I cannot recommend this podcast episode enough:
Debunking Economics was, and is still, the classic book by Steve Keen, which I consider essential reading for all interested in economics. When I first read it I had no idea that one day we would get to know each other and that he would, for example, be a regular re-tweeter of this blog, as I am aware that he is.
But there has been an issue: Steve did not 'get' MMT and its argument that spending creates the money to pay tax and fund what is called government borrowing, but which is actually the redepositing of the excess of government spending over taxes raised back with the government for safekeeping. And that obstacle meant that we could never quite agree.
And then he read The Deficit Myth by Stephanie Kelton, which is also essential reading. And he did some double-entry book-keeping to build a Minsky inspired model of the economy, which is available to sponsors of his blog. And the result is that he now gets that what Stephanie says, and what I've been saying for some time, is right: i.e. that the deficit creates money.
Money is not needed to fund the deficit. The deficit makes the money to pay for itself.
The bonds just tidy up the private sector, and bank, balance sheets and let it be pretended that the government is not lending itself money when that is what it actually, and inevitably, is doing via its own central bank.
And because Steve explains this new understanding on his part well in the discussion that takes place it's well worth listening to.
As for me, I'm delighted we're now on the same side.
Now to get Ann Pettifor and Frances Coppola to understand this.
And even Simon Wren-Lewis and Jonathan Portes.
Or is that too much to hope?
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If you get that foursome to be at least open to the principles of MMT that would be big progress
(PS If you are not following Steve Keen already, I’d second Richard’s recommendation. Though his maths can be a bit challenging!)
At least his maths works….unlike most maths in economics
Most economists do statistics, not maths! In particular very few understand the maths of chaos and complexity which are far more useful in describing economic systems and society
Check out Eric Beinhockers Origin of Wealth, and the work of the Sante Fe institute if you are interested
Thanks for this
I just said something very similar in response to another comment
“At least his maths works”.. Richard please be honest, how would you know? Maths , stats, econometrics, quantitative techniques is absolutely not your forte!!
I know because unlike almost every other economist Steve realises a very small number does not behave like zero, but a standard micro assumption is that it does
Which means that I too know a great deal more about maths than most economists
His maths can be a “bit” challenging?!
Fair comment! I was understating a touch
About 50 years ago, at university finals stage, I would have understood it all as I happened to be working on the esoteric area of complex, non-linear modelling. Little did I know that it might turn out to be quite useful. Now at least I know what Steve is on about though there is no way I could mark his homework!
I’d observe that whilst many/most people struggle even with exponential behaviour (COVID being a perfect example), very few people indeed can get their heads around complexity and non-linearity. Yet most human behaviour is non-linear – and economics is fundamentally driven by human behaviour. There are a few economists who get it, notably Steve and Eric Beinhocker. Encouragingly the Bank of England has started to take it on board in recent years
But it remains very rare
Slowly and by such little steps your message is spreading.
Have you noticed the increase in frequency of the term ‘taxpayers money’ across the mediascape in recent days?
That dragon needs slaying and these who parrot it need to be disabused of its mendacity.
That’s why I did a video on it….
MMT takes over the world!!
It would be nice if the debate could be over by Christmas.
I’ve read Steve’s book too. It was and still is a breath of fresh air.
🙂
This is a good written post to go along with it.
http://www.profstevekeen.com/2020/08/26/the-mathematical-model-of-modern-monetary-theory-2/
🙂
I have a colleague (lets say is called Ian, he is a nice guy), who completely unlike me, has studied and works in finance and the sort of things covered on this website. I quite often ping him in a friendly way, links to some of the MMT posts on here (he is a humanitarian, social conscience sort of guy so I thought it may be interesting to him). However he doesn’t subscribe to the content of the links I send him with his usual point of rebuttal being liquidity issues. This is his latest reply should anyone wish to respond to it (I sent him the link to the original post).
—
It is not true, the deficit represents an investment and that must be economic. But also is not in just bricks and mortar but also economic capacity
Economies do work in a circular fashion as what I spend becomes your income. But if that money just goes to by a bridge to nowhere as in Japan 90s build for building sake then things don’t work
There is a proviso to a degree that this circularity requires a closed monetary economy. So this works better for US and Japan (strangely), and did for the UK during the age of empire. And is working to a degree in Europe. China it may do but still overly dependent on foreign activity and non economic infrastructure (e.g. military) and external investment
Japan did have issues, but many third world countries it has not Germany in the 20s was a classic first world fail, Argentina/Greece etc arr classic examples
Printing money as such does not solve problems. The US is locked in an apparent liquidity trap at present.
Read Maynard Keynes first then these others. 1960s to 90s American economists got a lot of their maths wrong.
Cheers
If others want a go feel free
I admit I do not have the time today
And it all feels so 1995, or earlier….
I’m not entirely sure what he means by the first sentence: ” the deficit represents an investment and that must be economic”. I think from the rest he is saying that “Money creation” MMT-style is not very useful if it does not increase economic value. If that is what he is claiming then I think most MMTers (and certainly people like Steve Keen) would agree. I believe Keynes would also agree, even though Keynes famously said:
“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.” Keynes, General Theory
Portes versus Mitchell, from yesterday. I just happened to have it handy
https://www.prospectmagazine.co.uk/magazine/the-duel-covid-19-coronavirus-tax-rises-debt-modern-monetary-theory-mmt
On Twitter I made the point that Mitchell did not hammer Portes on crowding out etc
He should have done
It’s absurd to be arguing this in 2020
Eureka!
“Does the fact that the Treasury is borrowing from the Central Bank (in this model) cause any difficulty? No, because while private individuals can’t pay interest on loans by borrowing from banks–without that interest ballooning with further interest and driving us bankrupt–the Treasury can pay interest on Bonds to the Banking Sector by borrowing from the Central Bank because, technically and legally, the Treasury owns the Central Bank. It therefore doesn’t have to pay interest on any loans from the Central Bank If it did, it would get that money back in dividend payments from the Central Bank anyway.”
Quite so
I’m 76 and my memory ain’t perfect but I’m pretty sure Steve “got” MMT at least a couple of years ago. I viewed a lecture of his on Youtube a while back where he presented his model of MMT using “Minsky” and showed it to be consistent with his own approach.
Steve understood that governments create money when they spend and that banks create money when they lend. His main difference with proponents of MMT has been that he advocates debt jubilees whereas they generally advocate a job guarantee. Anyway if you feel like searching the “tube” for his lectures you will find that his agreement with the main points of MMT isn’t new, but is of course welcome.
Actually he did not get that – he has admitted he only got the government money creation but when reading The Deficit Myth
Good on him for admitting it
But he dopes say MMT has to change on bank credit creation – and I am interested in what he will have to say there
Here’s a link to Steve talking about MMT from 23 Nov. 2017. That he “gets it” is, I think, clear right from the start. I hope the link works – I got it from a search on youtube on the terms “steve keen mmt”.
https://youtu.be/J7YyarcTLGo
He says he didn’t – why dispute what he says? I think he knows best
Where do economic rents fit in here?
In what way?
They exist
MMT does not eliminate them
MMT describes how money works
IT changes power perspectives in that area
It odes not answer every issue
No one claims it does