03 Mar 2020

Bernie Jackson on a Flaw with MMT Analogies

MMT 4 Comments

Or rather, why Warren Mosler’s analogies don’t do what Mosler thinks. (For context see my interview with Warren.) Bernie Jackson emailed me (and said I could reproduce) the following:

MMT’s referee & ticket analogies fail on their own terms and illustrate the MMT flaw!


When the referee puts points on the board, the points DO come from somewhere: actual events on the field. If referees arbitrarily put up points whenever they want, the fans will object and eventually stop watching the game. Referees are bound by rules as much as all other players in the game: when a touchdown is scored on the field, that FIRST creates an “asset,” a thing valued within the context of the game, against which the referee is THEN able to issue six points on the board. Not five, not seven. When the ensuing extra point (or go-for-two) is scored, another asset is created, and the referee again credits the board with exactly that number of points. There is indeed a FIXED SUPPLY of points at the referee’s disposal, and the referee is only a messenger, with ZERO power to create or destroy those points. Even if many fans are hoping for a touchdown, they will be disappointed in the referee’s putting six more points on the board UNLESS an actual touchdown is scored to back up the value of those points.

When a stadium sells tickets for an upcoming game (and note that they SELL them in exchange for other assets; they don’t “hand them out” or “give them away”), those tickets are not issued out of thin air, not at all! FIRST, an asset had to be created, called a football league, and a football team, and a stadium in which to play, and a marketing complex in which fans learn to care about any of that, and only THEN can tickets be printed up. The value of those tickets is backed by the real assets that make it possible for a fan to experience the game–and not just watch the game all by himself, but to watch it with a large, enthusiastic crowd and all the pageantry. The league and team executives created those assets, and only later can they print up tickets, just as paper money is issued to represent gold or other assets already acquired.

If we were to print tickets to a fictional game, some people might mistakenly buy them, because they were fooled into thinking there would be a game to attend, but as soon as enough people found out, the jig would be up. So no, you cannot just print up tickets and “hand them out” to create any sort of wealth, and if you were to hand them out, it would not “enable spending” in any productive, non-imaginary way (try “spending” your ticket to a game that isn’t really taking place).

If referees were to put fake scores on the board, to make a dull game more exciting, or to fulfill a complex mathematical model optimizing the number of fans still in their seats at the end of the game, the jig would likewise be up, as soon as fans discovered the ruse. This ruse would not be possible in football but would be in a game of technical measurements and hard statistical analysis. Imagine if football became so complex that every play were reviewed by instant replay, and fans never knew for sure the outcome until the referee emerged from the hood. When nay-saying sports analysts exposed that the statistics of points awarded had no correlation to happenings on the field, the jig would be up.

A regime of issuing tickets and marking points could last indefinitely if those tickets and points were backed by real assets (real games to attend and real athletic achievements on the field), but if the tickets and points were issued out of thin air, the regime would inevitably collapse.

So, those two classic MMT analogies are perfect. On their own terms, they illustrate that paper money has no value of its own and will ultimately collapse if not issued against a real asset.

This all struck me while listening to your episode 24, your commentary on an earlier interview with Warren Mosler. I had heard you discuss MMT a few other times, but I don’t think I heard these flaws exposed quite this explicitly. I hope that contributes a little something to the debate!

Thanks for all the episodes,
Bernie Jackson

4 Responses to “Bernie Jackson on a Flaw with MMT Analogies”

  1. Tel says:

    If you follow the link to the Bob Murphy show and rummage around in the comment section you might find a few from me, pointing out substantively similar issues.

    So, those two classic MMT analogies are perfect. On their own terms, they illustrate that paper money has no value of its own and will ultimately collapse if not issued against a real asset.

    I’m pretty sure the Fed are somewhat sharper than Mosler … they know they are in the business of money printing and creating inflation, but it’s a question of how long they can hold themselves back, in order to remain in business. Suppose you were a professional counterfeiter who did very good work, and could not get caught by any normal police but you could get busted if you created so much inflation that the whole currency collapsed. The optimal long term profit would be print what you judge you can get away with … something like 2% per annum for example.

    • Bernie Jackson says:

      Yes, exactly!

      Referees would discover how to “juice” the game by adding a score here, suppressing one there, just enough to add some excitement, but not enough to get caught. But they would be greedy…

      And then there’s pro wrestling.

  2. Transformer says:

    I just listened to the podcast with Mosler (which I thought was very good). I think the 2 sporting analogies Bernie’ references were:

    – When the fed spends money and credits the accounts of those it buys from it is acting like a scorekeeper in a game (dollars are like points).

    – The fed as monopoly currency supplier has by logical necessity first to spend before it can tax in the same way as organizers of a sporting event have to first issue tickets before those tickets can be used to enter the stadium.

    Bernie’s point is summed up best by his comment:

    ‘A regime of issuing tickets and marking points could last indefinitely if those tickets and points were backed by real assets (real games to attend and real athletic achievements on the field), but if the tickets and points were issued out of thin air, the regime would inevitably collapse.’

    I would like to challenge his interpretation of the analogies.

    – I think sporting bodies such as the NFL do indeed create the rules and scoring system ‘out of thin air’ and scoring events such as touchdown derive meaning only from these arbitrary rules. If the NFL made the rules too confusing, too arbitrary or made the game boring people would stop watching. The controllers of the NFL therefore set the rules to maximize their own (psychic) profit and have no self-interest in setting the rules to create a collapse. Similarly the fed could destroy the scoring system of the financial system by making the rules arbitrary or self-defeating (paying random amounts differing from the payment agree for goods bought, paying very high prices so causing inflation, etc). But just like the NFL it is hard to see why it would be the interest of those who control the fed (and the government) to do so.

    – If the NFL sold tickets to non-existent games then people would be wary of buying tickets from them. If the fed sold tokens to people in exchange for goods and services and it out turned out that these tokens sometimes had no use or exchange value then likewise people would be wary of trade with the government. But in reality the government creates and sells tokens that have value that it guarantees to exist by mandating that every citizens pays some tokens back to it each year in tax. As long as the government can enforce these tax payments then there is no reason that the system will inevitably collapse.

    • Bernie Jackson says:

      Hi, Transformer.

      I apologize for the three-and-a-half-year delay (“I was busy,” lol).

      Regarding your reply to my MMT analysis, I find us in complete agreement, as long as we are sensible about the phrase “out of thin air.”

      The NFL’s rules and conventions were thought up “out of thin air” in the same sense as Henry Ford’s first thoughts of the Model T. Neither the NFL nor Ford Motor Company sold those abstract, immaterial thoughts–how could they?–but instead embarked on a long journey of hard work to make them into something concrete that could be sold, including the entrepreneurial discovery of a market that subjectively valued the product and a source of capital willing to fund it. As “Austrian” thinkers, we are uniquely qualified to appreciate how these things arising “out of thin air” are very real in a way that capriciously printing green slips of paper is not. When I say “out of thin air” in a dismissive way, I am referring to the latter and not the former.

      Just as Ford might have manufactured 1,000 Model T’s while taking 10,000 orders for immediate delivery, an NFL team could sell 800,000 tickets to a game in a stadium of only 80,000 seats. Both of these would be unsustainable business practices and even fraudulent, barring some clever fine print that would still not save their reputations. The excess sales would be what I am calling “out of thin air,” even though some Model T’s were really made and the stadium really exists. On the other hand, Ford might have taken only 1,001 orders and the NFL team might have sold 80,001 seats. Then, both probably could have wriggled out of the consequences, and at worst they might need to refund just one customer. Done systematically, this could create a tiny unjust profit undetected by the market, but that is not what I claim would “inevitably collapse.”

      Even if Ford had sold only the PLANS to the Model T, and the NFL had only printed copies of their rulebook, these items are not “out of thin air” either, in the sense that they have to be printed and delivered, and again one might print 1,000 books while taking orders for 10,000 copies and encounter all the same problems, as opposed to “handing out” whatever quantity was printed to passersby who had not expected them. In these days of e-books, a seller might fail to provision a web server capable of electronically delivering PDF files to all purchasers, making the limitation less directly physical but still entirely real. Even the Internet isn’t “out of thin air,” as every hard-working IT specialist knows at 3:00 am when the servers keep crashing and the disks are corrupted.

      I do not claim that these ticket/point systems cannot stand the slightest amount of chicanery, only that when there is enough to disappoint the fans/customers, they will collapse. I refer to this in the original post above when I describe a football game so complex that the average fan cannot directly verify how many points have been scored and so must ride on the inertia of trusting the officials, analogous to our modern financial system. I do not say that the system falls apart as soon as the officials put ANY fake points on the board, but quite the opposite:

      “When nay-saying sports analysts exposed that the statistics of points awarded had NO CORRELATION [emphasis added] to happenings on the field, the jig would be up.”

      The paragraph you quoted comes immediately next and is meant in that context. It is not a blanket claim that the slightest amount of thin air creates inevitable collapse.

      As you point out, what “thin air” means is a constant negotiation between producer and consumer, as everything always is–again, we Austrians understand this better than anyone. If each customer knows full well that he might be ticket holder #80,001 and may have to stand in the back or not even be admitted, I think most will still take their chances pretty happily. If the referees occasionally call the play wrong and put undeserved points on the board… well, that happens now, and the game continues with minor disappointment. Pro wrestling fans love their fake sport, because they understand it as a gladiatorial drama, with the trappings of sport as stage and backdrop. For those who don’t, an awkward moment is coming, like the horrible truth about Santa Claus and the Tooth Fairy. We all survived it, and so will they. Just because fans’ subjective value is based on something beneath the surface, that does not make it any less real or “out of thin air.” The business must really provide whatever the customers actually expect and value, or it is in trouble.

      Who knows? If the NFL’s scorekeeping degenerates into a corrupt farce, the fanbase might shift toward admirers of cheerleading, with the gameplay as mere backdrop–an outcome maybe unexpected by the NFL itself. And profit might INCREASE. This changes nothing except surface details: to stay in business, the NFL would then have to sell tickets to real seats at real quality cheerleading spectacles, at a price matching their fans’ subjective valuation, rather than “handing out” arbitrarily printed paper slips to thin-air non-events without a miniskirt in sight (or should I say, not a cheerleader in sight, as the miniskirts themselves might turn out to be optional). This would be true whether the NFL understood the shift or not and whether or not the fans openly talked about it or pretended that they were still attending for the game, in the same way that certain magazine subscribers “read it for the articles.”

      There is a sense in which MMTers acknowledge all of this: they admit that the money printing needs to stop when inflation increases “too much.” But this is merely an admission that printing money “out of thin air” destroys value. If one inserts the historic scholarly meaning of inflation–NOT a decreed “basket of goods” figure perennially tweaked, but simply printing currency beyond a basis in actual wealth–then we already knew that: you can print all the money you want, as long as it stays in proportion to supplies of real value to purchase. And you can get away with small amounts of overprinting but not “too much.” Gee thanks, MMT!

      As for dollars having value due to requiring them for payment of taxes, this is no more profound than Chuck E. Cheese requiring their tokens to play arcade games. None of us use those tokens for anything outside of the arcade, and unless we go there frequently, we only change “real” money into tokens upon arriving and wish we could change back the unused ones upon leaving. If the Fed is not careful, the dollar could go the way of the Chuck E. Cheese token and so many other defunct national currencies (perhaps that is unfair to the Chuck E. Cheese token, which after all does still buy you a game of Centipede. (Do they even still make Centipede? (Do they even still use tokens?))).

      None of this changes my point: MMTers encourage serious intellectuals to believe that we can print money “out of thin air,” but it is only true in the same way that referees can mark points on the board for touchdowns that never happened, or that teams can sell tickets to imaginary games. The MMTers’ analogy is more perfect than they realize, and the subtleties you have pointed out reinforce and complete that point nicely.

      Thanks for your reply!

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