Monetary Theory, Crony Capitalism and the Tea Party

Just posted on CNBC:

Monetary Theory, Crony Capitalism and the Tea Party

By John Carney

Dec 21 (CNBC) — The past few years have taught us a lot about the effects and operations of monetary policy in the United States.

The Federal government responded to the economic downturn by spending enormous amounts and Federal Reserve responded to the financial crisis with an enormous expansion of its balance sheet — what the proles call “printing money” — and both occurred without any attendant inflation or giant soaring of interest rates.

The so-called “bond vigilantes” turned out to be mythological creatures, at least as far as U.S. federal debt is concerned. Even the crisis over the debt ceiling and the downgrade of the U.S.’s credit rating only lead to lower interest rates.

The school of economics that best explains this phenomenon is called “Modern Monetary Theory” or MMT. The MMT school is made up of scholars, businessmen and online advocates who have a deep understanding of the operations of the actual operational aspects of our monetary system.

They argue, quite persuasively, that our monetary system is built in such a way that our government is never revenue constrained, which is to say it can spend as much as it likes, because the government creates our money. The real constraint on government spending is price inflation, which occurs when government and private spending outpace economic output.

I was first attracted to MMT because of the focus on monetary operations. I really enjoy figuring out the nitty-gritty details of how things like swap lines, Treasury auctions, and payment of claims on the Treasury occur. I like reading detailed papers on the daily meetings of the Treasury and the Fed estimating what Federal spending will amount to. Many of the MMT people have studied this stuff in detail.

Monetary nerds of the world unite, you have nothing to lose but the interest of your cooler friends.

For those of you interested in learning more, I suggest you start with the website Pragmatic Capitalism, which is edited by Cullen Roche. Now, Cullen isn’t a fully orthodox MMTer but he is one of its clearest exponents. It was my first doorway into MMT.

Other sites that I regularly read include Warren Mosler’s MoslerEconomics; Mike Norman Economics, which tends toward the combative, and New Economic Perspectives, which tends toward the academic side of things. There are dozens of other sites, which you’ll no doubt encounter if you follow the links to the ones I just named. I’d also recommend reading Mosler’s book, “The Seven Deadly Innocent Fraud’s of Economic Policy.”

There’s a lot more to MMT than its view of monetary operations and government funding, however. They believe the government should guarantee jobs for everyone, that the financial system tends toward crisis and corruption, that capitalist economies are not self-regulating, and that fiscal policy should be measured by its effect on the economy not on whether budgets are balanced. Some of this is fine, other parts I regard as distractions (such as the jobs guarantee).

But my biggest point of departure with the MMTers is they display a political and economic naivete when it comes to the effects of government spending. When they talk about spending it is almost always in terms of abstract aggregates, which is weird for a school of economics so focused on the specifics of monetary operations. What this means is that they miss the distortions of crony capitalism the accompanies so much government spending.

Government spending occurs through specific channels, not in aggregate abstractions. This means that certain companies and sectors of the economy benefit, and others suffer, because of government spending.

The sectors and companies that benefit are not those that bring the most or the widest prosperity but, conversely, those in which prosperity is most concentrated in the hands of a few. The spending is accompanied by regulatory privileges and barriers that also benefit the very same groups. When government spending levels and regulatory operations are high, this has a widely distortive effect on the economy that effectively impoverishes most of the population. This is basic public choice Econ 101 but the MMTers seem blind to it.

If any MMTers want to learn more about this effect of government spending and regulation, a good place to start would be two books by my brother Tim Carney. Tim covers politics for the Washington Examiner, and his columns often address these very points. But for a fuller treatment of the subject I suggest you read “The Big Ripoff: How Big Business and Big Government Steal Your Money” and”Obamanomics: How Barack Obama Is Bankrupting You and Enriching His Wall Street Friends, Corporate Lobbyists, and Union Bosses.”

Likewise, the MMTers seem not to understand the politics of inflation and why government often doesn’t prevent inflation from occurring, even though it is obviously within its power to do so. The problem with inflation was first and best described by Austrian economists, who explained that inflation does not spread evenly through the economy. It benefits some economic players and harms others because it moves through the economy sequentially.

The first recipients of inflated dollars are those closest to government, those on the receiving end of government payments. They get to pay non-inflated prices for the goods and services they consume because other economic actors have not yet realized that inflation is taking place. Those closest to the primary recipients are also advantaged against those further away. The real losers are private citizens whose economic activities are furthest removed from the crony capitalist and financiers who primarily benefit from inflation. This is, again, a case where those receiving concentrated benefits will almost always beat out those suffering dispersed costs. Public choice 101 again.

Because they do not at least publicly address the crony capitalist distortions of government spending and inflation, the MMTers are at a loss when dealing with Tea Party objections to government spending.

Much of the Tea Party’s objection to spending and deficits is not to counter-cyclical stimulus spending or broad-based entitlements. (I doubt very many of them want to reform Social Security, for instance.) It’s to the fact that the government picks winners and losers when it spends, especially when it engages in stimulus, that is, discretionary, spending.

This objection to cronyism is at the very heart of the Tea Party movement. It is controlling the Republican primaries right now. It is why the bailouts irked so many. It is, in fact, a deep part of the Occupy Wall Street movement.

It’s also why the public isn’t really that interested in the things that bother the policy wonks so much. Things like the cost of Social Security or medical care. People don’t mind these so much because they are less prone to cronyism and distort the economy less. This kind of spending is more neutral than discretionary spending. So it doesn’t bother the Tea Partiers or the Occupiers.

And guess what? This aligns the Tea Party with MMT. You guys also don’t think Social Security is in danger of going bankrupt. You know the government won’t run out of money, that Social Security checks will never bounce. The wonks have it wrong; the proles have it right.

Even your Jobs Guarantee might be sellable on the grounds that it is government spending without cronyism.

So my recommendation to the MMTers is that they stop talking about spending in the abstract. Start talking about spending that leads to crony capitalism and spending that does not. Get on the side of the anti-crony, Tea Party brigades. There’s a natural friendship to be made.

Let’s make it happen.

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71 Responses to Monetary Theory, Crony Capitalism and the Tea Party

  1. Got this entertaining email today from a long time racing associate:

    Mac Demere for President
    X
    BLOG
    X
    Reply
    mac demere to bcc: me
    show details 1:53 AM (7 hours ago)
    http://www.realcarguys.com/post/Mac-Demere-for-President.aspx

    Here is my full announcement.

    Today, I’m proud to announce that I’m running for President of the United States. I want to thank the media for helping me remember all my past sins and transgressions, many of which I’ve forgotten. I’m sure they’ll be on blogs shortly. To save them time: I am not TRYING to get traffic tickets in all 50 states, it just looks that way. (Also, my public confession of my lifetime of sins will given live to His Eminence Sean Cardinal O’Malley and carried on C-SPAN.)

    As President, I pledge to cut government spending by driving my own limousine (and to break the speed limit in the two states where I haven’t already done so). After some lessons from the Marines Corps and USAF, I will fly my own helicopters and airplanes.

    I challenge my opponents, especially the current Commander-in-Chief, to join me while I undergo the Marine Corps firearms qualification test. It’s required of every Marine, from Commandant on down, so it should be a requirement to be CNC. Also, to allow the Secret Service to concentrate on terrorists, at close hand in the Oval office will be my personal M2010 Enhanced Sniper Rifle (specially configured in .243 Winchester because I can’t handle the recoil of its normal .300 Winchester Magnum), and a Browning Citori Satin Hunter 12 gauge. Of course, I will always have my Glock 36 .45 ACP in my pocket.

    I will visit many countries, especially beyond the dozen where I have already broken the speed limit. I pledge to break the limit in all countries I visit.

    As President, I pledge that, on January 20th, 2013 I will sign orders to…
    — suspend collection of FICA from both businesses and employees, this to put money in the hands of citizens to buy things which will encourage business to hire people;
    — suspend collection of corporate income taxes (corporations don’t PAY taxes, they COLLECT them);
    — create a program that would give a short-term $8 per hour federally funded transition job for everyone willing and able to work, this to help the transition from unemployment to private sector employment (my advisors will suggest things for these folks to do that will be useful);
    — prohibit, pending vetting by my brother the banker and economist Warren Mosler and with input from Occupy Wall Street, banks from selling loans and participating in the secondary market system, having subsidiaries, making off-shore loans or participating in proprietary trading (aka, some of the things that got us in the shit we’re in now.) Banks will be in the money loaning bidness, only;
    — send a message to the EU countries that either they phase out the euro and allow each country to handle its own currency or we will withdraw our troops from Europe and end their foreign aid. France will not be allowed to preemptively surrender;
    — create a plan to fully fund unfunded Federal mandates to the states, except for those that would contradict other portions of my orders;
    — create a program to educate people on why money to the Federal government is like points to a scoreboard operator and explain why there’s no chance of inflation in the next six years;
    — release from prison all those convicted of non-violent drug offenses. I will issue full pardons to all these, with the stipulation that if they are convicted of a violent crime, they will be become Jehovah’s Witnesses in the tribal areas of Pakistan or Kurt Busch’s crew chief;
    — create an exit strategy for the War on Drugs, which would include allowing America’s largest cash crop–marijuana–to come out of the closet. (Afraid more people will use drugs? Go to you local junior high and ask an 8th grader to score you some weed or blow. If he can’t get it, go ask one at an expensive, private, religious school: He’ll charge more, but it will be better quality. Pick me up some Hydro.);
    — provide Federal funds to temporarily replace money law enforcement agencies acquired from items confiscated in drug busts. Officers made redundant by the end of the War on Drugs will be offered positions in the ABC-style stores where marijuana and other drugs will be sold at a price 10 percent lower than the going street rate;
    — institute a plan to withdraw troops from Afghanistan. (I will follow the advice of the military and CIA on drone operations. I will have them make plans to send over B2s and B52s should things get out of hand.)
    — suspend implementation of Obamacare until a committee of doctors, hospital administrators, nurses, physical therapists and other health care professionals tell me its unintended consequences;
    — create a program to explain to people that, when Judge Thomas said Roe v Wade was stare decisis, he meant that abortion will remain legal as long as we’re alive so stop talking about it;
    — to have the Attorney General institute lawsuits against all states and localities that do not accept concealed weapons permits issued by another state;
    — to have the Attorney General to institute a lawsuit challenging the constitutionality of the Defense of Marriage Act;
    — to have whichever agency that created the Stuxnet worm/virus that damaged the Iranian nuclear facilities to keep up the good work;
    — create a program to distribute devices with secure and untraceable satellite Internet connections to people in Iran, Pakistan and North Korea. The connection will include free access to all porn sites, and credits for purchases on Amazon.
    — create multiple Monster Jam series that will visit Egypt, Iraq, Libya, Syria, Pakistan and other trouble spots;
    — build copies of Richmond Int’l Raceway, Bristol Motor Speedway and Iowa Speedway in all these countries to create a 36-race series for NASCAR-style cars. At first, unemployed mechanics and drivers from North Carolina will be paid to race these series. Kurt Busch will be required to run this series for five years. We will also have a program to program to seek and train locals to race.
    — build drag strips and race only Top Fuel cars;
    — build clay ovals for winged and non-winged sprint cars;
    — disband the TSA and create a useful way to prevent airline hijackings.

    As the first step toward ending the illegal immigration problem, I will schedule a come-to-Jesus meeting with the Mexican President. I will tell him the only way to end the problem is to create a safe and prosperous Mexico. The U.S. will take the first step by legalizing marijuana and decriminalize other drugs. I will then tell him he has 18 months to put the Mexican drug cartel/armies out of business or I will ask for a declaration of war against Mexico and our troops coming home from ‘Stan will do it for him.

    I promise never to play golf. However, a sporting clays range will be set up at Camp David.

    It’ll be time for my flying lessons by then.

    Reply

    roger erickson Reply:

    @WARREN MOSLER, Thanks for the best entertainment this holiday season! :) Does Mac have a PAC, or did it go by too fast to catch?

    Reply

    John O'Connell Reply:

    @WARREN MOSLER,

    I would suggest golf for him. It will help build humility.

    But I’d vote for him anyway.

    Reply

  2. Monica Smith says:

    Money is like script, a figment of the imagination which gives material form to words, ideas and relationships. Making it artificially scarce or restricting its use to certain people (scribes and scholars) merely serves to inhibit and interrupt human interactions, exchange and trade. So, the whole society is worse off than it would be if information, goods and services were widely shared, instead of going to waste.
    Using currency to control trade and exchange only works as an inhibitor–sort of like not putting oil in the engine of a vehicle. Whether that currency is restricted and sequestered by our agents of government or the gnomes gambling on Wall Street does not seem to make much difference. The economy slows to a crawl when there’s not enough money to lubricate the gears.
    What seems to have happened since the volume of money increased exponentially as a result of printing it on paper, is that the rate at which it circulates through the economy has been slowed significantly. It’s as if water had been turned into molasses.
    http://research.stlouisfed.org/fred2/series/MZMV?cid=32242

    The 1% aren’t a problem because they claim a lot of monetary wealth. They’re a problem because they’re hoarding it. And, it seems, don’t really know what to do with it.

    Reply

    WARREN MOSLER Reply:

    sort of, read ‘the 7 deadly innocent frauds’ on this website thanks

    Reply

    Monica Smith Reply:

    @WARREN MOSLER, Already did. I’m not keen on either the public or private sector using script to control how we sustain ourselves.

    What makes derivatives and debentures and dividends different from counting angels dancing on the heads of pins?

    Reply

    ESM Reply:

    @Monica Smith,

    “What makes derivatives and debentures and dividends different from counting angels dancing on the heads of pins?”

    The legal system. Which ultimately is backed by the state’s apparatus for physical coercion. Money and financial instruments are quite real, despite the fact that they can be created ex nihilo.

    And what is this “script” stuff? Is that supposed to be a pun?

    beowulf Reply:

    @Monica Smith,

    Right, the government’s monopoly on currency is backed by its monopoly on violence,and vice versa.
    I think she’s misspelling and misusing (for precisely the reason you mentioned) the word “scrip”.
    Scrip is an American term for any substitute for currency which is not legal tender and is often a form of credit. Scrips were created as company payment of employees and also as a means of payment in times where regular money is unavailable, such as remote coal towns, military bases, ships on long voyages, or occupied countries in war time.
    http://en.wikipedia.org/wiki/Scrip

  3. Walid M says:

    If there is more Interest in MMT than ever before it is because people are looking to comprehend the economics that appear to have the political class at loggerhead . If there is one true disease that infects the political process it is corruption . MMT does not address that but nor was it meant to . Be grateful for what it does address and so for corruption we all know how to address that. …We don’t need theories ….it is part of our nature ,,,

    Reply

  4. Charles Hayden says:

    Oh, yeah did I forget to mention?

    Occupy Congress. 1/17/12. Bring Tent. And Bring MMT.

    Point above my previous post by Ralph Musgrave is a highly pertinent point.

    Bill Black is a patriot of the highest order.

    Reply

  5. Charles Hayden says:

    Nothing inherently incompatible with MMT and federalism or principles of limited government.

    Governments make choices; MMT merely acknowledges the options and methods at their disposal.

    What Carney is really saying here is that the Noble Lies and “Innocent sins” regarding solvency have a certain utility value that keeps government spending and thus inflation in check.

    Not sure I agree. Cronyism is not just a mere product of the power of government, but its character. Not only that but, regimes operating under foreign currencies without monetary sovereignty often still lack discipline and ability to manage deficits and inflation.

    Not sure how understanding account identities and sectoral balances is a slippery slope towards hyper-inflation and/or state-socialism.

    Instead of blaming the nature of double-entry accounting and fiat currency for failure of government to spend wisely, why not start blaming the politicians who are on the take? Why on earth are the vast majority of headline Tea Party Republicans opposed to Campaign Finance Reform? Carney seems to just act like this is not the case, and seems to imply that the OWS crowd is not against cronyism.

    Trust me, I’ve gone to Tea Party people with MMT and the results were not so pretty. Their heads basically exploded. Too much information. Unable to compute. And the only way that the vast majority of them can see their way out of the situation is to just call me a kook, Communist, or worse. Again sectoral balances are just an account identity. No reason for the freaking McCarthyism and hints of violence. These people are not the most obvious candidates for allies.

    Carney’s criticism of MMT seems directed at those who misread MMT in support of it.

    Possible example of this in my own writing:
    I still say deficits don’t matter. I know. I just think it’s a matter of semantics. Yes, deficits matter. But they matter in relation to other things. The nominal dollar size of the deficit, itself, is just a number. Numbers are not bad, per se. It is easy for novices to trip over this linguistic mumbo jumbo, and give off or get false impressions about MMT and what it actually indicates with respect to fiscal responsibility, which is the point that proponents would like to see addressed when inflationistas attack.

    The targeting of spending and deficit tax-expenditures most certainly matters. And government spending and the tax code is entirely problematic. Best solution to any given economic crisis is tax cuts and aid to the states. Congress does not have means or power to centrally manage a recovery through new micromanaged spending programs. Unemployment is a product of over taxation relative to the demand-output gap. We need to be cutting taxes on working people and their employers. And just where does Carney think the tea party is lining up on this issue? Not on the side of a massive FICA cut, but on the side of income tax increases on the middle class and lower income earners. WTF! And they call themselves a tax revolt?

    Big Darkness soon come. You bet.

    Reply

    John O'Connell Reply:

    @Charles Hayden,

    Are you sure it’s the same TEA (“Taxed Enough Already”) party I’m thinking of?

    “Trust me, I’ve gone to Tea Party people with MMT and the results were not so pretty.”

    In a short meeting, I’m not surprised you’d get a negative reaction. There is a lot to overcome in learning MMT, especially if you have prior training in economics. It takes weeks. “Trust me”, I know.

    Reply

    Charles Hayden Reply:

    Representatives of the so-called “Taxed Enough Already” party are largely in favor of raising tax rates on lower income Americans.
    They also stand against banking regulation in general.
    And most of them, besides Buddy Roemer, the Last Republican Left, seem to think campaign finance reform is a Communist plot.

    I’ve got a lot of negative things to say as well about the Democrats too; so don’t try to paint me or any other MMTer in your neat little partisan boxes. Carney’s piece is complete projectionist garbage. It’s psychologically maddening.

    Reply

  6. Thanks to John Carney for his support for MMT, but what makes him think MMTers are unaware of crony capitalism? One of the main “hot spots” of MMT thinking in the world is the economics dept at the University of Missouri at Kansas City. That institution is also one most clued up when it comes to cronyism and corruption thanks in large part to Prof. Bill Black.

    And on my blog, I declare myself to be an MMTer, and at the top I have a picture of Lloyd Blankfein and Jamie Dimon at the White House, with the heading: “Infestation of vermin at the White House.”

    Carney is also incorrect to suggest that MMT necessarily advocates increased government spending. MMTers tend to advocate DEFICITS. Whether a deficit comes about as a result increased govt spending or reduced tax is a purely POLITICAL question. As far as economics goes, the question is near irrelevant. For example, Warren Mosler has long advocated a payroll tax reduction.

    Reply

    Neil Wilson Reply:

    @Ralph Musgrave,

    One of the ‘problem’ MMT has is that it throws the traditional left/right lines out the window.

    Capitalism can be made to work effectively.
    ‘Infrastructure investment’ can be problematic.
    You may need to control your borders.
    Importing is good and you should exploit their generosity.

    All these things are an anathema to the traditional ‘big hug club’ left.

    Similarly

    Job Guarantee
    Government spending works
    Unemployment is a structural problem
    Exports are probably not a great idea if you can avoid them

    are an anathema to the traditional right.

    So this economic theory upsets just about everybody because it forces them out of their comfort zone.

    My philosophy is simple. If it works, nick it – whatever ‘ist’ or ‘ism’ it’s associated with.

    Reply

    Monica Smith Reply:

    @Neil Wilson, Capitalism, in essence, is the preservation of current assets for future use. The alternative is to let current surplus go to waste. So, really, capitalism is a waste-avoidance measure and, in the alternative, our growing mountains of waste are a testament to the fact that the economy has failed.
    Our whole economic theory seems to have been constructed by people lacking in practical talents, who are, therefore, intent on developing a justification for extracting what they need from those who are able to produce it. If they realized that clever humans produce more than they need for themselves and are quite capable of sustaining any number of free-loaders, they wouldn’t need an irrational theory.
    Our mistake is in accepting the myth that human enterprise is driven by demand. It’s an infantile attitude which apparently persists in the minds of people unable to produce anything useful themselves.

    Reply

    WARREN MOSLER Reply:

    current assets for future use is accounted for as ‘investment’ on one side of the ledger and ‘savings’ on the other.

    please do read ‘the 7dif’ asap thanks

    roger erickson Reply:

    @Monica Smith, That’s an oversimplification & fallacy of composition, Monica. In small systems or at local scale, enterprise is driven by innovation, i.e., production. With scale, however, the engine for net enterprise transitions to the scalable method of following demand.

    Constrained minds think production. Big minds think opportunity, i.e., demand to satisfy (far reaching) demand.

    If all you have is a hammer, you “produce” nails deeper into beams. However, if can perceive distant demand options, you may put down your hammer and design an Android framework so that far off solderers with little hands, ambitions & options can compete to produce devices for you. With your new, spare time, you can start devoting more brain cycles to systemic management of Aggregate Demand.
    Somewhere in etnads 7th fractal, one level’s production always fuses with another level’s demand.

    WARREN MOSLER Reply:

    and you think I’m hard to follow!

    ;)

  7. Nick Boyd says:

    MMT is not necessarily “wrong” as a theory (I don’t know it enough yet to make a conclusion as to its logical “perfection”), but it is wrong in the sense that it is a utopia when it comes to application.

    If I were to express my opinion (as it exists today) about MMT in one sentence, I would say that it presupposes (i.e., requires) the government to be a prudent master of the currency and a selfless servant of the people. This is a utopia. That is why MMT by itself (whether or not it is logically flawless) is, at best, insufficient.

    Reply

    Unforgiven Reply:

    @Nick Boyd,

    Insufficient for the purpose of being the economic answer to Life, The Universe and Everything? Well, we’re just describing the way the currency works here. Check this link:

    http://www.moslereconomics.com/mandatory-readings/what-is-money/

    And find out just how pristine even commodity-based currencies have been through the millenia.

    Reply

    WARREN MOSLER Reply:

    the way i say it is the govt is master of its currency of issue, for better or for worse

    Reply

    jason m Reply:

    @Nick Boyd, omg, MMT is a description of the monetary system as it exists today. There are proposals put forward by some MMT’ers using that knowledge, but MMT in of itself is not an application.

    Reply

  8. Senexx says:

    What I see a lot of the MMT criticism today being is that the MMTers don’t understand politics (e.g. their proposal will never get up).

    Carney’s post seems very similar and although I know Bill & Randy have all ready responded to it amongst others I find Sawyer’s paper quite good from the political perspective and hurdles that MMT will need to overcome in the political ring – http://findarticles.com/p/articles/mi_qa5437/is_4_37/ai_n29053277/

    And lucky for me it appears for free online.

    And of course the economics is sound. Though I never quite got the JG being the min. wage, figured it should be slightly below it.

    Reply

  9. PDW says:

    While I very much the engagement from CNBC.com, I find the lack of comments @ CNBC.com concerning. Or is that community just unengaged?

    Reply

  10. Joshua says:

    Re:I would like to believe that they still think so.

    It is remarks like this that make many Jews think that the Goyim are incurably stupid in their misplaced and essentially deeply sentimental “idealism.” They make such useful idiots. Are you simply incapable of seeing that some people and their intentions are not good but evil? Have you not the fortitude to face it or the self-knowledge?

    Reply

    Unforgiven Reply:

    @Joshua,

    “Are you simply incapable of seeing that some people and their intentions are not good but evil? Have you not the fortitude to face it or the self-knowledge?”

    Well, you know… I myself got stuck on page 3 of “The Managerial Kant”.

    In this country (at least) I’m sure you can tell that we’ve been trying to choose between evil and evil. Now, idealism, I’ll agree that it makes for a good servant, but a hideous master. I’ll admit that we’re slow to come around, but in our own defense, we’ve been nailed by one “pie-in-the-sky” after the other. Our fault for grabbing the Gov’t McMuffin? You betcha. Slides down so easy and then you have time left over to fill out that loan app.

    Reply

  11. Nick Boyd says:

    At last some common sense appearing on this website. the opening article pretty much follows my comment made here in november that got slammed without any solid reasoning to back the slamming… at least someone more authoritative can get through to this crowd, if only for a little bit…

    Reply

  12. roger erickson says:

    comical that Carney presents this a criticism of MMT;

    he should just say “Thanks for your fine work. Now, to leverage this faster, please work more closely with Bill Black in order to navigate political operations.”

    And with the Tea-Party, PBI, etc, etc too, I might add. Just have to find the best people to work with in every group. [takes some work; there may even be one or two honest, intelligent people left in Congress; admittedly tough to find 'em]

    Reply

    jonf Reply:

    @roger erickson, Sure, there must be one or two Tea Party folks in the House who are not just insane or unresonable. Heck after much trouble they may pass a two month extension of the payroll tax holiday and you know they were such gems on the debt limit.

    Reply

  13. jonf says:

    My main interest is in the unemployed, including the part time workers and those who dropped out of the work force. I also think we need to do more for those in poverty. Since the job guarantee is not going to be implemented anytime soon, we need more stimulus. There are plenty of projects to be done. Pick one, say fix the bridges around here.

    That brings me to crony capitalism. Not sure what that is, but I’ll know it when I see it. I suspect it looks something like the bankster bailouts where some of them got rich. But then I understand some of the need.

    I think the idea of a payroll tax holiday is excellent. I also think that fund is worthless, but don’t tell that to around 50 million people either. But we can’t get a two month extension with UI passed the congress bc of the tea party.

    Make friends with the tea party? Not anytime soon. They want to cut SSMM or change those programs. I am not in favor making medicare a voucher program.

    So crony capitalism will be here for some time to be fought whenever we can. In the meantime, we need to increase the deficit maybe by three and get the tea party the heck out of the way. Or maybe we want another big debate on the debt limit? That was so much fun.

    Reply

    Unforgiven Reply:

    @jonf,

    >>I also think that fund is worthless, but don’t tell that to around 50 million people either.

    Don’t fall for the “worthless paper” argument. The fund holds special issue Treasuries that the Trustees can exchange for cash at the Treasury.

    “Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash.”

    And the US Gov’t always pays up.

    Reply

    jonf Reply:

    Treasuries are good as cash, no doubt. But I am trying to say that you protect SS at the ballot box not through the fund. The government can make all the changes they want to SS, not withstanding the fund. Medicare is partly funded from general revenue so the fund is not necessary to fund SS provided we agree to provide support to our elderly.

    There are other issue with this fund not least of which it is used for talking points like it is going to run out, it is a ponzi scheme and why should anyone under 45 want to invest in a fund that is worthless, we should turn it over to Wall Street and privatize it. Some also use it as the excuse to increase the retirement age or to cut benefits or to raise the tax. Better not to have it except for that 50 million who think it is worth something.

    I mean why not have a fund for the military??

    Reply

    kkken530 Reply:

    @jonf, At its inception SS was not a ponzi scheme. The founders did not invision a large swell in the population,followed by a shrinkage,like the baby boom followed by the baby bust. They also did not envisage workers being replaced by automation. The latter problem could be fixed by charging a tax on automation that replaces workers based on the number of workers replaced,which would fix SS,but this would be a tax that would discourage automation,when we should be encouraging it and promoting more leisure time for everyone.

    WARREN MOSLER Reply:

    ponzi doesn’t apply to social security because, operationally, the govt. doesn’t have to ‘get’ the dollars to make payments
    see the 7dif

    state pensions are another story, however

    WARREN MOSLER Reply:

    check out my health care proposal?

    Reply

    jonf Reply:

    @WARREN MOSLER, Yes, I did. I like it. I like it a lot. We need to get some traction on it. Same for job guarantee but that one seems harder to get going once you get to details.

    Reply

  14. Tom Hickey says:

    I’ve put up a post at MikeNormanEconomics here

    Reply

  15. Gary Causer says:

    Bravo and Amen.

    More of us on the right understand how our money system works much better than most who preach the MMT gospel. We know that the government can find trillions for never ending war but can’t find a couple of bucks to keep our Medicare solvent. That the banks are more important campaign contributors because they play musical chairs as government employees.

    And let’s not forget Wall Street execs make policy in the Obama and Bush white House etc. etc.

    But in defense of MMT, perhaps not getting caught up in partisan politics is the way to go.

    This conservative doesn’t need to be lectured on how horrendous some moron on the right’s policies are because we don’t care much for these people either. Nor do we want to hear how righteous the left is for defending criminals (by legal definition)crossing our border.

    I believe I’ve made my point.

    Simply explain that the government “prints money” and then taxes it back to the treasury. Because it goes through so many hands before it is taxed as income and returns to the issuer this leads to a time lag. I refer to this as a deficit.

    The deficit is in our bank accounts, retirement funds, hiding in old ladies mattresses, etc. waiting to be spent and therefor taxed back to the treasury.

    Over simplification?

    We are talking politics in this little rant of mine and if you want an ear in the enemies camp better lighten up on the esoteric language and join in the discussion. Many of us consider ourselves at war with each other and there is no concrete reason for it other than obfuscation and political propaganda.

    P.s, I believe much of our problems stem from bank money creation and the Fed’s getting blamed or credited with something it doesn’t have much control over as banking has gone global.

    Any comments?

    Reply

    WARREN MOSLER Reply:

    :)

    Reply

    Tom Hickey Reply:

    @Gary Causer,

    Gary, it doesn’t seem to me that government just happens to promote in crony capitalism. What is at the bottom of it is political corruption due to the money in politics.

    The problem is not “government.” It is state capture due to rampant corruption, and it permeates both parties. Follow the money.

    What is required is accountability (see the work of Bill Black on this), institutional reform (see Warren’s proposals in the menu bar), and a constitutional amendment getting the money out of politics and closing the revolving door.

    Then we need to overhaul the entire economy, which has been badly skewed toward special interests either feeding that the government trough like the military-industrial complex or else operating in an outlaw area like the financial sector.

    Reply

    jonf Reply:

    @Tom Hickey, Indeed. Corruption.

    Reply

    John O'Connell Reply:

    @Tom Hickey,

    I forget if it was George Will or Newt Gingrich who said it: “If you want to take the money out of politics, take the politics out of money”.

    The system is corrupt because it is so profitable to corrupt it. The federal government has so much money to spend, they can’t even keep track of it, so even if someone did want to be honest about it, the task is too large to be accomplished.

    Most of what the feds do could and should be done by the states, which reduces the concentration of money in the process by 98%. Sure, the feds can supply the bucks to the states, they are the only ones with the printing press, but no single person or agency should have much of a say in how it is spent, and therefore cannot be so much in a position to profit from being corrupted.

    Reply

    Mario Reply:

    @John O’Connell,

    Personally I can roll with what you are saying just b/c I am not tied to how the outcomes or end results are achieved, so long as they are achieved. However it seems very inaccurate and misleading to think that when you simply bring things down to the state level that somehow there won’t be any corruption of money or special favors or excess funds sloshing around on “projects.”

    This is just naive and if you take a look at the records of every single state’s auditing records you’ll find tons of real life cases of state-run institutions gone bust and state projects totally corrupted to the max. I mean it’s almost farcical to think otherwise. The main contention I have with gun-ho “state’s rights” people is that they really don’t change anything about the dynamic of government working upon the people other than to change the size of the scale. It’s really not that big of a change at all especially when you considering the relative power the state still has over the people. Corruption of money and integrity isn’t handled by change scale or size, although I do concede that it may help to instill larger accountability and also diminish the scale of damage done, not to mention the fact that state’s are currency users so there are very real consequences for their corruption (however if they can shirk it onto the people then they will and so we’re back to square one again except now it really is a big issue and we’re now like the EU all of a sudden).

    As I say, I’m totally fine with state’s taking more direct involvement and say in projects and programs. I really don’t care either way so long as they get done, however I do think it is wise to recognize that clearly “down-sizing” to the state’s definitely doesn’t “solve” our corruption issues. In fact it could leave us even worse off with truly insolvent state’s all across the country and tons of state-run projects “out of funds” leaving millions of people stranded. And then the whole “inflation” and “running out of money” discussion is back full force just as we see today in the EU. I agree it doesn’t have to be that way, but I think we’ve all learned by now that such thinking only goes so far.

    John O'Connell Reply:

    @Mario,

    But at the state level, when corruption is discovered it is prosecuted. Officials in Arizona are being prosecuted now for accepting *football tickets* as gifts. Congressmen can make millions on insider trading and nobody is going to jail. The scale IS very different, and the enforcement is very different. Hardly anything at a State level gets to be $1B, but that’s chump change for the feds. Rake off a few hundred million and nobody notices. Try to steal from a $40M state project, and you’ll very likely get caught, because every million counts in a State budget. Everyone may have a price, but you can buy a lot more when you have a 50X bigger slush fund.

    Tom Hickey Reply:

    @Gary Causer,

    “I believe much of our problems stem from bank money creation and the Fed’s getting blamed or credited with something it doesn’t have much control over as banking has gone global.”

    This is the huge issue because it is transnational and beyond the ability of national governments to control alone. Translational entities and “arrangements” are now controlling international finance and commerce. This is presenting an threat to the future existence of liberal democracy.

    “The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank… sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.”    

    Carroll Quigley (1910-1977), Professor of History at Georgetown University, member of the Council on Foreign Relations (CFR), mentor to Bill Clinton   Source: in his book Tragedy and Hope,1966., ch. 20

    Quigley did not see this at at all conspiratorial or nefarious when he wrote this. He had been invited into this group and knew the people well. In his judgment, they were all acting in the best interest of the world, a world just recovering from the ravages of WWII. He and they believed that, to paraphrase Lloyd Blankfein recently, they were “doing God’s work.”

    I would like to believe that they still think so. But it has turned into the devil’s work instead, and we the people have to rise up and up our foot down before it is too late.

    Reply

  16. Dave Begotka says:

    If MMT ever became “Main Stream” it would end up in the same circus and the clowns would eff it up in the same ways……

    I think the truth is grimmer that this

    http://www.youtube.com/watch?v=y0O7_3o3BrI&context=C362e82dADOEgsToPDskI0luWnYf53Qf_mF4TJu2JO

    Reply

  17. Paul Mineiro says:

    Perhaps the government can format all discretionary spending in the form of x-prize style objective goal payments :)

    Seriously, I’m sympathetic to the views expressed re: public choice, but it does ignore another policy option for deficit spending: a tax cut. Different types of tax cuts benefit different groups of people, not all of which are cronies.

    Reply

    WARREN MOSLER Reply:

    right, see my proposals. none are subject to John’s criticisms. He’s referring to other ‘mmt’s’

    Reply

    John Carney Reply:

    @WARREN MOSLER,

    That’s right. I don’t think my critique of spending refers either to broad-based spending programs (Social Security, Jobs Guarantee, Negative Income Tax) or tax cuts. It’s rather the habit of some MMTers to lump all spending together and act is if the crony capitalist channel doesn’t have serious consequences.

    Reply

    WARREN MOSLER Reply:

    right, it more than exists, it dominates.
    I’ve made quite a few proposals to cut it off at the source,
    including proposals for the financial sector, health care, campaign finance, etc.
    which can be found on this website.

    Ken Reply:

    @John Carney,

    I think if there is a tendency for MMT people to focus on the monetary aggregates, it is because understanding how these aggregates balance is the thing they bring to the table that’s new.

    I don’t think anyone would deny that the details of the spending and how it is structured are important when engineering actual policy.

    Inoculated Reply:

    @John Carney, Great post John. I think encapsulated pretty well how those outside of finance or academia view MMT. But I do still hold that Warren’s jobs proposal falls under abstraction and needs development.

    I am still struggling to grasp how such a proposal would be implemented without being taken advantage of.

    An outstanding question is: Who will manage this? Will the managers be paid at the same rate?

    And please don’t tell me again that everyone will be working for non-profits and that we won’t have an issue with crony socialism.

    Neil Wilson Reply:

    @John Carney,

    You must be reading different things to me. All the specifics in MMT are about engineering a counter-cyclical spending system that is preferably automatic and operates at the level of the system that is least susceptible to supply side blockages.

    MMT is refreshing in that it doesn’t bang on about ‘public investment spending’ all the time as though it’s the be all and end all of government spending.

    You’d put Job Guarantee and payroll tax cuts in place first and then monitor to make sure it was ‘paid for’ in output quantity expansion rather than price rises.

    Unforgiven Reply:

    @John Carney,

    It’s also difficult enough for new folks to understand the just the macro view. Especially when our “leaders” talk about U.S. Bankruptcy, austerity, etc. It’s so counter-intuitive, it’s really tough for people to only get a few critical concepts down. At some point, micro becomes a political preference and MMT strives to keep clear of that. At the macro level at least, politics is not a feature of the currency.

    RyanVMarkov Reply:

    @ John Carney

    MMT needs more people like you, Mr. Carney, thank you for engaging.

    I guess you share Warren’s personal views about government deficits – achieved mainly through tax cuts.

    We live in democracy where one person is supposed to equal one vote. The voters define the size of the government and what they see as public purpose. From that point on the necessary amount of government deficits to facilitate price stability and full employment should be maintained exclusively through tax cuts, where the voters again will decide who and how much to be taxed.

    I liked what Warren said somewhere, something like: Why should the government spend more (get bigger) every time we go in crisis? Government spending (the size of government) should be decided on election day only.

    beowulf Reply:

    @John Carney,

    Excellent piece John. Didn’t know Tim was your brother. He’s a first-rate writer and his ideas about free market populism are the direction Republicans are going to have to move towards in this political environment (it was amusing to see even the Koch Brothers getting on the good govt bandwagon, blasting T. Boone Pickens for harvesting natural gas tax credits).
    My druthers would be zeroing out wasteful spending and tax loopholes– starting with taxing capital gains at ordinary income rates– and using the revenue to fund (in the political, if not economic, sense) a negative income tax or a national version of Alaska’s annual dividend. The more that’s cut, the bigger the per capita payout.

    Hugo Heden Reply:

    @John Carney,

    I’ve seen the same criticism directed FROM MMTers towards new-Keynesian general demand stimulus, so called pump priming.

    See papers by Tcherneva etc. General demand stimulus is depicted as a blunt tool with inflationary implications. The economy is stimulated from the “top” (hiring highly skilled workers etc) in the hope that spending should trickle down and ultimately create new jobs at the “bottom”. But competing with the private sector for these skilled workers can result in bidding up wages and thereby entire wage structures.

    MMT suggests (I believe) that it is preferred to stimulate the economy directly at the “bottom”. Especially if fixing the unemployment problem is a goal The Job Guarantee is a good example. There is no risk of chasing after wages in upwards spirals, since the JG wage is set at a floor level.

    WARREN MOSLER Reply:

    yes, all good poiints. and he job guarantee is a transition job to assist in the transition from unemployment to private sector employment.
    that’s what makes it a superior price anchor to today’s unemployed buffer stock policy. and i always propose an initial wage low enough to not be disruptive to the private sector. also, the unemployed are already in the public sector in that they were created by over taxation

  18. JBH says:

    Mosler’s 7 Frauds, though an interesting read, would spell doom to the US. He basically suggests the US should stop keeping records of all the incomings and outgoings of the US treasury. No longer should we keep any records and we should just spend without regard and the fed can finance it all via money creation. The govt should pay all the withholdings, the govt should just give everyone a job, etc, more ultra liberal ramblings. Since the govt can create money then we should go ahead and create an unlimited supply with no accountability what so ever. Can you imagine if we told the world we were going to do this. “No more accounting in the US, fed to finance all” The dollar would drop to zero overnight as would our standard of living. Not the future I want to see.

    Reply

    WARREN MOSLER Reply:

    you need to read it a bit more carefully, mate

    Reply

    Unforgiven Reply:

    @JBH,

    Amazing! You, of course, won’t mind pointing out the pages that support your post?

    Reply

    Tom Reply:

    @JBH,

    This is a post from someone who obviously doesnt understand MMT and Warren’s thoughts.

    No rational person who understands MMT would ever make this post. As Warren said, you should read it again (as well as other MMT works), and sit back and let your mind work.

    You have to comprehend it, not just read it.

    Reply

    RyanVMarkov Reply:

    Yes, but first JBH has to make sure that he really reads “7DIF”-book.
    From what he wrote I can say he picked another book.

    Reply

    peterc Reply:

    @RyanVMarkov, I think JBH is pointing out that there is no such concept as a “score keeper” mentioned in 7DIF. :-)

    Hugo Heden Reply:

    @JBH,

    I’ve been thinking of collecting comments like this on a website. You could vote for them, and there would be a top ten list.

    Reply

  19. binve says:

    Warren,

    I wrote a post a few months ago that tackles some of the ideas in this post (and I agree with some of the criticisms): http://marketthoughtsandanalysis.blogspot.com/2011/08/why-deficit-spending-and-creative.html. It is a long post, but I was wondering if I could get your opinion on it. Thanks!

    Reply

    WARREN MOSLER Reply:

    when business competes for consumer dollars, and those that succeed continue, and those that fail fall by the wayside, I don’t see the lack of ‘creative destruction’
    creative destruction isn’t about cutting off consumer dollars so some firms fail. it’s about not propping up firms that can’t sell their products.

    i’ve proposed not pulling support from those working for a living (a full payroll tax suspension) which doesn’t support weak businesses as some seem to presume.

    so in that sense mmt fully supports the creative destruction process.

    Reply

    binve Reply:

    @WARREN MOSLER,

    Warren,

    I very much agree with what you say, and I do agree that MMT and creative destruction are compatible (which was very much the point of the post).

    What I was getting at (mostly in sections 5 and 6 at the end of the post, sections 1-4 were background and set up), was to acknowledge that while you have to look at the 3 macroeconomic sectors to understand the basic mechanics of our monetary system, it is not often stated by MMTers that money moves through the ‘aggregated private domestic sector’ very unevenly. Most people still don’t understand sectoral balances which is why MMTers focus on that the most (because 95% of economic commentary is still inconsistent with this basic identity), but then there exists the criticisms like those of John Carney above that say that the private domestic sector has to be treated not as an aggregate in order to come up with economic policy (and I know that you know this and are aware of this and you have addressed this before in your work, but it is a criticism that I have heard many times myself, which is why I wanted to address it in my post).

    And so I was taking a stab at acknowledging the complexity of the private domestic sector, remarking on the unevenness of monetary transmission (via fiscal policy), and coming up with some long term productive economic investment that would solve short term problems (unemployment) and long term problems (cost-push energy inflation).

    I don’t see the lack of ‘creative destruction’
    creative destruction isn’t about cutting off consumer dollars so some firms fail. it’s about not propping up firms that can’t sell their products.

    Agreed in principle. But in my post I discuss creative destruction with regard to the financial industry. Some firms would have failed (and should have) but did not because they were propped up. That is a major argument in my post.

    i’ve proposed not pulling support from those working for a living (a full payroll tax suspension) which doesn’t support weak businesses as some seem to presume.

    100% agreed. The payroll tax is highly regressive and is a huge obstacle for growth.

    Reply

    WARREN MOSLER Reply:

    agreed on the complexity of the private sector.

    that’s why my lead proposal is the full fica suspension. its supports the flow of consumer dollars from people working for a living that business must compete for.

    and while in general I don’t support the way the current financial sector is allowed to operate, I don’t see the problem of 2008, for the most part, as one of propping up non competitive financial firms. In fact, most of the headline firms did fail in that shareholders lost either their entire investments or most of them. That’s what failure is. the owners lose their investment and new owners take over and try their business plan, etc.

    nor do I consider liquidity provision for the banking system ‘propping up’ but instead I see banks as public private partnerships where the public role is liquidity provision, which carries with it the imperative of regulation and supervision

    Greg Reply:

    @binve,

    I would argue binve that the reason it channels through the economy unevenly, as you say, is because it starts at the supply side. When all policy for new money in”injection” starts through banks or large firms, this will unnecessarily leave those at the bottom with just the scraps (and maybe higher prices), this to me, is the fallacy of trickle down economics. What we need is a citizens income or the JG so all citizens are able to use their buying power to pick the winners so to speak. The winners will sill get very rich, but they will also need to stay competetive. Today once a firm reaches a certain size and market share, it buys it guaranteed prosperity form the govt by becoming the govt so to speak. All policy prescriptions are run through these few companies (think energy policy during Cheneys terms and big oil or think Obamacare and big pharma/insurance)

    This has a very sclerosing affect on the economy as these firms start to believe, like Chrysler did decades ago, that what is good for them IS good for the US economy.

    A JG is a START. a start only, to making the citizens/workers/wage earners the driving force in how and which companies win in our economy.

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