It was curious to note that commentators on this site yesterday were referring to the risk of hyperinflation from MMT, suggesting that 56 historical cases of hyperinflation (basically, inflation of more than 50% a month) had been identified in a recent report.
The report in question was identified by another commentator, John D. It came from the Cato Institute, which is a notorious US right wing think tank, But let's take it at face value. What it says is that hyperinflation only happens in some very particular circumstances:
Hyperinflation is an economic malady that arises under extreme conditions: war, political mismanagement, and the transition from a command to market-based economy — to name a few.
I think we can safely rule out MMT as creating any such risk then.
As such will all those referring to Zimbabwe and the Weimar Republic kindly take note and presume henceforth that they will be deleted? Normal levels of government spending intended solely to create conditions of full employment have not, and never will of themselves, create hyperinflation. It's a suggestion not even worth debating.
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On which subject, I’ve found this useful
http://positivemoney.org/2016/06/a-history-of-qe-for-people-summary/
‘As such will all those referring to Zimbabwe and the Weimar Republic kindly take note and presume henceforth that they will be deleted?’
This old chestnut crops every time I speak of MMT to people.
How does one delete ‘bad knowledge’ from a society?
By telling them it has never happened because of government spending to deliver full employment
Indeed, inflation can and does take place prior to full employment. MMT economist Wray (IIRC) points out that in fact a government *cannot* spend its way to full employment (via infrastructure spending or whatever the case may be). This is part of the argument for a transitional job program (commonly know as a job guarantee).
Actually I think it was Wray citing Keynes.
Can anyone advise on best introduction to MMT ? I know very little apart from Richard’s writing and a talk at Hay Festival. Then yesterday I came across this lecture from Bill Mitchell, which makes more sense than any eCONomist I have yet heard :
https://youtu.be/IynNfA1Ohao
This is the first of five lectures to be posted on line, but very interested to see where he goes with it. I expect we will depart from each other on full employment, as he is already making references to Job guarantee, which is not the way forward. Money is fundamentally the power to command resources, and most of all to control the labour of others. The right want this power to be controlled only by companies and the wealthy. The left want this power to be controlled by government (through nationalisation, public sector employment and job guarantee).
Only Basic Income gives this power directly to citizens, so that they can take control of their own labour. With UBI individuals choose how they can best contribute to their local community and develop their own talents and ambitions.
Other than this though, I highly recommend Bill Mitchell’s lecture, and will certainly be following the next four in the series. Further advice appreciated.
I have posted some stuff
I might ask others to suggest though
While not perfect – and is for a US audience – I’ve always liked J D Alt’s presentation because it identifies the possibilities unlocked by MMT – https://www.youtube.com/watch?v=bHQCjFebIf8. There remains the need for something similar directed towards UK ‘millennials’. There’s a lack of well produced, creative material that could be used in general higher education.
I think this one is very good
Thanks. I really like the video. What complicates the picture of course is Global capital flows, which can dwarf the budgets of smaller developing countries, and tend to be highly pro-cyclical, with very damaging effects.
Domestically, a fiat government has a number of different levers with which it can control money supply within the private sector (PS pot). Changes to welfare spending (unemployed, pensioners, families with children) directly affect the income of poorer households, while changes to taxation have the biggest effect on spending power of higher income households. This leads to some very divisive political choices when adjustments to the economy have to be made. One of the things I like about basic income is that it is a universal payment to every citizen. Therefore adjustments made to UBI would have the same absoloute affect on every household ( although of course the relative effect on poorer households would be proportionally much greater ).
Addendum: One less arduous way of increasing one’s understanding of MMT is to do Bill Mitchell’s weeeknd quiz and then check his subsequent explanation. I don’t often get 3/3 but today I did. Feeling a bit smug!
Just had a watch.
Hope he touches on the difference between deficits and borrowing.
Deficit the difference between government spending allocations to Departments, Agencies and NDPBs and the tax / NIC recovered – a balance on a control account, no more.
Borrowing- a decision to issue gilts equivalent to that balance. Why that decision is taken remains to be explained.
My recall is that the video does address those issues….
Robert P Bruce : “Job guarantee, which is not the way forward. Money is fundamentally the power to command resources, and most of all to control the labour of others. The right want this power to be controlled only by companies and the wealthy. The left want this power to be controlled by government (through nationalisation, public sector employment and job guarantee).
Only Basic Income gives this power directly to citizens, so that they can take control of their own labour.”
A very good analysis until this. MMT economists unanimously support the JG over any form of Basic Income – because they understand the economics of Basic Income – which Basic Income supporters do not. Basic Income emphatically DOES NOT give power to citizens. It gives it to the wealthy elites.
Basic Income is either
(a) Welfare spending, which every human society ever has had. So Basic Income = proposing fire should be hot, wheels should be round. I agree, but not very helpful
(b) A sham, playacting. Gov gives you X pounds basic income. Then it taxes X pounds away. What a wonderful idea!
(c) Untaxed universal basic income: something incredibly stupid, destructive, impractical and extremely inflationary.
Many proponents present a moving target, never saying exactly what they mean and mix mutually inconsistent basic income proposals, pretending you can get the benefits of each.
Basic Income, which sounds so nice, is basically a ruling class trick. That is why so many billionaires support it. They. aren’t. stupid. The lambs they lead to the slaughter, the child crusaders for Basic Income — are. Basic Income keeps the corporations, the wealthy, bureaucrats, governments, elites in charge. They are in charge. What the billionaire class has always hated is the job guarantee, which destroys their power to economically sabotage societies for their own greed, and is a practical plan that puts the common man in charge, as much as is possible given the level of technology the society commands.
A Job guarantee is “what gives this power directly to citizens, so that they can take control of their own labour.”
Job guarantees makes it so anyone can pay for human labour- with their own. When they decide. A job guarantee is anti-inflationary can work forever.
Basic income is a ludicrous lie. It says “Here – take this money – enslave your brother over there with it, he will dance to your tune. ” The bureaucrats and elites decide on this pittance, and it must be either a pittance, or spectacularly inflationary and then becomes a pittance in a few weeks. Basic Income is like a ludicrous proposal to abolish slavery – by making everyone a master!
I think you massively overstate your case
That there is concern about basic income is true
But ket’s Make the debate rational
Well, I disagree. Basic Income is the irrational idea that cannot work – and this is quite obvious. People who think it can should work out what it means in a society of 2 or 3 or some small number of people. To be honest, for the first month or so after I learned about MMT it sounded good to me. But then I understood MMT better and thought about it.
MMT is how the world works
You can drop the full employment goal if you wish
But when you have done so what’s your better explanation of how money works?
Remembering that no one seriously challenges the MMT explanation of money creation now….
Calgacus says:
“Well, I disagree. Basic Income is the irrational idea that cannot work — and this is quite obvious. ”
Not so. It has possibilities which you chose to discount. You then conflate that to dismiss MMT.
You think what we have now works ?
“To be honest, for the first month or so after I learned about MMT it sounded good to me. But then I understood MMT better and thought about it.”
My bad. My “it” above refers to Basic Income, not MMT, as in the sentence I wrote above that one. I was just trying to forthrightly criticize Basic Income. A criticism based on MMT, which I completely support. Again, Basic Income is NOT supported by MMT or MMT academics. What I meant was that if you study and understand MMT enough, you will see why Basic Income, which looks attractive at first, is basically worthless, and why the Job Guarantee is necessary.
The seminal text on what is now known as MMT is Soft Currency Economics by Warren Mosler. Should be available from Amazon UK. Here is a sort of companion paper by Stephanie Kelton ( nee Bell) from Levy Economics Institute http://www.levyinstitute.org/pubs/wp244.pdf examining Mosler’s assertions, assertions that Stephanie – who was just coming off her graduate degree at Cambridge – found at the time “just … weird.”
Here’s a sampling of self education pages for MMT for those getting started and moving past beginners stage
http://neweconomicperspectives.org/modern-monetary-theory-primer.html Very basic but thorough
http://neweconomicperspectives.org/money-banking More involved and focuses on doing balance sheets in accounting style
https://en.wikipedia.org/wiki/Modern_Monetary_Theory -this is more in depth and more advanced, better have some background first
Then for those who are ready for in depth analysis
http://www.levyinstitute.org/research/monetary-policy-and-financial-structure
Thanks
“and the transition from a command to market-based economy ”
Particularly telling, I thought. The sort of policy the IMF (militant economic wing of the US state department?) has been promoting so enthusiastically for decades.
I don’t think you can rule out the risks of MMT by simply saying they don’t exist.
The big risk of MMT is political mismanagement. What politician is going to stop promising more and more free stuff to the voters, whilst claiming the said same voters won’t have to pay a penny for it?
Of course, once all the extra spending goes in, it is politically difficult (especially for Labour) to make any cuts, so that year on year extra spending paid for by more money printing becomes baked into the cake.
Inevitably, when that extra spending doesn’t achieve its promised aims, yet more spending will be needed for the NHS etc, and more of it will be paid for by printing money.
So when the government loses control of any semblance of fiscal responsibility, enabled by MMT, you suddenly have real risks of higher if not hyper inflation. You can’t simply dismiss them.
Hang on….
MMT describes what happens in the economy
MMT actually happens now
The risk of MMT is that people do not understand what happens now and what it means
What you are actually saying is that when people understand that it is possible to deliver full employment it will be dangerous to do so. As a result it would seem that you would rather they are not aware, of that instead we pretend that it is not possible by promoting an economic discourse that is blatantly untrue, and which passes power to bankers, which they do not and should not have. As a result let me be abundantly clear that your comment is, simply, political prejudice, and not reasoned.
How do I know that? Because you say:
Inevitably, when that extra spending doesn’t achieve its promised aims, yet more spending will be needed
Tell me how you know that more spending will fail?
Are you saying that being able to treat more people on a more timely basis in the NHS will reduce health care?
Are you saying that providing more social care will mean that the vulnerable are more exposed to risk?
And are you saying that providing more teaching facilities will provide worse education outcomes?
If so, can you explain how this will happen?
Please also note that, as you must have read, a right-wing think tank says that hyperinflation only happens in extreme circumstances, none of which could relate to any of these situations that MMT could give rise to. So why are you saying it might do that?
Indeed, why are you saying that that creating a more prosperous economy where people pay more tax is inflationary at all? What is your evidence?
Right now you have presented nothing but prejudice
Richard,
Admirably, generously but mysteriously you have wasted far too much effort on that person.
A new troll style has emerged under several new psuedonyms that feigns naive sincerity. Its a fraud. They are not as naive as they appear to be and certainly not sincere.
I don’t know what’s behind this new wave of fake simpletons, why they adopt that style or what their real purpose is. “Sarah” above, would no doubt say that “You can’t simply dismiss them”.
I’m pretty sure that you can.
I am inclined to do so
A few quotes from a great authority on the subject Simon Wren Lewis..
“MMT is particularly attractive because it does away with the perennial ‘where is the money going to come from’ question. Instead it replaces this question with another: ‘will this extra spending raise inflation above target”
…. this is basically the question i (and it seems sarah on this post) was raising particularly when a dependency is created on Government expenditure and when tax + NI is already at high levels and it would prove politically difficult raising them to control inflation. Inflation is at 3% and more Govt spending runs the risk of creating inflation ..just throwing out the term the multiplier isn’t sufficient.
“You will hear from MMTers that taxes do not finance government spending, or that spending comes first, but you will hardly ever see the government’s budget constraint which makes all such semantics seem silly”
…again Richards banner post on the NHS almost said there was no limit to Government spending unless we hit full employment. Do people really believe that is a sufficient explanation of a spending constraint?
” I think MMT sometimes demonstrates many of the dangers of a school of thought. It tends to be antagonistic to the mainstream, and some (not all) of its leading lights give their followers the idea that the only truth is to be found within MMT, and everything the mainstream says has to be wrong. That proposition is so absurd but I can understand why it can be believed.”
“unfortunately some in MMT appear to want to make it a kind of cult, where only MMT sees the truth and everything in the mainstream is neoliberal and wrong. They attract followers because of their politics, but then they turn their followers into converts with closed minds”
This is so true of many posters on this board!!
Given that in the same piece SWL says he is committed to the use of interest rates for macro management I am not sure he is much of a useful commentator on MMT
Have interest rates worked? No: resoundingly not
Why retain the faith in them, and the resulting ineuqality that results? Would you like to explain that?
Why not instead spend until we hit full employment?
Or are you saying a modest increase in total tax payments because you are likely to be earning more is a price you would not pay for that?
If so, why not? Why would that be rational?
MMT is a very basic description of the balances in a economy using vertical transactions. It doesn’t really add anything new to what has already been established by neo-Keynesian/neo-classical synthesis economics. It makes out as if government printing of money is a new, but it has well been established governments can do this – though typically its not a good idea.
MMT is well understood, and there are plenty of very valid criticisms of it because of the short cuts, assumptions and omissions it makes when faced with problems.
You, however, are using MMT as a policy description – namely that governments can and should print new money to fund increased spending, and that this is debt and risk free. Above you clearly say that MMT could never cause hyperinflation.
In addition, if extra spending is what you desire, why can’t a government simply continue with debt financed deficit spending, rather than take the risk of MMT based money printing?
Implicitly you are saying that money printing is better than debt financing, because you are claiming that money printing has the same benefits but no costs. That is not realistic by any means, yet you are arguing for this as policy.
I read that Cato institute piece, and they only describe instances of hyperinflation, not the specific causes of each occurrence. You say you can ignore Zimbabwe and Weimar, but it is much harder to ignore many other cases of hyperinflation which were caused directly by government fiscal policy. Just to pick some off the Cato list, Hungary, Peru, Nicaragua, Ukraine and a lot of the ex-Russian satellite states all experienced hyperinflation driven by government fiscal policy and money printing.
Even if your MMT derived policy doesn’t result in hyperinflation, it would likely result in much higher inflation that we have now. Inflation is in essence a tax, and it is a tax which typically hits the poor hardest. Why would you want that?
You are trying to make an emotive case that government spending is always good, and is the solution to all societies problems. Apart from the fact that the UK is already essentially at full employment, there are many recent examples where it is clear to see that extra government spending has not delivered larger GDP growth or full employment. The list of governments that have run large deficits yet not managed to improve GDP growth to cover those deficits (even pre-crisis, before you use the crash as an excuse) is a long one.
So simply saying more government spending will inevitably boost GDP growth and pay for itself is simply not borne out in the real world.
You are also resorting to a straw man argument by trying to attack me. you are essentially trying to paint me as a villain, and yourself on the side of good. Extra healthcare spending might reduce the need for healthcare. Of course, the reality is that extra spending on the NHS will more than likely simply get swallowed up by ever more demand, as has been the case with the NHS even when taking into account the increasing and ageing population. Nor does that extra spending necessarily generate extra growth, as you are claiming it does.
You are making some incredibly bold, and most likely flawed assumptions. You are assuming that extra government spending will increase GDP growth, and also pay for itself via that extra growth. You are assuming that MMT based money printing will have no inflationary effect, and no other risks attached to it – not least increased interest rates and devaluation of the currency. You are also assuming that politicians will be able to restrain themselves when the country is at full employment, and even cut back on spending when they have to to restrain inflation.
The last point is simply unbelievable. Do you think Corbyn, in control of government, would ever be able to cut spending? There will always be additional demand for spending, from various sources. NHS, education, housing, social security, you name it. Do you really think that he would ever be willing to cut spending, and tell the voters he was doing so, after bribing them with promises of ever increasing spending? It is politically unlikely, and dare I say it impossible.
Given that you are using MMT as a basis for a policy description for more government spending, I would be interested to know how much extra spending you are suggesting the government does via MMT money printing? Surely, if you are basing it on “full employment” then there must be a mathematical link between employment and extra spending, otherwise it simply becomes an excuse to print money to spend on whatever the government feels like.
Following on from that, do you have any systematic or mathematical way to describe what the effects of money printing would be on GDP growth and inflation? After all, if you are suggesting a policy, you should probably have an idea of what the effects are going to be. Otherwise you are just guessing and making hyperbolic claims.
Finally, if you know how much extra you are going to spend, you must have an idea of how much taxes or interest rates are going to have to rise to control inflation and manage GDP growth to stop the economy from overheating. You can’t seriously expect anyone to believe that you can improve GDP growth (which is normally inflationary), create full employment (which is by definition inflationary) and do so with no increase in inflation and all the while leaving interest rates at rock bottom levels. Do you have a serious, mathematical or economic treatment for how you would control this, rather than just saying it won’t be a problem and it will never happen? You must at least have idea how much interest rates and/or taxes will have to increase to control the economy, surely?
When you are suggesting a policy, it is good practice to analyse the benefits as well the costs, and have an idea of how that policy will be measured, managed and controlled. Otherwise it simply isn’t a policy, it’s pie in the sky dreaming. As far as I can tell, you have made great play on the benefits, ignored any potential costs and made no real indication of the process for managing such a policy.
This is basic political economy. I would hope you understand that.
Let me ignore the multiple ad hominems
And let me thank you for acknowledging MMT is a known truth
After which let me summarise what I think you are saying. This is that although you recognise all the truths of MMT you do not want them to be used because you do not like the social consequences that might give rise to.
What can I say to that? It’s your right. And it is my right to disagree.
Despite what you say nothing I say is surprising, untested, or unfamiliar. The consequences, via multipliers, is well known. Which give best result is also well known. Let’s nor pretend otherwise. And, of course, nothing is possible without the resources to make it happen. And only a fool would suggest creating more credit in any sector to do that than is necessary. I stress, private credit too.
But what you make clear is you do not want the possible to happen. That’s it. Nothing else you say seems to be of consequence.
We will have to disagree.
Marco,
“A new troll style has emerged under several new psuedonyms that feigns naive sincerity. Its a fraud.”
I agree.
When I speak to real members of the public about economics during street stalls or canvassing their naïve sincerity turns to obvious bewilderment when confronted by even the simplest economics questions. That or they express obvious surprise and incredulity at factual explanations of the most basic principles of our money system.
Online supposedly naïve and sincere posters remain somehow unmoved by what should be shocking counterintuitive ideas, plug away endlessly at worn out neoliberal tropes that no naïve member of the public would ever defend so fiercely, and aren’t remotely surprised or embarrassed when they can’t answer any of your questions.
Not very convincing is it?
My recommendation to Sarah and Jomiles is to get out and talk to real people about economics and ask them some questions. You can then create a matrix with model citizens (each with a different level of economic knowledge combined with each of a handful of common political leanings) across one side and common progressive economics ideas on the other side. Then you note the most common responses to each idea for each model citizen.
Leave yourself some space in each cell because you’ll want to note not just their initial response but also how they react to further questions and statements because you’ll generally see a rapid evolution in the way they conceptualise the economy during your conversation rather than a static and dull eyed repetition of their opening gambit.
When you next go trolling you just select the relevant progressive idea you want to pour cold water on before choosing the most suitable model citizen for your troll based on the style and debating competence of your adversaries. Get in character mentally before you start and you should be fine for at least a half dozen exchanges before you get called out.
Of course if you overdo it so no-one catches on you run the risk of sounding just like a real person slowly coming around to the progressive cause under the inexorable force of logic and humanity. Who knows how many lurkers you might inadvertently help to convince of the righteousness progressive cause?
Thanks Adam
Sarah says:
“Surely, if you are basing it on “full employment” then there must be a mathematical link between employment and extra spending, otherwise it simply becomes an excuse to print money to spend on whatever the government feels like.
Following on from that, do you have any systematic or mathematical way to describe what the effects of money printing would be on GDP growth and inflation?”
Do you you have any systematic way to repeat yourself thoughtlessly or is it just random?
By the way the answer to your question is: The Multiplier Effect (ta dah!)
Its been around for over 80 years. Everybody knows about it Treasury, BoE, IMF, OECD all those folk. So there you go – Google it.
Sarah says:
“MMT is a very basic description of the balances in a economy …..has well been established governments can do this — though typically it’s not a good idea….”
It wasn’t handled very well post 2008, but I suggest that bailing out the banking sector was a very good idea. The alternative of a total collapse of the entire finance sector probably on a global scale doesn’t bear thinking about. That is a very definite majority opinion as demonstrable from the actions of the BofE, The Fed and the ECB.
Do you disagree ? Or are you going for the ‘that was not the sort of typical I was thinking of’ response.
Banking and financial crashes, I would suggest, are absolutely typical of the financial system as we have known it with or without a gold standard.
I think therefore there is empirical evidence that we have been getting economics wrong for a (very) long time.
High time we got our heads round the problem don’t you think ?
Sarah says:
” …. Above you [Richard] clearly say that MMT could never cause hyperinflation.”
You have a point [though it’s something of a straw person] if Richard really did say that (and I can’t be bothered to check).
Of course MMT could result in hyperinflation if it was willfully abused to spend on everything that everybody wants with no regard to any kind of rational control. Like taxation for example. We can see what the inflationary effects can be like by looking at what is currently happening on the stock markets with a backdrop of reduced top end tax rates. Watch what happens in the US over the next six to twelve months. It won’t be pretty. But it won’t be hyperinflation either, just the usual sort of ‘correction’ with additional fallout which may or may not have catastrophic fallout dependent largely on how the Fed responds.
ECB is still ‘printing’ 30 billion Euros a month and inflation is hardly an issue in Europe. Zombie companies are though because the ECB cash injection is all misdirected. That’s politics it’s not economics.
MMT is useless without the appropriate political direction. The last decade proves that.
I always say hyperinflation is possible
Any economic system can – MMT has the merit of making clear it is possible
And it provides tax a a solution
Sarah says:
“…MMT is well understood,…….” No it isn’t. There’s a constant stream of misunderstanding manifest on this site from contributors who really don’t get it.
“In addition, if extra spending is what you desire, why can’t a government simply continue with debt financed deficit spending, rather than take the risk of MMT based money printing? ”
Now why on earth would you indulge in expensively borrowing something you can produce at no cost ?
Please explain.
Oh Dear !
Sarah says: “……. that the UK is already essentially at full employment, ….”
No it isn’t. Underemployment is not measured in any government stats and unemployment figures are not remotely comparable to figures from previous eras because of the different way they are compiled and the number of people excluded from the count.
Adam and Marco,
Trolling, faux naivety or just mainstream miseducation ?
The latter I suspect. Forty years of this false narrative means you get this sort of non rational criticism coming out of mainstream academia. How is the layperson supposed to differentiate fact from fiction?
I refer you to ‘Project Syndicate’ if you don’t believe me. Posts from respected (in some quarters) academics are shot through with drivel.
Even the Financial Times is publishing crap. God alone knows what the right wing tabloids are pumping out. I don’t even look.
“… rule out the risks by saying they don’t exist…”
This is exactly not what MMT economists say. They pay “great deference” to the risk of inflation, and readily acknowledge that it is in fact possible to overspend.
The problem with your objection (Sarah) is that the risk you describe exists right now. Saying it is a risk of MMT is nonsensical.
Precisely
MMT says the primary purpose of tax is to control inflation
It’s hard to think of a theory that gives more prominence to inflation
Some seem not to have noticed that here
Sarah (the troll ?) says:
“I don’t think you can rule out the risks of MMT by simply saying they don’t exist.”
I don’t think anybody does. We’re living with it (because it describes the status quo as regards operation of fiat currencies) and living with the consequences of that currency system abused by the powerful (and the ignorant, or misguided) for a vastly profitable benefit of a minority.
Richard,
Nowhere do I agree that MMT is a “known truth” as you call it. What it proposes as new are things that are already well understood, but as a whole MMT is deeply lacking as a theory. It simplifies employment, inflation and totally ignores the open economy reality, as MMT simply doesn’t work when balances can easily flow offshore.
Which I suppose is one of the many reasons only a handful of economists are behind most of the MMT work out there.
You are right in one sense though. I don’t like the social consequences of what MMT would give rise to. But those social consequences are not the same ones as you are claiming – MMT will likely cause high inflation and economic instability, if not economic collapse at the hands of poor government. At best higher inflation will make the poor poorer. At worst you risk huge damage to the economy as a whole as too much money printing forces the pound down, investment down and taxes dramatically higher. Why would we want that?
You have an overly simplistic view that MMT is a panacea and comes with zero risk. THe best you can seem to come up with is that government spending creates multipliers in the economy. Which sometimes they do, but not always, and as anyone should know those multipliers diminish with increased spending. Nor do those multipliers necessarily cover their cost in increased tax revenues.
But again though, all you have done is make an assertion and an assumption.
You are trying to dictate policy based on a theory. All I have asked you to do is tell us, based on your theory, how much extra spending the UK economy needs right now to get to full employment. If you don’t have an idea of that, surely you would risk printing the wrong amount of money into the economy to be spent by government.
When we have an idea of what that number is, can you then tell us what the effect of that extra spending will be on GDP and inflation? After all, you need to be able to measure a policy’s outcomes to be able to control it.
Finally, once we have hit full employment and inflation is rising, how much are taxes going to have to go up to control that inflation? If you don’t know that, how are you going to manage inflation, let alone be honest with the voting public?
I am sure, if you are as convinced as you seem that MMT is a universal truth with no fundamental problems, that these questions should be easy enough for you to answer. One does wonder why till now you haven’t been willing or able to do so though. Without these answers your print and spend policy based on MMT looks like just another set of left wing fantasies.
L
Sarah
I’d like to engage but see no point
First because this is wholly self contradictory and fails to note that MMT deals in a currency:
Nowhere do I agree that MMT is a “known truth” as you call it. What it proposes as new are things that are already well understood, but as a whole MMT is deeply lacking as a theory. It simplifies employment, inflation and totally ignores the open economy reality, as MMT simply doesn’t work when balances can easily flow offshore.
And second because you admit your objection is political and so whatever I say you will not be convinced, in which case I have better things to do with my time. You can squeal all you like: I have supper to cook and that’s a much higher priority in my life
Richard
Richard,
I am not surprised you are unwilling to engage. You have a tendency to avoid answering the difficult questions, and instead respond by dissembling or by attacking people or straw men you yourself have created.
For example “First because this is wholly self contradictory and fails to note that MMT deals in a currency” is simply meaningless. Even if your statement has a whole has a meaning (which I am struggling to find) I’m not sure what MMT dealing in a currency has to do with it – and why that would somehow set MMT apart.
And yes, my objections are political. I’m a political economist by trade and profession. Given you also claim to be one, you should be aware that when you are making policy decisions based on economic theory, one would hope that you have some idea of how to measure, manage and control that policy.
But again you simply dismiss my points – by claiming I don’t want the same outcomes of growth and jobs etc as you do. Of course that couldn’t be further from the truth, but you seem to think anyone who disagrees with MMT wants to hold the poor down, when the truth is I don’t agree with MMT because it is simply bad economics which would make worse policy.
You have no evidence that MMT will do the things you claim it will. You have no functional method to describe full employment. From that you have no idea how much MMT money should be printed. Next, you have no clue as to how that will affect inflation and growth. Then, because you can’t assess what the newly created money is doing to the economy, you have no way of telling us how much taxes will have to go up to control that inflation.
So instead you resort to pure bluster, by promising sunlit uplands of higher growth and full employment and then lie to people – yes, you are lying to people – when you say there will be no resultant inflation and it would never be a risk, and because of that taxes wouldn’t have to change much as there would be no inflation to control.
You seem to spend most of your time devoted to your blog (though for a full time professor I wonder how you manage this). Clearly cooking your dinner is important, but if you are spending as much time as you are pushing MMT as a theory and a fiscal policy designed around it, maybe you should bother to fill in some of the details – which I and others have asked you to provide yet you steadfastly refuse to do so.
One would almost think that you are a fraud, and simply are unable to do so, and are not the economic expert you claim to be.
If you are a political economists you could answer these questions if you so wished
I suggest you do
I don’t play with trolls
Especially when I note your IP address happens to be the same as that of Pramol who also trolled here
One does despair of trying to find a simple enough explanation for people who simply don’t want to or can’t understand basic logic. There is clearly some sub-conscious and irrational fear of the unknown (to them). Risking criticism of over-simplification and being patronising, I offer this analogy to Sarah. You have car (if not let’s pretend). It comes with a handbook of how to mazximise its performance, but you don’t read it and if you do, you don’t really understand how the engine etc. works. Although a modern car is quite capable of being driven safely at 70 mph (and more), you’re terrified of having an accident. So you drive it with your foot hovering over the brake pedal and never out of 2nd gear. Of course, there are senseless people who drive much too fast and when they shouldn’t (drunk, sick, etc.) killing themselves and/or others. But, out of a driving population of billions they represent maybe less than 0.5% (just guessing). Yet, despite what the handbook instructs and informs, your subconscious mind is filled with the notion that these accidents are inevitable if you take your foot off the brak & shift into a higher gear.
Before anyone heaps disdain on me, I know it’s a crxp analogy. But how else to explain something quite complex in order to dispel understandable fears of ‘ordinary’ people (no shame in being ‘ordinary’)? How many drivers understand the electronics of a modern car?
I believe Sarah’s comment does need to be addressed before a political party offering an MMT-based socio-economic programme can overcome these widely held imaginary fears. On an earlier blog the suggestion was simply to go ahead without attempting to explain the how and why (JEDI). While there is some merit in this approach, I’m not sure it adequately deals with the preconceived fears that lurk in the minds of so many. An early lesson in marketing (from Theodore Levitt I believe) was that ‘perceived values are real values’.
I’ll stop here before I dig myself into a deeper intellectual hole! Just hope it makes some kind of sense because I’m getting giddy from incessantly going around in the same circle.
John,
Sarah is a fake, a troll. Forget about it.
You’re right Jon, your car analogy is a crap one.
MMT is well understood in the economics fraternity. It has had previous incarnations before it was called MMT, and it is really a derivative of other well understood economic theories. Its bold claims really amount to the idea that governments can print money and that doing so won’t generate inflation until you hit full employment.
The problem then comes when MMT proponents then use it as a basis for fiscal policy, and in doing so ignore or assume away a lot of the problems.
Sure, governments can print money. The real problems lie in how you define full employment, the inflation treatment of it (which MMT doesn’t really cover, it just assumes no inflation until full employment) and then how governments would control that inflation afterwards, especially as MMT implies perpetual near zero interest rates. If you can’t estimate the inflation you are going to create via your policy, how can you adjust your tax rates to counter that inflation – made especially difficult given taxes are more often than not paid in arrears. Lastly, the question of political interference is a big one. If at best you have a weak mathematical description of how your policy will affect inflation, you can’t plan adequately, and those plans will become subject to political pressures to inevitably spend more – creating instability in the economy and huge potential problems.
MMT as a theory has problems. Much bigger a problem though is that the people who want to use it as fiscal policy don’t have answers to how the outcomes of it will be managed and controlled.
To go back to your car analogy, MMT is like having the handbook, but the car itself not having a speedometer or rev counter. At which point you have no reference to measure if you are going too fast or slow, or are about to blow up the engine. Proponents of MMT and the follow on fiscal policy have up till this point been unwilling or unable to give us a speedometer (how to define and measure full employment, which is by it’s very nature elastic) or rev counter (how does that full employment feed into inflation and growth), instead just telling us it will be ok and not to worry about it (so they have no real idea how much taxes or interest rates would have to go up to control inflation or growth).
People don’t have an objection to MMT because it’s some bold new theory (which it isn’t anyway, being reheated Keynes with a dash of chartalism). People have an objection to it because it fundamentally doesn’t tell us anything new, and what it suggests for fiscal policy is full of bold assumptions at best, and fallacies at worst. It’s proponents tend to try and make it sound that governments can increase spending without and risks or consequences and then claim people who are against it are against the poor, or neo-liberal etc. Various straw man attacks typically – as witnessed by Richard Murphy’s attack on me earlier.
When in reality those against MMT are against it because of the various inherent problems in the practical application of the theory which MMTers seem unwilling to account for. Plenty of left wing economists think MMT is flawed as well, and there is plenty of serious critique of MMT available out there. Yet those proposing MMT seem unable to silence the critics main point – that MMT doesn’t provide a mathematical treatment of employment or inflation and then the resulting tax implications – other than simply denying or glossing over the problems.
Surely, if the theory was so sound, shouldn’t it be easy to produce such a model? It doesn’t have to be perfect, but some treatment of it past hand waving would be beneficial to the MMT cause? So why haven’t the MMT fraternity done so? Rather begs the question doesn’t it.
I have commented on your previous post
I have nothing to add here
We get it: you do not want the 3conomy to work for the benefit of people even though you recognise the truth that it can.
John D,
For some no explanation is sufficient because they believe their private interests are best served by the status quo. They don’t want to understand MMT (or they understand it already) their goal is purely to create fear uncertainty and doubt in others’ minds so as to inoculate them against ideas that might put pressure on the status quo and so risk their wealth and power.
I saw the suggestion that progressive leaders should just do like FDR did in the ’30s and talk about radical new policies as if they are normal and I agree that would work: if we had leaders with sufficient political capital and the knowledge and will to do it.
Unfortunately we don’t yet have such leaders capable of using that strategy. However, we shouldn’t wait until that strategy becomes available due to the sheer awfulness of living conditions in the future. We should do all we can now to get the new ideas out there in advance so that conditions don’t have to get so bad before leaders feel able to go down that route.
I believe the trick to getting the new ideas into the mainstream in the meantime is via normal people outside politics, economics and finance or at the very bottom of those groups: people not likely to be fully and irrevocably against accepting MMT’s insights and policy recommendations for reasons of self interest.
People who would benefit from these ideas seem largely unreceptive but I think that’s mostly a brittle veneer. Most people don’t actually have very strong opinions on or any deep understanding of economics (I should know as it remains a steep learning curve for me). Most people accept a lot of establishment propaganda at face value through a mixture of; intellectual laziness, lack of curiosity, lack of time to do otherwise and repeated exposure.
The question therefore is not: How do we persuade the guardians of the status quo? We know the answer to that question already – self interest is all that motivates them.
The real question is: How do we prick the bubble of economic ignorance most of us live in?
I think we can slowly achieve this feat via a number of related arguments:
1) Provide a personal incentive for people to engage and learn: explain how their lives could be better with an alternative economic approach but will only get worse under business as usual. Reference declining real wages vs increasing profits and explain the causes.
2) Banish the misconceptions around the nature of money. Money is just an IOU so cannot run out while ever there’s more stuff people are able and willing to do. People are familiar with how IOUs work between friends and family but struggle to understand that money is just a universally accepted version of the exact same idea. Don’t believe me? See if the Bank of England can persuade you…
“Money in the modern economy is just a special form of IOU, or in the language of economic accounts, a financial asset… …Because financial assets are claims on someone else in the economy, they are also financial liabilities – one person’s financial asset is always someone else’s debt…”
3) Explain how Government money is just an IOU like any other but make explicit what it is the Government is promising to you when you go to them with their IOUs in hand: they promise to expunge your tax debt so you can avoid prison. This isn’t emphasised enough in the otherwise excellent explanation from the Bank of England:
“To be comfortable holding currency,
people need to know that at some point someone would be prepared to exchange those notes for a real good or service, which the state can help guarantee. One way it can do this is to make sure that there will always be demand for the currency by accepting it as tax payments.”
https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-in-the-modern-economy-an-introduction
Highlight the difference between the voluntary debt arrangements we enter with each other, businesses and commercial banks and the involuntary and unavoidable tax debt imposed on us by the state and backed by the law, courts and, ultimately, the state’s monopoly on the legal use of force. There are only two certainties in this life…
Qualify this (lest your audience suddenly get the urge to become libertarians!) by explaining that power is indestructible and cannot be cast aside without someone else picking it up and wielding it. Therefore the only way to create a civilised nation is to accept the reality of power but tame it’s worst tendencies by sharing it via democracy.
3) Shift the discussion to real resources and ecological sustainability being the actual constraints on our economy and opportunity-costs being the real way we pay for the things we want. Explain that lack of expressible aggregate demand can, and currently does, cause our economy to produce below maximum capacity and that this imposes a real cost in terms of lives lived without people reaching their full potential and reduced future productive capacity due to unnecessarily foregone investment. Explain that economies are dynamic and can become ever more productive with the right investments in education, training, technology, infrastructure and ecosystems.
4) Explain why the status quo benefits the establishment and show how they use their power and influence to maintain it. Pay special attention to how they control ideas (the ideas of the ruling elite being the ruling ideas). Self interest and group-think are the reasons the mainstream is so unreceptive of MMT and this has to be made explicit otherwise people will tend to defer to the mainstream economic narrative through appeals to consensus.
5) Show that historically during wartime the establishment has relented on its usual claims about money and how to manage the economy and adopted policies that, while necessarily extreme, were based on an understanding of the economy that was not far removed from MMT.
6) Invoke urgency through reference to; impending ecological collapse, climate change, future resource shortages, and the risk that hostile nations may adopt more productive economic policies (possibly via understanding MMT) and outcompete us in an increasingly precarious time of global change.
7) For those who have some knowledge of and interest in economics provide signposts to the academic MMT literature as well as the blogs:
This is a slightly old list of links but ive found it useful:
https://alittleecon.wordpress.com/academic-mmt/
This is a good series of blog posts on modern US banking through an MMT lens. I wish I could find the same for the UK system:
http://neweconomicperspectives.org/money-banking
Adam
Thanks for this well reasoned argument
Appreciated
Richard
The New Economic Perspectives blog linked to in this comment belongs to Stephanie Kelton, one of our leading proponents and economists. It may be considered an authoritative source on the subject.
We have inflation now before full employment. We would have more as we spend to achieve your “full employment” goal. how much more tax would we have to pay to try and control inflation? who knows? i have no idea.. that is my point there is no analysis on the trade off between unemployment , inflation and tax other than in very broad parameters.
Really once you substitute govt control of the money supply from the money markets intermediation you are back to demand management economics with the usual trade offs and it raises the question of whether there is economic utopia that your NHS banner post suggest..reaching full employment may be too much of a cost in terms of tax and or inflation. It is always the consequences of a target policy that have to be measured. As i have previously mentioned the implications for the currency are critical also and the explanation in this area is very weak given our dependency to import energy etc.
a) Do you really think 3% inflation is worrying? Why? Many economists would argue it is not enough: the issue has been dwelt on here before
b) Do you really think we have full employment? Go and read Danny Blanchflower
c) What have you got against full employment?
d) Why do you want a sub-optimal economy
e) since when has doing well ever harmed an economy?
f) How much do you really think I am suggesting spending?
g) Do you realise how small the sum is?
h) Why would you be indifferent to the same sum if injected as consumer borrowing?
i) Why don’t you want consumer credit controls to limit the risk to the currency – which is where that vulnerability undoubtedly lies?
j) Why not answer the questions?
Problem is Richard, you won’t answer most of those questions you asked. Or can’t. Let me try for you.
a) 3% isn’t worrying. But just assuming it will stop there is nonsense. We really don’t know how high inflation will go if we start printing money. So you won’t tell us so we don’t know.
b) You don’t know that either, but every time someone says there is full employment you will disagree. Because if you did agree there would be no point in MMT and you wouldn’t be able to argue for ever more government spending. So its a moving target. At best.
c) You can’t define full employment so instead you just attack.
d) You don’t know if the economy is sub optimal, but until it is run by a big left wing government, not the evil tories and their neoliberal chums, its sub optimal. So you will attack again.
e) You’ve run out of things to attack with now so will instead just create a straw man.
f) We don’t know because you’ve never told us.
g) No. Because you’ve never told us.
h) Now you don’t seem to understand the difference between borrowing and printing money. Which is why you am indifferent to it.
i) Now you don’t seem to understand the difference between consumer credit (not a risk to a currency) and credit controls (controls on forex). We already have limits on consumer credit, but credit controls won’t limit the risk to the currency. But you don’t really understand that either.
j) Why not Richard? Why won’t you answer various people’s questions? You never do, you just attack them, block them or ramble on and dissemble.
Wow
Talk about playing the man
And grubby level politics
It’s certainly not worth replying to
Scotty says:
Put some of this round your rose bushes. 🙂
Jomiles (or whatever your name is)
“Inflation is at 3%”
Post-Brexit, it is, due to the Brexit induced fall in the value of the Pound (that makes imports more expensive). This is called cost-push inflation (import costs in this case).
Pre-Brexit, inflation was below the BoE target for 8 years running. Just as it still is everywhere else in the western world.
The inflation that is being “discussed” in relation to monetary financing and MMT is demand-pull inflation. Its the one that the BoE takes an interest in.
Now you actually know something. Do try to remember it.
Precisely
Thanks
Marco,
And when printing money causes a fall in the value of the pound, you are going to get your cost-push inflation as well as demand-pull. Nice double whammy that one.
More importantly, what are you going to do about it? Other than pretend it won’t happen and doesn’t exist, of course.
Tell me, did £435 billion of QE do that?
By how much?
And did it harm growth?
By how much?
Scotty, perhaps you should beam this info about the Bradbury Pounds up, from 1914; ““The bank managers at the outbreak of War were seriously afraid that the depositing public, in a panic, would demand the return of their money. And, inasmuch as the deposits and savings left in the hands of the bankers by the depositing public had very largely been sunk by the bankers in enterprises which, at the best, could not repay the borrowed capital quickly, and which in several and large-scale instances were likely to be submerged altogether in the stress of war and in the collapse of great areas of international trade, it followed that if there were a widespread panicky run upon the banks, the banks would be unable to pay and the whole credit system would collapse, to the ruin of millions of people.
Private enterprise banking thus being on the verge of collapse, the Government (Mr. Lloyd George at the time was Chancellor of the Exchequer) hurriedly declared a moratorium, i.e. it authorized the banks not to pay out (which in any event the banks could not do), and it extended the August Bank Holiday for another three days. During these three or four days when the banks and stock exchanges were closed, the bankers held anxious negotiation with the Chancellor of the Exchequer. And one of them has placed upon record the fact that ‘he (Mr. George) did everything that we asked him to do.’ When the banks reopened, the public discovered that, instead of getting their money back in gold, they were paid in a new legal tender of Treasury notes (the £1 notes in black and the 10s. notes in red colours). This new currency had been issued by the State, was backed by the credit of the State, and was issued to the banks to prevent the banks from utter collapse. The public cheerfully accepted the new notes ; and nobody talked about inflation.”” Running round with wheelbarrows full of near worthless banknotes seems to be the exception to money printing rather than the rule. If you were taught different from this at school, and I have no doubt you were, perhaps your real argument is with whichever authority it is which sets the misleading curriculum.
https://archive.sustecweb.co.uk/past/sustec12-6/extract_from_the_financiers_and.htm
Thanks
Jomiles,
You go on and on about the depredations inflation would cause at full employment as if there is no cost associated with unemployment…
Regardless of what were the causes we have inflation at 3%..i am not saying that is high i am saying that is what it is before increases in Government spending. Indeed a risk of further government spending (along the lines of Richard NHS poster) is a further fall in sterling – i have made this point many times along with our dependency on imports (energy etc) so we face further cost push inflation as well as through increasing aggregate demand. It really isn’t enough just to say it won’t happen. If that is believed then it has to be supported.
It comes back to understanding the sensitivities between levels of additional Govt spending /printing and taxation, inflation and the exchange rate. Simon Wren-Lewis pretty much says the MMT advocates lack analysis on this..it really isn’t enough to say full employment is the target and there will only be moderate tax rises. More insight is needed to sell the story otherwise it will be viewed by the wider electorate as a dangerous experiment.
So growth is a ‘dangerous experiment’
And government money printing is a ‘dangerous experiment’ even though without the economies of most major countries would have collapsed in the last decade
What’s your alternative?
I have offered a plan
You offer objection
Tell me how your plan tackles the challenges to liberal democracy:
a) Inequality
b) The inter-generational legacy of the GFC
c) AI
I’d be interested to hear
Jomiles,
Here’s some further analysis and greater insight courtesy of academic MMT. Please do let us all know what you think.
https://alittleecon.wordpress.com/academic-mmt/
That is some list
It will be on the blog tomorrow….
jomiles says:
” Indeed a risk of further government spending ….. is a further fall in sterling — i have made this point many times along with our dependency on imports (energy etc) ”
If that follows, and it doesn’t inevitably, because it depends very largely on what return there is for the government spending – viz what government spends money on – you have to weigh the real costs. (As was referred to the other day One Tory chancellor thought it worth a great deal of industrial unemployment in the regions to control inflation – )
A fall in Sterling (if it were to occur) is a mixed blessing. We wouldn’t need to import nearly so much energy if we’d had sensible development in renewables for the past decade or so. That we haven’t is a political decision with consequences for a payoff in some other area of the economy, most notably the entirely non productive financial sector which has been bailed out by a government using a mechanism of MMT to do it.
MMT is not some cockamanie theory it’s a simple explanation of how money functions in reality. The implications for what it does to the economic welfare of the nation is entirely dependent on the political ends to which it is exercised.
For the last ten years it has been used to bail out a phoney asset industry, buy a government majority and make a vanishingly small proportion of the population extremely rich. It could have been used to refloat the entire economy.
How it works is dependent on the political will to use it properly. George Osborne and Phillip Hammond have demonstrated beyond any shadow of doubt that it can be used badly for malign purposes, whilst pretending that they had no alternative.
Either that or they are both very stupid. But apparently not so stupid that they can’t fool you. And a lot of other people besides you.
I haven’t objected, what you say is fantastic..what i have said that there needs to be more information on the sensitivities between government expenditure, tax rises, inflation and the effect on the exchange rate.It isnt enough to say full employment can be reached by increasing G. If the work hasn’t been done just say so!
Please feel free to model it
The report in question is one I cite consistently, with particular pleasure because it comes from CATO (and that silences the rabble considerably). I do so with confidence because I learned of it from a Stephanie Kelton tweet.
It is a very non-MMT source that supports our contention that there is no historical basis for the monetarist belief that it is possible to print too much money. Money is created on and by demand.
In the absence of an external event of some kind, as you cite in the OP, there has never been a recorded case of hyperinflation. Now, I will be very interested to learn the supporting literature behind the paragraph you quoted from the CATO report, but the research on the historical fact stands on its own.
Note, a poor fiscal policy that over spent the economy’s real capacity to respond could cause a hyperinflation. This is a frequently stated and important aspect of MMT.
The last para is a little confused
I think you are making the point that nothing is more likely to control inflation than a proper understanding and use of MMT
I agree
Yes one could put it that way.
Understanding the elements of the coherent school of though we now call MMT can lead to terrible fiscal decisions – which is what has happened in the US with the GOP tax scam. It creates a net deficit **according to its proponents** of something on the order of $1.5 trillion, but serves to fuel further asset inflation, wealth consolidation, and rent stream acquisition.
Similarly, misunderstanding what MMT economists are actually saying leads to the mistaken (in fact, exactly wrong) notion that they are saying we can spend our way to full employment. That is not the case. There comes a point where all that is happening is that prices are being bid up, but full employment (measured by U6 btw, not U3) is still not happening.
This is the actual basis of the transitional job proposal. It is not to stimulate the economy, per se. It is to bound the lower end of the labor market, and empower individuals to negotiate for their wages. This is why it is such a radical (in the mathematical sense) proposal, and why it is so vociferously opposed by the business community. It would necessarily constrain profitability and wealth extraction, because it fundamentally alters the power equation.
It is important to note here again that this is not a leftist proposal, but one that appeals to self-identified conservatives and those that might be called democratic libertarians (like myself), because it is inherently sympathetic with a robust, capitalist economic system. This, for the simple reason that it acts as a reservoir of the employed, and maintains a platform of demand.
Ok so you, me , probably no-one in the MMT community has a good grasp of the sensitivities..lets just say the doctrine is in its infancy and in the trial phase at best.
Again to para phrase Simon Wren-Lewis who has clearly been round the block on this..
“Another problem is that schools of thought (MMT) also tend to be political…all too often scientific discourse is replaced by political discourse… They attract followers because of their politics, but then they turn their followers into converts with closed minds”
Very true of many commentators on here.
So, you just don’t like the politics
Why not just say so?
But, and I stress the point, the politics is the inevitable consequence of the economics
And there are neither closed minds, nor followers. I came to this having worked it out from source as an obvious development of all I had been thinking. Many others have done the same. And we don’t always agree.
But what we get is the inevitability of the politics.
And it is those politics that address inequality, the inter-generational crisis and what work is to be.
Does your economics do that?
Spoiler alert: we all know it doesn’t
@jomiles
You paraphrase Simon Wren-Lewis as saying: “…all too often scientific discourse is replaced by political discourse…”
Dearie me, where to start?
First of all, the misguided the idea that economics is a science, even “an exact science” according to some is part of the reason for the disaster of the Great Financial Crash, where some of the wonks in the dealing rooms and boardrooms had convinced themselves that they had the “perfect” algorithms to predict chance and so even eradicate risk. All fine and dandy till the bottom fell out of their world, and cast them into the abyss. They should have read Nassim Nicholas Taleb’s “Black Swan” (see https://www.theguardian.com/books/2007/may/12/society), to realise that Extremistan is always possible, even just around the corner.
Secondly, politics is not just about political Parties and elections etc, but is about how we run our lives, how we trade off different demands, even how we set out our objectives and plan how to reach them – managing the business of living, in other words. Every married person and parent will know that “politics” is the stuff of everyday life – trading off who picks up the kids in exchange for a bit more time in bed on Sunday. That’s politics.
And economics is a subset of the above (or maybe politics is a subset of economics, though I prefer economics to be the subset) – dealing with the sourcing and allocation of resources of money, and even of time and skills. The fact is that economics is just politics, not only in different clothes (wearing football kit instead of an office suit), but, I would argue, with a more restricted frame of reference.
But the one is a subset of the other, whichever way you choose to read things, and to imagine that one can extract from economics a “purely scientific discourse” is on a par with the famous – and fatuous – attempt in Gulliver’s travels to “extract sunbeams out of cucumbers” https://www.enotes.com/topics/gullivers-travels-jonathan-swift/quotes/extracting-sunbeams-out-cucumbers
What one CAN do, however, is to amass evidence, assess it, and draw reasonable conclusions from that evidence – a rational, scientific method, that always accepts that our prejudices and predispositions must be recognised and compensated for, as far as is possible. Closed minds are to be found every bit as much in those who cleave to a mechanistic, economistic interpretation of economics, as in those who cleave to a political doctrine as the only received truth. We must guard against this by always testing our perceptions and beliefs against the evidence.
Thanks Andrew
I like that, Andrew.
A lot of sense in there. Not sure about the subset relationship of politics and economics. But you touch on what I perceive to be inherent problems: that economics is about a lot more than money, and politics is a daily process of negotiation. Neither is the exclusive province of specialists because we engage with both as we live and breathe, even when we might think we’re doing something else.
jomiles says:
“..lets just say the [MMT] doctrine is in its infancy and in the trial phase at best.”
Hmm… is MMT a ‘doctrine’ ? I’m not sure. The mechanism of fiat currency has been with us since 1971 (when Nixon scrapped the gold standard, and the post war financial settlement with it) and we have collectively struggled to understand its implications.
“Another problem is that schools of thought (MMT) also tend to be political…..”
That isn’t a ‘problem’ it’s just the nature of the way things are. It’s not ‘Party Political’ because there is no party consensus here on this – the people you call ‘followers’ are not following so much as exploring what a different understanding of economics (specifically how money behaves) does to their own political beliefs, and how (if at all) it can create the better society they wish for.
We’ve had nearly four decades of trial phase and we don’t (most of us) like the way it has been trialled because the benefits of the mechanism have been hijacked by an elite minority for its own enrichment, and let’s not forget for blatantly political ends.
You can’t reasonably cry ‘Fi ! it’s just political’ and dismiss it without accepting that where we are now is entirely down to an experiment in political neoliberal monetarism which is well past its trial phase and infancy and has profound flaws. It has produced some extremely bad outcomes. Not least being the financial crash of 2008 as the banking system disintegrated. We can’t afford to ignore that because a rational analysis suggests that we’re heading for a repeat performance which is liable to be even more destructive.
The system we have is indefensible. That system is applied to a political doctrine which is antisocial and zero sum.
Life is not zero sum. Though it can and has been interpreted as such through a faulty understanding and application of economic dogma based on beliefs about money which are not true.
You do right to suspect there will be glitches in implementation in a new economic model. Sure as hell there will. Like bailing out the banks with half a trill with no strings attached. Yes MMT can produce inflation – it has done in the whole asset sector over the last decade.
MMT explains how money behaves, now in the world we are living in. How we use that knowledge is down to political implementation and if politicians don’t understand how the economy works they can’t do their job because they don’t know what is possible, irrespective of what they they think might be desirable.
It is not possible to operate a global economy of floating fiat currencies using models developed to operate gold-backed finance. It doesn’t work. We are entering the endgame phase. Watch the continuing series of business failures this year – we’ve had some lulus already and the skittles will keep on falling over this year. The real economy is in terminal decline. Businesses are dying.
We need different (political) direction. In our democratic system that means voters need to understand that we do have choices to make and there are real and practicable choices to made. And no, it won’t be perfect. But if ten years of effective negative interest rates doesn’t ring alarm bells in your head nothing will.
Jomiles says:
“there needs to be more information on the sensitivities between government expenditure, tax rises, inflation and the effect on the exchange rate. It isnt enough to say full employment can be reached by increasing G.”
1. Full employment (for the most part) coexisted with low inflation for most the 1950’s and 60’s so its not new territory, historical precedent is there.
2. There was no precedent for QE and no clear foresight on its effects – but they did it anyway. Nothing too disastrous has happened (yet?).
3. You remind me of Liam Halligan – The Daily Telegraph ‘financial commentator’ that turned into a banana.
In 2010 Halligan predicted that a combination of “a big budget deficit and the Bank of England’s quantitative easing policy” would be highly inflationary further noting that:
“We’re running a budget deficit of 12-13 percent of GDP, if that’s not inflationary I am a banana”
In the 4 years following his comment inflation fell to near-zero levels.
Some people never learn.
The Halligan story is here:
http://bilbo.economicoutlook.net/blog/?p=29346
And BTW re. your hero, Simon Wren-Lewis. As I recall there was a select group of economists who not only forecast the GFC but explained why it would happen. Nouriel Roubini was one as was Dean Baker. Steve Keen was another.
That’s the sort of thing it takes to make hero status in my book. Simon isn’t in that book.
What about the Green New Deal group, who also did?
Did they?
Well, I’ll have to make a new entry for them.
andy crow – i probably share many of your political goals and i accept economics can only be a science within very wide parameters..but the NHS poster richard used is stating that any expenditure is possible until full employment is reached. When the question is asked what are the sensitivities of this on the way (inflationary?, how much tax?, FX implications?) there is no meaningful answers…just hostility. Without proper answers then this will go no where.
The answer has already been provided….
It’s in the statement
Possibly worth remembering full employment is something of a flexible and perhaps short-sighted definition. If we send JK Rowling to work all day at Poundland, leaving her too exhausted to write at night, do we then congratulate ourselves on keeping her properly employed.
Nobody is sending anybody anywhere to do anything. A job guarantee as conceived is not means tested nor necessarily government administered, nor is is necessarily limited to grunt labor.
Writers could write. In fact, they might be paid a living wage to do so.
Chris McArdle says:
“Nobody is sending anybody anywhere to do anything. A job guarantee as conceived is not …..”
….very well understood …….and there is deep, deep suspicion that it is the thin end of the workfare wedge. As Bill’s comment implies.
Both JG and UBI are so far off the wall to most people’s understanding of the world, based on centuries of tradition that we do have a major fight on our hands even to get a rational debate going. Added to which most people haven’t a clue that MMT properly understood opens possibilities previously not dreamt of. (Face it, most people don’t know the present economic orthodoxy is ‘neoliberal’.)
When we say ‘job’ or ‘work’ or ’employment’ or any of the words of similar ilk, we all have baggage, and preconceptions attached and it mostly involves the relationship with work and money, as if that were the only motivation for getting out of bed.
It makes the conversation difficult. And it does make people very tetchy and invites discussion (argument) at cross purposes.
Like I upset Pilgrim earlier because he failed to see the common ground in our positions and felt attacked. My fault for clumsy language use. It takes two to communicate. One telephone is neither use nor ornament as somebody once observed.
jomiles says:
“andy crow — i probably share many of your political goals …”
I hope so, because what I want to see is some fairness in the society in which I live.
Have you read the Joy of Tax ? It’s Richard’s book and it explains a lot of the basics which he gets rather tired of reiterating. So he gets a bit short in his treatment of uninformed criticism.
If you really want to understand the MMT proposition and what it can do and how the downsides are mitigated I think you need to get on board. And bear in mind , Richard is not a lone voice in this field and there is some range of opinion on how this alternative view of economics could and should be applied in practice.
I started with Noam Chomsky a good while back, and then drifted by stages into the more particular realm of finance and economics because how you run the budget determines what is achievable.
Suggested Googling: Stephanie Kelton. Mark Blyth. Richard Werner and the rest you just follow what you fancy that the youtube menu throws at you. There are hundreds of useful and interesting reference links in archive comments on here.
They deal with all the FAQs. but there are still some gaps to fill and your critical mindset just might find the important ones, but you won’t find them scratching on the surface – you need to dig.
So it seems to me that objections to MMT come down to calculation of tax which is “collected in arrears”. Of necessity! And under the system we have now classical economic thought has no better handle on quantifying the exact tax take than does MMT. Additionally the current system allows banks to create money as fast or as slowly as they wish without government intervention. So it’s an odd view that says the private banks can freely let rip to create interest bearing money but once the government creates any money without interest it will be a disaster.
The only area of doubt for me is the balance of payments which I try to explore here
http://www.progressivepulse.org/economics/the-payments-balance – especially as the UK imports 40% of its food (and with Brexit, that supply is likely to less secure than it used to be).
I don’t, by any means, think it’s game changing but I think it is something of which awareness is important…
Thanks Peter
A good post
Peter May says:
“……. especially as the UK imports 40% of its food (and with Brexit, that supply is likely to less secure than it used to be).”
Depends how you like your chicken. Boiled in chlorine or deep fried in West Texas crude 🙂
Thanks Richard, and thanks also to the commentators, including those who disagree. This one discussion has been an education and I am finally coming to an understanding of MMT. The links look to be a valuable resource and I’ll look at them when I’ve got my breath back!
Bill Kruze’s questioning of the definition of full employment gives pause for thought (and delectation at the notion of J K Rowling being too tired to write) as there is too much crowing by the current PM about how many more people are in work; when those extra jobs are for the large part underpaid insecure drudgery. A government aiming for full employment should also be aiming for dignity, security and reasonable pay for the fully-employed population.
Those troubled by MMT seem to believe that
fiat currency is a MMT proposal for a possible future monetary system,
rather than MMT being a description of the fiat system we already have.
Those troubled by MMT seem to believe that
government spending is presently funded by taxes and borrowing;
rather than by the fiat system we already have.
Those troubled by MMT seem to believe that
even if true, the citizens should not be told about
the fiat system we already have,
for citizens lack the necessary moral character.
Those troubled by MMT seem to believe that
a Democratic Republic can function though
it’s citizens use fictional criteria
to evaluate their representatives’ economic decisions and actions.
True
thank you andy crow – very constructive and helpful