Bank and the U.S. Treasury Department, is the score keeper. (And it also makes the rules!)

    You now have the operational answer to the question: “How are we going to pay for it?” And the answer is: the same way government pays for anything, it changes the numbers in our bank accounts. The federal government isn’t going to “run out of money,” as our President has mistakenly repeated. There is no such thing".
    ……..

    So the real question is: what is the limit to how much money the government can issue (ie create in bank deposits...).

    Answer: the constraint is the availability of real resources including labour that are available for purchase in the economy.
    (So we are back to the example of the beaver collecting real resources...)
     
  12. squidward

    squidward Banned

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    When you gonna get to the government issues currency part?
    You failed again
     
  13. a better world

    a better world Well-Known Member

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    "The Chairman of the Federal Reserve Bank is telling us in plain English that they give out money (spend and lend) simply by changing numbers in bank accounts. There is no such thing as having to “get” taxes (or borrow) to make a spreadsheet entry that we call “government spending.” Computer data doesn’t come from anywhere.

    Now, whether you can understand plain english is another thing altogether...though perhaps I need to take a step back....

    Think: money is created by commercial banks when they write loans - create deposits - for credit worthy customers.

    OTOH, The central bank (+ treasury) has the same capacity to create deposits (via its currency issuing power)....without the requirement for "credit worthy customers", but rather the availability of real resources for purchase in the economy.....spot the difference?.
     
    Last edited: Mar 12, 2020
  14. squidward

    squidward Banned

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    the FED is not the government.
    It's member bank primary dealers make a tidy sum when they sell the bonds to each other.
    Then the FED buys them, sometimes only days old. The member banks keep the commissions and the FED holds the bonds.
     
  15. a better world

    a better world Well-Known Member

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    Agreed, the FED is not the government, but the treasury + central bank (aka consolidated government sector) ARE agencies of the sovereign currency-issuing government.

    How government chooses to use its agencies is an open question...hence my original proposition:
    MMT: overcoming the Left-Right divide
    ....
     
    Last edited: Mar 12, 2020
  16. squidward

    squidward Banned

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    It is not an agency of the government.
     
  17. a better world

    a better world Well-Known Member

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    Some nuance please....?

    To ensure the stability of a country's currency, the central bank should be the regulator and authority in the banking and monetary systems. Contemporary central banks are government-owned, but separate from their country's ministry or department of finance. Jun 25, 2019.

    MMT in fact incorporates the central bank and treasury into the "consolidated government sector".

    ………...

    Once upon a time, full employment - not the misleading figure bandied about these days - was regarded as the chief mandate of central banks.

    https://www.bloomberg.com/news/arti...s-to-nail-down-the-meaning-of-full-employment

    "Even the Fed Struggles to Nail Down the Meaning of ‘Full Employment". Jan.2020

    The term “full employment” had intensely political implications from its inception in the depths of the Great Depression. It was more than just a single number estimated under scientific pretenses by central bank technocrats.

    In the late 1930s, British economist John Maynard Keynes upended the then-prevailing idea that free markets would automatically provide sufficient jobs for everyone who wanted one. William Beveridge, who’s often described as the father of the U.K.’s modern welfare state, elaborated on Keynes’s ideas in a 1944 book titled Full Employment in a Free Society......

    In Beveridge’s conception, the responsibility for ensuring this blissful state fell not to the private sector, but to the government. His argument found a receptive audience among voters in the U.S., amid widespread fears that the end of World War II would see a return to Depression-era levels of unemployment. ........

    FDR won in a landslide, and the following year Democrats in Congress introduced legislation that would solidify that commitment in law. However, Republicans and Southern Democrats balked at institutionalizing a role for government as employer of last resort*, according to Stephen K. Bailey, whose 1950 book on the subject remains the definitive account, and pushed for the words “full employment” to be excised from the bill and replaced with “maximum employment,” subject to the “preservation of purchasing power.” And so the Full Employment Bill of 1945 became merely the Employment Act of 1946.......

    capice? ....

    MMT reintroduces that Job Guarantee.

    *As to why ideology gets in the way of economic justice.....

    After all, if government does not need to tax (or borrow) in order to spend, what's the problem?
     
    Last edited: Mar 13, 2020
  18. squidward

    squidward Banned

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    It is neither owned by nor an agency of our government.
     
    Last edited: Mar 13, 2020
  19. Lil Mike

    Lil Mike Well-Known Member

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    Well you are quite right about that!

    My few courses of economics in college doesn't grant me the "economist" title. So I won't try to claim otherwise. However if the theory is valid, which country has successfully implemented it with no bad effects? Where has it been tested?
     
  20. Reiver

    Reiver Well-Known Member

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    Please reference your 'best' critique. Your choice will be interesting (Hint: don't go for something low powered like a fake libertarian site run by big business).
     
  21. Bluesguy

    Bluesguy Well-Known Member Donor

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    I said I can as you well know that are articles both in support and critical of him, I don't really have an interest nor the time to get into a academic debate over his economic theories. Too many other topics of more importance.
     
  22. Reiver

    Reiver Well-Known Member

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    i.e. You can't find a credible source, despite pretending otherwise. That is rather pathetic.
     
  23. Bluesguy

    Bluesguy Well-Known Member Donor

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    I are you denying that is an abundance of articles from some of the best economist that contradict Galbraith?
     
  24. Reiver

    Reiver Well-Known Member

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    I'm saying the obvious: you made a claim and you can't defend it without highlighting that your sources are crap.
     
  25. a better world

    a better world Well-Known Member

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    But those arrangements can be changed by Congress. That's why I highlighted how close congress came to implementing a full employment policy, rather than a "maximum employment policy", in 1946.

    However: (more nuance please…..)

    https://www.stlouisfed.org/in-plain-english/who-owns-the-federal-reserve-banks

    The Federal Reserve Banks are not a part of the federal government, but they exist because of an act of Congress. Their purpose is to serve the public. So is the Fed private or public?

    The answer is both.
    While the Board of Governors is an independent government agency, the Federal Reserve Banks are set up like private corporations. Member banks hold stock in the Federal Reserve Banks and earn dividends. Holding this stock does not carry with it the control and financial interest given to holders of common stock in for-profit organizations.

    ......

    I read this today:

    http://bilbo.economicoutlook.net/bl...paign=Feed:+economicoutlook/FYvo+(billy+blog)

    The coronavirus will redefine what currency-issuing governments can do – finally

    And, more significantly, the ideologues are giving way to the pragmatists in the policy space. Almost (see below). The sudden realisation that even Germany will now spend large amounts to protect their economy exposes all the lies that have been used in the past (up until about yesterday) to stop governments doing what they should always do – maintain spending levels in the economy to sustain full employment and ensure no-one falls through the cracks and misses out on the material benefits of growth.


    And the US? A cool $1T(?) is already promised to tide people over who cannot work (= no income) for whatever reason, as the pandemic develops.
    As Bill says, the falsehood that currency issuing governments have to tax in order to spend will likely be exposed for all to see, when governments do what they must, to keep millions of displaced workers afloat.

    And you would think that Powell would understand by now he's only pushing on a string by lowering interest rates.
     

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