The very few who are hostile to MMT have restricted their reasoning to “it’s wrong”, which I have to admit I find intellectually unconvincing. Would anyone like to address the argument?
Like most things theres a time and a place.
All economic theories assume everyone is rational, and humans are very far away from being that.
If money is infinite then why do you have to pay tax in the first place?
The Government dont need it, they can just keep printing it…..
Answered in the paper I linked originally. Please read it, and then maybe you can debate it properly.
If money is infinite then why do you have to pay tax in the first place?
The Government dont need it, they can just keep printing it…..
Methinks you're being deliberately obtuse here. It's clear you don't really understand what MMT is, so I will give you my usual advice to go away and do some reading with an open mind.
All economic theories assume everyone is rational, and humans are very far away from being that.
MMT isn't really an economic theory. It's a description of how modern government finances work and why the ubiquitous metaphor of household finances and the limitations that comes with it are wrong.
Can we not respond to all queries with "go and do some reading"...? Please try and summarise in a form that works in a forum reply. And if that isn't possible... ponder how hard it would be to explain it to the wider public.
A physicist, a chemist and an economist were shipwrecked on an island and the only item of food they had left was a tin of beans. They had no means of opening it so each tried to come up with an answer as to how to gain access to the contents. The physicist suggested smashing a stone on the can to create a crack, the chemist suggested immersing it in sea water to promote corrosion of the seams. After an exaggerated pause the economist said “let us assume we have a can opener”….
MMT is the product of a minority set of a “profession” which spends a disproportionate amount of its time theorising in unreal worlds. Unlimited spending only works if every government does it; in isolation the devaluation is catastrophic. (A form of it works in Japan because the government debt market is very substantially held by Japanese entities not overseas investors).
<span style="font-size: 0.8rem;">Can we not respond to all queries with “go and do some reading</span>
Normally I'd agree with you. However, when the original post said 'go and do some reading and then come back and discuss it', I think it's understandable that I might get a bit short with people who haven't done the reading but then proceed to gainsay stuff that is addressed in the thing they were asked to read.
Unlimited spending
MMT=/= unlimited spending.
It's just a way about being honest about how the government of the day manages access to and who benefits from, a useful resource.
Unlimited spending only works if every government does it; in isolation the devaluation is catastrophic.
Please show us where MMT recommends unlimited spending?
As others have already pointed out, MMT is a description of reality. What governments decide to do with that description is something else entirely.
Please try and summarise in a form that works in a forum reply.
We have. Many times. How many time have you hear myself and rone (and others) repeat the same things in very simple language? And yet people still respond with the tired old tropes about Weimar Germany or Zimbabwe even though they've been shown to be irrelevant.
So once again, to address the 'money isn't infinite' argument. The potential amount of money in an economy is not finite, because the government can - and does - create as much of it as it wants. What is finite however is labour and raw materials, so the govt will only create as much money as it thinks it needs to do the stuff that the available labour and resources can do, otherwise we get inflation. It may sound like a pedantic point buts it's an important distinction, because our politicians often tell us we can't have the things we want/need because there isn't enough money.
The reason people go on about it so much is because once you look at the economy and govt policy through the lens of MMT, most of the justifications for not doing stuff like having a well paid well functioning health service, cheap public transport, efficient local services, high quality schools, free universities etc evaporate. We can have all these things, and we can afford them. All we have to do is manage the economy in a slightly different way to the way we currently do it, and be honest with each other about how it works.
We can have all these things
Ah, but the capitalists (who are in charge, and look to be in charge for the foreseeable) don't want those things to be affordable and available, they want them to be scarce and expensive, so they can make a profit from them...
From the article:
It can be summarised by saying that MMT suggests that a government spends the currency that it wants to be used to make settlement of the taxes owing to it into the economy with the active assistance and support of its central bank when undertaking its routine spending, for the purposes of which expenditure the central bank provides all the money required by way of loans meaning that neither tax revenues or third party government borrowing are required to fund that spending
Ah, but the capitalists (who are in charge, and look to be in charge for the foreseeable) don’t want those things to be affordable and available
Of course, but that can be changed. Actually one of the thing I like about MMT is that unlike Marxism or other political/economic ideologies, it doesn't really require wholesale change (revolution if you like), but instead is saying that we already have the solution, we just need to change its focus. I see no reason why you couldn't have capitalism, markets, companies, profit, entrepreneurs, stock markets etc in an MMT world because that's what we already have. What we wouldn't have though is runaway unsustainable wealth accumulation and an assumption of infinite growth at the cost of the planet and most of the people who live on it.
It's ironic in the extreme that the critics of MMT go on about how money isn't infinite when they support a system which assumes infinite and exponential economic growth. It's not MMT advocates who are in denial about the finite nature of our economy.
If money is infinite then why do you have to pay tax in the first place?
The Government dont need it, they can just keep printing it…..
Taxes peform several important roles.
1) Control inflation by deleting existing money
2) Shape policy for example (tax on booze & cigs etc) to make something more or less appealing/expensive
3) Redistribution - so some wealthy people have too much 'stuff' money/resources - you can remove their purchasing power by limiting how much they can gain by taxing them heavily - which means more 'stuff' for the rest of us.
Unlimited spending only works if every government does it; in isolation the devaluation is catastrophic. (A form of it works in Japan because the government debt market is very substantially held by Japanese entities not overseas investors).
Again it's not unlimited spending that we're shooting for.
It's unlimited access to issuing money to purchase the things we need. There is no technical limit on the money that can be issued.
There is a huge difference.
Well Japan, New Zealand, USA, UK, Canada all do it. And like I said several times the USA economy has been very strong and it has issued trillions.
There is no absolute correlation beetween issuing money and devaluation - it's old fashioned gold standard thinking.
Just ask yourself next time you see an administration spend money on an Air Craft carrier or the military - budget is never of concern. Ever. It just zips straight through Congress or Parliament.
Speaking of the original post, I notice that we are on page 2 and no one has yet responded to my original request. The very few who are hostile to MMT have restricted their reasoning to “it’s wrong”, which I have to admit I find intellectually unconvincing. Would anyone like to address the argument?
This is a sad reality.
If you've been told for 40 years that taxes fund spending you're going to be angry when you find out they don't.
MMT is fairly logical in its approach but the machinations can be complex - the BoE definitely obfuscates the situation by actively denying it finances directly. There is also the problems of legacy - bonds/gilts are a roll-over from gold-stand and there are many examples like this.
How deep do you want to go?
Just take a step back and understand the government owns and controls the Bank of England and ask yourself in that case why do we need private money to fund public spending? It makes no sense at all to accept that we do, and when you unravel the process and look at the Covid spending package for example it's quickly very clear the private sector is not responsible.
My favourite Kelton quote during Covid.
https://twitter.com/StephanieKelton/status/1364059199123165185?s=20
we already have the solution, we just need to change its focus
Well put.
@rone - I hear your statements presented as fact.
I do kindly differ - but would struggle to explain why.
I don't accept all that you say is fact, it is a viewpoint, of which there are many.
I do kindly differ – but would struggle to explain why.
I don’t accept all that you say is fact, it is a viewpoint, of which there are many
Can you not offer something up? Monetarists themselves simply don't accept MMT - despite the masses of information. Don't forget I'm not the expert - Warren Mosler, Prof Bill Mitchell, Prof Randell Wray, Prof Stephanie Kelton and Prof Steven Hail are! I've just spent a lot of time with there material.
White Paper: Modern Monetary Theory (MMT)
https://docs.google.com/document/d/1gvDcMU_ko1h5TeVjQL8UMJW9gmKY1x0zcqKIRTZQDAQ/edit
Macro-economics is open to interpretation and there is debate within MMT about certain things of course. But MMT is an accurate description of government spending.
Kelton's story is interesting - she went to study (classically) about public finances expecting it to lead her down the path of private funding - but she kept getting knocked back with evidence the more she dug up that Central Banks fund the public purse.
I've put this up before but it was succinct - and relevant at the time for the pandemic.
another small one that I like.
So simple question and hopefully a simple answer. If MMT is great, why is everyone not doing it? Why is the G7 not saying, lads (its mainly lads) lets just do this. Its a vote winner, we will fix our infrastructure/health/energy issues, be the savour of our countries, they will build statues of us.
I do kindly differ – but would struggle to explain why.
"I know you're wrong but don't know why" 🙄
It took me a while to find it but look at this. It explains in one graph what MMT is (mostly) about. Notice how the amount of money in the economy (the green line) is a mirror image of the amount of the government debt (the red line).
Without govt 'debt' (ie money creation) we would have no private business. It's not opinion, it's a simple fact. The government creates the money, spends it into the economy, the private sector uses that money to do stuff, then gives it back in the form of tax. It's really that simple.
So simple question and hopefully a simple answer. If MMT is great, why is everyone not doing it? Why is the G7 not saying, lads (its mainly lads) lets just do this. Its a vote winner, we will fix our infrastructure/health/energy issues, be the savour of our countries, they will build statues of us
They are already doing MMT - or operating in an MMT system - they're just not taking advantage of it.
But it's a good question generally. Some politicians don't understand - some don't believe it works as MMT describes. Maybe they're scared that we would demand too much? There is also a great need to protect the establishment view. Look at how we've regressed with Brexit.
Think of it like this - the Government hasn't got a good track-record of necessarily acting in the interests of its population - so why should this be any different?
I recently gave my copy of the The Deficit Myth to our potential Labour MP - and I said that if Labour don't grasp this we will always be held back.
(Technically France, Germany and Italy don't operate MMT - have to go to the ECB and are not monetarily sovereign - but it's changed recently in the EU - and they did get access to their own funds. But it's a good reason to not adopt the Euro.)
So simple question and hopefully a simple answer. If MMT is great, why is everyone not doing it? Why is the G7 not saying, lads (its mainly lads) lets just do this.
Ask yourself some simple questions. Who benefits from monetarism and austerity? Who holds most of the private money in our economy? Who derives power from that wealth? The answer to your question is pretty obvious.
. If MMT is great, why is everyone not doing it?
If I said that the fact that we have a bigger national debt than 200 years ago would you think that's a good thing or a bad thing? And bear in mind what life was like for the average Joe 200 years ago when you do.
Now, if I suggest that debt (in this instance) means the money we owe ourselves does that change your mind about it?
Does the idea that govts have to run their finances like you do make it easy to understand govt finance? Do you think it's true?
I genuinely think that some politicians think that the "household" model is true, and I also think that some have realised if they tried to tell the public the truth, there'd be riots. I think politicians have dug a hole for themselves. In the 1930's when the first politician compared the way then that govt have to behave (because they were tied to the gold standard) like the average housewife it was generally true. But it also became an easy way to explain away why you can't do something (like give nurses a pay rise) that it was just too neat for them not to use when it was no longer true.
I think this is a key point:
What is finite however is labour and raw materials, so the govt will only create as much money as it thinks it needs to do the stuff that the available labour and resources can do, otherwise we get inflation.
In other words, MMT only works if the government can make money work as it should, i.e. as a means of exchange, a proxy for the available labour & resources that means we don't have to barter for everything. Ideally there is enough money created to slightly exceed the labour & resources around such that we get ~2% inflation.
When the government says "there is not enough money to do X" what they are really saying is a combination of "there are not enough labour/resources to do X" and "we are not prepared to redistribute the rights to existing labour & resources to do X". MMT is irrelevant to this - this is essentially all about wealth redistribution and the political will to enact it. MMT is just a way to make it a bit easier to sell the needed redistribution of wealth.
this is essentially all about wealth redistribution and the political will to enact it
Can just keep pasting this:
Government decisions are responsible here
But also Kelvin - most politicians do go around asking how are we going to pay for it.
That is the main narrative.
When did we last hear a politician asking - how are we going to resource it?
So MMT helps remove that restriction of money. It's a vital discussion.
So MMT helps remove that restriction of money.
Does it? It better explains the limitations and consequences, and the timing and options as regards interventions. Claiming that MMT removes restrictions on spending is what makes people with a broader understanding of economics bristle. MMT can help explain why certain intuitive models of the finances of state are wrong… but language about “no restrictions” and “no limits” around spending isn’t helpful.
https://twitter.com/StephanieKelton/status/1647342652570968064?t=fm-oUDWlynHdMSuxi_eLHg&s=19
The USA are worse with their mystical debt ceiling.
Claiming that MMT removes restrictions on spending is what makes people with a broader understanding of economics bristle. MMT can help explain why certain intuitive models of the finances of state are wrong… but language about “no restrictions” and “no limits” around spending isn’t helpful.
MMT is the description of the way the state spends.
And it does help remove restrictions on spending - that is not the same as no limits or no restrictions. It is a total fact that lack of money is the number one reason given for a government not spending.
Why evade the truth? In fact you are doing more here to possibly muddy the water unnecessarily.
It's the opposite rationale you should be pushing back against - lack of affordability - not doing word play against what is or isn't a restriction.
the description
Ah, economists. MMT adds important understanding, for sure. Don’t go all year zero on us.
And it does help remove many of the claimed restrictions on spending – that is not the same as no limits or no restrictions.
Agreed. With that little added clarification.
Ah, economists. MMT adds important understanding, for sure. Don’t go all year zero on us
What other model do you know that is accurate?
Case in point.
https://twitter.com/ITVNewsPolitics/status/1646128162743492609?t=Q_HKi9V4p8yclzWQbpeL9w&s=19
May I mention a couple of things that have not been mentioned yet (I think). Firstly, creation of what some regard as money by (commercial) bank lending, the fractional reserve and so on. And secondly debt owed by a government in overseas currencies, failure to pay whereof appears to be a signal for economic woe.
Where do these fit into MMT?
https://twitter.com/Allan1cas/status/1648417022768828416?t=BfmQFPLIRJVvTdaHqGa3fA&s=19
We end up with total horse-shit like this if we don't challenge the narrative of government finance.
If we reduce taxes it leaves more money in private hands. Not more money for the exchequer.
Firstly, creation of what some regard as money by (commercial) bank lending, the fractional reserve and so on. And secondly debt owed by a government in overseas currencies, failure to pay whereof appears to be a signal for economic woe.
Commercial bank money works on a different circuit to goverment spending - but is underpinned by the BoE. Commercial banks have accounts at the BoE to keep reserves in check.
We don't really have fractional reserve banking in the UK.
It's mostly in the form of loans that have to be repaid. So not what I would call net money. Government money doesn't have to be repaid.
Debt over-seas, can you be specific?
Some UK government debt is denominated in $ or €. Presumably those currencies are needed for something. So the national economy is connected with currencies over which the UK government has no control in a fiscal kind of way, not just because of trade etc.
Ah, UK foreign denominated debt is tiny.
About 8Bn I think. It changes all the time.
Worth remembering on the other side of the balance sheet whenever another country saves or invests with the UK they have to make Sterling investments.
And further to all this exports are a real cost (because you're getting rid of a resource) and imports are a net gain (because you're swapping something you have an unlimited access to - money for a someone else's resource.)
MMT is the description of the way the state spends.
Exactly and that is all that needs to be known about MMT (assuming people have read about it/listened to lectures etc,.). And as part of how it works high inflation is not a good thing.
And as part of how it works high inflation is not a good thing.
And yet again today we're told interest rates are to rise again, punishing everyone but those who hold assets and have large savings. The refusal to use fiscal policy to reign in inflation is going to crash the economy, all so the asset values of the rich can be protected. It's madness.
And yet again today we’re told interest rates are to rise again, punishing everyone but those who hold assets and have large savings. The refusal to use fiscal policy to reign in inflation is going to crash the economy, all so the asset values of the rich can be protected. It’s madness.
But how do you propose to use fiscal policy to control inflation?
Increase VAT?
Increase general taxation levels?
You need a mechanism that impacts the majority of the population to reduce demand.
Taxing wealth isnt going to reduce demand in the economy.
It'll raise government revenue, and redistribute funds, but wont have any meaningful impact on inflation.
Its just numbers on a balancesheet, not money which is flowing through the economy.
If interest rates were going up to double digit figures then I'd be the first person to say its wrong, but they are only being raised to "normal" historical levels. The only people being hurt are those who have borrowed in excess of their means.
But how do you propose to use fiscal policy to control inflation?
MMT economists have been pointing out for ages that that this inflation would rectify itself after a 2-3 years.
Adding income to interest just stokes inflation at the higher end.
Taxing wealth isnt going to reduce demand in the economy.
The wealthy have taken too many resources - taxing them limits their ability to do this.
Taxing wealth isnt going to reduce demand in the economy.
This particular bout of inflation is not caused by excess demand. It's caused by profiteering. Raising interest rates at the moment is probably inflationary. It's hard to avoid the conclusion that it is being done in order to increase unemployment and keep the proles in their place.
The only people being hurt are those who have borrowed in excess of their means.
Maybe their means were okay before the pandemic and the BoE have now created a problem for them that didn't need to happen?
It's been demonstrated time and time again driving interest rates to put people out of work to lower inflation is a terrible way to *fix* the economy.
You just end up with defaults, and the state having to support them with less productivity.
Monetarism doesn't offer good outcomes.
And further to all this exports are a real cost (because you’re getting rid of a resource)
You are swapping a resource for foreign money. Is the distinction between foreign money and "money the gov can print" relevant?
Interesting and irrelevent aside, I recently learned that yer actual notes and coins are not made by the BofE but by the Treasury (via sub-contractors), which sells them on at face value, a nice little earner for them.
