People love to author grand ideas whose results will depend on others. I've seen it many times while developing training courses for large & small companies. It arises from the way we were taught. We don't teach wisdom, we teach authority.
Authority without wisdom is chaos. [Trump]
While wisdom is knowledge without pretense.
Form an org chart and people will flock to where the riches are greatest -- and use pretense to push others to produce.
We spend more on education than any other country, yet many dedicated teachers who bear responsibility struggle to survive.
Where does that money go? That practice impoverishes nations.
I was often invited to solve training problems for small & large companies. Several times, I was hired to deliver the result of a person who was given a year to develop it and left with literally nothing to show for their time. [How well was that managed?]
My 3-step formula:
Do it. Do it better. Do it right.
In the process of explaining, I often found design errors and new capabilities. While it was interesting, it is a dangerous thing to do when so many are concerned about their social status.
My reward was often "That's so simple, what took you so long?"
-- Why didn't you do it?
What I did was to make myself immediately useful.
I'd ask technicians "what's your most difficult problem?"
They'd tell me, and I'd go away and write a monograph on how to solve it. Can I make simpler?
What's your next biggest problem?
Eventually, it became a book.
1
Going home a few years ago, I sat beside a professor of economics from a business school. To pass time, I asked if he might entertain a definition for money I'd arrived at over the years. Time passed quickly.
When we landed, others gathered. They’d been listening to our conversation and asked if I’d lectured at the National Conference of Economists in San Francisco. If so, he said he missed my lecture. I felt flattered.
[A semester in Keynesian economics 50 years ago.]
My definition: “Money is A means of managing motivation -- with emphasis on the indefinite article.” It’s a tool for managing cooperative relationships in groups beyond family/tribal associations. It can be used to create, sustain, or destroy.
People have motivation, not money. Money amplifies influence.
Theology & economics are intertwined. Theology is our quest to determine spiritual values that sustain society through generations.
In 1963, I heard Arnold Toynbee’s distillation of why civilizations flourish or fail.
It was “Man’s quest for the ultimate spiritual reality.”
It was vague but challenging.
I wrote and got a reply.
Did he agree that the vitality of the civil rights activity in the South might delay the decline of Western civilization? He did.
I later found answers in Paul Tillich.
Where Toynbee failed to sense the evil of Hitler, Tillich didn’t.
[ML King Jr. did his theses was on Systematic Theology.].
Blacks did rise to influence in proportion to their numbers because family is sacred.
1
Thank you for the good point. I long for it to work, but
1) I think it is specifically very wealthy stable countries that could do it, and especially the USA which need not worry as muh about imports in the creation of infrastructure
and so it provides no solutions to a planetary need to get investment into real things like infrastructure.
2) I am instinctively against replacement, or doing much of anything with something so deep in the economic chemistry. I advocate an addend system to invest in infrastructure. It is too huge and too neglected to address with a tweak. It needs a new way of doing it, available to all nations.
most of the "small" countries cited here have a pretty good idea of what they want to do with themselves (and by the way most fare at least as well as the US). The condescension is really irritating...
As for "But the livelihoods of billions of people worldwide depend on the idea that the United States — with its centrality to the global economy and financial system — won’t botch things." Sorry to disclose the bad news, but billions of people around the world are learning very fast to arrange their livelihood while the US is actively botching things - and this has nothing to do with MMT...
3
We used to call this policy "hyperinflation."
What we have now is not working -- start there when you worry about the risk of the supposedly conservative unknown.
If an economic theory is science it should have a predictive power. To me these theories reads like opinions, anecdotes, and interpretation of events after the fact. Do we actually have models that can predict anything or is it all words and the art of persuasion?
@OM
agree - was thinking the same. If economists were chemical engineers we'd have a model of the economy by now
I think we should be suspicious of MMT. The current vogue for it seems another indication that we’ve moved far enough from 2008 to have forgotten its lessons. There are a lot of things you can get away with in good times, particularly if there are other forces containing inflation. However bad debt is dangerous as times turn bad, as we found out then.
1
@Jerryg
we need intelligent people running the country (ok - theory already dead...) so we have Good debt; decisions on infrastructure based on ROI... but then there's the black hole for defense spending. Education spending done right is usually a winner - future taxes, fewer criminals..
The MMT idea is not new or unique,as it has been theorized
always in the quantity theory of money and its relation to inflation,
deflation and stagnation etc.In the 1960's there was lot more
talk in regard to underdeveloped economies,their taking out
from stagnation and whole host of economic situations dealt
with in G.Myrdal's Asian Drama.
Development needs investment whether from domestic sources
or international finance and to meet that we have World Bank,
ADB,IMF etc to augment resources at the disposal of a country's
Central Bank.Fresh and increasing doses of investment are must
whether it is developed or developing economy,as such fresh
money is to be printed,pumped in the economy,only question
is how much? This did help to meet crisis of Sub Prime Lending
of 1908 and continued as quantative easing years after.Likewise
think of Indian economy where deficit financing has been undertaken over the years to increase GDP and finance lots of
infrastructure projects.The deficit has been critically examined
as a percentage of GDP,so as to keep low inflation and planned
growth.Planing as such may be anathema to a pure capitalist
economy,yet their growth requires increasing doses of investments in new technologies,R@D and even maintain existing
and old infrastructure.Hence importance of MMT comes in.
1
The left should be applauded for taking risks to make life easier for all – or should it?
Make abortion easy and things will be fine. Fifty million don’t share in the hoped-for improvements. Make it easy for women to work to support the family. Women are so busy they no longer marry, and many families don’t include a man or enough children to sustain the population. Make LGBT normal and sexual dysphoria will spread (along with STDs). Make it easy to be an atheist in society and it will become harder to proclaim religious beliefs at work and in the public square. Expect the government to eradicate racism and judging good and bad character becomes a racist activity.
Modern Monetary Theory is the next step in using our collective resources to have the government replace the family. Guaranteed incomes are given to the elderly and disabled so why not provide a stipend to all to make it easy to provide the necessities of life. Occupational failures won’t be so painful, and adolescence can be extended into midlife. Printing money to create inflation is the best way to shift power from the wealthy ruling class. It makes life easy for the left until the value runs out. Don’t cry for me Argentina …
2
“Ideas rooted in this approach show up in the Green New Deal and other initiatives of the left wing of the Democratic Party.” Isn’t it the Republicans that are now increasing the debt with its tax cuts and increased spending on the military, ICE and the border? All to the advantage of a minority of the US population. The rich and the anti-immigrant.
2
@Christy-Sue Huber Yes. If MMT is factually, provably correct then the spendthrifts of the left, right and center will check the math and agree. Free money and logic will prevail. However, our actual US policy has been to run big deficits when Republicans are in control and practice austerity when Democrats have the White House.
2
@David Reinertson Checking the top news articles online, I see that the consensus meme is that Democrats “on the left” are spendthrifts who plan to use the unproven MMT theory to justify the GND. I disagree.
1
MMT describes the monetary system as it exists.
The writer and most of the comments are wildly off target.
1
Hmmmm. How about we instead keep our noses out of other countries' business? In other words, if we think something is a good idea and worth trying, we do it. If another country thinks something is a good idea and worth trying, they do it. Without any meddling from us?
3
Money is only an accounting tool. Economics is about real resources. If government takes more of them by borrowing and spending, then there are fewer real resources for everyone else.
That's not necessarily bad, depending on how government and everyone else spend their resources, but the tradeoff must be recognized.
3
I like the assumption that "small" countries exist as lab operations to enable the US to try out its policy ideas, at no risk to itself. Presumably the big countries are the ones that matter.
But the citizens of small countries take themselves just as seriously as the US does and do not view their homeland as a surrogate for somewhere else. They also prefer to govern themselves, and in many cases they do it better than we do.
So perhaps we could arrange a trade. The US could impose some system on itself that the New Zealanders are interested in testing, just to see what happens. Then they might be interested in doing the same for us.
1
Neil,
I believe we have been employing M.M.T. for a very long time in the United States. I mean by that during periods of market dislocation because of discoveries, inventions, and new technologies, at least since the Great Depression, the U.S. has responded/adapted to these changes by providing the credit with its sovereign money creating power. Think about how this capability facilitated the Panama Canal, the Interstate Highway/logistics system, the space-based communications system, the air transport system, the internet, the energy generating and distribution systems, and the Federal Lab and Research Grant systems, just to name a few. These were all financed by the capability of the U.S. to make its own money and not worry about notions like debt limit, annual deficits, etc., which are priority setting devices that provide the required discipline for maintaining public investments.
So to keep everything in perspective the important ingredient in the recipe for creating a successful human civilization is the global market, assuring that ideas can get to the market, and assuring the availability of energy, water, and the 4 Freedoms.
We know we have a serious challenge on the horizon in energy because of global warming and/or the finite limits of fossil fuels. My colleagues and I are working on cheap electricity based on Maglev Launched Space-Based Solar Satellites (so is China) for beaming energy to Earth, scrubbing CO2 from the atmosphere, and desalinating water.
1
If the US were to adopt MMT, we would have to be certain that the extra money is wisely spent on infrastructure, R&D etc. so that it actually adds value to the economy. How can we be sure that this will happen? If the money is wasted, the US government and its currency are on a very slippery slope....
Japan is a country that is often cited as a place with much more debt relative to its GDP and it seems to work there. But the vast majority of that debt is held by the citizens of Japan who will not sell it. This is not true for the US.
2
Actually, in addition to describing the reality of how money actually works in a monetarily sovereign country, MMT has a very important prescriptive element: the federal job guarantee. Prof. John T Harvey explains it very clearly in a Forbes article that has been referenced in other comments here:
https://www.forbes.com/sites/johntharvey/2019/03/05/mmt-sense-or-nonsense/#3af5ab895852
1
You try it on small country, and if it works,
the opponents will say "the US is vastly bigger country, so it doesn't apply." Look at the rhetoric on "socialism."
Either way, conservatives had no problem applying debunked trickle down theory without any proof on smaller countries.
Getting sick and tired of always putting much higher bar on liberal or progressive ideas.
5
No small country would be allowed to try a new system without permission from the US and its capitalist owners Like Cuba, Bolivia and Venezuela the country would be sanctioned, financially embargoed and its elected leader would be deposed in a US assisted right wing coup. The "independent" main street corporate media would provide the verbal ammunition.
2
I'm an R&D chemical engineer, and so I love the principle of testing ideas rather than just talking about them.
However, many years of designing and interpreting scale-up experiments have taught me that this kind of experiment is very hard. Even in the world of chemistry, where the chemical behave the same way under the same conditions, are not susceptible to consumer-confidence or external phenomena, where the system can be truly isolated - even in these ideal conditions, it is very very hard to get good predictions from scale-up, because the most unexpected phenomena which appear trivial at one scale become dominant at another.
The standard example for non-scientists: how long will it take to melt a block of ice at 70F? Try using an ice-cube to predict how long it will take to melt an iceberg. When you do your experiment with the ice cube, you will get very accurate, reproducible results. You can make very nice graphs. It's just that they will be totally wrong in terms of predicting what will happen with a big block of ice!!
So the idea that testing an economic idea in New Zealand will predict what happens in the US is very tempting, but just not going to work. New Zealand's outcome will depend critically on what happens in the global economy, which New Zealand does not majorly influence ... but the US does. If the US does something silly (sillier than usual), global markets will lose confidence, global economics may change - it is just a very different situation.
3
All the current economic systems have a “money system” at their taproot but almost none of the theoretical deliberations go into the fundamental issues surrounding the purpose and need for such a system.
In the real world of today, “money” really has no other purpose than to represent an acceptable and guaranteed medium of exchange. Can anyone imagine what it would be like if there were no “money system” available for the essential day to day buying and selling of goods and services?
It should be obvious that the idea of “money” is simply an essential and very convenient tool that a rational society needs for its daily functioning. Essentially, this is the basis for MMT.
“Money” today, for almost everyone on this planet, is really an essential tool for survival. Basically, a “money” system needs two characteristics – it needs legitimacy for its acceptance and it needs a guarantee that it is not false “money”.
However, the real problem is determining the quantity of money a nation needs, especially if one wants to avoid inflationary or deflationary problems. The way to determine this is to establish the relationship between a nation’s productive capacity and its consumption capacity in accordance with its population levels. A balance for these three primary factors will take into account the availability of the nation’s resources and the people needed to produce and consume according to the desired standard of living.
1
This will take us back to the dark ages for sure, with no one trusting or accepting currency. We'll be trading in food and water and energy as money will be meaningless. I guess that's one way to get rid of billionaires; make their billions worthless. I better get going on a garden ...
4
This does not seem to be a fair presentation of what people like Krugman are saying. Anybody reading this should also check out Leonhardt’s summary of those (like Krugman and Larry Sommers) who are concerned about secular stagnation.
When the focus is on secular stagnation (or what “grows” an economy for those who do not think secular stagnation is an established interpretation of our current situtation) monetary policy is only one consideration.
We should all be doing our best to participate in and understand what it takes to stimulate an economy which means trying to understand what is really happening with our economy with a view that takes into consideration BOTH the immediate short term business cycles (3-7 years, as a rule) and longer term secular trends even though these interact with cataclysms such as world wars and global climate disruptions. Focusing only on arcane labels for murky ideas about monetary policy is not the best way to stimulate clear thinking - or promote understanding.
1
I am a physicist, not an economist. But I always wonder: why economists do not use extreme real examples to test their theories, as we do in Physics? I am also an Argentinian: why classic economic theories worked so wrongly to explain inflation in this country for decades?
4
Tried and debunked already. Ever heard of Sudan printing its own money and the inflation reaching 3000%
4
This smells far too much of "this time is different" thinking. That has NEVER ended well. We're setting ourselves up for a bad fall. There is nothing inevitable about the dollar continuing to be the world's reserve currency. Right now, it's the only serious candidate, but within living memory the pound sterling was the world standard. Pride goeth before a fall ........
I'm not sure Dick "Deficits Don't Matter" Cheney should be our guiding light. He is hardly someone who inspires confidence.
3
Wait wait wait so the answer should we have waited too long already.
1
Our government has been spending whatever it takes to wage wars with no care about having to print money for decades. MMT is up for debate only when it's not about arms manufacturing.
9
What kind of economic imperialism is it to suggest that we pressure smaller countries to adopt a system that may or may not work just because we can't solve our own problems?
2
There is nothing new about MMT. Its fundamental premise has been known for a very long time. What has changed, potentially, is the political willingness to test it.
In the end, we may have no choice regardless, other than to try it. Baby boomers, of which I am one, will not likely support a reduction in our entitlements. Younger generations, understandably, aren't too interested in paying for our entitlements while also footing the bill for the new initiatives those generations believe in.
So Congress will do what it has always liked to do. Spend money and not really worry about how it is all paid for. Now, for the first time, there will be an accepted economic theory as to why it is okay to do so. It will be a fascinating journey.
2
The example is already there: Japan.
Its example shows that nothing good comes from it. Nothing bad either - until now. But it creates an unstable system that might explode in the future.
The big question is WHY one should want the government to borrow instead of raising taxes. I see it as an attempt by the present generation to steal from future generations.
2
Why not use computer modelling of the various theories and alternatives? After all, computer modelling of tropical storm pathes have generally been quite effective in reducing deaths!
2
“They hold that a government able to borrow in its own currency need not be constrained by budget deficits and debt — meaning that it can act more boldly than economists have assumed, without negative consequences.”
The first order of business for Modern Monetary Theory then should be to print 20 trillion dollars and pay off the national debt. Voila! Debt free overnight!
3
Modern monetary policy seems to miss the fact that we are servicing our debt at nearly one trillion dollars a year, more than any discretionary expense on the Federal budget. That is money that could be used for health, education, infrastructure or other purposes, instead thrown away. Debt has social, economic and political costs to be noted. And that is best case scenario. Worst is lack of confidence in the dollar, escalating borrowing costs on top of high debt and runaway inflation. In good times like we are in now, we should be stabilizing the balance sheet, preparing for the inevitable rainy day!
2
@Joe : The theory is that there will be no more government debt, because the government will be printing whatever money it needs, not borrowing. IMO, this will wreak havoc on the system because the government will lose control over the money supply, and consequently, over factors such as inflation and interest rates.
5
"First do no harm".
This blithely assumes that no harm is being done as a consequence of the current economic models pursued by the US government. This is patently incorrect. How much harm is caused by poverty, lack of infrastructure, terrible health care and numerous other consequences of the current theory that government spending needs to be constrained?
The whole point of MMT is that it explains how things actually work, right now, in the USA. It describes accurately how money is created and what that means to the economy. It accurately predicts the problems that are created when people try to pretend that the government is like a household or a business.
Shrinking government spending means shrinking GDP and potential recession. Government surpluses are paid for by private debt, unless the trade surplus covers it. This is mathematics; it is not a "theory" that needs to be "tried out in a small country", it is what is going on in the USA right now. The only question is whether you wish to continue subjecting yourselves to harm, or start demanding that your government once again starts looking after your interests.
6
@GY and it totally ignore the historical fact that foreign demand for the world's "reserve" currency has never, ever been eternal, and once "reserve" status is lost the fall from grace is painful. As Mark Twain once said “History never repeats, but it sure does rhyme!”
1
@GY There are only 2 ways 2 pay a bill.... cash or fraud. MMT is fraud in its most simplist form ... because it is not based on the revenue We The People are making ... it is creating a false theory to steel money. I want the same outcomes you want but we have to get it by rising to the challenge not cheating ourselves.
1
Excellent, balanced economics article, NYT! Thought I was reading the WSJ or The Economist here!
2
Isn't China doing this already.?
Its debt had been increasing steadily and steps to deleveraging have been halting at best. Now its debt to GDP ratio is above US.
Many economists warn of the dangers of China's economy. But it has been moving along quite well.
No proponent or opponent seem to have considered the Chinese case.
1
"N.Y. Times asks whether it might be better to try out gravity in a small country first."
https://twitter.com/StevenHailAus/status/1103829249411244032?fbclid=IwAR1PAG2WJOFio84--Q9I3myvJkOEjVKIBJafvzZur4VewgTawlEDG2to4_A
2
North Dakota's public bank is already a success.
5
Contrarianism is a fetish among some. Couple that orientation with fashionable, reflexive anti-(D)WM (*) syndrome and it is unavoidable that MMT will be a hot topic, enthusiastically preached by the AOC crowd.
* (Dead) White Male. For example Krugman was beatified by the Occupy Wall St. movement and only years later became anathema for supporting Hillary against Bernie.
2
This article doesn't really get into what percent of actual economists believe MMT. Leftist politicians supporting an idea that would give them what they want without any hard choices is not exactly my idea of strong evidence in favor of. Finally, to the extent the constraints are really only about productive capacity and not "accounting", to give the government primacy over the control of all resources is defacto communism. In this model it appears the private sector just resides in the shadows, as a multiplier effect or implementer of the centrally planned grand vision. The larger the role of central planning, the greater will be the inefficiencies of the system, and the sooner inflation will rear its ugly head. This is so obvious a concern I'm surprised not to have read about it in this article.
6
On 3/8, @Rick Morris asked: "Can someone from the MMT crowd explain that when a government issuing bonds ..." etc. Here is the last of a three piece response:
@Rick Morris
… That cumulative sum is not something that has to be repaid! Who is the crazy lender/creditor who would allow this debt to grow so large? Answer: He/she/it doesn’t exist. (Or maybe we have seen the creditor, and he/she/it is us the people. But why would we repay ourselves after we have already paid ourselves to spend all of those deficit dollars? That would mean actually that we have a recursively unpayable public debt. That's nonsense.)
Point 5: Again, these are not Hamilton’s times. The various points made above rest on some simple facts such as that
(1) the US dollar is the US’s fiat currency.
(2) There is no longer a gold standard as of the early 1970s (though mainstream neoliberal macroeconomics doesn’t seem to recognize this insofar as it is still pushing gold-standard policies).
(3) The US funds, borrows, and taxes in its own fiat currency. Etc.
Households, firms, etc cannot budget the way the fed govt can because they cannot “print” their own money. The fed govt is unique in this way. @Rick's concerns are based on assuming that there is no difference and might be well-founded if that were so. But it is not so. The fed govt does not spend money but rather allows us to pay ourselves collectively to do whatever it is we choose to do collectively.
4
Bravo. The USA is the last place that should be the lab rat for the world. There is no prize for adopting any policy first.
Please let some other place try this out, or a UBI, or a massive carbon tax, first. Lessons will be much cheaper if we exercise some restraint.
1
Absolutely. Scandinavia tried Democratic Socialism. Works great for them. The US wants none of it.
1
I do recall the 2% target rate of inflation came from New Zealand, but also that the figure came not from economists there, but from the musings of a sheep farmer in that country who popularized his theory. Heard that 6-8 years ago on NPR or in the NY Times. Anybody else remember the details of that?
1
The tension between the macroeconomic and the M.M.T. camps seems to substantially involve a question of limits.
Economists on the macro side seem willing to adjust their formulations based on intelligent (math) debate and demonstrated history, such as the runaway inflation that did not result from the Obama administrations stimulus efforts following the 2008 crash. M.M.T.'s, on the other hand, seem to extrapolate into infinity, as if there are no theoretical limits to government borrowing and spending. Policies predicated on such premises would likely prove disastrous.
2
I believe New Zealand already tried a version of MMT during the Muldoon era. The government spent extensively on social social benefits and ran up very big budget deficits. My memory says that it didn't end well.
1
One big problem with setting a target rate for inflation: How is inflation measured, and who gets to decide which items count, which don't, and how are the included ones weighted? Example: The current, supposedly low rate of inflation seems to ignore or woefully underaccount the costs of housing. Both rents and housing prices have increased a lot since 2008, and rent or mortgage payments are, for many of us, the single largest expenditure. However, you couldn't tell that by looking at the official inflation figures. Long in short: Setting a numerical target will likely result in further "adjustments" of the way inflation is measured, guaranteeing that set targets will be met. So, high priests of MMT: how about cracking that tough nut first? I know it's more nitty-gritty than formulating some unified field theory of economics, but very fundamental!
1
@Pete in Downtown
That requires that you really get down in the weeds and get some dirt under your fingernails. Detailed MMT textbooks are available but I won't bother you with that except perhaps to recommend chapter 17 of Mitchell and Wray _Macroeconomics_ (978-1-137-61067-6). No one is talking about a grand "unified field theory of economics." It's just macroeconomics, though it requires more than a high school education to follow all the details that one could go into to properly pose and answer your question.
1
@Pete in Downtown
https://en.wikipedia.org/wiki/Inflation#Issues_in_measuring
1
@Bob. I know that MMT and it's arguments are heavily based in "modern economics ". However, the question posed by Neil Irwin is one addressed to the voting public in whichever country volunteers to be the Guinea pig. And, regardless whether one understands the math and economic models behind MMT, even someone without a Masters degree in Finance knows that once targets are set, the definition of how they are measured becomes really important. The way inflation is calculated has changed over time, so it is, by its nature, a moving target. The question is who gets to move it how, where and why?
2
What small country has its own currency which is used by all of the other countries of the world? How does any small country fit the model of modern monetary theory in the US?
1
@Blandis
That the US dollar is "used" by other countries is immaterial to whether a country, large or small, fits any MMT model (in the US or otherwise).
Non-US countries choose voluntarily to purchase US bonds because it is better than simply holding cash from exports to the US or parking reserves in riskier or non-interest bearing accounts).
By MMT lights, the US's issuing bonds is also totally voluntary, constrained only by the fact that is a tool for managing the amount of money floating around in the marketplace.
So stop buying US bonds if you don't want reserve dollars, and the few bonds that might ought to be issued occasionally should find enough of a market wholly within the US. If not, then the US can use taxation to shrink its money supply.
In any case, I think Venezuela presents a great opportunity to run MMT through its paces to see how well or badly it works since, after Maduro leaves, they could start with a more or less clean slate. (I've commented on this earlier.) It presumes that that country's government would want to give it a shot and remain at the helm throughout. Why not? What do they have to lose? Mainstream neoliberal macroeconomics surely doesn't look very promising, given its track record. It is Venezuela's call. No one else's. There are many MMT folks who would serve as advisors. E.g., for starters, talk to Bill Mitchell at the University of Newcastle, NSW Australia.
1
MMT is the latest strategy intended to boost consumption ... the absolute last thing required in a world where access to natural resources is becoming unaffordably costly.
Modern monetary solipsism ... non- money costs do not lend themselves to bookkeeping; what are topsoil depletion or exhausted aquifers really worth? Can they be replaced with money? How about vanished management credibility?
Bagehot was right about banker creditworthiness: that fact of the current fascination with MMT offers its own proofs.
1
@steve from virginia
That's not right. MMT is a strategy for promoting the nation's prosperity (in whatever form that might take) while maintaining stable prices. As you say, unbridled consumption would not count as prosperity --- quite the opposite. It is up to the given sovereign nation to prioritize and choose how best to utilize its resources so as to build sustainable prosperity.
MMT explains in broad terms how that would work without necessarily making blanket policy decisions. It is pretty clear that there are certain problems that all nations share, like climate change, health issues that do not respect national borders, etc. Any macroeconomic theory worth its salt should be able to say something useful about how to address such problems.
Likewise, when MMT talks about productivity resources like labor, land, and capital and asserts that full employment of these resources is a necessary condition for national prosperity, it is as if it is crossing into realms of policy making when it recommends job guarantee programs (re. efficient use of labor) and continual funding to build and maintain infrastructure (re. efficient use of land and capital) [BUT ONLY while respecting the preferences of the owners of such resources!]. The job guarantee is actually more central to MMT than that in that it provides a way to steer the economy from the bottom up, as opposed to trying to do so top down by manipulating interest rates (say). But perhaps I digress.
2
So, we're beginning this conversation now, when the Dems are proposing useful investments in infrastructure, education, health care and environmental protection, to preserve our future. Why wasn't this discussion going on when the Repubs ransacked the Treasury with tax cuts for the wealthiest and bailouts for the banks? Those "investments" resulted in bigger houses for those who lived in big houses and rampant debt for those trying to pay monthly rent.
6
When the government borrows from the Fed, each institution then has a crucial choice to make.
First, will the Fed just (a) print the money (in its weird way), or (b) will it keep the money stock constant?
If (a), then the government gains the power to print money, becoming a "dual-Fed". New Zealand unneeded: It's half the story of how LBJ financed the Vietnam War, triggering the dog-chasing-its-tail inflation of 1966-1980.
If (b), then what comes to the government is taken from the public by higher interest rates. New Zealand not needed: It's half the story of how Reagan and the Fed, in 1980-1985, broke the back of the inflation of 1966-1980.
Second, the other half of the stories. The choices which face the Government are (c) to spend the borrowed money, or (d) to hold back part of it, causing the (public) money supply to decline.
If (c), then we have the equivalent of Fed easy money. It's just that the Fed hands the money to the Government to inject into the public economy. This is the rest of the story of the Vietnam inflation and aftermath, 1966-1980.
If (d), then the government negates the stimulus of some or all of any expenditure increase by cutting the ability of the public to sustain its expenditure. This is the rest of the story of the Reagan depression and its benefit, the end of the catastrophic inflation.
So:
Borrow with (a), (c), 1966-1980;
Borrow with (b), (d): 1980-1985
Kerynes would agree. Pseudo-Keynesians will be horrified.
1
@alyosha
You are only rehearsing mainstream neo-liberal-esque macroeconomics. Illustrating how it plays out in New Zealand doesn't show how MMT would play out if used there as a macroeconomic policy guide. Of course Keynes would agree with Keynesianism. You have rehearsed recent history from a Keynesian perspective. So what?
1
@alyoshaThe government DOES NOT borrow from the fed. Why would it borrow its own money?Think for a second! The fed creates the money supply by buying government debts. That operation extinguishes the debt and the money all goes into the private sector, as a deficit spend [which means a tax deficit compared to the spending] All the rest of your arguments need rethinking.
2
As you mention, the US does not only borrow in its own currency, but the dollar is the reserve currency of the world. Both of those facts are necessary for longer term deficit impunity of MMT. New Zealand and the other nations you mention may borrow in their own currencies nominally. But their ability to run deficits is constrained by their currencies' dollar exchange rates, which are adversely affected by their deficits.
2
@Anon
But this is the case (sorta) only because foreign countries voluntarily choose to purchase US bonds (because that is better than simply holding cash from exports to the US or parking reserves in non-interest bearing accounts). By MMT lights, the US's issuing bonds is also totally voluntary, constrained only by the fact that is a tool for managing the amount of money floating around in the marketplace. So stop buying US bonds if you don't want reserve dollars, and the few bonds that might ought to be issued occasionally should find enough of a market for them totally within the US. If not, then use taxation to shrink the money supply.
In any case, I think Venezuela would be a better place to run MMT through its paces to see how well or badly it works because, after Maduro, they could start with a more or less clean slate. (I've commented on this earlier.)
1
I rather think the media is the hidden factor of this or any economic system. Telling people they are doing just fine so much psychological manipulation. Haven't there been college classroom experiments that demonstrate that the media controls the direction?
1
Right. We may have had a financial system that came close to complete collapse, rampant inequality with the 1% grabbing the lion's share, and massive unemployment and underemployment for decades, but surely we don't want " a fundamental reordering of how economic institutions and priorities work". Right?
2
Seems unfair to require MMT to have an effective, ethical monetary regime when that's required for Keynesians or the followers of Uncle Miltie.
The GOP has for decades been operating on the principle "It's OK if we do it & even better if it hurts Dems while increasing our power." Nothing's going to work for the country as a whole while that's in place, as it has been since Reagan. (The re-arranging-deck-chairs-on-the-Titanic argument).
3
@joel
oops - NOT required of...
1
But can someone from the MMT crowd explain that when a government issuing bonds finds no buyers, and resorts to literally printing money to cover spending and/or debt, how does that not devalue the currency? The rate of production of goods and labour remain the same, but there's a lot more money sloshing around to buy the same amount of resources. And as the printing continues, more money still. Prices rise as a result, then wages too. Then they rise astronomically. Since the GDP of the economy can't possibly keep up with the amount of money in the system, the value of the currency may crash.
4
@Rick Morris
I believe both MMT'ers & Keynesians might respond that a weaker dollar makes exports cheaper & imports more expensive - nothing wrong with that, unless you plan to spend a month skiing in the Alps with your rich pals. Or if you're an importer. It just cools down the economy. Which is what you want when inflation is too high.
I'm no expert - this is just my take on what I've heard both sides say. Feel free to correct me.
1
@Rick Morris
Debt is diluted as well, making it easier for debtors to pay.
3
@Rick Morris
You have nicely expressed many people's concerns when they hear second hand about MMT from fear mongers claiming all sorts of dangers threatened by various things they say that MMT proposes.
Point 1: MMT recommends that bonds not be issued for every dollar that the govt "spends" if it is only to finance that spending. That was needed back in Hamilton's day when the US govt borrowed foreign money (repayable only in that foreign currency), but those days are long gone, especially now that we have our own fiat currency. The only reason to issue bonds is to pull money out of the economy as one way to help manage inflation risks. Likewise, ...
Point 2: MMT holds that "printing money" (a misnomer) is not needed to cover govt spending or the debt. It could certainly "print [too much] money" too quickly, which would threaten the stability of prices; but it creates such money to fund specific projects (1) that we the people view collectively as worthwhile (good education, healthcare, guaranteed jobs, strong infrastructure, etc.) and (2) that we have the resources needed to complete them (labor, land, capital, etc.). If we fund ourselves to do such things in ways (to much, too fast) that outstrip available resources, then price stability is threatened. Otherwise, we may fund as much as we like so long as the resources are there to make these things happen.
Point 3: Taxation, like issuing bonds, is *not* revenue and does not pay for these projects. ... to be continued ...
3
How does the money printed by govt in the MMT theory get injected into the system? If it is all used to pay for govt services that otherwise would required borrowing money (deficit spending) then wouldn't the govt become the not-so-silent hand of the market?
If the money is given to the Fed to buy up assets to keep the music of capitalism going by allowing banks to recharge their balance sheets, then wouldn't it be a blatant subsidy and protection for banks to make as much money as possible? That could lead to another 2008 crisis.
Or would the money be given to rank and file people, in the form subsidies for universal services, or a guaranteed income?
1
@medianone
Well, how do food stamps get injected into the system to be used by rank and file people? MMT recommends against a bloated bureaucracy; but, for instance, the unemployment programs could be retooled to become employment programs, say if you were trying to get a Job Guarantee program up and running. You would get it to the rank and file by earmarking such funds for the employment guarantee program.
Note that the federal reserve works by having certain banks lined up to put funds into reserves that may then be loaned out to private (and public) buyers. No way to earmark it, but one might hope that it helps the economy.
MMT recommends fiscal solutions (see above) rather than the latter monetary solutions.
1
@medianone the key point - and one that no mainstream economist seems to grasp - is that deficit spending IS printing money. The money has already been "printed" and distributed throughout the economy over last half century. If we were to raise taxes to pay off the debt, we'd be wiping out $21 trillion in wealth from the economy.
1
Can we get single payer since it has been 'tried' in so many other countries already?
17
It is easy to recommend that let New Zealand, Norway, Switzerland, Sweden, Israel and Singapore try the MMT first. But if anyone of them running into trouble like Greece, who is going to rescue? Who will be responsible for the failure?
For sure the peoples of those countries do not deserve the sufferings.
3
@Yu-Tai Chia
Your comment illustrates the reason why economics is not an experimental science.
1
@Yu-Tai Chia Greece uses a foreign currency, the Euro. The US, Japan, Australia, etc. have sovereign currencies. It's a completely different situation, and one that MMT fully understands, yet mainstream economics seems wholly unable to grasp. MMT allows us to understand that it is better to have your own currency and to not take on debt in a foreign currency.
1
@Yu-Tai Chia There is a fundamental flaw with this concept of a small country trial. The fact is that we already live in an MMT economy. All MMT does is provide a lens with which to examine how the macroeconomy actually works. There is no theory being tested here.What it does is lead to greater understanding and on to better management of the economy for every citizens' benefit.
1
I found the devil in the details.
"In this model, inflation is the sign that spending needs to be reined in or taxes raised."
The inflation might not show up until it's too late to stop it. It's a threshold effect; once people lose faith, it will snowball and wreck the currency. Until then, all will seem good.
2
@mlbex I'm not following. How and in what are people losing faith? And what does that have to do with inflation?
1
A small country next door, Canada, debases its currency during an economic slowdown and concurrently, increases spending while professing to be orthodox.
1
Japan exists - experiment complete and hypothesis proven.
Weimar and Venezuela are not MMT "failures", they are examples of the collapse of productive capacity leading to increased demand for scarce resources.
5
@Peter J Japan has a massive current account surplus. Can a country that needs foreigners to buy its debt do what Japan has done? That is the question. Currency is irrelevant in this case. Rates are still the issue.
2
@Eb
The US does not need anyone to buy Treasurys in order to spend. Foreigners are exchanging a non-interest bearing asset (i.e. cash) for an interest-bearing asset (i.e. Treasurys) because they are choosing to not spend the cash now. But none of that effects our fiscal policy space. Nor does it impact the interest rate, which is strictly set by the Fed to whatever they want the rate to be.
2
The media is the message. If you see the MMT group every 45 minutes on the TV, they must be great. If the swindler from the big city with few friends can become President, the MMT could become economists. Just print the money.
1
MMT works until it doesn't -- and hyperinflation cranks up. then it's too late. nobody knows when the failure point is. wat to risk this? not me.
3
MMT = Magic Money Tree = printing money = hyperinflation. This is nothing new; what's new is the uncritical embrace by leftist economists. You, too, can believe in Santa.
6
@Clinton Davidson the economy we have now is MMT. So all your fears don't change already. It's REAL, not leftist or rightist, Just IS! No money tree required, it all comes from thin air, as required by the constitution giving total power to the Federal government. But no debt=no money.
1
The government can print money until the cows come home, but it can't print confidence in that money. There is nothing more unpredictable or unstoppable than the loss of confidence in a currency. It can happen literally overnight. It is essentially a cosmic run on the bank.
What it all comes down to is that money is just pieces of papers (and electronic blips and bloops) that reflect a faith in its value. With a $20,000,000,000,000 debt the fate of the dollar may have already been sealed. It's just a question of which straw breaks the camel's back.
I would predict that bad things will start happening sooner rather than later. And with you-know-who at America's helm sooner is probably a good bet.
4
The one thing that seems to be missing in all of this dialog is that to some extent we have lost the critical relationship between money and real assets ( e.g. there often is no longer a direct mathematical function between what some resource produces & amount paid ). Everything is all tied up in either "the maximum value the consumer will pay" or "the present value of future $$." I believe recently Warren Buffett has made some comments about this, but more in terms of intrinsic value of a stock. If MMT can address this issue then maybe just maybe and yes please please definitely experiment on a smaller country first!!!
3
@SomedudefromFLa
Your analysis has been known for centuries. Think of the Dutch tulip bubble.
2
@5barris
The Dutch tulip thing was a speculative bubble (that was blown up and burst for reasons that are still not clear). MMT threatens to cause hyperinflation, according to all the critical comments here. But that is just false. You all need to read up on what MMT actually proposes before trotting out hearsay references to arbitrary economic failures as if those had anything to do with MMT per se.
3
MMT is pretty boring and mainstream when it comes to explaining how household, commercial, local and state govt budgeting works. Your spending should not outrun your revenue, etc. Mainstream macroeconomics assumes without even thinking about it that federal govt budgeting works the same. That is more or less true for countries like Greece who have joined the EU and have given up any ability to spend, borrow, and tax in their own sovereign currency. A fundamental MMT insight is that fed govt budgeting for countries like the US who ARE able to spend, borrow, and tax in their own sovereign currency in nothing like household (etc) budgeting. It is way different. How so? Well, start by reading this and other articles. My point is that many of the criticisms of MMT here and elsewhere are based on a mistake of thinking like mainstream economists and government officials that federal finances are just like household finances. What MMT proposes for the fed govt would blow states, households, etc. out of the water if applied there, ignoring several basic preconditions (like being able to make one's own dollars). OF COURSE that would be stupid for households. But, amazingly, not for federal sovereign governments!
3
@Bob
Thank you. I am so tired of hearing about how it is "bad" for government to spend more than it takes in because people who get into debt doing that always end up in trouble. Serious investment spending, done properly, is NOT a bad idea. Families that buy a home are often seen as prudent as their rent payment has now been transformed into an investment. (That assumes the family used the basic common sense about interest rates, has some savings for emergencies, etc. I am not saying every family should buy a home under any and all circumstances.) Government spending is also not wasted when it meets a social need that puts the money back into the economy. Foregoing tax revenues primarily from the very rich, as the recent tax legislation did, and creating more federal debt is not sensible. Those lost revenues are pretty clearly not going into the broader economy, but mostly into increased federal deficits. Stock buy backs have a dubious record of creating jobs.
1
@Bob
Krugman has written many times that it is a fallacy to conclude that the government is analogous to a household. Krugman has also written in opposition to MMT. So the government-as-a-household fallacy is not the basis for skepticism of MMT.
1
@tew
The question, though, is: how is it not analogous to a household. Krugman still thinks that the fed govt spends and earns like a household, however else he might think it is different. And that is what MMT denies.
1
Trying out MMI first on a smaller scale. Translation: Imperialist U.S. should force others to risk what it’s unwilling to.
1
@Roger
Eh, no. Nobody as advocating that the U.S. force another country to try MMT. That's an absurd claim.
1
So having Peter Thiel who purchased his NZ citizenship isn't punishment enough?
Now you want them to experiment with their economy?
I'd have thought 50 years of neo-fascist economics - oops - neo-liberal economics - brought the world enough misery.
3
@Deborah Altman Ehrlich
If you were to read up on what MMT is, you would find pretty quickly that neo-liberal economics is heavily criticized by proponents of MMT. Some of MMT's more public critics include neo-liberals Paul Krugman, Larry Summers, and others. Both sides of US partisan politics have the same mistaken conception of fed govt financing, deficits, public debt. It's deficit doves vs deficit hawks, but BOTH are mistaken about what those deficits actually are. So-called net deficits are actually net funding achievements (when managed properly). The fed govt does not actually "spend" money or "make" money. Rather it "funds" projects and "taxes" them as needed (to control too much funding, not to zero it out). All MMT is proposing is to better understand what these so-called deficits are and act accordingly. (And there is no need to issue debt every time you fund something. The public debt is really not much more than a fiction. At best it is a running total of past funding achievements, which is a positive thing. That cumulative sum is not something that has to be repaid!
1
- Comrade secretary, who invented socialism, doctors or lawyers?
- Well, it is based on the work of philosophers, economists and political scientists...
- That's what I thought, lawyers. Doctors woulda tried it on mice first!
2
Um, this writer does not understand MMT.
MMT is not permission to spend gobs of money, it is an explanation for how we can already spend gobs of money as we do.
The Federal Government already operates according to MMT. It generates vasts amount of debt without any of the disasters predicted by non-MMT macro-economists. It has been doing so for decades.
If the NY Times is going to start waving the MMT flag, reporters really need to know what it is.
5
Is Venezuela small enough for such a worthwhile experiment?
1
@Frued
Absolutely yes. And to begin, Maduro would have to go and a federal democratic republic would need to be established, at least so far as to have a well-functioning legislature and executive treasury dept. The first goal would be for this govt to formally accept the obligation to promote the country's overall prosperity. It would then have to figure out what to do first to get its enormous productivity resources back into working order, and to achieve full employment in particular, all while keeping inflation under control. I.e., Venezuela is a rich country now laid to waste, but that means it could fund a lot of useful projects because there are lots of idle resources at present. That does not mean that they could not fund too much too quickly (inflation is an ever-present danger), but now (after Maduro is gone, etc.) is the time to get the greatest bang for their funding buck. Ironically and not to be wished on anyone, this is a great opportunity for Venezuela that ought not be squandered by adopting failed and false macroeconomic theories that currently guide the world's economies.
1
Nassim Nicholas Taleb, in his recent book "Skin in the Game" is contemptuous of "interventionistas" who advocate meddling in the affairs of other people, societies or countries without suffering any consequences to themselves when the situation goes south.
The "shock therapy" of Boris Yeltsin's administration in Russia- forced privatization of state assets - was carried out on the recommendations of economists like Jeffrey Sachs, before democratic norms and the rule of law had become established. Russia's notorious oligarchs/kleptocrats owe their fortunes to this misguided policy, which also explains the subsequent rise of Putin, just as the Depression in Germany spawned the rise of Hitler.
4
Well Kelton & Krugman are arguing over my head but I get the image of a teen pushing her curfew to see what she can get away with. Probably ok near the lower bound.
1
"First do no harm." Right, as if supply-side policy had been tested before being foisted on the country. As if its repeated failures had any effects on subsequent Republican administrations that kept returning to it. Any alternative is preferable; we could do no worse.
1
MMT is a description and analysis of what is. It isn't something you "try".
3
Japan is deficit spending as mmt proponents describe 240% of GDP for the last 40 years with deflationary response. That's not a small economy...
4
But what happens when everything is built up and you don’t need to hire more people? Or you don’t want to hire in the US but another country to grow there?
Just because you hand out credit basically with nearly zero interest doesn’t mean people have to borrow. And people without good jobs might be able to borrow but eventually the bill comes due and defaults occur. And when the wealthy borrow there’s no guarantee they will spend here and seems likely they will send it somewhere else outside the US. Or you end up with large credit expansion schemes that get dumped on the working class when party is over because that’s easier than actually creating value in the world.
If we go into a recession the main way to get people employed in the first world is through government right now. The desire to use labor elsewhere is to high and if they do hire again it’s just for the jobs they lost. There is minimal growth so it just slowly throwing people into poverty here.
The whole push against wages and inflation is poverty in the global economy. Now if everyone was on a level playing field. Inflation and wage growth would be totally different.
To me it appears that the 1st world exports inflation through using labor outside it’s borders. So right now you can expand credit but have low inflation because there is always this pool of labor just sitting there for capital to use as leverage.
1
This would not be the first time that a nation's economic policy has been made on the basis of unproven dogma. In the 70's the Fed attempted to combat inflation assuming that the Phillips curve, supposedly based on an inverse relation of unemployment to inflation, was the governing principle. As soon as the Fed tried to put it in practice it blew up completely and both inflation and unemployment went to extremely high levels. More recently many central banks have driven interest rates to record low levels, including negative rates in Europe and Japan, without any real evidence that this has boosted performance - Japan and many countries in Europe now may be facing recession.
Unfortunately, as Irwin says, Congress and Presidents, especially the current one, have shown no greater understanding of the economic factors which affect national prosperity. But "do no harm" is a principle that should be applied to the activities of central banks. Above all there is no evidence that they can be trusted to fine-tune economies using standard monetary tools.
4
This is extremely dangerous logic, but has been discussed for decades. I think that it's growth in popularity it tied to Japan's ballooning debt, currently at 240% of GDP, which has not brought about the economic ruin that had been predicted by so many fiscal conservatives.
The catch to this is everything depends upon the underlying economy's viability along with the actions of the participants. Labor, businesses, and government. Two of those three, labor and businesses cannot exist without limits on their spending.
Theoretically governments don't have those limits as they control the currency. But reality has shown that is a double edged sword. It doesn't matter whether they print the money directly or indirectly by selling debt. It's a bomb waiting to go off as history has shown over and over again.
Using an inflation target is one way to help control things. But when the government engages in unrestrained deficit spending that can wipe away any benefit from that. And that is exactly what is going on. Both in Japan and the US. The bulk of the deficits are tied to entitlements and no effort is being made to reform them. The only reason the bubble hasn't popped is both the currencies are in the benchmark category. So people, when evaluating risk management, will store value in currencies that are more stable. And that stability can very easily disappear.
4
If the progressives take congress we will have something even better than mmt--real tax reform as in the rich pay their fair share. Just repealing their egregious tax cut would be a start.
We don't need to borrow more money. There's enough in tax havens if we would only call them out. The military budget is bloated. We just need to be more people oriented--ordinary people.
4
@betty durso
You are missing the point of MMT. In reality, there is no such thing as "taxing the rich to feed the poor." There are still reasons to tax the rich but they are not tied to raising money to feed the poor. That's not how the economy really works. These are all myths about savings and spending that we take from our household situations and falsely apply to the government.
5
@Kyle
Back last century when taxes on the rich and corporations were much higher and unions were stronger our economy soared and we had money for social security, healthcare, and public education.
Now towns hollowed out by their industries going overseas can't even afford police and firemen. They sell off everything of value or go bankrupt.
Cutting taxes on the rich and hoping it will trickle down is madness. What were we thinking to have allowed this latest ripoff?
Now that's "how the economy really works."
3
@betty durso The progressives are proposing MMT. It's resurgence comes from Bernie's financial advisor, Stephanie Kelton and it's proposed as the way to pay for Medicare for All and the GND.
3
As far as I can tell, MMT appears to be little more than repackaging the very old an sensible notion, originating with Keynes, that fiscal policy is an effective way of stabilizing an economy--especially one that can borrow in its own currency. If it's just a reminder of that shamefully abandoned notion, okay, and in principle some nation may improve its performance by emphasizing fiscal policy (by the way, there is nothing in modern academic economics against this; it's just that given all the realities noted in the article about the difficulty of actually doing sensible fiscal policy economists kind of put this option aside and just focused on monetary policy). If it's said to be some sort of great theoretical breakthrough, that's another matter.
I'm old enough to recall the initial buzz about "supply-side" economics and the "Laffer curve." At the time that seemed to be no more than ridiculous exaggeration of the sensible warnings that incentive effects could undue or reinforce the impact of policy changes. Experience has amply shown that initial feeling was correct. Let that be a lesson for those looking at MMT.
1
How about if we try open borders in a small country first?
What about Israel?
2
Everything new really needs to be tried out on a small scale first. When people sitting in fancy offices or college faculty lounges start dreaming of changing things, everyday people shudder.
1
The ability to borrow and the ability to pay back are not the same thing. The private sector gorged on cheap credit for more than a decade prior to 2008 and we seem to have already forgotten that painful lesson. New monetary theory? More like wishful thinking.
7
@James MMT is in full agreement that it is bad for the private sector to rack up unsustainable debt. However, we now know that the federal government is fundamentally different from the private sector. The federal government is the issuer of our currency and the private sector is the user of our currency. The private sector cannot create dollars, it can only borrow dollars. The federal government (central bank) on the other hand is the only institution that can create dollars. One problem in the lead up to 2008 is that the government deficit was too small (or taxes were too high - destroying money), and the only way the private sector could do its thing was to go deeply in to debt. One thing we should have done to prevent the GFC is more deficit spending (i.e. "printed money") so the private sector would not have had to take on as much debt as it did.
2
Um, correct me if I'm wrong here, but aren't the key words "able to borrow in their own currency"? I highly doubt that any of the small countries you mentioned are able to pull that one off. I would think that only (at most) the top three or four economies in the world would be able to borrow in their own currency, which makes (alas) your experiment impossible. Or am I missing something?
12
@BruceS
"Borrow in their own currency" is not the proper way to phrase the challenge. It should be "selling debt in their own currency". Which translates into having people who buy the debt. And that leads to having many buyers outside of the country's borders.
Using round numbers the USA GDP is 19 trillion while the debt is 22 Trillion. We can only sustain that spending when debt, in huge quantities, is bought by entities outside of the USA.
2
Ah great, let's give the Congress more reason to borrow badly. So far, $22 billion, and what do we have to show for it? An interminable war in Afghanistan and the second coming of the Gilded Age. There has been no restraint so far (how many times has the debt ceiling been raised?) and we still have crumbling infrastructure, unaffordable healthcare, failing schools, no plan for climate change, an opioid crisis etc. It makes all the sense in the world to cut the brake lines.
8
@Brett The government borrows its own money. When the Federal Reserve Bank sells Treasury bonds it is called borrowing. I don't know why, it just is. It would be the same as if you were to buy a CD at your bank then you could say your bank was borrowing from you. Basically it just takes money out of circulation for awhile. The reason we have crumbling infrastructure, unaffordable healthcare, failing schools, no plan for climate change (actually we do have a plan for that - GND) is because the government is not spending enough. We are living far below our means. So it doesn't make any sense whatsoever to cut the brake lines.
3
Makes me nervous when people tell me I don’t have to pay my bills. I can just hand them to someone else who wants them?
1
@Brett
I think you mean $22 *trillion*, which for the record is $22 billion multiplied by one thousand.
1
To "try" for MMT is like a person who wants to "try" and gravity: this is the way it works. MMT is not a new way of running the economy, MMT is a lens through which to understand the economy. MMT offers no policy direction but rather seeks to show the reality of the economy.
MMT explains why your supposed counter-examples occurred. Both post-war Germany and modern-day Venezuela are examples of corrupt or desperate governments spending into an economy while losing the command of real resources. MMT didn't 'cause' those financial crises - does knowing something cause it to occur?
Your article blindly believes that current economics is right, despite its awful predictive history.
11
@Joel. You are missing the point. MMT calls for handling the nation's finances differently. Everything from integrating the central bank and treasury (and not issuing debt for every dollar appropriated) to instituting a job guarantee program. It says that we need to stop doing a lot of stuff that we are doing and starting doing some other things. The best thing we could do is try it out on a small scale, look for any weaknesses, try to correct them, and go from there. No two economies/nations are exactly alike, but it would be a very helpful and wise experiment. That is what NASA does with any of its projects, no matter how little ore much confidence it may have in its proposals.
4
@Bob
Joel is correct here. MMT is the air we are all breathing as we collect our SS checks, visit our doctor, or watch a military jet fly overhead.
MMT is a theory that explains how it could be that the federal government can continue to issue debt as it does without facing the same risks as a non-monetary sovereign like Greece, Vermont or Sears.
3
@Joel
Your comment indicates that you believe that the US economy will always stay on top. Continued deficit spending, which is what MMT is, can only be maintained when the underlying currency is a benchmark currency. When it's not a benchmark currency then MMT can produce disasters, of which Greece and post-WWI Germany are just a very small sampling. Events like that have been going on for centuries.
1
MMT is like deciding to smoke two packs a day because one did not die from few cigarettes a day. It is good to see so-called fringe economists being rejected by the big shots before this dangerous idea gets out of hand and bankrupts USA.
3
Aren’t we basically doing it right now because if the tax cuts?
1
@Tamay Actually those so-called fringe economists should be awarded a Nobel or two in Economics.
1
MMT was tried in Weimar Germany and in Argentina. Argentina is still paying and Germany is pushing hard money on to countries like Italy and Greece because German voters do not want to repeat Weimar and what came after.
4
@Jim Linnane MMT was not *tried* in those places (nor in Zimbabwe, if you recall, and in Venezuela today). Those are the very places where growing deficits were allowed to pile up only after the economy's productivity resources had been compromised if not obliterated. MMT says that those are perfect conditions for hyperinflation. Running deficits per se was not the root problem in any of these cases, but rather the problem was doing so at the wrong time, in the wrong circumstances.
6
Great idea, unless you happen to live in one of those small countries
14
To "try" MMT is like a person who wants to "try" gravity. MMT is always there, you can't turn it on and off. This is the way it works. MMT is not a new way of running the economy, MMT is a lens through which to understand the economy. MMT offers no policy direction but rather seeks to show the reality of the operation of the economy.
And MMT explains why your supposed counter-examples occurred. Both post-war Germany and modern-day Venezuela are examples of corrupt or desperate governments spending into an economy while losing the command of real resources. MMT didn't 'cause' those financial crises - does knowing something cause it to occur?
4
The article should have made very clear, in no uncertain terms, that MMT is not about printing money. It is strictly about borrowing money in the country's currency, exchanging IOUs for the money so that the volume of circulated money does not increase and thereby keeping inflation expectation in check. This is akin to having a high saving rate so that the savings can be used for public investment which in turn can generate revenue for further public investment and social welfare.
There is no need to experiment with a small country because the US has been doing MMT for many decades and inflation, except for a brief period in the 1970s, has failed to reach the 2% target for many years.
7
@Paul
Thank you. Very important clarification.
1
This is a great idea. We should be doing Modern Monetary Science, not just implementing Modern Monetary Theory as if it were a done deal.
"But history offers many examples of the result of using money printing as a solution for a lack of private buyers for debt: a vicious cycle of rising inflation. The M.M.T. crowd will surely be prepared to explain why its approach wouldn’t end in catastrophe, ..."
Not only are they prepared, they have already explained in a hundred or more instances why all of these historical examples are misguided. Pick any one you like and you see that productivity resources were already compromised if not decimated *before* the money printing started. That is, by MMT lights, a perfect recipe for hyperinflation. The problem then was printing money in the wrong circumstances, not printing money per se.
5
“Modern monetary theory” is not intended for small economies.
3
@Ed. Yes it is. And it can be applied most directly if the economy is that of a sovereign state that issues and borrows in its own fiat currency.
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Do no harm ... unless it isn't your country?
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The problem is what works in one small open economy may not apply for the system as a whole.
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Alexander Hamilton began this process, assuming the states' war debts and creating a national bank to pay off the debts and provide paper money and credit to a growing economy.
It suggests a parallel: our worst public sector failures rest not at the federal level but with the forced austerity caused by balanced budget requirements in the states, cities, counties and schools (teachers' strikes, NYC subway, falling bridges, potential local bankruptcies, on and on).
My old economics said inflation was too much money chasing too few goods, the image being a failing economy printing currency but without productivity growth, or of 1920's Germany. MMT seems to say that as long as there are productive uses of public spending, deficits won't be inflationary.
If this is correct, the most productive way to make MMT work would be to relieve those burdens at the state and local level. Obama's stimulus did a lot of this, bailing out potentially massive state and local revenue losses. It was called "revenue-sharing" in the Reagan era. We don't need New Zealand--let's get this new money out to where it will be visible and truly useful.
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The biggest gaps at state level now are pension liabilities. Pouring Federal dollars in now would simply fill those holes on accounting ledger, but immediately do nothing else. That action may in turn free up some state dollars at a later date, but American people are not interested in paying Chicago’s or NJ’s civil service pensions as a first step.
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@Lennyg Please define "productive uses of public spending".
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@Samuel Norwood Education, roads, water systems, pollution clean-up, public safety, affordable housing--what's not productive about these investments? State and local spending is far more direct than federal (although it filters down to the locals), and was the most effective use of the 2009 stimulus.
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As mentioned before, MMT is descriptive. Money issued by a sovereign is a measure of value, sometimes a store of value and always a claim against the sovereign's assets. Money is similar to stock issued by a corporation in certain respects. If a company issues more stock and uses the proceeds to increase the value of the company, the cumulative total of the stock represents that increased value. Deficit spending on infrastructure increases the value of the economy. Spending on social programs is best done with a balanced budget.
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@Beaconps
I understand your explanation,and appreciate except for the last sentence. Public education and food support programs are both considered social programs. I defy anyone to improve our economy to any great extent, not to mention our society, without improving public education and supplying enough food to keep people from going hungry. Same for medical care. It takes good health, adequate food, and the knowledge to become a good worker at any job. I have never seen an data on what deficit spending would bring us if invested in social program versus infrastructure, but common sense suggests that a child properly fed, housed, kept healthy, and well educated is just as much a long term investment that brings enormous long term real benefits to this society.
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Some economists believe excessive debt causes slow growth. Having to raise huge amounts of money just to pay interest sucks the life out of an economy.
If debt increased, and interest rates rose even moderately, the Federal government would have to tax everyone and turn the money it collected over to the wealthy. This cannot be good for the economy.
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@Jonathan MMT reminds us that a monetary sovereign government [USA, Japan. Canada] does not fund itself with taxes. Tax has other uses. Revenue is not one of them.
It creates money by spending. When in excess of tax it's called deficit spending. The budget resets to zero every year so if you have a budget surplus then you have taken out more in tax than was spent in. That leads to recessions or worse. Budget deficits equal private sector assets, because the act of spending extinguishes the debts the government created. It's the way it is ,but just needs recognising by politicians and their media.
1
MMT seems to be a reaction to the extremes of grim neo-liberal economics of the last 40 years. The rotten things done by Wall Street and its accomplices in the WH and Congress have left us with severe income inequality, slow growth, and barely pent-up political rage.
The wisest response is probably not an equally extreme lurch to the left. Even if every MMT critique turned out to be true, no one in his right mind would make monetary policy dependent on timely decisions by elected officials. Heaven forefend!
Think for a moment of Bernie Sanders' nonsense numbers in his 2016 campaign. Think of the glib emptiness of the rhetoric about taking us directly to Medicare for All coming from newly minted Congresspeople. Trump does not have a monopoly on ignorance and willful stupidity.
The well-being of the American people would better be trusted to Democrats and people politically left of any Republican breathing. That does not mean it is reasonable to trust people on the left without question.
As Irwin says: As the MMT people approach political power and influence, after the accumulated trauma of Republican, supply-side policy-making: First, do no harm.
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@Karen Owsowitz
I suggest that those on the left are pushing the edges of the envelope mostly to get a rational conversation going.
I'm a liberal Democrat. A very liberal but wealthy senator from my state, Ted Kennedy, tirelessly attempted to get some sort of universal health care for all Americans. Obama comes up with this non-public-option twisted pretzel version of full coverage that looks a lot like the RomneyCare we had here in Massachusetts, and do I have to tell you the political repercussions of that? I hope not.
So, along comes Bernie who starts screaming "Medicare for All" because he's sick and tired of being pushed around by Republicans whose version of heathcare can be summed up most accurately as NoCare.
Every American with a senior citizen parent understands Medicare. Bernie's hoping everyone will ask the question "why can't we have that?"
We pay twice per capita for healthcare in this country than other developed nations and have poorer health outcomes. The only people who are willfully stupid are those who refuse to ask why this is.
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My issue with all economists, progressive and conservative, is that they have very little understanding of human nature and the behavior their policies incentivize. When you hear them speak on monetary theory or policy, you are often left shaking your head at how little common sense they have in regards to human behavior. For that reason, I remain skeptical until I meet at least one economist who comes in contact with human beings and not graphs.
That being said, we have a dire shortage of carpenters, plumbers and electricians in blue states with housing supply issues. We would be a lot better off if instead of producing so many economists who spend their days pontificating on twitter we got more skilled workers who could build houses.
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@boris vian
As skilled workers' wages increase, pontificating economists will be motivated to pursue housing construction as skilled workers themselves.
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Let's make an effort to understand the "money printing" argument. Suppose the Treasury sells bonds directly to the Fed, bypassing the public. This supposedly "monetizes the debt," since this creates money out of thin air--no private sector funds were involved in the bond purchase. But Warren Mosler's argument is that this can never happen as long as FOMC has set a target fed funds rate. As soon as the Treasury spends this new currency it will create excessive currency reserves in the banking system, driving the fed funds rate to zero (simple supply and demand--that is, lots of banks want to lend their reserves but no bank needs to borrow them). In order to meet their mandate, the Fed will be duty bound to sell bonds in order to mop up the excess reserves. Thus, the Fed takes the bond it bought from the Treasury and turns around and sells it to some entity in the private banking sector. There can be no monetizing of the debt as long as the Fed behaves responsibly and does its job.
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@WDG Monetising the debt comes directly via the spending to pay for government actions, authorised by Congress with its legislation. The idea we need bonds to match the deficit is a mistake because already the debts have been extinguished.
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@John Doyle Mosler argues that the national "debt" is more accurately described as an "Interest Rate Maintenance Account." The $22 trillion is an accounting of how much untaxed currency has been issued by the Treasury. The fed's buying and selling of bonds is the tactic to keep the overnight bank rate (the fed funds rate) at or near its target. The debt is NOT extinguished, and the gov't will never default when a bond reaches maturity. That said, it's also true that the "debt" will never be repaid. Why would Americans want to make themselves $22 trillion poorer?
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You make a logical argument, but have you read "The Uninhabitable Earth," the UN IPCC report or last year's U.S. government report on the catastrophic effects of climate change? We need to take dramatic steps in the next decade, which doesn't leave much time to conduct experiments with economies. Transforming our economies to become carbon-neutral will require massive expenditures, including borrowing. But I would gladly choose a little more inflation over the tropics becoming uninhabitable, 100 billion more refugees, agricultural yields plummeting, worse wild fires and storms, and my house underwater. Some risks are riskier than others.
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@Networthy Sorry for the typo. I meant 100 million more refugees, although that's an underestimate. The UN actually anticipates there will be 140 million refugees because of climate change by the year 2050.
4
An econ professor at TCU had a column in Forbes a couple of days ago on MMT. He boiled the theory down to such a clear and obvious statement of what the theory says and what the theory does NOT say, that even economists should be able to understand it.
Spoiler alert: Professor Harvey points out that we have been "experimenting" with MMT for decades. Most economists just don't seem to realize it.
https://www.forbes.com/sites/johntharvey/2019/03/05/mmt-sense-or-nonsense/
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Great idea! Let’s try our testing on a small country before scaling it up to the US. Try testing what, you ask? Oh nothing much. Just some non-FDA approved drugs looking for a small sample population we can try things out on so as to be sure any potential downside harm will be confined to someone else and that we will not expose ourselves to any such potential harm. Since such countries have such small populations, any damage will be so minimal and so distant as to be a small price for us in the homeland to pay. Why, maybe Dr. Mengele had a point after all!
Drug testing of course is a metaphor for MMT, a macroeconomics con job if there ever was one. And when the music finally stops, then what? Argentina, anyone? Venezuela perhaps? Small countries all, and obviously countries that are expendable in a grander scheme of things. But never mind, political bases of all stripes drool over a bit of red meat.
How grotesque! A tongue-in-cheek piece of opinion writing maybe, but what message is it really sending? Its underlying message is no better than that conveyed by the recent comments of Representative Ilham Omar.
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@Bruce Glass
Denis, N.A. War against All Puerto Ricans: Revolution and Terror in America's Colony. NY: Nation Books, 2015. Chap. 22, Weird Science in Puerto Rico.
"... In August 1995, the US Department of Energy dropped a bombshell, announcing that the federally supported radiation experiments had used up to 20,000 men, women and children between World War II and the mid-1970s...." P. 240.
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@Bruce Glass Your con job is what passes for economics now. The mainstream is deliberately conning the reality to curry favour with the uber wealthy who fund their pet politicians and own the news. They will be happy with you acting on their side.
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Seems to me that last year's Republican tax bill was based on MMT -- deficits really don't matter.
One might have thought that a such a trillion dollar increase in deficit might have lead to an increase in inflation. It didn't!
So, the US has tried an experiment with MMT and it didn't cause a disaster!
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@Mike O'Malley ... Yet. One thing that confounds me about economists is that they always gauge success by immediate results, instead of looking at the long game. We need more planning on the long game.
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I believe we already tried out economic theorems in Chile among other places in the lower America’s: we sent Milton Friedman down there to introduce financialization of everything that would benefit the one percent when that doesnt work out as planned we merely send in the C.I.A., a few special forces to instruct death squads on how to best deal with left wing nay sayers and generally stick one of our guys in their as a dictator for life type like Pinochet, Noriega, The Shah, Mubarak, then Sisi and Poroschenko now it seems we have swiveled back to regime change in our own hemisphere once again, specifically in Venezuala and Brazil. Our brand of economics benefiting special interests often requires lots of capital damage on the part of the little people. Nothing new Neil.
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Greece was also borrowing in its own currency!Wrong example.
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@Ted: Not true, the Greeks were borrowing in Euros which was, and is, an impossible situation for them, unless they become an export economy, such as Germany. The Eurozone would be similar to the United States having a common currency but 50 separate economies; the red states would always be borrowing from the blue states yet with no way to pay them back. Eventually unworkable.
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@Ted Wasn't Greece borrowing in Euros -- a currency over which it has no control?
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@Ted: I believe it is worth noting that it was Goldman Sachs not the Greeks themselves that came up with the idea of cooking its books allowing it to gain entrance to the E.U., then gain access to those euros. Specifically it was ex President Trump honcho Gary Cohen and his sidekick Lloyd Blankfein that led the Greeks down the primrose path to destitution for the Greeks and big profits for Goldman Sachs.
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It has been tried but just for banks. It's call asymmetrical monetary policy and includes industry-friendly measures like bank bailouts, weakened collateral standards in overnight markets and quantitative easing (ad infinitum).
All measures designed by bankers for the banking sector using public facilities created to nurse institutions back to financial health so they can unleash their rapacious sales practices on helpless people again. And meanwhile pocket lavish bonuses and direct support to local election campaigns.
BIS estimates size of global derivatives market today $600 trillion (seven times world GDP). Triple the size back in the crisis. All of which has been good news down on the Display desk at the NY Times.
Appointments to leading monetary positions globally is controlled by bankers for bankers. Don't hold your breath on a People's MMT any time soon.
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“Try MMT” is like saying “try the continental drift”or “let’s try photosynthesis but in small countries first”.
MMT is a *description*, it tells you how it is possible to ostensibly “borrow” 22T from a $50B economy (size of our $$ asets in 1940) while interest rates fall.
Tells you why QE caused neither inflation nor lending
Tells you why Greece chokes while Japan with 2x the debt pushed the rates on its long-dated bonds to zero, at a whim
Tells you why heterodox is conomists sounded the alarm 2004-2008 while the mainstream patted themselves on the back for their Great Moderation
Tells you why every time the US seriously shrunk its National Debt a *depression* happened and all depressions were preceded by such events.
On all of these , mainstream has nothing to say, it spins it highly mathematical models based on crazy assumptions wih no mapping to reality.
Etc. in other words “nothing to see here”
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@Ron T
Exactly. Are you back?
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@dean
I never went away :)
I am more on twitter these days as @fiat_money
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@Ron T
Well said, neighbor.
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The Little Red Hen understood and applied economics principles better than most present day economists, economics commentators, and politicans do. Moreover, she did this without the constraints of money, which is essentially a measurement of the value of a good or service. She didn't have to worry about the damaging effects of inflation, resultant devaluation, and excessive "printing" of money, all of which render it, as a measurement tool, less useful. She also understood the psychology of economics. We all (except the aforementioned "experts") would be better off if we re-examined her approach and copied it.
1
How about trying it out on a small country like Serbia? We hear nothing about them except through the grapevine, which is saying the young people are all looking for jobs in other countries, the old people are starving to death for lack of money because their Social Security was stolen and the good businesses that existed were sold for pennies, so there is no place to work anymore. But the land is still fabulous for farming! Only not enough people to do the work. Surely we could do something there.
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— experimenting on small countries smacks of imperialism
— you need scale for this to work
— No such thing as "target inflation" until 1989 and 2012? Are you kidding? I remember this as a political and economic factor going back to the oil embargo years of the 70s.
— as someone else in this thread observed, MMT is not a theory, it's an observation of how the system is actually run. The only problem is that the people doing the running are doing so with a set of assumptions that benefit the elite.
We need better choices and we actually need to take chances. At the dawn of capitalism, I don't think the world paused to think about whether or not the system would work. Today, we are quickly entering a time when we need visionaries who can lead, not timid thinkers who make excuses for for why we have to take half measures that end up costing us dearly. The planet is cooking, and there is no longer a center-right for the center left to partner with anyway. Those days are over: that's why we ended up with Trump. The dance for our very survival as a species is with the left.
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The real question, deeper realms of macroeconomic theory aside, is what and how does a government spend the dough that it creates?
Does it spend to increase individual liberty, free choice, innovation, human welfare--or does it spend to metastasize the power of the state. Does it create to invest in many small, flexible, easy-to-fail enterprises; or does it, a la Green New Deal, propose lumbering, inflexible and fragile entities that, inevitably, become too big to fail? That's the issue we should be working through--as opposed to academic hissy-fits that keep the tenured entertained.
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@richard cheverton
You are correct in that it is important as to where the money is spent. Spend it on things that benefit all, like infrastructure, produces benefit. Spending on non beneficial items produces few desirable results.
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@richard cheverton
"lumbering, inflexible and fragile entities that inevitably become too big to fail" where have I heard that before?
2
@richard cheverton -
It's been said we display our values in the way we spend our money. In the Land of The Free (old, white rich men) we value Perpetual War. We now devote +/- $1.3 Trillion/year - 1/3 of our federal budget - on the MIC.
2
There is nothing to try. MMT is simply a description of how the macroeconomy works in a monetarily sovereign country. And we already have tried MMT style funding in the US - ask Bernanke how he funded the various iterations of Quantitative Easing and he will tell you "keystrokes". Then, ask yourself why we never ask how we will "pay for" wars and Wall Street bank bailouts.
The plutocracy know and use MMT all the time. They do not wish for the rest of us to understand how money actually works because we might get ideas, ideas that might cost them a bit of money.
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@Steve Bruns umm, no. We have not just printed money willy-nilly the way MMT suggests. All government expenditures have been matched by borrowing or taxes.
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@Steve Bruns Actually QE did not result in "printing money". The purchase of long-term bonds resulted almost entirely in a huge accumulation of "dollars" in banks' excess reserves, which are not in the economy and are not money. Japan and Europe have both done QE - Japan to a far greater extent than the US - with no favorable results. True money supplies and inflation have not been increased. Whatever system is used should require a better understanding of how money is or is not generated by central banks.
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ConsDemo & skeptonomist,
Note how the comments section provides little reward to competence and expertise.
4
A soverign bank would be important. (Most countries have one) A bank owned by the people and ran strictly as a bank. Loan money for big projects that often take years. This would infuse billions into the society, create jobs throughout the US not just on coastal areas. allow new infrastructure to increase efficiency (New modern electrical grid would reduce energy los by 30%) and create millions of long term jobs and increase spending by the consumer (70% of our GDP) and increase revenue and decrease the out of control debt. The principal and interest goes back to the citizens, not Goldman Sachs bonuses.
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As with many policies and biological systems- a little may be good & adaptive, too much is disaster.
4
Economic theory is just that: theory. It isn’t science, it isn’t math, it’s more like philosophy. A multitude of theories and opinions, it is basically an attempt to manipulate the masses by the elite. The interplay between the elite institutions that propose economic theory and the Congress and executive branch to implement the economic flavour of the month is truly a dismal process. One would think that a historical analysis of all the failed economic policies would lead to a better economic model. My summation is that no one really knows what is going on. Economic policy is a form of manipulation of populations based on game theory. Someone is always trying to “game the system” for their own selfish interests. Those with the greatest amount of knowledge seem to benefit the most. Greenspan and Friedman were both dupes of the elite. Greenspan was the alchemist prestidigitator of foolishness, he just wanted to be a socialite without the money. He truly was the Wizard of Oz. Friedman was a con artist for the elite.
15
Smaller countries are not there for the United States to experiment on. To frame them that way is the height of nationalistic hubris, and evokes the ugly sheen of imperialism.
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@Alice
Um, nobody is suggesting that the U.S. "experiment on" other countries. The suggestion is that the largest and perhaps most complex and diverse economy on the planet should probably wait for another, smaller, simpler country or countries to implement MMT before making the leap.
12
I seem to recall that there occurred several experiments of this type in Latin America over the past several decades that didn't end well.
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@donald.richards Indeed. The minor 1 million % a year inflation in Venezuela comes to mind. Ditto the wonders of the Weimar Republic.
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@Ernest Montague
I happen to have a 100 Trillion Dollar Reserve Bank of Zimbabwe bill from 2005 on my desk.
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@donald.richards & @Ernest Montague Latin American debt has for the most part been in US dollars, not local currencies, so this is not a valid comparison. And Weimar republic reparations payments to France, primarily, were connected in a stream of debt back to the US.
12