Details here. Bye bye, Modern Monetary Theory.
I’ve read some MMT links here and there. I think Krugman misinterprets them and misses their point. The problem with the MMT school is that they need to find a new catch phrase because as far as I can tell, even they don’t believe “deficits never matter,” despite repeating the line (or some variation of the phrase) over and over again.
I hope it’s not bye bye for good because I love the way they drive Bob Roddis crazy!
Okay, the catch phrase isn’t “deficits never matter.” It’s government is never revenue constrained.” I could see how it could be misinterpreted to “deficits never matter” though.
I’m looking forward to Roddis posting a comment on Krugman’s blog in support of Krugman. That will be a keeper.
Sorry. I’m still wiping my brains off the ceiling after reading:
The key thing to remember is that current conditions — lots of excess capacity in the economy, and a liquidity trap in which short-term government debt carries a roughly zero interest rate — won’t always prevail. As long as those conditions DO prevail, it doesn’t matter how much the Fed increases the monetary base, and it therefore doesn’t matter how much of the deficit is monetized.
Hey Bob, I followed you from William L. Anderson’s page.
It seems strange that Krugman uses the “roughly zero interest rate” as justification for the Fed increasing the monetary base, while the Fed are claiming that they are the ones who keep the interest rates low. Has a bit of a circular argument feel about it.
I mean, what would interest rates on short term government debt look like if the Fed had not done two rounds of QE?
APLerner informed me that I needed to read something by ex-Trotskyite Abba Lerner (1903-1982), the Godfather of MMT/Functional Finance. I found something by David Colander, a co-author of a 1980 book with Lerner:
Initially he toyed with various administrative wage and price control policies, but he found those lacking and soon gave them up. He replaced them, first, with a tax based incomes policy and ultimately, a market based[!!!] incomes policy in which property rights in prices are set and individuals have to buy the right to change prices from others who change their price in the opposite direction. It was this idea that formed the basis of our market [!!!!!!] anti inflation (MAP) book. (Lerner and Colander 1980) Under MAP, rights in value added prices would be tradable so that any firm wanting to change its nominal price would have to make a trade with another firm that wanted to change its nominal price in the opposite direction. Thus, by law, the average price level would be constant but relative prices would be free to change [page 12]
So, we now know enough about MMT to know that Abba Lerner wrote a book in 1980 proposing a ghastly and barbaric Rube Goldberg system where one would be precluded from raising (setting) one’s own prices absent a permitted trading of the right to do so with somebody else under penalty of law. Apparently, there were more problems within the fiat flick-of-a-keystroke system of theft and fraud than Mosler or APLerner have acknowledged.
MMT guru Bill Mitchell claims:
“The general reasoning failure that occurs when one tries to apply logic that might operate at a micro level to the macro level is called the fallacy of composition.” The laws of nature and logic are suspended in the netherworld of macro. And you Austrians are just too dumb to understand that!
More Mitchell, who says “employment transcends its income generating role to become a fundamental human need and right.”:
“(1) Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.
(2) Everyone, without discrimination, has the right to equal pay for equal work.
(3) Everyone who works has the right to just and favourable remuneration, ensuring for himself and his family an existence worthy of human dignity and supplemented, if necessary, by other means of social protection.
(4) Everyone has the right to form and to join trade unions for the protection of his interests.”
I just received Abba Lerner’s book “The Controlled Economy” in the mail. Apparently, he tried to reconcile socialism with “capitalism” without any attention paid to “The Problems of Knowledge in Society”, to coin a phrase.
Chapter l. INTRODUCTION. THE CONTROLLED ECONOMY
The fundamental aim of socialism is not the abolition of private property but the extension of democracy. This is obscured by dogmas of the right and of the left. The benefits of both the capitalist economy and the collectivist economy can be reaped in the controlled economy. The three principal problems to be faced in a controlled economy are employment, monopoly, and the distribution of income. Control must be distinguished from regulation. Liberalism and socialism can be reconciled in welfare economics.
I think I see a pattern here.
I’m still waiting for an MMT’er to explain where all the stuff is going to come from to satisfy the huge government debt. They won’t answer than one.
I am just waiting for Krugman to explain how the Fed reduces it’s balance sheet when the time comes when what he describes as the liquidity trap ends, and bonds and money are not near perfect substitutes.
The MMTers were out in force in the Krugman comments by the hundreds, including Mosler and Mitchell themselves. They claim that KRUGMAN MISREPRESENTED MMT! IMAGINE THAT!
After reading all those comments and collecting all those MMT links, I was compelled to comment too:
I wasn’t drinking over the weekend so I held back on what I really think about MMT. Much repetition from my prior “Free Advice” comments.
Krugman has even more trouble with MMT today:
If you want to know what we’re up against, this MMT commenter seems to know the spiel:
The MMT position is based on the sectoral balance approach developed by Wynne Godley, functional financed developed by Abba Lerner, Minsky’s financial instability hypothesis concerning credit cycles, and an understanding of the post-1971 monetary system set forth by the developers of MMT (see levy.org for papers). Functional finance essentially replaces monetary policy with fiscal policy. The sectoral balance approach reveals that fiscal deficits (G>T) are needed to fill demand leakage to private domestic saving (S>I) and foreign saving (M>X)). The constraint on fiscal policy is availability of real resources. Fiscal policy should be expansionary enough to create enough demand to occupy idle resources, including workers, but fiscal policy cannot be so expansionary as to stimulate nominal aggregate demand in excess of the productive capacity of the economy to meet it at full employment or inflation will result. MMT recommends using fiscal policy to counter demand leakage to nongovernment saving in order to prevent an output gap from developing, with the resulting rise in unemployment. The full employment deficit will vary depending on nongovernment desire to save.
Their “system” seems to be based upon the omniscience of the MAGIC BUREAUCRAT. Nothing wrong with that, right?
QUERY: Why don’t any non-Austrians [EVER] “get” the concept of prices as essential information and/or how funny money dilution messes up that essential information communication system?
The MMTers were out in force in the Krugman comments by the hundreds
Let me guess……
“MMT is an operational fact”
“we left the gold standard 40 years ago”
“you don’t understand MMT”
James Galbraith explains the brilliant insights of MMT to Krugman:
What do you mean, exactly, by the phrase, “solvency of the government”?
According to my dictionary (Webster’s Third New International) an entity is “solvent” when it is “able… to pay all legal debts.”
If you will look in your wallet, you will find, on any Federal Reserve Note: “This Note is Legal Tender for All Debts Public and Private.”
Can we agree that the United States government, of which the Federal Reserve is a part, can always produce the Federal Reserve Notes required to pay its public debts?
It follows, without any possibility of misunderstanding or error, that the United States Government is always going to be solvent.
And, of course, we all know that both the Fed and the government have a bottomless magic stash from which to pull out all kinda stuff ex nihilo, like steaks, hot red “kiss me” pumps, McMansions, colostomy bags and long term care. And it can NEVER run out of anything. Just because I said so.
So because Krugman, Bobby Boy, and Murphy all agree to ignore the operational realities of the monetary system, we should continue to buy into the neo-liberal myths promoted by the Keynesians and Austrians alike? The amount of ignorance on this topic continues, unabated. What do they say about the definition of insanity?
Of course, real economists have already taken Krugman to task over his ignorance. And there responses went beyond the brilliant rebuttal of ‘bye-bye’. Mike Norman summarizes:
Read these posts. You’ll learn something
“I’m still waiting for an MMT’er to explain where all the stuff is going to come from to satisfy the huge government debt. They won’t answer than one”
Bobby Boy, I have answered this for you a number of times. The problem is you fail to recognize government debt funds exactly nothing. By definition, the government MUST spend first before it can ‘borrow’ and/or tax. I tried to make this point to Mr. Murphy when I asked him why large funding bills, like TARP, are not passed contingent on a bond deal. His response evolved from I do not have time, to you are trying to trick me to, well, the government could sell confiscated property. Right.
The reality is the issuance of government securities are not necessary, fund exactly nothing, and are a MONETARY operation, not a FISCAL operation.
I’m not going to try to argue with you about whether the government needs to borrow anything or whether government debt actually funds anything. The fact is that you insist that the government must take on debt (in order to provide private savings!). Thus, the government then allegedly owes somebody something when they take on that debt. Is that incorrect?
The people (creditors) to whom a debt is owed tend to believe they are entitled to payment in money’s worth enough to purchase a certain market value of stuff to satisfy the debt that is owed them, whether the debt be bonds or social security or medicare. Where is this stuff going come from that they expect to get? You have refused to answer the question since I first posed it last July.
You refuse to answer because the government doesn’t have it, won’t have it, cannot commandeer it, and will be stuck with “the printing money” by “the Ben Bernank” when push comes to shove.
Also, why was Abba Lerner cooking up his “let’s make ’em buy the right to raise or lower their prices” in 1980?
Also, since you keep showing up on Austrian sites, why don’t you at least familiarize yourself with basic Austrian concepts like acting man, subjective value and the pricing processs so you can attempt to refute them? You guys ignore every single concern we ever express.
To my Austrian compadres: There were about 100 of these loons commenting on each of the last two Krugman MMT posts. Be very afraid.
I asked him why large funding bills, like TARP, are not passed contingent on a bond deal.
APL, I can answer this for you in two words – deferred taxation.
Haven’t we answered this question multiple times in the past? The purpose of the Fed was to enable the government to fund programs and wars without due process and without the masses realizing that the source of the funding was their lost purchasing power.
Austrians see immoral and ghastly behavior and are horrified. MMTers see immoral and ghastly behavior and think “Cool!”. That’s the essence of our differences right there.
Perpetual borrowing increases to finance prior borrowing and kicking the can indefinitely down the road?
It horrifying to think that Krugman is the adult in the room with the MMTers. Checking out one of AP “Hut Tax” Lerner’s links, we find all the answer we’re going to get about the source of the “real resources” to satisfy government debt:
Krugman: OK, I don’t think that’s right. To spend, the government must persuade the private sector to release real resources. It can do this by collecting taxes, borrowing, or collecting seigniorage by printing money. And there are limits to all three. Even a country with its own fiat currency can go bankrupt, if it tries hard enough.”
Letsgetitdone: I’m not sure what Paul means by “real resources.” But if he means non-financial resources, then I think the problem is one of getting the private sector to accept Government fiat money in return for those ‘real” resources. Why will the private sector go along with this “as long as the Republic exists . . .”? Because the private sector needs Government fiat money to pay its taxes, since that is the kind of payment the Government requires. As long as it needs Government money for this purpose, it can be “PERSUADED” to exchange it for resources.
If Paul includes financial resources in the category of “real resources,” then the Government can tax or borrow to get the private sector to release some of its financial resources. But when it creates money itself, without borrowing or taxing, it’s not persuading the private sector to release financial resources, only non-financial resources.
Monstrous, ghastly stuff.
I was checking out my latest comment on the Krugman blog (a repeat of my Collander quote) and found a comment by Michael A. Kamperman who apparently writes books touting MMT. Check out his solution. As he says, NO ONE HAS EVER THOUGHT OF THIS BEFORE AND NO ONE IS TALKING ABOUT IT!:
A debate has erupted between Paul Krugman and James Galbraith over whether or not deficits matter in the long run. The debate centers on the utility of Modern Monetary Theory, which in a nutshell is the usefulness of the federal government printing money to stimulate demand. While I agree with Galbraith, the specifics and nuances of the debate are not important (they can be found on Paul Krugman’s blog). What is important is that the debate is taking place. On the national level no one is talking about the federal governments ability to print money and end the current depression [oh really???!!]. All of the talk is about the debt and the deficit and the existential threat they make to the United States. Of course such thinking is hogwash since we can pay all of our debt by pushing a button on a computer, and we control the computer printing press. We still think and operate as though we are on the gold standard and bound by the physical laws of nature. We are no different than ancient people who would sacrfice a community member to appease the gods and try to make it rain during a drought. Basically, we are economically sacrificing so many people; students and teachers, construction workers, the disabled, the poor, and so many more. The reason for the sacrifice is because we are afraid our currency and economy will collapse into bankruptcy and hyperinflation when we reach the point where we are unable to pay back the debt caused by large deficits. It matters not whether the number entered into the computer to print is $1, or $10, or $10 million, or $10 trillion all that is required for the U.S. to pay back its debt is to enter any number and hit print.
I keep hunting for their argument against the ABCT but they don’t seem familiar with it. Who knew?
‘The fact is that you insist that the government must take on debt (in order to provide private savings!).’
I, nor anyone who understands the monetary system, has ever said that. Please stop making things up. You’re so good at copy pasting. Why stop now?
So what is it that you do say?
You’re as slippery as an eel.
Government securities fund exactly zero. ‘Debt’ issuance is not required for the US government to spend, and is not required for the private sector to save. Issuance of ‘debt’ is a monetary, not a fiscal operation. Issuance of ‘debt’ by the treasury is a reserve drain, nothing more Because debt issuance is (foolishly!) required by law, all the accumulated debt represents is accumulated non government savings.
NET SPENDING by the public sector creates surpluses in the private sector. See the difference? The US government can and should stop issuing ‘debt’ securities tomorrow. They are nothing more than a distraction and give fodder to ignorant politicians, economists, and arm chair economists to promote fear mongering so they can sell a few books or peddle a money losing financial product.
Ask yourself this. The US government is running a substantial deficit. Yet the US government is able to start dropping bombs on Libya, costing the US government tens of millions of dollars a day. Yet, no new funds were raised in the debt markets. No new taxes were raised. Funny. The US was able to go to war, without asking China for a loaner. Why? Because the US government, by definition, must spend FIRST, and then tax and ‘borrow’ second. And since that is always true, all it takes is a little common sense to realize the ‘debt’ you, Murphy, and everyone else who are clueless regarding monetary operations spazz out about, fund exactly zero spending. Zero. Zippo. Nothing. FYI – the US went off the gold standard a while ago. FYI – there is no debt crisis.
There you have it. Fiat money can commandeer anything and accomplish everything without consideration of prices, Cantillon effects or real resource constraints.
Once again, you’re hearing what you want to hear. Good luck swimming upstream.
Alright. Where to the goods and services come from to satisy the government’s massive obligations? All I’ve heard from MMTers (elsewhere, since you won’t answer) is that the government’s unlimited supply of fiat money can purchase whatever is needed without concern.
Also, where is the MMTer refutation of Austrian concerns about Cantillon Effects and the distortion of the price, investment and capital structure caused by unconstrained fiat money dilution?
Where DO the goods and services come from to satisy the government’s massive obligations?
The wonders of our Modern Monetary Theory regime! Operational reality! Facts on the ground!
“Libya-Owned Bank Drew at Least $5 Billion in Loans From Fed”
The Fed is unconstrained by the Constitution, Congress or morality! This is just so cool that I can hardly breathe!
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