I want to discuss the article above because it makes some errors beginning with calling Modern Monetary Theory (MMT) a “new idea.” The only thing “new” about MMT is that it doesn’t repeat the lies that everyone has told each other for centuries. MMT describes how government money has really worked throughout human history.
From the article…
In early 2013, Congress entered a death struggle—or a debt struggle, if you will—over the future of the US economy. A spate of old tax cuts and spending programs were due to expire almost simultaneously, and Congress couldn’t agree on a budget, nor on how much the government could borrow to keep its engines running.
Regarding the “debt ceiling” debate, this is simply about whether the U.S. government should continue to let the Federal Reserve accept more savings deposits by selling T-securities. Contrary to politicians’ lies, this has nothing to do with “funding the government.” Politicians might as well argue about how many angels can dance on the head of a pin.
A solution bubbled up from the economic blogosphere. What if the Treasury minted a $1 trillion coin, deposited it in the government’s account at the Federal Reserve, and continued on with business as usual? The was authorized by an obscure law that applies to commemorative platinum coins, and it didn’t require congressional approval, so the GOP couldn’t get in the way. And the cash would not be circulated, so it wouldn’t cause inflation.
Bloggers described this thought experiment as “ludicrous but perfectly legal” (Slate); “a monetary parlor trick” (Wired); “really thrilling” (Business Insider); “a large-scale trolling project” (The Guardian). The idea made its way onto late-night TV, political talk shows, White House press conferences, and lived on as a hashtag: #mintthecoin. At the heart of the attention was an acknowledgement that money wasn’t the problem—politics was.
The problem is indeed politics (not money). And politics is about who has power over whom.
The “trillion dollar coin” idea began circulating in 2011, and became headline news by January 2013. It was ridiculed by rich and poor alike. One group of hecklers consisted of bankers, politicians, and anyone else whose power and privileges would be threatened by a public awakened from the lies about money.
The other group consisted of slaves whose dream worlds would be threatened by a “trillion dollar coin.”
When a population is abused, its members cope with their misery by mentally withdrawing into various dream-worlds such as religion. (Statistically speaking, religious belief tends to increase with poverty and hardship. For example, prison inmates often “get religion,” and then drop it when they are released.)
Here are more dream-worlds that the peasants cling to in order to cope with their misery…
 It’s all the fault of the Goyim / Jews / Arabs / Muslims / Blacks / immigrants / whatever.
 It’s all the fault of the Fed, which lends all dollars into existence.
 If it sounds too good to be true, it is.
 I deserve to be poor because I’m stupid and lazy.
…and so on. Again the “trillion dollar coin” idea was ridiculed by rich and poor alike, albeit for different reasons.
Harriet Tubman (1822-1913) escaped from slavery and made thirteen missions to rescue about seventy enslaved families and friends. Tubman supposedly said, “I could have free more slaves if only they had known they were slaves.” There is no proof that Tubman ever said this, but the idea is valid.
For a small group of academics who adhere to a doctrine called Modern Monetary Theory (MMT), fiat currency is a social construct, and there are no fiscal limits on how much a sovereign currency-issuing nation can spend. Once we change the way we think about money, we can provide for everyone: We don’t have to “find” the money to “pay” for universal health care by “cutting” the budget elsewhere. In fact, our government already works that way: Spending must precede taxation, or there would be no dollars in the economy to tax. What’s lacking is not money, but political will.
True, except that the theory of MMT is not a “doctrine,” just as the theory of aerodynamics is not a “doctrine.” A theory does not entail guesses, hypotheses or opinions. A theory is a nexus of facts.
Neoliberalism, however, is a doctrine, since it consists of nothing but lies.
To a layperson, MMT can seem dizzyingly complex, but at its core is the belief that most of us have the economy backward. Conventional wisdom holds that the government taxes individuals and companies in order to fund its own spending. But the government—which is ultimately the source of all dollars, taxed or untaxed—pays or spends first and taxes later.
Incidentally the government is not “ultimately the source of all dollars,” since banks create dollars out of thin air when they make loans.
When the government funds programs, it literally spends money into existence, injecting cash into the economy. Taxes exist in order to control inflation by reducing the money supply, and to ensure that dollars, as the only currency accepted for tax payments, remain in demand.
This is the MMT claim that “taxes drive money” — i.e. federal taxes are what create demand for federal dollars. This claim is nonsense, since we would need the federal dollars even if all federal taxes were eliminated.
Also, controlling inflation is not the sole function of federal taxes. The key is to maintain a balance between the supply of money and the demand for money. Balance can be maintained by either reducing the supply of dollars (i.e. getting dollars out of the economy via austerity, or by taxation, or by selling special bonds) or by reducing or increasing the demand for dollars via adjusted interest rates.
The real purpose of federal taxes is that they are the ultimate expression of federal power over you. The gubmit giveth, and the gubmit taketh away.
MMT’s adherents point out that the federal government never “runs out” of money to fund the military, but routinely invokes budget constraints to justify defunding social programs. Money, in other words, isn’t a scarce commodity like silver or gold.
There is limitless money for the military, but no money for social programs that help average people. How do average people justify their belief in this lie? They claim that the U.S. government borrows all its dollars, and this is why we have a $20 trillion “national debt.” Thus, they claim that dollars are not limitless. (Sigh.)
The decisions about how to issue, lend, and spend money come down to politics, values, and convention. Inflation, MMT’s proponents contend, can be controlled through taxation, and only becomes a problem at full employment—and we’re a long way off from that.
Inflation is not caused by full employment, but by “too many dollars chasing too few goods.” For example, during World War II the U.S. employment rate dropped to nearly zero, but there was a shortage of consumer goods to spend one’s salary on, since consumer goods were rationed for the war effort. The surfeit of dollars, plus the shortage of goods, created the potential for inflation. To control inflation during the war, the U.S. government instituted the federal withholding tax, and also encouraged people to buy “war bonds” by (falsely) telling the masses that the bonds were necessary to “fund the war.”
Today there is no shortage of consumer goods. Therefore a massive increase in deficit spending would not cause inflation. It would boost employment, which America’s rulers do not want, since your suffering is their pleasure. The poorer you are, the richer they feel by comparison.
The article then quotes Warren Mosler.
“If you eliminate the tax on workers and let them keep more money, the average family would have $625 of payroll pay. Why won’t politicians do that? Because they believe the tax money is used to make Social Security payments. But that’s a mistake.”
MMT people ridiculously believe that politicians “mean well” but are “misinformed.” You and I know that politicians are liars. Politicians know that the U.S. government creates its spending money out of thin air, but politicians don’t want you to know it, since they want you to grovel to them for every penny.
In Europe, where a generation of young people remain unemployed, more spending, better social welfare, and a guaranteed job are a particularly attractive combination. But eurozone countries share a common currency, so the European Union would have to allow all of its members to borrow more, not less, to stimulate the economies of its more beleaguered states.
Except that euro-zone nations with large trade surpluses, like Germany, do not need to borrow their euros. They suck euros from nations that have trade deficits, like France and Greece.
In Greece, for example, Rania Antonopoulos, who runs Bard’s “Gender Equality and the Economy” program, serves as the alternate minister of labor in the Syriza government. She’s proposed pushing the government to be the employer of last resort.
NONSENSE. Since Greece has a huge trade deficit, and cannot create euros out of thin air, Greece must borrow all its euros from bankers, who use the debt load as leverage to force privatization. There is no possible way that the Greek government can employ more workers. The SYRIZA hacks are all liars on the bankers’ payroll.
Despite the lack of official interest, austerity has given these MMT economists rock-star status. Kelton recalls a conference a few years back in Rimini, Italy, where her group sold out their initial venue and had to move the event to a basketball stadium.
MMT is irrelevant to Italy, since the Italian government cannot create euros out of thin air. In fact, because of the euro, Italy would be as horrible as Greece if Italy did not have a trade surplus, which Italy has enjoyed since 2012.
It’s hard to imagine radical changes being made to the way politicians talk about money. It could take decades, even centuries, to make a dent in entrenched ideas about debt, scarcity, and supply.
The problem is politics. More for me. Less for you. If the human species somehow overcame its basic selfishness, then MMT would catch on like wildfire.
There is, particularly among young people, an enormous appetite for new solutions to the problems that modern economies face, from automation to offshoring. And the financial crisis has shaken the public’s trust in established ways of thinking.
Yes. At any point in time, the current paradigm hurts some people, and benefits others. A paradigm does not change until the people who benefit from it die off. Then the cycle repeats with a new paradigm.
Take the universal basic income: A few years ago, it seemed unrealistic and utopian, but today, versions of the UBI have been embraced by Silicon Valley moguls, economists on the left and the right, and politicians around the world.
Unfortunately the UBI will go nowhere until the masses first understand that money is limitless.