Prof Mariana Mazzucato telling it like it is, and effectively summarising modern monetary theory whilst doing so, on Newsnight last night:
“This whole notion that you run government like you run a household…is a complete myth”
Economist Prof Mariana Mazzucato tells #Newsnight Government's should address social issues through taxhttps://t.co/P0zxS1DNGF pic.twitter.com/I6NLtXgDqN
— BBC Newsnight (@BBCNewsnight) March 6, 2023
Such opportunities come rarely. She grabbed it. If only some politicians took note we could transform people's well-being.
So, a poll to encourage debate. You are allowed two votes:
Is Mariana Mazzucato right?
- Is the national economy nothing like that of a household? (51%, 485 Votes)
- Is the difference between the national and household economy the state's ability to create money? (47%, 450 Votes)
- The state is merely the custodian of taxpayers' money and must balance its books as a result? (1%, 13 Votes)
- Should the national economy be run like that of a household? (0%, 3 Votes)
Total Voters: 582
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How did Germany create 100 billion for the war effort if Germany is not a currency creating state?
The ECB does not remove money making authority from central banks of member states
It does limit it
Thank you for that little piece of info – I did not know that!
Has any state ever tested the ECB’s resolve on limiting their currency creating abilities? Are there favoured states? (I have a suspicion that the answer is yes…)
I guess this is where having one currency over a large collection of countries can be an issue.
I’m working it through in my head…
One country prints considerably more money than they “should”
Now there’s too many Euros. Other countries have to tax more aggressively to avoid too much inflation? But only if the money is “spent” on non-productive activities?
Or is the real risk devaluation of the Euro, which buggers up everyone’s (ex-EU) import costs?
I feel like more countries means more stabilising actors.
Tricky. But it’ll be a thought experiment living in my head rent-free for quite some time.
Feels synonymous with the SE England/ rest of UK divide
I don’t know the answer to that
Thanks for that piece of information which I did not know.
I feel I have a decent understanding about the capabilities of a fiat-money state thanks to this blog and gimms.
But I realise I don’t know how a currency using state, like Germany, works in equal detail. I assumed it was tax or borrow to finance spending.
Any recommendations on a document to explain the details on Germany?
Sorry, none
Try Google
Whether the country is currency issuing or not; it seems (at least in the eurozone at the moment) that it doesnt matter. The government spends money the same way. The political spending and debt targets set out by the eurozone are not legally binding. But can be legally binding if the European council (heads of state of member governments) decide that they are. The banks in Europe are legally required to complete the transactions that the government tell them to do.
Off topic completely- (maybe you need a button to just send you some comments?)
Should private equity be banned from having any role in health and social care? Latest issue is ALL of Lloyds Pharmacies being under risk of sale / closure.
https://www.mirror.co.uk/money/lloyds-pharmacy-puts-1300-branches-29362384
I think that one would be too easily abused
But thank you…
She’s absolutely right about funding war – if we can fund wars against external enemies, we can wage war on domestic social and environmental problems too.
There is simply no excuse on a rational level at all to not do so.
I had to watch it twice and still think Professor Mazzucato was cheekily trolling the viewers and talking about how Germany funded the war in the ’30s when it had its own currency.
She did not
The sums are wrong
And she is not that stupid
But I think your time here is up
If we were to put MMT into practice, the bankers would go back to being servants of the economy as they were, to an extent, in the 1950s and 60s.
Banking has been international for over a century but has become much more so since 1971 with the end of Bretton Woods. It often has more power than many elected governments.
People are reluctant to give up power. Opposition to MMT is driven by the power of obsolete paradigms but INHO the strongest opposition will come from the bankers.
You may well be right
Surely MMT is “in practice” in every State that meets the basic criteria: sovereign, fiat-currency-issuing, central bank, debts denominated in own currency, goods and services including labour available to purchase in own currency.
How it’s used to steer the economy depends on the government’s-ism, though. It’s neither fascist nor socialist.
I keep getting deleted or thrown off Facebook groups for pointing out that MMT doesn’t have an agenda, but that understanding it can confound those who do have an agenda.
People are frightened of modern monetary theory
I don’t know why
That is pretty strong point – ‘we can do it for war why not for the war on want?’ – maybe we dont have to be lured into an ‘MMT yes or no?’ debate – but just around the simple point that, as she says, governments create money all the time, so why not for the good things?
Even Paul Johnson of IFS and/or David Smith Sunday Times, have to address that issue head on.
Very good
I may muse on that
Good morning
I asked ChatGTP* to ‘tell me about modern monetary theory’ an hour or so ago.
‘Modern Monetary Theory (MMT) is a macroeconomic theory that challenges traditional views on government spending and taxation. MMT asserts that a sovereign government that issues its own currency can always pay for its spending by creating new money. According to MMT, taxes are used to manage inflation by reducing the amount of money in circulation.
The basic premise of MMT is that a government that issues its own currency does not face the same financial constraints as a household or a business. While a household or business has to earn or borrow money before they can spend it, a government can create new money by issuing debt or printing money. MMT proponents argue that as long as there is unused labor and resources in the economy, the government can always create more money to fund public investments, social programs, and other priorities……..’
…and so on.
An hour later, I’m still finding out how deep this particular rabbit hole goes…..
For those that don’t know, ChatGTP is a free to use AI chatbot. Its still in development, but it’s extremely fun to use and whilst not perfect, maybe gives an insight to the world ahead of us (its available through the https://openai.com/ website. Dont use any apps declaring they are ChatGTP.
No connection btw. Have fun!
David
That is not a bad summary
I have ever yet succeeded in getting onto ChatGPT
‘I have ever yet succeeded in getting onto ChatGPT’
It’s a lot of fun – it makes the likes of even me seem smart :-). Maybe the direct link to the chatbot will work better https://chat.openai.com/chat
‘how does modern monetary theory manage inflation’
‘Modern Monetary Theory (MMT) is an economic framework that challenges the conventional thinking about government spending and taxation. According to MMT, a government that issues its own currency can never run out of money, and therefore can always afford to pay its bills, including social programs and infrastructure investments.
In terms of managing inflation, MMT suggests that government spending should be adjusted according to the level of inflation in the economy. If there is low inflation or deflation, the government can increase spending to stimulate economic activity and create jobs. However, if inflation starts to rise, the government can decrease spending or increase taxes to cool down the economy and prevent inflation from spiraling out of control.
MMT also emphasizes the importance of ensuring that resources are being used efficiently and effectively. This means that government spending should be directed towards projects and programs that create real value for the economy, such as investments in infrastructure, education, and research and development.
Overall, MMT views inflation as a result of a mismatch between the supply and demand of goods and services, rather than solely a result of the money supply. Therefore, managing inflation requires careful consideration of the overall state of the economy and its resource utilization.’
I have finally got on
What I have found is it is really good for arguments supporting the status quo.
I will play with it
Just a note: I can’t validate this, but it has been reported that ChatGPT has generated article references with the same aIgorithm it uses to generate the main text. If you rely on references, check first that they are genuine and linked to proper academic sources. https://twitter.com/ChrisBettles1/status/1630176317915246594?fbclid=IwAR3Tihd92HfaP-9ZEL3wNh1kFrKejHb8Bd6GlVOtI16Q7LW2ERcNh0Gkzis
Noted, and I suspect true.
I played around with ChatGPT for a while when it first came out. Since it “learns” from user input it can be poisoned with false information.
I and a couple of others spent a couple of days teaching it to answer the question “Why is a mouse when it spins?” with “Because the higher the fewer!” Reportedly there is a team employed full time on catching false information but it took over a week for this to be found.
On reddit there are several threads in which ways of tricking it into doing things such as using obscene language that it is supposedly programmed to avoid.
One worrying development is that some people are now quoting it as an authority.
I will discuss this in a blog very soon
There is a Video on YouTube called the spiders web that explains how the economy works.
Apparently the Boe printed money, lent it to banks who lent it to house buyers which drove house prices up. If I understand, the housing bubble was created.
I warmly recommend it
I was meant to be in it but the timings did not work
Mariana was great. She was always very astute on MMT and the role of govt and govt spending. Her verbal explanations were always good but her advocacy is getting better and better. She was very clear and very to the point. But Kirsty and Gauke were in a bubble of their own. It all passed them by. But I am sure Mariana is well used to that. The wheels grind slow but they are certainly grinding.
She and Stephanie Kelton know each other
Just tried chatGPT – really impressed with what it can do to remind you of the stuff you may already know but need a reminder. Talked about measures of poverty – absolute and relative and combined measures – and sources – pretty good indeed.
Then for something completely different – John Keats friends and where they lived – seems to cover it very well – and drillling down further into a minor friend living in an obsure suburb.
Likely to be pretty useful.
I might do something on this in the morning
I’ve been asking it about MMT and the Job Guarantee. As you say, a useful reminder of how it all interacts.
I am still hearing of various countries having to approach the IMF for loans. Why is that ? Why can’t every country create its own currency? Even those who borrow or peg their currencies to the dollar or other currency… why do they need to do it? Or if they are in debt because of this why cant they just decide to start issuing their own currency and pay it off?
Countries borrow in a foreign currency when no one will lend to them in their own. This is economic colonialism at work. The IMF and World Bank should lead change on this.
Of course, Prof Mariana Mazzucato is correct in calling the household budget analogy a myth and we know that Rachel Reeves worked at the Bank of England – we’re told often enough.
She’s smart enough to know that the household budget comparison is nonsense and that Tax doesn’t pay for Government spending.
So what reason could Rachel and the Labour Part have for persisting with this myth?
I’ve never thought that Rachel Reeves was very bright. She has always seemed a bit dim to me. And Starmer has always given the impression of have some difficulty of thinking outside his own particular box, whichever one it is. By this, I do not mean to contend that he does not change his thinking over time, just that it seems to be limited at any given time.
Its well worth subscribing to Prof Mazzucato UCL website
See a recent public lecture on Austerity
https://www.youtube.com/watch?v=b4o0-Dxe4ko
She was also brilliant on Bloomberg yesterday.
A prescient response to current handbag economics?
https://ponderwall.com/index.php/2019/06/29/neoliberalism-fairytale-money-bank/?cn-reloaded=1
Mary is good on this