Bernie Jackson on a Flaw with MMT Analogies
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!
Bob,
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
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.
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.
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.
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.