Tag Archives: Steven Hail

Hamilton Holden Hutley Hound MMT

In April 2020 the Economic Society of Australia (ESA) held a webinar about the Australian Government’s fiscal response to the COVID Crisis. It included economists Steven Hamilton, Richard Holden, and Nicki Hutley facilitated by Shane Wright. Towards the end of the webinar, there was a Q&A, and questions were asked about Modern Monetary Theory.

As you will see we get the usual misinformation that its printing money; that QE is printing money; that it is printing money indefinitely and; there’s a Debt to GDP ratio limit (per Reinhart & Rogoff); as well as worry about the credit rating agencies; and the hyperinflation argument.

Nicki Hutley

Stephen and Richard will answer this question far far more theoretically than I will.
You know I’m following the debate interestingly and I love reading Krugman who’s just so into this and he’s very animated at the moment.

I like to call it magical monetary thinking. There are certain assumptions that you need to have for MMT to hold true; and one of them, obviously, if you look at Japan you could say well 200 percent Debt to GDP you know not not harming them.

There are a few things and there’s the Rogoff and Reinhardt study that sort of says when you get to a certain level of Debt to GDP it has an impact on your long-term growth for a start.

There’s also this assumption that everybody will that there won’t be some confidence effect, that rating agencies won’t come in and increase the price of your debt – that you can just keep wearing down the debt through growth and because growth is higher than the level of the interest rate and that is not always true. It might hold true for a while but it won’t hold true permanently. It’s a bit magical thinking to believe that we could suddenly, suddenly the world is completely different from everything that economic theorists have have held true for a long time.

[I’m] not saying that these theories don’t change over time but I’m certainly not convinced.

Steve Hamilton

Here’s all I’ll say as far as I can tell I had to ask someone what MMT was not that long ago.
to be honest with you as far as I can tell it’s a combination of two things. A set of things that almost every economist agrees with and then a set of things that almost every economist thinks are totally insane.

Right! So if we deal with the first group first it’s not news that there’s a thing called the inflation tax; like yeah of course we can fund anything we want by printing money that’s not news; you could do that but you’ll pay for it in inflation.

I think there is a set of MMT proponents that sort of it’s have it’s essentially an empirical question there’s a set of MMT proponents that think you can do it without an inflationary consequence and I think to me at some point inflation has to bind right otherwise you just print in infinite, infinite amounts of money and and we have to agree that some point inflation is going to bite.

So I kind of think we don’t need to think about MMT so much we can just say yes it makes sense the Reserve Bank uh is is is is doing its darnedest to keep buying bonds through QE right and in the short run we can get away with this printing money to pay for these kinds of assets without sparking inflation and I 100 per cent agree we should do that; but to do that infinitely and forever, I don’t know. I suspect Richard has a similar view.

Richard Holden

Let’s be clear QE is not MMT. And you know Phil (Lowe) was at pains to make that point yesterday that they’re buying on the secondary market they’re not just printing money they’re buying bonds. Right Japan issues bonds okay. The MMT folks say you don’t need to issue bonds you can just print money.

I think the way to think about that is the government’s balance sheets got a balance. What’s on the asset side the present discounted value of all future tax revenue that they can collect. What’s on the liability side? There’s bonds and there’s money. Okay now you can always issue more liabilities to cover liabilities but what happens if people think the market thinks you’re not being able to cover that at some point on the asset side with future tax revenues?

Well, the price of money falls – so what does that mean, it means inflation goes up right!? So that’s what’s sometimes known as the fiscal theory of the price level.

And the empirical evidence none of these MMT folks like it when you say Weimar Germany or Venezuela or Zimbabwe but you know try try France in 1981 under the Mitterand government that try
to put their feet their sort of toe in the water on this and inflation started getting out of control very quickly and had to reverse course or Germany under Gerhard Schroeder in 1998 same sort of thing

so um I think as Steve said the idea that
deficits that we can’t have like you know 80 per cent or 90 to use the Reinhardt Rogoff number Net Debt to GDP and some; there’s some magic number in which case it all falls apart that’s clearly wrong the idea that we can’t have a strong fiscal response is silly.

The idea that we can print money not issue bonds um and get away with it indefinitely that really is silly

Holden improves from his piece at The Conversation called “Printing Money is not the solution to all economic ills” and that is a genuine positive as it shows an evolution in his thought. I say he improves because unlike others he recognises that QE is not MMT. Unfortunately they all seem to be a little obsessed with seigniorage.

Please follow the links throughout this post as they correct the misunderstandings these economists have.

In fact, nothing described by any of these economists even resembles MMT. They would all do well to read the Explainer: What is Modern Monetary Theory?

Australian Economists and Modern Money Theory

Australian economists and others are finally entering the public discussion on Modern Money(tary) theory.  It is welcome.  Below are the tweets that inspired this post (re-post).  The post itself comes from Andrea Terzi whom you can follow on twitter @ndrea_terzi.

Australian Real Progressives has previously dealt with many misconceptions about Modern Money(tary) theory.  Australian audiences should have discussions with Bill Mitchell, Martin Watts, James Juniper, Phil Lawn, Rohan Grey and Steven Hail to discover the nuance and complexities of Modern Monetary Theorists and how it differs from ‘smart traditionalists‘.  Hopefully, the post below goes some way to addressing the differences.

The Civilized Money View (aka MMT, or Modern Monetary Theory) has historical precedents:

First, the notion—developed by Adam Smith—that the wealth of a nation is measured not by monetary values, but by its capacity to produce goods and services.

Second, the notion of money—developed by John Maynard Keynes—that any modern state claims the right to declare what money is.

While Smith’s concept hints to full employment as the primary policy objective, Keynes’s concept hints to the management of money as instrumental to reach such objective. Furthermore, MMT explicitly recognizes that the currency itself is a public monopoly.

This leads to an appreciation of the monetary system fundamentally different from the traditional Monetarist-Keynesian paradigm.

What follows is a summary of eight key differences between these two models: the Monetarist-Keynesian paradigm (MK) and the Civilized Money View (or MMT)

MK – The central bank controls the money supply indirectly through its power to control the monetary base.

MMT – The private sector uses bank deposits as money, and bank deposits are not directly controlled by the central bank: they get created by government spending and bank loans.

MK – Because the central bank controls the money supply, it also controls the nominal interest rate in the money market.

MMT – Because it is the monopolist of money, the central bank controls the interest rate.

MK – The long-term nominal interest rate is determined by private preferences about real saving and investment, as well as by inflation expectations.

MMT – The central bank has the power to control the interest rate at any maturity: the interest rate is a purely monetary phenomenon.

MK – A monetary expansion can expand output and employment temporarily and yet, at some point, it generates inflation.

MMT – Any operation by which the central bank buys or sells financial assets does not make the private sector any richer and has little or no consequence on private spending decisions.

MK – Government decisions are largely driven by short-term personal goals of politicians, and thus the management of money should be the responsibility of an independent institution with a long-run horizon.

MMT – While monetary policy can only set interest rates, fiscal policy is much more powerful, since any deficit of the public sector generates an equivalent financial surplus of the private sector, and thus affects spending decisions.

MK – Taxes serve the purpose of financing government spending.

MMT – Because government spending takes resources off the private sector and simultaneously generates income and wealth in the private sector, it will cause inflation from excess demand unless a sufficient amount of taxes is levied on the private sector.

MK – If the government spends more than its tax revenue, it must borrow funds from the private sector, and this reduces funding to the private sector.

MMT – Unless it loses its power to define what money is, the government is the currency issuer: It faces no funding constraint, and it must spend or lend first, before the economy has the funds needed to pay taxes and buy government debt.

MK – Price stability is a precondition for economic growth and job creation.

MMT – A government deficit of a size that matches the private sector’s desire to accumulate financial savings is a precondition for full employment.

This post is Creative Commons Attribution-Noncommercial-Share Alike 2.5 Switzerland License and I dare say any other country as well. It first appeared here via Franklin College’s Andrea Terzi.

I felt it was that important it had to be shared with a larger audience.  Of note is that the MK paradigm mentioned throughout is the traditional current orthodox neoclassical approach used in mainstream economics today.

Steven Hail Explains Modern Monetary Theory Again!

The Morrison government has announced a massive spending program and many Australians may be asking if we can afford it.

This podcast will answer that question.

We begin the podcast with an interview with Dr Steven Hail. Steven is a modern monetary theory (MMT) economist and in the interview we discuss:

  • Why the budget of our federal government (as an issuer of currency) should not be compared to a household or business budget.
  • The merits of a Universal Basic Income.
  • A Wealth Tax.
  • The US dollar.
  • The Euro.
  • Brexit.

For more head over to The Iron Fist and Velvet Glove