Bill Mitchell is one of the leaders of thinking on modern monetary theory. Indeed, he is credited with creating that deeply misleading description. That might tell you much of what you need to know about Bill's contribution to MMT debate. It is, in a nutshell, not always very helpful.
Now I am aware that I will upset many MMT supporters by saying that. And I don't much care if I do. I live in the real world, and in that Bill is an undoubted liability to the necessary rethinking of how government really funds itself, which is what MMT is in essence all about. This is for three reasons.
First, it seems Bill cannot help but be hyper-aggressive. Having been charged with something similar in my time you would think I should be sensitive to this behaviour. I am not. Ultimately, the object of campaigning is to take people with you. Bill takes great pride in arguing with anyone, but it seems most especially with those who are broadly on his own side but who he deems to be of impure thought. I have been criticised for this by Bill. Now he has turned his fire on Peter May at Progressive Pulse.
Second, Bill turns tedium into an art form. Whether on his blog or in person his presentation ability is dire. I frequently give up the will to live long before getting through a third of one of his ramblingly incoherent blog posts. No wonder he can accuse people of not reading all he has written. Even if you were willing to do so and survive the experience you would often be none the wiser, so confused is his presentation of what are essentially simple ideas.
Third, and by far the most important, is the fact that Bill is just so often hopelessly wrong. Let me demonstrate by looking at the argument he has had with Peter May.
Peter wrote, quite reasonably, suggesting that there was a division within MMT on the subject of the merits of imports and exports. As Peter put it:
It is interesting that Fadhel Kaboub, Associate Professor of Economics at Denison University, and president of the Global Institute for Sustainable Prosperity, who is a great Modern Monetary Theory ‘MMT' (Charles Adams' summary here) and Job Guarantee Advocate, seems to be rather opposed to the Warren Mosler and Bill Mitchell idea that exports are like a household: such that what you export is going to make you poorer, simply because they used to be your resources.
To me this idea not only jarred because sovereign monetary systems are not like a household, but also because I've always thought that this was a rather simplistic point of view.
I will leave aside all the invective in Bill's response: it is really not worth wasting time on small mindedness. I will instead concentrate on the argument. Bill has three, as far as I can tell.
The first is that he did not say this. But as Peter points out, Warren Mosler , with whom he has worked, has.
Second, Bill says Peter has it wrong because what Bill actually said was:
Exports mean that we have to give something real to foreigners that we could use ourselves — that is obviously an opportunity cost.
Which, as Peter has suggested, looks to be exactly the same thing. And also, inversely means imports are necessarily good things. Now, I know where the claim on this issue comes from: it is from Stephanie Bell (now Kelton), at page 22 here. And it is deeply conditional as she described it, and probably practically worthless as a result, in my opinion. But Bill drops the conditions, as I note below, and that is just wrong.
And third? Well, Bill says Peter is wrong because he has not read in greater depth, and then provides reams of links, none of which get round the fact that what Bill has said here is fundamentally economically mistaken. Why do I say that? I have, as usual, good reason.
First of all, this is an absurd abstraction from reality, which is about as bad as the worst of neoclassical economics. What Bill is doing is to assume that we barter. Quite extraordinarily, it would appear that he thinks that we trade without requirement for payment to be made in settlement. For someone promoting monetary theory, this is staggering.
Secondly, when the whole of modern monetary theory is, in effect, based upon the principles of double entry bookkeeping, Bill is doing single entry accounting here. He is assuming that if we have more goods (because we import) or fewer goods (because we export) their well-being is simply indicated by this trading in goods alone, when in fact there will always be another side to the entry in each of these cases, which is the resulting promise to pay. A promise to pay is, of course, the whole basis of fiat currency, and so modern monetary theory, but somehow or other Bill seems to have entirely forgotten about this.
Thirdly, if trade is necessarily matched by a promise to pay then, with the sole exception of a country that issues a reserve currency, the net value of the promises to pay that are outstanding in international markets will have a bearing upon the way in which those markets react to the issue of further such promises. If it is perceived that the country does not have the ability to fulfil its promise, then inevitably the value of the promises made will be reduced, and the currency will be deflated as a consequence. It is then simply not possible to argue that we can appraise the net benefit of the transaction purely on the basis of the physical movement of goods, as Bill very obviously does when making these two statements:
Exports mean that we have to give something real to foreigners that we could use ourselves — that is obviously an opportunity cost.
Imports represent foreigners giving us something real that they could use themselves but which we benefit from having. The opportunity cost is all theirs!
This is simply wrong. It is not true that we are outright losers from exports, and it is unambiguously not true that we are the only winners from imports, at entire cost of those who export to us. For Bill to make such absurd claims discredits MMT. It also simply ignores the fact that money does have an exchange value, which is embarressing. I would add that Bill cannot get round this by mentioning exchange controls. They might work for speculative flows. We are not discussing them here.
What this claim also shows is that Bill cannot do double entry; does not realise money has a role in trade; does not appreciate the value of a promise made in the case of valuing a fiat currency internationally and does not also appreciate the importance of time in all such matters, since the whole nature of trade is that there is always a time dimension to settlement, which Bill again ignores.
The underpinning of Bill's unwarranted attack on Peter May was, then, wholly flawed. And the unfortunate result is that my belief that Bill Mitchell may be the single biggest impediment to the use of MMT is reinforced. I wish that was not the case. But it has to be said, because this sort of thing brings MMT into disrepute, and rightly so. And all who have an interest in the subject have a duty to make that clear. MMT is based on what is, not abstract reality. And that means there is no time for this sort of stuff.
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Forget Bill Mitchell for a movement..The Steve Keen & Warren Mosler discussion is bordering on comedy. The two leading lights of MMT arguing about something very basic makes you really worry about how well thought out the policy consequences of MMT are (I.e print &tax). If they can’t agree on the basics how can anyone trust any analysis on tge arguments dissenters will present like the currency impact, calculating spare capacity, how much printing v how much taxing v inflationary consequences, private sector crowding out, improvements or not in productivity, calculation of the multiplier effect etc etc etc
Go back to basics
Ignore the quackery. MMT says what actually happens in the economy. That is its value.
Then work out how to do it better.
That’s what it is about.
You say MMT is what actually happens but Mosler and Keen can’t agree on what actually happens. The quackary as you call it undoubtedly makes the policy statements less plausible.
All economists disagree on what happens at some point.
Stick to the fundamentals https://www.taxresearch.org.uk/Blog/2018/11/09/modern-monetary-theorists-need-to-take-a-long-and-hard-look-at-how-they-are-campaigning-if-their-case-is-to-be-won/
To disagree beyond the fiundamentals is to be human
The problem begins when the argument extends beyond what actually happens to a hypothesis about what happens in future. Economics isn’t phyisics, and doesn’t handle predictions well. Phyisics is solely focused on making predictions. Economics has been desperate to follow Physics in the use of mathematics; but it dfoes not possess the methodology of physics to test the maths; experimental physics. Some social sciences do better. Psychology, for example can at least conduct rep[eatable experiments on human behaviour.
This problem in economics also exposes quite deep-seated problems with the development of modern economics as a discipline; this applies to the academic subject, and is largely the consequence of thirty years of unchallenged neoliberal economists effectively dominating the discipline. The failings of the discipline are largely theirs, but it has its effects on the whole culture.
The disipline has a problem (compared with most other disciplines) that can easily be observed in the poor use (understanding?) of statistics. This is well documented in the literature. As a discipline economics is poor in its execution of experimental science (virtually non-existent). It does not appear to know, even where to start. Candidly, economics does not appear to attract the best (really brilliant) mathematicians; but nevertheless it has still become the prisoner of abstract econometrics, virtually unconnected with reality. Okay, that is simply my hypothesis, from outside the Priesthood; but there it is.
Richard’s remarks about double-entry book-keeping are pertinent. I sometimes wonder if economists understand the principles of double-entry book-keeping.
Recently I happened to dip back into Samuleson’s standard economics textbook, “Economics”, 8th edition, 1970 (after many years). I was deeply unimpressed by the standard of analysis. Samuleson described it as a “rigorous introduction” to the subject for students. Turn to pp.271-281 on fractional reserve banking and money creation. There are ten iterations of the “fractions”, what seems to me to entail a rather odd derivation of the facts from the assumptions he offers, and a casual and crude simplification of the double-entry accounting that would follow from the example: Rigorous? Certainly not. Who, now in the profession would wish to claim that description accurately and precisely represents reality?
The employment rate effect of MMT when implemented as policy is not well understood in my view. In the Weimar hyperinflation there was full employment, and now during an era of very low inflation in the UK and USA and extended periods of deficit spending in large part paid for by QE we have almost full employment.
It would seem that some kinds of nearly full employment keep prices down, and that would be expected if people are working in competitive industries which have to keep prices keen. If there is full employment but the things people want to buy are not being produced, and there’s a lot of fluff and guff and wind being produced instead, then the price level will rise.
To counter the inflation, which would be more effective: more taxation or cutting spending on the unproductive?
I saw a nice stat recently which says that since the new President took over, spending has increased by 3 for every 1 of additional income. It’s certainly a fiscal experiment worth watching if it keeps on, and will be analysed accordingly in decades to come.
You cannot ignore the money factors in either scenario, I would suggest
Employment rate is not the only issue
My comment would have read a little better if my fumble-fingers had managed to type the word “physics” correctly – twice. (I must be using the same keyboard supplier as Richard….)
🙂
Mr Rideout,
On Britain in 1914, may I direct you to recent research of the BofE ledgers that turned up a long buried secret: see https://bankunderground.co.uk/2017/08/08/your-country-needs-funds-the-extraordinary-story-of-britains-early-efforts-to-finance-the-first-world-war/
Gordon Nairne, Chief Cashier and only a few others knew the biggest capital raising in history, the 1914 £350m War Loan was a catastrophic market failure. Capital was not prepared to back Britain: “the shortfall was secretly plugged by the Bank, with funds registered individually under the names of the Chief Cashier and his deputy to hide their true origin. Keynes, one of a handful of officials in the know at the time, described the concealment as “a masterly manipulation”. I quote from the BofE Bank Underground Blog. Either Nairne had the biggest house in London, with the biggest mortgage, or the funds were created ‘ex nihilo’. I think there is a term for this……
As for Weimer, the economic catastrophe must, it seems to me, factor in the punitive reparations demanded by the victors from a smashed German economy. The comparison of the US post-war managment of peace in 1945 (Marshall Plan etc.) with the vindictiveness and self destructive folly of the British, French etc., in 1919 is instructive; or should be. But this is Britain. We learn nothing and forget nothing.
I may have lost touch – and have kind of tried to – but did not have Keen down as a strong advocate of MMT- often opposing it in fact though agreeing in some part (as said, economics is hardly a unified field) . That may have changed?
Steve retains some of his criticisms
If we are going to divide Steve Keen, Randall Wray, Stephanie Kelton etc., because of every single nuance of thought between each one, driven to the edge; then we have deserted the aspiration to do science, for ideology.
But that is the problem Bill creates
It is not letting me reply directly to Mitch but this is in response to his comments about full employment in Weimar Germany.
I can’t recall all the details, but the early part of the 1920s were quite successful in the German economy despite the great inflation. Indeed if I recall rightly there was a bit of a boom around mid-decade on the back of dollar borrowings once the new Mark stabilised things. It is all in the book ‘Lords of Finance’ about how the Central Banks of the time made a mess of things. Anyway, you need to look at the economic history.
So firstly the German Empire in 1914 decided to finance the war by creating new money (see, I have avoided saying printing). This was because they were going to win, the losers would pay and thus the German taxpayer should not have to in the meantime. In the UK the formally borrowed the money, though prices still doubled between 1914 and 1918. After the war the UK pursued a brutal policy of deflation in order to get back to the pre-war parity of £1 = $4.86 and thus resume the Gold Standard. That was so the City had its loans repaid at the original real value. Of course this devasted UK industry in northern England and Scotland, provoked the General Strike in 1926, etc. Germany was in too much chaos in 1918/19 to do other than continue creating money and so inflation there accelerated. After the Treaty of Versailles War Reparations kicked in and a lot of those were paid in goods. For what had to be paid in cash then Germany needed foreign currency thus as much as possible had to be exported to get that. So the upshot of all that was a deadly combination of continued money creation, confiscation / export of goods for reparations and export of goods to get currency. Thus lots of folk at home with loads of cash but severe shortages of stuff to spend it on.
By the late 1920s depression / deflation set in in Germany, as in many other places, but with most of the continent back on the Gold Standard there was little to be done about it. Indeed Gold was much of the cause as WW1 meant most of what had been in Europe had moved to the USA in war payments. We, and most certainly the Germans, have forgotten that it was NOT the 1923 Inflation that brought Hitler to power but rather the 1930 – 33 Deflation. Inflation is largely irrelevant for those in work and without cash savings, but deflation means falling wages and mass unemployment while debts stay the same.
Dan,
Anonymity is your best and only asset in this case. What you have conspicuously tried to do there is is take one small point (which you probably don’t understand) and claim that must be representative of everything else that is associated with it.
It is nothing more than an appalling example of the fallacy of composition:
“The fallacy of composition arises when one infers that something is true of the whole from the fact that it is true of some part of the whole”
https://en.wikipedia.org/wiki/Fallacy_of_composition
It’s commonplace….
The discussion between Keen and Mosler is bizarre on something that is straightforward. So I say again what about the rest? The MMT community is in disarray. Which is a problem for those who see it as the solution for so many things.
It is in disarray
Largely because, as the reaction to my comments today suggests, they rather like abuse rather than debate
Dan says:
“The discussion between Keen and Mosler is bizarre on something that is straightforward. So I say again what about the rest?”
You really aren’t getting this fallacy of composition thing are you? Doubling down on it doesn’t help and you don’t get away with it by arbitrarily saying that one aspect of something is basic or “straightforward”.
And if there is any “disarray” I would suggest that it is mild. Academics are not party politicians that are obliged to show unity and there is nothing “bizarre” about academics debating a given topic. It is part of what they do and what they are expected to do.
And we do it well
🙂
Very good discussion of the question: “Are imports a benefit or a cost?” MMT seems to say that is always more beneficial to import more than to export, as you have more goods.
But really it depends from what point of view we are looking at things.
Consumer: Imports definitely a benefit (cheaper/better quality/possibly only available abroad)
Companies: Exports are definitely a benefit, otherwise no company would export. Also, import of competitor goods might hurt domestic company, as they lose sales to foreign competitors.
Country: Exports are a benefit, (imports are to be avoided) as they increase (decrease) GDP which is defined as C + G + I+ (X – M).
Balance of Payments: A negative balance of payments (imports exceeding exports) is a cost to the country. A country can finance negative balance of payments through IOU (government bonds) if it finds willing buyers. Alternatively it can finance by selling domestic assets (domestic companies, real estate, mining rights). Ultimately country will run out of domestic assets – or there is a political backlash against foreigners owning valuable domestic assets. So best to keep balance of payment positive in the long term.
Unfortunately, it seems to me, MMT focuses on consumer benefits only, ignores company view or GDP definition. And its view of Balance of Payment issue seems to be US-centric, where reserve currency status of US$ means that US$ demand is high and does not need to be backed by real US assets.
You have got it
Yes Matt,
“Unfortunately, it seems to me, MMT focuses on consumer benefits only”
You have definitely got that part right. I have come across this issue before and arrived at a similar conclusion. The employment benefits of exports would appear to be somewhat overlooked as is the effect that imports have on employment in import-competing industries.
If you look atomistically enough you can see the logic in that attitude to exports.
In a single export transaction, you give goods and receive money. The essential nature of money, we know, is a promise. So you have given, say, a giant industrial milling machine, and received in return a pocket full of mumbles (Paul Simon’s words.)
Now usually that transaction will eventually be followed by some other transaction, in which the money promise is honored, and you receive a million bottles of cognac, or something. The circle of promises has been closed you can assess your benefit in terms of real resources, and the things you really wanted.
But only after the circle closes. We’ve seen contrary examples:
Emerging economies that have given their all to cash crops for export have wound up impoverished.
Germany’s export-led economy is now facing recession as its foreign customers can’t keep their euro promises.
China is having trouble finding uses for all the dollars it traded for its export goods. The whole financial press is vociferous about China becoming a basket case.
So an occasional bad debt proves we should do all economics as if we barter
a) We don’t barter (much)
b) MMT is about money
Is it really that hard to follow what I said?
Or see that it makes a mockery of Bill’s argument? Which it does
Some economists disagree on some parts of their theories. This is not news, this is part of the proof that economics is not a science. Saying that, I much prefer the MMT view of the world to the existing neo-liberal one.
In addition, to mis-quote Ruth Davidson, you must have cojones of steel to take on Bill Mitchell in a field he has dominated for many years, and indeed helped to build from scratch. Buena suerte!
I agree – MMT is an appropriate view of the world
Bill mitchell harms its cause
In my opinion
I haven’t red the Bill Mitchell discussion you describe and after reading your comments I don’t intend to. Sounds a bit like Mercantilism except in reverse (as in maximise your imports rather than your exports). Of course at the moment a large part of the Eurozone problem is the Mercantilism pursued by Germany (run an enormous trade surplus that risks bankrupting your customers then lend them the money instead), but that is down to totally nutty ideas like repaying the entire National Debt and building up the World’s second largest pile of Gold at the Bundesbank (€300 billion of the stuff I believe).
You are right, though, that there are a lot of so called MMT proponents who rush about causing trouble, e.g. by getting a theory about money mixed up with a political (usually left) policy and ideology. People arguing that MMT was some sort of socialist nirvana that would allow for mass nationalisation, etc is probably the sort of thing that got up Gordon Macintyre-Kemp’s nose to such an extent that it provoked his article in The National.
Anyway, when I tutored Economics in South Africa the students always said I was good at explaining things so how about this:
I was thinking about an easy way to explain how governments spend and create money, such that the total non-expert would understand. So how about this:
Most folk have at least some vague understanding that a Central Bank such as the BoE acts as banker to the State and thus holds the main Treasury bank accounts (apart from here where our Government has ‘privatised’ much of that such that e.g. the HMRC account we pay the monthly PAYE and NIC into is at JP Morgan and was at Citibank (supporting UK companies obviously!).
So as the Central Bank is never going to send a Government cheque, card transaction or BACS transfer back to the Treasury marked ‘Declined — Insufficient Funds’ then what the Treasury actually has is an unlimited 0% interest overdraft facility. Whether the state’s accounts are in the red or the black is pretty irrelevant and of no real concern or interest to anyone. To the extent the accounts are in the black then money has been destroyed (returned to the Central Bank), and if in the red then money has been created (transferred out of the Central Bank).
As we are now talking about an overdraft on a bank account and whether it is used or not then that totally gets rid of the ‘your printing money’ stuff.
You are right and brave to tackle this.
The long term benefits of tackling it are enormous.
My hat off to you.
But choose the words of your critique carefully Richard.
Getting something publicly wrong can lead to people digging in in order to put off embarrassment or maintain their credibility if they feel that ridicule is present.
I agree that economists need to kick ideas around as long as they are not kicking each other – especially if they are supposed to be on the same side!
I must say, Richard, it reads a little oddly when you accuse Bill of being hyper-aggressive and then, in the next paragraphs, say he “turns tedium into an art form”, “cannot do double entry” and is “hopelessly wrong”. That is considerably more aggressive language than Bill was using.
You clearly have not read Bill over many years
At the risk of sounding like a broken record I will use the example of off-shore wind (sorry).
“Exports mean that we have to give something real to foreigners that we could use ourselves — that is obviously an opportunity cost.”
Ok, the UK off-shore resource is between 600GW and 1200GW. If it was built, the Uk would be semi-permanently exporting electricity to mainland Europe. The problem mainland Europe faces is that it has a poorer wind regieme than the UK – which means that a given kWh from off-shore/on-shore wind would cost more. So the Uk has a natural advantage that will not go away anytime soon. neither will the desire of mainland Europe for low-cost/low-carbon elec.
Given the above, it is difficult to see how exporting highly competitive low-carbon electricity, profitably, to mainland Europe has an “opportunity cost”.
Thing is, 150 to 200GW of UK off-shore would power the Uk electrically & also cover all the hydrogen you would need to convert the Uk to a hydrogen economy – still leaving 400GW (or more) to export – but apparently this would be “an opportunity cost”. Most odd.
Thoughts?.
https://www.epsilontheory.com/modern-monetary-theory-or-how-i-learned-to-stop-worrying-and-love-the-national-debt/
I just skimmed through it and although he has an entertaining style and some interesting historical anecdotes what he says MMT is is bunkum. He basically says all MMT amounts to is to claim it is possible to create endless amounts of government spending without consequence. Which every proponent of MMT you have ever read explicitly deny. He clearly does not understand MMT.
In my limited experience this is usually the first hurdle that people who have heard talk about MMT but have never actually read any fall at.
I just skimmed through it and although he has an entertaining style and some interesting historical anecdotes what he says MMT is is bunkum. He basically says all MMT amounts to is to claim it is possible to create endless amounts of government spending without consequence. Which every proponent of MMT you have ever read explicitly denies. He clearly does not understand MMT.
In my limited experience this is usually the first hurdle that people who have heard talk about MMT but have never actually read any fall at.
I have just read this post as I have been elsewhere for a couple of days and at first my blood started to boil. But as I read on I started to realise we are actually on the same, or a similar, page.
I came to the conclusion a while ago that, as you say, the “imports are a benefit, exports are a cost” story might be okay for the United States but not for almost every other country except China and possibly Australia.
It’s not to do with the US issuing the reserve currency so much as the US having almost infinite resources within its borders, including a vast army, so they can take the rest of the world to the cleaners.
The United Kingdom used to have vast resources by dint of its empire. I have been doing some research into how the UK created a huge network of railways in only fifty years from 1800 and how it was all financed. Basically it was done by rich landowners plundering the resources of the Empire and amassing great fortunes. They didn’t even need to use their own fortunes because they issued shares to the general public who would go along with it knowing that the railway moguls were already extremely rich and therefore, presumably, trustworthy. People bought shares in railway companies for a 10% deposit even though not an inch of track had been laid nor a single locomotive built, only a route agreed by Act of Parliament. Some of the companies failed when they called on the shareholders to stump up the balance.
Today the UK no longer has its empire and it does not have the sort of resources inland that the US does, so it has to import those resources. As MMT shows us, as as you say, those resources can be imported by issuing a promise to pay in future resources. All very well except that, again as you say, the chickens eventually come home to roost and the exporting countries suddenly want the promised resources – which we don’t have.
Even the US found this out when President De Gaul saw all those French-owned dollars sitting in US reserves and treasuries and asked for the promised resources – gold – in exchange. Trouble was that there wasn’t enough gold in Fort Knox to exchange for all the dollars in the Fed, and that’s why Nixon took the US off the gold standard.
So whilst I am a faithful disciple of Bill, I do agree with (most of) what you say. Aggressive? Well that’s Bill. Live with it.
I do not need to live with Bill’s abuse
Or that of members of his cult of followers who have amongst other things questioned my mental health today
I know that MMT works
But most of the baggage that goes with it is just that
And most who say they support it have not a clue how it relates to tax, and do not seem to care
Well you see you are just as aggressive yourself. I have made a comment that broadly supports your view of imports/exports yet you hone in on a deliberately tongue-in-cheek comment at the end to attack me.
And I do have somewhat more than a clue as to how tax relates to “it”, whatever “it” might be.
Wow. I apologise
But not a lot.
Firstly, because I cannot see how saying I need not deal with this level of aggression is itself aggressive
And second because I was not being aggressive to you. AT least it was not my intent. Bill’s was very intentional
Richard,
Thanks for the apology. Probably me being paranoid.
🙂
What a potentially confusing mess we have here.
I am glad that this has come up though because I have come across it before when visiting forums where MMT advocates – anonymous contributors mostly, have tried to suggest that a trade deficit was, in simple terms, a net benefit.
I was shocked at first, assumed that they had misunderstood their own doctrine and usually replied by saying that this was conditional on terms of trade and the effect that the deficit may have on currency values etc. I also mentioned the employment implications of imports v. exports and was generally then met with the cold silence that a heretic might expect to receive. Either that or some garbled jargon about ‘sectoral balances’ even though nothing that I had written was at odds with the sectoral balances approach.
To be fair though I had not, until now perhaps, seen anything from an academic that was as clearly wrong as the ideas of these anonymous contributors. Overall, I got the impression that some ideas were vulnerable to misinterpretation.
As to the confusion re this:
“Exports mean that we have to give something real to foreigners that we could use ourselves — that is obviously an opportunity cost.”
a. To begin with “opportunity cost” is simply the measure of what you sacrifice in order to choose something else. Everything in economics or life generally involves an opportunity cost of some sort so I’m not sure what Bill means with that. It should be further explained.
b. No one is “giving” anything to foreigners. They pay for it and those payments directly or indirectly enhance the value of the exporting nation’s currency. That makes the cost of their imports cheaper.
c. I am not a great advocate of comparative advantage theory but exports do not necessarily “mean that we are giving away something that we could use ourselves” – because nations have some things in abundance. Surpluses that they could not use themselves because they can so easily outproduce their own needs. So they they exchange that for other things that they cannot produce so easily.
That much should be bloody obvious so what is Bill really saying with that highly flawed sentence?
As I understand it what he is getting at is the idea that a trade surplus – an overall excess of exports over imports is a net loss. That the nation has sent more out than it has received in return and that the opportunity cost of its imports is, in effect, too high.
That, of course depends on the aforementioned factors (terms of trade, currency values, employment considerations etc.) but there can be some merit to the idea. Especially so in the case of mercantilist nations – those whose main aim is to maximise exports. Their policies can be self-defeating in the long run.
Germany is a great example but too complicated for this purpose. China is easier to explain. China blatantly manipulates the value of its currency – downwards, devaluing the currency to maximise exports by making them cheaper and everytime it does so it makes its imports dearer and recieves less in return for the work and resources that have gone into making those exports. It has done this to fund growth for nation-building knowing that the world is a bigger than its own domestic market but, as its own market grows and the nation gets closer to being built, it should have already changed course. A dependence on foreigners and competitive devaluations is unsustainable, ultimately self-defeating and, inevitably, a path to trade wars.
In summary, too many exports can be bad thing to have and a steady balance of trade is usually better than a very large and permanent trade surplus.
Bill’s case could be argued
But quite emphatically not in the absolute way he made it
Then it was just wrong
And his black and white view on this, as on so much else, is the problem I raised and the reason why he is a real impediment to progress
Marco,
Yeah that’s how I always interpreted the whole “exports are a real cost…” thing. I don’t think Bill is being absolutist and simplistic about it. I think he’s using a simplistic point as reminder or a tool to help people unlearn simplistic mercentalist logic that leads them to view trade surpluses as an inherently good thing in and of themselves.
Still, MMT in general and Bill in particular could do a better job of explaining foreign exchange better though. I’ve found it the hardest bit of macroeconomics to grasp and I don’t out it entirely down to me being a slow learner.
Adam,
Bill and everyone else should be very wary of simplifying explanations. The quote that R. Murphy has seized upon here is a bit of a shocker and those anonymous contributors that I described above had most definitely gotten the wrong end of the stick and ran with it. That’s bound to happen and it has. God knows how many such people are out there telling the world that trade deficits are good, simple and plain.
Your point about foreign exchange is interesting. I would imagine that Bill has covered that in his book about the Eurozone. As you’re a fan of his you might find it helpful.
As I have said elsewhere – Bill has an argument
I am not disputing it
BUT he cannot make it the way he does (and nor can others in MMT make casual claims the way that they do) and hoppe to retain credibility
Most especially when they abuse those who raise questions
Marco and Richard,
I entirely agree that there’s a danger to making simplifying statements. They can and are easily misunderstood and the false ideas so produced spread quickly.
However, there are also communication benefits to formulating simple statements like this. They help the correct ideas spread too and they provide a quick and easy way into the full understanding of the more complex reality.
What you end up with is a compromise between wanting to get your good ideas out there quickly but without causing too many bad ideas to grow at the same time.
Bill would admit he is an economist first and a public communicator second. He would admit he needs help. He’s doing his best and though I think, Richard, while your criticism of Bill’s rhetoric is potentially valid and constructive, you have slipped into hyperbole and unwarranted criticism of Bill’s underlying beliefs and understanding here.
No big deal – it’s only the internet after all – but I think we on the left should always try to keep our discussions as friendly and constructive as possible. Yes that’s something Bill could do better at too and you, Richard, are correct to point this out too. I just think you could lead better by example than by giving him a taste of his own vitriolic medicine.
I like simply statements
But not when they are deeply misleading
And do mislead as a result
Richard,
I like you and I like Bill. You’re right that Bill can be a bit (very) aggro, long-winded and his posts are prone to typos and repetition. However I really think you’re unfair to accuse Bill of frequently getting things seriously wrong. In the post you link here Bill makes a clear and cogent (if long-winded) argument that is absolutely not reflected in your analysis of it above.
You know I read both your and Bill’s blogs pretty regularly? Well, one of the things I like about the combination is that you’re both progressive, intelligent and thoughtful but totally disagree about Brexit! But how can that be? Each side in that debate know they’re wholly right and their opponents wholly wrong AND effectively from a different political species. Something does not compute here.
Bill, in the post you link above says:
“The specific article they have held out was published in the so-called Progressive Pulse — which says it “is a centre-left blog seeking a fairer society for all”.
They “very much regret Brexit” and claimed that it was “the normalisation of anti immigrant and racist rhetoric is a stain on the country”.
So one wonders. Europhiles are not known for their reasoned judgement (-:”
As usual Bill’s accusing you and all other remainers of being unreasonable in your judgement. Ironically thats a pretty unreasonable generalisation…
…though no more unreasonable than the sort of blanket criticisms against leavers made by some remainers.
And this is why I find your and Bill’s disagreement over Brexit so enlightening. I see two intelligent, well informed, fair minded and decent people totally at loggerheads over what is basically a difference in opinion over how the future is going to turn out. That’s the future of a world that’s so fantastically complex and complicated that it’s nearly impossible to make solid predictions about it with any great certainty.
And yet the vitriol only gets worse – even for intelligent people who should know better! Maybe this is why humans invented betting? Anyway…
To me this just makes me glad because if that’s possible for two smart people who are essentially on the same side then the supposed chasm of disagreement between the millions of Joe Remoaners and Joe Brexiteers is likely not actually much to do with any deep and irrevocable political differences. Instead it’s likely minor differences of opinion about what’s best for the future that have been blown out of all proportion by the sheer length and viciousness of the argument (and the deliberate stirring by a click-hungry media industry owned by people with competing political agendas).
It gives me hope that with the right leadership and a little calm the impending civil war can actually be easily averted. Since we seem to be absent any good national leaders at present maybe we all ought to focus on calming down?
I think you understate the differences…..
The MMT theory is not MMT, but basically a tautology, something true by definition. To disagree with it is to not understand the meanings of the words and how they are being used. There has been a bit too much overheating on both sides and in my opinion the way MMTers explain things are sometimes not optimal, frequently economists of the past like Abba Lerner or William Beveridge did better. People should stop arguing so much and give the opponent the benefit of the doubt, that something meaningful and correct is being said. Much of the (violent) disagreement is basically violent agreement, if one tries to understand the other guy’s position. (And I have seen statements that I would call wrong on both sides, even from MMT thinkers. Even Homer nods)
There was a great deal of discussion on this at billyblog a while age, as “Some Guy” there I provided some history in the comments to the following blogs:
Trade and external finance mysteries — Part 1
Trade and finance mysteries — Part 2
A surplus of trade discussions
The government is not a household and imports are still a benefit
People have been saying exports are the cost we pay to get the benefit of imports for a long time. It isn’t an MMT novelty, and it is true on every level, consumer, company and country. I cited Alfred Mitchell-Innes, William Beveridge, David Cushman Coyle, Robert Lee Gulick, Abba Lerner etc. all writing 6 or more decades ago. Lerner explains the balance-of-payments/trade deficit issue and how it is a bit trickier, a negative and a positive thing. (Although intrinsically a negative of course as Marco Fante & Matt Usselmann correctly state (against some MMT tyros)). In the 40s Coyle, a visiting American noted how everybody in Britain seemed to understand things the right “MMT” way, while Americans were confused.
One thing I came across more recently is FDR arguing more or less the MMT view in a campaign speech against Hoover, who he portrayed as Humpty-Dumpty in opposing it. 🙂
The moral is that because people try to go too fast, overcomplicate things and don’t try to understand each other, and don’t speak in a precise way, enormous numbers of people start having meaningless disagreements and end up believing incoherent and weird things – and nations end up doing crazy things.
Let me stress, I get the MMT point – to a degree
Of course there is an issue in real balances of trade
But Bill made an absolute claim – read what I quoted. That was what I took issue with
When MMT does that – and Bill does – and the cult element in it follows as I witnessed all too much yesterday – with questions as to my mental health for daring to suggest Bill might be wrong – I will call it out
Some aspects of MMT have enormous value
This argument does not, and candidly is going to persuade almost no one
Rather like MMT on tax – which most simply do not understand and where Neal Wilson promoted indifference to any form of justice – and MMT on the job guarantee v UBI, where its position is untenable
I will write more. But if suggesting that what MMT writes on the deficit requires adhering to a cultish belief in the writings of Bill Mitchell (who has called for support for a neo-fascist government in Italy) and Warren Mosler – a man who can claim that Italy can re-adopt the Lira because it is ‘easy peaasy’ – then sorry – but I reserve the right to entirely disagree.
And if I am told I am wrong to do so I will worry that MMT is as big a threat to the required modern understanding of fiscal policy that we need as Positive Money is
In Italy, junior coalition partner, The League (formerly Northern League) is arguably “neo-fascist” or close enough to fit the description. The leading coalition partner, the Five Star movement, with more than double the number of the League’s deputies and senators, cannot reasonably be described as “neo-fascist” although what they are exactly is never quite certain.
Mitchell and Mosler’s support for 5 Star’s coalition government is unsurprising given that they represent the greatest challenge yet to the Eurozone and EU fiscal convergence rules. Quite predictable.
To say that re-adopting the Lira is “easy-peasy” is ludiricrous, I agree, but it is quite feasible and Stiglitz states that clearly here:
https://www.politico.eu/article/opinion-italy-germany-how-to-exit-the-eurozone-euro-reform/
The neo-fascists are driving the Italian government
And the point I am making is not that the Lira could not be done – it could – but that again the language used is simply misleading
Crikey, straw man arguments abound above and below the line! We hear that Bill thinks imports are a good in themselves for all time, that he thinks exporting surplus energy is bad. I note, Richard, that you state up front that you don’t read all of Bill’s writings. Very wise to get that defence in early.
I’ve found the reasoned discussions here about imports vs exports to be somewhat illuminating. Trade is my biggest difficulty with MMT (I.e. understanding it, not disagreeing with MMT!) However, I’m damned sure Bill gets it better than anyone here. If this post has served a purpose it will be to prod Bill into writing at (even greater) length about trade and making his ideas more accessible to all of us who are clearly struggling to fully grasp them. Or, of course, it may expose the great flaw in his body of work. As Bill would say, good luck with that one.
Abusive? Bill sometimes writes with a righteous anger, but he names and explains the targets of his anger. Better that than an pervasive, overweening self-regard that everything you say is right and that any dissent is due to stupidity.
I particularly balk at the criticisms of Bill’s style. I read most of his blog posts, and (due to my own limitations) I couldn’t do that if he was a bad writer. He flows and is easy going. He repeats because things need repeating. He writes at length because he introduces copious amounts of evidence to support his arguments. If you don’t need/want to see all that evidence, fine, skip through it.
He is a good writer. Not many have that skill, though they often think they do. He is not pompous nor tediously declamatory nor blatantly self-regarding, three of the biggest possible turn offs for this reader.
Well, you’re in a decided minority thinking that
Amongst the manly enlightened mines I kn ow the opinion I express is commonplace
And with good reason
ANd re trade policy – MMT on this is, as I have just suggested, in the land of economic fairytales. And yes, I have read it. The assumptions make neoliberal economics look positively tame.
MattR
Foreign trade is almost as big a subject as the whole of macroeconimics. I’ve been trying to understand how FX works but it is heavily cloaked in secrecy – you won’t get any answers from FOIA requests. Even my contact at the Bank of England said it is far from an ideal system. There are several ways that a foreign trade can be settled depending on the desires of the counterparties. For example I had a friend who was an accountant at a large international tobacco manufacturer who said that the company makes more out of dealing in FX than it does from cigarettes. As far as I can see a huge amount of FX is floating around in dealers’ accounts and never gets anywhere near central banks. The BoE said they have no involvement in it except where they need to intervene to support the pound – even that is much less necessary these days when we don’t have to match any exchange rate agreements such as Bretton Woods. Target2 which settles inter-EZ trade is yet another complex matter.
Foreign exchange dealing is a massive rent-seeking circus that produces nothing but frequently creates instability. It makes up for small margins of profitability by having huge volumes of trade.
An EU financial transactions tax (aka Tobin tax) would help to rein them in. A few years ago we came close to getting one (well closer than ever before) when Sarkoszy and Merkel were considering it. Cameron intervened against the idea:
https://www.theguardian.com/business/2011/aug/17/european-markets-hit-robin-hood-tax
The idea has been revived again quite recently
https://www.bloomberg.com/news/articles/2018-12-03/germany-france-try-to-jump-start-eu-financial-transaction-tax
If it spread world-wide the forex markets would never be quite the same again and the world would better for it.
Richard,
You say:
“Bill is doing single entry accounting here. He is assuming that if we have more goods (because we import) or fewer goods (because we export) their well-being is simply indicated by this trading in goods alone, when in fact there will always be another side to the entry in each of these cases, which is the resulting promise to pay.”
Bill says:
“So a nation with a current account deficit enjoys a real advantage over the export surplus nations (as explained above) but incurs nominal liabilities — the financial assets that the exporter accumulates.
The exporter could convert those nominal liabilities into real assets (via say FDI — see below) or not.”
That’s from Bill’s May 8th 2018 blog post: http://bilbo.economicoutlook.net/blog/?p=39282
Clearly Bill is not ignoring the promise to pay a you are arguing a straw man.
Read the quote I responded to and please do not make things up. It was this:
Exports mean that we have to give something real to foreigners that we could use ourselves — that is obviously an opportunity cost.
Imports represent foreigners giving us something real that they could use themselves but which we benefit from having. The opportunity cost is all theirs!
Note ‘all theirs’
100% then
And that is nonsense
And I said so. Because it is
If Bill writes nonsense I am entitled to say so.
That somewhere, sometime, he said something else is not the point. GHe set out to be offensive on a false premise. And I said so. And I am utterly unapologetic for that.
Oh, and nor are the liabilities nominal. That’s also from the book of economic fairytales.
Shall we deal in the real world, or to believe in MMT are we required to undertake the same stupidity mind games that neoclassical economics requires? I’ll call out neoclassical economics for nonsense. I will do so MMT as well. And this is at least as bad. And as discreditable.
The real opportunity cost of export is all paid by the exporter. How could it be any other way? At the moment of export the exporter has paid the time, energy, material and intellectual cost of producing the export product and the importer has (potentially!) recived that product free of any real costs (yet!).
The fact the exporter then gets a financial asset in return and that this may then be used to purchase imports that will impose an opportunity cost on the other nation doesn’t invalidate the statement that the exporter bears the opportunity cost in the first place. It’s only when the next transaction occurs and the financial assets are exchanged for real things that the original exporter gets paid back for real. In the meantime the exporter just holds IOUs. Sometimes the exporters are happy to hold excessive quantities of foreign IOUs and while they do so they are not getting real rewards in return for their real opportunity costs so this situation can exist at the macroeconomic level.
Bill is talking about the action of export in microcosm and the action of import in microcosm so that we can then think clearly about the result of many repeated actions.
Bill’s “exports impose a real opportunity cost” is like defining a single term in an equation. That definition doesn’t give you the answer to the entire equation but it isn’t an invalid definition as a result. On the contrary, you only get the correct answer to the question you’re asking if you define your terms appropriately.
It appears to me that you are talking about the never ending circular flow of products/services and IOUs. I.e the importer does some work (incurring a real opportunity cost) and receives IOUs in exchange. Then the importer swaps those IOUs for a real product he wants and that pays him back for his previously incurred opportunity cost. Therefore obviously the importer is incurring an opportunity cost as well as the importer for this transaction to occur.
Fine – but what if the importer just took a loan from a commercial bank which has loaned those IOUs into existence out of thin air? What if the importer is the government and it just spent new IOUs into existence? Then the importer has yet to incur any real opportunity cost and yet the exporter very definitely has. There is no absolute guarantee the exporter will ever get paid back in real terms for their initial real opportunity cost.
OK you can make the argument the IOUs are imposing a future opportunity cost on the importer – and that’s true as long as the importer’s honourable and doesn’t default or manipulate it’s currency to the exporters detriment. However, it’s a future real opportunity cost and what Bill and other MMTers are saying is that at its simplest, in the moment an export of a real product necessarily means that the exporting nation has already incurred some real opportunity cost in order to produce that thing for export.
Alternatively you can get into the complex details of the long-term macroeconomic impacts of importing and exporting many, many products and all the attendent foreign direct investment, speculative capital flows etc etc etc and find that in many circumstances imports are actually having a net adverse effect on some part or all of the importing nation’s economy and exports are contributing towards a scenario for another nation that is net positive.
Fine, Bill clearly understands that and clearly has spoken and written about it at length in numerous occasions (as linked in his blog that you are here dissecting). Clearly it’s unfair to expect anyone, Bill included, to capture all the complexity and nuance of multiple nations’ trade relations over many years in just a few sentences.
Perhaps that wasn’t Bill’s objective when he constructed those sentences? Perhaps you’re going a bit overboard in trying to hold him to a level of explanatory power that’s humanly impossible? Perhaps it’s unreasonable to pick a few sentences out of context and imbue absolutist qualities to them that the author did not intend and does not believe to be true? Perhaps that’s part of the reason Bill gets unnecessarily vitriolic in his responses to these types of criticism (the other part being he’s just overly aggro)?
Unless I’m missing something (and you’re welcome to explain) I’m certain you and Bill are looking at the same phenomenon from different perspectives and with slightly different goals in mind and, like the blind men with the elephant, you’re hilariously arguing that you’re both touching entirely different beasts.
I read the first paragraph and gave up
Please do not be as crass as Bill and assume liabilities are notional and there is no such thing as time
That really is nonsense
And it follows that everything esle you say is as well
You assume a 100% discount rate on what may be almost immediate financial and even actual returns
This is worse than the nonsense neoclassicists come up with
Richard,
I was going to argue with you but then I realised even my wife is convinced I don’t believe time exists today given how long I’ve been absorbed by your or Bill’s blog 😉
I’m also being made painfully aware my pportunity cost is high. I’m not getting anything back and I seriously doubt anyone else is benefitting from my input so I guess I’ll just stop.
Bye!
I confess you just made the hole deeper
Richard,
“Exports impose an opportunity cost on the exporting state” is similar to saying that working in a job imposes an opportunity cost on the employee. It’s a simple truism that cannot possibly capture every nuance and detail of employment but it’s nevertheless a useful thought to hold in mind.
So saying “working imposes an opportunity cost therefore working is always bad” is obviously wrong. Similarly saying “exporting imposes an opportunity cost so exporting is always bad” is obviously wrong – BUT that’s not what Bill is saying.
I’ll illustrate Bill’s point via this employment analogy:
We all know that we get paid when we work (export our time, skills and effort to our employer or customers). We all know we can spend those earnings on stuff we want. However, the instinctive knowledge that our efforts at work are a real opportunity cost drives some of us to think carefully about how, where and when we work and how we spend, save or invest our earnings.
For example if I’m working long hours in a boring job that’s below my abilities and teaching me nothing AND then I blow my meagre income and minimal spare time on gambling, booze and unhealthy food then it’s obvious I’m going to get fat, depressed, lonely and ill.
If I thought exporting my efforts to my employer was a positive end in itself and consuming whatever was available to consume was automatically benefit to me then I might mistakenly stay in this sad and destructive situation longer than otherwise.
If instead I recognize my time and effort is finite and valuable and that it matters precisely what real things and experiences I get in return for my efforts then I might decide to export my efforts to a different employer or customers where my work activities enhance my skills and physical fitness, bring me positive social interactions, pay me more money and give me more free time.
I think that’s the point Bill’s making vis a vis exports and imports: governments and peoples need to think carefully about exactly what they export and what they import if they are to get the maximum benefits from their nation’s finite real resources (ecosystems, energy, materials, labour and intellectual/technological know-how) whilst addressing the market externalities those activities create. Remembering that it’s real things that matter helps think clearly about our trade policies.
That’s all. It’s just a simple truism that allows us to more clearly understand the realities of trade relations. It’s an intellectual counter to neoliberalism’s over emphasis on the nominal or financial and lack of focus on the rea. It fits perfectly with MMTs insights into the domestic sector of sovereign currency issuing states. It’s easy for a layperson to grasp and helps us begin to understand a much more complex reality.
I seriously doubt there’s really any significant difference of opinion between you and Bill on the underlying realities of trade here. In my opinion you are merely arguing about differences in rhetorical style. The vitriol is fueled by various understandable emotions on both sides.
I really hope this sort of thing doesn’t slow down the spread of the more factually accurate ideas of MMT but I fear that it might.
This does not work at all.
The use of opportunity cost in this context is a very strange term, precisely because bills analogy, which you are suggesting appropriate, would imply that employment always imposes a cost, without exception, whilst freeloading always secures a benefit, again without exception. Remember, his language was categoric. The fact that we can contrast the two – and he did, let’s me draw that conclusion.
But that is very obviously not true, not least because for some at least employment is a chosen pass time where pay is a benefit but the activity is something that they would want to do so anyway.
So, the claim makes no sense.
And as is the case with MMT and tax, the implication of the assumption is deeply uncomfortable as to the attitude towards the value of society and contributing to it.
I am sorry – but I simply do not but this, at all.
Richard,
People are not being as absolutist as you think they are. It’s just the way people write and speak for the purpose of brevity and emphasis to help them communicate specific ideas.
Why are you reading such a negative ethical standpoint into my simple analogy? I mean it may be that I believe freeloading is morally acceptable and that I owe nothing to society but surely it’s impossible to conclude that from the fact that I think employment incurs an opportunity cost. You take a perfectly reasonable analogy made in good faith and somehow pull a kind of “Gotcha!” out of it. What’s the purpose of that?
It’s surely a simple truism that any and all activity imposes am opportunity cost because you can’t be in more than one place doing more than one thing at the same time???
Even if you were an eternal being with limitless wealth and an unbounded love for all activity you’d still incur an opportunity cost at every moment of your life!
I have to admit I really do not understand what you’re getting at or where you’re coming from on this (assuming you’re not just pissed at Bill because every one of his blog posts for the last week has been bashing the EU and promoting no-deal Brexit – that being my best guess).
Adam
I am suggesting the assumptions are unreasonable and that the conclusions don’t follow
That’s all
I happen to think that true
I apply the same logic to all
But in Bill’s case the point is different: he positively harms MMT
Richard
Mr Sawyer,
“I seriously doubt there’s really any significant difference of opinion between you and Bill on the underlying realities of trade here.”
This is after four (four?) long, convoluted, much qualified, eventually filleted of substance, attempts you made to explain the issue of import/export value to the exporter, and eliminate the differences between MMTers; was it worth the effort? What is being achieved here?
It seems to me the issue began in the US (or from a US perspective) and sought to explain the matter of exports from the very unique circumstances of US trade, given the status of the US$ currency, and the expectations of the US consumer; a very narrow perspective. For a small(er) country that may have to ensure it has foreign currency in the interests of its own consumers, and to meet the contingencies of a volatile and uncertain world, different priorities may be required. None of this is absolute. It seems to me this is obvious. In some cases the underlying dynamics of the detailed relationships (the causal forces) may be unknown or unkowable to the economist.
This argument would be greatly helped if economists were simply much humbler in their statements. Given the state of the current discipline, and the cruelly embarrassing history of the subject over the last ten years; or even 100 years, this is long overdue. Arrogance is unwarranted in an academic discipline fast losing intellectual credibility, and indeed public confidence.
In short this obsessive metaphysics is dire; utterly dire.
You have summarised it rather well
Adam,
I’m surprised. You appear to be missing the point with this one. You have all the necessary clues but resist putting them together. For example, you quote Bill with this:
“So a nation with a current account deficit enjoys a real advantage over the export surplus nations (as explained above) but incurs nominal liabilities — the financial assets that the exporter accumulates. The exporter could convert those nominal liabilities into real assets (via say FDI — see below) or not.”
Those financial assets are not “nominal”. Not if they are converted into real assets and especially not if they are converted into FDI – which is foreign ownership which results in an indefinite, continuous outflow of repatriated profits from the importing to the exporting nation.
You say this to Richard:
“The fact the exporter then gets a financial asset in return and that this may then be used to purchase imports that will impose an opportunity cost on the other nation doesn’t invalidate the statement that the exporter bears the opportunity cost in the first place.”
But what is the point of anyone merely citing what happens in the first instance, being just one part of an exchange relationship – and then holding that to be definitive or meaningful? Its confusing is what it is. It is like saying that I bear the cost of all the work that I did this week until I get paid – or until I spend that pay. Yeah, and so..?
And this:
“It appears to me that you are talking about the never ending circular flow of products/services and IOUs.”
Of course he is. That’s kinda the point here. That’s what economics is. That’s the stuff that’s definitive and meaningful.
Just finally, this observation about Richard being allegedly “pissed at Bill because every one of his blog posts for the last week has been bashing the EU and promoting no-deal Brexit”
Well, that thought had, more or less, occurred to me as well and if Bill wants to alienate everyone in Britain that is to the left of Farage and Rees-Mogg (just about everyone) then he is going the right way about it. I must admit that I can’t help thinking that he has lost the plot on that account and would do well to shut the fk up, be a bit more considerate and get a sense of perspective that goes beyond his own pet obsessions. For all practical purposes No-deal is a no-go area.
I had only read one blog by Bill in the last week
And thanks Marco
You are right….
And your analysis seems somewhat consistent with my own
John,
Merely being opinionated is never enough. Point taken nonetheless.
Richard,
Yep, OK. Fair reminder. I’ll get onto it.
@ Adam Sawyer: Quite right. The basic point is practical. There is a great deal of evidence that the real problem is that people do not understand how exports are a cost and imports are a benefit, and that that IS the natural and intuitive way of looking at things, always true at every level and not restricted to the USA or whatever. Some disagreement here is purely semantics. Sometimes people just use “nominal” or “notional” as synonymous with “financial”. Replace the word you don’t like with the one you do.
Similarly “Employment always imposes a cost, without exception, whilst freeloading always secures a benefit” is practically speaking, absolutely true, and the way that everybody thinks and acts and accounts in practice. Basically, it is true by definition. Contending otherwise is a very contrived, impractical and unusual position. Just pointless “philosophical” debate for the pleasure of arguing, eristic rather than dialectic. Niggling objections that nobody acts on in practice and hardly deserve answers. No matter how much people enjoy their jobs, they demand to be paid.
I find that the way Bill Mitchell expresses himself very confusing and often not very logical (the US Kansas City school of MMT is imho much, much better on the logic and philosophy of its theory) (E.g. Mitchell often makes arguments based on national accounting, which in turn was based on the concepts of the Keynesian era. It isn’t really valid or convincing to use the national accounts as if they dropped from the sky to prove things; the right way it to follow how things actually happened, arguing from the conceptual clarification first.) But take that into account; he is still saying something that needs to be heard, much more than the contrary and the objections. I have to disagree with Adam Sawyer about this sort of thing slowing down “the spread of the more factually accurate ideas of MMT “. This IS the important sort of thing that people need to understand. (also how to counter other usual objections like those against the JG, tax-driven money etc) . The ” more factually accurate ideas of MMT” whatever they are – are less important.
Again, look at history and current events. The real problem IS the incoherent Humpty-Dumpty anti-MMT view that doesn’t understand that exports are a cost, only a means to procure the end, the benefit of imports. It is happening right now – Germany now has the same crackpot export-obsessive view that UK & US economists and politicians like Beveridge & FDR fought against in the past. [And people in other nations don’t see how trivially easy it is to counter the negative effects of the export obsessives.] But where is the German Beveridge or FDR?
People do not understand this because what you are saying is exchange is a cost: the moment you give something away it is a cost to you
But, very politely, that’s an argument so absurd there is no one who believes it. We don’t have to argue that exchange is of benefit: we know it is, from experience. And that we all need to do it.
Of course there is risk of default. We know that too. So we need systems to appraise the risk, including those on exchange, if that happens.
But to add a border does not change the fact that exchange is of benefit, and the life lived without it hardly exists precisely because it is is undesirable.
So shall we stop the nonsense that borders necessarily change this?
And no, I am not saying therefore Germany has a sound policy and export-led growth is necessarily desirable. I can and do argue we might do better with less trade. That is what the GND will require. But let’s stop the dogmatic silliness, please. Because that is what it is and I really have remarkably little time for it.
Oh, and cost-benefit analysis is one of the worst features of neoclassical analysis, and you are dragging it lock stock and barrel into MMT. A big mistake and crassly absurd, as no doubt Steve Keen could easily explain
“Exports mean that we have to give something real to foreigners that we could use ourselves — that is obviously an opportunity cost.”
If I make a film in the UK and show it in the UK and earn back my costs I can export that film at virtually zero cost to me and have a claim on imports from outside the home market. Same with recorded music and books. There are countless examples from the real world where exports can be made at no opportunity cost to the exporter. The thing exists and there is no cost to selling it outside the home market.
Further if I export the buyer has to pay me in home currency because that is what I need. Foreign currency is no good to me unless I travel to that country and spend it there which is simply me importing foreign travel. The international finance system is there to match those needing currency. The exchange rate reflects the relative value of a country’s products compared to those of other countries.
I can use the home currency received from my export to boost the home economy although at some point my export value has to be matched by a demand at home for an import to match the external currency used to pay for my products. It is possible to build up long term surpluses and deficits but eventually they must reverse. At what price is determined by the prevailing exchange rate.
You are of course referring to the scenario where price will never equal marginal cost – which is no0t necessary, of course. That it might ever do so is an economists fiction
Why don’t we ask Bill?
Feel free
I am sure he will reply, come what may
i’ll be honest, i’m still utterly confused by MMT.
I’m still struggling to find factual evidence, one way or the other.
Every single major source you look at, be in the government own websites, the ONS, the budget breakdown, all refer to ‘how your tax revenues are being spent’.
If I read the Bank of Englands ‘money creation in the modern economy’, it does not actually make reference to anything about where government itself actually gets its money from to spend.
Therefore, is the stated fact that ‘infact, governments don’t collect taxes first, before spending, but its the other way around’ just a theory? Have you just looked at the economy, tried to make sense of all the circular flows, and come up wit that as the conclusion?
or is it literally an empirical fact, that can be proven somehow? Is there anywhere at all that explains what exactly happens to the tax revenues, when they are collected? What does happen? So we all send our taxes to the inland revenue, and it sits in a government bank account?
please can someone help me understand the step by step, end to end process. Because i’m struggling to actually find the answers.
Just answer this simple question
Assume there is no electronic money – which was true not that long ago
Then, if tax has to be paid with pounds sterling how could that happen unless the government spent them in to existence first?
The obvious answer is that it is impossible
So the spend had to come first
Nothing else explains how this can happen
It may look as if tax is raised first
But if it was we’d never have had a deficit
And we have for over 320 years now….
That’s your evidence
Just ask yourself:
Where did the money (GBP 450 billion … ) come from to bail out the banksters (and pay their bonuses) ?
Where did the UK get the funding to pay for the 2nd World War?
Where will the 39 billion for the EU come from?
Find the answers to those questions and you will understand why MMT is correct.
You don’t have to ask an economist, nor even an MMT economist for that matter that whats the evidence, because anthropologists, such as David Graeber, have already found the answer.
Basically, across all human societies and throughout history, money is predominately works exactly as described by MMT.
If you wish to know more, BBC R4’s excellent “Promises, Promises: A History of Debt”, which was written and narrated by David, is still available on BBC iPlayer…
https://www.bbc.co.uk/programmes/b054zdp6
I’ve been trying to think of something intelligent to say on this but it has defeated me. Nonetheless, first thought: I’m sure Keynes would have had something to say on exports. I know he thought trade imbalances were problematic (remember when “balance of payments” was on the news every month?) and proposed an “International Clearing Union” to deal with imbalances caused by some countries exporting “too much” and building up large surpluses. This idea was rejected by the US at Bretton Woods.
Secondly, has exporting ever resulted in a resource being entirely depleted? Yes, Guano. (http://www.mining.com/has-the-earth-ever-run-out-of-a-natural-resource/) Look out Saudi.
There is an export issue, of course
But not as Bill Mitchell puts it
Hi Richard, You failed to looked at the on-going dialogue between Peter May and
Money Monopolist(MM) who is a MMTer. Bill ‘s blogs are worthy of careful consideration and you can’t skim over the finer details or you lose the nuances of the argument. Understanding macroeconomic reality in its totality isn’t for the faint-hearted, but once you have that lens in its entirety as part of your economic tool kit, you can see things much more clearly.
In the end Peter is practically in full agreement with MM. Bill’s position, Fadhel’s and Warren’s are the same as Money Monopolist or any MMT economist. Go back and have a look at the comments. See http://www.progressivepulse.org/economics/suggested-requirements-for-a-properly-functioning-monetary-system-based-on-mmt-in-the-uk
Money Monopolist is a fraudster claiming to be Abba Lerner
I have never been that keen on fraudsters
And please do not patronise me
The bulk Bill outs out hides the nonsense Howard Reed and I both identify
And please don’t tell us we can’t do macro because Bill has defined it differently
That would just be crass. We can do macro
Hi Richard, This is the paper on trade that explains fully why exports are a cost and imports are a benefit. See https://web.archive.org/web/20171024201825/http://www.3spoken.co.uk/2014/02/its-exporters-stupid.html
Oh, from the man who thought MMT should be entirely indifferent to tax haven abuse because who cared who paid tax so long as it was paid?
Please, pull the other one
Wilson got banned from here a long time ago, and rightly so
I’ve been thinking about this overnight (sad, I know!) and on the face of it, it seems like Bill is saying that exporters are irrational in that they are deliberately choosing to make themselves worse off.
Let’s have a look at the key sentences from Bill: “Exports mean that we have to give something real to foreigners that we could use ourselves — that is obviously an opportunity cost.”
We’re not actually ‘giving’ anyone anything when we export, though, are we? We’re *selling* something – it’s a trade, not a charitable donation. The question then becomes whether we’re happy with the price we get for the exports or not. That depends on a lot of factors including the exchange rate between the £ and the currency of wherever we exported to. But the price won’t be zero – and it would have to be zero for Bill’s argument to be valid. To put it another way, Bill has described foreign aid rather than exports. On the face of it this seems to be such a big mistake that I cannot believe he meant to say that in his blog. But nonetheless, for me that’s the only context in which his sentence makes complete sense.
Similarly, “Imports represent foreigners giving us something real that they could use themselves but which we benefit from having. The opportunity cost is all theirs!” is only true if we are receiving donations from ‘foreigners’ rather than paying for imports.
Or am I completely missing the point here?
Well if you are missing the point Howard, so am I
It’s either as you describe or
a) he’s ignoring the liability due or
b) thinks money has no value – which is pretty odd for someone promoting MMT
However looked at the argument is absurd
And as I have also noted, if you ignore the border issue what he’s actually saying is we should simply never trade at all – because we suffer an absolute loss whenever we give something up. The border is just a detail. Mitchell is saying trade for money should not happen. And maybe trade should not happen at all. I guess abolishing exchange is one way to solve the economic problem – but it’s crass, at best
And I have to say I do not think either of us is missing a thing