It took me a little while to realise I am what is now called a Modern Money Theorist. There's a good summary of this thinking here of which, perhaps, the core paragraph says:
The essential insight of Modern Monetary Theory (or “MMT”) is that sovereign, currency-issuing countries are only constrained by real limits. They are not constrained, and cannot be constrained, by purely financial limits because, as issuers of their respective fiat-currencies, they can never “run out of money.” This doesn't mean that governments can spend without limit, or overspend without causing inflation, or that government should spend any sum unwisely. What it emphatically does mean is that no such sovereign government can be forced to tolerate mass unemployment because of the state of its finances — no matter what that state happens to be.
I agree. Money is the servant of the real economy, not its master. It's time we appreciated that.
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MMT calls for a non political body to regulate the supply of new money.
I think it could also be done for the euro which is not the currency of a sovereign govt. but there would need to be broad agreement on economic policy. Given that it would release the eurozone from the economics of President Hoover and the policies of bailout and austerity which is, partly, to stop over extended banks from collapse.
The existing vested interests would lose their power and they will mobilise massive opposition to such a change. At the moment the media ignore MMT and the phrase ‘printing money’ is frequently used as meaning an ignorant, dangerous and irresponsible policy. If MMT begins to be discussed, the debate will become ‘dirty’.
The theory needs to become public and broader support gathered. One precedent is the Anti-Corn law League which used the new railway to send speakers all over the country. We have the web. The League campaigned on the effect of lower bread prices (and they could pay lower wages) and send more exports to countries who would pay with food to Britain. The losers would be the landowners who wanted high prices.
The ACCL had the sponsorship of industrialists who wanted free trade.
Who could sponsor the MMT campaign? I guess the 99% if we could be informed and organised. Again the web could work for it. Would you have your point to across to many, Richard, if we were still in the print era? Not impossible but more difficult I think.
Blogging was made for me!
MMT categorically does not call for any such independence from politics. The recommendations of the MMT economists is that the vertical money system (the government sector) is firmly under the control of the elected representatives in parliament.
For the fairly obvious reason that the alternative is somebody who is not elected by the people but placed there by some other pressure groups. Hence why we currently have the Bank of England (and the ECB) run by Bankers for Bankers.
Fundamentally those who pay the piper call the tune, and it is vital that tune is the one the people elected – for better or worse.
The Bank of England Monetary Policy Committee and the Office for Budgetary Responsibility are both committees made of up technocrats which are charged with responsibilities along the lines of what Richard Murphy refers to as “regulating the supply of new money”.
But according to you such committees will just act in the interests of commercial banks. Can you give us evidence that the MPC or OBR have acted primarily in the interests of commercial banks rather than in the interests of the country at large?
Would the numerous attacks on unacceptable commercial bank practices made by Andrew Haldane of the Bank of England be an example? Would Mervyn King’s demands that we deal with the too big to fail to subsidy be an example?
If anything it’s POLITICIANS who act in the interests of commercial banks. The main contributor to Obama’s election expenses is . . . Goldman Sachs. And who funds the Tory Party? It’s the criminals and fraudsters who run large banks.
And its no good saying we can vote the current lot of morally corrupt politicians out of office because the next lot won’t be any different.
Some Monetary reformers say that we are constrained by resources only. But they say that the present system forces us to use more resources than would be necessary under a debt free money system, because we are continually paying off compounding interest to a rapacious banking system. This therefore creates more economic activity than necessary for wellbeing. Paul Grignon describes this well in “Money as Debt” part II, free on you tube. James Robertson’s quest for monetary reform is in part an environmental issue.
We only need to be careful with money because it lays claim to the earths resources, but the present system actually makes it worse.
Michael Hudson is more cynical as he thinks money is diverted to “Wall Street” rather than constrained, and austerity is imposed on the rest “because the rich want it all.”
To him, it is unfairness, not constraints on money. The quantitative easing is the evidence here, of course.
Grignon’s videos are nonsense. See:
http://ralphanomics.blogspot.co.uk/2012/12/paul-grignons-flawed-videos.html
Care/Green service jobs are resource light and ensuring a living income with decent housing, energy efficiency helps too.
Poverty can lead to environmental degradation.
Hans Rosler is interesting on this!
Fantastic news to hear that you have ‘come out’ !!
Oh, is that what I’ve done?
Doesn’t feel that big….
I know what you mean… I thought that MMT was more or less what we had prior to TINA but the reaction is always as if it is the height of heresy whenever someone actually ‘comes out’ and says that they support it!
http://think-left.org/2013/02/26/economics-in-crisis-it-needs-a-reformation/
Those interested in learning more about MMT should visit New Economic Perspectives at http://neweconomicperspectives.org/. There is a wealth of research, and facts that build a framework of understanding of how economies really work that is easily understandable. Here’s one, the last seven US depressions were immediately preceded by public surpluses. The Clinton Surplus causing Great Recession was only slightly delayed by massive private sector borrowing, which of course made it even worse. Cheers, @jmdenn
Are you sure you want to join up with the MMT loony’s?
Is our currency no longer a store of wealth but a plaything for the latest social policy?
If MMT is so wonderful, with the answer to everything, then how come no Country has adopted it?…..Why are they waiting?
The neutrality of money should be preserved, not twisted in order to achieve economic policy you could never get the democratic vote to enable. Savers and foreign investors have rights too………Even (dare whisper it!) the wealthy have rights….
I think your ideas are the loony ones
Money is debt and it’s just a tool….stop living some fantasy
Well if I am loony then I am in good company………
After all Paul Krugman also finds MMT completely loony as below…
http://krugman.blogs.nytimes.com/2011/08/15/mmt-again/
Mmmm……So on one hand I have a Noble prize winning economist and the other a TUC sponsored blogger……tough call on that one!
I have not signed up lock stock and barrel toi anything
It so happens my own thinking has brought me into a space like MMT
Krugman has many weaknesses – he would not have got the Nobel without doing so. The first is he still buys much conventional economic logic. Note what he says – he does not want to tear up the text book. That’s the conservative economist coming out. It’s served him well, he does not want to think again
He sometimes gets to the right place using his models. But no model is universally right
Krugman attacked MMT straw men, repeatedly. Very intellectually dishonest of him I might add. It wouldn’t matter if he had a small following, but he’s a heavyweight, and lots of people get turned off to MMT based on what he says about it. See an MMTer’s response to Krugman here.
http://neweconomicperspectives.org/2012/04/krugmans-flashing-neon-sign.html
Paul Krugman is still trying to deal with equilibrium theory
An economy is just never in equilibrium – therefore the tools he uses cannot describe the operation of the real world.
Equilibrium is an absurd concept…..
Always was
“Money is debt”
An interesting alternative view, put forward by Chris Cook, Michael Kumhof and others, is that government-issued currency is actually a form of equity, rather than debt – and that what we currently call “government debt” could potentially also be described as equity, rather than debt.
This doesn’t actually contradict MMT in any substantial way – it’s largely just a different way of describing the same thing. However, “equity” is a far more appealing word than “debt”.
What everyone forget in this is debt is also an asset
Eliminating the debt means eliminating the asset
Paul Krugman is comming around to a lot of MMT viewpoints. Perhaps incrementally. For him to do so “full monte” is hard b/c he’d have to admit that he was wrong.
Supposedly there is going to be a debate with Paul Krugman or Jared Bernstein versus Stephanie Kelton on “Is there a long term deficit problem” . Should be really really entertaining. Don’t see how Krugman/Bernstein are going to win that one. Hopefully , Dr Kelton brings Mosler or L.R Wray along for reinforcements.
You ask why no country has adopted MMT. If you watch a recent film called “The Four Horsemen” in it you will hear Joseph Stiglitz state that the finance industry in the USA has five lobbyists per Congressman. In the UK the Tories get over half their donations from the finance industry. This is a good clue, the debt based money system is their golden goose. Perhaps it would stand a better chance if we had some real statesmen again.
Re Krugman.
Krugman is a great economist, no doubt, but appeals to authority are never a good way to win an argument. Even the best can be wrong sometimes. I think Krugman’s opinion has shifted somewhat since he wrote the blog you link to, but in that blog, he says a number of things that are just incorrect. Banks don’t lend reserves for example. Ever. Deficits financed by money issue are not more inflationary than deficits financed by bond issuance, because the standard money multiplier description is false. The causality runs the other way.
[1] MMT is an operational description of how money works. A country “adopts” it when that country decides to use money. [2] Paul Krugman is a New Keynesian. That’s essentially a nice name for saying he’s a monetarist but not a supply sider. Paul frequently says things he’s learned from MMT, but he is haunted by an inflation ghost that simply isn’t there, much like most other people who have had Milton Friedman’s crap beaten into their heads for three decades.
I agree with Richard Murphy: the other Richard is all over the place.
Few notes on MMT –
Prominent institutions inc UMKC (http://www.cfeps.org/ ), home to Prof Wray, and Dr Kelton, the Levy Economics Institute of Bard College, both in the US, Cambridge Centre for Economic & Public Policy, here in Blighty, and University of Newcastle’s CofFEE, in Oz. Three of these are part of EPIC, a coalition : http://www.epicoalition.org/links.htm.
Wray’s (2012) ‘Modern Money Theory’ is a very recent, readable primer. Dr Kelton is the founder editor of New Economic Perspectives, and originator of the ‘Deficit Owl, Hawk, Dove’ shorthand. This maps more or less to Dr Galbraith’s ‘backwater, freshwater, saltwater’ quip, and helps put into context most pundits called upon in UK media (mainstream = freshwater or saltwater, meaning U Chicago or East Coast unis in US and leading voices like Prof Krugman). The ‘owl’ perspective is usually missing, which is unfortunate given it is arguably better substantiated and has roots in UK (Keynes!!!!!)
Richard – should appeal to you particularly as a lot of it concerns the accounting identities that describe the macroeconomy.
Will buy the book
There’s also “Understanding Modern Money” (also by Wray), which is an earlier and perhaps better book. The large number of MMT papers can be read online and the books are also available at the LSE library.
Prof. Bill Black at UKMC is the man for accounting fraud. His book is ‘The best way to rob a bank, is to own one’. Former US regulator involved in the successful prosecution of S&P fraud… he identifies the race to the bottom in the criminogenic environments of Wall St and the City of London (the City has won!).
http://neweconomicperspectives.org/2013/01/neps-william-black-in-davos.html
Richard, if you are interested in MMT, be sure to check out Bill Mitchell’s blog (http://bilbo.economicoutlook.net/blog/). He’s an MMT economist.
I first heard him speak back in late 2010 and was blown away by these ideas. Now I’m a true believer. 🙂
Check out his posts on the eurozone(http://bilbo.economicoutlook.net/blog/?cat=18 )
and on Britain (http://bilbo.economicoutlook.net/blog/?cat=29)
Richard,
So pleased to hear that you, an economist and an accountant, believe in in what MMT is saying. Five years after the crash, the entire mainstream economics profession still stands shamed for not foreseeing it. That is apart from those few outsiders who in the main did NOT abstract away money and debt in their models….
“Before the 2008 financial crisis hit (and, ironically, afterwards) MMT was frequently criticised for being more accounting than economics. A meta-study of the academic literature to find economists who predicted the crisis found just thirteen people worldwide. The common element to their work was an emphasis on accounting.”
Ref. http://shmookey.net/flowoffunds.pdf
By the way I’m sure you’re well aware but Krugman was widely criticesed for his misunderstanding of Steve Keen last year. Not least by leading MMTer’s (even tho they are not quite on same page as Steve they are very much closer to him than Krugman – all being non-neoclassical economists)…
http://www.nakedcapitalism.com/2012/04/scott-fullwiler-krugmans-flashing-neon-sign.html
Finally to touch on the slight tricky MMT issue for this blog – that government tax does NOT fund government spending. You might find Bill Mitchell’s thoughts on off-shore tax havens interesting…
http://bilbo.economicoutlook.net/blog/?p=20337
The important line for taxation is that taxation does not fund government spending, but what it does do is prevent other people making claims on the same real resources.
It’s also important to distinguish taxation for macro stability from taxation used to deal with externalities (which we Brits tend to call levies or duties anyway) and taxation for pure redistributive purposes (because market forces don’t equalise income efficiently).
A different name for each type of deduction would help. Calling everything ‘tax’ just leads to confusion.
I think the understanding is important
Since many taxes are dual purpose I am not sure saparate names would help
An economist AND an accountant? No wonder the fondness for MMT. MMT is simply double-entry bookkeeping applied to the macro economy. For some strange reason, macroeconomists have never thought to simply balance their books before MMT came along. No doubt they tossed the idea out when their theories wouldn’t balance, assuming the problem was with accounting, and not with their theories.
Modern Monetary Theory gets the accounting of government correct, but MMT needs a Modern Fiscal Theory to go with it.
If you create masses of new money and spray it around New deal style by paying everyone to do meaningful work (like creative and cultural excellence and caring for each other and the planet) then that’s brilliant, but you should also abolish means tested benefits and pay everyone – as of right – a National Dividend which such meaningful work would merely top up.
You must also address the inevitability that this influx of Labour-based money into the economy will lead to sky-rocketing rents on property rights – whether on real property or IP – which are currently absurdly concentrated, and this will lead as night follows day to even greater inequality of wealth unless the fiscal base is switched from labour to privileged property rights.
Fiat currency is indeed essentially pre-paid tax as my article last Sunday in the Sunday Herald outlines, but it is necessary to go beyond mere accounting to the legal relationships involved.
http://www.heraldscotland.com/business/opinion/the-myth-of-debt.20441666
As I write there, the National Debt is and always has been a National Equity – just not the iniquitous form of absolute ‘Divine Right of Capital’ Equity we are used to.
Two thirds of today’s fiat money supply is based (through mortgage credit created by banks) on capitalised property rental values and it cannot be replaced purely by money with fiscal base levied directly and indirectly upon the value of labour.
You need MMT to get a rational debate about the merits of fiscal policy.
I think MMT is doable with LVT and public purpose investment in public infrastructure, social housing, Bill Mitchell has done stuff on austerity cost inflation and the importance of government reducing ordinary people’s living costs, harking back to Classical Economics appreciation of the dead hand of oligarchic rent extraction on competitive markets and a vibrant life for ALL of us, the egg-sperm lottery lucky few inheritors and wealth taker/hooverers.
Welcome on board Richard.
Now how do we get this obvious point across to those in parliament before they sacrifice any more of our young people’s futures to the Gods of the Balanced Budget?
Richard said “If MMT is so wonderful, with the answer to everything, then how come no Country has adopted it?…..”
Actually, every country that issues its own currency and floats it has adopted MMT. Unfortunately those in charge of running the game do not understand the rules of the game. And here we are.
I think that’s right