MMT: overcoming the political divide.

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

  1. Lil Mike

    Lil Mike Well-Known Member

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    There was an old socialist movement that was popular in the thirties called Social Credit. It's theory is that there is a surplus that can be paid out to people as universal income. It's more or less faded away but these ideas do come back with every generation that thinks, "Man it's so simple, just print enough money for everyone!"

    I'm all for experimenting with this stuff to gather data, but just not in my country.
     
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  2. Zorro

    Zorro Well-Known Member

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    Agreed. Like when someone is telling me how "profitable" it would be to do this or that with government money. I tell them to go recruit venture capital and do it! But of course, they want the coercive power of the State to force their product or service on us.

    No thanks!
     
    Last edited: Apr 11, 2020
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  3. a better world

    a better world Well-Known Member

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    https://www.theguardian.com/comment...view-on-the-covid-19-fight-it-can-be-paid-for

    The Guardian usually don't have a clue about MMT, but at last this article in the Guardian UK gives a correct account -
    and a positive appraisal.

    The Guardian view on the Covid-19 fight: it can be paid for

    Editorial

    The Bank of England is right to step in to fund the Treasury’s coronavirus stimulus package, because there are more important things to worry about than government debt.

    When the Bank of England’s new governor, Andrew Bailey, was appointed in December, this column asked him to “leave behind orthodox thinking” and embrace radical ideas. We advocated that the Bank defy conventional Treasury wisdom to deal with coming crises of the modern age by funding any required government stimulus. This paper can claim no special foresight of the coronavirus pandemic, but it is encouraging that Mr Bailey has largely taken our advice.


    What the governor’s action reveals is that one arm of government, the central bank, is funding another, the Treasury. This is not novel. Monetary financing is functionally equivalent to issuing bonds and then buying them back using quantitative easing. The only difference is that the bank owns the balance rather than the bonds. Yet the rubicon has been crossed, again. The governor would not say so – because this is not what respectable central bankers admit. (my emphasis)

    The moral framework we must adopt with the pathogen is that we should do whatever it takes without considering the cost. This is not the time to fret about a pile of government IOUs.

    The truth is that most of the state debt we owe to each other (my comment: I have to think about that, but it's related to money being government-issued IOU's), and we have the capability to meet obligations denominated in pound sterling (my comment: because the treasury is the sole agency that can issue the currency, in this case British pound sterling). Policymakers have long been concerned that if the public understood this then they might ask awkward questions such as: if we could do this to deal with the coronavirus crisis, why can’t we do the same with the climate crisis? The Treasury’s traditional rebuttal is that “monetising the deficit” is more inflationary than selling government bonds to the private sector.

    Yet inflation is sparked when nominal spending outpaces the real capacity of the economy to produce goods and services. There’s no sign this is a problem today. This is well understood by figures like Charlie Bean, (my comment: of course that's his name......…) a former deputy Bank governor, and explains why he has thrown his weight behind BoE financing.

    It was Abba Lerner, a contemporary and associate of Keynes, who in the 1940s decried arbitrary government deficit and debt ratios as an inappropriate focus of economic policy. He also demonstrated that deficits do not need to be fully funded through bond sales. His modern-day adherents have done the world a favour by exposing such follies. Randall Wray, an academic whose modern monetary theory owes much to Lerner, writes that it is ironic that “the real limits faced by the government before the pandemic hit were far less constraining than the limits faced after the virus had brought a huge part of our productive capacity to a halt”. What is possible in dealing with coronavirus can be paid for. Money is not the issue. (end)

    At last: an accurate depiction of MMT in the MSM, in the last paragraph above.

    Covid-19 is working wonders......
     
  4. a better world

    a better world Well-Known Member

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    Normally the first objection to the idea that sovereign currency-issuing governments can issue their own currency to pay for specific programs, is: "Won't that be inflationary?"

    The solution to that question is given in a consideration of the nation's productive capacity, which I have fully explained in my reply (#219) to kazenatsu's post #212, and which is again given in the Guardian article quoted in the post above: "Yet inflation is sparked when nominal spending outpaces the real capacity of the economy to produce goods and services. There’s no sign this is a problem today".

    Assuming you understand this much, I will address your post, which seems to be approaching the question not from an economic stance but a political one.

    Nobody is telling you that. Let's set the basics.

    1. Money is a measuring device, sometimes referred to as a government issued IOUs.

    2. It is created "ex nihilo" either by government issue, or by deposit creation in private banks (when they create deposits for credit-worthy customers. Note: the bank manager does not duck around the back to see if he has enough customer deposits as reserves, before he writes the loan!).

    3. Government issued money has no more potential to create inflation than money created in private banks, ie, ALL spending is potentially inflationary; but see the bolded sentence above.

    Now to your post: profit is sought through producing desirable goods and services. Well and good, except that competitive free markets never achieve real, above poverty full employment, and 'market failure' is a real occurrence.

    Hence we need government involvement in "invisible hand" free markets, to maximise the efficient, sustainable use of the nations resources and productive capacity, on behalf of all citizens.
    (as prof. Harvey says in the link below: " We have the ability to produce goods and services on a level never before seen by human society. There is no logical reason anyone (e.g., the unemployed) should have to go without. It is immoral).

    https://www.forbes.com/sites/johntharvey/2019/03/05/mmt-sense-or-nonsense/#275cb7805852

    The tradgedy is you are insisting the power to create money be reserved for wealthy financiers and kept out of the hands of elected governments, as noted in the Guardian article above:

    Policymakers have long been concerned that if the public understood this then they might ask awkward questions such as: if we could do this (ie issue government money rather than government forced to borrow it) to deal with the coronavirus crisis, why can’t we do the same with the climate crisis? The Treasury’s traditional rebuttal is that “monetising the deficit” is more inflationary than selling government bonds to the private sector.
    "Yet inflation is sparked when nominal spending outpaces the real capacity of the economy to produce goods and services. There’s no sign this is a problem today".










     
    Last edited: Apr 11, 2020
  5. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    You don't define "real capacity" very well for us to have any understanding how this really ties in to MMT.

    Please answer the question: Why would more money cause production levels to increase and come closer to a theoretical "capacity" value?

    Yes, we know more money increases "demand", but it depends particularly on how you define "demand".
    Please explain why it would create more inflation-adjusted demand (or demand that outpaces the inflation rate).
     
    Last edited: Apr 11, 2020
  6. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    That's where you'd be sort of mistaken.

    Money "created" by private banks is backed by mortgages. People need to get back money to pay off their mortgages so the bank doesn't foreclose and take it back.

    Paper dollars are backed by something too (in some sense) since they are Federal Reserve Bank notes. If you are aware of what the Fed's Reserve Assets on their balance sheet are for. However, the backing is not as direct (it's a little bit more complicated to get into here).

    As long as money is backed by something, theoretically more can be added into the system without causing inflation. (The issue with the Central Bank arises when the increase in reserve assets is not in proportion to the increase in money issued, when the bank overpays for something, or buys something when nobody else would)

    But getting back to private banks, fractional reserve banking is not inflationary.

    The big exception to that is when there's a Housing Bubble, the mortgages are overvalued, and eventually many of those loans are going to go bad.
    Because that basically signals that people thought there was going to be real dollars headed their way, when there actually was not going to be.

    I think there's some old thread on this discussion somewhere:
    Does a change in the money supply affect inflation?
     
    Last edited: Apr 11, 2020
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  7. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Is this really true??
    Do people want more money as much when there is more of it?

    I think maybe you need to deeply think about this and reexamine it.

    If I have a factory producing 100 widgets a day, I am not going to expand production to 200 widgets just because customers are willing to throw twice as much money at me, when there is twice as much money being thrown around everywhere else.

    If I do start expanding production, it is because I have been ripped off. I have sold things before I realized there was inflation, or was going to be inflation. You've basically tricked me into selling widgets at half price.

    You might describe 200 widgets as your theoretical "capacity".
    But why wasn't I operating at "full capacity" before, hmm?
     
    Last edited: Apr 11, 2020
  8. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    But if you throw out money without getting it back, it causes inflation.
     
  9. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    That basically sounds like slavery for the masses. You realize that the more money that's in these bank accounts, the more taxes are going to be, and government is pulling more resources out of the economy.
     
  10. a better world

    a better world Well-Known Member

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    [I replied to your post #227 first, so you will have an understanding of the issues re economic theory behind MMT. Now I'll address this present post].

    Indeed: "the inability to get Congress to obey our will" IS a problem, but the Federal debt/deficit is NOT necessarily a problem.

    No, it actually enables it; in MMT the Fed and treasury can be instructed to follow policies of elected governments (eg maintenance of real full employment at above poverty minimum wage).

    Whereas at present the Fed claims independence from the legislature - as demonstrated by Trump's annoyance with Powell for refusing to lower interest rates to zero or below(!), before the pandemic hit, when a possible recession that seemed to be on the horizon might have threatened Trump's chances of re-election...

    Glad to see you have understood that part of my plan - and the BIS, hardly a 'socialist' organisation!! - for transition from the filthy fossil industry.

    Re "out-bidding everyone else": well of course the transition will never occur if left to the market, because building the pumped hydro storage will not provide a return on investment, since the product of the investment will lead to zero marginal cost electricity!

    You seem to be describing what happened in Russia, after the collapse of communism...just replace "Government that then idles it" with "private entrepreneurs"....

    No-one is interested In buying Facebook; I for one hardly ever use it. But I admit, I would like the government to buy the fossil fuel industry....

    So your slippery slope argument is false. I'm not interested in face book, coca cola, big grog, or any other crap profit-driven companies that excite your imagination.

    Well I have addressed this fully, in the previous post to you. Unfortunately, we cannot "do whatever the hell we want" but we CAN manage our resources and productive capacity, to maximise the sustainable, continuous improvement in levels of prosperity for ALL.

    Seen on TV last night: a relief worker in New York delivering food aid in poor districts, who said: "What you are now seeing is the result of failure to address poverty, generation after generation".

    We the people have a right to expect better, on behalf of our freedom and liberty.
     
    Last edited: Apr 11, 2020
  11. a better world

    a better world Well-Known Member

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    Can you please reply to my post # 219, in which I have answered this... and your following 4 posts as well....
     
    Last edited: Apr 11, 2020
  12. a better world

    a better world Well-Known Member

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    kazenatsu: Here is post # 219 again, with your questions answered:

    kaz. How do you define "full capacity".

    My answer: Definition of full capacity: All the nation's resources including labour are continuously and sustainably employed to maximise production of wanted goods and services.

    Note: a public sector is required to operate alongside the private sector to realise this outcome, because "invisble hand" markets are subject to destructive, as well as creative, competitive forces. Hence the term 'market failure'.

    kaz: I feel you have still not adequately explained yourself. Why do you think more money will allow an economy to reach closer to full capacity?

    My answer: More money available to be spent BY GOVERNMENT will take up the slack left by the private sector which never achieves real full employment. (involuntary U6 + those who have given up looking for work, eg in the US, this never got below c.10% after the GFC.).

    kaz: Why do you feel this additional money will not have an inflationary effect that will, alternatively on the other hand, reduce production?

    My answer: Because I don't accept the absurd quantity theory of money. Utilisation of unused resources including labour by means of government spending, to take up private sector un-employment and resource-use (capacity) slack, will not cause inflation if the economy can absorb the extra spending, ie if the economy has the productive capacity to increase output of goods and services the public want to buy (including eg 'free' tertiary education for those with the capacity to benefit from it).

    [In this post, let's leave aside the issue of reduced production (of non-essentials) during the enforced pandemic shutdown]

    kaz: I want you to think about this, because you have still not explained this very well.

    See above: you have previously claimed "money has to come from somewhere". I'm telling you money is created 'ex nihilo' , whether by government issue, or by deposit creation in private banks (when credit worthy customers are granted loans by the bank manager).

    kaz: I'm trying to follow your argument, but a lot of it seems circular, and doesn't really seem to end up anywhere.

    My answer: Maybe we have to look more closely at this issue of money created 'ex nihilo'?

    kaz: And then you make many claims, with explanations that do not really explain the heading.

    My answer: Yes, I can see the problem if you don't grasp the basic issue of what money is (it's a measuring device) and how it is created (it's created ex nihilo).

    Understand that, and then you will see that resource management, not money management* is the key to prosperity.

    * meaning money management by government, on behalf of the community; OTOH, the key concern for private citizens IS the management of their OWN money, since they cannot legally issue their own money.

    It's incredibly important that you do understand this. Neoliberal monetarism is loved by the rich of course, because - as we have seen over the last 5 decades - it shovels more and more money to the top. MMT would return power to the people through their elected government, so that government can oversee and promote resource utilisation for the benefit of all, not just the rich.
     
    Last edited: Apr 12, 2020
  13. a better world

    a better world Well-Known Member

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    You may not have a choice, if attempts to exit the lockdown cause a re-emergence of the virus.

    Then you will see just how fragile market economies really are - with large segments of the workforce engaged in insecure, low-paid employment in the best of times.

    You better hope to hell we get that vaccine sooner rather than later....

    In the meantime, this thread explains how nations can avoid an economic - and social - catastrophe, should the pandemic persist longer than you want it to...
     
    Last edited: Apr 12, 2020
  14. Lil Mike

    Lil Mike Well-Known Member

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    Hmm no. Nothing you've written here would do that, although I don't doubt that you think that's the case.
     
  15. a better world

    a better world Well-Known Member

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    ….just as, eg, if the climate scientists are correct, you'd still say we can't 'afford' to save the planet...
     
  16. Lil Mike

    Lil Mike Well-Known Member

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    The world's GDP is a bit more than 80 trillion dollars. So it's entirely possible that a figure to "save" the planet could be more than we could afford, even if we starved every person on the planet to do it.
     
  17. a better world

    a better world Well-Known Member

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    But that's the entire point of this thread, which you didn't get the first time.

    It's not MONEY that is required "to save the planet" (eg, if the climate scientists are correct), but REAL RESOURCES (+ knowhow + labour).

    We can continue to produce the food, AND transit to a clean green economy because we have the RESOURCES to do so.

    [Remember the beaver who wanted to build a dam? He doesn't need to go to River Bank Inc. to borrow money beforehand].

    That's why the BIS said (at Davos recently) :"central banks might have to buy the fossil fuel industry"....because central banks CAN buy it, using their currency issuing capacity. MONEY is not the problem.
     
    Last edited: Apr 12, 2020
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  18. Lil Mike

    Lil Mike Well-Known Member

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    So you think those resources are undervalued and there is really a couple of hundred trillion dollars worth of resources in the economy that no one is counting?
     
  19. Reiver

    Reiver Well-Known Member

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    Any relevant green deal would necessarily engineer innovation. It would also eliminate the rent seeking holding the economy back. It is a shame, mind you, that right wingers aren't able to hear beyond their baa
     
  20. Lil Mike

    Lil Mike Well-Known Member

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    It's true.

    They can't hear beyond their baa.
     
  21. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    But the question is how does throwing out more money result in the more efficient use of those resources?
     
  22. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    We already have publicly funded universities to research innovation.

    Why not just throw up a carbon tax and let the free market handle the innovation?
     
  23. Reiver

    Reiver Well-Known Member

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    There is no such thing as the free market. Try again. This time make it coherent? Perhaps refer to how the US has required its military sector for spin-off technologies as the private sector chugs?
     
  24. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    You're really good at deflecting from the main point and nitpicking, aren't you?

    I've noticed how you seem to avoid addressing issues that way.
     
    Last edited: Apr 13, 2020
  25. Reiver

    Reiver Well-Known Member

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    You said something quite silly. And that's my fault?
     

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