Tag Archives: Bill Mitchell

Immigrants are People too

This post is written colloquially and comes from a comment I lifted from Bill’s Blog by Phil Lawn. I’ve spaced it out for clarity and left it outside of a massive block quote because it does indeed deserve a post of its own. Over to Phil.


For all those people who like to label anyone who sings the praises of low immigration as racist, immigration is a policy.

Immigrants are people. High immigration of mainly white people (deliberately) would be racist.

Low immigration of people regardless of their colour or religion would not. A low immigration policy favouring refugees (people in need) is not anti-immigrant.

Image from Animated Stats. The UK is #1.

I also dislike the fact that a high immigration intake of skilled people insidiously deprives many countries of the people they so badly need. Since a strong country should be able to produce the quantity and quality of stuff it requires (some international trade needed to alter the mix of goods), every country has as many people as it needs.

After all, every working person is both a producer and a consumer and thus adds nothing in net terms to the people already in a country. It simply comes down to a country appropriately educating/training and utilising the people it already has.

If people think Australia needs more skilled people, that is an admission that Australia’s education/training and employment policy is failing.

It also reflects that the wages on offer for some jobs are not high enough to attract people to take them on. Why do the ‘leave things to market forces’ advocates turn to the government every time they can’t get people to work for them?

A simple solution – offer higher wages. Once upon a time, when workers were better represented (unions and institutional wage setting), employers in this situation were forced to raise wages to obtain labour.

No wonder there is no wage growth anymore and certainly no wage growth while a country is importing hordes of skilled migrants, as Bill has pointed out.


We will let Bill have the last word ostensibly to demonstrate this is neither racist nor anti-immigratory.

The problem is that governments have not been prepared to use their fiscal capacity to ensure everyone has a job and so the labour supply has outstripped labour demand.

Modern Money: A New Hope

Originally published at the Australian Independent Media Network

Modern Monetary Theory (MMT) is not a trap but it is radical.

It shows us how to construct democracy in favour of the people and foster a better political discourse and shows that the policy space available is wider than usually assumed. This piece is a direct response to John Quiggin’s

and in its place Leia Organa’s distress message to Obi-Wan Kenobi that MMT is a new hope, writes Darren Quinn


Continue reading Modern Money: A New Hope

History: Modern Money Theory and Stagflation

Australian Real Progressives has written about full employment and the job guarantee many times previously.  What follows is a historical analysis of how the mythical NAIRU came into being and why Full employment, in the truest sense, was abandoned.

Via Bill Mitchell

Full employment gave tremendous advantages to the working class and allowed for upward inter-generational socioeconomic mobility – where children born into poorer families could aspire to transcend that social class and enter the more secure middle class.

And as capital became more concentrated – through takeovers etc, and, trade unions became more powerful, the two conflicting forces obviously gained increasing price setting power.

Firms set prices according to markups which reflected their expected profit return on capital and unions, representing their workforces, could exert power to gain wage increases.

As a result real wages mostly grew in proportion with productivity growth which reduced the likelihood of a realisation crisis (expenditure lagging behind production) but also reduced income inequalities and allowed workers to fast track into middle class life (and mass consumption).

But that increase in ‘price setting’ power brought a new propensity to crisis relating not to unemployment but rather to inflationary biases.

The – 1973 OPEC Oil Crises – triggered an inflationary spiral driven by the ‘battle of the markups’ (the conflictual struggle between capital and labour for real income shares).

The existing Keynesian policy consensus had really only constructed inflation threats in terms of demand pull events – where nominal spending outstrips the capacity of the economy to respond by producing more real goods and services.

There was some delay among policy elites in grasping what a raw material price hike (particularly one that is imported – such as the oil shock) meant when it interacted with the distributional conflict between labour and capital.

The point was that nations as a whole had to take a real income loss because an essential raw material they imported now took a larger share of nominal income.

So who would take that loss?

Capital didn’t want to take it, and, rather tried to pass it onto workers by increasing their markups and pushing up prices, thereby reducing real wages and the purchasing power of workers.

But strong trade unions were not keen to accept that profit push and ‘real wage resistance’ became a force, which was expressed in increased wage demands – thereby restoring the real wage cuts resulting from the price rises.

As both sides had price setting power, a price-wage spiral was easy to trigger and that is what happened.

Before long, inflation was accelerating away and governments, under the influence of the emerging Monetarist paradigm in macroeconomics, sought to cut net spending.

This resulted in rising unemployment coinciding with accelerating inflation, which we called ‘stagflation’ – the twin evils.

The rising unemployment was devastating but airbrushed by the Monetarists as being an essential ‘natural’ adjustment that we just had to tolerate to stabilise inflation.

And so the ‘natural rate of unemployment’ or NAIRU (non-accelerating-inflation-rate-of-unemployment) entered the picture and governments were told that there was no longer a choice to use discretionary fiscal expansion to reduce unemployment.

The only thing that would result from this strategy, we were told, was that inflation would continue to accelerate and only stabilise when the natural rate of unemployment was reached.

You can read more at Bill’s blog.  This is the most lucid explanation of stagflation from an MMT point of view.  It makes it clear that conflicting classes business and labour both had price-setting power and coupled with a supply shock that caused 70’s stagflation.  We are a far cry from that conflictual relationship today.

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?
  •  
    • Why do economists still claim that banks lend out their reserves?
  •  
    • 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?
  •  
    • Why don’t papers on banking indicate that loans create deposits rather than engage in the fiction that it is the other way around?
  •  
    • 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.

Progressives should not be apprehensive about MMT. Here’s Why!

Often we hear about how Modern Monetary Theory is neither modern nor monetary – I think this is a simplistic view.

We heard it from RBA Governor Phillip Lowe and similar from the former RBA Governor Ian MacFarlane.  MacFarlane certainly has a better grasp of MMT than Phillip Lowe.

I said the following on John Quiggin’s review of the Mitchell, Wray, Watts textbook:

MMT uses the word ‘Modern’ in a polysemic way.  ‘Modern’ is intended as Keynes used the word in A Treatise on Money and since the closing of the gold standard window in 1971.

It is monetary as in it is about how money instruments (currency) shifts real resources (not to be confused with monetary policy) and it is a theory in the scientific use of the word – an evidence-based framework.

Economists often seem unable to break free of jargon or the specialised definitions of their profession. The average person is likely to hear the everyday meaning of words like “government debt”, rather than the economic definition, which in this case would be “net money supply”. We need economists to communicate more directly if they are to enhance our education of economic topics that are constantly misrepresented in the media. For example, people probably think of all the following as “monetary stuff”: my bank deposit; the government securities in my superannuation portfolio (bonds); the (“fiscal”) spending by the government of the day. Yet economists would want to point out important distinctions between these phenomenon. We need simple, clear language to understand these distinctions.

Currently, the Modern Money view is being challenged by other progressives as noted here and parried and riposted here.

It has also been targeted as having an “anti-tax” agenda by some progressives.  Sure they add a minor nuance to it as “movement MMT” but once again I think this is a misunderstanding which once again I hope I have clarified above.

To repeat what I have said previously. Governments can increase spending as much as they like with no need for an offsetting increase in tax revenue or non-fiscal offsets if there is little to no risk of politically unacceptable inflation. This is what these people mean and is perfectly compatible with ‘academic’ MMT and is neither anti-tax nor about weakening workers power, it is about courage, compassion, connection, hope, optimism and empowerment of workers – those currently working and those that are involuntarily not working that desire to do so.

It is a little US-centric but you can see it demonstrated quite successfully by Stephanie Kelton here:

From about the 26th minute

We only need to be better than today’s unemployment policy choice.

There are also many that seem obsessed with taxation revenue instead of building capacity.

“…so it’s usual to speak of public expenditure being paid for by taxes (or, better, tax revenues)…”

To say this is completely misleading to all except but perhaps well-heeled economists. Even as Quiggin wrote and intended to mean “…Taxes are the primary instrument by which resources are transferred from private to public expenditure…” or any other economist that uses a similar phrase.

Saying it is paid by tax revenues gives the wrong impression.

Reframing from money’s ‘how will you pay for it?’ to ‘how will you resource it?’ makes it much clearer and shows money itself is no object [also the title of a Stephanie Kelton presentation].

This itself exposes it is not about an increase in tax revenues but about access to resources and thus resource constraints (inflation) which is detailed informatively by Scott Fullwiler, Nathan Tankus and Rohan Grey at the Financial Times.

Again to repeat myself. MMT’s foundational point is taxes drive the currency. The point about not increasing taxes or tax rates from proponents is that it may not be required to raise them to use particular resources, especially if they are currently idle.

We constantly get comments about revenue/tax revenue as well but revenue raised is  like a budget outcome is determined within the economic system.  We use the fancy word ‘endogenous’ for that.   As Beardsley Ruml wrote many years ago Taxes for Revenue are Obsolete and Tax Policies for Prosperity and he makes a very persuasive case.

Revenue raising evokes false frames for ways thinking about the Australian economy.