I have been under some personal time pressure over the last few days because of extended family health issues. One of the things I have not done as a result is work on a the questions for a written Q& A on modern monetary theory with Warren Mosler, one of the founders of that economic school, which he has offered to do.
Then it occurred to me that I might as well open out the question setting process in advance. My aim for this is threefold:
a) To provide short answers to the theoretical basics - so short questions would also help;
b) To deal with the obvious issues that are raised in response to these basics;
c) To deal with the crass comments (from Venezuela / Zimbabwe / Weimar) onwards.
So fire away please. As many as you like. I will edit them though, and hope you will understand.
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How does mmt address money creation by banks (re Steve keen, Richard Werner)? I’ve tried asking this on an mmt forum and it ended in personal insults towards me! I don’t buy the ‘state creation’ thing because it doesn’t match empirical evidence. If we don’t fully explore how money is created how can we attempt to harness it the way mmt suggests? The power of banks to create money without effective limits (Pettifor/Mellor) is not addressed by mmt as far as I can tell. Really appreciate you doing this Q&A!
Noted
Richard
MMT has the same view of how bank money creation works as Keen/Werner, etc. Wray’s first book in 1990 was entirely on this topic and is a key contribution to that literature that predates both Keen/Werner. It’s covered in Wray’s 1998 book that is the foundational text of MMT. It’s in the first ever MMT publication by Mosler, “Soft Currency Economics” from 1994. There are dozens of articles (and dozens more blog posts) on bank money creation by MMT economists.
And yet again, there are also literally dozens of articles (and dozens more blogposts) by MMT economists on regulating the financial system. There are two large reports at the Levy Institute website resulting from a Ford Foundation grant on the 2008 crisis and its aftermath. Mosler has had his own proposals posted to his website for 5+ years. Wray is the best known student of Minsky, so financial regulation has been a core part of MMT from the very beginning.
Finally, there’s a money and banking textbook draft from Eric Tymoigne covering these matters posted to the New Economic Perspectives site.
(I have no idea what the state money ‘thing’ not matching empirical evidence means. There’s far too much empirical evidence, legal scholarship, and primary sources to agree with such a statement. My guess is the forum discussion didn’t include actual MMT economists that would have been equipped to answer the queries.)
I am also interested in this question. That 97% of money is created by private banks is put to us from many sources, sometimes to shock us.
Does this simply mean that 97% of the outstanding credit/debt contracts are on the books of private banks, and that really banks do not create money at all, they simply create positive and negative in their double entry accounts?
And so the real (and perhaps only) problem with banks is too big to fail, i.e., privatise the rewards, socialise the loss?
Sorry that might be more than one question!
It is more than one question…..
But they are worth asking
After studying MMT, the 97% figure seems dubious as MMT doesn’t consider Government Spending as recycled private sector money (Bonds +tax) as Positive Money seems to do. But I’m not sure I can get my head around how to compute the stocks and flows to calculate it.
One thing is clear: banks can’t create net assets (horizontal money) only Government can do that ( create an asset without corresponding liability).
Sorry -just realised this was about questions not attempted answers-but maybe it’s a question as well.
Charles Adams says: “97% of money is created by private banks. Does this simply mean that 97% of the outstanding credit/debt contracts are on the books of private banks, and that really banks do not create money at all, they simply create positive and negative in their double entry accounts?”
1. The “97%” figure is an approximation of averages but, yes, the figure is in the ballpark alright.
2. There all sorts of money in existence and/or circulating in an economy and practically everyone can create new money. You write a check for $100 in my name because I sold you something. I endorse that check by countersigning it and give it to my grocer who accepts it. He may use it the same way. Presto, an additional quantity of money has been created (by you!) and is now circulating through the economy.
3. Money is an IOU (among other things). The state issues money and that money is a debt of the state to you – in the sense that when you present that money to the state, the state is obligated to give you back something (an equivalent sum of money, now that the gold standard is extinct).
4. The state obliges you to fulfill all your financial obligations to it by using the state’s money. So, if you are obliged to pay the state a certain amount of taxes, let’s say $500, you give to the state $500 of your money. You use one form of debt (the state’s to you, as we said) to extinguish your debt (in he form of taxes owed to the state).
5. So, everyone can create an IOU and try to pass it off as money. The question is, how do you get your IOU accepted widely as money. (A famous Minsky quote, that.) Well, since the state sits on the top of the power structure of a nation and the nation’s economy, the state’s money is the strongest money of all, the money that everyone necessarily trusts – and accepts as payment, etc.
COMING TO YOUR QUESTION, NOW 🙂
6. Banks create new money every time they give out a new loan. Their kind of money is, to be exact, an entry in their double-entry books. On one side, we have the banks’ debt to the borrower: it’s the money the bank is supposed to give to the borrower; they credit the borrower’s bank account and so now it is an obligation by the bank to the borrower, just like all the money in bank accounts. On the other side, we have the borrower’s obligation to repay the loan.
7. That new money is actually a bank IOU denominated in the state’s currency – which then the state (automatically and as a privilege given to the banks) accepts as equivalent to state money in all transactions. Operationally this new money acts in the economy like all other state money, although in terms of state accounting it is not new or state money at all; as soon as the loan obligations are extinguished all traces of that new money are gone as well.
8. Finally, most people confuse the two notions, “money” and “paper notes”. They are not the same; the latter is a subset of the former. The banks do not print money (well, some of them do, through other, arcane prerogatives, but that’s not important). They create IOU’s out of thin air (just like you or me when we write a check) which the state accepts as money.
Take care.
I can see the rationale behind MMT but my biggest concern is that virtually every politician, every economist and every news outlet is wedded to Neoliberalism. When left wing politicians make proposals the standard answer is – how are you going to pay for It? I believe the subject needs to be forced into the public arena because nothing is going to happen until there is a paradigm shift in thinking. There also needs to be a general education process concerning the way the words DEBT and BORROWING are used. When virtually every university economics department is educating students in neoliberalism, what hope do we have?
Definitely on the list….
Ellis Winningham talks about inertia. Truths come out and build momentum. Two decades ago MMT wasn’t a blip on the radar. I recently read a lovely article in the NY Times authored by Prof Kelton. Social media has also factored into the rising popularity of MMT. People once accepted the Earth was flat. We have a decided evangelical advantage in that naysayers no longer burn heretics at the stake. I believe our ability to properly diagnose current macroeconomic trends and predict outcomes will accelerate momentum as we move forward.
Is monetary theory only for “big economies” to play with or worry about?
Can places like the Crown Dependencies do any more than read the book – when you have written it?
Good question
To what extent does the ability to implement policy consistent with MMT depend on a country’s position in the international currency hierarchy? Can developing countries implement MMT-consistent policies?
Noted
That’s a good question. I have sen a criticism of that MMT is all very well for the more economically advanced countries, but how would an emerging country with a very ‘weak’ currency fare?
On the list
1. What is needed for MMT to be more widely accepted and implemented?
2. Is political will the only and highest barrier to MMT’s implementation?
3. What are the negative aspects of MMT?
4. Do you have confidence that MMT can be applied? If not, why not? Who or what could ensure this policy is not abused?
5. Have you and other proponents of MMT considered a more aggressive and targeted campaign to increase awareness of MMT? If so, I would be willing to help/advise/volunteer.
Thank you for entertaining my questions. I hope your family’s health has improved.
Cheers,
G. Sharpe
Thanks
5 noted…
When I read Civil Law about 100 years ago I learned about the extinction of debt through the process of confusione (i.e. when the debtor and creditor become the same person). I have never understood why this principle does not apply to all the Government debt owned by the Bank of England which is in turn wholly owned by the Government. Why does the Government not simply cancel the debt thereby at a stroke reducing significantly the National Debt?
I like that…
To some extent, in its own inadvertent way. Quantitative Easing seems to be doing that already.
On issue of debt confusion, ISTR a specific debate about a specific amount of debt (£360m rings a bell) the gov owes to itself but would not write off.
Don’t know if that helpful here, but I wonder if there are hidden issues why Osborne (for it was he) didn’t cancel the debt (after all on the face of it that could have been a political boost if billed as ‘we got the debt down via austerity albeit a blatant lie).
Borrowing from private banks seems to be a contrivance based (somewhat) on a myth, ie. that hyperinflation will result if gov prints its own wealth. I suppose I would therefore like to ask how relative the myth is to the truth; and is the message of Finance constructed as an exploitative tool the simplistic basis of the whole mission?
er, £360bn I mean
Is Brian referring to the £360bn in the govt’s overdraft (as was) at the BofE’s Ways & Means Advances, which has already been settled, I understand? I’m just seeing if this jogs his memory, bit of a coincidence if he’s referring to something completely different. The dept. which now looks after the govt debt (since the Ways & Means does no longer) is the Debt Management Office, by the way, I was asking the other day Richard and you couldn’t remember. I’m not sure what they actually do there as they aren’t forthcoming, their site unhelpfully has broken links which I’ve complained to them about already.
Bill – may have been this money http://www.taxresearch.org.uk/Blog/2018/01/15/do-we-have-the-politicians-big-enough-to-snatch-power-back-from-the-0-1/comment-page-1/#comment-796510
This from 2012, but my mind is fixed on issue highlighted from about 2/3 years ago but cannot at no find references to it that I thought would be easy to find, about Osborne not writing off the amount when it seemed advantageous to do so, and was broadly presumed he didn’t in order not to dilute austerity narrative. It think now it was £325bn my memory was striving to recall and the £360bn was a coincidental pluck out the air.
You are referrring to the balance of QE funding
I suggest, and others do, that this has been written off: and in a true and fair set of accounts (those for the whole of the UK government) that is reported to be the case
The BoE says otherwise in its own accounts
Their accounts are those of the subsidiary
It is the government accounts that are right here
Fred Shedden says: “The Bank of England…is…wholly owned by the [British] Government. Why does the Government not simply cancel the debt thereby at a stroke reducing significantly the National Debt?”
Because the word “debt” in the term “national debt” is a misnomer.
We are talking about debt denominated in the national currency, in a country that is sovereign fiscally and monetarily (that is, practically every country in the world except for the madhouse called “Eurozone”). The national debt in this case is simply savings of the private sector (trust funds, pension funds, my grandma’s T-bills, etc) or investments by the foreign sector (e.g. the US bonds held by the Chinese government).
The sovereign state issues debt NOT TO FIND MONEY FOR ITS SPENDING NEEDS but for a number of other reasons: To regulate or control the interest rate; to try and affect “liquidity”; to offer a safe means of savings (see above); etc.
A state that issues its own currency does not need to obtain that currency from “somewhere” in order to spend it (or to “reduce the deficit”, etc) and that’s practically by definition! You can write your name on an almost infinite number of pieces of paper; imagine if someone was to forbid you to do this unless you first get back some of the papers you already have out! It would be insane – exact same kind of insanity that makes people think that the state somehow “needs”, “must”, get back some of the money the state itself has created in times past in order to be able to spend money.
So, why should we retire national debt? Why are we worrying about those moronic “debt clocks”? Why would we want to force my grandma to give up her T-bills and put her money in a far more unsafe place, such as a bank account? 🙂
A further question: What are the consequences for a country like the UK using MMT in the circumstances where we have a massive balance of trade deficit. Presumably the imported goods have to paid for in the currency of the nation which is exporting them to us. Does this not leave us vulnerable to a collapsing exchange rate as speculators game the system? And they will game it.
Rod White says: “What are the consequences for a country like the UK using MMT in the circumstances where we have a massive balance of trade deficit?
Presumably the imported goods have to paid for in the currency of the nation which is exporting them to us. Does this not leave us vulnerable to a collapsing exchange rate as speculators game the system?”
1. MMT is not a policy, a political ideology, a strategy, or a tactic. MMT is simply the presentation of how the modern economy functions in terms of state finances, bank operations, etc. (The words in the term itself, “Modern Monetary THEORY”, often lead to confusion, because people confuse “theory” with “hypothesis”. There is nothing hypothetical in MMT. It is a theory in the purest scientific sense of the term, e.g. the theory of relativity.
2. Therefore, a country cannot “use MMT”, if we want to be exact. What we want is for the leadership (in every field) of that country to understand and accept economic reality, the reality described by MMT. It is not a prescriptive but a descriptive theory.
3. We should rightly be suspicious about leaders not “understanding MMT”- that is, “not understanding economic reality”. It’s quite legitimate to suspect that they understand reality (MMT!) better than most people, yet use the typical garbage about “fiscal discipline”, etc, to convince us they are doing the right thing. But we digress!
4. Nations cannot be completely self-sufficient in their needs. We will always be exporting and importing. If we want to import, we must also export – something, anything, otherwise our national currency is useless abroad. So far, in the history of modern economies, the parities of national currencies more or less reflected (or were supposed to reflect) the comparative state of the respective national economies. We did alright, didn’t we?
5. Speculators cannot created “artificial” pricing anywhere as long as the system operates correctly, i.e. policing is firm, penalties are harsh, collusion is not possible, etc. Speculators seek opportunities unseen by the common investor. The British pound did not get hit by Soros back in the day. Soros and others like him simply saw that the pound was overvalued in the basket of currencies that preceded the Euro and bet against that “artificial” pound-value. The only vulnerability of the system is that it is regulated and polices by the same people who profit from it, and that includes politicians. This is a purely political issue; not an issue of economics.
Thank you for your time and effort. And thank you to all the other contributors. I feel I have had a good education these past few days so thanks to Richard Murphy for starting this thread.
Assumptions that are needed to make it work..3 spring to mind
1) productivity is maintained with increased Govt involvement.
2) don’t import inflation through depreciation of currency
3) if inflation bites the political difficulty of increasing taxes
Noted
I don’t see the relevance of the “”productivity” point.
So many people use that word with no real idea of what it means. What “productivity” are we talkng about? Labour Productivity? Capital Productivity? Multi-Factor Productivity (MFP)? – what?
What are the risks to a country ‘operating’ MMT from destabilising external (deliberate or otherwise) forces?
I just came to know about MMT a few weeks ago. While there are still some things I can’t quite grasp, it is the best no-nonsense explanation of how a modern economy really works that I have come across with. I have two questions regarding having our government back to issuing ‘pesetas’ (Spain’s former currency):
1.- Spain had really high mortgage and loan interest rates back in the 90’s. I’m talking about 12 or even 14 % at some point. The Euro was a promise to stop that. Wouldn’t a return to using ‘pesetas’ bring up this problem again?
2.- Spain is a net importer of goods like natural gas, oil… which are key to any modern economy. We don’t have ANY reserves whatsoever. Wouldn’t we struggle to import them after returning to our currency and applying MMT-based policies?
1. There is no reason why the peseta should have any direct bearing on interest rates. If you look across the entire history of the peseta I don’t think you’ll find that 14% interest rates were always there with it. Other factors in the ’90’s would have caused that outcome.
Joining the euro did not address those factors, it simply forced Spain’s interest rates down in order to meet the euro convergence criteria. Many observers have noted that the sudden lowering of interest rates greatly exacerbated the housing and debt bubble issues that affected Spain so severely after the GFC.
2. Spain is not the only nation that is a net importer due to its imports of fuels although it has become a world leader in renewable energy ( http://www.renewableenergyworld.com/articles/2016/09/spain-closes-in-on-50-percent-renewable-power-generation.html ) which is one positive way of addressing that issue and may also suggest that fossil fuels are no longer “key to any modern economy”. As for the trade deficit issue generally, you need to look at whether Spain’s is better off overall when it is in or out of the Eurozone. I think that his historic chart may give you some idea about that:
https://tradingeconomics.com/spain/balance-of-trade (click the option below the chart that says “MAX” and also remember that the euro was preceded by its forerunner, the EMS in the late ’80’s and 1990’s.)
It seems clear that regardless of the price of fuel, Spain’s overall position was better before it joined the EMS and the euro.
More important for Spain, of course, is the sovereign debt crisis. Such crises are only ever experienced by two types of nations: Eurozone members or those that borrow in a foreign currency. A nation with monetary sovereignty that issues debt in its own currency cannot, by definition, experience such a crisis.
On that subject I recommend this article: http://voxeu.org/article/managing-fragile-eurozone
Germany gained from the Euro
It is as yet hard to identify another country that unambiguously has
The political choices under the neoliberal/classical model are 1) what level to set taxes 2) what to tax to achieve both that level and associated social goals, and 3) on what to spend those taxes. Under MMT, what to tax and what to spend on are still political choices. However, the question of (1), what level to set taxes, seems to be a choice by experts – to avoid inflation/ensure demand does not outstrip the productive capacity of the economy. Is that really the case, or is the level of taxes still a political choices? If shouldn’t be a political choice, how can we arrange for it to not become political?
Demand will not “outstrip the productive capacity of the economy”. At least not in any sustained manner. Inflation may (will) however occur when the benefit of rising incomes (increased demand) is captured by monopolies and oligopolistic industries with excessive market power.
See my response to Duncan Thickett below.
I would like to know when MMT theorists and progressive economists generally will fully recognise the central significance of market power and competition policy. Demand side remedies will be hopelessly exploited if those issues are not addressed.
Are the internal accounts of currency issuers part of the economy or does currency only exist in the economy after it is spent into existence, when it is leveraged by bank finance, and when it is exchanged between cash/reserves and bond forms, until it is finally destroyed by taxation and other forms of “revenue”.
Interesting question
I will be adding it to my list (the answer is though that there is no ‘stack of mioney’ outside the economy waiting to be issued – it is simply not there because it only gets meaning when the promise to any is created – and indeed, the promise is all it is, which is how it is cancelled when tax redeems the promise)
Seigniorage?
How can Government polices created by using MMT be protected from money markets/foreign exchange markets (value movements that affect the value of the currency when used abroad in trade etc).
This to me seems like the soft underbelly of the theory – its most vulnerable part. And if there is any guff here, then it needs sanitising.
As with most things I think that a Q&A may be useful in joining these things up as well. Also, can one also assume that a new phalanx of interactive policies will be needed to support MMT? It would be nice to know what these could be.
Apologies for being so demanding.
You? Demanding? 🙂
Carry on!
OK – if MMT is a viable as an idea, why did the Labour Government go to the IMF for a loan in the 1970’s when they could have printed the money?
No need to answer me here and now, but it is worth considering some of our economic history and why MMT ideas/theory was not used as an option.
Thank you.
History is in my topic list
‘why did the Labour Government go to the IMF for a loan in the 1970’s ‘
That episode is dealt with and very interestingly in Mitchell/Fazi’s book referred to on this blog elsewhere: ‘Reclaiming the State’ pp. 66-70.
American pressure is key here and the decision to allow the ‘bond vigilantes’ to control the scenario – the myth persists that a sovereign currency issuer is vulnerable to these groups.
So we need to raise the question about bond vigilantes….
Since the issue is not insolvency but inflation, what are Central Banks actual track record on managing inflation?
What methods should be used to determine the appropriate balance sheet size for the Central Banks?
Does it help the cause when claims about “shredding” money used to pay taxes are made, it is entirely irrelevant and seems to be unlikely. Wouldn’t stripping it back to basics be better?
When an entire election campaign can be based almost entirely around a joke passed down between chancellors like the 2015 Tory election was based on the “there’s no money” letter left by Labour, how do we start to educate the masses that actually, it’s true.
How do you know when an economy is operating a maximum capacity?
How do you stop people creating and using alternative currencies?
We live in an era of seemingly permanent underemployment and unemployment – so there is always an excess capacity of labour.
Increasingly automated manufacturers and farms appear to be capable of outproducing demand at any conceivable level of demand. If the same is not currently true in relation to services then automation may well ensure that it will be before long.
The economy has not truly operated ‘at capacity’ for a very long time and probably never will again. One consequence of that is that the rate of return on industrial capital has ceased growing overall and that in turn has seen the rise of financialisation (rent-seeking / financial speculation) and globalisation (MNC’s seeking out higher returns in ‘developing nations’ quite often at the expense of the people in those nations as well as Western industries).
For the most part any threat of excessive inflation is not ultimately due to an excess of demand over capacity. It is generally due to cost-push factors and (more significantly) the market power of monopolies, oligopolies and cartels.
Does your previous blog of 3 Jan 2018 ‘Reasons to tax’ lead to the following conclusion?
“Funding Prosperity, Taxing Inflation”
A currency issuing sovereign government does not need to tax for government spending. As you pointed out taxation is the main tool the government has to remove excess money from the economy to control inflation (other direct & indirect taxes also used for controlling inequality, giving value to currency, democracy, change behaviour etc.)
http://www.momentumeconomy.com/economics/funding-prosperity-taxing-obstacles/
Yes
But might I say it is convention to link to sources?
When it’s all done, can someone please update the Wiki on money creation? It’s… messy… at the moment.
Which wiki?
https://en.wikipedia.org/wiki/Money_creation
Is it true that if a government had no accumulated deficits, there would be no net savings left in the private sector?
Are private savings exactly equivalent to government debt/deficits or is this only an approximation?
As an example, I believe NZ government debt is approx $60 billion, whereas private sector saving in NZ are in the hundreds of billions. Thanks!
MMT is a lens for viewing macroeconomics and our Government finances it reveals policy space economists and politicians have either been unable to or are unwilling to observe.
What systems can we put into place to enable the electorate to measure the success or failure of these policies, beyond the rate of employment and economic indicators? I’m thinking in terms of the allocation of natural and real resources. Of closing the loop between the economic/environmental and political spheres to create a model of the economy functioning at a level our planet can sustain for generations to come. We need demand/supply management over a time frame beyond the electoral cycle that allows openness and accountability yet still deliver prosperity & stability for all, with equality and dignity? New instruments of democracy â€â™€ï¸
No point in explaining MMT to anybody, billionaires will always tell the governments what to do and they will obey, either ppl who understand MMT need to tell the gov what to do and when to do it or tell the billionaires what to say. My friend is an engineer and I told him the debt is a good thing and now he thinks I’m and idiot, linked papers, videos, etc… no dice, won’t budge, he says our children will inherit the debt and it’s awfull. Bankers don’t explain anything, and they get what they want do they not?
Have a nice day, best regards, life is beautiful.
F.
I think you are wrong
In fact, I know you are wrong
I am really impressed with this blog and the comments/questions and look forward to reading the answers. I have been too lazy myself to read anything on MMT in any depth. Ditto the Positive Money position. So I feel a bit stupid to ask the question, what’s the difference, but would like to know, please.
I think that’s a good one
If the government sets the value of money by paying a set amount of money, in exchange for a set amount of work, then why are nurses visiting foodbanks?
How can they re-calibrate the value of money by paying public sector workers more without inflation then increasing by a similar amount, and putting everyone back to where they were before the pay increase?
Confused and confusing.
Several times on discussion forums, i have read the comment that MMT wouldn’t work in an ‘open system’. It would need capital or currency controls. Is this so? And would it matter-given London in a world financial centre.
Hope your family health problems improve.
Noted
And thanks re the latter
They will, I am sure
Thanks for that one. Isn’t that one good reason to leave EU?
Thanks Scott Fullwiler-I think you are right that there were no mmt economists on the forum who could answer my questions but I think Werner’s research is rather at odds with mmt in terms of the ability of individual banks to create money-rather than the system as a whole (through fractional reserve). That’s the empirical evidence I was referring to – I would be interested to know if you are familiar with his two papers from 2014 and 2015 (I think). Keen is very specific about the role of double entry book-keeping in his analysis of the ability of banks to create money as debt. From what I’ve read it’s the mmt position that the state backs all of the money created because it grants the licenses to banks -but the evidence (from Werner, keen, pettifor and Mellor among others) suggests that this is after the creation of money as debt – which seems to be the wrong way round. Thanks for the detailed reply.
There is no fractional reserve banking
I am not sure what you are arguing here
There’s really no daylight on how bank money is created b/n MMT and Werner/Keen. I was on a panel with Werner in 2009 and we generally agreed on that (we had some other differences, but on different matters). Keen is a good friend of mine and I was one of the people pushing him in the mid-to-late 2000s to incorporate double-entry accounting into his work. I have talked at length with Pettifor, as well, both online and in person and I don’t see that we disagree on this.
On the state backing of bank deposits, I’m really not sure what you’re asking because it sounds to me like a total misinterpretation of MMT; there’s a lot of that out there. Aside from deposit insurance after deposits have been created, I don’t see what else there is. I don’t know how there can be deposit insurance on deposits not yet created–and of course banks pay for the insurance on their actual deposits, so they’d have to have been created prior. Note, though, that deposit insurance does result in a public/private partnership in the sense that the state grants the banks the ability to have their liabilities become risk-free; in return, the state requires banks to hold a minimum amount of equity (the first-loss position) and regulates the assets banks can hold (though not nearly enough, in our opinion). The license from the state to incorporate as a bank does occur before deposits are created, but I don’t see how that could possibly be controversial–it’s in every bank mgmt textbook–but, again, I have to admit I don’t know what the question is here.
I tend to agree with you Scott
Scott Fullwiler – thank you so much for your detailed replies to my questions and comments – I would love to discuss this further with you at some point as I have obviously been mis-reading (or have been led in the wrong direction by) MMT. My specific area of research regards personal debt. Thanks.
Hi Richard – posted question at 7.55pm. awaiting moderation. keen to get an answer.
Also added another chart to blog directed by same post. may be of help to link some of positive money’s position with that of MMT.
Sorry
I have made clear I have been under some pressure at a family level
Please accept I am finite
And that sometimes i just need time off
I’m imagining someone (who hates deficits) arguing about taxes being used to control inflation – they might say that eventually you’d have to go into surplus to achive the required state.
As I understand it, running a deficit has been historically much more common but surpluses have occured. What are the circumstances when running a surplus is the right thing to do? Did those circumstances arise in any of the times of actual surplus?
All of the questions so far are answered in Bill’s and Thomas Fazi’s new book
Reclaiming the state.
They pull all of MMT together and list what needs to be done and more importantly give you a historical context to work with of why we are where we are. Which is very, very important as it describes how huge parts of MMT were already being used after WW2 until the monetarists took over using framing, language and sheer propaganda to fool the public.
What you quickly learn is that the real problem was that after Bretton Woods. Most countries were still using economic theories of Before Bretton Woods after Bretton Woods. They applied fixed exchange rate theories on floating rates and still used Gold standard economic theories after we left the gold standard. Which of course only made matters worse and why Mitterand did his famous U turn and the Labour party embraced supply side monetarism in the 1960’s.
If at the time they had known how to use floating exchange rates and changed their economic theories to reflect that we had left the gold standard. Freidman wouldn’t have got a look in. The left wing politicians and economists wouldn’t have caved in a fell for TINA. There is no alternative.
There were plenty of alternatives. It was sheer propaganda that nation states became nutered by globalisation. However, the left all across Europe fell for it. Meanwhile, the neoliberals captured the state and used policies and the power of the state to create what you see today. Those policies can easily be reveresed by the exact same process they were hikacked in the first place.
Part 1 of the book is how we got to where we are now and how vested interests took over the system.
Part 2 of the book explains what we can do about it using MMT. Small and Large countries.
Well worth a read. One of the best economic and political books I’ve ever read and I’ve read hundreds.
Might you provide a specific link?
Decent summary of the book here: http://www.independent.co.uk/news/long_reads/actually-the-magic-money-tree-does-exist-according-to-modern-monetary-theory-a8021501.html
I don’t recall it
And notice I appear
I thought it was good
http://www.counterfire.org/articles/book-reviews/19347-reclaiming-the-state-book-review
Link for that MMT book “Reclaiming the State”.
You’re welcome.
Thanks
Link for ‘Reclaiming the State’
https://www.plutobooks.com/9780745337326/reclaiming-the-state/
Thanks
I have ordered a copy
Thanks. Ordered.
What is value? And is it only created by Nations with power over their people?
Thank you for doing this. I have 3 questions please:
1. Re the job guarantee issue (not sure this is MMT or not): Remember the USSR? Guaranteed jobs terrible for productivity. We pretend to work and they pretend to pay us. How does MMT overcome that issue?
2. Have u considered Khan Academy for propagating MMT ideas? Especially to the new generation.
3. Is there any chance of convincing a small (monetarily sovereign) country to try out MMT as a real world experiment?
Thank you.
The job guarantee issue isn’t assisted by blatantly misunderstanding it and the USSR has nothing to do with it.
BTW I didn’t like the USSR but then again I don’t see how they went from feudalism to superpower and space race in just 30 years (1917-1947) with such terrible productivity issues.
Furthermore it depends on what you mean by “productivity”. Lets assume that you mean Labour productivity. In the macroeconomy the only meaningful way to measure that is as output per available worker (over time) not just output per worker.
In overall national terms (without a job guarantee) you can’t claim to be more productive if you’ve got millions of unemployed and underemployed workers sitting around doing nothing most of the time. Can you?
Maybe a cohort are philosophers, busily engaged in broadening their understanding of the universe. Others might be poets, mentally composing their latest epic pieces. Productivity can be measured by other than what issues from factory gates.
Um, yes Bill
That could well be true in the broadest of terms but I think Bruce Winson was referring to the”factory gates” variety which is specifically defined in the economic literature but often misunderstood elsewhere.
Firstly, MMT is not something we have to persuade any nation to “try”. It’s not actually an economic or political theory but a description of the basics of monetary operations for a nation with it’s own sovereign fiat currency – and it is already being used, albeit with lots of obfuscation and myth that are hangovers from the gold standard days.
Secondly, a JG is absolutely NOT the same as three people doing the same job – it’s about re-evaluating what we consider “work” ………. so, those people who are currently struggling on a pittance to be full time (sometimes 24/7 type full time) carers to a sick friend or relative whilst unable to afford to pay their bills because the “carer’s allowance” saves Government vast sums of money on the cost of institutional care whilst being totally inadequate to live on – would be paid JG rates instead. Many other “jobs” are done throughout out society that are also of public worth – but that have no “monetary value” to the private sector. The JG realises the value of these and pays a basic living wage rate for those to be done. “Productivity” is another term that neoliberalism has used like a whip to condemn and denigrate all but the capitalist forms of “work” (i.e. those that can be exploited for private benefit) even where that capitalist form of work remains detrimental to society or the health of our planet. Changing the way we look at “work” and “worth” are much easier once we realise that the rich are not the ones that create wealth (mind, Marx pointed that out a long time ago) but simply those most expert at exploitation.
The JG is a big issue needing clarification for many
I think the main features of the JG that MMT emphasizes are:
1) It acts as a price floor for Labour -forcing capitalists to pay it or above.
2) It acts as an inflation anchor by having the power to vary the floor.
3) As most people want to work it can offer structured employment which we know offers better mental health outcomes if purposeful.
JG is a counter to UBI and I like it. Thanks, Debbie, for fleshing out the idea a bit for me.
Carol, there is no a priori reason why UBI and a JG cannot co-exist. For the simple reason that UBI is not envisaged (by most progressive proponents in the UK, at least) as a replacement for jobs, but primarily as a replacement for a welfare system that is not fit for purpose. Bill Mitchell himself admitted as much in one of his blogs. But since he views UBI as a ‘neoliberal con’, he expends much effort in arguing vociferously against UBI and eloquently for the JG.
This issue will be addressed…
Jim, I disagree. UBI has it’s origins in pre-welfare state history. The welfare system is not unfit for purpose, it just needs a Labour government to fund it properly. Bill Mitchell sees that there is sufficient demand for employed labour to enable everyone to live by wages rather than payment for housework or gardening which people do for their own benefit. See my article in Morning Star: https://morningstaronline.co.uk/a-7d58-universial-basic-income-best-choice-for-the-job-1
Thanks Carol, I did read your article when you referred to it on this blog once before. I stand by the contention that there is no reason why UBI and something like a JG (or better, job offer, as per Peter May on this site) couldn’t coexist in an ideal world. I grant you that better funding for the current welfare system would be a significant step in the right direction though.
For those interested, further details on my afore-mentioned reference to Bill Mitchell’s statement on this subject:
”I grant you that the basic income policy and the Job Guarantee could be complementary but I generally prefer to concentrate on the latter.”
http://bilbo.economicoutlook.net/blog/?p=37109
Is there any chance of convincing a small (monetarily sovereign) country to try out MMT as a real world experiment?
The UK already try it out. MMT is a description, and a lens through which highlights the rhetoric of “tax needs to be raised to pay for policy X’ as bullshit.
Surely Venezuela / Zimbabwe / Weimar all exhibited a sudden collapse in the supply side of their economies and probably also a basically insufficiently diverse economy (certainly we should be noting the overbearing UK financial services ‘industry’), both of which all their governments then failed to properly take account of.
I would echo the problem with 97% of money in the economy being created by private banks and 3% printed (I believe these are BoE figures) and oft quoted by Positive Money. I know money creation isn’t GDP, but if UK taxation is 34.9% of GDP and 39.6 % of GDP is public expenditure something doesn’t seem to add up. The belief seems to be that taxes collected are simply recirculated with the balance borrowed. Which is back to tax and spend. That destroys the raison d’être of a sovereign money system.
In which case the 97%/3% statistics are a misleading blind alley because they imply that the only money the government itself creates is the 3%, whilst all the rest is the 97% contracted out, privatised, money creation under state licence. This, it now seems to me, is why Positive Money wants to renationalise it, as it were, because for them that is the only major source of money creation. QE disproves this, but critics say as QE is simply a response to a crisis and is abnormal and not how things ‘normally’ work.
So I’d suggest more weight has to be given to the BoE’s September 2017 email:
“Regarding whether taxation is necessarily required to finance government spending the answer is no, it is not. Along with raising money by taxation, governments can borrow money and they can create money outright.”
In fact I don’t see that MMT has much to say on tax so a few leading questions on the subject should encourage them to clarify their views…
Noted
Peter,
” the BoE’s September 2017 email”
I missed that – have you got a link to it?
Marco, the email is at http://www.taxresearch.org.uk/Blog/2017/09/19/the-bank-of-england-admits-monetary-policy-does-not-work/
Marco, link to that BoE email below:
http://www.taxresearch.org.uk/Blog/2017/09/14/the-bank-of-england-still-living-in-a-world-of-legal-denial-of-the-fact-that-it-makes-new-money-for-the-government/
Thanks to both of you.
On the issue of efficiency & productivity. Today Carillion has finally gone into administration essentially through pricing Government contracts too cheaply and the banks not willing to provide further credit. In a global capitalist system the argument follows that defaults such as this are necessary to engage management and workers alike to promote a successful business (in the sense it makes profit) . Clearly in a system with significant Government intervention and one accepting the mechanics of MMT then this wouldn’t happen. But wouldn’t it encourage “zombie companies” i.e those with no real business except a dependency on the State for contracts and money? It follows the earlier posters comment “we pretend to work and they pretend to pay us”. In anything other than a closed economy there has to be consequences for international trade, our trade balance and ultimately the currency. With this in mind the question to be asked is – are capital controls a requirement for accepting MMT and the printing & tax policies that follow?
The evidence is that it is non-government contracts that have pulled Carillion down, I think
Questions noted
Creation:-
The allocation of budgets to public spending authorities by government.
The crediting of customer bank accounts by licensed banks.
Cancellation:-
Taxation (etc.) receipts and borrowing, government.
Repayments by customers
How does this link to total money claims in existence and its control
How does this link to GDP and a nations ability to satisfy such claims if activated.
If a bank creates money by crediting a customer account and debiting a loan account then the reverse entry must relate to a bad debt. But just as the first would not affect net assets neither would the latter. So how is a banks net assets reduced by a bad debt?
What control mechanisms and metrics would be used to steer an economy that was using MMT, i.e. identify when productive capacity constraints were being encountered?
Ultimately the productive capacity constraints don’t exist. We can out-produce demand regardless of the demand level
So you keep saying
And I do not believe you
The suggestion is absurd
The constraint is surely on non-renewable resources.
Spot on Carol
That is why I made my comment
No, your reply is absurd.
See there – a thoughtlessly dismissive, arbitrary insult – too easy (and scarcely worthwhile).
As for actual reasons, the suggestion above first took root in my mind when attending a lecture that covered the export dependency of Sweden’s manufacturers. The lecturer suggested that they could probably meet domestic demand in a one-week production run. A slight exaggeration perhaps but the point remains. If the Swedish can do that now, most advanced nations could potentially do likewise, even small nations – like Sweden.
Similar suggestions would have it that German manufacturers alone could meet the entirety of North Atlantic demand and China could easily supply the Asia Pacific region. As for agriculture, the EU, US, Australia, New Zealand, most advanced nation producers are providing subsidies of some sort, trying to cut preferential trade deals or just plain dumping in order to find export markets for their increasing surplus production.
The effect that AI automation is already having upon service industries is already well known. In any case, the continual (deliberately under-reported) presence of significant unemployment and underemployment in Western nations over the past 40 years would suggest the presence of a continuous excess capacity of labour over that period. So it would seem that for most of us these “capacity constraints” haven’t actually been experienced at any time in living memory.
How very absurd.
Perhaps the idea of out-producing at “any level of demand” is technically absurd so I will re-phrase that as any realistically conceivable level of demand, as that would preclude fantasy/nightmare scenarios that involve suddenly massive increases in population, money supply or things like that that aren’t going to happen.
If I “keep saying” this it is because I can’t abide supposedly well-informed commenters assuming a generally competitive market (as if) referring to capacity constraints that don’t exist and repeating the archaic, orthodox suggestion that inflation would most likely come from an excess of demand over capacity. They keep saying that.
I could cite independent evidence for all this but I’m not going to that effort in order to to be dismissed with an arbitrary one-liner. I did do a quick Google search however and found this which is fairly specific but nonetheless indicative (very indicative):
https://qz.com/699979/how-chinas-overproduction-of-steel-is-damaging-companies-and-countries-around-the-world/
Marco
You are extrapolating in absurdum
First, I do not believe excess capacity of the scale you imply exists. Quite obviously in many sectors it does not, and the limitation on supply is not just a sham in many cases although it may be in some
Second, you appear to be consciously ignoring raw material shortages
Third, you are ignoring externalities
With respect, Sweden may have excess capacity with regard to domestic demand but that proves nothing and to extrapolate that to make an absurd claim undermines your carefully constructed credibility on most issues
Richard
Using the word “absurd” several times is not an argument.
The only point that I can recognise is the one about “raw materials” which is valid in itself although Carol’s reference to “non-renewables” is more pertinent. But all that really says is that the world’s resources are finite.
I knew that, but your point misconstrues the meaning of “excess capacity” which is an excess of capacity over demand. The present capability to produce more than that which will be purchased. As a concept, the capacity referred to is relative to demand (relative not absolute).
I am not aware of a likely scenario where an increase in demand would put such immediate pressure on available raw materials that it would result in widespread shortages or cause a large and sustained increase in the CPI. Perhaps you are aware of such a possibility.
I don’t know what your point is about “externalities”. It may be a good point. I don’t know
Almost be definition markets have excess capacity on the criteria you are now suggesting – which is wholly different to the one your previosuly suggested (the scale of which is, as previously stated, absurd i.e. beyond anything meaningful).
Markets that do not have excess capacity cannot provide choice and so are not markets
All you are now saying is that there are markets
That does not add much to understanding
So what’s the point of saying it?
I don’t think it is “absurd” you have just misunderstood it or I have not expressed it well.
I am glad that you have asked what the point is because the suggestion I have been opposing is that which implies that we are anywhere near close to a reaching capacity constraints that would see our seemingly permanent unemployment replaced by a widespread labour shortage or the demand for goods and services outstrip the industrial capacity to supply.
That is to say (in the context of this MMT discussion) a level of demand that would cause significant, sustained and unavoidable demand-pull inflation.
My suggestion is that the capacity to supply is well in excess of foreseeable demand. It has been for a very long time and will probably remain so. A far more likely, and hopefully avoidable, threat of inflation is more likely to come from the market power of monopolies and oligopolies that would capture the benefit rising demand through increased prices (regardless of capacity).
Where inflation is at issue those of us that propose demand-side remedies should be more concerned about excessive market power than we are about ‘capacity restraints’.
Then you did not explain well
And you still massively exaggerate because there are undoubtedly supply constraints in some areas
It is wise to work within reasonable parameters
If you had the confusion would not have arisen
(Sorry if this has already been raised. I’m not an expert in these matters in any way, anything I do know about MMT is from reading this blog, and any misunderstandings on my part are entirely my own fault!)
If one of the ideas of MMT is that sovereign states can create money, what happens when a group of states are in a monetary union? If a country doesn’t have its own central bank, as is the case for the Eurozone countries, what happens then?
Perfectly fair question
It will be in there
It is not just states as in the EU
Remember it is also states as in the USA
How does international trade work? The importer gets the benefit of a real asset (service). The exporter gets credit of another countries fiat currency. Why bother?
I can see that the exporter gets additional employment (that has to be paid for in local currency) and the ability to spend foreign currency.
I’m probably missing something obvious and am wedded to the household budget analogy for foreign trade.
So the question needs an answer
That is what the exercise will be about
Ultimately the productive capacity constraints don’t exist. We can out-produce demand regardless of the demand level.
Apologies in advance. I’m a physicist not an economist and I’m truly thankful for that, BUT, did you say fractional reserve banking does not exist? I thought that was what Basel was all about. Does it mean private banks can print money whatever? Why did they go cap in hand to governments in 2008 or is that a silly question. Personally I would think that all money creation should be under government control. Any other situation gives private banks more power than national governments and that undermines the whole basis of democracy.
Fractional reserve banking is a complete fiction
But the fact is banks can only issue money if people believe their promises
In 2008 no one did
So the government had to promise instead
What are the risks of an MMT argument that taxes are not needed to fund services being coopted by the Right and used to argue taxes are not necessary?
Will MMT arguments pull the rug out from the hundreds of NGOs working in tens of developing country using taxes pay for services to enhance social contracts between citizens and states and get more citizens demanding more of their governments? (That is not a moot point here either. )
What are the implications for arguments re global taxes and wealth funds to redistribute wealth to lesser developed countries and populations – often linked to a funding service provision argument?
How does MMT arguments re JG deal with emmigration/immigration/freedom of movement issues. Mitchell and Fazi’s book is very good, but I can’t find any discussion of this and how it fits with internationalist progressive ideals.
Thanks
Thanks
Taxes have other purposes than revenue raising, most important is market correction. The biggest market which needs correction is the land market – otherwise why do we have a permanent housing crisis? Most ‘georgists’ believe that LVT could fund all public expenditure – I do not – with the addition of pigovian taxes.
I am curious that you missed my 8:48 reply to Bruce Winson. As I write verything else has been covered.
With the greatest of respect, I am doing my best
I have a job to do as well
And other issues to deal with
So I got to you late
I have to tell you, you are not my top priority
And I did get to you in the end
I always do
But you may have noticed there have been quite a lot of comments today – and for a start they come up most recent first
So please show a little regard for the fact that I do this in what is, in effect, my spare time
In other words all time spent on here in a day is made up by working on paid work in the evening
You misread my intention.
It was an odd one out and I thought you may have skipped it for a reason.
Sorry – it was one of about three that I kept not getting to
I am sorry
I am trying my best
Next I have to use all the answers
I will!
RE: Reclaiming the State.
For once I have to disagree with Bill Mitchell.
Neo-liberalism is in my view still anti-state despite the fact that it uses the State to create corporate welfarism and prevents the Treasury from doing the right thing (printing money) and uses the State apparatus to purposefully run services badly.
This is because the end result of it all is less public ownership (accountability), less intervention in the workings of the markets leaving an almost vestigial role for the State that would merely codify the status of the rich at the expense of everyone else.
The end result is a sham; not a State.
I think the recent talk about a bail-out of Carillon supports Bill Mitchell’s point PSR.
PFI/Subsidies to Train networks/DWP using private companies for health assessments….it’s all the state creating this outsourcing that would not have arisen through the pure use of private sector money..private gains, socilaised losses with M.P’s on the make as shareholders and advisers -conflicts of interest abound.
The last 40 years will go down as one of the greatest scams in history -but neoliberalism has been clever enough to create just enough beneficiaries to maintain its hold.
Simon
I confidently stand by my point of view. I contend that all the neo-liberals are doing is using State power to hollow itself out and become essentially useless. All that will be left is a husk that will have nothing courageous about it. Such a state will just tell people that they got left a deficit, that there is no magic money tree, that they care about unfairness and are sorry that public services are turning to shit.
The short game for the neo-libs is to use state power against itself; the long game is to produce an incapacitated state in hock to the 1%. That is what neo-libs want Simon – a weakened State that only stirs when its capacities can be used to help those with vested interests.
And do not overlook the impact of a State that is captured by these vested interests on those who need State help: the poor, the disabled, the working poor – those whose operations have been cancelled in our hospitals. These people will have their faith in the State and in democracy destroyed and that is how you get right wing/left wing reactionary forces. It’s how you destroy hope – as well as the pro-active, courageous state.
I’m not giving an inch on this one – sorry.
PSR
I agree with your contention
That is very clearly the aim
This is, of course, fascism
Richard
PSR
I think that the design of the annual tax summary would certainly appear to support your point of view of using the state to reduce the state:
http://www.progressivepulse.org/economics/the-subterfuge-of-the-tax-return
But Richard, isn’t one definition of fascism that it is that very combination of state and corporatism?
It only appears that the State is retreating ( erosion of welfare) but if you look back at the last 40 years you will see State intervention to promote neo-liberalism everywhere. If the State had started the ball rolling and then refused to continually bail-out privatisations than I’d agree – but the State has propped up failure after failure and continues to do so with privatised gains and socialized losses.
Milton Friedman wrote: ‘the role of the Government…is to do something that the market cannot do for itself, namely, to determine, arbitrate and enforce the rules of the game.’
Well..we may have to respectfully disagree on this one-anyone on benefits will feel the full weight of the State breathing down their necks like Big Brother-this is not a State in retreat.
Simon (deep breath)
No-one is saying that the British (and Amercian ) state power is not being used by the neo-libs. I agree with that. But that does not mean that the neo-libs are pro State.
What I am talking about here is the use of democratic structures for malign purposes and this is somewhat Fascist as Richard points out. All we are seeing is retrenchment of services and responsibility to the many and increasingly more support for those who really do not need it. And that is a destruction of the State as we have known it. It is the State as we have known it that is in retreat Simon. The State that built adequate social housing; created the NHS etc, etc., is in retreat – and not voluntarily.
Both States (UK and US) – ostensibly democracies – have been turned into Trojan horses for neo-liberal agendas.
Or both democracies are hosting anti-state elements in them who feed off such states like a parasite until eventually they kill off the host. Nature is full of such phenomena as this.
These are the best metaphors I suppose I can use. So to me, neo-libs ARE anti-state and as Peter May says eloquently ‘using the State to reduce the State’ and this is where I disagree with Bill Mitchell. Because the long term aim IS to render the State useless. And that is a hostile intent that counts as being anti state to me. Bill does not seem to consider this. I think he should.
These are states that are being abused. They are being made to be what they are by the political ideology that is driving them. The neo-lib Tories do not believe in the State that emerged in this country after the war. And they are still trying to get rid of it. And they will not stop.
Derek
Hello!
To be clear, the piece you quote from me is not intended as a criticism of the book which I intend to buy. It was a statement of the effects of neo-liberalism in the context of using the state badly. I’d be willing to give Bill and colleague’s ideas a good try – alongside Richard’s and others whose time has come.
Richard this blog has produced a wonderful bunch of comments. But Modern Monetary Theory . Seriously it needs a re-brand . If it is an accurate description of how money works in a country with a sovereign currency then it is not a ‘ theory ‘ and the word ‘ modern ‘ is also problematic because when is it not ‘ modern ‘ . And what does the man/woman in the street who doesn’t give a fig about any economic or monetary theories care about any of this ? Nothing . The big psychological hurdle so far as I can see is that the lay person thinks of money as having substance and is in short supply ( it doesn’t grow on trees as our parents taught us ) . But no matter let us not despair, let’s keep saying what has to be said that money is created out of thin air , that bank loans create money and the promise you make to repay brings to money into existence and that taxes aren’t needed to fund government expenditure, but are needed to settle the government’s overdraft etc.etc.
It really ia creative economics
It explains the creation of money to let creative things happen in creative ways by creative people whoever they work for and whatever they do
Just saying….
This is because the end result of it all is less public ownership (accountability), less intervention in the workings of the markets leaving an almost vestigial role for the State that would merely codify the status of the rich at the expense of everyone else.
The end result is a sham; not a State.
Not at all. If you read the book it means more accountability, more intervention and seriousley restricting the banking sector and getting them back to doing what they used to do. Just give out loans under a strict basis. All of these things were in place until the neoliberals stripped them away when they hijacked the state. They gave us the highest growth and stability we’ve ever had.
Hmmmmmm…..
That’s some claim
I think it takes a lot more than MMT (as strictly understood) to deliver that
Sectoral analysis. It is (reasonably) easy to explain the internal sectors – government and private. It is less easy to explain how the external import/ export trade sector works. what are the interactions between the commercial and central banks that facilitate the exchanges, and which country does the currency spent end up in? A graphic similar to the BoE quarterly bulletin (https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwiir5v2xs_YAhXHtBQKHf9TD4wQFggvMAE&url=https%3A%2F%2Fwww.bankofengland.co.uk%2F-%2Fmedia%2Fboe%2Ffiles%2Fquarterly-bulletin%2F2014%2Fmoney-creation-in-the-modern-economy&usg=AOvVaw3_cZni3v-lmc-lr_LNBzqI) that explains money creation would be nice.
Noted!
On the Job Guarantee. I would suggest answers are needed to the questions:
1. Once we have a Universal Basic Income couldn’t people then get back to the working hours of the 14th-century England, where peasants might often work for only 150 days a year? http://evonomics.com/capitalism-medieval-peasants-got-vacation-time-heres/
2. A Job OFFER would need to be the method, not a Job Guarantee: http://ftp.iza.org/pp133.pdf
as the Job Guarantee ultimately works only with coercion
3. Given the coercion problem, might Universal Basic Services provide the basis of a start to a Job Guarantee?
http://www.progressivepulse.org/economics/whos-for-universal-basic-services
Good questions….
Peter, on your point 2: I don’t think proponents of the Job Guarantee expect it to be coercive in the sense of forcing someone to do the job; rather, they accept that anyone who refuses to attend and perform will lose the job unless they change their behaviour. So it is really a Job Offer, guaranteed to be available to anyone who is able and willing to take it up.
Indeed, I note that http://ftp.iza.org/pp133.pdf just says –
“However, a JG would also have to require minimum standards of attendance and performance, so we shall refer to a job offer (JO) by local authorities, open to all who are able and willing to meet such standards.”
Of course, the question then is whether some form of UBI/UBS would be provided in addition to the JG, instead of the current social (in)security system for those unwilling or unable to take advantage of the JG. There are passionate arguments on all three fronts (JG, UBI, UBS) about the pros and cons and different answers on how much they would cost. Part of the problem in analysing the pros and cons and the costs is the uncertainty of population behaviour.
There must at least be a lower bound to the cost, based on the real living wage. Is it possible, within the MMT framework, to arrive at agreed answers on the relative costs and benefits of DIFFERENT mixed systems? Does behavioural economics have anything useful to say on this?
Until a market capitalist economy shows itself willing to publish a complete and rational explanation of how money is created for public and private purpose citizens of such an economy must regard it as corrupt and neurotic.
I would like to see mmt economists analyse the prospects for an independent scotland as a case study. Obviously switching to a new sovereign floating currency is something the neoliberal establishment sees as armageddon but mmt takes in its stride
🙂
Have you seen my white paper on the issue?
Many thanks!
What are the cons of MMT ideas regarding full employment policies and floating exchange rate regimes in small economies with historical chronic problems of balance of payments deficits?
Noted
It’s probably been mentioned above but I’d like to see clarified the mechanics of real world limitations on money supply under MMT.
Cheers!
Ok