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Modern Monetary Theory and the economic crisis
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True indeed - though to be honest, I think that fear is more of a 'taboo' than most else; the fear of that, seems to be so great, that it actually precludes any discussion, of comparing the damage (and potential damage) of private money creation, versus public/government money creation - and of the mechanics of money creation and inflation itself.
That's a discussion that's necessary, in order to actually ground that fear in anything other than emotional argument - yet the emotional arguments surrounding that, preclude the actual discussion.
Yes though, it will be quite interesting to see what Martin Wolf has to say
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It would require a responsible government, for sure - the thing is, it is already possible for private sector influence on banks and regulatory capture of the central bank, to create exactly that problem - and that's arguably what happened with the property bubble.
Once governments have power over money creation, they would no longer be able to abdicate responsibility for inflation anymore though, they would be directly responsible - which is a bonus:
The population would know that government does have the power to control inflation within the economy, through taxes, and so would be able to hold government responsible at election time, for excessive inflation.
I think that the policies that government use of money creation would allow (it would allow permanent full employment, with government as employer of last resort - using a Job Guarantee); I think that would make the population less susceptible to influence by government at election time, by flooding the economy with money, because things would already be kept fairly prosperous, with greatly lessened economic cycles (and with much less social impact, due to the Job Guarantee).
That said, this (populist abuse of fiscal-policy/money-creation) isn't an area I've put a lot of thought into yet (discussion hasn't usually gotten this far, in the past) 0 -
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^^ That's true, but it's a similar problem to what we have now: The average voter doesn't know anything about banking regulations, so we are going to head into a new period of inflationary bubbles, because nothing has been reformed - same problem, manifested in a different way (and controlled in significant ways, by the private sector in banking/finance).
The public are going to have to get wise, and hold governments to account - whether that be in the current system, or a post-monetary-reform system; and I think it will be far easier to hold people accountable in a post-monetary-reform system, because government would be responsible and easily held accountable, instead of private actors (banks), who can easily abdicate all responsibility.
So educating the public will likely be an important aspect of any changes like this - and it shouldn't be too hard really: Understanding that taxes can be used to fight inflation, isn't all that difficult to grasp, once you get rid of the current incorrect myths/'common-knowledge'/false-knowledge about how economies work - and once a prominent government is successfully making use of money creation, all of those myths are going to be destroyed overnight without needing any real effort.
So you are right about inflation: It is definitely a risk, and it's the biggest threat to ideas like government use of money creation and MMT (though people who just assert 'hyperinflation' - which, to be clear, you are definitely not doing - are usually just trying to block all discussion of it) - a government misusing that power and creating significant inflation, carries a great risk of discrediting the whole idea, even though it shouldn't as it would be the fault of the government abusing that power.
Given the amount of power that money creation grants private entities at the moment, it's highly likely there will be deliberate attempts to cause inflation, to discredit the idea and keep that power in private hands - either by lobby influence on government fiscal policy, or by making the mistake of allowing lightly-regulated banks to keep money-creation powers (which they could use to create massive inflationary bubbles again, and blame it on government).
There is past precedent of this - this is how public use of money creation has been discredited in the past.
In Europe, we would definitely need more integration - but there are stop-gap measures, like Tax Anticipation Notes, that allow something analogous to (but not the same as) money creation powers, but which are much more limited and are no panacea.
In the medium/long-run, Europe is either going to need to integrate fiscally, or split back up into using national currencies.0 -
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Replying to this here from another thread:Labarbapostiza wrote: »It's more or less, the work of Milton Friedman. MMT is managing an economy through managing the money supply. It's headache inducing the wrong headed ideas people have about it, but essentially it comes down to managing inflation. Reducing the money supply through CB interest rates to curb inflation, and then in a depression printing money via QE to stop deflation.
When fully applied, it means poor people (that's most of us) pay for a depression through austerity, strangely this also means a massive transfer of wealth from the poor to the rich in bad times, because money is being printed. And when the good times come, the poor receive few to none of the benefits, because the interest rates are kranked up to keep them precariously on the edge of falling onto the dole queue.
Most people who have an opinion of Milton Friedmann, believe he was evil, this includes the rich people who love him. I believe he was just an idiot.
Thing is, what you're describing there, directly contradicts MMT - MMT doesn't really use monetary policy, it uses fiscal policy to manage the economy.Labarbapostiza wrote: »No, lots of the new stuff being bandied about is in fact the old stuff; Friedman. Friedman could be quite contradictory. So, he could be for a basic income, in the form of a negative tax, but against a welfare payment from social security. His right-wing supporters tended to hear what they wanted to hear and tune out the rest.
He was hypersensitive to criticism and would never admit to flaws or possible mistakes in his theory. After the 1973 coup in Chile, Pinochet asked for his assistance in putting together an economic program. Friedman helped, but later when it proved to have been an unmitigated disaster, Friedman distanced himself from it. The guy had issues.
The fundamental problem with Friedman's ideas, is the can, and have, been used to make the rich richer, and everyone else poorer. But I have a strong feeling they could be rewired for both a reverse of inequality, austerity, and propel real economic growth.
Many (most) MMTers explicitly state that the interest rate is not really a useful way to manage the economy at all, and that it should be left at zero, but with proper regulation guarding against overlending (since high interest rates are no substitute, for proper regulation).
Again, I largely agree with your nuanced views on Friedman - but MMT is something different altogether to what he advocated (even if there are some interesting parallels with Friedman - who was quite an oddity/outlier) 0 -
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KyussBishop wrote: »Thing is, what you're describing there, directly contradicts MMT - MMT doesn't really use monetary policy, it uses fiscal policy to manage the economy.
No. There's a very important fiscal component to Friedman (I'll call it Friedman, because the labels confuse - Friedman would complain of people taking his theory and doing their own thing, then calling it monetarism - Thatcher did something interesting in first championing him, then renouncing him.) The fiscal component is in deficits. Deficits are inflationary. People don't realise how radically different political economy was before Friedman. Too many variables were used; coal, steel production, etc. The more variables, the more chaotic the system you're trying to influence. Trying to minimise the possible levers isn't perfect, but it's more predictable (if you've pushed the lever the wrong way, you know what you've done - not like having thousands of dials and buttons, and not knowing which one you shouldn't have pressed or dialled.)Many (most) MMTers explicitly state that the interest rate is not really a useful way to manage the economy at all, and that it should be left at zero, but with proper regulation guarding against overlending (since high interest rates are no substitute, for proper regulation).
Proper regulation is virtually impossible. Look what happened with the Anglo pair. That they got the probation act is only going to make matters far worse.Again, I largely agree with your nuanced views on Friedman - but MMT is something different altogether to what he advocated (even if there are some interesting parallels with Friedman - who was quite an oddity/outlier)
He had a lot of theory; he was a theory machine. But, he could be very contradictory. And, most importantly, for economists working in America, if they say what a specific group of wealthy, powerful, selfish and stupid, audience want to hear, they get paid phenomenal sums for speaking engagements, etc.........And if they don't, they end up driving a beat up second hand car and hanging on to what little work they can get by their fingernails.
What I'm particularly interested in at the moment is Thomas Pikkety.
The basic thesis of his book is, that when returns on capital exceed economic growth, then it's just a transfer from labour to capital; inequality grows. It's also unsustainable; capital may be able to appropriate the higher return in the short term, but it leads to the kind of financial crisis that takes us to where we are now. And the fix that has been applied, has in fact increased capitals share of wealth by a stunning portion given how awful it's been for most people.
The Goldilocks solution for everyone would be, capital getting an average return that matches growth (no unearned transfer). Capital being sweated to produce real growth and innovation; and not profiting from the rigged inflation of assets.
The austerity is not that simple. A person may have only 100 euros, but they want to buy goods in a shop costing 200 euros. Many proposed solutions are not solutions, because they boil down to giving people that extra 100 euros they need. They will be exuberant for a moment, but if they don't hurry to the shop, by the time they get there, the goods that were worth 200, now cost 400.0 -
See, this is an important part where MMT'ers and Post-Keynesians disagree with others: Whether or not fiscal deficits are inflationary, depends upon the level of economic activity - when you have high unemployment, fiscal spending doesn't have to be inflationary, because you can use it to mobilize the idle labour and increase economic output (this works against inflation).Labarbapostiza wrote: »...Deficits are inflationary.
Well, that's just an example of very lax regulation; proper regulation had been practiced well in the US, for up to three decades prior to the mid/late 70's (and the ensuing Savings & Loans crisis in the next decade).Labarbapostiza wrote: »Proper regulation is virtually impossible. Look what happened with the Anglo pair. That they got the probation act is only going to make matters far worse.
I agree with you completely here, on the 'economists saying what the sponsers/patrons want to hear', and that having a career as an economist is literally dependent on touting a very narrow (and incorrect) view of economics.Labarbapostiza wrote: »He had a lot of theory; he was a theory machine. But, he could be very contradictory. And, most importantly, for economists working in America, if they say what a specific group of wealthy, powerful, selfish and stupid, audience want to hear, they get paid phenomenal sums for speaking engagements, etc.........And if they don't, they end up driving a beat up second hand car and hanging on to what little work they can get by their fingernails.
You mention an argument about the cost of goods inflating: Personally, I think inflation is one of the least-well understood parts of economics, by the general public - people seem to get the wrong idea, that "Money Supply Increase = Inflation" (ironically, a misquote of Friedman is often used to perpetuate thisLabarbapostiza wrote: »The austerity is not that simple. A person may have only 100 euros, but they want to buy goods in a shop costing 200 euros. Many proposed solutions are not solutions, because they boil down to giving people that extra 100 euros they need. They will be exuberant for a moment, but if they don't hurry to the shop, by the time they get there, the goods that were worth 200, now cost 400.
), but that's not true, because you can use a money supply increase to increase economic output, and that counteracts inflation (as I mentioned at the top).
This is one of the things MMT focuses on a lot, but it's very hard to dispel the common myths about how inflation works.0 -
KyussBishop wrote: »See, this is an important part where MMT'ers and Post-Keynesians disagree with others: Whether or not fiscal deficits are inflationary, depends upon the level of economic activity - when you have high unemployment, fiscal spending doesn't have to be inflationary, because you can use it to mobilize the idle labour and increase economic output (this works against inflation).
Well, this is a thing with some of Friedman's arguments. If deficits increase the money supply, just a QE does, or playing with the lending rate. Why not just use deficit spending, as it's as good as any other option.
I don't believe there is a substantial difference between any of the options. But, if there is some underlying structural problem; like Pikkety's capital getting a higher return than growth. Increasing the money supply is a short term fix that may only make matters worse.Well, that's just an example of very lax regulation; proper regulation had been practiced well in the US, for up to three decades prior to the mid/late 70's (and the ensuing Savings & Loans crisis in the next decade).
Yeah. The Anglo boys did things that would have easily seen them getting 20 years in jail in New York, even under current rules. They even put Martha Stewart in jail there.
The problem for Ireland is there was a kind of lawlessness before; in other things as well as banking. And much more of the same has now been green lighted.I agree with you completely here, on the 'economists saying what the sponsers/patrons want to hear', and that having a career as an economist is literally dependent on touting a very narrow (and incorrect) view of economics.
I heard an economist make a joke with other economists as part of a talk recently. He said sometimes it's hard to remember what you actually believe and what your employers are paying you to believe. As part of political lobbying, economists are often sponsored to write nonsense papers to further the interests of who's paying them.You mention an argument about the cost of goods inflating: Personally, I think inflation is one of the least-well understood parts of economics, by the general public - people seem to get the wrong idea, that "Money Supply Increase = Inflation" (ironically, a misquote of Friedman is often used to perpetuate this), but that's not true, because you can use a money supply increase to increase economic output, and that counteracts inflation (as I mentioned at the top).
Yes, inflation is complicated - there has been long enough real world experience to know that certain theoretical solutions to problems; like price controls, do not work. And they can have perverse and paradoxical results.
Now, Friedman did believe you should increase the money supply, when needed, to increase economic output. But the distinction is, if you are getting an increase in output and consumption, that is growth - if you push too much money into that system too fast, you don't get structural growth, you get inflation - but at first it may feel like a party.This is one of the things MMT focuses on a lot, but it's very hard to dispel the common myths about how inflation works.
There's a little bit of truth in all the myths.0 -
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