The response to my call for questions on modern monetary theory (MMT) has been pretty big. There are 149 right now, and I suspect there will be more.
Warren Mosler, who has agreed to answer the questions, and I exchanged mails on the next steps yesterday.
The plan is threefold. First, I will assemble the questions into what looks like a logical order so that the whole issue of MMT can be worked through.
Then Warren will respond over time to those questions, and the responses will be published in either batches, or singly, as appropriate.
Third, this is bound to be an iterative process and so questions will be updated as we go along, especially on matters surrounding practical interpretation of MMT as it might be applied in the real economy.
Finally, if the whole thing pans out into something useful an overall summary of the exchanges might be produced. But that is a long way off, as yet.
In the meantime feel free to keep asking questions, but be aware that because of the sheer volume of them it might take a while to reach the one you asked. I offer apologies in advance, but if this is worth doing then let's do it as well as we can.
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Anything good takes time.
Whether it is wine, food or a good explanation of MMT.
I look forward to using it when it is ready.
Will the answers be published on your blog or elsewhere?
On this blog
But I suspect elsewhere in due course as well
Is ‘Magic Money Tree’ an expression intended to diminish the reputation of MMT making it appear foolish by deliberately misapplying the initials?
In…
‘Magic Money Tree’, ‘Remoaner’, ‘Tax and Spend’, ‘governments are just like households’ or ‘Just Get On With It’ (and many more carefully selected, simple and potently dismissive expressions with similar ‘intelligent-discourse’ exterminating intent); are all deliberate, vacuous tabloidese expressions that are used by Government or the Conservative Party, or their spin-doctors, or the neo-liberal press, as a cheap substitute for argument – but quite effectively, at least in the closed-loop world of the contemporary British media.
Enormous effort is expended by intelligent people, with a respect for evidence (but few resources), to challenge the daily drip-feed of press or political stories supporting context-light, distorted, unverifiable or incoherent claims about currency, or Brexit, or tax or whatever lurid exaggeration is required to fit the day’s news agenda; that have no more substance than ‘tax and spend’ (or whatever prejudicial inanity best fits), delivered with sneering contempt, and the empty but aggressive assertion that the whole country is behind the Government/Conservative Party. By the time intelligent opinion has organised itself and laboured to demonstrate the vacuity of a single daft claim, six more outrageous, and equally incoherent claims from the same political source will have been widely publicised in the press, social media and TV. Nobody can keep-up. It is all trash, but it drowns out everything else.
This is British politics today. It is only in such a debauched political environment that such people as Theresa May, Boris Johnson, Liam Fox or even Ruth Davidson are able to survive – or indeed, thrive.
Next question.
Who (as individuals or ‘interest groups’) would lose out if MMT policies were adopted to run a national economy?
And, I suppose, another question:
If a nation state unilaterally adopted MMT policies would the FX market be able to crucify the currency on the exchanges?
Variations are in
Andy,
How would such a “crucifiction be in their interest? How would they profit from that and if they did not profit, why would they do it?
I actually meant crucifixion. Actually, in an odd way I kind of like “crucifiction”. Its an amusing mistake but I’d be careful before using it consciously.
“How would such a “crucifiction be in their interest? How would they profit from that and if they did not profit, why would they do it?”
(Yes I quite like ‘crucifiction’ too. But I share your caution about using it carelessly)
George Soros famously made huge profit from the ERM debacle. I don’t quite understand ‘how’, but if there’s profit to be gained from bidding down a currency you can bet your life on somebody doing it. Particularly if they had a vested interest in its failure.
That vested interest may be purely financial shorterm gain or it might be a question of bringing down a government to replace it with one more amenable and displaying a higher degree of ‘financial competence’. (Such as the one we have at present. (?) Which understands which way the ‘real world’ works)
It kind of leads on from the question of who loses out from sensible monetary policy. Plenty of money is being made by the players in the current set-up, would MMT threaten their income? I’m thinking of the JP Morgans and the Goldman Sachs sized players but not mentioning any names.
In my questions
Andy,
I was kind of hoping that you’d mention Soros and the key there is the ERM (a forerunner of the euro)
Soros explioted the difference between the actual (or ‘floated’) value of the pound and its pegged value in the ERM. That’s a rough description but the point is that it is those sort of discrepancies that the speculators go for.
Its the pegged currencies and, more generally, those that are artificially appreciated as by way of an on-going arrangement. As far as I am aware MMT generally advocates the floating of currencies. Here’s Bill Mitchell:
“A country that operates on a gold standard, or a currency board, or a fixed exchange rate is constrained in its ability to use the monetary system in the public interest, because it must accumulate reserves of the asset(s) to which it has pegged its exchange rate.”…..
“Floating the exchange rate effectively frees policy to pursue other, domestic, goals like maintenance of full employment.” http://bilbo.economicoutlook.net/blog/?p=5402
To answer one of my own questions “if (FX markets) did not profit why would they do it?” Sometimes blind, stupid panic will consume FX markets in a crisis. An excellent example was the rapid depreciation of the Australian Dollar during the GFC. Among other things, FX traders ditched the currencies of commodity exporters and the AUD dropped suddenly from around 95cents US to 60 cents. The Reserve Bank of Australia, knowing that it was a market failure and gross over-reaction, intervened decisively and successfully. The central bank of a nation with a floating currency can usually do that when and if required.
Sorry. I know this post is about questions rather than answers but I’ve seen quite a few fearful comments made lately about FX markets and MMT. I am sure that W. Mosler will have additional insights.
I consider anything but floating an invitation to a crash
Thanks for that, Marco. And your additional comment , Richard.
Co-opting Warren Mosler is an excellent strategy. Well done. However long it takes, the published end result will make a major contribution to our collective understanding of MMT. Thank you in advance for this and all the work it will inevitably entail 🙂
Right now I have more than 60 questions
I may publish them for comment before they go to Warren, just in case!
I appreciate that you may be joking Richard when sharing your work with Warren Mosler.
But think of that Powell memorandum and how it called for the corporatists to work together?
I’d like to think – in fact I do hope – that progressives are doing the same – even globally. You can only match fire with fire in this game – the long march to a courageous state(s).
What I love about heterodox economics and political economy is its diversity of ideas and creativity. And its openness and honesty about talking about the downsides and risks. Also, its willingness to behave scientifically and see what happens in the real world.
But it can also be a weakness in getting a consensus to present to the public and sometimes appears less unified than the snake oil and lies that the orthodox brigade ram down our throats day in and day out.
This is not a criticism of the herculean efforts you and other go to in trying to bring about a fairer world – just food for a little thought.
Marco – thank you for the Bill Mitchell quote. Given what I think know about American trade (thank you Michael Hudson) – that they like you to spend with them in dollars that a country has to buy or have a store of – his explanation makes sense.
I am noit joking abiout working with Warren
And I do not think he is either
Stephanie Kelton has welcomed the collaboration
I would welcome her joining in
They are thinkers
where can I get a qualification in MMT?
In the questions…
Ken-Bill Mitchell is in the process of setting up an ‘MMT University’, as far as I know it will be based on the undergraduate Macroeconomics book he co-wrote with Randall Wray and Martin Watts.
Bill’s plan is to get it rolling in September 2018. The undergraduate text book is already published with a more advanced on e on the way.
Basic details here:http://www.mmtuniversity.org/
Congratulations Richard what an excellent idea!
A couple of questions on Job Guarantee:
1) If I am always guaranteed to have a job, wouldn’t that affect my performance on any one job? In the private sector, fear of losing my job due to performance ensures I give my very best and that benefits the employer, myself and society at large. How does one ensure that the people we hire on the Job Guarantee, to say build a local community solar plant, are not only the best qualified, but also do their job in a timely manner with excellent quality?
2) If we leave it to local communities to define new jobs funded by the Federal Government, could certain communities advertise nasty jobs for say sniffing out and rounding up illegal immigrants that would attract neo Nazis in the area for instance?
Noted!
In my list….
Andy S,
I would imagine that I am not the only one that is disturbed by this suggestion: “fear of losing my job due to performance ensures I give my very best and that benefits the employer, myself and society at large.”
Does it?
That fear could very easily be seen as reinforcing the way in which decades of ongoing unemployment has resulted in lower pay and poorer conditions. Workers are implicitly or explicity told that “if you don’t like here there’s plenty more where you came from” Their bargaining power is diminished. Full employment brings a greater freedom of options as well as greater bargaining power with respect to the supply and demand for labour.
As early as 1943 the Polish economist, Michal Kalecki observed that there were political aspects to unemployment. A full employment, high-wage economy brings higher levels of demand and additional growth, but as Kalecki observed, capitalists generally were content to sacrifice that in return for the power, control and cost savings that come with a low-wage economy and with permanent but limited unemployment. Linked below are Kalecki’s famous essay as well as Bill MItchell’s commentary on Kalecki’s piece and on the Job Guarantee :
http://delong.typepad.com/kalecki43.pdf
http://bilbo.economicoutlook.net/blog/?p=11127
Before parting I would also note 2 things:
Most if not all of us were guaranteed a place in primary and secondary education system. This has never resulted in a widespread plague of poor students. A great proportion are good students not because they have to be to avoid expulsion (that is not the case) but because they want to be.
Many Western economies enjoyed full employment conditions (or something close to that) throughout the 1950’s and 1960’s. People at the time tended to do their jobs quite well. Certainly no worse than they are doing them now. As always there are internal reward structures that often encourage good performance.
Hint: carrot-not-stick.
What an inspired choice for a piece (slab!) of work Richard.
As a ‘seeker after truth’ I came across Mosler’s ‘The Seven Deadly Innocent Frauds…’, and indeed Bill Mitchell’s work, as a direct result of reading your blog. (and what a shame that nice Mr McDonnell didn’t think to rope you all in to his never-realised Brains Trust!). I look forward to seeing the results – who knows they might even find their way into the BBC’s definition of ‘balance’ and thence into Mr Harrumphryes’ armoury?! Meantime here’s one for your list (reproduced verbatim) which was asked in a ‘CiF’ debate in the Graun:
‘One thing I’ve never managed to get MMT proponents to explain. What’s the explanation for historical state defaults by countries with a floating exchange rate. I can see how it explains those by countries with a fixed or pegged exchange rate. But there have been plenty of the other kind, too. Why? The state should be able to simply keep issuing sovereign debt, and never be forced to default, no?’
I think Mosler says, effectively, that the questioner is wrong; that here haven’t been any state defaults -IMF bail-outs, inflation etc., but no defaults – but I’m a bear of small brain.
In my list – in some form if not word for word
” What’s the explanation for historical state defaults by countries with a floating exchange rate.”
Unless, perhaps, there’s some case that involves “original sin” (borrowing in a foreign currency etc.) I would be happy to bet good money that no such thing exists. I note that the person in question provides no examples.
I have to say that would also be my answer