This provocative (in the sense of thought provoking) comment was posted on the blog yesterday and I can only apologise to Andrew Sayer and Kevin Morgan of Lancaster University, who offered it, for not getting to read it until late in the day due to other commitments. I found what they had to say extremely useful, and I am accepting the challenge to think hard that they set. Comments are welcome, and today I may be around to moderate more often:
Re: Your important point from a few days ago about the difficulties in explaining MMT when it involves ‘inverting language'. When it comes to reaching ordinary people who do not have the time or inclination to read about economics, the following are some of the difficulties. (Please don't shoot the messenger. We accept MMT.):
- Laypeople are likely — quite rightly — to see debt as a relation between a borrower and a lender — and they are likely to be baffled when references are made simply to ‘debt' without the creditor and debtor being identified, as if it were just a thing. Who owes whom? (e.g. ‘Private sector debt' is too abstract a term to connect.)
- Expressions used in financial and accountancy circles such as ‘owning debt', ‘holding debt', ‘selling or buying debt', and ‘issuing debt' are confusing to the non-specialist. Again, who owes whom? is likely to be the question. Even expressions like ‘rolling over debt' and are not widely understood.
- The world of bonds and bond markets is a mystery to most people. Even if they own some premium bonds or have a pension that's invested in bonds, they may not make the connection or understand the idea that such debt can be bought and sold in second markets.
- When the national debt grows, one of the reasons people see it as alarming is that they think that individual lenders may not able to get their money back, even though they may want repayment. They don't realise that bonds are continually being issued, maturing and being paid off, even where the overall size of the debt grows. Nor do they realise that many bond holders will want to renew them.
- Re: The description of money as debt. How is this point likely to be received by lay people? Again, who owes whom is likely to be the question? Even when you point out that the note has the words ‘I promise to pay the bearer £10', it's meaning is still mysterious. If we took it to the Bank of England and asked it to honour the promise, what would we get? To say that the government fulfils its promise by taking our money back in taxes is likely to baffle. The layperson is likely to think the government would not be honouring its promise if, instead of getting something from the government in its place they have to pay taxes to the government. Maybe describing money as an IOU, a promise made in return for some service or product, would be easier to understand that than it as ‘debt' (even though it amounts to the same).MMT involves a Copernican shift not only in understanding of the technicalities of economies but in how we understand moral economic issues to do with justice and fairness and the well-being of society. A common pre-MMT moral economic view concerns ‘tax-payers money', and associated ideas that we have a duty to contribute to the maintenance of our economy and society particularly in helping pay for things like roads and schooling that are provided free to the user. With this are ideas (on the left) that those who dodge tax are parasites, free-riding on the benefits supposedly funded — and, more importantly, actually produced — by the majority. There's much support for the idea that all should contribute what they can, and that those who for good reason are unable to contribute (e.g. youth, old age, infirmity, disability, job scarcity) should be supported by the rest. If we abandon the idea of taxpayers' money, and replace it with something more complex (government created money returned by citizens to the government via taxes that allows it to suppress inflation, or as a means by which the currency is validated) then what happens to those hugely important moral economic arguments? They are lost in what looks like scholasticism. Yes, you do acknowledge that tax has other functions too, including those of redistribution, but the latter point needs working in to public-facing accounts of MMT. If the message ignores redistribution and the idea that people should pay tax according to their means, then it won't win them over.
To end on a more positive note: For non-specialists, the most compelling points in MMT are simply:
- That the government, unlike households, creates money and levies taxes. It can never run out of money, so it can always repay debts.
- As long as there are unused resources, especially labour, as there are now, government spending can set them to work to benefit society without causing inflation. If and when inflation becomes a problem the government can always reduce it by increasing taxes.
- That much of the national ‘debt' is like a savings account at a bank. (Renaming the national debt ‘national savings' is a really good idea.)
- That pension funds and life assurance funds need somewhere to put pensioners' money that's safe and will add a bit of interest.For pragmatic purposes of changing world views, these are surely the key points. Much of the rest is of interest to specialists of course, but maybe simpler messages/videos are needed for the public (and politicians).
Yours in appreciation.
Andrew Sayer with contributions from Kevin Morgan
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
1st para, 2nd sentence: ” useless”?? or “useful”?
My most commented on error, ever, I am sure
found what they had to say extremely useless,
do you mean useful? To err is human.
Indeed it is. Corrected
To forgive divine.
🙂
I assume you meant to say you found their comments useful rather than useless.
8ndeed…
Sounds like we are in “old grey whistle test” country. Is the tune/message popular/understandable by the person in the street.
Other question: how to convey a (complex) message without too much loss of meaning. 4 points at the end seem quite good.
I’d also ask people: who creates money? – what would happen if you tried to do it? Take the Socratic route, get them thinking.
That is easy! 🙂 Who creates money? A – the state. What happens if you try to create money? A – you get done by the polis (Scots) for forgery.
Incidentally if you take your £10 note to the BoE and ask for it to be redeemed you will be paid out in coins. Coins from the Royal Mint are the only ‘real money’ in the economy. Coins in a throwback to the ‘metal’ days are supposed to have some intrinsic value. They actually do and the 1p and 2p had to be changed some years ago from being all copper to being steel copper plated because the 100% copper coins were actually worth more if scrapped given that copper has been in the £2000 or more per ton price range. There is the proposal, which I believe originally came from Paul Krugman, that in the US they should mint a trillion dollar coin (in platinum) and deposit it to the Treasury accounts at the US Fed in order to provide the funds for funding the Federal Government. Most recently the Democrats have proposed this as part of the virus response (the ABC Bill). In the UK the Treasury could cancel the £735 billion bonds owned by the BoE with a £735 billion Royal Mint coin.
It could, but it would be symbolic as those bonds are in effect already cancelled
“extremely useless”? Or extremely useful?
Is this an example of the difficulty in inverting language?
No, autocorrect
I wouldn’t normally comment on a typo, but this one makes a difference
I strongly suspect you didn’t mean to write “I found what they had to say extremely useless” I think perhaps an autocorrect has undone you there.
It did
Possible typo, you wrote “extremely useless”, but I’m thinking you meant “extremely useful”?
I also don’t really agree with the “moral economic argument” for keeping the tax-to-fund-spending myth. It sounds to me like a pre-cursor to allocating funds according to the prejudices of the funders, as in “my taxes shouldn’t be spent on those people” – it’s not an unalloyed good, and really undermines MMT in my view. I personally don’t think the ideas are that difficult to grasp, and actually make sense in ways that orthodoxy doesn’t. E.g. Where money comes from is explicit in MMT and hidden in orthodox views, it just seems to be there, or somehow “made” by “wealth creators”. Who seem to be having a hard time creating any at the moment.
‘I found what they had to say extremely useless”???
No – useful – apologies
Hi Richard, I think you mean “extremely useful” rather than “extremely useless” at the beginning of the sixth line of your introductory paragraph, don’t you?
I do
A complete error and corrected now
I must apologise for this post coming out saying I thought the comment useless and not useful. I hate autocorrect and my own very real inability to copy read. Sorry!
Hi,
Comment to Sawyer and Morgan,
I understand, you understand, vast majority dont, cant or wont.
Why?
Because everything else has been ingrained, for hundreds, maybe thousands of years.
How do you beat a thousand years of conditioning?
You have to show that paying taxes is a benefit to reducing inequality, that by paying tax the rich help the poor rise up in the social strata and fulfil their potential.
You have to show that government debt is really, peoples profit, we never talk about debt, we talk about profit.
The language is the clue, never argue in the language of the past/the old, argue in the new language, and make everyone argue in the same terms.
I suggest George Lakoff and how to retake language usage for the modern left, because this is a “radical” point of view, even though its the truth.
Win the Language, win the argument.
Money is for the benefit of all, not just the few.
Not profit: no, very definitely not that, at all
The word “borrow”, in the context of government borrowing, also confuses laypeople, I believe.
Firstly, for laypeople, one only borrows money if one doesn’t have enough.
Secondly, laypeople certainly don’t borrow in order to destroy the money, as the government does.
The word “borrow” is strictly correct, but misleading for laypeople in the context of government borrowing. It would be less confusing if another word could be used.
I hope the above makes sense, because I am a layperson myself and am confused on a regular basis when it comes to economics
I am being persuaded…..
Nicholas H – No, an MMT point is that “government borrowing” is not “borrowing” as that word is used in any other context. That phrase is NOT correct. What is called government borrowing is an asset swap. In normal financial borrowing, as in from a bank mortgage, the borrower gives the bank a note – a debt from him to the bank and the bank gives him bank money, a debt from the bank to him. Two IOUS going in the opposite directions are exchanged.
In “government borrowing”, the government issues two sorts of IOUs from the government to its creditors – “bonds” and “currency”. Gilts and pound notes. And the creditors can use the pound notes to buy gilts from the government. It is a completely different transaction and should not be called “borrowing” – which is simply an error, not confusing language, bad framing or the like.
I don’t find that helpful though
Nor is the tone helpful
And like it if not there is a credit on the government balance sheet rpthat cannot be denied
The only issue is describing that credit
The word error is then wrong unless an alternative is offered
The problem is how to simplify a complex subject. The Brexiteers did it ,but dishonestly
I would hammer home to laypeople that the Govt. IS the magic money tree
It can create money, spend money to balance the economy, AND pay its bills
We can;t realistically run out of money
I’m trying to develop 2 columns ( 1 ) undisputed facts & (2 ) political opinion around MMT. but it’s not easy going
+-Which is why Richard is so successful in your videos — getting the balance right. explaining the subjects succinctly but not trivially
I am also playing with that idea….
I think Sayer and Morgan’s comments are very helpful. Your videos do explain things clearly but for the complete lay person it will take some time for “heads to get round” and quite a bit of going over again and again the ground of defining what money is (and isn’t), debt, the role of tax and what is meant by economic resources that can be utilised beneficially for the common good by the Bank of England tapping out their billions on the keyboards.
Agreed
I think the idea the Government is the Magic Money Tree. Layman myself but the idea that Government is the Magic Money Tree seems to have many virtues. It is I think true, it is simple to understand, it puts Government and politics (rather than City ideology) centre stage, and it decisively shifts the debate.
I tend to agree
I think that they make valid points to be honest, but – well, we are familiar with them.
But also Lancaster seem to be over simplifying the issues – they could go deeper. Lancaster’s input lacks context and seem to suggest that those attempting to draw attention to MMT have a problem. i don’t think that this is the case.
These points though show that our society’s education about money is very poor – many Citizens Advice Bureaux would tell you that this is the case when helping people out with debt.
The re-education needs to take place in out schools and universities like Lancaster to be honest – it is a far too gargantuan task for a blog like this or Ms Kelton.
The big issue with Lancaster’s case is that it is devoid of any structural power analysis – how the ‘cognitive map’ of money creation is dominated by not just ignorance but vested interests and (I suppose I could be accused as using a Marxist approach here) – the difference between ‘naive consciousness’ and ‘critical consciousness’ in the public themselves.
The public – it seems to me – are hopelessly therefore short of the information they need to survive in an increasingly marketised society (where Government financial support for society seems transferred to more corporate and HNWI interests) – a society that portrays itself as open and ‘free’ but really just makes it easy for those with money to make even more money and treats it as a scarce resource as well as constantly mis-allocating it. Billions can be raised for buy outs, but we raise and beg for money to buy scanners for the NHS. Why?
The modern citizen – married to their mobile phone, apps and social media – cannot afford to be ignorant but are made so by the market. It’s about choices as to what you are interested in. And many make the wrong ones because information now is about satisfying individual needs other than those about how the world works and how it affects you and everyone you know.
The false narrative of ‘tax payers money’ has been around for a long time and is dug in like a tick. It creates resentment and other dark attitudes making people feel that their money is being used to fund the lives of drug dealers and the unemployed for example. In a society fueled by debt – mortgages, car loans, credit cards – we know that debt destroys our money and then there is tax which also destroys our money. Mortgages, car debt and credit cards all fuel personal expenditure desires but our taxes are spent on other people apparently and many of us don’t like this. That is why the false narrative of tax payer’s money is so divisive and needs to be got rid of.
Another issue that is not mentioned in relation to debt by Lancaster is fear. When the people are TOLD that their Government is in debt, they fear the consequences – AUSTERITY – job losses, loss of income and all that that income enabled them to have – cars, homes, food. That to me is why people get hot under the collar about Government debt – because perversely they expect and accept it seems that they will be punished for it – even when it is a load of private sector toss pots whose greed is being bailed out – again. The issue of state sovereignty is also under represented and people are told to believe that the market will punish Governments for printing money to help its people.
You cannot therefore in all honesty come here and criticise the language of MMT without looking at the more structural factors behind people’s lack of knowledge and personal ownership of the lies and distortions they have been fed by vested interests.
Universities themselves are now in great danger because of the Covid pandemic and there is apparently not enough money to keep them going according to the Government and its artificially self imposed barriers it has set.
Well, the Universities had better start by asking themselves what they have been doing all these years harbouring and tolerating stupid, half witted, orthodox economics professors and their thinking? Thinking that will lead directly to job losses and maybe the end of their institutions (unless of course they have a rich benefactor of a certain persuasion).
It’s about time Universities faced up to the fact that they are both the problem and the answer to society’s blindness to MMT. Stop teaching crap and teach the technical truth of the matter – run some bloody courses for goodness sake and set the record straight why don’t you?
Because Universities are still the biggest purveyors of economic lies in this country and elsewhere. They are mis-educating what are supposed our better educated voters!!
I mean its ridiculous.
A place to start might be to stop calling it Modern Monetary Theory as that implies its all theoretical whereas it is actually real practice.. MME maybe? Modern Monetary Economics?
Please excuse the seeming diversion to a parallel inexplicable subject. As a novice undergraduate I was assured the department was a bastion of resistance to Plate Tectonics. Lectures were based on the TRUE mechanism creating mountains, oceans,and the rest. The intervening decades showered ample justification upon Continental Drift so that colleagues subsequently agreed that Plate Tectonics IS Geology. Complexity resisted for generations until scales were pulled from eyes.
Debt, Money, Tax, etc. are similarly complex and have been similarly wrongly explained and used to bolster political decision making to favour one or other powerful clique. Attempts to rectify thought and theory in the minds of voters will be anything but easy. I admit to a flaky understanding of MMT and its role in economics but watching the recovery process being hammered out here on the anvil of YouTube is gratifying to know its happening and edifying to understand that bit more each week or month.
Thank you to Richard and all contributors.
Thanks
Yes, the language and the narrative are very important, because this can all seem very counter-intuitive until you “get” it.
People understand the ability to borrow money to buy things they need when they don’t have enough savings, and the need to pay interest on borrowings and to repay borrowings eventually, and the risk of bankruptcy if they can’t. They understand being paid interest on “their” savings at the bank (probably imagining their cash sitting safely in a vault somewhere, and then being lent out to others). Many have an ingrained fear of debt (or rather, the possible consequences of it), and it seems natural to consider the state to be like a big household.
The concept of “taxpayers’ money” makes intuitive sense: the pounds in my pocket are “my money”, and through taxation the government is just taking and spending “my” money on things we collectively need, rather than each person buying them separately.
And there is a real fear of inflation getting out of control. How are we sure that we won’t end up like Venezuela, Zimbabwe, Weimar Germany, or even the UK in the 1970s?
It can take a very long time to persuade people to change their mental picture and look at the things they think they know from a different angle, in a way that makes better sense. The analogy with Copernicus is a good one: MMT is a paradigm shift, and the “church” will push back to punish heretics and defend the orthodox position, even if many of them tacitly accept that MMT is correct.
As an interested layperson, this hits the mark. Some of the language used clearly has an “in-group” meaning that takes some untangling for the casual reader.
A couple of my own points. In a recent blog (talking about monetary implications of Scottish independence) Richard said the government doesn’t actually pay back its debt. That is clearly not the case: I once owned some government bonds (a christening present from my grandfather) and the government definitely paid up. Similarly if I have money in National Savings, the government will pay that loan back when I withdraw it. It is true the government is quite likely to issue new bonds to balance those being redeemed, but that is something different (and in the Scotland case begs the question of whether only one of the two parties should be issuing those new bonds).
My other puzzle is about the relationship of taxes to money created for spending. There is the constant claim (referred to above) that taxation is only necessary if spending causes inflation and at the moment that isn’t happening. Naively, it seems to me there has been plenty of inflation since the enthusiasm for creation of new money started about 10 years ago. Fair enough, I don’t see it in the price of milk (or the bigger basket of retail items used to calculate CPI) but it is very apparent in share prices and property prices. Those have surely increased by much more than their intrinsic value, and arguably under MMT should have been moderated by taxation. (And overall, to a lay person one expects a “conservation of matter” balance to occur such that money creation will need to have counterbalancing taxation even if a temporal shift is acceptable, unless there is an increase in intrinsic value of the economy).
Bit overall the ‘national debt’ is not repaid….
And that is my point
And the government can also issue perpetual bonds
Indeed, it does, at 0% interest – we call theM bank notes
Why isn’t there taxation on bank house mortgage loan under-writing! Over nearly five decades corrupt Conservative and Labour governments have allowed the average house price ratio to average gross annual salary to nearly double from 1970 to 2019. Saying that an increasing number of women entering the job market during that period for example isn’t a sane excuse because hyper-inflated house price induce wage-push which raises the costs of UK exports and the pound hasn’t sufficiently deflated to counteract this.
Perhaps a simple block diagram showing the flows of gilts/money between the government and the BoE as well as flows of money and taxes throughout the economy would help?
If it could be done….
Steve Keen is making it, at least the model of it and eventually it would be able to track the real flow.
Perhaps the thing that ought to be pushed more is the fact that government can always utilise any unused recorces and put them to work for everyone`s benefit – ie without stressing the money/debt angle so much.
Obviously the money side will need to come out but perhaps less so: as has been pointed out many times – when gov decides to build an aircraft carrier very few will ask how it is to be paid for. It should be the same for a new hospital – always stress the concrete rather than the bookeeping.
Working on this…
In response to:
” abandon the idea of taxpayers’ money, and replace it with something more complex (government created money returned by citizens to the government via taxes that allows it to suppress inflation, or as a means by which the currency is validated) then what happens to those hugely important moral economic arguments?”
Richard, in relation to the point above, I seem to recall I watched a youtube video where you were on a panel with both Bill Mitchell and Ann Pettifor (and I might have got this wrong… I’ve studied so many over the past few years) which spoke directly to ‘re-framing the debate’ and what stayed with me was instead of talking about ‘taxpayers money’ the discussion was about ‘public money for public purposes’ which I think captures exactly the themes identified by Sayer and Morgan, without falling into the ‘household money’ paradigm trap.
Just a thought.
That debate was so me time ago and I think all three of us had different purposes….
What’s needed is for a brave MP to stand up in parliament and call the national debt national savings and be prepared to weather the onslaught and derision. That way maybe a national debate could ensue. Or am I way off beam?
It would help
On the bond markets, one of the problems seems to me is that the artisans of secondary markets, who have a vested interest in inserting a middleman into a market to cut a margin are the very people who have a vested interest in creating ‘smoke and mirrors’, by making much of essentially non-necessary but rent-seeking transactions into something that is deeply complex, mysterious, understood only by them and is essential to the whole monetary system precisely as it is; and that MMT is disastrous. To the uniformed they seem ‘expert’ about money markets and how they work, and this audience is easily persuaded by the casuistry of insiders. In short, such people who operate in bond markets often have higher credibility in money than academic theorists; or at least their views may be luridly exploited by the anti-MMT media. Few think about the lessons of the Crash in this context; it is all too abstruse.
This is exactly what I was hoping you Richard, would tackle jointly with Mr Parry; who both ‘gets it’ and knows the bond market more intimately. Meanwhile, Mr Parry, I presume is floating around off-shore the West Highlands coastline, wisely with his smart-phone set at ‘off’.
I’m on holiday this week…..officially
A good “provocative” article. The problem with language is that it isn’t free of baggage. Debt, borrowing, tax payers’ money – loaded terms for most of us. We’ve discussed it before and are still struggling. I wonder if there is an answer to be found with alternative terminology or are these words and metaphors so deeply ingrained in the public consciousness?
“Tax payers’ money” is extremely insidious as well as being mostly wrong. Do those working but don’t pay tax not also contribute to the public good? And what about all the other non-employed who don’t pay tax are they just “parasites, free-riding” as they some might describe them? Or does that just apply to the “skivers & the undeserving poor”? They may be carers, stay-at-home parents, volunteers, retirees etc who are and have contributed.
When I see the word “moral” I reach for my… I think “justice and fairness” (which the writers refer to) are more useful terms. Some of the worst social injustices down through the ages have been argued for on moral grounds to do with twisted ideas of freedom.
But yes, a new lexicon is required. Government Money?
The lexicon is under way…
Here’s my latest attempt this morning to spread the word, to these who still believe in capitalism as a religious absolute
Money has NEVER been tight.
If we need more- it is just spent into existence.
Just like credit cards, mortgages, overdrafts, loans and EVERY penny of Government employees wages and purchasing.
The armed forces of the USA are a wholly SOCIALIST setup — all paid for by government created money — just as any public service.
The only problem humanity has Is the ancient and new global robber baron bankers and their minions who STEAL that money by refusing to pay their share of taxes on it and then buy REAL ITEMS OF WEALTH, which they then hide and use as their shadow exchange system.
“Money has NEVER been tight.”
This is the central argument against Classical economic theory. The economists supporting this theory see that for human beings it’s always been an issue of sharing out scarce resources despite Keynes pointing out human beings now have the technical know-how to churn out from their factories, etc, a vast cornucopia of products. It’s also that Classical economists see money as a product or commodity because of their barter theory of money’s origins which developed into the Gold Standard. MMT economists have done their best to point out that money is electronic scoring on balance sheets that simply has to be related to the existence of real resources.
agree with the thrust of this argument – most of us had to come on a journey until we had ‘that moment’. One of the most difficult things is explaining a discovery to someone else. We have all heard the excited child try to tell of some amazing event often to the bemusement of others present. “Yes, I can see you are excited but I haven’t a clue what you are on about” generally comes to mind.
So, some simple concepts truthfully explained can begin the process.
I do also think that it helps people to make a good connection if we are able to lead them in a direction. To say that taxation doesn’t pay for government expenditure may be technically correct, but it is a big leap to get to taxation cancels or destroys money. Possibly better to agree that taxation has a role in government spending, just not the one that we usually think of.
Clearly it depends on who you are talking to; with some people we can have a much more engaged conversation. Let us take people with us on that journey.
I still don’t feel comfortable from an MMT perspective arguing that money can be found for public goods and services purpose from treasury bond issue as well as direct government money creation from thin air. Even calling treasury bonds government savings certificates for example doesn’t get round the problem because of the belief banks lend out savings rather than creating money from thin air.
The same logic goes on in the public’s mind that when they put their savings into government treasury bonds the government invests their savings and repays both interest and capital through taxation. Surely it would be better for a society to do away with government bonds altogether and let the private sector banking industry offer them with government guarantees for varying amounts from individuals to collectives (pension funds and Green New Deals, etc.)? Yes I know the argument remains where does the government get its guarantee money from but then the reply is the same way private banks do from thin air. So it’s an educational problem and this in turn raises the question how do you best set about doing this.
How do you overcome the problems the lack of gilts creates?
“How do you overcome the problems the lack of gilts creates?”
I thought I’d just made a suggestion namely you don’t call them government gilts anymore as financial instruments you get them from the private sector but the “gilt-edged” aspect is still provided by the government according to class of customer. So for example the Bank of England likes good collateral from the clearing banks for issuing reserves so that could be the top class of financial instrument because the value is high and absolutely critical to the payment’s settlement system. Pensions next class down or maybe level and so on.
So, you’re suggesting the government still issue bonds but that we rename them?
Yes because that way although it’s a sort of sleight of hand it gets away from the notion that borrowing funds government spending. This then leaves “taxes fund government spending” which is best countered by there’s no evidence that only private sector bank money creation from thin air (as the BoE now tell us it’s done) automatically ensures self-equilibration of the economy. On the contrary high reasonably frequent high levels of unemployment strongly suggests it doesn’t so there’s also a need for government money creation from thin air being necessary to boost effective demand (The Conservative government’s response to the coronavirus economic fallout being an extreme case in point as was the Labour government’s response to the 2008 GFC!). This of course is all a Keynes’s 101 argument.
An interesting take on money is that it’s just the social means of deciding what’s to be done with the material resources (energy, steel, labour, brain power, etc). Nothing to do with the real economy, which is ultimately driven by energy (or more precisely exergy), just about decisions. My savings are just my socially-sanctioned ability to influence future decisions about resource allocation. National savings (debt) is the totality of those commitments. Which could be repudiated or honoured by future generations if they want to, for example (Jubilee, Inflation, etc). So money is of no consequence in the real system of production, other than its use by humans to make choices. And of course those choices matter enormously, but are in turn constrained by the physics/ engineering / chemistry/ biology of the current productive apparatus.
I have said it before, but I will say it again. I think the game of Monopoly can be very helpful in showing people exactly how unbridled capitalism works. Where does the players’ money from from: the bank (the state). In order to keep the game going the bank (state) has to keep spending money, thus £200 each time you pass Go! plus the various handouts from Chance. Does the bank (state) ever run out of money – not really as even if you run out of the printed notes from the game you just do what we did as a family and quickly write out some more on odd bits of paper. What happens to the money – it flows up (no trickledown in Monopoly!) to whoever is winning and every one else ends up bankrupt or in debt to the winner. That happens because the bank (state) does not hand out enough, especially in the latter stages, to keep all the players in the game. The game ends, which in the real world would be a revolution, and the new monopolist finds there is nobody left that can afford to stay in his/her flash new hotels. Taxation, such as taking money off the winning player and giving it to the rest of the players, can keep the game going – this is reducing inequality which is actually good for everyone as then there are people that can afford the hotels. Alternatively increased state spending (such as £400 for passing Go!) would also work by reducing the debts of the players – the private sector.
It is absolutely not the case that tax is not necessary and anyone that says tax is not required in MMT is wrong. It is because it is only tax that gives the currency value. If there was no need to pay any tax in sterling ever it would be gradually abandoned as we all moved over to the Swiss Franc, simply because the SFr is a much better store of value for our savings. Prof Mosler’s story about how the British Empire worked when a new territory was conquered is simple to understand and it is also true. In almost every case the first thing the new colonial officials did was to impose a hut tax. You now owe us 12 schillings – these shiny bits of metal with the Great Queen across the Sea’s head on them, per hut payable at the end of the year. If you don’t have them ready the army will be round and will burn the huts down. That renders everyone ‘unemployed’ in the Empire’s terms and they now need a job or anything else that lets them earn the 12 shiny bits of metal. So you have just forced everyone to use your currency, the previously entirely worthless bits of metal are suddenly something everyone has to have, and the colonial officials now have all the labour they need to build roads, plantations, etc to ensure all the new colonies surplus is shipped back to the metropole. The latter is another slightly confusing thing about MMT – imports are good, exports are bad. Just remember when Caesar conquered Gaul he had all the booty sent off to Rome (imports to Rome). He most certainly did not send any goods from Rome to Gaul (exports from Rome). So for example Germany runs a huge trade surplus and is the second largest exporter in the World. What that means is that the goods available to the average German are sharply reduced, although the bank balances of exporting companies increase. The average German would be much better off (more goods, more holidays, etc) if the trade surplus was eliminated.
Thanks Tim
“Exports are bad”. I must tell the Scotch Whisky Industry – we’ll drink all we can at home to help out. “Imports are good” – right, I need a new (overpriced) Apple Mac, that Huawei camera phone, oh hold on, I’m too drunk from all that whisky to find my credit card!!
Here’s someone who disagrees, unless he’s changed his mind after a few more “helping out” Glenmorangies: https://www.taxresearch.org.uk/Blog/2019/01/18/why-bill-mitchell-is-simply-wrong-on-modern-monetary-theory-and-imports-and-exports/
I continue to think this claim by Bill et al too simplistic
A bit like his view on bonds and much else
Graham, you are missing the point. We all want more stuff so imports are good. The trick is to get the most imports for the least exports. So in other words the best terms of trade. The key point is that exporting for the sake of it is bad for the country. If the Chinese do 60 hour weeks in order to make cheap iPhones etc for the US and pile up US ious ($) in return then who is benefitting? Because whatever Trump might think it is not the Chinese.
I suppose the problem I have with imports is that if they e.g. come from China, the ChinaCo ends up with lots of Scottish Pounds – what does it then do with them? OK it might buy whiskey edged Scottish government bonds, or perhaps it might buy Scottish whiskey companies. And then all Scottish companies.
What happens then?
But it doesn’t work like that
Sure there can be imbalances and financial flows and investment can balance them
But ultimately exchange rates equate the relative exchange risks, weighted across all currencies
I like the Monopoly explaination a lot. Monopoly was created to show up the nasty capitalist model. Could someone come up with a digital version which allowed automatic government intervention or let someone play this role. Could you just produce a game operating to the rules of MMT? Might be a bit boring if everyone wins though. Or just a model people could play with to see the effect of various interventions or otherwise.
I have recently been doing a lot of work on terminology in my area of expertise, the objective being to get more people (especially those inside the chess world) to understand the enormous difference between ‘educational chess’ and ‘sport chess’ or ‘competitive chess’. It is a major uphill struggle, not dissimilar to the problems of getting the public, journalists, politicians, and (hopefully) economists and ‘think-tankers’ to understand MMT because those ‘inside’ are the most conditioned to think a certain way.
I think that the two most useful bits of terminology here would be:
MMT = Modern Money & Tax
(both are important and MMT is NOT a theory, but an explanation)
SNS = ‘Secure National Savings’
(instead of National Debt) as per one of Sayer & Morgan’s concluding notes above.
I like modern money and tax
That really works….
SNS? Not sure….
When I explain these ideas to people, I talk about what I’m learning, and how I feel knowng I’ve been let down by an ignorant media, and an ignorant government leading me to believe for so long so many untruths about money. I find that people don’t notice that they’re also learning new things about money, they just think I’m telling them about what I’m learning and how annoyed I am that I’d got it wrong. Gets round the fact that people don’t like being told they’re wrong. They start asking questions and I tell them what I’m reading and discovering, rather than even getting into what they currently understand.
Neat
I look forward to your simplified explanation of how National Debt works (and doesn’t need to be repaid by future generations) and how it is different to the National Deficit. And how Income Tax, CGT, IHT, VAT, etc all fits into this picture.
For the average tax payer, this is all very confusing.
There is a very important political message to be put across in this regard – perhaps crucial to how people vote in the future.
Many thanks, Richard
I do not guarantee success
Someone above suggests that we no longer should issue bonds and Richard asks “How do you overcome the problems a lack of gilts creates”. Bill Mitchell proposes an answer to that here.
http://bilbo.economicoutlook.net/blog/?p=45108
I don’t have expertise to comment.
Bill addresses the big issue of supplying a deposit guarantee to all depositors
But I don’t think that in any way meets his policy objective
Bonds achieve that more effectively
I’m substantially on board with the Newton Finn comment to Bill Mitchell’s article.
I always liked Joe Firestone’s diagram of spending flows – starts of with how people think it all works and then shows the holes in the description, then turns the diagram upside down. Still, probably too complicated. http://neweconomicperspectives.org/2014/01/diagrams-dollars-modern-money-illustrated-part-1.html
May be a good idea to turn OFF autocorrect. At least then, the typos will be your own. 🙂
In net terms autocorrect helps!
MMTer’s need to zoom back a bit and look at what they’re trying to achieve which I would argue is exactly the right amount of Exchange Circulation Momentum (ECM) according to an economy’s circumstances namely whether it’s over-inflating or deflating (The “Exchange” part of the term being the medium of exchange or currency). Given the fact that Libertarians and NeoLiberals will always use the role of government as a punch bag or lever to get themselves elected to power on a campaign ticket of “minimise the role of government in your lives” it makes sense to hid the processes of ECM under the hood!
What do I mean by this?
Given that most voters interact with ECM processes through their private sector bank accounts and in reality both government and these private sector banks work together to create the medium of exchange it gives the Libertarians and Neoliberals less political leverage if ECM adjustments take place through there banks if this is possible. This is why I was talking earlier about the need for governments treasury bonds to be issued as private sector bonds with government guarantees. Indeed it’s possible to conceive that government and private sector banks can partner over contentious issues such as taxation, universal basic incomes and even job guarantees!
MMTer’s need to recognise there is a political element to their advocacy and start thinking out of the box to counter it.
By the way, I should have said that Kevin Morgan is at Cardiff University, School of Geography and Planning.
Thanks Andrew
As a simpleton member of the public I endorse the comments of Andrew Sayer and Kevin Morgan. I have been attempting for a while to get my head around MMT (because I want it to be true :)) and to those of us with common experience of cash and bank accounts it is somehow anti-intuitive. Until I can explain it clearly to my friends, I don’t feel I have absorbed the nuts and bolts.
I will keep trying
Stephanie Kelton in her new book (end of ch3) also mentions this problem of language, and the connotations carried by certain words such as debt. She suggests that Treasury Bonds should perhaps have a different name that is perhaps more recognisably associated with the other side of the coin, i.e. savings.
National savings…..
As a relative newcomer to both macroeconomics and MMT and having read The Deficit Myth, this blog and watched the videos, their comments are relevant and need to be addressed.
I understand more now than I did 3 months ago and some of the concepts like ‘national debt’ actually being national savings and tax as a moderator of inflation not a means to ‘pay’ for ‘things. I ‘use’ my wife as a sounding board when I make comments on what I hear people say on radio or tv but realise quite often that I have gaps in basic knowledge when pushed for a fuller explanation.
As an example:- In her book, Stephanie Kelton says, “The fifth myth is that deficits make us dependent on overseas nations (chapter five). Instead, trade deficits should be understood as a ‘stuff’ surplus”. So, as always believed/been told, we should be exporting more than we import and the target should always be a surplus rather than deficit!
Their closing bullet points, I think I’ve got my head around but, it is not the ‘converted’ that is the target but the general population who often believe what the ‘experts’ and politicians either tell them directly or implicitly.
Getting these ideas over to them is the challenge.
I’m so glad they wrote this. I’ve watched many an MMT video/read many an article and I’m still struggling to fully grasp it for reasons they identify.
Hello Richard,
As a layperson I have difficulty with government created money (i.e its own currency) being called debt.
Debt to me is money I borrowed from someone else and need to pay back.
Government created money is just something the government has created.
It is maybe like a song someone created and copyrighted and can create copies of it to sell or give away.
We are not classed as being in debt when we create things.
Government created money can be similarly given away for all kinds of projects to benefit the country and to pay taxes at which point it is destroyed.
Basically I see no reason to call this money by the misleading title of debt and then say it isn’t real debt because we can’t be in debt to ourselves.
To the public this is an insane discussion. If we don’t owe it to anyone and we can create more if we want to it is really nothing like debt.
So the bottom line to end the discussion is to be brave and keep things simple and stop calling it debt.
Explain why it is created and how it is needed and used.
This will then make sense to the public.
Ron
Shoot me if you like. This is how I see it.
I have explained how it is created
Have you read that and watched the video?
Thank you for your reply Richard.
I understand how money is created.
I agree with 99% of what you say but we always get mugged by the Tories using debt or fake debt to impose austerity.
My point is that if we don’t owe it to anyone why don’t we stop calling it plain ordinary “debt” so it is not confused with money we borrowed and owe to someone else. It is all in the name.
A small step forward would be to call it “government created money (GCM)”. With a small explanation that it is not owed to anyone and cannot be included in our list of debts.
The name must be changed so that anyone calling it debt is not telling the truth by inferring we actually owe this money. If most economists would rename debt we don’t owe to make it clear to laypeople then more would be able to understand how they are being lied to.
If for some technical book-keeping reason this renaming idea is impossible to use then don’t worry about it.
I am saying if it doesn’t bark like a dog, look like a dog or smell like a dog it shouldn’t be called a dog.
Ron
I can see Ron’s point and it seems entirely consistent with the main thrust of this thread. Most people do not perceive the £20 notes in their wallets and purses as government debt but see them simply as a convenience. They do not worry that nobody has any intention whatsoever of repaying the debt to the bearer (notwithstanding the promise printed on the note).