Bill Mitchell

In a comment on another post of mine, Kelly Canfield, a blogger and commenter at FDL, asked me for the following.

What I would appreciate is a simple, 3,4 bullet point method as to why I should support, and more importantly, tell others that MMT is superior to the Keynes theories which I have pointed out and illustrated to others before this current situation.

I can easily explain that the private sector is not providing demand, and that the Fed sector should, and people would be better off with demand stimulus.

Explain to me how I EXPLAIN that MMT is superior to that basic premise, if it is?

Not sure I want to do that in three or 4 bullet points. But what I will do is to state what I think are some differences that are very significant for policy activism between a Keynesian approach employed by people like Paul Krugman, Brad DeLong, and Robert Reich and a Modern Monetary Theory (MMT) approach employed by people like Warren Mosler, L. Randall Wray, Bill Mitchell, Jamie Galbraith, Stephanie Kelton, Marshall Auerback, Scott Fullwiler, and Pavlina Tcherneva. So, here are some contrasts between the two approaches on seven important issues. Out of these contrasts, there should be much material for short explanations about why MMT is superior to Keynesian approaches. [Readers? -- lambert] Read below the fold...

(Author's Note: In December I posted a piece on Moody's threat to downgrade the US's Rating in International Bond markets. I argued that Moody's action was foolish. Today, Standard and Poor's actually revised the US ratings outlook from stable to negative, but continued its sovereign credit rating at ‘AAA/A-1+’. Read below the fold...

One commenter at FireDogLake says:

”. . . we should be exceptionally careful not to jeopardize the hard-fought for benefits (like S.S.) by risking devaluation of the dollar. That would be truly tragic.”

and another at New Economic Perspectives says about Modern Monetary Theory (MMT) and inflation: Read below the fold...

In the big budget fight going on right now in Congress, the Tea Party conservatives rightly point out that $61 Billion in spending cuts is just a drop in the bucket compared to the $1.6 Trillion predicted deficit, and they react with a great deal of moral fervor to the suggestion that they ought to compromise on $33 Billion in cuts in order to avoid shutting down the Government. That moral fervor sounds perfectly reasonable to me as long as one agrees that Government spending causes inflation, that we now have a huge deficit, debt problem in the United States that we must solve, or face national insolvency in the not too distant future, and also if the people afire with moral fervor would also apply that to the issue of the wealthy paying their fair share of taxes. Read below the fold...

By

Scott Fullwiler

(Reprinted with the Permission of the Author)

(Editor's Note: This is a long and difficult piece, originally published at Yves Smith's Naked Capitalism site, and has an academic style. But, nevertheless, if you want to understand more about what the Modern Monetary Theory (MMT) school of economics has to offer, it is well worth your investment of time. It is the definitive critique of Paul Krugman's two recent blog posts on MMT, in my view.

In addition, in the process of criticizing Paul's views, Scott Fullwiler illuminates a lot of the deep thinking and knowledge developed by those following the MMT approach over many years, now. If you read this, you can see just how far off-base Paul Krugman is in his attempt to de-construct MMT, and you can also see how much work Paul has to do to really understand what his colleague economists using the MMT approach have developed.)

The old saying that bad press is better than no press is definitely true in this case. Without the advent of the blogosphere, our work would likely never even be noticed by the likes of Paul Krugman, so the fact that he’s writing about us (here and here) this weekend at least means we’re doing better than that, even if his assessment of us is far less than glowing. At the same time, and particularly given that Krugman is so widely read, it’s imperative to at the very least set the record straight on where MMT and Krugman differ. I should note before I start that others have done very good critiques already that overlap mine in several places (see here, here, here, and here).

Krugman makes three incorrect assumptions about what MMT policy proposals actually are while also demonstrating a lack of understanding of our modern monetary system (as is generally verified by volumes of empirical research on the monetary system by both MMT’ers and non-MMTer’s). These are the following:

Assumption A: The size of the monetary base directly (or indirectly, for that matter) affects inflation if we’re not in a “liquidity trap”

Assumption B: MMT’s preferred fiscal policy approach or strategy—Abba Lerner’s functional finance—is Non-Ricardian

Assumption C: Bond markets alone set interest rates on the national debt of a sovereign currency issuer operating under flexible exchange rates

Assumptions A and C are central to the Neo-Liberal macroeconomic model. Assumption B is a common misconception about MMT and a common perception of Neo-Liberals about the nature and macroeconomic effects of fiscal policy (i.e., Neo-Liberals often believe that activist fiscal policy is Non-Ricardian). Read below the fold...

A friend, Julia Williams, writes and asks:

Isn't it true that in actuality, the US doesn't, in fact "borrow'? It spends or trades? And if that is the case, doesn't that just blow the deficit hawks out of the water?

Here's my answer to her. Read below the fold...

After the scorching he received in many of the comments on his printing press post Paul Krugman decided to dig his MMT blogging hole even deeper.

He says:

“. . . I think one way to clarify my difference with, say, Jamie Galbraith is this: imagine that at some future date, say in 2017, we’re more or less at full employment and have a federal deficit equal to 6 percent of GDP. Does it matter whether the United States can still sell bonds on international markets?

Read below the fold...

[Welcome, Naked Capitalism readers! There's a follow-up post here. --lambert]

The Modern Monetary Theory (MMT) approach to economics must be starting to make some waves, because today, Paul Krugman, followed his earlier attack on it and his debate with Jamie Galbraith and others last summer, with another swing at MMT. The debate last summer was an extensive one at Paul's blog site at the New York Times, and, in addition, there were a number of posts at other sites replying to Paul. The debate was a classic in the developing conflict of views between the “deficit doves” (represented by Paul) and the “deficit owls” (represented by Jamie Galbraith and other MMT writers).

Given the earlier debate, you'd expect that Paul's second try at MMT would reflect a bit of learning on his part, and also a characterization of the views of MMT practitioners that is a little more fair than he provided in his first attempt. This post will analyze Paul's new attack and assess how much he's learned. But first, I'll review the earlier debate. Read below the fold...

(Author's note: I've offered this idea a couple of times over the past few months here, with surprisingly little reaction. I'm trying once again, because I'm persuaded that much of the leverage that conservatives and Republicans have over our fate is due to the belief that most people hold that federal deficits, the national debt, and the GDP ratio are important, and that we must bring them under control to avoid Government insolvency. In addition every one seems to believe that the existence of the debt is due the to the profligacy of the Government, its monumental waste, and the lack of courage of its politicians who spend too freely to please constituents, gain campaign contributions, and help themselves to stay in office. None of this is true. The current existence of the National Debt, and also of a non-zero public debt-to-GDP ratio is the inevitable result of a technical decision that Congress has made about how the Treasury should finance its spending. This post talks about that decision, points out that its consequence is the National Debt, and also points out that the very existence of the National Debt is the fault of Congress.)

It is Congress's fault that we have a national debt at this point in our history. And also Congress can largely get rid of this debt over a 10 year period any time it wants to.

The national debt exists today because when the nation went off the Gold Standard in 1971 and adopted its fiat currency system, Congress did not repeal its mandate, very appropriate when our currency was convertible to Gold on demand, in least in theory, requiring that the Government back all its deficit spending with already existing borrowed dollars whose convertibility was covered by our holdings of Gold. This Congressional mandate to borrow funds by issuing debt instruments when the Government deficit spends, is what has caused the national debt to persist.

Had Congress repealed it when President Nixon took the country off the Gold Standard, and had we ceased to issue debt at that time, then the Government would have re-paid all of our 1971 debts as they came due, and our national debt today would be zero and our debt-to-GDP would now be at 0%.

The Congressional mandate to issue debt when the Government deficit spends has no useful function today, and the interest income it provides for mostly wealthy investors and foreign Governments who buy Treasury Securities is simply a form of welfare for the rich. In fact, it is welfare that will cost the Treasury almost $12 Trillion over the next 15 years if we continue the policy of issuing debt instruments. Read below the fold...

Is the Modern Monetary Theory (MMT) approach to economics beginning to crack the MSM? Read below the fold...

A number of people including myself have been furiously blogging for many months now on the world-wide austerity war that most Governments are fighting against the well-being of their citizens. Read below the fold...

Today, Yves Smith had a good piece at Naked Capitalism entitled: “Wall Street Co-opting Nominally Liberal Think Tanks; Banks Lobbying to become New GSEs.” The main point of the article was to point out that the Center for American Progress (CAP), a supposedly “liberal” Washington “think tank,” was proposing a housing finance reform plan that was a Read below the fold...

Yesterday, as reported in Money News, Moody's made me laugh, with the following pronouncements:

” . . . it could move a step closer to cutting the U.S. Aaa rating if President Barack Obama's tax and unemployment benefit package becomes law. . . .

“The plan agreed to by Obama and Republican leaders last week could push up debt levels, increasing the likelihood of a negative outlook on the United States rating in the coming two years . . .

“A negative outlook, if adopted, would make a rating cut more likely over the following 12-to-18 months.

“For the United States, a loss of the top Aaa rating, reduce the appeal of U.S. Treasurys, which currently rank as among the world's safest investments.

"From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth," Moody's analyst Steven Hess said in a report sent late on Sunday.”

Read below the fold...

Self-styled “progressive organizations” and commentators have been releasing their own deficit reduction plans in reply to the plans released by Erskine Bowles and Alan Simpson, Alice Rivlin and Pete Domenici, and The Peterson-Pew Commission. These new plans, were released by the Institute for America's Future, Citizens Commission on Jobs, Deficits, and America's Economic Future and Our Fiscal Security, a collaboration of Demos, the Economic Policy Institute, and The Century Foundation (TCF). The first, “Report and Recommendations of Citizens Commission on Jobs, Deficits, and America's Economic Future” was written by Jeff Madrick with contributions from Roger Hickey, R. J. Eskow, Robert Borosage, Dean Baker, Robert Kuttner, Robert Pollin, and other unnamed Commission members. The second, “Investing in America's Economy: A Budget Blueprint for Economic Recovery and Fiscal Responsibility” was written by Becky Thiess and Andrew Fieldhouse, both of EPI, with contributions from Heather McGhee (Demos, Defense Spending), Maggie Mahar (TCF, Health Care), and Josh Bivens (EPI and relating public investments to economic growth). The report was also written under the guidance of Greg Anrig (TCF), Tamara Draut (Demos), and John Irons (EPI). Read below the fold...

I blogged on the opening slide of the Catfood Commission Co-Chairs' Proposal just a couple of days ago, so when I checked out BillyBlog, as I do almost everyday, last night, I was particularly pleased that a part of his great post was devoted to the same slide I commented on. Read below the fold...