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'How Are You Gonna Pay For It?'

letsgetitdone's picture
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This is the third and last in a series of posts based on youtubes from a speech in Milford CT by Warren Mosler. Warren is running for the Senate in CT in the Independent Party primary. Unlike both the Democratic and Republican candidates Warren really understands economics and his forté is explaining it to people. Here's a youtube following on the last one I blogged about. My earlier post covered Warren's policy proposals. This one considers the question “How are you gonna pay for it?””

I've written some about this question recently here, here, and here. And a lot of what I've written has been based on Warren's words and the words of other economists who use the MMT approach including Bill Mitchell, Randy Wray, Stephanie Kelton, Pavlina Tcherneva, Marshall Auerback, and Jamie Galbraith. In writing about the question, I've tied to write simply and bring my answers down to earth. But I don't think anybody is better at this than Warren. So here's what he has to say in the Milford speech:

Warren explains in plain language that our taxing and borrowing through the selling debt instruments do not produce money that is then used for spending. Instead, we never use the borrowed or taxed money, and instead just make money every time the Government spends. The Government is not like us. We have to use earned or borrowed funds to spend. But the Government has unlimited authority to spend subject only to what Congress says it can spend. That's part of what I mean by saying that the US Government is sovereign in its own currency, and also the basic reason why someone who asks you “How are you gonna pay for the it?” is just exhibiting their ignorance and failure to understand the monetary system, or even worse, if they do understand it, is just, plain lying.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability)

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madamab's picture
Submitted by madamab on

I've often tried to start conversations online about this question: "What is the job of the Government?"

My answer has evolved into: "The job of the Government is to allocate the people's resources in a way that benefits all members of society."

Am I wrong, or does this fit in with the concepts behind MMT?

madamab's picture
Submitted by madamab on

was wondering if there is a correlation somehow to MMT. If the idea of MMT is to propose a jobs guarantee, and that there's always enough money for a high standard of living, social justice and peace, doesn't that mean that MMT "promotes the general welfare?"

Just trying to figure out a Unified Theory of Everything, I guess. ;-) Excuse the lack of clarity on my part - still stumbling through all the concepts.

letsgetitdone's picture
Submitted by letsgetitdone on

My interpretation, but the goals of MMT are dependent on its practitioners, and I don't think there's complete agreement on those goals. I'm not sure there ever will be.

letsgetitdone's picture
Submitted by letsgetitdone on

I don't know that all MMT folks agree on this. But Jamie Galbraith, Warren Mosler, and Bill Mitchell have talked about Government spending for the "public purpose." Randy Wray seems focused on full employment and price stability, which Bill Mitchell and other MMT people certainly associated with the public purpose.

Having said that a political scientist might say that the purpose of Government is to regulate the authoritative allocation of values by the political system with respect to the other subsystems in society. Whether the Government limits that regulation to public purposes or has a broader scope depends on the limitations that the political system imposes on the Government. In totalitarian political systems, the Government's scope would not be limited simply to public purposes, or perhaps it's just the case that "public purposes" have a very broad definition in such systems. In systems like ours there would be a more limited view of the public purpose. But in the past, in America, it has included both full employment and price stability.

Hope this helps.

letsgetitdone's picture
Submitted by letsgetitdone on

is a good way to go. The idea that MMT fulfills the preamble to the constitution, while other economic approaches do not is a very powerful point in its favor.

madamab's picture
Submitted by madamab on

and I think the preamble linked to MMT is quite a hook, as well.

Submitted by gob on

As a non-economist (it was my very worst subject in college!) I'm turning over and over in my mind what I've read about MMT. Like most nonspecialists thinking about anything technical, I'm looking for real-world connections that make sense for me. What was said in the counter-conference about the costs of un- and under-employment dwarfing any possible costs of inflation was very powerful for me, so I'm looking for similar talking points.

Someone said, during the session on inflation, that the US government can always control inflation by simple technical means (raising taxes, was it?). That got me started thinking about the 1970s "stagflation", which arguably was a huge factor in the coming to power of the Reaganites and all the consequences we've suffered from that.

On to my query: what does MMT say about the cause of the inflation in that period? How about the cause of the failure to control it (I'm guessing "politics" is the answer)? What about its costs? Who bore the brunt of it? I've read that it was ghastly for savers and investors (I wasn't one at the time) - what about everyone else? What about the "stagnation" part of the economic situation of the time? Was everything purely a consequence of oil price shocks?

letsgetitdone's picture
Submitted by letsgetitdone on

The stagflation of the Carter period was not caused by an over-heated economy, for which the appropriate MMT remedy is higher taxes. I think, that first, it was caused by the "oil shock," and then by Volcker's misguided attempt to put an end to inflation by using monetary policy to raise interest rates so high that it would squeeze inflation out of the economy. This, of course, was a very blunt instrument that only worked quite some time after much prosperity was squeezed out of the American economy as well, and well after Reagan had been elected President.

Anyway, I suspect that the MMT's way of handling that problem would have been to let oil prices prices since the consequence would have been a simple price rise, followed by declining demand and a price collapse, but not accelerating inflation, while using a Federal Job Guarantee program to enable full employment, and to treat the "stag" in the stagflation. There would have been no use of monetary policy at all. Only fiscal policy. And there may have been some compensatory programs to remove hardship from individuals and businesses who hurt most seriously by the oil shock.