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The MMT debate

from Lars Syll

  1. Patrick Newman
    May 15, 2019 at 11:50 am

    Taxation? Read my lips – no new taxes, but how about reversing the tax cuts made as a windfall for major corporations that Trump gifted his oligopolistic friends?

  2. lobdillj
    May 15, 2019 at 2:19 pm

    Dean, like all other mainstream economists (and all politicians) is always ready to ask, “How’re you going to pay for it?” This implies that taxes are the resource, and you can only raise them so much (never enough to pay off the national debt, however). The fact is taxes are removed from the money supply and are extinguished by the government upon reception. They are not income that can be actually used to pay for anything. ALL expenses of the government are paid with newly created money. So it is wrong to speak of taxes as being the source of income from which all government spending will be (even eventually) paid. The national “debt” is a useful fiction to be used as a weapon against spending programs that the power in Congress wants to fund or suppress.

    • May 16, 2019 at 7:14 pm

      “The fact is taxes are removed from the money supply and are extinguished by the government upon reception. They are not income that can be actually used to pay for anything. ALL expenses of the government are paid with newly created money.”

      I’m afraid your “fact” is no more than an unsupported assertion. What makes you think it’s true? How’s this for a fact? “All taxes, including so-called personal ones, are expensed and paid by enterprise*. Firms then pass these costs on down to the retail level where they will need to be resolved by those on the receiving end of government income, as these are the only individuals having that ability.” The costs of e.g. M-I complex output are not passed on down to the retail level, because, while vertically integrated separately, these form forcibly payable final goods already. It’s producers do share in regular final output however, thanks to taxes as income. And even though it’s true that gov’t liabilities are private sector assets, in a free-enterprise system there is no “G” sector that as such is able to balance independently.

      MMT, while indeed better than anything out there at present, is still far too ambiguous to convince its skeptics. How about coming up with some assumptions that are undeniable, so that MMT can be made a theory that is true until contradictions make an appearance? Kelton, for one, at least used to readily admit it isn’t a theory [yet]. Cf. Stephanie Kelton, Session 2, 1st Fiscal Sustainability Teach-In and Counter-Conference
      George Washington University, Washington DC, April 28, 2010

      *) This is a first approximation only, (e.g.) private property taxes aren’t. But given** that all taxes (regardless under what pretext they are charged) are paid out of income, there still is an income-for-income exchange for the purpose of resolving final output between those obtaining personal income from the public and private sectors.
      **) Following from a monetary theory that _is_ based on assumptions.

      • lobdillj
        May 17, 2019 at 5:13 pm

        Thanks for your input, John. I’m having a hard time trying to understand what you are saying. What, exactly do you mean when you say, “How about coming up with some assumptions that are undeniable, so that MMT can be made a theory that is true until contradictions make an appearance?”

        What is the deniable assumption in my comment? What is the unsupported assertion?

        And further, I don’t understand what you are getting at when you say, ”All taxes, including so-called personal ones, are expensed and paid by enterprise.” This seems to contradict the “fact” that every taxpayer, individual or organization, pays income taxes.

        You seem to be unimpressed with the undeniable fact that taxes require payment in dollars, and this requirement guarantees the domestic demand for dollars, regardless of whether the dollar is backed by a commodity or backed by nothing at all (as in “fiat money”)

        Today our dollar is fiat money created by computer keystrokes. It has no intrinsic value. The creator of the currency is the sovereign power in the land, and its ability to create currency is unrestricted. This is not to say that GDP is unaffected by currency issue decisions. (Am I making any unsupported assertions or assumptions so far?) Is it too much of a stretch to say that the sovereign is a different kind of economic player than households or other entities that use the currency? Is it a stretch to say that the economy is populated by those whose activities are necessary to the production cycle and those whose activities make no contribution to production?

        So far I don’t see any unsupported assertions in the above.

      • May 18, 2019 at 1:53 pm

        You’re trying to explain the economy’s workings from a determinate and static _is_ condition onward, lobdillj. This would be a deniable assumption. But thanks for engaging too.
        An individual’s taxes are paid from the income provided by firms as their costs, as such no different than their “own” taxes are a part of those costs. And firms can only sustain their operation through vertically integrated returns on final output over time by all individuals; with the latter receiving income disbursements in both its private and public sectors. If these are indeed undeniable facts that apply to an economy behaving dynamically, then you’ll need a coherent theory of the “money supply” to explain why taxes are removed from it. If you can’t, it’s an unsupported assertion

        MMT explains the economy’s finances operationally. For better or worse, it either refuses or is unable to set assumptions, so as to delineate a theory from there. Hence, a theory it isn’t. Unfortunately, their resulting (non-)theory of the money supply seems to be full of holes. First, as alluded to above, it explains in terms of what it does and not what it is. Second, it has no way of explaining how “liquidity”, identified in the main as a cash asset, comes about; or remains intact after the payback of loans allegedly has shrunk that very money supply. And third, it can’t identify what exactly diminishes operationally for entrepreneurs when loans are paid off, with only bank-income related demand for final output having come to a stop together with their interest payments; yet now, according to them, requiring new loans to sustain production and aggregate demand. To me all of this strongly suggest that MMT’rs haven’t freed themselves from the illusion that money (and its supply) is a statically approachable _thing_. Dynamically, and with continuity being the criterion, there is no determinate money supply. Same as nothing else (i.e. stock) _is_ a valid point of departure from which to start analyzing. Money as a fundamental no-thing is strictly a unit of accounting for flow, subject to inflation and deflation when manipulated, entirely loose from CPI evidences occurring later. This is how it rolls out of my own set of first principles, true until proven false by contradictions showing up.

        I’ll make this short re. the rest of your points. As long as you can keep yourself from falling into the trap of considering money as a substantial thing that is, like a physical means of exchange or store of physical value, I’ll likely agree with you. Except perhaps on the subject of a job guaranty program. I consider MMT’s approach as a band-aid solution to a situation that as a rule is hemorrhaging average-pay occupations, jobs that never should have been lost in the first place, and replacing them with minimum-wage jobs. While for sure a better than nothing interim plan to getting those resigned to remain outside the active labour force back into it instead, I consider a return to the much more progressive taxation policies of the post-war “golden age” to be far more effective; as it would be grabbing a hold of the cause of involuntary unemployment, and not just treating the symptoms through a monetary manipulation that isn’t side-effect free.

      • lobdillj
        May 19, 2019 at 1:02 am

        JV: You’re trying to explain the economy’s workings from a determinate and static _is_ condition onward, lobdillj. This would be a deniable assumption.

        JL: John, I’m still not clear on what you’re trying to argue. You say (above) that an attempt to explain the economy’s workings is a deniable assumption? This doesn’t make sense to me.

        JV: An individual’s taxes are paid from the income provided by firms as their costs, as such no different than their “own” taxes are a part of those costs. And firms can only sustain their operation through vertically integrated returns on final output over time by all individuals; with the latter receiving income disbursements in both its private and public sectors. If these are indeed undeniable facts that apply to an economy behaving dynamically, then you’ll need a coherent theory of the “money supply” to explain why taxes are removed from it. If you can’t, it’s an unsupported assertion.

        JL: Money supply is a definitional term, not requiring a “coherent theory”. It has nothing to do with where a taxable income comes from or how the payor obtained it.

        JV: MMT explains the economy’s finances operationally. For better or worse, it either refuses or is unable to set assumptions, so as to delineate a theory from there. Hence, a theory it isn’t.

        JL: I don’t understand this at all.

        JV: Unfortunately, their resulting (non-)theory of the money supply seems to be full of holes. First, as alluded to above, it explains in terms of what it does and not what it is.

        JL: I’m sorry, this doesn’t make sense to me.

        JV: Second, it has no way of explaining how “liquidity”, identified in the main as a cash asset, comes about; or remains intact after the payback of loans allegedly has shrunk that very money supply.

        JL: What do you mean “allegedly”? And liquidity doesn’t “come about” nor “remain intact”.

        JV: And third, it can’t identify what exactly diminishes operationally for entrepreneurs when loans are paid off, with only bank-income related demand for final output having come to a stop together with their interest payments; yet now, according to them, requiring new loans to sustain production and aggregate demand.

        JV: To me all of this strongly suggest that MMT’rs haven’t freed themselves from the illusion that money (and its supply) is a statically approachable _thing_. Dynamically, and with continuity being the criterion, there is no determinate money supply. Same as nothing else (i.e. stock) _is_ a valid point of departure from which to start analyzing. Money as a fundamental no-thing is strictly a unit of accounting for flow, subject to inflation and deflation when manipulated, entirely loose from CPI evidences occurring later.

        JL: I have no idea what you are talking about above.

        JV: This is how it rolls out of my own set of first principles, true until proven false by contradictions showing up.

        JV: I’ll make this short re. the rest of your points. As long as you can keep yourself from falling into the trap of considering money as a substantial thing that is, like a physical means of exchange or store of physical value, I’ll likely agree with you. Except perhaps on the subject of a job guaranty program. I consider MMT’s approach as a band-aid solution to a situation that as a rule is hemorrhaging average-pay occupations, jobs that never should have been lost in the first place, and replacing them with minimum-wage jobs. While for sure a better than nothing interim plan to getting those resigned to remain outside the active labour force back into it instead, I consider a return to the much more progressive taxation policies of the post-war “golden age” to be far more effective; as it would be grabbing a hold of the cause of involuntary unemployment,

        JV: “…and not just treating the symptoms through a monetary manipulation that isn’t side-effect free.”

        JL: Huh?

      • May 20, 2019 at 8:20 am

        J.L, perhaps a focusing on the deleted crucial context of that sentence would have made more sense? There are I think four possible states of the economy’s elements to interact as a system, to wit: determinate-static-linear, determinate-dynamic-linear, determinate-dynamic-nonlinear, and interim (meaning, until an exogenously located determining purpose becomes fulfilled) indeterminate-dynamic-nonlinear. Each has its own separate epistemology, and the question is which of those states describes the economy best. My search for answers concerns the last one, because, while believing it relevant, I’ve yet to come across an open question or contradiction. And from that specific position, determinate-static-linear arguments are deniable.

        Is this a debate about seeking the true reality of an economy’s workings, or are you a true believer convinced of having found that truth already? Definitional terms in and of themselves are meaningless. And relative to their truth they could even be total nonsense. To know if anything is true and not just ideological you’ll need to set assumptions and delineate a truth in its terms. But then again, it may all be redundant to you.

        You don’t understand “operational”? Perhaps this will help: “The ideas [of MMT] are not theoretical, and they aren’t particularly modern. What we’re doing is simply describing, operationally, the way government finance works. It’s not a theory; we do not make assumptions, although we are economists. What we’ve been describing to you today is not dependent upon any ceteris paribus condition or any set of assumptions about perfect competition or rational agents or anything else that you get exposed to when you study economics, but rather an attempt to simply describe the way in which the institutional arrangements are set up, and the accounting identities and what happens in a balance sheet framework; when one side of the equation moves, what happens on the other side of the equation? That’s really all we’re up to…”
        Stephanie Kelton, Session 2 — 1st Fiscal Sustainability Teach-In and Counter-Conference. George Washington University, Washington DC, April 28, 2010

        MMT, from an an economy’s operational point of departure, alleges that paying back loans diminishes the money supply. I guess it seems only logical that if loans create money, paying them back must destroy that money. Unfortunately, not having a theory of what money _is_ to fall back on, that definitional term may just as well be nonsensical as it could be true. And from the position of a paradigm whose (interim) status is indeterminate-dynamic-nonlinear, while loans indeed do create money, only failures in the demand for production output leading to bankruptcies will destroy it. So if the latter interpretation, arrived at from a set of first principles, reflects the economy’s true reality i.e. its ontology, MMT’s ideas about a shrinking money supply are bunk.

        What’s your definition of liquidity? I guess we’ll take it from there for I think this post is already long enough. On the other hand, while Keynes made sense that the difficulty doesn’t lie in accepting new ideas but in escaping from the ones already having saturated one’s mind, I’m not altogether convinced that you’re not feigning your incomprehension as a debating tool either.

      • lobdillj
        May 20, 2019 at 3:38 pm

        This is going nowhere. I apologize for wasting space.

  3. May 15, 2019 at 2:35 pm

    A good start on explaining MMT, but we need to go deeper and help people understand the politics of money -creation and credit-allocation, as in our TV special seen on PBS stations in the USA ” The Money Fix ” ( free to our colleagues at http://www.ethicalmarkets.tv and globally distributed for classrooms at http://www.films.com ).
    Then we need to explain how financialization has become predatory on the real economy
    ( see my reviews of Nick Silver” Finance,Society & Sustainability”(2018); Nomi Prins : Collusion (2018) and Mariana Mazzucato ” The Value of Everything” (2019) all at http://www.ethicalmarkets.com,on our Books & Reviews page.

  4. May 15, 2019 at 2:49 pm

    There was not one word mentioned about war and the reality of existing deficit spending going to war.

    Logic leading to avoidance of deficit spending have zero to do with the thinking of modern economists. The subject of economics is rank blindness and religious faith the central experts can conjure a green new path away from approaching species suicide.

    Three grown men blathering about mmt economics that have nothing whatsoever to do with real economics on a program called real news.

    I scroll down to cut off below the mouths and avoid moving video brand name brain washing when I listen to things like this.

  5. Craig
    May 15, 2019 at 7:00 pm

    MMT, like Keen’s financial instability and Hudson’s financial parasitism are all trying to deal with the correct problems, it’s just that they all still reside within the current monetary paradigm and haven’t recognized the paradigm changing policy point whose operation can bring directness of the monetary circuit and immediately “kill the two problematic birds of economics, scarcity of available individual income and chronic inflation….with one stone”.

    When you recognize that a 50% discount/rebate policy at the point of retail sale is the very temporal universe expression of the new paradigm of Abundantly Direct and Reciprocal Monetary Gifting the scales fall from your eyes.

    Yeah, yeah, yeah you still have to regulate and be vigilant because the world and man is not an altogether rational and ethical being, but JFC, what else is new? A new paradigm, that’s what and the secret that the OCD theoretical/scientistic types can’t understand is….EVERYTHING ADAPTS TO A NEW PARADIGM, NOT THE OTHER WAY AROUND….BECAUSE IT’S SUCH A SINGULARLY PROGRESSIVE EVENT FOR EVERYBODY BUT THE OBVIOUS BAD ACTORS THAT DESPERATELY NEED TO GET A STAKE DRIVEN THROUGH THEIR HEART ANYWAY.

    Wisdomics-Gracenomics concisely enumerates what needs to be done to complete MMT and Keen’s and Hudson’s work among others. And the rest….we learn by doing while being faithful to the concept behind even the new paradigm.

    • lobdillj
      May 18, 2019 at 2:31 pm

      I think we both understand what is wrong. We have a fiat money system now, and it is still being operated like a hard money system.

      • Craig
        May 18, 2019 at 6:41 pm

        Yes, all of the leading heterodox theories/theorists basically agree on what needs to be done (injecting more money into the system while preventing consumer price and asset inflation) it’s just that they don’t know a truly thorough and effective way of accomplishing it.

        And that’s where Wisdomics-Gracenomics’ insights about the inversion power point of retail sale and the guiding, underlying and enlightening signatures of all historical paradigm changes point the way. It integrates and completes all of the heterodox insights. Reforms are like cladding on the side of a house. Paradigm changes are an entirely new dwelling.

  6. Helen Sakho
    May 15, 2019 at 11:15 pm

    Wonderful Live photo opportunity to say what exactly? I’m afraid I am baffled by it all, expect to say that in this context MMT might well stand for the Mirages and Miracles of Tautology.
    Still, others might think differently. Each to their own as the saying goes.

    • May 16, 2019 at 3:02 am

      I will never forget the Mirages and Miracles of Tautology. They explain everything.

  7. Ken Zimmerman
    May 21, 2019 at 2:02 pm

    Money is not a commodity medium of exchange, but a social technology composed of three fundamental elements. The first is an abstract unit of value in which money is denominated. The second is a system of accounts, which keeps track of the individuals’ or the institutions’ credit or debt balances as they engage in trade with one another. The third is the possibility that the original creditor in a relationship can transfer their debtor’s obligation to a third party in settlement of some unrelated debt. This third element is vital. Whilst all money is credit, not all credit is money: and it is the possibility of transfer that makes the difference. An IOU which remains forever a contract between just two parties is nothing more than a loan. It is credit, but it is not money. It is when that IOU can be passed on to a third party—when it is able to be “negotiated” or “endorsed,” in the financial jargon—that credit comes to life and starts to serve as money. Money, in other words, is not just credit—but transferable credit. As the nineteenth-century economist and lawyer Henry Dunning Macleod put it: These simple considerations at once shew the fundamental nature of a Currency. It is quite clear that its primary use is to measure and record debts, and to facilitate their transfer from one person to another; and whatever means be adopted for this purpose, whether it be gold, silver, paper, or anything else, is a currency. We may therefore lay down our fundamental conception that currency and transferable Debt are convertible terms; whatever represents transferable debt of any sort is Currency; and whatever material the Currency may consist of, it represents transferable debt, and nothing else. As we shall see, this innovation of the transferability of debts was a critical development in the history of money. It is this, rather than the graduation from a mythical barter economy, which has historically revolutionized societies and economies. In fact, it is barely an exaggeration—if we make allowance for the unmistakable overtone of Victorian melodrama—to say, as Macleod did: “If we were asked—Who made the discovery which has most deeply affected the fortunes of the human race? We think, after full consideration, we might safely answer—The man who first discovered that a Debt is a Saleable Commodity.” The recognition of this third fundamental element of money is important. It explains what determines money’s value—and why money, even though it is nothing but credit, cannot just be created at will by anyone. For sellers to accept buyers’ IOUs in payment, they must be convinced of two things. They must have reason to believe that the debtor whose obligation they are about to accept will, if it comes to it, be able to satisfy their claim: they must believe, in other words, that the money’s issuer is creditworthy. This much would be enough to sustain the existence of bilateral credit. The test for money is more stringent. For credit to become money, sellers must also trust that third parties will be willing to accept the debtor’s IOU in payment as well. They must believe that it is, and will remain indefinitely, transferable—that the market for this money is liquid. Depending on how powerful the reasons are to believe these two things, it will be easier or harder for an issuer’s IOUs to circulate as money. It is because of this third critical element of transferability that money issued by governments, or by the banks which governments endorse and backstop, is thought to be special. Indeed, there is an influential school of thought—known as chartalism —which argues that governments and their agents are the only viable issuers of money.

    But the story of the Irish bank closure exposes this as another misleading preconception. The closure of the Irish banks showed that the system of credit creation and clearing need not be the officially sanctioned one. The official system—the banks—was suspended for the best part of seven months. But money did not disappear. Like the infamous fei that sank to the bottom of the sea, the associated banks suddenly vanished—and with them the official apparatus of credit accounts and clearing—and yet money continued to exist. The Irish bank closure demonstrates that the official paraphernalia of banks and credit cards and solemnly printed notes with unforgeable insignia is not what is essential to money. All of this can disappear and yet money remains: a system of credit and debt, ceaselessly expanding and contracting like a beating heart, sustaining the circulation of trade. What matters is only that there are issuers whom the public considers creditworthy, and a wide enough belief that their obligations will be accepted by third parties. For governments and banks to fulfil those two criteria is generally easy; whereas for companies, let alone individuals, it is generally hard. But as the Irish example goes to show, these rules of thumb do not apply universally. When the official monetary arrangements disintegrate, it is surprising how effective society is at improvising an alternative.

    So what? What difference does it make, in our everyday world, if I think of money as social technology rather than a thing? And why does it matter if it’s a social technology that doesn’t necessarily depend upon the state?” These are fair questions. All I have been arguing for ultimately, is a simple change of perspective. But simple changes of perspective can have dramatic consequences. My own powers of persuasion aren’t enough. So, I turn to a favorite story of the great physicist Richard Feynman for help. In one of his famous television lectures on physics, Feynman wanted to convey how, in science, a small change of perspective can sometimes produce a radically different view of the world—and how our preconceptions might make that change of perspective seem counter-intuitive. He gave the example of how the static electricity generated by using a plastic comb can be used to levitate a piece of paper. We never cease, he explained, to be entertained and amazed by this feat. The reason is that we are used to forces that we can see—for example our hand touching the comb itself, experiencing resistance, and therefore being able to grasp it and lift it up—and so we think only these forces are real. By contrast, forces that we can’t see—for example the action at a distance caused by the electromagnetic field attracting the paper to the comb—seem like magic. But in fact, we have it exactly the wrong way round. It is the force that we cannot see—the electromagnetic field—which is the fundamental force. The invisible electromagnetic field lies behind both the apparently magical action at a distance of the static electricity and the familiar solidity of everything we can see. It is just the same with money. As we have seen, the great temptation has always been to think that coins and other currency, being tangible and durable, are money—on top of which the magical, incorporeal apparatus of credit and debt is constructed. The reality is exactly the opposite. It is the social technology of transferable credit that is the fundamental force—the primitive monetary reality. The stone fei of Yap, the willow tally sticks of medieval England, the banknotes, cheques, scrip money, and private IOUs of countless episodes of monetary disorder throughout history, and the billions of bits of electronic data that the banking systems of today’s advanced economies use: they are all simply tokens to keep track of the underlying and ever-fluctuating balances of millions upon millions of credit and debt relationships. The consequences of this change of perspective on money for our understanding of our economic ways of life are every bit as dramatic, in their sphere, as the consequences of the shift from the Newtonian to the quantum theoretic perspective have been for our understanding of our physical reality.

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