Professor Kelton’s presentation on the cliff
Posted by WARREN MOSLER on November 14th, 2012
Stephanie Kelton’s Tremendous Presentation On The Fiscal Cliff, And The Potential Tragedy Of A ‘Deal’ here.
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November 15th, 2012 at 7:43 am
FYI, Modern Money seems to be working its way into popular culture. The spouse called my attention to a novel by Lee Child, “A Wanted Man,” ( a Jack Reacher novel) in which the worthlessness of money is explained on pp.402-403. The novel twist is that non-existent nuclear waste was being used as a “reserve” by Islamic terrorist/banksters.
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November 15th, 2012 at 7:43 am
Dear Warren,
I guess this is the point in time I have to acknowledge that MMT has technically the right answers but is politically insignificant (we will have austerity in the US one way or the other and the thoughts of the “thinkers” as Stephanie calls them will go unheard while everybody else is going over the cliff). So why is that ? Is it because the concepts are to complicated ? I don’t think so. Is it because the concepts are not yet part of public knowledge ? Perhaps. Is it because these concepts are directed against the interests of a certain group of people ? Sure enough. But what I try to understand is what exactly are these interests as opposed to debt-free money creation by the money issuer. What I crasp is that there is competition between money creation by private banks and money creation of the public in as far the last one is interest-free. So the banks (and other “investors”) have a strong interest to cut the possibility for the government to finance itself without paying interest to the banks (as it has been implemented in the Euro-zone). They also may need “save havens” to “invest” their money. But what’s all about that issue of debt-ceiling or debt ratios ? Coming from the interest argument why is the financial sector so opposed to ever climbing debt ratios if this brings more and more inerest payments to them ? Do they really believe governement debt is harmful to the ecomnomy (part of them does, I’m sure, but what’s about the rest of them) ? Or are debt ratios simply a means to dismantle the government (e.g. social security in the deliberations about the “grand bargain”) ? I really try to understand the economic-political reasons for opposing the MMT concept and historically you may find some answers in “the secret of Oz” a documentary you can find on you-tube dealing with the foundation conflict of the US between the gold standard and free money creation. I really hope my questions aren’t too naive, but I think there have to be reasons for ignoring MMT rooted in economic interest rather than in intellectual denial.
Regards, Erik
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WARREN MOSLER Reply:
November 15th, 2012 at 8:10 am
then why isn’t the financial sector against the 0 rate policy, which is functionally the same as ‘debt free money’ for all practical purposes?
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Erik Jochem Reply:
November 18th, 2012 at 3:03 pm
@WARREN MOSLER, as I read elsewhere the 0 rate policy and along going QE sent stocks soaring. Perhaps that’s why the financial sector favors this policy over intensified fiscal spending ?
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WARREN MOSLER Reply:
November 18th, 2012 at 7:20 pm
Turned out to be a one time portfolio shift that caused the price changes and nothing fundamental which is why the prices pretty much reversed. After the last qe it only took a couple of days to reverse.
Functionally qe remains pretty much still just a tax as per the interest income channel
November 15th, 2012 at 8:40 am
my – untechnical- guess would be that the financial sector loves to get interest free money that it can invest in interest bearing assets. “for all practical purposes”: meaning that the government could borrow at 0 interest from the FED instead of the banks if there wasn’t a debt-ceiling preventing all new borrowing interest free or not ?
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ESM Reply:
November 15th, 2012 at 10:15 am
@Erik Jochem,
I’ve always thought that the label “debt-free” money was thrown around by people who didn’t understand either MMT or money.
For all intents and purposes, the government already issues “debt-free” money. The Treasury issues T-bills in any quantity it wants, and the Fed sets the interest rate, which it currently is keeping at zero. The Treasury effectively redeems the T-bills with more T-bills. It is a perpetual motion machine, and a T-bill is no more debt (or less) than a dollar bill is.
Anybody can create money by the way. Allowing banks to create money is not anything special, although the government does grant them three special privileges: 1) FDIC insurance; 2) recognition of bank deposits as official tax credits; and 3) essentially unlimited line of credit at the Fed (although the first two privileges might not actually be distinct from the third, or each other).
Everybody would benefit from a government with a better understanding of MMT. Rich and powerful interests would probably benefit the most actually, as their wealth, income and power is highly levered to GDP. The reason it is considered a fringe economic paradigm is intellectual stubborness. It is very difficult for, say, a 59 year old Nobel prize winning economist suddenly to accept a new way of thinking and admit that he has been writing and teaching utter crap for the last 20 years.
As Max Planck once said about physics: progress occurs one funeral at a time.
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Art Patten Reply:
November 15th, 2012 at 10:54 am
@ESM,
“For all intents and purposes, the government already issues “debt-free” money.”
Not really. Just free of any offseting *private* sector liability. But net financial assets are still a liability of the sovereign, either extinguishment of a private sector tax liability or obligation to pay future cash flows to the private sector (as opposed to a fixed weight of gold on demand in the olden days).
“Everybody would benefit from a government with a better understanding of MMT.”
No doubt, but I sometimes wonder if there’s a risk of people (policymakers in particular) tossing inflation phobias out the window. I think we’d want as comprehensive an understanding as possible, in order to avoid running too far in the other direction.
“Rich and powerful interests would probably benefit the most actually, as their wealth, income and power is highly levered to GDP.”
I think those interests are too diverse to say this. Some surely would, but others (e.g., long-bond holders?) probably would suffer. Much as gold and consol hoarders suffered following Witwatersrand? (See beginning of Keynes’ Tract on Monetary Reform, for example.)
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WARREN MOSLER Reply:
November 15th, 2012 at 2:50 pm
what is called debt free money is acceptable for taxes as well
Erik Jochem Reply:
November 15th, 2012 at 11:30 am
@ESM, it’s “interest free” of course, but never mind my unpreciseness in English. So I’m glad to hear there are no political or financial interest reasons to oppose or ignore MMT, it’s all about intellectual debate. And the chicago-boys just got it wrong intellectually, no hard feelings, right ? Living in Europe I can’t see the debate about the role of the ECB as a purely intellectual one, governments running literally out of money being too good an excuse to slay social security systems ecc. Glad to hear that in the US the intention to break down social security by ways of the grand bargain is only an intellectual misunderstanding as much as is the debt ceiling. And of course everyone wanted full-employment if only he understood MMT. Sorry for being sarcastic, all I wanted was to ask why nobody in the political or financial world will listen to Stephanie Kelton. No answer to be found here it seems.
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ESM Reply:
November 15th, 2012 at 1:20 pm
@Erik Jochem,
“Sorry for being sarcastic, all I wanted was to ask why nobody in the political or financial world will listen to Stephanie Kelton. No answer to be found here it seems.”
I just gave you an answer. Just because it isn’t consistent with your preconceived notions and your political leanings doesn’t mean it’s not an answer, or even the correct answer.
Stephanie Kelton is an associate professor at a 3rd tier university, and there are full professors at Harvard who say the deficit is a problem, one of whom is a bona fide genius. So if you’re a politician who doesn’t know his ass from a hole in the ground when it comes to economics, who are you going to listen to?
WARREN MOSLER Reply:
November 15th, 2012 at 2:43 pm
well stated
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Erik Jochem Reply:
November 20th, 2012 at 4:07 am
@ESM, Stephanie Kelton herself doesn’t seem to see her sole antagonists with stubborn Harvard professors: http://neweconomicperspectives.org/2012/11/will-the-real-alan-greenspan-please-stand-up-for-america.html So why is it that Alan Greenspan in the name of Wall-Street is beating the drum for spending cuts ? Because he personally doesn’t get MMT, because Wall-Street doesn’t get it or because both don’t want to get it ? If they don’t want to get it: Why not ? (And please don’t minimize)
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WARREN MOSLER Reply:
November 20th, 2012 at 10:45 am
he may be hiding his own easter eggs by now…
ESM Reply:
November 20th, 2012 at 11:55 am
@Erik Jochem,
Yeah, Greenspan never really understood MMT. He still thinks you need savings for investment, and he has always thought that (or at least said that). I think he’s an example of a guy who misses the forest for the trees. He has always had his head too deep in the models and ends up positing ridiculous causal relationships from the correlations he finds in the data.
The only things he has been onboard with is that money is not the same as real resources and that the government can print as much money as it needs to pay monetary debts.
WARREN MOSLER Reply:
November 15th, 2012 at 2:37 pm
The Fed is the govt.
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November 15th, 2012 at 2:40 pm
Dear …..
in your presentation it’s just a problem of academic discussion. Once a relevant number of economists has understood they will inform politicians accordingly and everthing will be fine. Are you aware of the fact that no small part of economists is actually paid for the standpoints they hold ? There is no such thing as a free academic discourse in a world ruled by financial interest and I can hardly believe that you would defend such a notion. Didn’t it pass your mind that people just don’t listen to MMT because they perceive they are very comfortable with the way things are ? So if you want to argue with the people in power (and they are not nobel laureats or politicians but the ones that pay their opinions) you must analyze why they perceive the actual application of the financial system as being in their favor. Perhaps a full application of MMT would also be in their favor or even more but how can you argue about that if you don’t know what kind of interest ties them down (if only in their own eyes) to the actual system ? In short: MMT provides clues to problems some people might not like to be solved, because they make good profits on them. I’m sure these people would do everything to prevent MMT from being applied just because they understand its mechanism.
Just to try to save this discussion I reformulate my initial question: Who financially or politcally benefits from the debt ceiling and how ?
All yours, Erik
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Nihat Reply:
November 15th, 2012 at 2:51 pm
@Erik Jochem,
“Who [...] politcally benefits from the debt ceiling and how ?”
The political party not holding the executive office? By beating the executive on the head with it?
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Erik Jochem Reply:
November 16th, 2012 at 7:08 am
@Erik Jochem, been pounding “ESM’s” and Warren’s statement about MMT and the scientific community. If there’s something you could learn from the financial crisis it’s that the mainstream economists in the US are closely linked to wallstreet or “big money” so to say. So be prepared to realize that all the mainstream crab you hear about governement debt is not just intellectually wrong but clearly interest driven. If you guys mainly account “the stubborness of old men” for the fact that MMT doesn’t prevail you thus really seem far away from political reality. I cannot exactly account for the financial profits going along with the debt ceiling ecc. and that’s why I asked you guys in the first place. What I can account for is that to simply ignore the debt ceiling as MMT does propose (infrastructure investments ecc) would overthrow the status quo and the balance of power between the so-called elite and government to the detriment of the former. If a government came to act along MMT lines and demonstrated it’s de facto independance from private money buying t-bills e.g. this surely doesn’t go along with the political interests of wallstreet. Just imagine what political power a government slashing the debt ceiling and further deficit spending would aquire by boosting the economy that way. Wouldn’t such a government by the political power thus aquired also be able to regulate wallstreet once and for all ? So in my eyes MMT is a potential thread to the status quo of power and that’s why it has to be ignored by the ruling coalition of power and will be ignored in the first place. Does MMT also present a threat to financial interests is what I would like to learn about on these pages.
In Europe the existing interdiction for the ECB to finance national budgets besides providing (together with debt ratios) a guaranty for permanent crisis is in my eyes clearly in the financial interest of the private money sector providing an everlasting stream of tax-money in the form of interest to private banks. In the US it may be more complicated to identify financial interest with the status quo of debt ceiling ecc. but you simply have to do it if willing to successfully fight your cause.
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ESM Reply:
November 20th, 2012 at 12:05 pm
@Erik Jochem,
You’re asking for help to fill in the gaps in your conspiracy theory, and I’m telling you there is no conspiracy. I live in the US, I know a lot of really good economists personally, and I’m telling you that the only self-interest they have is academic credibility. There are actually many influential people on Wall Street who are on board with MMT. But they still feel the need to couch their analysis in terms that the mainstream can understand. Otherwise they too will lose credibility. If you go spouting off with ideas too far from the mainstream and from what everybody learns in school, people will tune you out.
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