MMT in the Headlines

February 19th, 2012 at 11:12 am

I know some visitors here will be happy to see this piece on “modern monetary theory” in today’s WaPo today, as was I.  It’s particularly gratifying to see my friend Jamie Galbraith featured, a rare economist whose ability to see outside the box has enabled him to be consistently right about a lot of things that others have missed.

For me, I’m down with MMTs up to a point.  I very much agree that deficit reduction has been deeply miscast as pure virtue, with little regard for its economic impact.  As I’ve written many times here, the first question re fiscal policy, at least until we’re reliably headed toward full employment is not “how quickly does your deficit come down?”  It’s: “is your deficit large enough to replace lost private sector demand?”

This emphasis on using the tools of government, including the ability to print money and run large budget deficits in times of market failure, is MMT’s most important contribution to the current debate.  On specifics, I thought the piece intimated that MMT’ers’ fiscal policy operates largely through tax cuts and increases.  I don’t think that’s correct—I know for a fact that Jamie G, for example, favors investment in public infrastructure.

That’s important, because while tax cuts are a breeze politically, they’re less effective relative to most other types of stimulus, and they’re awfully hard to unwind (this is a political flaw to MMT, btw…they seem to believe they can reverse the potential inflationary impacts of printing money by raising taxes on a dime).

Also, a fundamental MMT pillar—countries with their own fiat currencies can’t default—is correct, though the piece cited some economists suggesting that default would be preferable to the hyperinflation they fear that MMT could generate.

Along with the above political point re tax increases, I’ve got two other critiques.  First, however you get there, when the economy is improving in earnest, we need our debt to grow more slowly than our GDP, as Richard K describes here.   That doesn’t imply zero budget deficits, but it does imply that deficits must respond dynamically to growth, growing in busts, coming down as a share of the economy in booms.  IE, we need fiscal policy that avoids structural budget deficits (ones that grow when the economy is improving).  I can see MMT working effectively in deficit-increasing mode; less so in deficit-reduction mode.

Second, there is no path to a sustainable long-term fiscal outlook that doesn’t reduce health spending, a problem not restricted to the public sector, btw—if anything, it’s worse in the private sector, where costs are rising even faster.  Printing money doesn’t help you here—you need to reform the delivery system to take advantage of pooling and to emphasize cost effectiveness, i.e., the quality of treatment over the quantity.

That said, MMT is part of the solution and I’m glad it’s getting some attention.

 

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44 comments in reply to "MMT in the Headlines"

  1. foosion says:

    Slightly off topic, but how can we tell whether, and how much, fiscal stimulus there is?

    Answers I’ve seen recently:

    1) Size of deficit is measure of stimulus. This is a common measure, but seems wrong to me, given the expected effects of decreased tax receipts and increased safety net spending

    2) Increase in government spending, e.g., Krugman yesterday graphed change in real GDP against change in government purchases

    3) Compare to full employment surplus, that is, compare to revenue and spending as if we were at full employment.


  2. wh10 says:

    Really happy to see someone of your stature speak so favorably of MMT!

    Some comments on your reaction:

    “On specifics, I thought the piece intimated that MMT’ers’ fiscal policy operates largely through tax cuts and increases. I don’t think that’s correct—I know for a fact that Jamie G, for example, favors investment in public infrastructure.”

    You’re right. It is not the position of MMT that fiscal policy operates largely through tax policy. Fiscal policy of course encapsulates both tax and government spending policy. The appropriate mix is in the eye of the policymaker; it is an economic question but also a question of politics. Mosler likes to say, in an apolitical fashion, that for a given size government, there is an optimal level of taxes that corresponds with full domestic employment. Meaning, as a society, we first decide how much we want government to do (reflective of government spending), and then we adjust taxes to ensure fiscal policy, as a whole, is not acting as a fiscal drag on the economy (or, alternatively, is not too stimulatory so as to generate inflation).

    “Also, a fundamental MMT pillar—countries with their own fiat currencies can’t default—is correct, though the piece cited some economists suggesting that default would be preferable to the hyperinflation they fear that MMT could generate.”

    Right – but of course, from the MMT perspective of the world, they would never advocate for economic policy which would be hyperinflationary, let alone overly inflationary. BTW, the article misrepresented the MMT perspective on deficit spending accompanied by bond sales vs. ‘money printing’ when discussing the potentially hyperinflationary consequences of fiscal policy, but no need to get into that now.

    “Along with the above political point re tax increases, I’ve got two other critiques. First, however you get there, when the economy is improving in earnest, we need our debt to grow more slowly than our GDP, as Richard K describes here. That doesn’t imply zero budget deficits, but it does imply that deficits must respond dynamically to growth, growing in busts, coming down as a share of the economy in booms. IE, we need fiscal policy that avoids structural budget deficits (ones that grow when the economy is improving). I can see MMT working effectively in deficit-increasing mode; less so in deficit-reduction mode.”

    Since so many of the insights of MMT pertain to fiscal policy, I think many misinterpret MMT as saying ‘spend spend spend without regards to consequences.’ That is certainly not the MMT position, as it’s central to MMT that too much spending can be inflationary. So, I think for the most part, MMT would agree with you. As the economy picks up, deficits should come down, lest they become inflationary. And this is what should naturally happen as the automatic stabilizers reverse position and temporary stimulus packages expire. To be clear, MMT would see this as an issue of inflation (rather than default); depending on how the economy is behaving, you don’t want fiscal policy to be overly stimulative or too much of a drag.

    “Second, there is no path to a sustainable long-term fiscal outlook that doesn’t reduce health spending, a problem not restricted to the public sector, btw—if anything, it’s worse in the private sector, where costs are rising even faster. Printing money doesn’t help you here—you need to reform the delivery system to take advantage of pooling and to emphasize cost effectiveness, i.e., the quality of treatment over the quantity.”

    By and large, MMTers would agree with you here. I have seen them express similar opinions. In my opinion, what MMT contributes to this discussion is that ‘sustainability’ should be a matter of inflation rather than vague notions of default. In other words, researchers should be asking “when does govt spending on healthcare become overly inflationary?” Unfortunately, to my knowledge, this is not a question that is being seriously investigated. Instead, everyone is side tracked by imminent scenarios of default or rising interest rates. But if we are to consider various different healthcare policies, then we need to have an idea of how much we can spend under different tax scenarios. Inflation is what should be guiding this discussion; the research on this is practically nonexistent, however. I think MMT would also emphasize if we have sufficient real resources to deliver the kind of healthcare we want and how they should be optimally utilized. Your comments on cost-effectiveness jive with this.


  3. Timmay says:

    “this is a political flaw to MMT, btw…they seem to believe they can reverse the potential inflationary impacts of printing money by raising taxes on a dime).”– Actually, MMT advocates for a new automatic stabilizer,the Job Guarantee program, to provide full employment and stabilize the price level.

    http://www.nakedcapitalism.com/2012/02/pavlina-r-tcherneva-why-the-job-guarantee-is-superior-wonkish.html


    • perplexed says:

      One problem with the JG approach is its tendency to sound like the “Loser Liberalism” of a “government handout.” Once we realize that the output gap is a direct result of the failure of our legal system to protect against a majority imposing it’s will on a powerless minority and put a end to this option, other solutions come to be seen quite differently than the “government handout” characterization implies.

      If I bring 1,000 bushels of corn that meet quality specs. to the market and you refuse me access to the market and force me to allow the corn to degrade and decay, there are laws that will force you to pay my damages (everything I lost by not having access, including legal and collection costs) for denying me access to that market. If what I bring to the market is my labor, you can pay another worker a higher wage than I would require and refuse me access to the market, force me to allow my “skills to degrade,” and deny me access to any income at all. When I do work, you take part of my wages to fund “insurance” to cover losses that may be imposed on me by you’re denial of my access to the market. Somehow you have concocted a system where you can legally do this to me, but not to my neighbor who brings goods to the market instead of labor. Economists call this the effects of “sticky prices” to provide cover for what is really happening.

      Recognizing that, in a Democracy, there is tremendous risk that a powerful majority will impose it’s will on a powerless minority, the Constitution was established to prevent abuses of this type, but no one challenges the right of an enormous majority (governments, producers, and employed workers) to impose the full costs of an output gap entirely on a small group of willing workers who are powerless to secure access to this so called “market” and powerless to recover any of the damages they suffer. WE MUST CLOSE THIS LOOPHOLE AND FORCE A CHOICE BETWEEN OTHER ALTERNATIVES.

      If the option of sticking the entire cost of an output gap on a small minority were not available, we’d have to choose between allowing an actual, open market for all labor (with its corresponding rapid price declines and deflation) or fully compensating those that are the victims of our choice to allow the market restrictions that delay wage declines. Those benefiting from not having free markets should be paying for the benefits they receive to the extent they impose costs on others; not receiving the benefits while imposing the full costs on a small minority.

      We can’t get a serious discussion of stimulus spending or proposals such as MMT because of the enormous conflicts of interest that are built into and protected by current policies and laws that defy Constitutional protections. If the costs of the output gap were truly born by those imposing it others, the entire conversation around what to do about it would change.


      • GDowney says:

        Just wanted to say thanks for the wonderfully insightful analysis. I have never seen or heard the legal system argument that you offer; I certainly agree with the premise and concur that it is a great perspective to utilize when viewing the political implications.
        Also, couldn’t agree more with the final paragraph.


  4. beowulf says:

    What MMMT is missing are credible tools to control inflation and the current account deficit. They could do worse to incorporate Bill Vickrey’s gross markup warrants and Warren Buffett’s import certificate plan (both a kind of cap and trade market).


    • Joe Firestone (LetsGetitDone) says:

      Hi Beo, I don’t think it’s a question of “credible” tools to control demand-pull inflation, but of tools that will work. I think your own proposal of payroll tax cuts indexed to the unemployment rate will help, I also think that JG programs will help greatly too and that you have no evidence at this point that they won’t. Also, income tax increase provisions indexed to the monthly inflation rate will help.

      When it comes to “cost-push” inflation, I think we’re looking at legislation prohibiting speculation under certain market conditions, enforcement mechanism with teeth managed by institutions and people incentivized to carry out law enforcement and also commodity price controls automatically indexed to inflation rates in particular areas coupled with strong enforcement. Price controls worked for us during WW II and they can work again if there is any trouble, but I expect that vigorous enforcement of anti-speculation legislation will obviate the need for controls in the face of cost-push inflation.


  5. Joe Firestone (LetsGetitDone) says:

    Jared You said roughly: Tax cuts are awfully hard to unwind. MMT seems to believe that taxes can be raised on a dime.

    Not a fair charge. MMT can tell politicians what good Macroeconomic policy is. If they won’t enact the necessary legislation, then why is this an MMT problem? MMT says that when getting close to full employment, deficit spending ought to decrease. That can happen automatically to a great degree. When we get close to full employment Government spending safety net expenses will decrease and income tax revenues will increase even under current tax structures.

    Also, the MMT job guarantee proposal provides full employment almost immediately, but is structured in such a way that as the economy recovers and the private sector gains ground JG expenditures will automatically decrease.

    Next, the legislation implementing MMT’s full payroll tax cut program can be structured so that payroll tax cuts are automatically indexed to the U6 unemployment rate. Full FICA credits would be in place until U6 unemployment reaches 8 % then there would be gradual re-imposition of FICA until U6 unemployment of 3% is reached. Also, income tax legislation could be regulated the same way with tax increases on the wealthy indexed to increases in the monthly rate of inflation.


  6. Joe Firestone (LetsGetitDone) says:

    On the notion that even though nations with their own fiat currencies can’t default, default is preferable to hyper-inflation suggests that there’s relationship between repaying debts incurred in one’s own fiat currency and hyper-inflation. Of course, there’s no evidence that such a relationship exists. The only historical evidence suggests that if money is “printed” to secure foreign exchange to repay debts incurred in a foreign currency, then default may be preferable to hyper-inflation. So why should anyone believe this notion? What is the theory that suggests it and what tests have failed to falsify it?


  7. Tom Hickey says:

    Thanks for your brief critique of MMT, but it seems you don’t have the whole picture.

    The core of MMT is three-fold. First the appropriate size of the deficit is determined by application of the sectoral balance approach developed by Wynne Godley, which adjusts the fiscal deficit to changing non-government saving desire in order to offset demand leakage. The target is maintaining the government and non-government balances summing to zero at full employment.

    Secondly, the deficit target is to be hit by application of Abba Lerner’s functional finance, injecting net financial assets into non-government as appropriate using disbursement (expenditure and transfers) and withdrawing NFA using tax policy. This is best accomplished through automatic stabilization so that ad hoc measures are minimized to avoid political complications.

    Thirdly, since the above are insufficient to consistently avoid a residue of unemployed, government should create a job guarantee for anyone willing and able to work at a fixed wage. This creates a buffer stock of employed to replace the currency buffer stock of unemployed, which is inefficient in that it maintains idle resources as a matter of policy. The fixed wage also serves a price anchor against inflation.

    Sell also Warren Mosler’s proposals for health care reform and financial reform at http://www.moslereconomics.com

    See also Scott Fullwiler’s take down of the IGBC. “Interest Rates and Fiscal Sustainability.”


  8. Joe Firestone (LetsGetitDone) says:

    On when the economy is improving in earnest, we need our debt to grow more slowly than our GDP, why assume this? As long as the debt is in one’s fiat currency, and one is sovereign in that currency, then why is it a problem if Government debt grows faster than GDP? If we agree that there is no solvency problem then either creditors will still buy newly issued or they won’t. If they don’t, then the Government can always stop issuing debt instruments and generate reserves instead. Here’s a scenario explaining how the US Government can do that: http://bit.ly/mYHtuu

    The idea is based on Beowulf’s proposal here: http://bit.ly/o6wmMr though I hasten to add that Beo doesn’t favor this particular proposal, nor do most of the MMT economists, though I believe that their disagreement is based on political judgments rather than on MMT-based economic analysis. The possible inflationary effects of Proof Platinum Coin Seigniorage (PPCS) are discussed and dismissed by Scott Fullwiler here: http://bit.ly/pBNT8K PPCS is a legal alternative under present law, even when it involves filling the public purse to the extent I propose here: http://bit.ly/tJUF24


  9. Dan Kervick says:

    Very nice summary Mr. Bernstein.

    I’m interested in this notion that the debt must rise more slowly than GDP. My conjecture is that we should exclude from that calculation any debt owed to our own central bank. This is relatively meaningless intra-governmental bookkeeping that does not represent a real economic liability of the public.


  10. Daniel A says:

    Before you can understand MMT, you need to understand certain conditions. First, there needs to be a perfect balance between the three sectors we see in our economy:
    • Domestic Private Balance + Government Balance+ Foreign sector balance= 0
    • (S – I) + (T – G) +(M – X) =0, where X= exports, and M-imports.
    This is not a theory, this is an accounting condition. It is as inviolable as gravity. If you jump off a building, you will fall. As such, if every account here carries a surplus, our economy will also fall, into a deep recession. Currently, here is what we see in the US domestic economy, in regards to the private domestic sector, and foreign sector; S>I, and M>X. Our private sector is net saving. They’re not spending any cash. Second, we are currently importing more than we are exporting, as has been the case for a while. Thus, we have a greater outflow of wealth than inflow. As such, we are carrying surpluses in two of the 3 accounts above. Thus, the government needs to pick up the difference, and carry a sufficient deficit that allows this condition listed above to be equal to 0. Without this balance, we enter into extreme recessions as the Keynesian money multiplier slows down. Simply put, who in this scenario is doing the spending necessary to keep our economy going? If the private sector is net saving, the government is taxing more than it is spending, and we are importing more foreign made products than exporting domestically made ones, where is the fuel for the income multiplier? The reason Clinton was able to run a budget surplus was because the private sector was net spending (I>S), and they were able to sustain the economy.
    Second, MMT stipulates that the most important thing a government needs is monetary sovereignty. Without this freedom, a country can very easily lose control of their economy. Greece gave up their monetary sovereignty when they joined the Eurozone and as such, forfeited their control over monetary policy to the Eurobank. Thus, for a country such as Greece, they do have unsustainable debt levels simply because they cannot print more currency. They do not control their own printing press, whereas the US Fed does. Thus, the US does not have an “unsustainable debt level.” Every debt level is sustainable. The US has a perfect capacity to pay back every loan it makes. (Even Alan Greenspan has said this http://www.youtube.com/watch?v=eEKhxdeadk0). Greece, on the other hand, cannot utilize this monetary policy, and as such, is relying on haircuts and bailouts. And this policy only results in inflation if people take these excess currency reserves, and spend them. However, there are two reasons why this is not the case. Simply put, the private domestic sector is net saving, and not net spending. This money is being hoarded in bank accounts around the country, and is not being spent. You cannot have inflation without expenditure, and we are simply not seeing the expenditure at this point. Second, we are currently at roughly 8% unemployment, nowhere near full capacity. Inflation does not kick in UNTIL we have reached full capacity in the work force. Thus, the US is in no danger of runaway inflation in the near future.

    MMT is not some crackpot theory. It just challenges the traditional thinking of macroeconomics, and that is frightening for a lot of people. But what is more frightening to me is watching the US about to enter a Japanese style “lost generation”. I fear that the next decade will be spent alternating between recessions, and sluggish, almost sideways growth.


    • Joe Firestone (LetsGetitDone) says:

      Daniel A. I agree with most of what you say in this comment, and think you said it very well. But accounting identities taken as pure mathematical definitions may be logically true, but they don’t say anything about the real world until they are given an empirical interpretatio. When they are given such an interpretation, as is true for the Sectoral Financial Balances Model, then they become more than accounting identities. Instead, they become theories to be tested and falsified, if possible, by our best efforts.

      What makes the SFB model valuable isn’t that it is based on an accounting identity that must be logically true by definition, but that it has become an interpreted theory that has never been falsified by empirical data and has, instead always been corroborated, so that to the best of our knowledge, it is true in the real world.


  11. Joe Firestone (LetsGetitDone) says:

    Next “That doesn’t imply zero budget deficits, but it does imply that deficits must respond dynamically to growth, growing in busts, coming down as a share of the economy in booms.” I think the MMT point related to this is that Government deficits are endogenous, and that if Government fiscal policy is responsible, then the deficit should be designed to grow or decline in line with private sector savings desires and import capabilities. So, if the Sectoral Financial Balances model holds and: Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0, then the Government Balance should be allowed to float in accordance with savings desires and the current account balance as dictated by properly designed automatic stabilizer policies and programs.

    So, for example, if savings desires are at +6% of GDP and the Current Account Balance is at +4% of GDP, then the Fiscal policies and programs should produce a Domestic Government Balance of -10% of GDP. As long as savings and the CAB remain constant the result will be the same, a Government deficit of 10% sustainable in perpetuity so long as savings remains at the 6% level and imports continue to exceed exports by 4%. Change can occur, of course, but it can’t arise from simplistic efforts by Government to spend less and tax more to target the deficit for its own sake. Instead, the private sector must be persuaded to import less and save less. But why would anyone want to do that since private sector savings contribute to nominal private wealth, and imports from countries willing to accumulate nominal wealth in US Dollars, are real benefits to US consumers?


  12. Joe Firestone (LetsGetitDone) says:

    “I can see MMT working effectively in deficit-increasing mode; less so in deficit-reduction mode.”

    I think your reference here is to MMT policies, since if MMT is a true theory then it already works in explaining what has occurred in the US economy. But leaving that aside, I don’t think that MMT policies will get a chance to work until legislators and the President change their economic thinking. They’ll never legislate the MMT program unless they’re desperate for an alternative that might work. If at that point, MMT policies are presented and formulated with the hedges necessary to ensure that they’ll work in both modes, then the chances are very good that they will. On the other hand, if legislators insist on passing bills that ensure price instability as full employment approaches, then, of course, inflation will result. But it would be unfair to say that this would be a failure of MMT as an economic theory, since there’s no doubt that if things happen this way, then economists like Jamie Galbraith, Randy Wray, Warren Mosler, Bill Mitchell, Stephanie Kelton, Pavlina Tcherneva, Marshall Auerback, and Mat Forstater, will loudly predict the failure of such legislation while pointing out that it is not policy that is consistent with MMT.


  13. FDO15 says:

    I am surprised that no one in these MMT articles mentions the MMT job guarantee. It is the crux of the entire theory’s policy proposals. They don’t just want to deficit spend, they want to offer every waking American a government job paying $16/hr with full benefits. It’s called socialism.


    • Joe Firestone (LetsGetitDone) says:

      Actually, it’s not. Socialism is ownership of the means of production by a Democratic Government. The MMT JG program doesn’t envision the federal Government owning anything. It just envisions it funding valuable non-profit and community work at a base living wage until the private sector is once again health enough to provide full employment for everyone who wants to work. The JG program envisions not only the continuing existence of the private sector, but, when coupled with other MMT measures, its very quick and full recovery from the Crash of 2008, a recovery that has yet to take place since we have close to 17% U6 unemployment at the moment. If MMT policies, including the JG program are implemented, then the result will be very, very few people working in the JG program, since almost all of its workers will have been hired by the then prosperous private sector. Now how is that socialism?


      • FDO15 says:

        30 million people working for the government at a wage of $16/hr with full benefits performing mainly mundane and useless jobs? 70K for a family of two enrolled as musicians in Randy Wary’s program? With full benefits? How is that NOT socialism? I know the government can create full employment just by giving everyone a “job”, but that doesn’t mean it will turn out in the best interests of society over the long-run.


        • Joe Firestone (LetsGetitDone) says:

          Look I’ve provided a definition of socialism that’s very common in political theory. If you have a different view, then please state it and tell me why it makes sense.

          We already know that the JG isn’t socialism according to my view. But I’d like to know if it’s “socialism” relative to your presumably alternative reasonable view, based in political theory, of what “socialism” means. If you don’t have such a view, then it’s clear that you’re just throwing a label at the JG proposal to make it look bad. I’m afraid that this answer

          “30 million people working for the government at a wage of $16/hr with full benefits performing mainly mundane and useless jobs? 70K for a family of two enrolled as musicians in Randy Wary’s program? With full benefits? How is that NOT socialism?”

          won’t do. First, because we’re not in agreement that JG jobs would be useless jobs. I’m convinced that they will likely be jobs that will add much more value to the US than say most Wall Street jobs do. Second, because I believe in mixed economies, social safety net and FDR’s second bill of rights. And third, because the JG won’t involve 30 million people working for the Government since the full MMT program will create FE in a matter of months leaving only a small cadre in the program and90% of those 30 million is a reinvigorated private sector.


    • hangemhi says:

      FDO15 I think you’re over-reacting to the JG. Whether it is MMT or MMR, there is so much to explain, so many myths to overcome, so why keep fighting about the mythical JG issue when it will never come to pass anyway? As for calling the JG socialism… I seriously don’t get that, unless of course you call unemployment benefits socialism. But whatever, the JG will still never come to pass. So how about we let these other blogs get the basics first before you kill them with family in-fighting over essentially nothing?


  14. Joe Firestone (LetsGetitDone) says:

    “There is no path to a sustainable long-term fiscal outlook that doesn’t reduce health spending, a problem not restricted to the public sector, btw—if anything, it’s worse in the private sector, where costs are rising even faster. Printing money doesn’t help you here—you need to reform the delivery system to take advantage of pooling and to emphasize cost effectiveness, i.e., the quality of treatment over the quantity.”

    The effect of “printing money” to pay for increasing health care costs in this situation would be to create more and more nominal financial wealth for the health insurance and health care provider sectors of the economy, making them wealthier and wealthier relative to the other sectors, and giving them more political power. However, I don’t think “printing money” to maintain the present level of Government safety net benefits poses any fiscal sustainability problem for the public sector, at least not for the reasons of solvency and hyper-inflation normally brought forward.

    Rather, the fiscal sustainability problem presented by the increase in health care costs is for the middle class and the private sector economy as a whole. And there is another, political, sustainability problem for Democracy in the United States, since with each new Government “gift” of more net financial assets to that sector, the more powerful it becomes relative to other sectors. That is the greatest real problem with the health insurance/care sector, not Government fiscal sustainability.


  15. Joe Firestone (LetsGetitDone) says:

    In any event, the solution to our health insurance/health care problem isn’t rocket science. We know from looking at health care arrangements around the world that we can get better outcomes at a cost of no more than 12% of GDP. What we need to do is to pass a bill like HR 676, taking the insurance companies out of the health care business, limiting the provider cost increases to the general rate of inflation, and applying modern quality management methodologies to the health care industry. This has nothing to with MMT, except insofar as it tells us that we will experience neither governmental solvency nor inflation problems from taking that kind of action. The rest is political and relies on our ability to break their thralldom to the oligarchy and begin again to represent the heavy majority of the people in a democracy.


    • beowulf says:

      Actually Joe, I’ve been thinking HR 676 is part of the solution to a few problems (lack of healthcare access, growing burden of NHE costs on families, business and state/local govt, last but not least, the Fed’s lack of a fiscal policy tool).

      1. Enact HR 676 to create a Medicare for All trust fund, which would be funded with a blank check appropriation clause (“out of any moneys in the Treasury not otherwise appropriated”).
      2. Enact requirement for Fed rebate to Tsy (inclusive of Mint’s coin sales to Fed) every year to to equal net cost of Medicare for ALl (ex current healthcare spending, approx $1T a year).
      3. Enact a requirement for the Fed to levy a transaction fee on everything that moves through the FRS (a la Edgar Feige’s APT tax) but allow the Fed governors to set and adjust the tax rate— with the same percentage on everything from wire transfers to cashed checks.
      http://www.scribd.com/doc/25299549/Feige-APT-Presentation-to-Tax-Reform-Panel-2005
      4. The Fed governors would decide (on, say, a quarterly basis) how much of Medicare spending to fill with coin seignorage (stimulus!) or transaction fee revenue (not stimulus!). You could say its an adjustable fiscal policy that provides universal healthcare as a side benefit.


  16. Tom in MN says:

    Have you seen this on Health Care costs and the fact that predictions of the very far future are driving current policy for no good reason?

    http://economistsview.typepad.com/economistsview/2012/02/are-budget-problems-due-to-rising-health-care-costs-as-scary-as-weve-been-led-to-believe.html


  17. James Edwards says:

    MMT fits very nicely with the idea of a strong social safety net. If the net is big enough then recessions increase deficit spending and reduce income providing a stimulus. When at full employment revenues increase and fewer people are using the safety net. Ideally if the net and taxes are set at the correct level, they should fluctuate around an optimal line.

    On the topic of health care I see it as a problem of not enough inflation. If we have 2 industries, finance and health care, and one needs to rise due to changes in demographics then the other needs to shrink, but this is it’s own Zero Bound problem. Nurses are becoming more important than wall street brokers, but wall street brokers don’t want a pay cut and so don’t get pay raises. We then borrow from wall street to pay nurses what they should be paid. If we have enough inflation, there is room for the nurses to earn more and the brokers to earn less while still not getting a pay cut. The borrowed money is worth less in the future and is easy to pay off. In the end Wall street has less and nurses have more reaching equilibrium.


  18. James Edwards says:

    We have “Salt Water” for the Keynes family, “Fresh Water” for the monetary family. I propose “No Water” for MMT as an homage to University of Texas and University of Missouri KC.


  19. glibfighter says:

    Somehow, MMT’ers are sanguine that Zimbabwe “can’t default.” That sure has given them lots more elbow room vis-a-vis fiscal policy, hasn’t it.


  20. Th says:

    I want to bitch about something else. As someone who had the scientific method pounded into my head for decades, comments like this from someone who holds himself out as an expert drive me nuts: “I have two words to answer that: Australia and Canada,” Gagnon says. “If Jamie Galbraith would look them up, he would see immediate proof he’s wrong.” No he wouldn’t. Mr. Gagnon must prove that the economies would not grow even faster if Australia and Canada cut taxes or increased spending to end their surpluses.

    Maybe Mr. Gagnon can open a geography book and see that both are large land masses containing massive quantities of natural resources highly valued on the world market and populated by small but highly educated populations. Did he sleep through 5th grade science class?


    • wh10 says:

      Well, the high level MMT response, as stated by econoblogosphere extraordinaire, beowulf, would be along the lines of –

      “And I have a three word answer for Joe Gagnon: Current Account Balance.

      “Australia’s trade surplus soared to a record in 2011 on coal and iron ore shipments, sending the local currency to a five-month high.”
      http://www.bloomberg.com/news/2012-02-02/australia-s-record-trade-surplus-spurs-currency.html

      “Canada’s trade surplus with the rest of the world hit its highest level in more than three years in December…”
      http://online.wsj.com/article/SB10001424052970203646004577215021233440992.ht

      This demonstrates the importance of understanding Godley’s sectoral balances approach.


      • Th says:

        I really couldn’t care less what the MMT comeback is. The fact is that if I sit in my daughter’s wagon as she pulls it up a hill, I am a drag. If I sit in a car going down the highway, I am still a drag. When Gagnon proves that Australia and Canada would not grow faster without a budget surplus, he can make that statement. My bellyaching is about science and the appearance that Gagnon and the writer of the article have no real understanding of basic principles.


  21. John Henry says:

    It seems that many readers are missing some fundamental points regarding the thrust of MMT. Emphasis on inflation (some fear “hyperinflation”) is misdirected. Sure, at some level of economic activity, inflation may be—and probably will be—a problem. But that can be dealt with when the need arises. The more basic issue is what can a modern economy accomplish in meeting the needs of its population? After all, this is the ostensible purpose of an economy rather than to line the pockets of a relatively few. As private sector activity is directed toward the generation of profit, one should not expect this sector to produce satisfactory outcomes for the vast majority: this can only be the responsibility of government. Assuming that government officials are interested in such an outcome, it does have the ability to increase economic activity directly and steer that activity toward improving the well-being of the citizenry—infrastructure, housing, education, medical care, etc. WWII demonstrated what modern economies are capable of accomplishing. Think hospitals instead of tanks, elementary school science labs instead of warships. MMT demonstrates (one should say “proves”) that economies in which governments control their own money can do wonders. It has nothing to do with quibbles over the size of the deficit—and why should there be concern over a public deficit and near-silence on private deficits?—or the threat of inflation. MMT directs our attention to what can be done, and indirectly asks why this isn’t done.


  22. The Washington Post Goes “Unconventional” « Multiplier Effect says:

    [...] piece has been bouncing around the internet, first with some supportive comments by Jared Bernstein (he critiques the political viability of being able to control inflation through tax increases and [...]


  23. Modern Monetary Theory Is Actually Mentioned in the Mainstream Media | Mike the Mad Biologist says:

    [...] Related posts: Stephanie Kelton has some helpful slides. Kevin Drum has some thoughts here. Jared Berstein writes here. [...]


  24. Tyler says:

    Here’s the most important thing I have learned from MMT: excessive debt reduction causes recessions. For example, Bill Clinton caused the first recession of the new millenium by engaging in far too much debt reduction. The Clinton surplus was bad, bad, bad for us.


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