Category Archives: Remix

A remix of other posts and articles [from others] so they cater for an Australian audience.

Can We Trust Politicians?

We are currently hearing the storyline – MMT is correct (although they don’t express it that way) but god save us if anyone finds out.

An MMT understanding allows us to appreciate that most choices that are couched in terms of ‘budgets’ and ‘financial constraints’ are, in fact, just political choices.

Given there are no intrinsic financial constraints on a currency-issuing government, we understand that mass unemployment is a political choice.

Imagine if citizens understood that!!

An MMT understanding lifts the ideological veil imposed by mainstream economics that relies on the false analogy between an income-constrained household and the currency-issuing government.

Households always have to finance their spending choices, through earned income, savings, asset sales or through borrowing. A currency-issuing government spends by instructing its central bank to type numbers electronically into relevant bank accounts.

All the elaborate accounting structures and institutional processes that are put in place to make it look as though tax revenue and/or debt sales fund spending are voluntary smokescreens, which serve the purpose of imposing political discipline on government spending.

Insiders know this, but actively decline to share that knowledge with the public.

There is also a growing claim that there is nothing new about MMT – that everything we write about is “well-understood” or “widely understood and acknowledged”. Further, apparently “everybody knows” and New Keynesians are “fully aware” that the government is not financially constrained.

It is very strange – if all the major features of MMT were so widely shared and understood – how do we explain statements from politicians, central bankers, private executives, lobbyists, media commentators etc, etc that appear to not accept or understand the basic MMT claims?

    • Where in the vast body of macroeconomic literature – mainstream or otherwise – do we see regular acknowledgement that there is no financial constraint, for example?

    • Why is there mass unemployment if government officials understood all our claims?
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    • It would be the ultimate example of venal dysfunctional politics to hold that that everybody knows all this stuff but are deliberately disregarding it – for what?
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    • Why do economists still claim that banks lend out their reserves?
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    • Why do they think that an asset swap (liquid for near liquid) engineered by the central bank will provide banks with more funds to lend as if banks wait around for deposits before they make loans?
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    • Why don’t papers on banking indicate that loans create deposits rather than engage in the fiction that it is the other way around?
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    • Why do economists still claim there is a monetary multiplier operating when bank reserves respond to broad monetary movements?

I could pose hundreds of like questions. I am not naive. I couldn’t answer any of these questions if the claim that everything MMT has proposed is passe in the extreme.

These sorts of claims then lead to statements that there is “nothing new” about MMT – is designed to discredit us and to suggest we are just a bunch of misguided, politically naive intellectual minions.

Please note that MMT does not include the word “new” in its descriptor. Also, if some person out there can find any literature written by one of the major MMT academics or authors where there is a claim that the theoretical structure proposed and integrated by the writers is “new” please let me know. (I wouldn’t waste my time by the way.)

The descriptor of import is “Modern” which like all descriptors can be interpreted in a number of ways. The way the MMT literature discusses the economy and integrates components from banking, the national account accounts, a deep understanding of the way bond, currency and labour markets work – is certainly modern.

It is clear that MMT writers borrow, absorb, integrate strands of theory dating back to Marx and before. There has never been a denial of that. But there are truly novel aspects of our approach that the vast majority of economists progressive or otherwise – who are slaves of the textbook framework – still do not understand despite the claims that everything is understood.

As we said at the beginning there is now a line of critics who acknowledge the validity of core MMT principles but think they are too dangerous for people to broadly share in that knowledge.

Why?

Because we apparently have reached a point in history where we hate dictators and eulogise the benefits of democracy (à la Churchill in the Commons on November 11, 1947 – “democracy is the worst form of Government except for all those other forms that have been tried from time to time”), but don’t want the politicians we elect to have the flexibility to advance our well-being.

Or in simpler language – “because we don’t trust politicians”.

This has been a long-standing view.

Remember the famous quote from American economist Paul Samuelson in the interview he did for the film – John Maynard Keynes: Life, Ideas, Legacy – where at the 52:50 mark into the film, he said:

I think there is an element of truth in the view that the … the superstition that the budget must be balanced at all times … aah … Once it is debunked … takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have … aah … anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by … aah … sometimes what might be regarded as myths into behaving in a way that long-run civilised life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year … in every short period of time. If Prime Minister Gladstone came back to life he would say ‘oh, oh what you have done’ and James Buchanan argues in those terms. I have to say that I see merit in that view.

This amounts to a world where the elites can manipulate the fiscal capacity of the state to advance their own interests (procurement contracts at will, bailouts when they mess up, etc) but if we want to do something about unemployment or poverty then the rest of us has to be held in this fictional world that appeals to our instincts of fear and uncertainty.

And, of course, we then are encouraged to distrust politicians and so it goes.

My view is that once we expose these myths, more sensible political discourse can take place.

And if we do not like our government – that is they go crazy with their spending capacity – then we throw them out of office (in Australia, every three years or so).

I also think that if the standard of political dialogue was improved, higher-quality candidates would seek election and push out the time-serving careerists who dominate all political parties.

It is an extraordinary world where we accept a deception because knowing the truth might require us to act differently.

I don’t accept that proposition. I believe that the truth will set us free and we will become more politically engaged and demand quality political behaviour.

So, can we trust politicians?  We can trust ourselves!!


This has been a remix of three of Bill Mitchell’s blogs for the State of Modern Monetary Theory today.

Australia’s Dangerous Myth of ‘Taxpayer Money’

  • This is a remix of the article by Raul Carrillo & Jesse Myerson for an Australian audience. The links are different (most, but not all). The original can be seen here.
There is no such thing as public money, only taxpayer money.” — Margaret Thatcher, 1983

“It’s all taxpayer money, it’s all debt, and it’s got to be paid back,” Prime Minister Scott Morrison speaking about the end of JobSeeker and JobKeeper COVID support scheme.

Australians would agree that taxpayers’ money can’t be used endlessly to run the Australian economy,” the Prime Minister told reporters in central Queensland on Thursday.

The Prime Minister by using the “taxpayer money” frame, they were spreading, however unwittingly (perhaps dog-whistling), a racist, sexist, classist myth.

Although most of us pay taxes of some kind, every time we say “taxpayer money” we prolong the illusion that society depends on certain kinds of people so we can have nice things.

Delton Clark: Transgender Aboriginal Sistagal
Delton Clark: Transgender Aboriginal Sistagal

One quick exercise shows why. Picture a “taxpayer.” What does one look like? A homeless Aboriginal trans teen? A Sudanese immigrant day labourer waiting to get on at the local abattoir?? A young mother trying to cobble together enough income to feed her family, while languishing on the Centrelink disability backlog? Unlikely. Let’s be honest: We know what sort of people “taxpayers” are supposed to be, and they’re not the ones we should be casting as the aggrieved parties.

Calling public money “taxpayer money” implicitly affirms that taxation is theft: If the money is taxpayers’ by right, what business does the government have using it for healthcare, jobs, or clean water? If we’re looking out for “taxpayers” and not the public as a whole, we are favouring wealthier groups over poorer ones—white people over Black people, men over women, Australian-born people over immigrants, and so forth. We’re hiding how the economic order relies not merely on the sacrifices of “taxpayers,” but the contributions of debtors, tenants, workers, and countless other actors. We’re perpetuating the politics behind the 1970s and 1980s demonization of “dole bludgers,” and Pauline Hanson’s One Nation movement—faux-populism that suggests the great majority rely on the wealthy, rather than vice-versa.

Not only is the “taxpayer money” frame damaging, but it doesn’t reflect how public spending actually works. A household or a business may have to stash or borrow money before it can spend any, but we are users of the currency. The Australian government, which is the issuer of the currency, works differently: Parliament votes to spend “new money” on something, then the Treasury and the Reserve Bank credit the relevant bank accounts, and…that’s it.

The government has spent new money into existence. Later, Parliament may tax “old money” back out of existence, but it isn’t collecting money in order to spend it. It’s “offsetting” earlier spending.  It may also “offset” spending in various other ways. Although Parliament taxes everyday people too heavily, calling public money “taxpayer money” makes as much sense as calling it “student debtor money” or “suspicious driver money.”

Look at a dollar bill, and you will see the signatures of its creators: not taxpayers, but the public officials who let the taxpayers hold it in the first place. Money doesn’t grow on rich people. We should heavily tax the billionaire class so we stop living in an oligarchy, but we don’t need private capital for public spending. The federal government doesn’t confiscate dollars and redistribute them. It uses its legal power to create and destroy them. 

Margaret Thatcher’s mantra was backwards: There is no such thing as “taxpayer money,” only public money. Modern money is a creature of the public, and we should use it for public power. We are all the public, and we each deserve a clear, equal say in how our economy and society work, no matter how much we each pay in taxes. It’s time to claim our democratic rights.

There is more than enough housing for the homeless, food for the hungry, and medicine for the sick. There is enough low carbon-emission technology to transform our energy system, quit exacerbating the climate crisis, and hire unemployed people all in one fell swoop. And there is more than enough public money to manage it all. 

Exposing hypocrisy may feel good, but it does little actual good. The people who primarily identify as “taxpayers” are Morrison, McCormack and the coalition’s base. Constantly repeating that their “taxpayer money” is being wasted only pressures them to violently defend their property, as the system encourages us to do under stress.

For over 40 years, Australian Laborhave chided the Liberal-National coalition for fiscal hypocrisy. What do they have to show for it? For over 40 years, the Coalition has controlled the conventional wisdom around budgets, successfully using the “taxpayer money” myth to force Labor to “starve the beast,” i.e., cut social spending to actually starve children, veterans, and many others. 

When we reinforce the right wing’s racist, sexist, classist frames in an attempt to expose hypocrisy, we lose. If instead, we root our politics in what is good and bad, just and unjust, moral and immoral, we can win.

MMT Does Not Advocate (or mean) “Monetisation”

Modern Monetary Theory in no way endorses “monetisation.” To the extent monetization is simply a name for quantitative easing (roughly, RBA purchases of long-term bonds), we either oppose it or find it only mildly effective and sometimes propose alternatives.

Whether it comes from Catallaxy, Rabobank or Saul Eslake, these ideas run rampant amongst the economics community.  Allow me to repeat, Modern Monetary Theory in no way endorses “monetisation.” At best we only find it mildly effective and have proposed other ways of achieving the same goal.

An example of an early MMT work that specifically criticizes even the use of the word monetisation is Warren Mosler’s Soft Currency Economics II, a paperback that is not too expensive at used book sites.

First, we believe that entities other than Canberra choose the form of Australian government liabilities through their investment, saving, financial-trading, and other choices.

Regardless of the public’s choice of assets, our central bank, the RBA, buys and sells assets to get its chosen interest rate(s). Of course, interest rates other than the cash rate are determined by other actors. The action of “the markets” (including huge banks) for bonds and other debt securities most closely approximate an uncoordinated supply-demand process. Unless, of course, market manipulation dominates there.

Critics across the spectrum have been gathering that the unique idea of MMT (perhaps because of its name) involves attempts to “pump money” into the system. This process would then likely generate inflation but would allow higher federal spending without tax increases.

In fact, as former Bernie Sanders aide and MMTer Stephanie Kelton puts it in her terrific new popular book (for example, on p. 36), you might as well think of bonds and money as “yellow dollars” or “green dollars”—more or less the same, except one pays interest.

Another place to find a good critique of the idea that deficits “pump money” into the economy is The Scourge of Monetarism by Nicholas Kaldor. In the writings in that 1980s book, Kaldor sought to dissuade British policymakers from an earlier round of fiscal austerity.

What MMT does is explain how the federal spending process works always. It does not call for a change in a method of financing. Moreover, the always-existing method of increasing spending does not require tax increases unless there is a macroeconomic need for them—say to dampen aggregate spending and cool down the economy. Hence, there is nothing magical about the number zero for the federal deficit or deficit increases. The federal government indeed never “pays for” new spending the way households or Australian States or local councils do. Hence, worries about higher deficits as such should not slow our crises responses ever.

This is a remix of Greg Hannsgen, Ph. D, UMKC graduate, Levy Economics Institute Research Associate post.  The original can be seen here.

The RBA cannot target level and growth of income (Wonkish)

John Quiggin recently wrote:

The first step should be a re-ordering of the Reserve Bank’s objectives to focus primarily on full employment rather than price stability. One way to implement this would be to target the level and growth rate of nominal income

April 1, 2020

APRIL FOOLS?! That’s what I first thought.

The following is a remix of a comment Tom Hickey made at The Economist in 2012.

MMT proponents argue is that there is a difference between money created by fiscal deficits and money created by bank lending. When the government issues currency into non-government it does so through the Treasury directing its bank, RBA, to credit non-government deposit accounts, e. g., to pay for submarines  or to pay the jobseeker payment or age or disability pension. The transmission from reserves to bank deposits is direct and does not depend on bank lending. Moreover, since there is no liability corresponding to the assets created in non-government in crediting these bank accounts, deficit disbursements inject net financial assets into non-government. Conversely, bank lending nets to zero since each asset has a corresponding liability, so non-government net financial assets remain unchanged no matter how much banks lend.

The reason that Nominal GDP targeting (NGDP) will not work is the flawed notion of the transmission mechanism from reserves to spendable bank deposits. When the RBA buys financial assets of whatever type, it simply increases bank reserves. The erroneous presumption about transmission is that that banks lend against reserves or lend out reserves. Neither is the case, as MMT points out. Rather, bank lend against capital based on demand from creditworthy borrowers willing to pay a rate that is profitable enough for the bank to risk it’s capital against. Increasing bank reserves does not spur banking lending and it does not affect the factors banks take into consideration in lending.

From this is simple to see why NGDP through increasing bank reserves, e.g., via quantitative easing (QE), will not increase effective demand and spur increased investment to meet it. The transmission mechanism is bank lending, which is in abeyance, and increasing reserves will not increase it as the failure of QE has shown. Unless the RBA would buy real assets like houses instead of financial assets like mortgage backed securities (MBS), it cannot not inject net financial assets into non-government, and there is no reason to expect an increase in effective demand due to increased bank reserves.

Australia is now in-effect at ZIRP (the support rate), as is the UK, Canada and the US and Japan have been for some time as have many others. This has done nothing either. MMT predicted the failure of these monetary policies around the world. It is time for fiscal policy to step up to the crease.

Ed: Thankfully that is what we are seeing in these Coronavirus time.

This has been remixed for an Australian audience. 

 

Who are the Real Job Creators?

Often we are told a growing economy would follow if only we relieved the terrible burden that the government has placed on the nation’s job creators: business. Were taxes and regulations relaxed, this would reduce costs sufficiently to allow business to do what they are already dying to do, which is to expand operations.

Even if we grant the argument that business taxes and regulations are high, this ignores two crucial facts.

Employees are a cost, usually the most significant one faced by firms.  For that reason, every rational businessperson’s goal is to reduce, not increase, the number of workers they have to pay. Businessmen and women have families, too, and they need to feed and clothe them. It would be irresponsible to do otherwise.

Second and more fundamentally, no matter how much you lower costs, if you don’t have more customers, you won’t hire more workers. If the demand for goods and services stays where it is today and we only cut industry taxes and regulations, there is absolutely no reason to think that firms would expand employment. Rather, they would continue to produce at the same level and simply earn higher profits. On the other hand, if we leave taxes and regulations untouched but increase demand, businesses will happily add workers. And that is the root of the problem today. The bottom line lost on many is that the real job creators are consumers. The direct route to reducing unemployment is boosting demand, not reducing costs.

Ask yourself this question: what do you really think caused businesses to lay off so many workers that unemployment jumped from 4.1% in January 2008 to 5.8% in October 2009 (remaining at 5.3% today and that’s not even counting others that desire more work), a sudden spike in business regulations and taxes, or a collapse in demand? It is impossible to imagine that anyone truly believes the former to be the case. In reality, the reason we are stuck where we are is because the willing workers lack jobs and incomes–something that will get markedly worse if we continue to try to cut government spending and balance the budget.

WE DEMAND AGGREGATE DEMAND!

This has been a remix of John Harvey’s article at Forbes magazine for an Australian audience!