Comments for Modern Monetary Theory: What's Modern About It? at http://www.cepr.net , comment 1 to 46 out of 20 comments http://www.cepr.net Fri, 24 May 2013 17:42:19 +0100 FeedCreator 1.7.3 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-15029 The difference between MMT and Keynesians is that MMT says you can monetize all the debt without causing inflation. There have been many experiments in monetizing debt through history. The record is very clear, if you do this in large amounts you get inflation. If the central bank is the main buyer of government debt you will probably get hyperinflation. http://pair.offshore.ai/38yearcycle/#chartalism - Vincent Cate Sun, 26 Feb 2012 09:21:36 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14994 I understand the argument that it is the government's use of fiat money and imposition of taxes that is the source of unemployment, but I don't entirely buy it for a couple of reasons. First, it defines unemployment rather narrowly, as the need for an income in the fiat currency together with the lack of that income. This need is originally generated by the imposition of a tax, and the use of the fiat currency as a medium of market exchange guarantees that this need is dispersed throughout the economy, even if only a small sector of the private economy is actually taxed. But, unemployment is not specifically the need for an income in some fiat currency, but more generally the need for an income. The starving peasant who is disallowed from foraging for food in the King's forest, and who is forbidden from earning his bread by working in the King's fields in a pre-monetary society is still unemployed, though he owes no tax to the King in either the form of the King's coin or the real products of grain or labor. Second, I think it belies an assumption that all too many are willing to take for granted, or at least not challenge sufficiently, that there are limits to demand, and those limits are too easily met with modern productivity. Economists, and indeed most normal people tend to think that people's propensity to consume, provided they have the income for it, is inexhaustible. You can plug it into the formulas themselves, set income to be infinite, and the marginal propensity to consume becomes infinite as well. This deserves to be challenged, because, at the end of the day, there's only so much food a person can eat, only so many wardrobes of clothes they can wear, only so many houses they can live in, or cars they can drive, movies they can watch, songs they can listen to, video games they can play, or blog posts they can make. Of course, we are no where near those limits now, but these are limits established by supposing that everybody consumes as much as they possibly can. What if people tend not to consume much more than a couple of orders of magnitude more than they need to survive somewhat comfortably, despite the fact that they could afford to consume much more? And even worse, what if modern productivity, through the specialization of labor and modern technology, means that only a fraction of those who wish to work, who need an income in order to consume as much as they care to, are needed to produce everything everybody cares to consume? The notion that one's income is deserved only by their contribution to production and against the supply of other possible contributions would limit the distribution of income, reducing future demand, and preventing consumption by those excluded from the production process. In short (too late), it's not just fiat money and taxes that cause unemployment, it's also human being's tendency to be satisfied with a comfortable life and the capacity of production to secure that comfortable life without requiring everyone's contribution that can be a cause. Perhaps another reason to skip the "Job" part of the JG, and just make it an income guarantee, or perhaps better, make the "job" be enrollment in an accredited degree program. - MMT minus job guarantee Fri, 24 Feb 2012 11:29:44 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14980 wow. i am not qualified to enter this discussion. but i worry that some of you might be over qualified. human attention is limited, and when you get lost in a theoretical argument you may miss some of what is going on in the real world. i wonder what effect the following three phenomena would have on the forgoing discussion: outsourcing of jobs. government capture by very narrow interests. high degree of corruption in business. - coberly Fri, 24 Feb 2012 05:23:52 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14932 On the libertarian Mises.org, one can find chapters of a book by the famous acerbic social critic Albert J. Nock. It's a bio of Thomas Jefferson, the most idealistic of the Founders. He is contrasted with Hamilton, the top proponent of Elite Economic Privilege in that era. Hamilton won. Kevin Carson jokes that Austrians are aiming at reversing history towards the achievement of Hamiltonian ends by Jeffersonian means. Nock goes into great detail in dissecting and describing the U.S. Constitution as it was considered at the time, a kind of a *coup* by mostly ex-Tory elites. All were Lawyers, Govt Creditors, middlemen, traders, monopoly capitalists, he says. NOT ONE was an actual producer of wealth. The producers aka farmers and artisans --- per Hamilton's insight --- were scattered and possessed little political power or opportunity to thwart his designs. The plan was to create a kind of "pyramid" of wealth for the top 1%, sufficient "Trickle Down" for necessary buy-in by the next 9% or 20% so, and the rest to be subjected to what unrelated critic Noam Chomsky describes as "free markets for YOU but the Nanny State for US". Ergo, complaining about "socialism" at this point is SOOOO 19th Century. Hmmm. I suddenly decided to google "Noam Chomsky" and "Nock" to see if the latter anarchist cited the earlier one. - Gary Tue, 21 Feb 2012 19:18:54 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14931 Setting that all aside, ... the Post-Keynesians like Michael Hudson and including the MMT crowd are not promoting Anarchism or Agorism as the previous sample. Hudson's main point is that for all this Corporate Liberalism expansion and govt investment in infrastructure from the mid-1800s, classical and progressive economists (political economy) expected rentier privileges and the "Free Lunch" for insiders and monopolists to be countered via heavy taxation. Not blanket corporate taxes, but taxation of predation and privilege. MMT says "Not to raise revenue either", not at the federal level anyhow. Instead, rentier income by our largest financial firms and hedge funds equals some 40% of our GDP, now not a "service" but our main "engine of growth" minus of course any foundation of economic growth, instead purely mathematical growth via debt-leveraged asset inflation. (and Big Pharma, and Mil-Ind, etc.) Socialism much? MMT proponents, if I may explain this in my own words, see that MMT is already in use when it comes to the War on Terror (Iraq) and Bush Tax Cuts and what Baker mentioned a $240 Bn annual price-subsidy for the Medical Industry. None of this shows any adherence to fiscal restraint, as if a "budget deficit" mattered. Cheney and Reagan said they don't. One Fed chief during FDR/WW2 said deficits create jobs. It did. Full employment initiatives were just not "kosher" in the US except under the umbrella of "national defense", and as a tool for Cold War anti-communist "public relations". Rather, fiscal restraint --- as if the US was still operating on a Gold Standard --- is only applicable when it comes to Human Beings, Children, Elderly, workers in general, and those "little people" who pay taxes and rely on Soc. Security (per Leona Helms, Simpson, etc.). Warren Mosler, no dreamy-lib, explains further why his Work-Fare suggestion (a) is better than Unemployment and Welfare (b) is better than "ending Welfare as we know it" but without adding jobs (c) could allow the "minimum wage" to end as redundant (d) is a way of keeping people sharp, engaged, learning, useful, EMPLOYABLE by the private sector (e) would reverse a total waste of talent for millions and an entire generation of graduates (f) not pose much of a barrier to the private sector hiring talent (g) much more. Mosler is considered the "more conservative" MMT-er, emphasizes tax cuts for the 99%, and justifies his views along rather CONSERVATIVE pro-business lines, in the non-Wingnut definition of "conservative". - Gary Tue, 21 Feb 2012 19:04:07 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14930 @ Government responsibility to hire everyone: written by FDO15 If anyone REALLY wants to have a discussion about "Socialism" or rather mercantilism, I could suggest this title: THE IRON FIST BEHIND THE INVISIBLE HAND Corporate Capitalism As a State-Guaranteed System of Privilege Mutualist.Org: Free Market Anti-Capitalism http://www.mutualist.org/id4.html I'm not claiming this is economically sound, and I don't think it is, but this is an historical survey going back to the Enclosure Acts and Poor Laws (described as nearly Stalinistic) which used govt violence to force people off of communal farm land and out of cottage industries into "working for da man" for lower wages, with the alternative being prison. Others have written that early New World colonies were populated by slaves -- whites from Ireland and England. Ted Nace described the Virginia Colony as populated by child-slave workers kidnapped from pauper orphanages with govt help. The first few thousand kids endured brutal conditions, near starvation, torture for stealing a bit of food, and 3/4 died the first year. The text goes on from there --- purposely quoting Murray Rothbard and a bit of Mises and friends, as well as critically quoting Schumpeter and Chandler --- to illuminate various strains of State-Capitalism aka Corporate Liberalism, from Colonial Days, through the Railroads, Progressive Era, World Wars and the "Open Door" policy of govt-assisted expansion of markets, the New Deal, Marshall Plan, Cold War, and on to state-subsidized Globalization. The historical record shows, per New Left Historian Gabe Kolko as well as Rothbard that the Fed and end of the Gold Std was mightily approved by Banking and Big Business during a nearly decade-long discussion that was nationwide, with conferences in Chicago and NYC, not just "Jekyll Island". Not only did this protect against bank runs but it also provided a source for export capital aka "foreign aid", so corps would not have to invest their own money in "development". Ditto Bretton Woods institutions. Socialism question now resolved? Anyone still believe that "free markets" really exist? Regardless of the viability or likelihood of Agorism happening (it exists, at the fringes, now), Kevin Carson's critique of "free markets" neoliberal baloney is priceless. Note the title: It's a call for ACTUAL free markets, a viewpoint echoed by Dean Baker's recent book on Loser Liberalism. Setting that all aside, ... - Gary Tue, 21 Feb 2012 19:00:13 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14920 Paul, I totally agree with you that taxes have the power to stifle demand. Regarding Keynes, it appears he rightly believed that a balanced federal budget is not desirable. Last year, James Galbraith wrote: "The recommendation that government run a balanced budget 'over the cycle' does not, so far as I know, come from Keynes. "I believe it originated as a recommendation of a moderate-liberal business group called the Committee for Economic Development in the 1950s. "The CED’s formula had a kind of rough-and-ready common sense that won it advocates for many years. But it became obsolete, at best, when the Bretton Woods gold-exchange system collapsed in 1971. "In an age when the rest of the world uses US Treasury bills and bonds as the principal reserve asset, the US has to run a budget deficit, even for the most part in good times, in order to accommodate them. "This has been the reality now for 40 years." - Tyler Tue, 21 Feb 2012 09:35:34 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14919 I'm not sure I fully agree with you about channel one. Let's suggest for example, we have a zero deficit situation-- i.e spending-minus revenue result by spending money on infrastructure getting a multiplier effect and taxing a sector/segment more for offset of that spending that has a lower expansionary/contractionary effect such as might take place for differential marginal propensities to consume or invest. Just saying--- - Eclectic Obsvr Tue, 21 Feb 2012 09:23:56 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14918 Keynes realized what should be obvious: the economy needs both an accelerator and a brake. When the economy reaches full employment, taxes act as the brake on demand to balance the demand/supply equilibrium. - Paul Tue, 21 Feb 2012 07:29:35 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14915 The American federal government, being Monetarily Sovereign, never needs revenue to conduct spending. Did Keynes teach this? If not, this is what is modern about MMT. - Tyler Tue, 21 Feb 2012 05:28:03 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14912 MMT's specialness resides in its ability to prove that federal government spending is not constrained by taxes. As such, government programs such as Social Security do not need a bogus trust fund. Claiming otherwise constitutes "Loser Liberalism," not Keynesianism. - Tyler Tue, 21 Feb 2012 04:05:40 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14911 maybe I should add, for those who haven't heard of Paul Davidson, that he is not part of the MMT camp, but rather one of the fathers of Post-Keynsianism. Some, such as Randy Wray, consider MMT a branch of Post-Keynsianism though. - Oliver Tue, 21 Feb 2012 03:12:40 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14910 From an interview by Philip Pilkington with Paul Davidson, published at http://www.nakedcapitalism.com/2012/02/navigating-global-prosperity-an-interview-with-paul-davidson.html: PP: In your book you are sceptical about using a devaluation of the US dollar to decrease the trade deficit and raise employment. Yet many economists think that this would be a good strategy. Could you explain your scepticism and lay out briefly an alternative arrangement? PD: There are several reasons for my scepticism that devaluing the US dollar is a desirable policy for reducing the US trade deficit by making imports sufficiently more expensive and making US exports cheaper to foreigners so that Americans reduce their total US spending on imports and foreigners increase their total US spending on US exports, until spending on imports equals what foreigners spend to buy US exports. The first reason this is not a desirable plan is based on a technical condition called the ‘Marshall-Lerner condition’. Basically this condition says if the sum of the price elasticities for imports and exports is less than unity, then devaluation will increase the trade deficit. One need only note that in the 1980s when the US dollar exchange rate tended to decline rapidly, the US trade deficit increased! Consequently, from an empirical point of view, the Marshall-Lerner condition seems relevant to the USA trade balance problem then and therefore devaluation could worsen the US trade deficit, as it did in the 1980s. A sage once said: “those who do not study history are bound to repeat its errors”. The many economists you cite as thinking devaluation is a good strategy, obviously want the US to repeat the errors of the 1980s. Secondly, those who argue that devaluation would end the US trade deficit are essentially arguing that if US exports become cheap enough to foreigners then US made products and their labor input would become ‘competitive’ with foreign produced goods’ labor costs. Since labor productivity in most manufactured goods is the same whether produced in the USA or in China, this means that the US labor costs per unit of output when measured in a single currency must be competitive with the labor costs , say, in China in order for US produced goods to be able to compete in the global marketplace. In other words for US goods to be competitive, devaluation must reduce the value of labor income in the in the US to the equivalent of what is earned in China (where a recent New York Times article indicated workers in a Chinese factory were paid $15 a day for a 12 hour work day and 6 day work week). But do we really want a policy which reduces the average American worker’s annual income to less than $5000 per year? (The economists who say ‘yes’ really mean as long as we don’t reduce economists incomes!) I should think that we don’t want to advocate a policy that reduces American workers income to the level of a Chinese ‘coolie’. Especially when there is a simpler way to correct the US trade deficit. This alternative is what I have called the International Monetary Clearing Union [IMCU] where the trading nations would essentially enter into an agreement to spend all their income earned on exports on the purchase of imports from foreigners. [The details of my IMCU plan can be read in my book The Keynes Solution]. Accordingly no nation could run a persistent trade imbalance. While at the same time no nation need depress their workers income. - Oliver Tue, 21 Feb 2012 03:06:10 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14908 Me:[b]"Therefore it is their responsibility, if there is any meaning to that word, to provide full employment."[/b] FDO15:[i]What an absurd statement. We create state money for public purpose to better the living standards of the majority of our citizens. We do not create it so everyone can get something for nothing.[/i] Nobody is proposing "something for nothing." The JG proposes money for WORK - Jobs. JG workers get their dollars from the same place everybody else ultimately gets their dollars - the US government. "MMT", real Keynesian/Lernerian economics, tends to be less "something for nothing" than old-fashioned US investment-led, inflationary "Keynesianism". The "logically absurd" (Mosler) belief is that the government does not have the responsibility to provide employment on those it has forced unemployment on. [i]One of the downsides of this organization of state money is that it has downsides. Many downsides. There is no free lunch.[/i] There emphatically is a free lunch. Rational behavior is a free lunch. That's why we call it "rational". The very easy task of attaining full employment - something that no society that has tried has ever failed at - provides a free lunch. Full employment is something that premonetary societies easily attain and always have, simply because they understand their pre-money better than we understand our supposedly more advanced monetary economies. [i]And one of those downsides is involuntary unemployment. This doesn't mean everyone else should potentially suffer just because you think it is the government's "responsibility" to hire everyone. [/i] A truly bizarre, weird, wacky, completely illogical belief. The kind of nonsense Keynes inveighed against fuddling minds with. Unfortunately many have their minds poisoned by this "up is down" "water freezes when heated" type of belief. Other people working does not make you suffer. How could it? It makes you wealthier. Your wealth depends on other people working, on the economy working as efficiently as possible, which all logic, common sense & experience unequivocally show means full employment. Progress is faster under full employment. Why would you want to have less real wealth? What is so great about being poor that you want yourself & everyone else to be poorer? [i]What a ridiculous socialist concept that is.[/i] David Graeber likes to say that capitalism is the worst sort of communism there is, but it is still a form of communism. (The fact, the universality of money makes it a communism.) Lerner emphasized that the fact of a monetary economy that is more fundamental & important than whether it is "capitalist" or "socialist", and applied the same analysis to both, as did many others who understood their Keynes & Lerner. It is not "socialism", or some weird, debatable morality, but simple logic & accounting that [i]prove[/i] that governments have "a responsibility for full employment". (Lerner's words) Everybody used to understand this, even economists, before the fall of the current dark age of economics in academia, and worse, the infection of these gross insults to intelligence - not morality - into the general population. - Calgacus Mon, 20 Feb 2012 23:41:12 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14907 @Paul: Perplexed is saying the same thing, but providing a deeper explanation. The same way credit theories of money are a little deeper & explain state theories, the way Functional Finance/MMT/Keynes's Keynesianism is a little deeper & explains old fashioned "Keynesianism" (which could tend toward "something for nothing" inflationism.) Had to write something to fit the title! :-) - Calgacus Mon, 20 Feb 2012 21:01:54 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14903 @Paul "The output gap is due to deficient aggregate demand, nothing more and nothing less. There is no conspiracy or Constitutional violation." No amount of explaining the sources of the output gap explains the rationale of legally denying access to a market. Unemployment is the result of a choice to allow restricted access to a market, not some occurrence of nature. - Perplexed Mon, 20 Feb 2012 14:03:40 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14900 [b]The output gap is due to deficient aggregate demand,[/b] nothing more and nothing less. There is no conspiracy or Constitutional violation. There is only ignorance about what needs to be done to close the gap. What needs to be done is to increase consumption, especially by consumers who constitute 70% of aggregate demand. This leads us back to the housing market where demand has been severely depressed for 5 years and prices are [i]still[/i] falling. Until that is reversed, the output gap will remain. Not real complicated. - Paul Mon, 20 Feb 2012 11:30:34 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14899 If I bring 1,000 bushels of corn that meet quality specs. to the market and you refuse me access to the market and force me to allow the corn to degrade and decay, there are laws that will force you to pay my damages (everything I lost by not having access, including legal and collection costs) for denying me access to that market. If what I bring to the market is my labor, you can pay another worker a higher wage than I would require and refuse me access to the market, force me to allow my "skills to degrade," and deny me access to any income at all. When I do work, you take part of my wages to fund "insurance" to cover losses that may be imposed on me by you're denial of my access to the market. Somehow you have concocted a system where you can legally do this to me, but not to my neighbor who brings goods to the market instead of labor. Economists call this the effects of "sticky prices" to provide cover for what is really happening. Recognizing that, in a Democracy, there is tremendous risk that a powerful majority will impose it's will on a powerless minority, the Constitution was established to prevent abuses of this type, but no one challenges the right of an enormous majority (governments, producers, and employed workers) to impose the full costs of an output gap entirely on a small group of willing workers who are powerless to secure access to this so called "market" and powerless to recover any of the damages they suffer. WE MUST CLOSE THIS LOOPHOLE AND FORCE A CHOICE BETWEEN OTHER ALTERNATIVES. If the option of sticking the entire cost of an output gap on a small minority were not available, we'd have to choose between allowing an actual, open market for all labor (with its corresponding rapid price declines and deflation) or fully compensating those that are the victims of our choice to allow the market restrictions that delay wage declines. Those benefiting from not having free markets should be paying for the benefits they receive to the extent they impose costs on others; not receiving the benefits while imposing the full costs on a small minority. We can't get a serious discussion of stimulus spending or proposals such as MMT because of the enormous conflicts of interest that are built into and protected by current policies and laws that defy Constitutional protections. If the costs of the output gap were truly born by those imposing it others, the entire conversation around what to do about it would change. - Perplexed Mon, 20 Feb 2012 10:55:48 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14898 Paul, Many (including I think Dean) think that the QE2 was all about growing the economy by devaluing the dollar, which was why both China and Germany screamed bloody murder when QE2 was announced. Obviously this policy has its limits, but while JMK was not supportive of this always, he did in certain places and times support trade protectionism for job protection. Also, regarding JMK's own views, these changed with time and circumstances. So, he came off very concerned that large budget deficits could lead to inflation in his "How to Pay for the War." Anybody pushing the idea that JMK was all for humongous deficits all the time are mistaken. I see a difference between theory and policy in the MMT school. So, for policy, the job guarantee is critical, and I am sympathetic with this. I do not see this as necessarily tied to the stronger version of the theory, however, which is chartalism, which one can find JMK supporting to some extent in his Treatise on Money. But I have always found the defense of hard core chartalism to be at best arbitrary. It becomes simply definitional to say that the many spontaneously emerged commodity monies observed throughout history are "not really money." That said, of course all modern monies are fiat and thus effectively chartalist, although that does not somehow lead to the only way to expand the money supply is to run budget deficits, which seems to be claimed at times by some. Oh, and it is certainly true that it is a lot easier to run budget surpluses and have growth if one is running current account surpluses as well, as with Canada and Australia. - Barkley Rosser Mon, 20 Feb 2012 09:58:39 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/modern-monetary-theory-whats-modern-about-it#comment-14897 stupid form. Anyways, it's at http://www.neweconomicperspectives.org/ - jack Mon, 20 Feb 2012 09:45:44 +0100