The pros and cons of MMT

Authored by Michael Every via Rabobank.

Mmm…MT

For those who haven’t noticed, there has been a lot of discussion about Modern Monetary Theory (MMT) in the press of late.

Clearly MMT, which has actually been around for decades, is currently a hot topic at the highest levels. However, even a cursory glance above shows that it is not something there is any agreement over. By contrast, it’s divisive and very controversial.

One can also see that public interest in MMT is spiking too. Google Trends interest over time in “Modern Monetary Theory” has shot up since the end of 2018 (see Figure 1) despite it being an obscure, dry, theoretical–and yet controversial– economic-policy framework.

That is arguably the case in the US because MMT is now politically linked to US Democratic Congresswoman Alexandria Ocasio-Cortez’s “Green New Deal”, with its multi-trillion USD price-tag and radically transformative agenda.

But what is MMT?

We can agree interest in MMT is picking up, and not everyone likes it, but what exactly is it?

The answer is complicated as there is no central MMT textbook. Neither is it an accepted school of thought within market economics, or in orthodox economics departments at universities. As such, most working economists have only a passing familiarity with the name at best, and there is misunderstanding about what MMT does and doesn’t actually encompass.

So let’s start with some basics of what MMT believes before proceeding any further. As we shall see, the premises of MMT are very simple – but the implications for policy and for markets are staggering.

Don’t tax, but spend

Fundamentally. MMT argues the following three things:

  • Sovereign currency-issuing governments, such as the US, are financially unconstrained;
  • Taxes are not needed to finance government spending; and
  • The role of taxes is to drain money out of the economy after the government has spent it in order to manage aggregate demand and keep it in line with available supply of resources.

In short, MMT argues the government can finance any budget deficit by de facto monetization and hence has no monetary limits. That might sound ridiculous in Eurozone countries because they no longer have monetary sovereignty. However, technically this is true for economies that control their own currency. Their governments do not need to raise taxes before spending: they spend first and then tax. Moreover, such governments can provide an unlimited stock of their own currency, if needed.

For example, if a major war were to break out tomorrow, governments would immediately run very large budget deficits without worrying about how to finance them via taxation first. History shows this to be the case. So the issue is then political: what constitutes an emergency that society should focus its resources on?

Following on, if taxation is not required to finance state spending then tax is a quasi-hydraulic act to drain liquidity similar to central-bank Open Market Operations. Indeed, MMT argues that tax that is thus drained is effectively ‘destroyed’ rather than being saved, as is the case when liquidity injections are returned to the central bank via quantitative tightening (QT) after quantitative easing (QE). (Note after injecting trillions of USD into markets, the Fed’s QT is proving impossible to sustain for exactly that reason.)

From a sectoral balances perspective Godley (2005) also shows a public deficit allows the private sector to run an off-setting surplus; conversely, public austerity means the private sector must borrow. Given the public sector can monetize its debts and the private sector can’t, MMT says governments should deficit spend. (Though there is also an international dimension to this we will touch on ahead.)

Of course, this is highly controversial in an age defined by worries over high public debt levels and a push for ‘prudence’ and austerity; and readers who pay taxes will not be happy with the idea that these are destroyed rather than spent!

ProbleMMs?

So is MMT a “magic money tree”? No. MMT is more nuanced than that. For example, it recognizes that there are indeed limitations to what a government can do fiscally.

Primary is a real resource constraint: if there is no spare capacity in the economy, or the materials the government wishes to procure do not exist, fiscal sovereignty is an illusion. A poor country with no natural resources or industry and with an uneducated population cannot simply print money to build infrastructure or good universities. However, if a developed economy is suffering from high unemployment and/or a low level of capacity utilisation the same argument clearly does not apply.

MMT also recognises there is another limit to the government’s ability to finance itself: inflation. MMT fully recognises inflation is not desirable above a certain level and once self-financed fiscal stimulus exceeds what the real economy can supply such spending would have to be cut back to avoid damaging wage-price spirals – or taxation would have to increase.

Even so, from a traditional economic point of view there are still many obvious criticisms of MMT.

First, is the argument that governments cannot create money because true money is exogenous: the public being able to conjure up money is ‘voodoo’. Anyone believing there is no such thing as a free lunch has a powerful gut reaction to MMT.

Money for nothing?

Although we use the word ‘Modern’ in MMT, this is a very old debate. Plato argued money was a representation of value rather than real, while Aristotle countered money should be a real commodity itself. In our age of fiat currencies, credit cards, and now digital currencies, economics textbooks still teach the history of money as being barter > gold > credit. In other words, we are Platonic but like to think we are still Aristotelian.

By contrast, MMT is based on chartalists such as Knapp (1925), Lerner (1943), who argue money is always a political construct. Polanyi (1944) and Graeber (2011) also demonstrate the actual historical record of money is chartalist: there was never a transition barter > gold > credit; with the exception of the gold standard (18151931) the norm across human societies has been to start with local credit, rarely repaid, in order to keep the economy moving. That is a tradition which MMT builds on.

That is also a red pill/blue pill moment for many!

More ProbleMMs

Second is the argument that MMT is simply “Keynesian” fiscal stimulus via bond issuance renamed, already a well-established theory even if has become politically unacceptable in many countries obsessed with austerity. However, the ‘taxation is not needed’ argument takes us well beyond simple Keynesian fiscal multipliers.

MMT notably also does not believe in the ‘loanable funds’ view that bank loans require savings first, and that banks intermediate between savers and borrowers rather than creating money (in the form of debt) when they make loans de novo. Notably, while economics textbooks still teach loanable funds, the Bank of England admits this is not how money creation and banking operates – it is de novo; MMT then posits the government has greater powers of money creation than banks in this regard given public liquidity does not require a liability to be created at the same time. If a bond is issued under Keynesian theory then a liability and an asset are created; but that bond can be bought by the central bank with electronically ‘printed’ money and the liability de facto removed under MMT. Just think of the trillions of USD of QE injected by central banks, which is now NOT to be reversed by QT.

Yet that leads to the third criticism, the government is not the actor that would finance itself: that role falls to the central bank. Naturally, central bank independence would have to end under MMT. While a dual inflation and fullemployment mandate already exists at key central banks such as the Fed, and inflation-targeting might still be built into a new MMT policy framework, clearly the central bank would be primarily focused on aggregate demand by providing blank cheques to government spending, not CPI.

Fourth, and a crucial corollary, interest rates become largely irrelevant under MMT. The cost of money would not matter as much as the quantity of money (i.e., the supply of funds into the real economy fiscally). Indeed, MMT suggests that interest rates should be set to zero. If not, mixed fiscal-monetary targets would prove confusing.

Yet a fifth issue then emerges: how would the government yield curve respond under MMT? The curve would start very low and flat. However, what if MMT succeeds in achieving inflation? Bond yields would rise – and could the government then cover higher debt-servicing costs if the resources/inflation threshold has been successfully breached, meaning MMT must be ‘turned off’? If so, the economy would lurch back into recession again – necessitating more MMT!

And MMore ProbleMMs

Or would we instead need to see bond yields capped – as in Japan today under their policy of Yield Curve Control (YCC)? If so, that would likely destroy a real market for benchmark government bonds.

Of course, the government yield curve is not the only one that matters. How would the corporate bond market respond to this kind of MMT environment? Would the state have to step in and cap private-sector bond yields too? And what about asset prices such as property? What would be done there?

There are also other issues. Consider that a key part of MMT is a commonly-linked policy of funds being used for a public Employer of Last Resort or Jobs Guarantee programme to generate non-inflationary full employment. That is certainly part of the proposed US Green New Deal, for example.

The issues here should be obvious. While the Phillips curve is broken under our present global model that strengthens capital vis-à-vis labour bargaining power, under MMT it would rapidly return. Wage inflation would then rise again – and all of the interest rate/yield curve issues mentioned above would arise with it.

At the same time, as the government plays a larger role in the economy, as in the proposed Green New Deal, it risks genuinely crowding out the private sector, not from a financing perspective but in physical terms. Even if the state is merely financing private firms to do the required work, in infrastructure, for example, elements of political direction would no doubt still occur over time.

Clearly, the overarching question that needs to be answered is what kind of institutional architecture can be created for MMT to work through the economic cycle without warping markets (further than QE already has)? How can one ensure that fiscal taps are turned off once inflation appears, and that the state does not distort both the real economy and financial markets? Fiscal policy has far longer lag times than interest rates, for example: would it really be more efficient to build half a bridge and then stop because inflation rose too fast?

In short, this would require an entirely new political economy that remains elusive in its definition if not in its ambition: that has been clear since Lerner (1943) and Kalecki (1943). Yet as shown, that utopian new institutional framework could produce its own instability even as it cures our present New Normal.

Zero rates, zero alternatives?

While this is a strong theoretical rebuttal of MMT, interest rates in Japan and Europe are nonetheless already negative, and in other economies the drift towards ‘Japan-ification’ seems inexorable. In short, we seem to be heading in the direction for an MMT starting base (zero rates) whether we like it or not. Once the US Fed starts cutting interest rates again, that dynamic will become even more obvious. This is no surprise to MMT: Kalecki (1943) recognised giving capital too much power relative to labour would ultimately lead to such outcomes decades ago.

For MMT sceptics consider that the BoJ, despite its denials of using such a policy, already holds around 43% of the JGB market and effectively finances Japan’s permanent, large fiscal deficits. Likewise, the Chinese economy is a quasi-MMT experiment given its quantitynot-price fiscal-monetary policy mix has been responsible for much of its growth since 2008 (e.g., Chinese total social financing was 9% of GDP in Q1 2019).

At the same time, there is a broadening consensus that even extraordinary central-bank monetary policy has done all it can do and more fiscal measures will be required going forwards.

In turn, that is linked to growing concern that our current socio-economic paradigm is unsustainable. Such a pessimistic view was also stated at Davos in January; hedge-fund manager Ray Dalio has argued US capitalism is structurally broken and its wealth and income inequality is a “national emergency”; and the OECD states “Today the middle class looks increasingly like a boat in rocky waters. Governments must listen to people’s concerns and protect and promote middle class living standards,” arguing in favour of significant fiscal expansion despite zero rates and high debt levels.

The IMF’s latest Global Economic Outlook also posits “This is a delicate moment for the global economy. If…any of the major risks materialize…policymakers will need to adjust. Depending on circumstances, this may require synchronized though country-specific fiscal stimulus across economies, complemented by accommodative monetary policy.”

In short, all these paths seem to lead us back towards MMT one way or another, politically, even if there is a refusal to accept the broader implications and assumptions of that framework.

Yes, but (and it’s a big but)

Of course, there is one other huge issue to address: external restraints.

If we were to see a larger MMT-financed public-sector deficit this would suggest that there will be a current account deficit too. That is because of the following known identity: Current account balance = Public-sector balance + Private-sector balance.

It is possible a large public-sector deficit could see the private sector run an offsetting surplus as profits and wages rise rapidly – as MMT sectoral balances imply. However, at the microeconomic level that implies the need for protectionist policies to keep the benefits of extra domestic liquidity at home, e.g., tariffs, subsidies, or non-tariff barriers – just as we see in China today. Without that, MMT leans towards larger current-account deficits.

Crucially, current-account deficits represent the kind of resource constraint that limits MMT. The US, with its “exorbitant privilege” of the USD as global reserve currency, would be able to use MMT to expand its fiscal deficit: it can borrow in its own currency; and MMT would see it importing more from other countries who would need to hold USD reserves as a result.

Yet smaller economies/emerging markets could not use MMT without being punished by financial markets. Their current-account deficits would have to covered with foreign borrowing, and the more MMT they used, the more their currency would weaken. Recent volatility in the Turkish currency after a period of fiscal stimulus and external borrowing, absent MMT, shows the dangers.

Crucially, the only way to avoid such risks would be to run a private-sector surplus resulting in a currentaccount surplus. Consequently, in a global downturn requiring MMT smaller economies would have to choose between no MMT; using MMT and protectionism; or coming under the wing of currency blocks who can run MMT. Notably, that was a development we saw in the 1930s when global trade fragmented into gold, Sterling, Nazi, Communist, and Yen blocks.

As such, MMT appears to offer a painless way to address inequality within the US economy, but it could reinforce an international pecking-order of winners and losers, worsen global inequality, and break-up global trade.

Indeed, MMT could even cause the USD to lose its “privilege” over time, which would again risk fragmenting global markets. That is unlikely, at least near-term given the lack of any credible USD alternatives, but it remains a longer-term risk one cannot ignore lightly.

Conclusion

Like it or not, after decades in obscurity MMT is now is now being openly discussed –and dismissed– in high policy circles. Yet many would argue that MMT’s eventual introduction in some form is inevitable given other economic alternatives appear to have failed. As Gandhi said: “First they ignore you. Then they laugh at you. Then you win.”

Indeed, Japan and China are already heading down the MMT road, even if they deny it; the inability of central banks to reverse QE via QT suggests the same underlying dynamic; and once the Fed starts cutting, the volume of these discussions will only increase further.

Of course, the rise of global political populism is likely to accelerate that development given MMT promises easy answers to complex socio-economic problems.

Certainly, when looked at in detail MMT is not the simplistic ‘free money’ argument that some of its critics present it as, and arguably contains some fresh, if old, economic thinking that could provide some solutions to some of our structural problems. At the very least, an MMT critique of our current paradigm is a useful staring base for everyone.

However, it can also be seen that MMT could create as many problems as it solves when dealing with our New Normal. From increasing market volatility to destroying functioning bond markets; and from revolutionising our entire political economy to potentially shattering world trade, the risks are there to be seen if one looks carefully enough.

MMT is arguably not something to be dismissed out of hand; but neither is it something to be embraced without question.

Indeed, just try saying MMT without saying ‘Mmm’!

Comments

  1. You’re either in the ‘free lunch’ camp or you’re with the naysayers. Pick your poison. The ‘free lunchers’ just need to consider that if they’re wrong the consequences will be beyond dire. And the claim we’ll simply ‘end up like Japan’ has been thoroughly debunked. Think Venezuela and you’ll be closer to the truth.

    • ChristopherJMEMBER

      So, Dominic, if we try something new, spending into the economy to generate employment and more income for everyone, and we are wrong (ie hyperinflation), that the consequences would be worse that what austerity budgeting has brought us over the last century or so. Nah, don’t think so.

      Venezuela has been blogged over by the Americans and the elites have stolen all the wealth from the oil so that the man on the street has seen nothing, less than nothing. Like much of central and south america, any time any hint of social progress emerges, it seems to be crushed by internal forces well funded by outside interests (Chile, Colombia, Brasil and so on).

      I don’t think you will find Venezuelans troubles have been because of a failure of MMT.

      Anyway, the usual suspect for the hyperinflation fairy is Zimbabwe – http://bilbo.economicoutlook.net/blog/?p=3773

      In Australia, we use sleight of hand to increase the government’s spending capacity when taxes are receipted. This reflects the way the legislation is worded and the operations of the Consolidated Revenue Fund, the RBA and so on. It is only legislation, which can be repealed and replaced if there were a will, that prevents a federal government from program spending which is not tied into the accounting rules and the legislated requirement to issue debt to fund spending which exceeds taxation receipts in a period.

      Taxes can be counted, but they certainly can’t be re spent. This is so basic, I have never seen anyone who can put forward a counter argument. It’s like the fallacy of loanable funds, which the author alludes to above.

      • There is no point you and I engaging over this. It is the equivalent of a highly religious person engaging with an atheist. Has anything constructive ever come of such an event? I think not (apart from Christopher Hitchens crushing some poor sap), but that aside, these things never result in any side conceding to the other.

        What I would say, in passing, is that the glaring difference, I have noticed, between the ‘free lunchers’ and the ‘naysayers’ is that the former have never proven that they understand what ‘money’ really is. If you don’t understand ‘money’ then you have no dog in the hunt. Just something to chew over, pun intended 😉

      • drsmithyMEMBER

        It is the equivalent of a highly religious person engaging with an atheist.

        Indeed, but I’m pretty sure you have who is which back to front.

        In particular, the “free lunchers” only seem to be in the imaginations of the “naysayers”.

      • ChristopherJMEMBER

        You are right, Dominic, when you refer to heterodox economists as free lunchers you lose the debate by default.
        In fact, given that you can’t even say, well, really anything sensible on MMT, perhaps you should leave the debate to those that can articulate an argument.
        Sorry to be blunt.

      • Christopher, while I note you’ve been given encouragement by a few others, what you’ve articulated very well is nonetheless utter nonsense — economic illiteracy writ large. It is nothing less than tired, discredited Keynesian tripe. I said it before but it’s clear I’ll need to say again: there is little point in engaging with someone whose grasp of a situation hinges on belief rather than logic. I have little doubt the Magic Money Tree adherents will find themselves on the wrong side of the ledger on this issue. It is certainly fortunate for you (and several others on this blog) that you can remain anonymous, but probably for the best.

      • ChristopherJMEMBER

        Anonymous? Christopher J Williams, economist, builder and author (JakeWalker). Easy to look up, nothing to hide.
        Still waiting to hear why MMT is fairy tales. When the MSM has to start weighing up the arguments and coming down on the side of celebrated economists like Paul Krugman, it’s a sign that the punters who have a brain and can connect to the internet are reading the considered opinions of a group of economists who do understand how a progressive, ethical, caring, representative, non biased government could spend money on things that make the country great and prosperous for all.

        The for all bit is why we don’t have it.

      • Christopher, while I note you’ve been given encouragement by a few others, what you’ve articulated very well is nonetheless utter nonsense — economic illiteracy writ large. It is nothing less than tired, discredited Keynesian tripe. I said it before but it’s clear I’ll need to say again: there is little point in engaging with someone whose grasp of a situation hinges on belief rather than logic. I have little doubt the Magic Money Tree adherents will find themselves on the wrong side of the ledger on this issue. It is certainly fortunate for you (and several others on this blog) that you can remain anonymous, but probably for the best.

        It is rather amusing to see this from an anonymous poster with a position built on fallacies and advocating a set of beliefs based almost entirely in hypothetical thought exercises.

    • You are always quick to comment on MMT … with all the economic sophistication of a coalition finance minister talking about “living within our means”

      • Economics is not complicated. In fact, most economic theory can be tested by the application of common sense. Of course, I am referring to real economics, not the Mickey Mouse sh1te taught in mainstream educational establishments — the self same garbage that the Govt and central bankers are so fond of.

        If you really believe that money can be created out of thin air to buy real goods and services (on a sustainable basis) then you are most welcome to your views. And good luck with that.

      • The point this article makes so well is that your dichotomy is completely false. Your so-called ‘free luncher’ is a strawman. The naysayers are simply the dogmatists at one end of the spectrum that can’t see past their nose. In the middle are a whole bunch of reasonable people – like Michael Every and our very own HnH.

      • I see all the ‘religos’ are quite hysterical over MMT. Nothing changes — no prospect of measured argument, just ad hominem attacks. Nice work Smithy, Babunda and Coming. No doubt you’ll be getting together this weekend to burn a few non-believers at the stake 😉

    • There is no “free lunch” as you put it. The constraint is the actual real economy and its capacity. However in a depression scenario theres plenty of that and it’s purely a debt monetary phenomenon.

      The alternative is the situation we saw in America where theres homeless in tents but heaps of empty houses. Or lots of people with skills but no money to grease the system and have them transact with each other.

      • I can understand why MMT has legs as an idea — it’s because it has a veil of plausibility and the argument over economic capacity is part of that. The reality however, is that capacity simply adjusts to the prevailing conditions — as it should. The economy is, after all, a self-regulating, self-adjusting system (at least, it is under free market conditions). Economic down-turns are simply part of that process and a healthy part at that. Persistent interventions by monetary authorities to prevent a necessary cleansing of the system just stores up further trouble ahead.

        I have zero doubt we have a severe global depression in our future and I have zero doubt that MMT in some or other form will be implemented but it will eventually lead to inflation and one of the central premises of MMT is that authorities will be able to contain inflation when the time arrives. To me this is nonsense. Once it arrives the genie will be out of the bottle and that will be the end.

  2. reusachtigeMEMBER

    The commies are attacking from all angles! There won’t be any freedom to achieve and be successful in one’s self left soon.

    • ErmingtonPlumbingMEMBER

      I look forward to denouncing you at the coming Proletarian show trials Reusa.

  3. MMT or not, the only merit of a fiat currency is as a medium of exchange. It has no intrinsic value whatsoever – its only value comes from its status as the legal tender that it can be exchanged to goods and services (assets included). After all, if a fiat currency cannot be exchanged to goods and services it has no value at all.

    In other words, the value of a fiat currency is determined by the grand total of all the goods and services in the relevant economy over which the currency can exerts its status as the legal tender.

    So, the only potential source of benefits of MMT comes from the incremental change in the goods and services in the economy that are generated by the MMT.

    • Really? The only benefit?

      How about redistributing said money (or purchasing power) from the rich to the poor

      Like QE did, but in the opposite direction

    • ChristopherJMEMBER

      No, dumpling, but a good try. The main reason the Aussie $ is held by people at all is that the State and the other levels of government demand that you pay your taxes, fines, fees and duties in AUD. The rest of the economy accepts the legal status of Aussie dollars, they can be banked, they fluctuate in value to other currencies (but not excessively over the long term) and hence have a stability which attracts people to hold them.

    • You’re wasting your time engaging these clowns. They have the intellect of a peanut (with apologies to peanuts). They don’t understand what ‘money’ really is and prefer instead to believe that the Magic Money Tree is real.

    • Even StevenMEMBER

      Can anyone help me with an actual example of how MMT would work? The premise is ‘spare capacity’ ie shortage of demand (or surplus of supply).

      What does this actually mean? A knifemaker wants to make a knife (is willing and able) but no one wants to pay him to craft a knife?

      So the Government does what? Pays the knifemaker to make one?

      That still doesn’t place a knife in the buyer’s hands? Will this bring down the cost of the knives that are on sale, so that a buyer can afford one? I’m just a little hazy on how this is supposed to work…

      • Even StevenMEMBER

        Perhaps instead of MMT the knifemaker should instead make something of more value to the buyer? Maybe fishing hooks?

        Does MMT distort the nature of the goods and services produced in society?

  4. Ah, so, it’s more of a politically targeted QE.

    If inflation = in the toilet, then drop taxes, spend new money.

  5. A few things come to mind from that bitcoin would be the asset to own and it probably explains the moves as of late, Geopolitics would become a serious issue China would not take kindly to the US becoming the growth capital it feels like a race to the bottom.

  6. Lets keep it simple. There are two people living on an island. They decide MMT could help them live their lives better.
    Could someone please explain how MMT could help them?

    • It shouldn’t make any difference unless the total amount of goods and services on the island magically increases with the introduction of MMT.

      But…… maybe these two folks might become happier when they are given something new to believe in and work extra hours because they can tolerate more fatigue with MMT.

      Or, they may become lazier because of their misguided optimism in MMT.

      Who knows?

      I somehow suspect the latter is more likely in Straya.

    • drsmithyMEMBER

      Sure. One of them can give the other shell in exchange for a wristy based merely on the promise of being able to use that shell to pay for a service in return at some point in the future, rather then and there on the spot.

      Can you explain how two people on a dessert island relates to an entire nation operating in a global economy ?

    • ChristopherJMEMBER

      You want it simple. The elites control the stock and the flows of money and restrict governments from spending it on people.

    • The two people decide to form a government

      Unemployment is 100% (n=2)

      They decide to embark on a government spending plan : planting and harvesting coconut trees

      They will employ 2 people to do this

      Then they realise they have no money to hire said people
      Tax receipts are zero because GDP is zero

      They decide to issue bonds to finance the coconut tree planting , but no one on the island has any income to buy them

      They then read Dominic’s comment above, and fearing they will turn the island into Venezuela , they decide to abandon the coconut tree plan

      Unemployment remains 100%

      The two men on the island sit idle vainly hoping for someone to employ them
      The fertile island soils and plentiful rain is all wasted

      Moody’s downgrades them to junk

      They die of starvation

      Paul krugman celebrates

  7. Arguably the most fair and balanced overview of MMT I have seen in some time. Hopefully it will go s long way to making people think rather than blindly raising ‘magic money tree’ or ‘but, but Venezuela’ statements.

    I would add nothing in MMT suggests it is a ‘simple’ solution and can we please dispense with the illusion of the central banks being ‘independent’ they are not…get over it. Furthermore, to reinforce a key point the current system is deeply flawed, totally corrupted with rent-seekers and destroying the economy and planet in name of greed. About time to recognise this and ‘change the rules’ to deal with that fact. MMT arguably provides a framework to re-write the underlying rules to work for the people and within resource constraints.

    • Yes, quite balanced, well I would say that as it’s pretty much what I think of MMT & current system!

    • Agreed. This article is a cracker. It highlights exactly what is in dispute about MMT – these are issues of implementation not of principle.

    • DreadnotMEMBER

      Agree, Michael Every has come closer than most, in numerous recent articles in understanding MMT, but is still captured by old neo-liberal economic nomenclature like a sovereign currency issuing government ‘borrowing’ its own money (Think of money as a government IOU. Why would you want to borrow your own IOU’s. Once returned (in the form of tax) its chucked in the thrash).
      A better summary of MMT is: http://neweconomicperspectives.org/2019/03/a-must-read-why-does-everyone-hate-mmt.html#more-11463.

      He is also incorrect when he says there is no economic text book, though only recently published. http://bilbo.economicoutlook.net/blog/?page_id=33139

      • ChristopherJMEMBER

        Thanks Dreadnot, yes was going to mention the new economics textbook. Good points, we only borrow because the enabling legislation states that deficits cannot just be spent, we must exchange a debt instrument in order to load up the spending tube.

        Legislation can be changed

  8. Interesting that there is never any discussion about what role private banks will take on if MMT happens. Given the excess of deposits that will occur via MMT maybe they should be stripped of their role of creating credit and actually start lending the money under the loanable funds model.

    • But with risk re-rated to zero ( interest rates are irrelevant, so risk is not a factor in any lending. A bank can lend a squillion dollars out at 0% and the borrower need never repay, nor pay any service cost) then retail bank just become an ATM that can never be exhausted.

      • The article wasn’t clear on this, the interest rates being zero was referencing government issued liabilities not private credit, maybe because it’s obvious that private lenders will continue to discount dodgy borrowers ability to repay, mmt or no mmt.

    • Many in MMT argue to remove the ability of private Banks to ‘create’ money. This power should only be retained by Govts with public oversight through mechanisms such as transparent reporting & electoral process.

  9. Don’t we already have MMT with the government outsourcing money printing to the banks with credit creation?

    • ChristopherJMEMBER

      The banks’ money needs to be repaid, with interest.

      The Australian Government’s money might come with conditions, but it is essentially a payment for a service or an income support payment in a absence of any obligation on the recipient. There is no requirement for interest or repayment

  10. In summary, screw over savers with dilution of money, and we’ll control the rate of screwing over by screwing them over some more with higher tax rates.

  11. A jobs guarantee is a well-intended but terrible idea. Leads to armies of dystopian laborers forced to do makework to survive amid a growing mass of bureaucrats. Studies have shown an inability to transition into private employment afterwards.

    https://twitter.com/AndrewYang/status/1020396195871461381

    Sounds like the Aussie dole. It may have been well meaning at the beginning but right wing pricks (Howard, Abbott, Gillard, Turnbull) added more and more hoops to it as time went by. A “job guarantee” may start off with reasonable jobs but as soon as the right wing pricks win an election, they will change the jobs to “pick seasonal fruit” and “clean toilets in rural areas”. They refer to pouring beer in a pub as an “internship” that should pay $4/hour.

    Nouriel Roubini:

    UBI may or may not be a solution. If folks need the dignity of work for self-esteem & want to eschew permanent welfare UBI may not work. Afterall many of those who voted for Trump signal they want work & not just welfare transfers.

    Ah yes. The dignity of picking fruit under the Arizona sun while injured. What welfare transfers? Clinton said, “I almost took UBI to the presidential election”. But she did not and she lost. Now it is up to Andrew Yang. In 1971, the bill for creating UBI passed the lower house twice! But the braindead Democrats blocked it in the upper house. FMD.

    • Ah yes UBI

      “Trickle up” Corporate welfare

      God forbid that the government create something for the people
      Let’s outsource all industry instead

      • Some voters are too injured to work in a job. Have you ever been on the dole? Do you know what it is like?

        If they are not already injured, WFTD injures them:

        Work for dole injury reports skyrocket

        More jobless Australians are being injured on work for the dole placements, with the number of reported accidents increasing more than fivefold in a year.

        4 Nov 2016

        Father Of A Teenager Who Died Doing Work For The Dole Says His Son Was Made To Work With A Back Injury

        20 Dec 2017

        All that while an unlimited number of foreign “students” get to take any job. WTF. Abolish the dole completely and replace it with a UBI. Most Americans under the age of 50 want UBI. Guess which age group is against it? The baby boomers.

        California already mandates solar panels on new houses – no “green new deal” needed.

        If you want a high speed railway from SYD to MEL, sure, build it. But labour only makes up a fraction of the cost and once it is built, the builders will be unemployed again.

      • What bizarre logic : by that token, no one should ever do anything again because
        A they might be injured
        B when they do achieve something, the job will finish and they will need to find something else to achieve

        You know who is against a government job guarantee ? Companies that make money by privatising state assets and services (banking, utilities, roads etc)

        What does that tell you

  12. New Zealand should try this. If necessary we can bail them out through migration until only the crooks, illegals, and paranoid billionaires are left.

  13. Is Gold a good option for the savers and bond holders? … I have no debt and don’t know where to invest with all this dumbfuckery going on…