Thank you for this excellent explanation designed to introduce novices to the big ideas of MMT. The point that MMT starts from an accurate description of government spending, money creation and accounting reality is key, and helps to anchor the discussion. The details will be offputting to beginners but are necessary later to further the discussion. Christopher Hitchens would sometimes use this strategy to keep his adversaries honest ie start with descriptions of reality that most people would agree with, and build from there. Opponents of MMT rarely focus on its descriptions of reality, preferring to criticise the logical consequences of these descriptions (which can be scary!) and so create the wrong impression that MMT has no basis in reality. This is dishonest but also makes MMT an easy target. MMT disrupted my worldview when i discovered its ideas about 15 years ago, and this can be severely disconcerting for many, so i appreciate this softer introduction. Thank you!
I absolutely love this! Those who are critics of #MMT will hate it, because you take the time to build a base of understanding, without a bunch of high level economist jargon. The haters constantly use bad faith, highly specific, technical, purposefully confusing language, to keep the waters muddy, so those attempting to understand MMT, never catch on.
I'll be sharing this frequently, and look forward to your future pieces. Thank you! #learnMMT #austerityismurder #taxesdontfundfederalspending
I think this does a good job of communicating the core descriptive elements of MMT. For the whole framework though, the summary of taxation as something that reduces inflation and the lack of any mention of the job guarantee implies the common misunderstanding of using dynamic taxation to manage inflation.
In MMT taxation is structural. It's about making real resources available for purchase in the state's currency. The level of taxation is meant to be set at the necessary static level to free up enough resources for public use. Taxation isn't meant to be moved up and down in an ad hoc way to manage inflation throughout the business cycle.
Managing cyclicality is done with the job guarantee. It buys up all unused labour at a fixed price to guarantee labour market clearing. It becomes the required stimulus needed to maintain full employment by definition, and the size of that stimulus is determined by the market itself. The spending stops automatically once the last person walks through the door asking for a job.
That creates an employment buffer stock where during a downturn private sector layoffs shift workers from the private sector to the fixed price public sector. Then during a boom the private sector hires workers away from the employment buffer stock by offering better wages. So the stimulus adjusts counter-cyclically to the state of the private sector. Maintaining price stability from demand driven inflation just means maintaining the employment buffer.
For sure Neil. I'll have to do a more advanced follow-up video at some point in future.
I'm often interested in the question of 1) how do you effectively dismantle some previous powerful myth and 2) how do you get someone *closer* to a more accurate and empowering picture
For example, the vast majority of people believe that public spending is 'taxpayer funded' - if you want to dismantle that belief, you need a quick way of recasting their role as a taxpayer. Saying something quick like 'tax is just used to take money out of circulation to reduce inflation' is simplistic, but it's *more accurate* than the previous belief, and it's comparatively easy to understand, and therefore stands a much better chance of landing, and of providing a counterpoint to the previous myth
By contrast, if I say something like 'tax is used to make real resources available for purchase in the state's currency', I guarantee about 99% of people will not understand. I please the technical wonks, but the public has no idea what I'm talking about
I often get money geeks laying into my work because of this (for example, I characterise bank deposits as 'digital casino chips', and then a bunch of technical wonks will come in and say 'but that's not entirely accurate etc etc'). I always have to remind them that we have different political roles (a kind of 'division of labour' as it were). My job is to move people further from some mythology, and get them *closer* to something more meaningful. If I prioritise full out technical accuracy, it alienates most people, and that means they back away and remain within the dominant mythology. Politically, from my standpoint, that's a failure
Your knack for debunking myths like "taxpayer-funded spending" is great for accessibility, but leaning too hard on 'simplification' as cover risks new misunderstandings. Your example, "tax reduces money in circulation to control inflation", glosses over all the key MMT ideas.
Saying "taxes make people unemployed from private jobs so the public sector can hire" is punchy and avoids jargon like "inflation" (often misread as just price hikes)
MMT’s core message is simple: we end up with full employment and a better economy if we give poor people a job rather than rich people a bung.
This keeps it accessible, accurate, and empowering without oversimplifying or alienating any one.
I know it was from Reddit - it's also a useful comment, so I'm not defensive about it
I'm struggling to see how 'makes people unemployed' is ever going to fly politically. That just ends up just sounding like the state is trying to force people to work for the public sector
To be honest, I also struggle to fully buy this idea that this is unrelated to inflation - I mean, when the commenter says 'the level of taxation is meant to be set at the necessary static level to free up enough resources for public use' it's implicit in this that there's an attempt to remove competition for resources, competition that might very well bid stuff up
I like the core message of 'we end up with full employment and a better economy if we give poor people a job rather than rich people a bung', and the line of "buys up all unused labour" is also politically catchy, but the 'deliberate unemployment' line should be avoided at all costs in my opinion
The government *is* trying to force people to work in the public sector. Otherwise it wouldn't need to raise a tax in the first place. It's the alternative to being press-ganged.
If we've decided to have public built roads, then somebody needs to do the building. Paying tax is how you *avoid* getting drafted into that job. It's like the fine for dodging jury service, but on a constant basis.
The problem is that tax causes more people to become unemployed than is strictly necessary, and the nature of taxation means there will always be that collateral impact. Therefore it is imperative on the state to fix the problem its tax has caused by offering a default job option.
Just found you. A Joburger, living in NYC for 35 years. Loved the MMT video and will go through the others on your page. I'm a designer and we were never given any formal financial training, so am catching up rather late in life. The second best time to start.
One of the main barriers between MMT and mainstream economic acceptance has been MMT scolds telling you off for ‘not getting’ MMT. Nice to see it gaining traction and acceptance - thanks for covering it
For sure. That said, you can understand that MMT theorists get emotional and defensive when faced by the incredible volume of bad-faith straw-man attacks that get levelled at them
Exactly. Especially the tone police who presume to push back against MMTers while engaging in pure unadulterated idiocy without even a pause for consideration.
You're wrong that (Gov) Bonds 'neutralise' money in some similar way to tax (deletion).
1. the Bond market is highly liquid
2. Bonds are purchased with bank deposits/reserves that were already not intended to purchase real goods
3. the main reason Bonds are purchased is that they are risk-free (at par value), unlike bank deposits for large sums
Rather surprised you make this error, Brett?
Also, your inflation story is very muddled. The money supply moves up & down all the time, with banks supplying & reclaiming credit. It's not possible to use taxation as some kind of 'inflation' control in any useful timescale. The only real inflation control needs doing in 2 ways -
1. By Gov doing the macro 'real resources' planning, taking account of growth potential & estimating the new fiscal balance likely needed.
2. If *price increases* occur, that may lead to general inflation, Gov needs to intervene directly to deal with the supply bottleneck or monopolist price gouging that created the particular price increases. Tax is unlikely to be adequately precise, predictable or useful in either case as an *indirect* or 'market' mechanism by defn. ('Market' mechanisms *require* a 'competitive' market which sudden price hikes are showing doesn't exist.)
Can we stop dog whistling the 'inflation everywhere & always a monetary phenomenon' nonsense? It's actually *not*, ever. Full stop. The 'money' side lags, never leads.
Hey Mike, as it says in the title, it's a Beginner's Guide. If I start geeking out on the minutia of the nuances, I'd only have geeks engaging with my work. If you want people to actually get involved in MMT, you have to drop the insistence on purity of message
Whether Bonds 'neutralise' isn't minutiae, Brett. Or 'nuance'. It's just wrong, and anyone with half a brain will be wondering if QE can cause inflation... (It doesn't because 'neutralise' is drivel - even at 'beginner' level.)
I guess the political question is whether you care or not about dispelling far larger and far more damaging myths, like the idea that bonds are for the government to raise money to spend, which is like what 99.99% of people believe
While you wade into the comments section here to display to me my apparent ignorance, the vast majority of economists with far larger audiences than you or I have no interest whatsoever in showcasing your theories, whereas I do. It's better for you to treat me as an ally
So, far example, rather than sayings something like 'your inflation story is very muddled', display to me how you would approach the non-expert public to explain the role of taxation, and - bear in mind the reality of media, which is that you cannot expect a person to stand there and listen to you while you recite every detail about the banking sector and bond markets etc - you have a person's attention for like 2 minutes maybe...
Hey Mike, what’s the best resource you would point someone to for evidence of your claim that the 'inflation everywhere & always a monetary phenomenon' is not *ever* correct. “Full stop. The 'money' side lags, never leads.” I’m genuinely interested in this, so I look forward to hearing from you. Thx.
Inflation has to start with a price increase, somewhere, right? So that's either a bottleneck (unexpected) or a price gouge, right? Just a matter of logic.
To ripple around & move the needle much at all (above a noise floor), it needs to be something quite significant, and take time. There are plenty of options available to a fiat currency issuer (& legislator) Gov to ensure virtually zero disruption to the real economy.
But you also need to think also in terms of what 'real' producers do, in having a rolling plan to increase deliveries by at least ~10%, immediately. If only to take advantage of the market share increase, their sales force are tasked constantly to achieve. (I know this, because I used to sell capital equipment to them. (An activity far more educational it seems than 'economists' engage in?)
As Warren Mosler points out, look at Japan, 'it's damned hard to create it' - they tried for years to create inflation & failed miserably. (Go check out what % of JG Bonds BoJ - aka Gov - owns as well.)
The one tool of Gov (CBs) that *does* at least sustain inflation is the stupidity of setting positive (CB) base rates. The markets then forward price it in, & keep the ball rolling, as Mosler explains. Go see Bill Mitchell's work in Japan, which shows the absurdity of having a Gov Bonds market at all.
There is really nothing to fear in terms of using Gov net spending to grow the economy at a much higher rate than Western countries have seen in recent decades.
Much greater visible progress in real outcomes is quite possible to plan for in timely fashion.
Also view Armstrong & Mosler's paper on the Weimar episode. When they finally appointed someone competent, the inflation ended in less than 2 weeks. Competent economics management & the full capacity of a fiat currency can do this.
I’m familiar with Moesler’s Weimar paper and the BoJ experience. But neither or those say that money creation *never* causes inflation. “full stop.” If you’re going to make that claim, I would hope you have more than logic and personal experience with which to defend it. What else can you point me to?
Of course not, but to say that inflation is never cause by a growth in the money supply, you have to prove that an increase in the money supply could not cause a price increase. At the risk of having you attack one example instead of proving the rule, I would point to quantitive easing and asset price inflation as one example. When you have a whole bunch of asset managers simultaneously getting their securities holdings converted into newly created cash (really, bank deposits), which they then must invest in financial assets because they’re not allowed to just hold it in cash, you get an involuntary bidding up of financial asset prices.
For what it’s worth, I have made a very similar logical argument to the one that you are making, myself. I’ve stopped making that claim because I haven’t been able to find any credible and well-evidence researcher making such a categorical claim. I really like the claim, so would love it if you had found a thorough and scholarly proof for it. I doubt one exists, though. Most scholars probably know better than to make a “never” argument that can be undermine with a single case study.
No, there's always vastly more Gov-issued 'money in circulation' in banks reserves than their payments system & its flow rate requires. Their function *requires* Gov maintains this, either by net spending or borrowing reserves from CB. (Or the payments system collapses...)
Then there's the 'stock' of (retail) Bank credit in the system. Bonds don't stop anyone spending, anywhere. They're just another form of 'money' & vastly more than liquid enough for their real function of risk-store/short term collateral. A role which could be performed at way less (real) cost & 'market' bullshit if their issue was limited to max 6mths maturity & zero coupon.
The state doesn't do anything with the 'bond's money' apart from have its CB debit a reserves account & credit Gov Bonds account. When the Bond matures, that action is simply reversed. Imagine yourself at the CB (aka) counter, swapping your stack of fivers for fifty unit banknotes, or the reverse. That's as much as the Bonds mean really.
Thanks for your answere, if i've understood well, it comes to my mind a question: why to issue bonds at all, if is just a momentary relief that worsten a bit the situation in the long run with the added interests (growing the monetary total mass), why it can't be slowed the issuing of new money/debt to regulate interest's rates and inflation?
I'm not sure that's specific to MMT - for example, traditional non-MMT left wing movements are far more likely to treat taxation as a non-negotiable thing
I'm talking about the politics of it. The left consistently wants to raise taxes then discovers over an over that voters oppose it. So they make a false consciousness argument that amounts to "real class-based political messaging has never been tried."
The politics is always divisive because all the mainstream (incl. Marxists etc.) always present narratives within the false dichotomy of fiscal balance (arbitrary) constrained Gov.
We could reach far better compromises & deliver with vastly better competence if we used the MMT provided correct understanding or 'lens' of options available to Gov.
Actually, the only MMT voice on taxation structure & policy is Warren Mosler himself. It needs completely rethinking, but the logic isn't hard to follow. (Spoiler: Everything that 'tax' can do, for behaviour change, the fact that Gov spending &/or other direct intervention can do it vastly better, is what you should be thinking about.)
But here's my quick summary - (fiat currency/securities issuer Gov assumed)
*Some* taxes are necessary to drive use of the Gov's currency, & sometimes useful to curb private (eg. 'luxury' on down) use of labour & productive capacity that the Gov desires to purchase for public provision.
They must make up, by whatever means, the bulk of taxation, & by the simplest, most robust & *least wasteful* use of 'real resources' in collection & compliance. The latter needing considerable improvement over the present absurd 'pay for' directed tax codices, note. IE, a *complete* junking & start again tax code is needed.
For example, make the base load of taxes to drive demand, could be a simple graduated, biased way up to 'luxury' tax on property ownership. Readily affordable to all wage income levels, & including commercial property, which could give small/medium/local ownership a boost.
Payable *in arrears* - giving plenty of time for Gov's spending into circulation to be acquired in the necessary legal amount.
Property is already registered with Gov & an immobile, hard to conceal asset. Cheapest & most robust tax system by miles.
Next, the use of taxes to divert commodities, in labour & materials, that Gov itself wishes to purchase for a higher public provision priority. This is readily, & most efficiently done at the wholesale level for goods. Tax the wholesale import or local industries, as required - & carefully - until the needed quantity diverts to Gov purchases needs (or suppliers).
Labour can be given a Job & Training Gov Guarantee, all & any who need it, at minimum living wage, at any time of their choosing, from redundancy or otherwise.
There's not actually many other uses for taxes than the above two.
In most cases where taxes are applied as an indirect, 'market based' tool - or 'signal' - as many are at present, are ineffective (even counter-productive) & inefficient. Where direct Gov intervention should be the policy anyway, eg. in a Gov maintained 'buffer stock' of minimum standard housing for secure rental.
Income taxes, Corporation taxes, all of those can binned. So can all social insurance & mandatory pensions savings requirements. All citizens can guaranteed by right (eg. by Constitution) an adequate pension, unconditionally, upon retirement age, topped up or not as people wish in private savings.
What's left? Not much? Just change over at a steady pace so as to avoid undue temporary disruption etc. If we can plan the 'real resources' use & development, adjusting both their (eg. class) distribution & the 'money' side should be straightforward for (MMT) competent macroeconomists.
These are all interesting concepts, but they are interlocking and require that the legislature think holistically and pass laws to enable it. It assumes there are no special interests whose cow will be gored, or individual politicians who can weaponize opposition with bad faith. Something as simple and stupid as “death panels” nearly upended the ACA.
The problem with MMT isn’t necessarily the economics, it’s the political part of “political economy,” which after all is the original name for the field.
There's no 'political economy' in MMT - it's macroeconomics, & apolitical.
But you make a valid point - ignoring the reality that certain operational & accounting facts exist independent of political choices is why 'economics' remains so f* up & useless, still, today.
Politics is of course what's really f* up, & no meaningful 'democracy' will ever exist whilst an elite of the minority capital owner class own & deliver ~all the mainstream public information channels. That is, whilst labour is the vast majority in society, capital owners continue to rule in favour of their side of the P&L & Balance Sheet interests in economic outcomes.
I provide an answer for this too, but most peoples' heads are too f* up to do any logic & systems thinking.
FWIW -
The rich class control all the Western mass media which (mis-)'informs' our votes. No surprise nothing changes -except to get worse as their propaganda grip tightens.
We don't have to put up with this any longer - we can easily create a different structure for a public mass media sector that faithfully represents majority (non-rich) citizens' interests.
There should only be two options for mass media businesses - either as a private/commercial (shareholder) controlled entity, or as a member controlled Co-operative type entity in a (new) Commons 'public' sector, under direct citizens' 'votes' control.
(Eg., the 'public' sector BBC Depts. could choose one or the other - no more corrupt Gov appointee run fake 'public' media.).
Mass media in Western societies is near all owned & delivered by a small group of wealthy elites, & significantly funded via advertising by a handful of large Corporations. That can have its place in providing public discourse & entertainment non-critical to 'democracy', but it should not be the only model for media with power (& reach).
We can easily create a system where citizens control a similar size sector of the media directly, through non-profit media Commons/Common Ownership structured publishers/providers, which exclude all private capital & revenue income. (Instead, they are controlled by members with equal voting rights, like Worker Co-ops or Community Businesses.)
In this sector, their only permitted income comes from our currency issuer Govs (at zero cost), but not directly. Instead of Gov directing which Commons Media enterprises get grant funding, citizens, equally, disburse the funds via an annual voucher system, whereby they sponsor their preferred Commons media provider(s).
This simple system ensures full democratic participation in a sector of mass media, & thus the political discourse which elevates politics to power, and we need it now, before humanity's path to its own self-destruction becomes irreversible.
In theory yes, in practice no. MMT apportions blame/responsibility entirely to government choices and fails to acknowledge a vicious ongoing war on government monetary sovereignty by the private banking sector, which wishes to become the monetary sovereign itself. Government is, in fact largely a 'fifth column' of the private banking sector in it's resistance to MMT-informed operating practice. MMT colludes with this firstly by insisting on the notion that when banks create money they are acting as agencies of the government rather than as self-interested parties, secondly by minimising the effect of bank credit money on financial stability, Which other Post-Keynesians correctly assess. The private banking sector fights it's position by applying political pressure to government both directly and through public propaganda (much of that being chanelled via Reserve Bank and Treasury in actual policies and public misinformation, the mainstream economics profession and the various right-wing think-tanks) to act as though money is a scarce and finite commodity, notwithstanding the fiat system can do everything that MMT says it can do. The banking tail is violently wagging the government dog in order to kill it and become the dog itself. This is why politics cannot be removed from economics, and why MMT cannot be considered to be apolitical whereas Post-Kensianism can.
I believe the origin of this is most likely Mosler's filtering the conclusions of his findings through a lens tinted by his own professional interests as a bond trader and not wishing to 'shit on his own doorstep' in his relationships with his professional finance colleagues.
I guess MMT shows how money works, but the way it’s actually used depends on who’s pulling the strings. Maybe that's the point of understanding MMT for a novice like me.
Darn, you should have read my article on MMT before you made that video. It could have cleared up some misguided things about MMT. I know you can't re-edit it it, but here is my article.
Would MMT exist if the US Constitution was changed to a Sustainability Constitution that replaced the farcical rights of financial interest with rights for all incarnate Spirit including children, childbearers, mothers, families, communities and most of all mother nature? No, it would become irrelevant as anything more than a description of the past.
All the real assets are divinely endowed and withheld from those whose rights are not recognized by the current legal system.
In Agrarian Justice, Thomas Paine wrote of “natural inheritance” and went so far as to say that those who were unable to settle free land should receive compensation.
Modern-day ecophilosopher, Derrick Jensen, explains why access to land is “everything.” If land (a real asset) is plentiful people have the ability to create their own wealth. He also explained why capitalism is just a more refined slave system.
We have to move beyond economies of slavery and disposable mothers. Capitalism is patriarchy and patriarchy has to go. Mother earth will not sustain it.
I am learning about the economy as an eco-feminist who recently wrote on jurisprudence after a rogue court attempted to abduct my daughter without cause or jurisdiction for profit.
To gloss over the violence of this economy will not go unrecognized as seriously offensive. That said, I appreciate your video.
I understand your impulse, but it's important to note that MMT doesn't claim to end capitalism. It's just a pragmatic framework that says 'we live in capitalism, so if you want to have a less bad version of it that has more potential to do stuff like support the unemployed, then understand the monetary mechanics'
So bond's system makes the rich richer redistributing taxes et/or inflation tax (with quantitative easing) from people to savers/hoarders, just to control momentarily the monetary mass in view of state spending? (with a worst problem later due to the interests to pay that adds on the monetary mass?)
Thank you for this excellent explanation designed to introduce novices to the big ideas of MMT. The point that MMT starts from an accurate description of government spending, money creation and accounting reality is key, and helps to anchor the discussion. The details will be offputting to beginners but are necessary later to further the discussion. Christopher Hitchens would sometimes use this strategy to keep his adversaries honest ie start with descriptions of reality that most people would agree with, and build from there. Opponents of MMT rarely focus on its descriptions of reality, preferring to criticise the logical consequences of these descriptions (which can be scary!) and so create the wrong impression that MMT has no basis in reality. This is dishonest but also makes MMT an easy target. MMT disrupted my worldview when i discovered its ideas about 15 years ago, and this can be severely disconcerting for many, so i appreciate this softer introduction. Thank you!
Thanks for the support Arnold!
I absolutely love this! Those who are critics of #MMT will hate it, because you take the time to build a base of understanding, without a bunch of high level economist jargon. The haters constantly use bad faith, highly specific, technical, purposefully confusing language, to keep the waters muddy, so those attempting to understand MMT, never catch on.
I'll be sharing this frequently, and look forward to your future pieces. Thank you! #learnMMT #austerityismurder #taxesdontfundfederalspending
Really glad you find it useful Rodney
Nice!
Thanks for this very clear explanation of how one could, should, look at the economy and the role of the state in it.
Thanks Eduard! Really glad you like it
Useful comment for you here from Reddit: https://www.reddit.com/r/mmt_economics/comments/1nojjaj/comment/nfu2hpy/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button
I think this does a good job of communicating the core descriptive elements of MMT. For the whole framework though, the summary of taxation as something that reduces inflation and the lack of any mention of the job guarantee implies the common misunderstanding of using dynamic taxation to manage inflation.
In MMT taxation is structural. It's about making real resources available for purchase in the state's currency. The level of taxation is meant to be set at the necessary static level to free up enough resources for public use. Taxation isn't meant to be moved up and down in an ad hoc way to manage inflation throughout the business cycle.
Managing cyclicality is done with the job guarantee. It buys up all unused labour at a fixed price to guarantee labour market clearing. It becomes the required stimulus needed to maintain full employment by definition, and the size of that stimulus is determined by the market itself. The spending stops automatically once the last person walks through the door asking for a job.
That creates an employment buffer stock where during a downturn private sector layoffs shift workers from the private sector to the fixed price public sector. Then during a boom the private sector hires workers away from the employment buffer stock by offering better wages. So the stimulus adjusts counter-cyclically to the state of the private sector. Maintaining price stability from demand driven inflation just means maintaining the employment buffer.
For sure Neil. I'll have to do a more advanced follow-up video at some point in future.
I'm often interested in the question of 1) how do you effectively dismantle some previous powerful myth and 2) how do you get someone *closer* to a more accurate and empowering picture
For example, the vast majority of people believe that public spending is 'taxpayer funded' - if you want to dismantle that belief, you need a quick way of recasting their role as a taxpayer. Saying something quick like 'tax is just used to take money out of circulation to reduce inflation' is simplistic, but it's *more accurate* than the previous belief, and it's comparatively easy to understand, and therefore stands a much better chance of landing, and of providing a counterpoint to the previous myth
By contrast, if I say something like 'tax is used to make real resources available for purchase in the state's currency', I guarantee about 99% of people will not understand. I please the technical wonks, but the public has no idea what I'm talking about
I often get money geeks laying into my work because of this (for example, I characterise bank deposits as 'digital casino chips', and then a bunch of technical wonks will come in and say 'but that's not entirely accurate etc etc'). I always have to remind them that we have different political roles (a kind of 'division of labour' as it were). My job is to move people further from some mythology, and get them *closer* to something more meaningful. If I prioritise full out technical accuracy, it alienates most people, and that means they back away and remain within the dominant mythology. Politically, from my standpoint, that's a failure
The comment was just FYI - not one of mine.
Your knack for debunking myths like "taxpayer-funded spending" is great for accessibility, but leaning too hard on 'simplification' as cover risks new misunderstandings. Your example, "tax reduces money in circulation to control inflation", glosses over all the key MMT ideas.
Saying "taxes make people unemployed from private jobs so the public sector can hire" is punchy and avoids jargon like "inflation" (often misread as just price hikes)
MMT’s core message is simple: we end up with full employment and a better economy if we give poor people a job rather than rich people a bung.
This keeps it accessible, accurate, and empowering without oversimplifying or alienating any one.
I know it was from Reddit - it's also a useful comment, so I'm not defensive about it
I'm struggling to see how 'makes people unemployed' is ever going to fly politically. That just ends up just sounding like the state is trying to force people to work for the public sector
To be honest, I also struggle to fully buy this idea that this is unrelated to inflation - I mean, when the commenter says 'the level of taxation is meant to be set at the necessary static level to free up enough resources for public use' it's implicit in this that there's an attempt to remove competition for resources, competition that might very well bid stuff up
I like the core message of 'we end up with full employment and a better economy if we give poor people a job rather than rich people a bung', and the line of "buys up all unused labour" is also politically catchy, but the 'deliberate unemployment' line should be avoided at all costs in my opinion
The government *is* trying to force people to work in the public sector. Otherwise it wouldn't need to raise a tax in the first place. It's the alternative to being press-ganged.
If we've decided to have public built roads, then somebody needs to do the building. Paying tax is how you *avoid* getting drafted into that job. It's like the fine for dodging jury service, but on a constant basis.
The problem is that tax causes more people to become unemployed than is strictly necessary, and the nature of taxation means there will always be that collateral impact. Therefore it is imperative on the state to fix the problem its tax has caused by offering a default job option.
Just found you. A Joburger, living in NYC for 35 years. Loved the MMT video and will go through the others on your page. I'm a designer and we were never given any formal financial training, so am catching up rather late in life. The second best time to start.
Cheers!
Thanks for the support Howard! I'm from Durban originally, though I do have a soft spot for Joburg :)
Fantastic explanation Brett. I’ll be sharing this.
Much appreciated!
Brilliant!
Excellent man. Love it.
Glad to hear it!
Brett: If possible, allow subtitles. They are useful for some foreign listeners (like me). Thank you.
Hi Oscar, I thought I did have them. I've enabled them now!
One of the main barriers between MMT and mainstream economic acceptance has been MMT scolds telling you off for ‘not getting’ MMT. Nice to see it gaining traction and acceptance - thanks for covering it
For sure. That said, you can understand that MMT theorists get emotional and defensive when faced by the incredible volume of bad-faith straw-man attacks that get levelled at them
Exactly. Especially the tone police who presume to push back against MMTers while engaging in pure unadulterated idiocy without even a pause for consideration.
I do. I’ve been on the receiving end of it myself. If that’s the worst PR problem its better than most economic schools I guess haha
You're wrong that (Gov) Bonds 'neutralise' money in some similar way to tax (deletion).
1. the Bond market is highly liquid
2. Bonds are purchased with bank deposits/reserves that were already not intended to purchase real goods
3. the main reason Bonds are purchased is that they are risk-free (at par value), unlike bank deposits for large sums
Rather surprised you make this error, Brett?
Also, your inflation story is very muddled. The money supply moves up & down all the time, with banks supplying & reclaiming credit. It's not possible to use taxation as some kind of 'inflation' control in any useful timescale. The only real inflation control needs doing in 2 ways -
1. By Gov doing the macro 'real resources' planning, taking account of growth potential & estimating the new fiscal balance likely needed.
2. If *price increases* occur, that may lead to general inflation, Gov needs to intervene directly to deal with the supply bottleneck or monopolist price gouging that created the particular price increases. Tax is unlikely to be adequately precise, predictable or useful in either case as an *indirect* or 'market' mechanism by defn. ('Market' mechanisms *require* a 'competitive' market which sudden price hikes are showing doesn't exist.)
Can we stop dog whistling the 'inflation everywhere & always a monetary phenomenon' nonsense? It's actually *not*, ever. Full stop. The 'money' side lags, never leads.
Hey Mike, as it says in the title, it's a Beginner's Guide. If I start geeking out on the minutia of the nuances, I'd only have geeks engaging with my work. If you want people to actually get involved in MMT, you have to drop the insistence on purity of message
Whether Bonds 'neutralise' isn't minutiae, Brett. Or 'nuance'. It's just wrong, and anyone with half a brain will be wondering if QE can cause inflation... (It doesn't because 'neutralise' is drivel - even at 'beginner' level.)
I guess the political question is whether you care or not about dispelling far larger and far more damaging myths, like the idea that bonds are for the government to raise money to spend, which is like what 99.99% of people believe
While you wade into the comments section here to display to me my apparent ignorance, the vast majority of economists with far larger audiences than you or I have no interest whatsoever in showcasing your theories, whereas I do. It's better for you to treat me as an ally
So, far example, rather than sayings something like 'your inflation story is very muddled', display to me how you would approach the non-expert public to explain the role of taxation, and - bear in mind the reality of media, which is that you cannot expect a person to stand there and listen to you while you recite every detail about the banking sector and bond markets etc - you have a person's attention for like 2 minutes maybe...
Hey Mike, what’s the best resource you would point someone to for evidence of your claim that the 'inflation everywhere & always a monetary phenomenon' is not *ever* correct. “Full stop. The 'money' side lags, never leads.” I’m genuinely interested in this, so I look forward to hearing from you. Thx.
Inflation has to start with a price increase, somewhere, right? So that's either a bottleneck (unexpected) or a price gouge, right? Just a matter of logic.
To ripple around & move the needle much at all (above a noise floor), it needs to be something quite significant, and take time. There are plenty of options available to a fiat currency issuer (& legislator) Gov to ensure virtually zero disruption to the real economy.
But you also need to think also in terms of what 'real' producers do, in having a rolling plan to increase deliveries by at least ~10%, immediately. If only to take advantage of the market share increase, their sales force are tasked constantly to achieve. (I know this, because I used to sell capital equipment to them. (An activity far more educational it seems than 'economists' engage in?)
As Warren Mosler points out, look at Japan, 'it's damned hard to create it' - they tried for years to create inflation & failed miserably. (Go check out what % of JG Bonds BoJ - aka Gov - owns as well.)
The one tool of Gov (CBs) that *does* at least sustain inflation is the stupidity of setting positive (CB) base rates. The markets then forward price it in, & keep the ball rolling, as Mosler explains. Go see Bill Mitchell's work in Japan, which shows the absurdity of having a Gov Bonds market at all.
There is really nothing to fear in terms of using Gov net spending to grow the economy at a much higher rate than Western countries have seen in recent decades.
Much greater visible progress in real outcomes is quite possible to plan for in timely fashion.
Also view Armstrong & Mosler's paper on the Weimar episode. When they finally appointed someone competent, the inflation ended in less than 2 weeks. Competent economics management & the full capacity of a fiat currency can do this.
I’m familiar with Moesler’s Weimar paper and the BoJ experience. But neither or those say that money creation *never* causes inflation. “full stop.” If you’re going to make that claim, I would hope you have more than logic and personal experience with which to defend it. What else can you point me to?
The logic proves the sequence. Challenge it. Can inflation begin without a price increase?
Of course not, but to say that inflation is never cause by a growth in the money supply, you have to prove that an increase in the money supply could not cause a price increase. At the risk of having you attack one example instead of proving the rule, I would point to quantitive easing and asset price inflation as one example. When you have a whole bunch of asset managers simultaneously getting their securities holdings converted into newly created cash (really, bank deposits), which they then must invest in financial assets because they’re not allowed to just hold it in cash, you get an involuntary bidding up of financial asset prices.
For what it’s worth, I have made a very similar logical argument to the one that you are making, myself. I’ve stopped making that claim because I haven’t been able to find any credible and well-evidence researcher making such a categorical claim. I really like the claim, so would love it if you had found a thorough and scholarly proof for it. I doubt one exists, though. Most scholars probably know better than to make a “never” argument that can be undermine with a single case study.
Lol, financial asset prices go up & down like a yoyo. Zero to do with the real economy (above 'noise' level)
I don't understand your point, even a cent kept in a cave is a mini "neutralization" of inflation no?
If we stop the money circulation we are braking the inflation growth, or not?
What do the state do with the bond's money?
No, there's always vastly more Gov-issued 'money in circulation' in banks reserves than their payments system & its flow rate requires. Their function *requires* Gov maintains this, either by net spending or borrowing reserves from CB. (Or the payments system collapses...)
Then there's the 'stock' of (retail) Bank credit in the system. Bonds don't stop anyone spending, anywhere. They're just another form of 'money' & vastly more than liquid enough for their real function of risk-store/short term collateral. A role which could be performed at way less (real) cost & 'market' bullshit if their issue was limited to max 6mths maturity & zero coupon.
The state doesn't do anything with the 'bond's money' apart from have its CB debit a reserves account & credit Gov Bonds account. When the Bond matures, that action is simply reversed. Imagine yourself at the CB (aka) counter, swapping your stack of fivers for fifty unit banknotes, or the reverse. That's as much as the Bonds mean really.
Thanks for your answere, if i've understood well, it comes to my mind a question: why to issue bonds at all, if is just a momentary relief that worsten a bit the situation in the long run with the added interests (growing the monetary total mass), why it can't be slowed the issuing of new money/debt to regulate interest's rates and inflation?
MMT treats taxation like it's easy peasy when politically speaking it's one of the most toxic things a politician can commit to.
I'm not sure that's specific to MMT - for example, traditional non-MMT left wing movements are far more likely to treat taxation as a non-negotiable thing
I'm talking about the politics of it. The left consistently wants to raise taxes then discovers over an over that voters oppose it. So they make a false consciousness argument that amounts to "real class-based political messaging has never been tried."
The politics is always divisive because all the mainstream (incl. Marxists etc.) always present narratives within the false dichotomy of fiscal balance (arbitrary) constrained Gov.
We could reach far better compromises & deliver with vastly better competence if we used the MMT provided correct understanding or 'lens' of options available to Gov.
Actually, the only MMT voice on taxation structure & policy is Warren Mosler himself. It needs completely rethinking, but the logic isn't hard to follow. (Spoiler: Everything that 'tax' can do, for behaviour change, the fact that Gov spending &/or other direct intervention can do it vastly better, is what you should be thinking about.)
But here's my quick summary - (fiat currency/securities issuer Gov assumed)
*Some* taxes are necessary to drive use of the Gov's currency, & sometimes useful to curb private (eg. 'luxury' on down) use of labour & productive capacity that the Gov desires to purchase for public provision.
They must make up, by whatever means, the bulk of taxation, & by the simplest, most robust & *least wasteful* use of 'real resources' in collection & compliance. The latter needing considerable improvement over the present absurd 'pay for' directed tax codices, note. IE, a *complete* junking & start again tax code is needed.
For example, make the base load of taxes to drive demand, could be a simple graduated, biased way up to 'luxury' tax on property ownership. Readily affordable to all wage income levels, & including commercial property, which could give small/medium/local ownership a boost.
Payable *in arrears* - giving plenty of time for Gov's spending into circulation to be acquired in the necessary legal amount.
Property is already registered with Gov & an immobile, hard to conceal asset. Cheapest & most robust tax system by miles.
Next, the use of taxes to divert commodities, in labour & materials, that Gov itself wishes to purchase for a higher public provision priority. This is readily, & most efficiently done at the wholesale level for goods. Tax the wholesale import or local industries, as required - & carefully - until the needed quantity diverts to Gov purchases needs (or suppliers).
Labour can be given a Job & Training Gov Guarantee, all & any who need it, at minimum living wage, at any time of their choosing, from redundancy or otherwise.
There's not actually many other uses for taxes than the above two.
In most cases where taxes are applied as an indirect, 'market based' tool - or 'signal' - as many are at present, are ineffective (even counter-productive) & inefficient. Where direct Gov intervention should be the policy anyway, eg. in a Gov maintained 'buffer stock' of minimum standard housing for secure rental.
Income taxes, Corporation taxes, all of those can binned. So can all social insurance & mandatory pensions savings requirements. All citizens can guaranteed by right (eg. by Constitution) an adequate pension, unconditionally, upon retirement age, topped up or not as people wish in private savings.
What's left? Not much? Just change over at a steady pace so as to avoid undue temporary disruption etc. If we can plan the 'real resources' use & development, adjusting both their (eg. class) distribution & the 'money' side should be straightforward for (MMT) competent macroeconomists.
These are all interesting concepts, but they are interlocking and require that the legislature think holistically and pass laws to enable it. It assumes there are no special interests whose cow will be gored, or individual politicians who can weaponize opposition with bad faith. Something as simple and stupid as “death panels” nearly upended the ACA.
The problem with MMT isn’t necessarily the economics, it’s the political part of “political economy,” which after all is the original name for the field.
There's no 'political economy' in MMT - it's macroeconomics, & apolitical.
But you make a valid point - ignoring the reality that certain operational & accounting facts exist independent of political choices is why 'economics' remains so f* up & useless, still, today.
Politics is of course what's really f* up, & no meaningful 'democracy' will ever exist whilst an elite of the minority capital owner class own & deliver ~all the mainstream public information channels. That is, whilst labour is the vast majority in society, capital owners continue to rule in favour of their side of the P&L & Balance Sheet interests in economic outcomes.
I provide an answer for this too, but most peoples' heads are too f* up to do any logic & systems thinking.
FWIW -
The rich class control all the Western mass media which (mis-)'informs' our votes. No surprise nothing changes -except to get worse as their propaganda grip tightens.
We don't have to put up with this any longer - we can easily create a different structure for a public mass media sector that faithfully represents majority (non-rich) citizens' interests.
There should only be two options for mass media businesses - either as a private/commercial (shareholder) controlled entity, or as a member controlled Co-operative type entity in a (new) Commons 'public' sector, under direct citizens' 'votes' control.
(Eg., the 'public' sector BBC Depts. could choose one or the other - no more corrupt Gov appointee run fake 'public' media.).
Mass media in Western societies is near all owned & delivered by a small group of wealthy elites, & significantly funded via advertising by a handful of large Corporations. That can have its place in providing public discourse & entertainment non-critical to 'democracy', but it should not be the only model for media with power (& reach).
We can easily create a system where citizens control a similar size sector of the media directly, through non-profit media Commons/Common Ownership structured publishers/providers, which exclude all private capital & revenue income. (Instead, they are controlled by members with equal voting rights, like Worker Co-ops or Community Businesses.)
In this sector, their only permitted income comes from our currency issuer Govs (at zero cost), but not directly. Instead of Gov directing which Commons Media enterprises get grant funding, citizens, equally, disburse the funds via an annual voucher system, whereby they sponsor their preferred Commons media provider(s).
This simple system ensures full democratic participation in a sector of mass media, & thus the political discourse which elevates politics to power, and we need it now, before humanity's path to its own self-destruction becomes irreversible.
MMT is agnostic to ideology; it's not capitalist, socialist or communist.
In theory yes, in practice no. MMT apportions blame/responsibility entirely to government choices and fails to acknowledge a vicious ongoing war on government monetary sovereignty by the private banking sector, which wishes to become the monetary sovereign itself. Government is, in fact largely a 'fifth column' of the private banking sector in it's resistance to MMT-informed operating practice. MMT colludes with this firstly by insisting on the notion that when banks create money they are acting as agencies of the government rather than as self-interested parties, secondly by minimising the effect of bank credit money on financial stability, Which other Post-Keynesians correctly assess. The private banking sector fights it's position by applying political pressure to government both directly and through public propaganda (much of that being chanelled via Reserve Bank and Treasury in actual policies and public misinformation, the mainstream economics profession and the various right-wing think-tanks) to act as though money is a scarce and finite commodity, notwithstanding the fiat system can do everything that MMT says it can do. The banking tail is violently wagging the government dog in order to kill it and become the dog itself. This is why politics cannot be removed from economics, and why MMT cannot be considered to be apolitical whereas Post-Kensianism can.
I believe the origin of this is most likely Mosler's filtering the conclusions of his findings through a lens tinted by his own professional interests as a bond trader and not wishing to 'shit on his own doorstep' in his relationships with his professional finance colleagues.
I guess MMT shows how money works, but the way it’s actually used depends on who’s pulling the strings. Maybe that's the point of understanding MMT for a novice like me.
Darn, you should have read my article on MMT before you made that video. It could have cleared up some misguided things about MMT. I know you can't re-edit it it, but here is my article.
https://politicaleconomy101.substack.com/p/preliminary-mmt-debunk-page
Ok, I read your page. Thanks for sharing. Now you can read this https://en.wikipedia.org/wiki/Sectarianism
Gov money only needs to be created when the money supply needs to increase.
Saying that the gov doesn't need money to spend is like saying, I don't need to use the same toothbrush everyday, I can just by a new one everyday.
I tried to provide a constructive and non-partisan response for you here:
https://politicaleconomy101.substack.com/p/preliminary-mmt-debunk-page/comment/159356708
Would MMT exist if the US Constitution was changed to a Sustainability Constitution that replaced the farcical rights of financial interest with rights for all incarnate Spirit including children, childbearers, mothers, families, communities and most of all mother nature? No, it would become irrelevant as anything more than a description of the past.
All the real assets are divinely endowed and withheld from those whose rights are not recognized by the current legal system.
In Agrarian Justice, Thomas Paine wrote of “natural inheritance” and went so far as to say that those who were unable to settle free land should receive compensation.
Modern-day ecophilosopher, Derrick Jensen, explains why access to land is “everything.” If land (a real asset) is plentiful people have the ability to create their own wealth. He also explained why capitalism is just a more refined slave system.
We have to move beyond economies of slavery and disposable mothers. Capitalism is patriarchy and patriarchy has to go. Mother earth will not sustain it.
I am learning about the economy as an eco-feminist who recently wrote on jurisprudence after a rogue court attempted to abduct my daughter without cause or jurisdiction for profit.
To gloss over the violence of this economy will not go unrecognized as seriously offensive. That said, I appreciate your video.
I understand your impulse, but it's important to note that MMT doesn't claim to end capitalism. It's just a pragmatic framework that says 'we live in capitalism, so if you want to have a less bad version of it that has more potential to do stuff like support the unemployed, then understand the monetary mechanics'
For this beginner, that was exceptionally clear, and clarifying. Thank you.
Thus primed, I look forward to filling in more of the nuance later.
So bond's system makes the rich richer redistributing taxes et/or inflation tax (with quantitative easing) from people to savers/hoarders, just to control momentarily the monetary mass in view of state spending? (with a worst problem later due to the interests to pay that adds on the monetary mass?)