Questions for the MMTers

January 7th, 2018 at 11:42 am

As their adherents readily, and fairly, remind me, there’s a lot I don’t understand about modern monetary theory (MMT). So, let me ask about some aspects of the theory and see if I might get me some education.

First, I’ve stressed that, as I understand it, there’s no distance between my views and a core principle of MMT: the need for deficit spending when the economy is below full employment. This, of course, as Dean Baker points out, is as much Keynesian as anything else, but as the Chinese saying goes: black cat, white cat; as long as it catches the mouse.

The sad, underappreciated, fact is that for much of the last 35 years (about 70% of quarters, using unemployment minus CBO’s NAIRU; (u-u*)>0 70% of the time since 1980), the US economy has operated below its potential. This is the fundamental problem of macro, the fundamental argument against budget austerity or monetary hawkishness, and the reason why MMT or whomever else argues on behalf of expansionary fiscal policy is correct.

But here’s what I don’t get.

Overheating is possible, and taxing is a lousy mechanism for dealing with it. Though it seems a pretty distant problem given the apparent flatness of the price Phillips Curve, everyone agrees, I think, that economies can overheat. To dial back fiscal stimulus, MMT’ers argue for tax increases.

That’s fine in theory, but how does that work in the real political economy? The president goes to Congress and proposes a tax increase to bring us back down to potential, and Congress says, “sure, boss. We’re on it!”? Presidents and Congresses don’t like tax increases, and they don’t happen quickly (yes, the last tax plan came together pretty quickly—because it was a cut!), they have distributional implications, and there’s a huge industry to fight you tooth and nail.

That’s why we have a Federal Reserve that can quickly and without political interference decide to take money out of the economy (to be clear, monetary policy also has distributional implications). That seems like an immeasurably more reliable way to handle the overheating problem, but I don’t think the MMT crowd agrees, or at least I don’t understand where the Fed and interest rates exist is their cosmology.

What about the Fed? The central bank introduces another piece of the MMT framework about which I’m confused. Suppose, even if the economy is below potential, the Fed decides it doesn’t like all this money-printing and deficit spending advocated by MMTers. Consider current events. Though we’re closing in on full employment, I don’t think we’re quite there yet, and I suspect MMTers and I agree that some deficit spending could be useful right now, as I argued here. To be clear, I’m arguing for, e.g., target jobs programs for people and places left behind even in year nine of the expansion, or a more generous EITC, not cuts in the damn estate tax! But, due to the tax cut, we are going to see considerable deficit spending over the next few years.

The Fed is already pushing back. And they may well decide to push back harder, i.e., speed up their “normalization” campaign by adding more rate hikes, even if the rest of us think there’s still economic room-to-run.

We can argue all day that the Fed is making a mistake to raise in the absence of inflationary pressures, but my point is simply that the Fed exists and has the independence to offset any self-financed government spending as they see fit. For all the MMTers logic around the privilege of sovereign, fiat currency, I don’t understand how they incorporate this reality into their model.

Krugman’s “finance-ability” point: Krugman argues that self-financing is more inflationary that bond issuance, but he’s not making the above points about MMTs flawed (IMO) assumption that tax cuts could handily deal with accelerating prices. He’s worried about currency debasing:

“The point is that under normal, non-liquidity-trap conditions, the direct effects of the deficit on aggregate demand are by no means the whole story; it matters whether the government can issue bonds or has to rely on the printing press. And while it may literally be true that a government with its own currency can’t go bankrupt, it can destroy that currency if it loses fiscal credibility.”

One could argue that the government doesn’t have to sell bonds—it can just print money—but it does sell bonds, it always has and probably always will. Moreover, it doesn’t just sell them to itself. It sells them to open markets of investors who could, under conditions triggered by printing-press reliance, decide not to buy them without an exorbitant risk premium. A model that assumes otherwise may raise interesting ideas, but, like discounting the role of the Fed and interest rate policy, risks being of limited real-world utility.

Timing issues re revenue raising vs. printing money: A theme of my work, to which MMTers often object, I think, is that we need to raise more revenues to pay for public goods. I recently wrote, for example, that, given our aging population, it will take something like 3% more of GDP to meet our obligations to Social Security and Medicare/Medicaid by 2035. MMTers push back that as long as we’re below potential, we can print the money to support government spending, so stop getting so wound up about “payfors.”

But while assuming full employment is a mistake, so is assuming a) enough slack to warrant all that printing, and b) even more so, the political will to do so. Though we should always be willing to deficit spend in the near term when economic conditions warrant it, should we not structure long-term fiscal policy to avoid structural deficits (a structural deficit is one that persists even at full employment)? At least in a political sense of protecting vital social insurance programs, isn’t the prudent approach, as difficult politically as it may be, to try to lock in a level of revenue collection that meets our future obligations?

Such queries seem often to get under the skin of the MMT crowd. But I come in peace and stress our shared recognition of the horrors of budget austerity. I ask these questions in the spirit of better understanding your arguments.

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57 comments in reply to "Questions for the MMTers"

  1. Ralph Musgrave says:

    Very insightful criticisms of MMT in the above article.

    Re section headed “Overheating is possible..”, and speaking as an MMT supporter, I accept that MMTers have not thought through the point you raise very well. But that does not mean your conclusion that the central bank should have powers to control demand is necessarily correct. Positive Money and co-authors have thought thru that point better than MMTers, and their conclusion is that fiscal adjustments can be made much more quickly if the central bank or some other independent committee of economists decides what extra spending (net of tax) is suitable for the next year or so. Politicians can then spend that extra money and/or raise taxes however they choose. See link just below (p.10-12 in particular):
    Bernanke gave his blessing to that sort of system: see para starting “A possible arrangement…” here:

    But I wouldn’t totally rule out interest rate adjustments by central banks, especially in emergencies.

    Now for the section in the above article entitled “What about the Fed.”

    Your point that extra spending of freshly created dollars by the fiscal authorities is a waste of time if the central bank still has the power to adjust interest rates is of course valid. I actually more or less answered that point above, but to repeat (sort of), a shift to an MMT system would definitely require changing the rules governing the Fed. And the best way to go, I think, is the above Positive Money / Bernanke way. That is, the Fed says to Congress “You can spend (net of tax) $Xbn more than last year, and we’ve credited your account with $Xbn. Now get a move on and DO IT quick. If you don’t do it quick, we’ll remove that money from the account and cut interest rates instead.”

    Next, your section entitled “Krugman’s Finance…”. You claim in that section that government probably always will sell bonds. I disagree: a sovereign nation like the US can perfectly change the rules that govern how central banks operate and how government is funded. For example during the First World War, the UK took the unusual step of letting the Treasury print money. (Google “Bradbury pounds” for more on that.)

    Lastly your final section “Timing issues…”. The problem you raise there is solved by having the above mentioned independent committee decide what extra money should be printed and spend (net of tax). To repeat, that committee could be within the central bank or could be an entirely new committee.

    In fact the Fed already seems to have the power to print money and, if not SPEND it, at least LEND IT: it printed billions and loaned it to numerous banks around the World during the recent crisis. The Bank of England did likewise.

    • Peter J. Morgan says:

      Ralph, you wrote “I actually more or less answered that point above, but to repeat (sort of), a shift to an MMT system would definitely require changing the rules governing the Fed.”

      It seems to me that you haven’t grasped that MMT is not a system per se, but (by the assertion of well-known MMTer Prof. Bill Mitchell) MMT is merely an explanation as to how the current debt-money banking and monetary system actually works. Very few people actually understand how the present system actually works. Many (some would say most!) trained economists do not understand how the present system actually works.

    • EMichael says:

      Can someone let me know their odds of a Congress that gives ups its ability to tax to a “central bank or some other independent committee of economists”?

      Mine is a little higher than the Powerball winning ticket.

      • Ralph Musgrave says:

        I agree that Congress will not easily give up its right to spend more (or tax more) with a view to imparting stimulus (or deflation). On the other hand the British government (without permission from the House of Commons) reduced and then increased the sales tax VAT during the recent crisis. So perhaps the UK or some other country might lead the way here.

        Also (just to repeat and clarify) I am not saying politicians should not have the right to raise taxes to fund more spending (i.e. adjust the % of GDP going to public spending). I’m just saying they should not have the right to adjust taxes so as to adjust stimulus. That’s a job for technocrats, and in fact technocrats are already in control there in that the Fed can use interest rate adjustments to counteract what it thinks are unwarranted changes to stimulus caused by Congress.

        • EMichael says:

          In MMT, the “technocrats” would have far more control than under the current system. And all of it would have to be granted by the politicians.

          Not gonna happen.

          And that also takes away the proposed “job guarantee” patch. Just another proposal that has no chance of happening.

          • Joe Leote says:

            A job guarantee may not be likely to pass Congress but it is politically feasible. In the US cash flow is spread across the country, for example, via military spending since the 1940s, infrastructure spending since the 1950s, and education spending since the 1960s. The JG spending would just be a more direct method of spreading cash flow directly to some of the unemployed instead of all these other employment programs. Constantly educating people who can’t find suitable work is just a way of subsidizing the educational workers and making unemployment figures lower since those who are enrolled in school do not count as unemployed. The JG may solve some persistent social problems that markets and governments have not solved so far but it requires effort from local governments. Many local governments are now involved with local development corporations. These units use government to supposedly create more jobs via sponsorship of business development. A program to put people to work locally in jobs matching their skills that at least add some value to others in the community would just be a twist on many things the country is already doing to solve employment problems and keep cash flowing around.

          • Ralph Musgrave says:

            It’s a bit hard to see how the technocrats would have more control than under the existing system give that under the existing system, the technocrats at the Fed have the final say on the amount of stimulus the economy gets in any given year: the Fed can nullify via interest rate adjustments what it sees as excess or deficient fiscal stimulus. I.e. the Fed / technocrats already have complete control.

            Re JG, I agree that most of the MMT advocates of JG are pretty clueless. Re your claim that it has “no chance of happening”, the fact is that numerous variations on the JG theme have been tried in numerous countries over the last century or two. The WPA in the US in the 1930s was one example. So I don’t agree that it has “no chance of happening”.

    • dosher1 says:

      I just love it when someone claims to support MMT and then propose monetarist solutions. You’re stuck on the money supply when you should focus on production. If monetary policy were effective then QE would have triggered a quick recovery. The Fed doesn’t direct Congress. That’s backwards. Congress spends and the Treasury utilizes their bank, the Fed, to create the requisite funding. Autonomy over monetary policy only extends to the point where Congress steps in, as we saw with QE. If you’re to understand MMT you must embrace the idea of an elastic money supply determined by demand 🙂

  2. Person says:

    I’m not an MMT guy or a non-MMT guy, but I would argue with this one point RE:
    “That’s why we have a Federal Reserve that can quickly and without political interference decide to take money out of the economy”

    In some cases this might be true and in others not. Given the maturity timeline of most bonds, money doesn’t come out of the economy very fast when the Fed raises rates. Unless those low rates are largely funding consumption, which they’re not intended to do, there’s a huge lag time in fighting inflation.

    It depends upon the situation, and I can’t think of a situation in which this theory of pulling money out of the economy showed a quick response.

    • David Truslow says:

      I can. In the second half of 2007 the Fed reduced its balance sheet to almost zero.

      • David Truslow says:

        I mistated my facts. The Fed reduced its treasury bond balance in 2008 from $800 billion to $500 billion

        • Person says:

          Yes, but that didn’t ‘pull money out of the economy’. It did put an end to the housing bubble, and the housing collapse ‘pulled money out of the economy’ by vanquishing it into thin air. This was NOT the intention of the Federal reserve, and this is NOT the mechanism most economists mean when they say ‘pull money out of the economy’.

          Short of collapsing bubbles, the Federal reserve cannot quickly remove money from the economy. That balance sheet reduction only increased the cost of borrowing, but if you look at the monetary measures that matter (bank reserves don’t matter), like M3, it doesn’t respond to that.

          MMTers have this one correct.

      • Person says:

        No, that isn’t remotely possible.

        It hovered around $1 trillion, which put the actual circulation at about $16 trillion right up until QE, and QE didn’t even make a dent in raising that $16 trillion.

        The only example of what Jared is referring to is Volker’s actions, which showed a HUGE lag, so HUGE in fact that it is impossible to really draw the conclusion that circulation changed in any way correlated to the Fed’s actions. Only through preposterously high interest rates did it finally bring down inflation.

        From a purely technical standpoint, if taxes could be raised (politically), it would have an immediate effect on inflation in a way that interest rates cannot.

        • Person says:

          I meant it hovered around $2 trillion, putting the multiple at about 8. I believe the theoretical maximum that banks shoot for in their ‘leveraging up’ is 10, but few banks can actually get there due to capital RISK constraints. The kind of capital they own determines their multiple.

          • Procopius says:

            I must be misunderstanding what you are talking about. I’ve seen numerous reports that the biggest banks (e.g., Citi, BofA, Wells Fargo) were working in 2007 with leverage rates of up to 33 to 1. Unbelievably risky, but, hey, they’re Masters of the Universe, amirite?

  3. Ben Johannson says:


    “Though it seems a pretty distant problem given the apparent flatness of the price Phillips Curve, everyone agrees, I think, that economies can overheat. To dial back fiscal stimulus, MMT’ers argue for tax increases.”

    There are two components. One, as you mention above, is tax adjustment. The other is stronger countercyclical stabilizers, institutionalized by programs like the Jobs Guarantee with its concept of an employment buffer stock.

    “What about the Fed?” I think you’ll find most MMTers (including academics) are highly democratic in their social orientation. Some, including Wray, have suggested getting the Fed out of interest-rate management by permanently setting the short-term rate to zero, which they argue is its natural rate in the absence of intervention by the Federal Reserve. It’s certainly possible, maybe even likely, that this will not happen. But MMTers also have a different perception of the effect of changes in the short-term rate (Warren Mosler’s analogy is that the Fed steps on the brake when it thinks it’s stepping on the gas, and vice versa). In this situation you are correct that there could be a significant problem. If government chooses to spend without raising revenues and the Fed sees this as a threat to price stability, it will, unless put under political pressure by the executive, increase the short-term rate and perhaps bend longer-term rates as well. Within an MMT framework this would act pro-cyclically with government’s deficits rather than acting to reduce aggregate demand. So unless the Fed is cooperative institutional changes would be necessary.

    ‘Krugman’s “finance-ability”’ Mu understanding of the MMT framework is that bonds are more inflationary than cash, because bonds also pay out a stream of income which is effectively printed by government anyway. If government simply issued reserves and skipped the bonds this would (in the MMT perspective) put downward pressure on interest rates as banks compete to loan their unneeded reserves to other bans (this of course ignores that the Fed now pays a maintenance rate). Krugman’s fiscal credibility argument is, in my opinion, too nebulous and too non-empirical a concept to know what it actually means in practice. I recall very well that with the Fed’s QE programs we were deluged with endless prognostications in the financial press that this would destroy the value of the dollar and of government financial credibility. In fact I don’t think it’s possible to exaggerate the extremity of the reaction and pessimism which was provoked. And yet that credibility wasn’t lost.

    “Timing issues re revenue raising vs. printing money” I think that MMTers view tax collection solely as money un-printing which follows spending. They literally do not see it as “paying for obligations”. In your example you cite the necessity of increasing the flow of funds to stabilize social security. I believe an MMTer would have no problem with increasing tax collection by the required amount (if it came from the rich) but they would not view it as a necessity. Rather their view of such a tax increase would simply reflect that the rich have too much money and fiscal space needs be made for the middle-class and poor to collect greater benefits and increase their share of consumption while not provoking inflation. Reduce spending by the wealthy to increase it by everyone else, etc.

  4. David says:

    “Overheating is possible, and taxing is a lousy mechanism for dealing with it.”

    You are correct MMT on its own, does have inflation control dependent on an ongoing political process, hence MMT was intertwined with the automatic stabilizer of a Job Guarantee.

    “What about the Fed?”

    The Fed determines the flow of income between savers and borrowers by adjusting interest rates.

    “Krugman’s “finance-ability””

    Operating policy requires primary dealers create a reasonable market.

    “Timing issues re revenue raising vs. printing money:….At least in a political sense of protecting vital social insurance programs, isn’t the prudent approach, as difficult politically as it may be, to try to lock in a level of revenue collection that meets our future obligations?”

    Sounds like politically we should run the current economy below capacity so as to be ready for a possible full capacity economy in 20 years.

  5. Brian Romanchuk says:

    You raise a lot of points, I am going to discuss just one here. It does not appear attractive to tighten fiscal policy now, to deal with a potential inflation problem decades ahead. (One can obviously debate the wisdom of the Republican tax cut, but that’s another issue.) Unless one can engineer a Goldilocks fiscal tightening, one risks dumping the economy into recession when there is essentially nothing monetary policy can do about it. Debt/GDP ratios would end up higher, not lower.

    If one wanted to lower the deficit without damaging growth, one would need to raise taxes on high income households, who presumably have the lowest propensity to consume out of income. I believe it is safe to summarise policy as doing the exact opposite.

    Arguments about structural deficits need to take into account the macro context. We have an ageing society, with a lot of entities saving up for retirement needs, and so an increased desire to save in the private sector is no surprise. The only way the income flows can add up is that some sector has to be borrowing. The business sector can finance itself with profits, and the US has a structural trade deficit. By a process of elimination, we see the government is going to end up with large deficits.

  6. John Hermann says:

    There is something that you need to understand about the operation of the Fed and the federal government – something that MMT economists understand well – but have not clearly explained to others. The federal government is the only entity that can create net financial assets, and inject those net assets into the real economy. It does this through deficit spending. But the Fed does not have the ability to create net financial assets — the accounting rules do not allow it to do so. When the Fed creates new money it is either obliged by the accounting rules to exchange that money for a financial asset which is pre-existing within the non-government sector, or alternatively to create an equal liability within the non-government sector. Either way, there is no change in the stock of net financial assets held by the non-government sector. However government deficit spending is entirely different, and always increases the volume of net financial assets within the real economy.

  7. Charles Hayden says:

    Dear Jared,
    We should worry about long term inflation forecasts, not long term federal govt deficits, whether structural or otherwise.

    The govt is a net payer of interest. So if the Fed raises rates that raises govt spending. Interest rates are one of many components of the decision to borrow. And the effect of interest rate changes is ambiguous (wrt total spending) and depends on a variety of factors, such as prevailing credit conditions, which are a function of market conditions and regulations.

  8. Charles Hayden says:

    Another thing, the Fed ‘buys’ dollars by selling treasury securities or agency debt on its books. These are just dollars that earn interest and enjoy 100% deposit insurance. And when the Fed buys non-interest earning dollars with interest earning dollars, it’s not removing anything but adding dollars thru the interest income. The reverse of this is QE, which took interest income out of the economy. So it’s about your definition of the US dollar supply. If you don’t count the Tsy securities or agency debt as part of it, then you need to explain how a highly liquid, tradeable, and accepted as collateral form of the currency is not a part of the dollar supply.


  9. JohnH. says:

    Consider also the likelihood of only a few economic entities understanding the basics of MMT in any given scenario. If everyone were on the same basic page, the bulk of consumers themselves (who are largely net spenders) might throttle back in their purchases if they see the economy overheating, savvy banks may regulate their loans a bit more tightly rather than have the Fed step in and discount their collateral (because the increase in velocity caused by loans is inflationary too), other entities may advise that there is a bubble forming in a specific market that is causing rapid price increases on down the line (i.e. overheating real estate markets causing rent hikes that allow even slumlords to increase their rents with no improvement whatsoever to the product they offer), businesses engineering massive buyouts and consolidations with an eye towards quashing competition and passing that inflated cost on to consumers.

    It wouldn’t do to have just one entity know the concepts of MMT, business itself (for instance) must also understand the paradox of thrift, realize that they are necessarily pro-cyclical and re-examine the dogma behind their practices. But please, above all, I never wish to see another President standing up before the people saying “America is Broke”, especially during a recession.

    So what does cause accelerating inflation? Certainly net spenders would (and should) shoulder a fair bit of the blame, but I’ll bet you somebody hiked their prices first…

  10. Postkey says:

    ” . . . or at least I don’t understand where the Fed and interest rates exist is their cosmology.”
    This is where interest rates ‘exist’ in this ‘cosmology’?

    The rate of interest – the price of money {sic} – is said to be a key policy tool. Economics has in general emphasised prices. This theoretical bias results from the axiomatic-deductive methodology centring on equilibrium. Without equilibrium, quantity constraints are more important than prices in determining market outcomes. In disequilibrium, interest rates should be far less useful as policy variable, and economics should be more concerned with quantities (including resource constraints). To investigate, we test the received belief that lower interest rates result in higher growth and higher rates result in lower growth. Examining the relationship between 3-month and 10-year benchmark rates and nominal GDP growth over half a century in four of the five largest economies we find that interest rates follow GDP growth and are consistently positively correlated with growth. If policy-makers really aimed at setting rates consistent with a recovery, they would need to raise them. We conclude that conventional monetary policy as operated by central banks for the past half-century is fundamentally flawed. Policy-makers had better focus on the quantity variables that cause growth.”

    • Person says:

      An interesting study, but the conclusion doesn’t make sense. If interest rates are not effective at ‘controlling’ the economy, then any argument about interest rates that produce growth is flawed at best and disingenuous at worst. It should be very obvious that interest rates and growth correlate because interest rates follow rather than lead. Growth/recession are the causes while interest rate changes are the direct following actions of the central banks.

      This looks like deliberate disinformation. Anybody that is scientifically minded would see this immediately.

    • Person says:

      That was a great read, thanks for the link!

      I can honestly say that after reading this, perhaps my views make me an MMTer. I didn’t see anything in this link that I disagreed with.

      It seems to me that a full implementation of MMT ideas would require a total rework of the Federal Reserve from a bank to simply a monetary authority. This sounds politically feasible from the perspective of a lot of populists, and I’m sure the NYT (I cancel every other month or so) would hate it, which carries no weight with knowledgable people.

      Implementing such a system would probably require a political revolution. I doubt the mainstream Democratic party would ever get on board. I think both parties are going to fail in favor of new, more populist parties, so this could become possible in time.

      I hope more economists begin to understand MMT.

    • Person says:

      The biggest objection that’s going to come from the neoliberals is probably the Hamiltonian argument, that our government should be funded through a buy-in by our capitalists (treasury bonds). A couple of counter arguments are 1) The GOP and its backers already showed that it doesn’t respect that, because it was willing to default 2) That was over 200 years ago! We have a new set of problems to deal with today.

      I think combined with a 100% reserve banking system, MMT could work today. Perhaps one misconception about 100% reserve banking is that it would entail lending only 50% of the available capital, but it doesn’t have to be so. If the MMT authority allows electronic creation of money equal to reserves held, you still can achieve 100% lending of financial capital.

      The more minds we can get thinking about these problems the better. There’s a lot of pragmatic details to work out.

  11. Derek Henry says:

    There is a superb economic paper written by Mathew Forstater’s Levy insutitute Working Paper No. 254

    Toward a New Instrumental Macroeconomics: Abba Lerner and Adolph Lowe on Economic Method, Theory, History and Policy – for an excellent account of the way in which fiscal policy can work.

  12. John O'Connell says:

    Hello Jared,

    I’m more of a fan of MMT than an “MMTer”, but I have proposed fiscal strategies based on MMT that address some of your issues.

    First off, to understand MMT you have to look at sectoral balances. The deficit is not a policy choice, it is the result of decisions in the private and foreign sectors about how many $US they want to save. As long as the private sector is saving – which is a good thing – and as long as we have a current account deficit – which Mosler argues is also a good thing – we WILL have a budget deficit. This is true regardless of the level of employment or inflation. It’s just math, it’s not economic policy.

    Once you grok that, and realize that a monetary sovereign can never run out of money, the budget deficit ceases to be any sort of “problem” for anyone.

    The next big thing to understand about MMT is that the job guarantee is a much more powerful automatic stabilizer than the current array of taxes, unemployment insurance, and other needs-based programs. It will dampen the business cycle in both directions, making the policy management task much easier.

    As for taxes being the lever to control inflation, you make a valid point: the Congress is just not nimble enough to conduct economic policy fine-tuning. My solution is for Congress to yield to the Fed a tiny bit of fiscal authority, which they can use (instead of monetary policy, once they set the FFR permanently to zero) to fulfill their dual mandate. It has two components. First, based on an idea of Mosler’s in response to the GFC, the Fed should credit the accounts of each state and territory with $10 each month for each resident. This shares some of the Federal government’s monetary policy with the other political entities, allowing them to reduce their generally regressive taxing and more comfortably live within their budgetary constraints. Second, replace the corporate income tax and FICA with a business gross receipts tax, with no exemptions or deductions, and applying to all business, not just corporations. A quite low rate, perhaps 6%, would be “revenue-neutral”.

    The Fed should adjust both these things as needed to manage the economy. The state credit should be adjusted in increments of $1 per month per resident, and the tax in increments of 0.1%, no more frequently than quarterly.

    I think it is an obvious conclusion, based on understanding of MMT, that government spending is NOT a good tool for fiscal policy. Spending should be determined by public policy, and taxes are the only valid fiscal policy lever. In order to affect aggregate demand, however, the tax must fall on consumption. Taxing away money that would otherwise have been saved makes no difference. Savings and taxes are both leakages from demand. (BTW, that is why issuing bonds has very little effect. That money would have been saved anyway, so nothing of significance is removed from aggregate demand by selling bonds.)

    So a follow-on note about my business gross receipts tax is that it is regressive, as is any consumption tax. It needs to be offset by something, and I suggest a refundable income tax credit at low income levels.

    An additional corollary is that with the business gross receipts tax being the workhorse of the system, the income tax can be further reformed, raising the standard deduction to somewhere around median income, and simplifying the rate structure.

    • dosher1 says:

      Not bad. However, federal spending into the functional economy is the definition of fiscal policy. MMT states fiscal policy is the most effective tool. Taxes clear currency from the economy. If you know your budget and know how many NFAs are required to hit your liquidity target, setting tax rates is a fairly straightfoward operation. Should the economy begin to overheat you must cut aggregate demand, which can be accomplished by taxing, spending cuts, manipulation of the target rate or a blend of all three. It really depends on which portfolio options will get the decision makers re-elected.

  13. Joe Leote says:

    ” The Fed exists and has the independence to offset any self-financed government spending as they see fit.”

    Even though Fed makes independent decisions with regard to monetary policy, in my view, one should consolidate the Fed and Treasury into one Sovereign balance sheet for the federal government. Furthermore, consolidate the banking sector into an aggregate bank operating under government charter with a portion of aggregate bank liabilities insured by the Sovereign (federal government) via FDIC, Fed, and Treasury institutional operations. These are ideas discussed by Warren Mosler in which the consolidated government can be viewed as similar to a bank that must create deposit liabilities before it can cancel those liabilities by imposing fees and the government must create liabilities before it can cancel those liabilities by imposing taxes. Also banks in the federally insured system can be viewed as branches of government authorized for public policy reasons.

    In this model financial assets are liabilities of the Sovereign or some non-sovereign economic unit, with some financial assets being insured as off-balance sheet liabilities of the Sovereign. The we see that aggregate demand is fueled by expansion of financial assets and liabilities driven by bank credit expansion, Sovereign credit expansion (e.g. direct student loans), Sovereign credit enhancements (off-balance sheet insurance programs), or deficit spending by the Sovereign. Suppose Treasury is deficit spending and banks are providing credit at a rate that causes Fed to increase short term interest rates. Then Fed is simply reducing the ability of the government chartered aggregate bank to increase credit and this would induce some unemployment or slack in the economy. MMT advocates a federally funded Job Guarantee to take up this slack where state and local governments would be better suited to tailor the job program to the individuals who need jobs and to the needs of each local community.

  14. Joe Leote says:

    “One could argue that the government doesn’t have to sell bonds—it can just print money—but it does sell bonds, it always has and probably always will. Moreover, it doesn’t just sell them to itself. It sells them to open markets of investors who could, under conditions triggered by printing-press reliance, decide not to buy them without an exorbitant risk premium. A model that assumes otherwise may raise interesting ideas, but, like discounting the role of the Fed and interest rate policy, risks being of limited real-world utility.”

    Again this story is about institutional operations and what might occur in a counter-factual scenario.

    In the real world when Fed purchases a financial asset from a nonbank, under normal open market operations or under Quantitative Easing, it injects reserves and deposits into the aggregate bank balance sheet while removing a financial asset from the nonbank sector. Fed cannot default on reserves, it can pay interest on excess reserves, and some of the injected deposits are covered by federal deposit insurance. Therefore “money printing” is not so different from electronically printing a new Treasury security to cover deficit spending in a system where bank deposits are FDIC insured. The question is under what conditions would the aggregate bank rapidly expand credit to nonbanks if it is being stuffed with excess reserves and new deposits at the rate of deficit spending in a world where Treasuries are not sold to drain reserves and deposits as the difference between expenditures and receipts?

    MMT thinks the excess reserves would drive the interbank interest rate to zero, and apart from Warren Mosler, I have not read any proposals for fully FDIC insured bank deposits (he says all deposits should be insured and banks should be heavily regulated on the asset side of the balance sheet). Then the consolidated federal government could simply spend funds into the aggregate bank sector without selling Treasuries and bond vigilantes could not prevent the government from doing so as long as recipients of government funds are willing to hold FDIC insured bank deposits. I have not read any specific MMT proposals which state that Fed would have to raise interest rates (on excess reserves or via some other mechanism) to curb an inflation driven by rapid bank credit expansion, but I suspect Fed would need to have this ability when the sum of government deficit spending and private credit expansion begins to drive a rapid general inflation. If Congress cannot provide a spending, credit, and tax system that implements some automatic stabilizers then the means to “kill” a rapid inflation is to bankrupt some units in the financial and real sectors of the economy to kill a cycle of credit expansion with rising interest rates.

    I think MMT says the central bank could always be authorized to purchase Treasuries directly from the federal government which would inject reserves and deposits into the aggregate bank per my discussion above. The bond vigilantes would have to subvert the acceptance of FDIC insured banking, and government payments via the banking system, to have any “veto” power over government deficit spending in that scenario.

    Do Primary Dealers have any profit or long term political motive to walk away from a Treasury auction in the system as it exists? Can’t these dealers always hold some financial assets that can be used as collateral at Fed to obtain reserves to purchase Treasuries? Don’t these dealers gain a long term advantage by ensuring that the government is always able to finance itself even without Fed having to purchase Treasuries directly? And if the Primary Dealers decide to act against their own long term interests would Fed/Treasury and the federally insured financial system dispense with the apparent need for their services?

  15. Person says:

    Now that you have my brain contemplating this in full, I like MMT as a partial future goal (perhaps in the 20-year timeframe). There’s just no way to get there from here, nor is there a fully functional way to remove the bond-nature of the monetary system, so the best that could ever be accomplished is a hybrid.

    I doubt that we could keep an economy functioning properly without this $20 trillion dollar debt we all owe to each other. Whether it is through private loans or public loans, debt is what keeps people working. Just like property taxes are required to prevent permanent land ownership (in theory), the debt nature of the monetary system is required to prevent permanent monetary ownership.

    So basically I’m saying that MMT is a nice idea, but I think it ignores some pretty basic facts about societal organization and responsibility.

    I needed to refresh my mind to remember why I rejected it as a viable solution long ago. It is kind of complicated.

    • Person says:

      To round it out and finish my thoughts on this for the day, I once again have to reject my own MMT fantasy. It won’t work any time soon.

      Krugman’s argument might seem a bit nebulous, but that is because the full picture is quite large and complex. I think his point stands as correct though. He’s a phenomenal teacher. As DeLong sometimes says, Krugman is right, and if you think he’s wrong about this, you should probably rethink until you realize that he’s right.

      If you create money unrelated to a bond, you have to think about where that money eventually winds up. In essence, MMT would create endless HARD CURRENCY that would have to be taxed away eventually. You cannot implement a system that would create such hard currency unless you had a predefined and politically impervious way to tax it back out of the system. This means that the tax solution could work in theory, but you’d have to have also have a mechanism whereby the taxed funds are destroyed rather than used.

      Perhaps some day we’ll have a political system that is functional enough, fair enough, and understood well enough to do this. In our system today, MMT would be like giving matches to children, I think.

      It is frustrating to see even the best economists turn totally political, embracing Keynesian stimulus when Democrats are in charge and rejecting it when Republicans are in charge, and it is also frustrating to see people like Douthat rejecting Keynesian ideas when Democrats are in charge and embracing them when Republicans are in charge. Most of us our not fooled anymore by this, but we’re tired of the game.

      To end I’ll simply say that raising taxes is a much better way to stop inflation than raising interest rates, in my view. So this is probably the portion we should embrace in the short to medium term.

      • Person says:

        “As DeLong sometimes says, Krugman is right, and if you think he’s wrong about this, you should probably rethink until you realize that he’s right.”

        This doesn’t hold for trade. Krugman is totally wrong on trade, but he’s right about this.

      • Joe Leote says:

        Fed services the currency drain as follows which means the nonbank sector can convert bank deposits into currency (Federal Reserve Notes) on demand. Before late 2008 the Fed balance sheet showed a rough equivalence between Treasury security (assets) and currency held by the public (liabilities). What does this mean? It means when the nonbank sector withdraws currency from the aggregate bank, the aggregate bank would lose reserves at Fed, and Fed would purchase Treasury securities from the nonbank sector, thereby restoring the reserves to the aggregate bank, and adding some deposits to the aggregate bank as an unintended consequence. If the Fed can perfectly service the currency drain then it would mean no net change in reserves or deposits in the aggregate bank while the nonbank sector has swapped ownership of Treasuries for ownership pf currency. If Fed did not service the currency drain before 2008 it would lose control of the target fed funds rate.

        Once Fed began to do Quantitative Easing the aggregate bank became stuffed with excess reserves and Fed began to pay interest on excess reserves. So the aggregate banks have no choice but to hold the amount of reserves determined by Fed and to collect interest set by Fed as if this is one giant perpetual Treasury bond. Assuming Fed does QE by purchasing securities from nonbanks then deposits are also added to the aggregate bank balance sheet. These deposits, initially created under QE, would migrate to other bank liabilities that may be FDIC insured and that tend to pay interest via deals that banks make with nonbank customers. In this scenario the interest Fed pays on excess reserves may pass through to nonbank depositors at a profit or loss to the aggregate bank depending on relative interest rate conditions. Finally Fed does not necessarily have to service the currency drain by purchasing Treasuries when the aggregate bank is already stuffed with excess reserves and Fed-injected deposits (so-called non-borrowed reserves) so the withdrawal of currency in this scenario is a swap of bank deposits for currency in the asset portfolio of the nonbank public. I don’t think currency withdrawal is a factor in the system relating to inflation nor is it a factor that impairs the aggregate bank system when backed by the Fed/Treasury acting a a Sovereign currency provider.

        MMT does not require a change from the current practice of selling Treasuries to cover the deficit. It argues that such practice is somewhat arbitrary and that other institutional arrangements would be possible if the government for some strange reason could not auction Treasuries in volume as necessary to cover its deficit.

      • Ferridder says:

        Money (M0, which is what is the private sector receives when governments spend) is just another sort of short-term government bond, as far as its properties as an asset goes (liquidity, sensitivity to information et c.) You should be equally concerned about where other government liabilities accumulate, i.e., not very in the context of this blog post.

        • Joe Leote says:

          If one consolidates Fed and Treasury balance sheets then the types of liabilities held as financial assets by other units:

          reserves (financial asset in the aggregate bank sector)
          currency (financial asset in the aggregate nonbank sector)
          Treasuries (financial asset in the aggregate bank or nonbank sector)

          If Fed purchases a Treasury when it issues currency, which was the case prior to late 2008, then the nonbank public has the option of holding the national debt as a mix of currency and Treasuries at its discretion, whereas Fed controls the level of reserves in the aggregate bank as the means to impact the economy via the target federal funds rate. There are many other financial assets in the US system that count as off-balance sheet liabilities of the federal government such as FDIC insured bank deposits, government insured student loans, and liabilities of government-sponsored entities (GSEs). The government need not capitalize its promises to spend in the future (e.g., social security spending) because like a bank it creates money as its own liability when it wants to spend and it cancels its own liability to accept a payment from a customer, so there is no need to “fund” its so-called “unfunded liabilities”. This is absurd on its face because the federal government creates money to bailout the so-called “funded” liabilities when the financial system is in crisis. Experts who pay no attention to cash flow realities or accounting customs will never get this. Finally a job guarantee just means that some of the money creation by the government (as bonds first and with the option to hold currency if you want) simply goes directly to reducing involuntary unemployment in local regions and the savings of Treasuries or FDIC insured deposits or uninsured deposits will be re-allocated by other secondary deals in the market economy. One can look at the flow of funds accounts to get some idea of where “other government liabilities accumulate” (in the portfolios of domestic and foreign units according to a complex evolution of secondary dealing).

  16. Person says:

    Yep, I fully get it now. I’ve been trying to avoid thinking about the dangers…

    If the GOP is able to get away with lower taxes while raising interest rates, and if this were to continue for any length of time, the result would be politically disastrous and unpredictable, and so too would the financial picture and the economy.

    These moves taken in tandem help to exacerbate inequality, and they imperial financial, economic and political stability.

  17. Charles Hayden says:

    Hi Jared,
    I hope you have had the chance to review Bill Mitchell’s blog post today. Part two is expected tomorrow.
    I checked in with Warren Mosler on facebook today and he said he would be willing to speak with you to go over your MMT questions. I hope you might find the time to do so.

  18. Billikin says:

    It is important to have a rejoinder to the current Republican strategy, which they have not bothered to hide, which is this:
    1) Cut taxes;
    2) Claim that the government cannot, therefore, afford the current level of social programs;
    3) Cut social programs.

    Perhaps the best rhetorical rejoinder is to throw Dick Cheney’s words back at them: “Deficits don’t matter.” MMT offers a reasoned response, however.

    Perhaps the Tea Party did not arise from a similar strategy, but the reasoning was similar. “We bailed out Wall Street, so we cannot afford to bail out Main Street.” President Obama abetted such reasoning by claiming in a CSPAN interview in 2009 that the government had run out of money, and in an earlier address, by embracing austerity via the fallacy of composition, saying that the American people were tightening their belts, so the government should tighten its belt, too. Thus, in 2010, when the winds of austerity were igniting the flames of the nascent Tea Party, MMTers were almost alone in facing the gale. Obama’s Yes We Can speech after he won the election could have been the modern equivalent of FDR’s “Nothing to fear but fear itself”, but Obama did not carry through. He was satisfied with a stimulus that was good enough to prevent a second Great Depression, but not good enough to provide a robust recovery. Had he spent 2009 on economic recovery, he would have generated political momentum for health care and insurance reform.

    Experience suggests that economic stabilizers should be as automatic as possible. As a top of the head example, indexing the minimum wage to GDP/population, while not a tax per se, would reduce the likelihood of a wage price spiral by reducing the incentive by employers to raise prices in an attempt to capture a greater share of the GDP. Wage earners would automatically tend to catch up. Yes, you could have a wage-price spiral, but its futility would be apparent, since employees would share in the increase without a fight. Another automatic stabilizer might be to make tax rates depend upon the rate of inflation, without Congress having to enact a new law. (A little brainstorming. :))

  19. Jerry Brown says:

    Jared, you must rate very highly- Bill Mitchell is providing a comprehensive reply to your questions at his blog (link provided above by Derek Henry). Part 2 was today and part 3 to follow. I am guessing there will be no complaints about lack of detail (or effort) in this response.

  20. JF says:

    The aggregated estimate of fewer tax revenues caused by the tax cutting legislation exceeds $100 Billion annually (probably much more, but close enough for the point). Ask the Fed how mechanically they would remove this amount of freed up money the furst year, and then every year thereafter, as a way to offset the hyper inflationary impetus it might foster? Sell existing bonds and then horde the cash on their books? Raise policy rates so net of interest being paid to banks now on their excess reserves, and the banks incentive to create demand deposits as the interest rate spread increases in their favor – so it is high enough to stall the economy? Ugh. The point us that the Fed has few good means of stopping hyper inflation.

    In downturns, Keynes said Spend. Your question really is whether the increased Spending being done compared to a prior period should be paid for by the revenue system as redesigned for the purpose of filling the evident gap in economic activity. This increased level of Spending does not have to be deficit or borrowing financed, taxes can cover the needed obligations to pay (the money flows immediately back into the economy at levels of higher degree of freedom (yes, unidling monies to get it moving into the economy).

    I think MMT people are saying that the increased Spending could just be created by the govt to pay the lawful claims for payment by the govt, instead of taxation. The finance law would need to be changed to permit this, but it could be done, of course. Probably limited, though the US has the greatest non-China credibility to distribute new monies/credit to a large degree.

    But also note that privileged financial system actors have an unlimited ability to create demand deposits via lending (limited by moral hazard awareness and common sense, that goes away more often than we’d like). Of course the public’s govt has the ability to create ex nihilo like these actors; governed, that is. Is it not odd to even question whether or not a republic has the capacity to create money/credit like banks (the right question has always been, why do banks have this privilege? A good question).

    So Spend, pay the lawful claims.

  21. JF says:

    As for the way to halt hyper inflation, you cannot look to the Fed unless you feel it is appropriate to disrupt the innocent lives who had nothing to do with creating the situation, and that is what a slam the brakes on central bank does, many people and households are harmed by a severe recession, 90 percent or more.

    Hyper inflation means that price-determining people can simply raise prices. We want them to stop raising and ratcheting. So ask them to stop, make public-good credible to these people, also regulate and enforce. Tax policy can help a bit to complement the regimes and public communication efforts. Dont look much to a Fed except as a regulator of bank behavior. Fortunately we have not had this problem for quite a while.

  22. Procopius says:

    Don’t say “the government has always sold bonds.” It’s like saying “never.” The current method of financing government was a creation of genius in England in the late 17th Century. Prior to that governments (at least in Europe) always relied on fixed term loans that had to be paid back. The current method means that, essentially, the debt never has to be paid, because the bonds are always in demand so are repaid by issuing new ones. Since the face amounts are small, there’s never any difficulty finding plenty of takers — eager takers, at that. See Fernand Braudel’s massive three volume history of “Civilizaion & Capitalism 15th – 18th Century.”

  23. Jordan from Croatia says:

    Proff Bernstein:

    1)Overheating is possible and monetary policy is a lousy mechanism to manage it.
    Monetary policy creates countercyclical but also procyclical effects while economy is overheating. What effect is more prevalent at the time depends on few factors.
    Monetary policy works by managing the cost of money to borrow i.e. interest rate. When the cost is rising as in overheating economy (if the FED is managing it right) the borrowers become more reluctant to borrow but also makes some potential investments unprofitable. That slowdown in borrowing slows down investments and also slows down the rise in new money supply. That is the cuntercyclical part.
    Now about procyclical part in overheated economy. There is a part of interest income that rises as interest rate rise. Depending on some conditions such interest income can be of greater size then the cost of borrowing reduces the new investments and money supply.
    One of those conditions is a 1980′ switch to private pensions. While public pension funds are Pay-as-Go being spent imediatelly, private funds grow with interest rates rise.
    This was the key reason that high interest rates worked (besides lower price of oil) under Volker. Today with private pension funds invested into interest income gorwn to such scale as it is Volkers policies would not be able to work because procyclical effects would equal countercyclical ones or at least come close to it.
    Monetary policies are a lousy mechanism to manage overheating just as they are bad at increasing demand today. Counter and pro cyclical effects are close to equal in strenghts.

    2)Yes, what about the FED? FED is what enables the state printing presses which is what MMT describes. If you are talking about 0% interest rate policies, i have descrbed in revious question that monetary policies can not work anymore due to increased funds that earn interest incomes then earlier countering the effects of monetary policies in desired way. Only effect becomes distributional and distorting. Those with savings i.e. wealthy grow their income with monetary policies fighting the overheated economy.

    3)Krugman’s financeability is fake story. Inflationary effects of government spending comes from spending itself, not from the way it finances that spending. “It sells them (bonds) to open markets of investors who could”. What investors? What wrong assumption such model shows? Using the word investors confuses the reality as if those investors would otherwise invest into economy if not buying government bonds. Those investors that buy bonds woud not invest into economy no matter what. Only a small portions are private funds that buy on secondary market. The huge majority are institutional investors that by law can invest only into government bonds. Such investors are banks, domestic government agencies and foreign Central Banks.
    So the majority of those funds financing government spending does not come from the economy itself but from financial system and those funds are designated and allowed only for safe government bonds which is what makes Central Banks’ abillity to print money and debt spend indefinetly.
    Lets not pretend that borrowing by federal state takes money out of circulation (it takes it only from financial system) and the problem you are talking about is solved. The bonds selling is what enables banks to create money out of thin air and lend it to economy and also enables government spending as if printing money.
    That is what MMT describes. It doesn’t recomends the change of the monetary system, it just destroys mythology about it. The mythology which says that government can run out of money and that gov debt can ruin the economy.
    That can be true only for those on fixed exchange rate and those who have to trade in foreign currency which puts them into debt spiral and cause them not to have independent monetary policy their economy needs but their policy is only to keep exchange rate no matter what their economy needs. (The independent Central Bank old meaning was ‘independent to pursue monetary policy’ which those on fixed exchange rate or Gold Standard can not have. Those are mostly policies for “former” colonies while “former” empires have independent monetary policies that their economy needs)

    4) Timing issues of revenue raising vs. printing money.
    Description of this problem clearly shows that you come from monetarist frame of mind and can not grasp the MMT descriptions of how present monetary systems work.
    More revenue is not needed for more public needs but solely to affect bad distributional effects of capitalist economy. Public needs are satisfied by decisions to spend, not by way to finance it which is what you are thinking about. Present moneatry system, which MMT describes, is what makes no difference in the way the spending is financed. Borrowing is not comming from economy but from financial system itself. To comprehend that we should separate finacial system for the economy and money that circulates in it and another system that is what enables all that which is government part.
    So, two monetary systems with barely intermingling funds but with mechanisms that interact and often follow feedback loops between them. One is private bank’s private accounts acting among ecnomic agents circulating digital money created by banks. Second financial system consists of reserve accounts at the Fed, Treasury, Fed and Congress.
    Again, those two finacial systems are often confused and monetarist do not see the difference. Once you comprehend MMT you will comprehend the separation of those two financial systems. Systems often independent of each other but also often being in feedback loops in some aspects.

    What makes them independent of each other is having flexible exchange rate and trading only in their own currencies which is intended only for “former” empires. “former” colonies can not enjoy that especially not to trade in their own currency, if they want to trade, they have to borrow foreign funds and then trade in them. This puts them into debts to foreign banks and kills their monetary policy.
    I hope that keeping exchange rate while economy suffers under high interest rates you would not consider as any kind of monetary policy. That is the monetarist way intended for colonies, not for empires. Just look at the Russia’s monetary policies when capital flight started caused by sanctions. They were determined to keep exchange rate while their economy suffers untill they have used up all available Reserves and figured out that will completely run out of reserves unless unfixing exchange rate which they did. Their monetary policy was only to keep exchange rate, raising interest rates while economy falters. Independent FED (independent of foreign debts) would never do such thing as they did. It is the difference of being an empire and colony.

    Why borrowing is wrong way to go also. As state borrows to spend and such borrowing provides interest income i.e. funds being pumped in in way of more debts in time of overheating econoy the rising interest rates will rise total interest income in circulation while trying to fight inflation i.e money supply growth. Spending by borrowing cretes distributional effects in interest income going to wealthy/savers.
    This is the major reason for growing inequality and preferencing investing into financial instrument instead of into economy itself. This is the major reason for Secular Stagnation if you want to call it that, or Pikkety’s “r>g”.
    Raising funds by borrowing is what incentivises the investments into financial instruments against investing into production.
    Also abandoning Pay-as-Go pension system toward more savings and investment private pensions is also another contributor to growing inequality, Secular Stagnation or r>g. Also lets not forget procyclicality of monetary policy.

    In conclusion, proff Bernstein, you do not fully grasp MMT yet, nor that it describes the PReSeNT monetary system as it is destroying mythology about it that monetarist were succesfull in creepingly changing the state of mind and terminology of even the most distuingished economists.

  24. Curt Kastens says:

    New Economic Perspectives dot org crafted a reply to your questions. After the reply I posted the following comments.
    I have now read this post and the original article that promted this response and I read the first of the three part series by Mr Mitchell and skimmed over the second two parts to see if my particular interest was addressed. I also read most of the comments on the two linked articles.
    What I see from these articles and the comments that were written afterwards is that everyone is debating the validity and pros and cons of MMT from a national economy perspective. Correct me if I am wrong. Do we still live on a planet with 200 national economies or do we live on a planet with ONE GLOBAL ECONOMY.
    Whose job is it to address the sustainability issue. I certainly understand that MMT is called that for a reason. It is an explination of how money actually works. It is explains in a very clear way that does not require a rocket scientist to understand why taxes are not needed to fund government operations. Yet such an understanding has a consequence not only for the USA but for the rest of the world as well. It destoys excuses for not fixing long lasting problems in the USA and shows how these problems can be addressed. What it omits is how the fixing of these American problems effects the rest of the 96% of humanity living outside of the USA.
    If the USA can use the supply of money to pump ups it economy and deliver the good life that Americans expect so can every other country. If the economy of every country is going through a demand boom how long will it be until the renewable and unrenuable resources become scarce? How long will it be until our skies and seas are severly poisoned? Should the US alone be allowed to have a good functioning economy or should Germany and Japan be considered too? Well wait a second could it be that there are measures that the government of the USA could take that would reduce consumer demand in other areas of the world to free up resources for conumption in the USA?
    Obviously that is beyond the scope of MMT but I think that a person would have to be an ass to say that it is a trick question. The answer is not a trick. It is either A: all the nations of the world can use the same economic policies recommended by MMT economists in which case I would think that it should be clear that humanity needs to worry about the environmental stability of the planet be challanged even faster than if all economies are depressed, or B:
    not all economies can be (are) allowed to do what the United States does in which case we are faced with a case of economic imperialism by means of currency policies.
    At this point some people usually say, yes this is why we need a world government to rationally distribute the world’s natural resources to meet people’s needs rather than have profit driven mulitnaitional corporations do it to make even more profits. Yet the chances of creating a well meaning world government are really quite slim. Even if that was not the case is putting all of humanities eggs in one basket really a wise thing to do?
    The best solution that I can come up with is that the world has to develope say 10 different multinational regional conferdetations or federations which can then (hopefully) reach treaties to allocate resources in a reasonably humane manner and to combat global warming and the destruction of the oceans. I could go on but that is enough for today.


    • UserFriendly says:

      You would be hard pressed to find an MMT advocate who wouldn’t say priority 1 is to develop green energy infrastructure. The other main dictum of MMT is that the only constraint on printing money/bonds is real resources (labor, oil, sand, ect). If any government tries to buy more than can be produced that is what causes inflation; at which point either a decrease in spending or an increase in taxes needs to happen to stop it.

    • Jordan from Croatia says:

      It is really puzzling how you have missed all the writings and ideas on solving sustainability and enviromental problems dissqused in MMT?
      Why do you miss so much that is writen about the issue you have raised? Can you comprehend anything if you keep asking questions that have long been answered?
      It is really interesting that you are creating fake problems to be disqused again and again?
      I noticed few commenters on MMT that keep repeating this question on planetary resource problem, why do you want to come back when that never was the problem for MMT?
      It seems that you are not comming in good faith and talking about this answered question. Please comprehend the issue and start to be positive. Thanks.

      • Curt Kastens says:

        OK I am guilty of not having read MMT and the environment. I will google it. Perhaps you can also reccommend some articles that you found exceptionally good.

        • Jordan from Croatia says:

          The best is from Bill Mitchell since he has worked on Job Guarantee idea which can easilly be used to fix environment while other sectors ruin it. Again the idea is that there is enough people to work on fixing environment issues. But also even at the present spending the repair of environment can be done by switching from spending for wars and destruction into creation and cooperation. You would agree that the present level of fighting financed by USA alone is very damaging for environment while providing no benefit to anyone. War fiscal stimulus is what is going on right now and jobs are provided in millitary, intelligence industrial complex that brings a lot of pollution. On the other side of the world true, but it is of the same consequence.
          It is all about poitical will to do what is right and MMT is here to disabuse people of the notion presented by neoliberal war parties that there is no funds nor means to repair environment and do what is right but do what is wrong and for the purpose of enriching feww people.
          MMT is not so much about projects but that there is infinite room for needed and beneficial projects which neoliberals are preventing with fake economics making people believe that “we’re out of money”.

          • Curt Kastens says:

            Hello Jordan and User Friendly too,
            I hope that you did not get the idea that I am oppossed to the policies put forth by the Bill Mitchell, Warren Mosler, and others at the U. of KC, MO. I was following the blog New Economic Perspectives for a while but that was some years ago. Last week I was wondering about something so I went to NEP to pose my question. Well in the mean time that became un important because I new the anwser all along I had just forgotten it. But comming back to NEPs got me interested in the responses to Jared Bernsteins article. Based on your criticisms I did a google search on MMT and environmental sustainability. You might find it interesting that when I did that an article from Bill Mitchell comes up that he wrote in December of 2012. It was a two part article, or at least it was supposed to be. But Google did not list part two. I could not find it on his site either.
            So in my current opionion those leading the charge for MMT may not have neglegted to address the issue of sustainability but that is certainly not what is getting the headlines.
            Yes there is a certain amount of sense in putting the emphasis on the truth that money can be made available for good purposes. What’s more, if I remember correctly tax policies to reduce wasteful consumption are also part of the plans put forth by the MMT leaders. That is actually the short answer to my criticism about emphasising full employment for the USA. I think that the longer answer is that MMT gets humanity moving on the right road in the right direction but we are not going to get to the goal of a just sustainable humanity without (enforced) international regulations (treaties). From what I have read again in the past few days it seems that those who support MMT understand that. I hope that they understand an implication of being a resposible world partner though. That is that what is good for the USA can not always be the primary goal of this international coordination. At this point I find it hard to give specific examples because who can say at this point what the opportunity costs will be for any course(s) of action at some future point in time. What I guess I am getting to is that the last time I drove down a US Autobahn I saw lots of rusted out old cars that would not even be allowed on the road in Germany. I also saw lots of huge new pickup trucks and even lots of huge mobil vacation homes the size of bus. That means that the percent of the US population that is overconsuming is way over 1%. Is it 5%, or 20%, or 40%?
            MMT can not be used to help these people continue life as usual. One way or another these over consumers (who might defend themselves by claiming that they are over achievers) have to be………be…..what would you call it, be made accountable perhaps? That will not be an easy task to acheive.

  25. Aaron says:

    North American economists L. Randall Wray and Stephanie Kelton have responded to you Jared:

  26. john says:

    “A theme of my work, to which MMTers often object, I think, is that we need to raise more revenues to pay for public goods. I recently wrote, for example, that, given our aging population, it will take something like 3% more of GDP to meet our obligations to Social Security and Medicare/Medicaid by 2035. MMTers push back that as long as we’re below potential, we can print the money to support government spending, so stop getting so wound up about “payfors.””

    What I don’t get is why economists spend so much time arguing about financing.

    If the investment in a public good has a sufficiently positive ROI (based on the dispersed benefits received) no one should care how we pay for it, only whether it’s a good deal.

    Lucky for us, EVERY contemplated public investment, after tens of years of neglect, has an ROI that is sufficient, and incidentally well in excess of private investment ROI.

    • Alan Luchetti says:

      Greenspan famously schooled Ryan on this (link below). Worry about whether the real resources will be there by 2035. Then worry about whether overblown concern now by a fiat currency issuer about financial resources is presently lessening the chance that the real resources will be there in 2035 (or whatever date the Peterson Institute chooses for rhetorical purposes). And don’t just worry about physical infrastructure either. On the supply side, worry about an educated workforce and a healthy environment. On the demand side, worry about a populace less crippled by social and medical problems arising from unemployment, poverty and pollution.

      • john says:

        Nice catch! We could use a Greenspan like that one today. And yes of course let’s include your other points in a broadened definition of infrastructure, as they all behave the same in terms of investment return.

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