MMT

I’d say that probably the majority of those on here who have engaged in the threads touching on economics are hostile to the idea of MMT, and have been personally hostile to those posters who have dared to suggest that MMT could be helpful. I would strongly recommend that they read ‘The Deficit Myth’ by Stephanie Kelton, but it’s a long book and can be hard going. But the reason for this post is that Richard Murphy has just published a somewhat shorter explanation of MMT at https://www.taxresearch.org.uk/Blog/wp-content/uploads/2023/04/Modern-monetary-theory.pdf – it’s well worth a read, and I’d be really interested to hear where and how the doubters disagree with the logic of Murphy’s argument.

For me its not so much I do not believe it but that the enthusiasts for it on here have it as the answer to everything without any limits which is clear nonsense as you are diluting the value of the currency and thus at some point it will cause inflation and / or devaluation of the currency

I see it as one tool in the box not the panacea to all woes

I will join in.

I don’t want to complicate things but just be aware that Murphy is not an MMTer – he refutes some parts of it – but he’s definitely on the right side of the battle.

I can answer question too about the process not that I’m a professor or anything buyt I do know a few of the big hitters on the MMT side of things – and have entry level qualification in MMT / Macro.

Kelton’s book is relatively accessible to be honest but the best stuff comes from the MMT podcast – lots of great information about MMT and Q/E etc.

https://pileusmmt.libsyn.com/

Warren Mosler is the real father of MMT but very technical and he was a banker – he discovered it like this.

I would also recommend for detail maniacs: An Accounting Model of the UK Exchequer – a white paper created by freedom of information acts on the UK Exchequer.

https://gimms.org.uk/2021/02/21/an-accounting-model-of-the-uk-exchequer/

I’m working with some of the gimms people to produce a documentary about the subject. But I have to do this alongside my normal prodcution work so it’s taking a lot of time.

I have no idea if MMT will work or not. At this stage though, I’m not sure there’s any way to avoid it regardless.

which is clear nonsense as you are diluting the value of the currency

I don’t want to start a tangential argument, but the value of a fiat currency is only loosely related to its scarcity, if at all. Does the value of the pound go up when the government increases taxes to remove money from the economy? I’d still be

 really interested to hear where and how the doubters disagree with the logic of Murphy’s argument.

For me its not so much I do not believe it but that the enthusiasts for it on here have it as the answer to everything without any limits which is clear nonsense as you are diluting the value of the currency and thus at some point it will cause inflation and / or devaluation of the currency

I see it as one tool in the box not the panacea to all woes

No one on the MMT side says this stuff. We get responses like this all the time.

It doesn’t devalue currency – that’s decided on markets, for example USA spent trillions recently and because the economy has done well – money has moved into the dollar because of the economy’s strength. Currency goes up and down for all sorts of complex market reasons. (Dollar strength has regressed somewhat but that’s what happens when people move money in and out of assets.)

GBP and $$ are not pegged so there’s no automatic devaluation. A common misunderstanding.

That’s not what’s being said.

You can spend without budgetary limit but you would want to target the spending and keep an eye on inflation that might occur.

It is a tool – but lack of money is also the number one reason politicians give for not funding things. How much damage do you think that gives to society?

It’s not a solution to all woes.

I don’t want to start a tangential argument, but the value of a fiat currency is only loosely related to its scarcity, if at all. Does the value of the pound go up when the government increases taxes to remove money from the economy? I’d still be

Currency is largely irrelevent to MMT.

People get all hissy about it – but in reality things jump about. It’s not an automatic feature of MMT.

See my USA example.

Also MMT is a description – we don’t choose to do it. It’s an accurate model of government spending in fiat systems – with central banks.

The prescriptive side comes with political will – should we build new roads? – are the resources available etc.

the enthusiasts for it on here have it as the answer to everything without any limits

Sigh! No one has ever said that. The difference (to repeat again) is that the limit is not the amount money the government posesses or can create, but the labour and raw materials available in the economy. I really don’t understand what’s so difficult to understand about this simple point.

MMT has two sides to it. First a recognition of the reality of how goverment finances work in a country with a sovereign fiat currency, second how to manage those finances to provide stable prices, full employment, public services, national infrastructure etc. We already have MMT to a certain extent, but the mechanisms by which it is operated are ridiculously over-complicated and opaque which enables the financial sector to profit from being the middlemen. It could be managed much more simply, more fairly, and be more accountably. You don’t have to think too hard to see the reasons why it isn’t.

Basically the magic money tree does absolutely exist, but only a tiny few people have access to it and benefit disproportionately from it. Dodgy PPE during covid was a classic example. If we were honest about how it all works and transparent and accountable about how it is operated, the PPE scam would never have happened.

We’re in the process of seeing the negative affects of MMT

Quantitate easing post 2008 and the pandemic, plus high employment rates following Brexit and people retiring early.
Both have contributed to the current high levels of inflation we’re currently seeing.

High inflation hurts everybody, especially those at the bottom, so it needs to be brought under control.
Pumping more money into the economy is just adding fuel to the inflation fire.

The exchange rates between the £ & $ are closely linked the the interest rates in both areas, so there has been a flow of funds to the US where the return on Bonds are higher. Also Brexit hasnt helped as we’re no longer the obvious choice of international companies to set up an EU base, which has made the £ less desirable.

We’re in the process of seeing the negative affects of MMT

No we’re in the process of seeing the negative effects of an economy being managed in the interest of a tiny few rich people.

High inflation hurts everybody, especially those at the bottom, so it needs to be brought under control.
Pumping more money into the economy is just adding fuel to the inflation fire.

And if you read the stuff about MMT you’ll see that it is in agreement with this. The difference is in how inflation is controlled, by leveraging more tax on the economy and targeting it the most inflationary sectors such as asset owners. Currently asset owners are protected, and producers (ie workers) are punished. As a good example we have the perverse situation of pensioners getting an 11% rise while workers get much less.

The difference is in how inflation is controlled, by leveraging more tax on the economy and targeting it the most inflationary sectors such as asset owners. Currently asset owners are protected, and producers (ie workers) are punished.

Which comes back to Fiscal vs Monetary policy.

Either way you’re looking at reducing the amount of money in circulation, its just which mechanism you’re using to achieve it.

Rone – you are the worst offender for it!  You constantly say its the solution without limit to every problem

 but lack of money is also the number one reason politicians give for not funding things.

100% this. There is no shortage of money and there never will be, there will just be different ways to control its distribution (public and private)  and its worth (inflation). MMT isn’t a untried method of how money is created, Its mostly how governments fund things already, the lies told to the public about “household budgets” and “balancing the books” are ways in which politicians protect the wealth and asset holding classes to the detriment of the wider population.

There is an investment adage that “the four most dangerous words in investment is “this time it’s different””. And MMT is a macroeconomists version of it. It’s a wrong ‘un.

Either way you’re looking at reducing the amount of money in circulation, its just which mechanism you’re using to achieve it.

Yes, and if done via taxation it’s fairer and more transparent. No one is arguing that inflation doesn’t need to be controlled, it’s one of the central pillars of MMT. It’s not MMT that has caused inflation, it’s the unwillingness of the govt to limit energy price rises and tax asset owners. The idea that there is too much money in the economy is ridiculous. At least there are some people who seem to get this..

This is why he had to go. No other politician speaks like this..pic.twitter.com/JPIVMVA6J0

— Anthony (@whitecarz) April 17, 2023

We’re in the process of seeing the negative affects of MMT

No we’re in the process of seeing the negative effects of an economy being managed in the interest of a tiny few rich people.

MMT can be used to benefit the “tiny few rich people”… arguably that’s exactly what happened in the UK at the height of the pandemic under the schemes Sunak designed that had the government funnelling more money to the rich, especially their VIP contacts. Same again with energy prices… plenty of new money from the government going into Shell developing new oil and gas fields, and taken in profits. Sunak uses MMT, just tailored to fossil fuel production and huge back handers to Conservative backers.

it’s always the ill-informed.

Quantitate easing post 2008 and the pandemic, plus high employment rates following Brexit and people retiring early.
Both have contributed to the current high levels of inflation we’re currently seein

Q/E is not MMT for a start.

MMT can be used to benefit the “tiny few rich people”… arguably that’s exactly what happened in the UK at the height of the pandemic under the schemes Sunak designed that had the government funnelling more money to the rich, especially their VIP contacts. Same again with energy prices… plenty of new money from the governemnt going into Shell developing new oil and gas fields, and taken in profits. Sunak uses MMT, just tailored to fossil fuel production and huge back handers to Conservative backers.

A slight distortion of what happened.

Government decisions are responsible here – not MMT itself. You don’t blame the road for speeders – you blame the drivers.

MMT happens irrespective of political choice.

Government decisions are responsible here

Obviously.

Rone – you are the worst offender for it! You constantly say its the solution without limit to every problem

I’m not an offender.

I’ve just detailed what I think above.

Once again (for the hundredth time) – the is no budgetary reason why a government (with a central bank) can’t spend as much as it needs on whatever is available in its own currency.

The actual limitations are inflation and real resources.

Governments spend money into existence so you can can fulfil your tax obligations. That’s what gives demand to the money.

The idea that sterling is finite is the issue.

I’m not doing this one again TJ in this context with you flipping out about it. I get that some of this is a shock to people who were told by the establishment – this – is – how – it is.

I was just this morning looking into the process of BoE spending for government to help summarise it.

There is an account at the BoE for the UK government called the Consolidated Fund. (which sits along side 3 other accounts in the process (HMRC account etc)

This starts the day at 0. Spending takes place every day with a zero account. Tax revenue never reaches the spending account, it only deletes off from the C.F at the end of the day. And when what is left rolls out to the National Loand Fund for borrowing – after all the spending has been made.

The first tranche of pension payments go out at 09:30 when the accounts are zero.

It’s technically impossibel to start the day with a positive balance on the C.F. You know why – because the BoE create the money for purchasing everyday.

Anyway, if we didn’t have MMT the alternative would be even worse austerity and stagnation. Having to tax first before you can spend is a stupid way to run an economy and would lead to deflation and depression. We flirted with that in 2008 and during covid. The solution was to create money and use government policy to distribute it where it needed to go. It had some negative effects in that it filled the pockets of people who shouldn’t have received it and pumped up the stock market and property prices, but without it we’d have been looking at double digit unemployment and mass bankruptcies. What we need to do now is make sure we get that money back by taxing the wealthy and spending the money on public services and infrastructure.

If the UK Government was to do something constructive with our money. Like investment in infrastructure, skills and productivity there could be significant long-term benefits. However, all that QE resulted in corporations using cheap money to fund share buy-backs (rather than investment) the nett effect being to improve EPS, thus improving exec bonuses and their remuneration giving them an excuse to pay themselves even more money. Not helped by this venal government who see it as their mission in life to transfer the wealth of the nation to their coterie of chums and donors to the detriment of everything else.

Having to tax first before you can spend is a stupid way to run an economy and would lead to deflation and depression.

No government works that way. The spending always happens first. Taxation follows on. No budget would announce that the tax burden would rise the following year… but then spending increases are held back to the following year. They say what they plan to do in the coming year, and then revenue is collected back after the event, often in subsequent years.

The solution was to create money and use government policy to distribute it where it needed to go.

Absolutely. And it happens all the time, but the pandemic was just relatively contained time wise so a good example to explain it to people. Watch where all the new money goes though… and who later gets hit by the taxation (and wage restraint/devaluation).

[ EDIT: to be clear, I agree with your post 100% Dazh ]

Just to be clear – Q/E is not MMT.

it’s basically a round the house approach to make it look like government funding was ‘borrowed’.

Q/E on its own injects no more funds into the system. Q/E just buys up exisiting bonds and gives cash back to the purchaser. No net increase in funds.

Monetarism is the opposite of MMT – these guys believe everything starts with the private sector. And of course there is a commercial banking sector but it is underpinned by the BoE. They make loans not ‘net money’. It has to be paid back.

So money that is used to buy bonds is just government spending that has already happened – and the national debt is a record or score keeping of that process. It’s not an actual debt that needs to be paid back.

So the ideal would be simply to ‘use’ MMT to fill the holes currently in the state system.

NHS – Wages – go into the real economy – big boost.
Green infrastructure / energy
Schools

All the stuff we want – but this is a big debate. What do you want?

Why Tories / Labour are against the first part I will never know – if you want to grow the economy you have to grow the state, and spend into it.

Monetarism ruins everything. Blame Milton Friedman – he’s so wrong on inflation as most of us would agree.

I’d like to like that post multiple times Rone.

Why Tories / Labour are against the first part I will never know

Because politicians generally don’t understand how the economy works, so they ask the ‘experts’ like Andrew Bailey and the CEOs of the big banks. Those experts tell them monetarism is the only way because it gives them power and riches. The politicians who do understand are either dismissed as dangerous radicals or being bought off to keep quiet about it. Keir Starmer is a classic example of a politician who doesn’t understand and the likes of Rachel Reeves are the ones who know but don’t speak out.

No government works that way. The spending always happens first. Taxation follows on.

Can I just jump in and modify, and say local government is funded by taxation – they’re currency users.

That’s why local government takes the hit on local services.

They’re constrained.

That’s why local government takes the hit on local services. They’re constrained.

Government decisions are responsible here

Because politicians generally don’t understand how the economy works, so they ask the ‘experts’ like Andrew Bailey and the CEOs of the big banks. Those experts tell them monetarism is the only way because it gives them power and riches. The politicians who do understand are either dismissed as dangerous radicals or being bought off to keep quiet about it. Keir Starmer is a classic example of a politician who doesn’t understand and the likes of Rachel Reeves are the ones who know but don’t speak out.

I agree – I meant more that they want and expect private sector growth so why be against state spending?

Sunak wants to lower the national debt and create growth. The two don’t simply operate like that.

The idea that sterling is finite is the issue.

This is just nonsense

Anything which is infinite has no value.

Also I’m totally against the charade of BoE independence. (They’re not independent in a literal sense of the word) – The BoE is currently making all the wrong decisions for many peoplpe – and wilfully harming by pushing unemployment as a back-stop to inflation (that these same people didn’t cause) but neither Rachael Reeves or Hunt will make any sort of a stand with them.

How is that democratic or reasonable?

This has nothing do to with MMT as such.

This is just nonsense

Anything which is infinite has no value.

It’s categorically not nonsense.

We’re not on the gold standard any longer (if you haven’t noticed) so it is not backed by anything.

It’s created when it’s needed for spending.

It’s domestic value is determined by taxation – so there’s not a infinite supply out there – just an infinite mechanism (marking up accounts digitally) for spending. Taxation destroys money in the same way it’s created.

Inflation arising out of too much spending is your marker that there may be too much money chasing too few goods. (Current inflation doesn’t arise out of this as we’ve discussed.)

I meant more that they want and expect private sector growth so why be against state spending?

TBH I think Sunak actually thinks the private sector ‘creates money’. Being an ex-investment banker doesn’t really qualify him to manage an economy. He no doubt thinks that as long as the rich are in control, they will generate wealth and hence growth. Starmer on the other hand is just terrified of speaking the truth and going against the entrenched small state paradigm. I hope and pray it’s just and election strategy, but the more I listen to him and Reeves the more I think they actually believe this nonsense. It’s depressing.

Sterling is not infinite. It is finite… but that limit can be changed at any time to any amount by the state (however that is split up between government and central bank). So it’s variable, yet controlled. The limit is arbitrary and can be changed. And we all know that it is, don’t we? No one is claiming it never increases in supply, are they?

. I hope and pray it’s just and election strategy, but the more I listen to him and Reeves the more I think they actually believe this nonsense. It’s depressing.

I’m happy to be wrong about him if that did occur. But can’t see it. He’s establishment through and through.

Sterling is not infinite. It is finite…

It’s infinite in terms of the state to keep creating it. It isn’t going to run out.

Whereas on Gold-standard or Bretton Woods it wasn’t.

TBH I think Sunak actually thinks the private sector ‘creates money’.

He said as much – smack bang in the middle of the pandemic.

‘The government has no money of its own.’

What a fool.

Anything which is infinite has no value.

Money has no intrinsic value. It’s just a promise, and promises can be broken. It only has value because it is very convenient for us all to continue to pretend that it has.

‘The government has no money of its own.’

Isn’t that a Thatcherism? Ah yes, her exact words were:

Let us never forget this fundamental truth: the state has no source of money other than the money people earn themselves.

Utter bollocks then, utter bollocks 40 years later.