Archive for October 2nd, 2018

Modern Monetary Theory: How I came to MMT and what I include in MMT

October 2, 2018

This is a follow up of earlier post on rise of MMT.

L Randall Wray the key proponent of the theory gives this insightful speech on his struggles with MMT and push it all this way. He rejects the rockstar status but also all the nonsense he receives rejecting MMT:

I was asked to give a short presentation at the MMT conference. What follows is the text version of my remarks, some of which I had to skip over in the interests of time. Many readers might want to skip to the bullet points near the end, which summarize what I include in MMT.

I’d also like to quickly respond to some comments that were made at the very last session of the conference—having to do with “approachability” of the “original” creators of MMT. Like Bill Mitchell, I am uncomfortable with any discussion of “rockstars” or “heroes”. I find this quite embarrassing. As Bill said, we’re just doing our job. We are happy (or, more accurately pleasantly surprised) that so many people have found our work interesting and useful. I’m happy (even if uncomfortable) to sign books and to answer questions at such events. I don’t mind emailed questions, however please understand that I receive hundreds of emails every day, and the vast majority of the questions I get have been answered hundreds, thousands, even tens of thousands of times by the developers of MMT. A quick reading of my Primer or search of NEP (and Bill’s blog and Warren’s blogs) will reveal answers to most questions. So please do some homework first.

I receive a lot of “questions” that are really just a thinly disguised pretense to argue with MMT—I don’t have much patience with those. Almost every day I also receive a 2000+ word email laying out the writer’s original thesis on how the economy works and asking me to defend MMT against that alternative vision. I am not going to engage in a debate via email. If you have an alternative, gather together a small group and work for 25 years to produce scholarly articles, popular blogs, and media attention—as we have done for MMT—and then I’ll pay attention. That said, here you go: wrayr@umkc.edu.

🙂

I am excluding his story on struggles which one should read on the website. It is so important to figure the narrative and one should not miss it.

At the end he discusses 10 key points of what to include in MMT:

Let me finish with 10 bullet points of what I include in MMT:

1. What is money: An IOU denominated in a socially sanctioned money of account. In almost all known cases, it is the authority—the state—that chooses the money of account. This comes from Knapp, Innes, Keynes, Geoff Ingham, and Minsky.

2. Taxes or other obligations (fees, fines, tribute, tithes) drive the currency. The ability to impose such obligations is an important aspect of sovereignty; today states alone monopolize this power. This comes from Knapp, Innes, Minsky, and Mosler.

3. Anyone can issue money; the problem is to get it accepted. Anyone can write an IOU denominated in the recognized money of account; but acceptance can be hard to get unless you have the state backing you up. This is Minsky.

4. The word “redemption” is used in two ways—accepting your own IOUs in payment and promising to convert your IOUs to something else (such as gold, foreign currency, or the state’s IOUs).

The first is fundamental and true of all IOUs. All our gold bugs mistakenly focus on the second meaning—which does not apply to the currencies issued by most modern nations, and indeed does not apply to most of the currencies issued throughout history. This comes from Innes and Knapp, and is reinforced by Hudson’s and Grubb’s work, as well as by  Margaret Atwood’s great book: Payback: Debt and the shadow side of wealth.

5. Sovereign debt is different. There is no chance of involuntary default so long as the state only promises to accept its currency in payment. It could voluntarily repudiate its debt, but this is rare and has not been done by any modern sovereign nation.

6. Functional Finance: finance should be “functional” (to achieve the public purpose), not “sound” (to achieve some arbitrary “balance” between spending and revenues). Most importantly, monetary and fiscal policy should be formulated to achieve full employment with price stability. This is credited to Abba Lerner, who was introduced into MMT by Mat Forstater.

In its original formulation it is too simplistic, summarized as two principles: increase government spending (or reduce taxes) and increase the money supply if there is unemployment (do the reverse if there is inflation). The first of these is fiscal policy and the second is monetary policy. A steering wheel metaphor is often invoked, using policy to keep the economy on course. A modern economy is far too complex to steer as if you were driving a car. If unemployment exists it is not enough to say that you can just reduce the interest rate, raise government spending, or reduce taxes. The first might even increase unemployment. The second two could cause unacceptable inflation, increase inequality, or induce financial instability long before they solved the unemployment problem. I agree that government can always afford to spend more. But the spending has to be carefully targeted to achieve the desired result. I’d credit all my Institutionalist influences for that, including Minsky.

7. For that reason, the JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability. This comes from Minsky’s earliest work on the ELR, from Bill Mitchell’s work on bufferstocks and Warren Mosler’s work on monopoly price setting.

8. And also for that reason, we need Minsky’s analysis of financial instability. Here I don’t really mean the financial instability hypothesis. I mean his whole body of work and especially the research line that began with his dissertation written under Schumpeter up through his work on Money Manager Capitalism at the Levy Institute before he died.

9. The government’s debt is our financial asset. This follows from the sectoral balances approach of Wynne Godley. We have to get our macro accounting correct. Minsky always used to tell students: go home and do the balances sheets because what you are saying is nonsense. Fortunately, I had learned T-accounts from John Ranlett in Sacramento (who also taught Stephanie Kelton from his own, great, money and banking textbook—it is all there, including the impact of budget deficits on bank reserves). Godley taught us about stock-flow consistency and he insisted that all mainstream macroeconomics is incoherent.

10. Rejection of the typical view of the central bank as independent and potent. Monetary policy is weak and its impact is at best uncertain—it might even be mistaking the brake pedal for the gas pedal. The central bank is the government’s bank so can never be independent. Its main independence is limited to setting the overnight rate target, and it is probably a mistake to let it do even that. Permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. I credit Keynes, Minsky, Hudson, Mosler, Eric Tymoigne, and Scott Fullwiler for much of the work on this.

Lots of important points. These just turn most of the current macroeconomics upside down..

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The rock-star appeal of Modern Monetary Theory (MMT)..

October 2, 2018

Came across this fascinating piece by Atossa Araxia Abrahmian in Nation who reviews this rockstar appeal of Modern Monetary Theory (popularly called as MMT).

It discusses how this Post-Keynesian economic thinking rose to prominence.  (more…)

50 years of the Boeing 747: How the ‘queen of the skies’ reigned over air travel

October 2, 2018

Janet Bednarek Professor of Aviation History at University of Dayton writes about 50 years of Boeing 747:

On Sept. 30, 1968, the first Boeing 747 rolled out of its custom-built assembly plant in Everett, Washington. From the beginning, everything about the plane once knownas the “queen of the skies” was big.

It was the first wide-body “jumbo jet” ever built, involving about 50,000 construction workers, mechanics, engineers and others who took it from an idea to the air in just 16 months in the late 1960s. Until 2007 and the introduction of the Airbus A380, it was the largest civilian airplane in the world.

Versions of the 747 have been used in a variety of famous ways. In 1990, for example, a pair of 747-200s began operating as Air Force One, the plane that ferries around the U.S. president.

Just to produce the 747, Boeing first had to erect what was and still is the largest building by volume ever constructed – big enough to hold 75 football fields or all of Disneyland.

I’ve been researching and teaching the history of American aviation for more than a quarter-century. Even though all U.S. airlines have retired their 747s, marking the end of an era, I believe it’s worth remembering the amazing story of the airplane that helped make international air travel affordable.

2018 is indeed the year of anniversaries!


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