{"id":49254,"date":"2020-04-28T14:06:23","date_gmt":"2020-04-28T13:06:23","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=49254"},"modified":"2020-04-28T14:06:23","modified_gmt":"2020-04-28T13:06:23","slug":"why-mmt-a-discussion-with-warren-mosler-2","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2020\/04\/28\/why-mmt-a-discussion-with-warren-mosler-2\/","title":{"rendered":"Why MMT? A discussion with Warren Mosler"},"content":{"rendered":"

This post was first published in February 2018<\/a> on this blog and I confess I had forgotten about it. It seems worth republishing now.\u00a0<\/em><\/p>\n

______________________<\/p>\n

A few weeks ago I mentioned on the blog that\u00a0Warren Mosler had agreed to answer some questions on Modern Monetary Theory<\/a>\u00a0(MMT), of which school of thought\u00a0he is one of the founders<\/a>. Well over 200 questions came in as a result.<\/p>\n

I tried to summarise these and have sent some to Warren now. This\u00a0 Q & A is meant to be an overview of MMT. I am playing the role of sceptical enquirer: the questions I ask have to be viewed in that light. Warren has given short answers but has suggested he is open to answering responses. (NB: See the original post for these)<\/em><\/p>\n

\n

R: What is MMT?<\/p>\n

W: A description of monetary systems.<\/p>\n

R: What does MMT say money is?<\/p>\n

W: Today's currencies like the $, yen, euro, etc. are simply tax credits- the thing needed to pay taxes.<\/p>\n

R: But it\u2019s now widely though that banks make our money?<\/p>\n

W: Bank loans create bank deposits, under charter, regulation, and supervision of the govt.<\/p>\n

R: Can we trust them to do that?<\/p>\n

W: Only to the extent you trust govt. regulation and supervision.<\/p>\n

R: What, then\u00a0\u00a0is the role of central bankers?<\/p>\n

W: Setting the policy rates.<\/p>\n

R: And what is the role government come to that? And how do we stop there being too much money?<\/p>\n

W: Depends on the definition of 'money'.\u00a0 I suspect it's more about too much spending? That can be addressed by cutting govt. spending or cutting private sector spending by various means including govt. spending cuts, tax increases, increased lending standards, etc. etc.<\/p>\n

R: If tax is to stop inflation why do we get so worked up about it and what it does?<\/p>\n

W: Tax increases will reduce aggregate demand and inflation to the extent the inflation is being caused by excess demand. If that's not the cause- and it generally isn't- there are other tools for addressing price increases from those other sources. And it seems people dislike inflation more than they dislike unemployment?<\/p>\n

R: It\u2019s widely thought that \u00a0interest rates are meant to be used \u00a0stop inflation? What does interest do if tax stops inflation? Is there a good rate of inflation?<\/p>\n

W: Not that I know of.\u00a0 There can be a good economy in the context of both low and high rates of inflation.<\/p>\n

R: What does full employment really mean?<\/p>\n

W: For me the best we can do is offer a transition job to anyone willing and able to work to both promote the transition from unemployment to private\u00a0 sector employment, and to act as a more effective buffer stock for the price level than unemployment. At that point we are continuously at a form of full employment.<\/p>\n

R: What is the Jobs Guarantee?<\/p>\n

W: Another name for the above described transition job.<\/p>\n

R: Isn\u2019t that the same as `Universal Basic Income?<\/p>\n

W: No, with the transition job you have to at least 'sell your time' to get paid.<\/p>\n

R: But \u00a0isn\u2019t that just a money hand out?<\/p>\n

W: As above.\u00a0The value of the currency is a function of what you have\u00a0 to do to get it from the govt.\u00a0\u00a0It's a simple case of\u00a0 monopoly pricing.<\/p>\n

R: Surely what you\u2019re really saying is we\u2019re just going to pile debt on debt at cost to future generations?<\/p>\n

W: The public debt is the amount spent by the government .that has not yet been used to pay taxes, and remains outstanding until used to pay taxes in the form of cash, reserves, and\u00a0 securities.\u00a0Treasury securities are nothing more than time deposits of the currency at the central bank.<\/p>\n

R: If we don\u2019t need debt do we need money markets?<\/p>\n

W: Not for public debt or interbank lending.<\/p>\n

R: But aren\u2019t you ignoring the international dimension here?<\/p>\n

W: No.<\/p>\n

R: You say we don\u2019t need debt but we need the rest of the world. Won\u2019t they just trash our currency instead?<\/p>\n

W: What does that mean? Exports are real costs, imports real benefits. Real wealth is about optimizing\u00a0 real terms of trade.\u00a0 Currency fluctuations per se don't alter real wealth.<\/p>\n

R: I\u2019m still not convinced. What about the Weimar Republic, Zimbabwe and even Venezuela. Money printing didn\u2019t work so well there, did it?<\/p>\n

W: There problems varied. Weimar was about deficit spending for war reparations of approximately 5% of GDP per month and a massive loss of productive capacity.\u00a0Zimbabwe lost it's productive capacity, kept govt. spending as before, and the banking system was an open channel for corruption.<\/p>\n

R: And what happens to countries that don\u2019t have their own currencies? What does MMT say about them?<\/p>\n

W: They are disadvantaged.<\/p>\n

R: what about countries who cannot borrow in their own currencies, as many cannot?<\/p>\n

W: Example?<\/p>\n

R: Given all this, is MMT just some special case with no real use or does it really change the way we should think about the world of economics?<\/p>\n

W: It's the general case and will change how you think only if you don't already understand\u00a0 MMT.<\/p>\n

R: Convince me: what would a world where the economy was managed as MMT suggests look like? Could I spot the difference, and how?<\/p>\n

W: A form of continuous full employment is the likely outcome of understanding the monetary system.<\/p>\n

\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

This post was first published in February 2018 on this blog and I confess I had forgotten about it. It seems worth republishing now.\u00a0 ______________________
 Read the full article…<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[174],"tags":[],"class_list":["post-49254","post","type-post","status-publish","format-standard","hentry","category-modern-monetary-theory"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/49254","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=49254"}],"version-history":[{"count":0,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/49254\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=49254"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=49254"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=49254"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}