Tag Archives: Scott Fullwiler

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.

 

 

John Quiggin’s Modern Money Evidence Based Framework Review

John Quiggin has very kindly reviewed Macroeconomics by William Mitchell, Randall Wray and Martin Watts, an undergraduate textbook based on Modern Money Theory (or Modern Monetary Theory).  It is a very good review.

Quiggin begins with the headline ‘Modern Monetary Theory: Neither modern, nor monetary, nor (mainly) theoretical?

Perhaps such a headline was designed to be clickbait, as the headline has a more negative tone than the review itself.

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.

There are a few minor disputes I have with the review.  The review is very good up until this point:

“The second, which might be called ‘popular MMT’, or, more pejoratively, ‘vulgar MMT’, is a movement in which the statement ‘taxes don’t finance public expenditure’ is interpreted to mean that governments can increase spending as much as they like, with no need for an offsetting increase in tax revenue. This view was presented by pastor Delman Coates, speaking at the Third Modern Monetary Theory conference at Stony Brook University”

I think this is a misunderstanding. 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.

Which brings us to “Anyone looking for a defence of the claim that we can have a Green New Deal, or some other large-scale expansion of public spending, without any increase in taxation, will be disappointed,” which is fairly reasonable but it depends on what we include in the GND, what we don’t spend on, the use and access to resources we already have. It is a little US-centric but you can see it demonstrated quite successfully by Stephanie Kelton here:

From about the 26th minute

Overall, John Quiggin has presented what I would consider a satisfactory review of the Macroeconomics textbook. As Quiggin suggests some of the positions presented by the text are perfectly aligned within various existing Keynesian paradigms.  However, an issue with mainstream Keynesianism is that it never provides the clarity that MMT has. Even from John Quiggin himself, on MMT and Russia he wrote:

“…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.

Anyone a little MMT literate will not deny the use of taxes in an MMT frame, its 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.

I hope this has reconciled the differences between pop-MMT and Academic MMT.  Those that follow Modern Monetary Theory share a view with Joan Robinson about mainstream Keynesianism which she called ‘bastard Keynesianism’.  Modern Money Theory is a coherent attempt at reconciling Keynes view and other ‘modern’ views in the operational macroeconomic paradigm we work in today.

Repost: Five (5) Things To Read To Understand Modern Money (MMT)

This is a repost of the original Five (5) Things To Read To Understand Modern Money (MMT) that has since been treated and edited and appears on RealProgressivesUSA.com

There is ‘much ado’ in the media, from business and economic commentators, about Modern Monetary Theory. Everyone from Adam Triggs to John Quiggin to Michael Pascoe and Richard Holden and even Andrew Leigh seem to have something to say.

Anyone that wishes to comment on Modern Monetary Theory is best advised to go to a primary source of the Modern Money developers. These include Australia’s own Bill Mitchell and Martin Watts, as well as many scholars from the University of Missouri-Kansas City, Bard College in New York, and other institutions. The full list has grown to be quite long, and this could never do a comprehensive list justice, but those that should be viewed as a primary source include Warren Mosler, Randall Wray, Stephanie Kelton, Pavlina Tcherneva, Mat Forstater, Scott Fullwiler, Fadhel Kaboub, Rohan Grey, Raul Carrillo, and Nathan Tankus.

A number of simple articles and social media threads are out there to clear up some perceived confusion about Modern Money. None of the commentary below is intended to replace over 25 years of academic work, which can be found at the scholarly institutions.

The first is 20 Simple Points to Understand Modern Monetary Theory by Warren Mosler. Mosler has published several books, explaining these further in mostly simple terms, but grasping the full intent of these points is essential to understanding how today’s Modern Money works.

Next, Scott Fullwiler elaborates on the differences between currency creation and the expenditure of currency. This nuance is frequently overlooked in discussions of Modern Money. Fullwiler shows the effect on central banks and the interest rates determined by central banks.

Thirdly, there are a number of Frequently Asked Questions that I have researched. They are questions commonly asked by those who are discovering Modern Monetary Theory for the first time. These include links to the Modern Money scholars’ accessible works, and links to financial commentary in the media for further reading, on any particular question that anyone may desire to delve.

Rohan Grey continues this list, with mischaracterizations and misconceptions of Modern Monetary Theory. Grey dives deep into how Modern Monetary Theory is applicable to ALL countries, its relationship to the role of institutions, and how it affects economic behaviour and its relationship to the law.

Fifth and finally Raul Carrillo addresses some other typical criticisms of Modern Monetary Theory. Carrillo demonstrates that Modern Monetary Theory is rooted in legal, sociological, anthropological, historical, and cultural foundations. Modern Money can offer insights into what we generally deem to be beyond monetary & fiscal policy. Ideas about labour, banking, development, ecology, inequality, trade & payments have consistently been part of Modern Money thought.

These simple references are to allay any source of confusion, with what media commentators are calling Modern Monetary Theory compared to actual Modern Monetary Theory. It is a comprehensive body of knowledge that is a synthesis of chartalism, credit money, Godley’s stock-flow consistency, functional finance, endogenous money, Minsky’s financial instability hypothesis and the work of Marx, Keynes, Kalecki, Veblen and post-Keynesian and institutional thought.

The textbook Macroeconomics by Mitchell, Watts, and Wray is for those who would like a more scholarly introduction. It is the textbook of the future.

Seigniorage and a Buffer Stock of Net Financial Assets

So previously we discussed the weasel word seigniorage and what it means in a free-floating fiat currency exchange system. It also invokes the quantity theory of money which is easily debunked. However MV=PY is an accounting identity, true by definition.

Scott Fullwiler goes into some detail here about Net Financial Assets (NFA) and the quantity theory of money.


What did you think?