Modern Monetary Theory – a personal note

In recent days there has been some discussion about the way different Modern Monetary Theory (MMT) thinkers might see the development of the paradigm. There has be some remarks that MMT should be explained in little steps and only then presented as a menu of policy choices so that all ideological persuasions might embrace it. There have also been statements that my US-based colleagues have agreed to that strategy and are now discounting any advocacy of full employment because the US population en masse (allegedly) find such notions repugnant. I disagree with all of those propositions. I consider that a sovereign government, which is not revenue-constrained because it issues the currency, has a responsibility for seeing that the workforce is fully employed. If they don’t take that responsibility and use the fiscal capacities that they have courtesy of their sovereignty, then there will typically be mass unemployment. An understanding of MMT makes that clear. The discussion also has raised questions about the purpose of my blog and I reflect on that in what follows.

This is a more formal response to the comments made on the site Naked Capitalism. First, Yves Smith (the host) kindly linked to my Modern monetary theory and inflation – Part 1 but then provided the following guidance for her readers.

Note Bill claims MMT says what government “should” do. He really is not in a position to dictate MMT “positions” on policy (many if not most of the serious MMT writers in the US would say that MMT tells you about policy tradeoffs, it doesn’t dictate policy choices), so you need to discount his pronouncements.

Discount means to diminish the significance or importance off. In other words, the so-called serious MMT writers in the US should be heeded in preference to my own writing. We will come back to that point later – as to what my close colleagues in the US actually say in public.

In response, I offered the following observation which was posted on Naked Capitalism:

Dear Yves

Your caveat seems strange to me. It carries the implication that I am not a “serious MMT writer” although I am one of the early developers of the contemporary literature in this area and the buffer stock analysis goes back to 1978 (very early).

Further, none of my “serious” US colleagues would disagree with any of the points I make in the post you mention. The statements and policy options I outlined as core MMT are all part of the shared understanding I have with my US colleagues (and friends).

And as a senior developer of the MMT tradition I have every right to articulate the policy implications that come from the theoretical understanding we have developed.

Someone has to translate it into a preferred set of policy options to provide traction within the public debate.

best wishes

To which Yves then responded (the emphasis was added by her):

Please reread my comment. My remark was about “serious MMT writers in the US“. It merely says you are not a MMT writer in the US, not that you are not serious.

In addition. the post has comments that frankly will alienate US readers who might otherwise be receptive to MMT. For instance:

“The sovereign government, which is not revenue-constrained because it issues the currency, has a responsibility for seeing that the workforce is fully employed.”

The part is bold is not widely accepted in the US, in fact, I would hazard most reject the idea that government should play a role in assuring full employment, much “has a responsibility” (which I read as a stronger claim). Even though that is the goal of most policy prescriptions made by economists, many people, perhaps even most, in the US reject the idea of the government having responsibility for employment.

There is an assumption re the proper role of government in your formulation which is not inherent to the MMT analysis of consequences. You can contend that this OUGHT to be the goal per your analysis earlier in the post of the costs of less than full employment, but that is still very much subject to debate here, as much as it may seem obvious to you.

Unfortunately, many people here would rather suffer in the name of small government and their belief that government encroaches on personal liberties. And they vote. Look at the reactions to the Martin Wolf post today, or my anodyne NYT op ed with Rob Parenteau, or any of Marshall Auerback’s posts. And my blog skews liberal.

First of all we should remind ourselves that Article 55 of the Charter of the United Nations, which was ratified by the U.S. Senate on July 28, 1945, says the following:

The UN shall promote higher standards of living, full employment, and conditions of economic and social progress and development … as well as universal respect for, and observance of, human rights and fundamental freedoms for all without distinction as to race, sex, language or religion.

It is my understanding, that the US Constitution – the Supremacy Clause (Article VI, clause 2) – renders this US commitment to the UN Charter (in its entirety) part of “the supreme Law of the Land” which all levels of US government are expected to enforce.

So when we are talking about full employment it is not something I have made up as a personal opinion. It has actually dominated policy making for centuries as have the ways in which governments have also tried to evade their commitments.

As a matter of clarification I see myself as an academic not a blogger. I am not in any way putting a hierarchical ordering on those roles but they are very different in my mind. The blog is my research log. It is also a teaching device. I tend to write things up that I have been working on for academic purposes. Not exclusively, but usually. My blog is an extension of my academic work and doesn’t have a standing in its own right. It is not my sole publishing vehicle.

Academic life used to be a calling where one was granted tenure in return for defending the “truth”. We were uniquely placed to provide critical scrutiny to the ideas and propositions that floated around in public space. This was a particularly important role in economics where policies were developed by politicised bureaucracies and may not have served the broad public interest.

Academics also have very specialist knowledge that the broader community lacks and have a responsibility to disseminate that information in ways that are accessible to the public. Which is a different statement to saying that the dissemination should be in ways that the public would agree with. We also have a duty to educate the next generation of researchers and policy makers and we can fulfill that aim in a number of different ways.

Academics were insulated from the political process and could therefore speak without fear or favour and bring their research efforts to bear by making evidence-based assessments of these policy options. Further, we are not bound by short-term political agendas. A lot of research is oriented towards making a long-run contribution.

It is often the case that ideas take some time to be acceptable, especially when they are outside the dominant paradigm. So I see a lot of my work being for posterity rather than satisfying any current need. Paradigms change slowly and the alternative body of work – the competitive body of thought has to be developed slowly and disseminated broadly.

And remember what Arthur Schopenhauer said:

All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.

So an academic should never be driven by what is popular opinion in the USA or anywhere. I will never be cowered by public opinion. If I write or say something that alienates the public should I be concerned about that? Not if the writing is evidence-based and driven by a thorough understanding of the processes I am discussing. I am not a writer of popular fiction (although I hope to be one day as a novelist!). I am not a journalist trying to sell newspapers. I am not a blogger hoping to attracts lots of hits to my site to maximise my google advertising revenue.

The oppression of knee-jerk polling, has made our political processes necrotic. Politicians now spend all their time polling public opinion and reacting to it rather than leading and trying to shape public opinion. The shaping is now done by the highly concentrated fourth estate and the think-tanks, the most influential being the well-resourced ones with right-wing persuasions. The left never really fund rival think tanks adequately. Somehow the progressive side of politics thinks that these units will just work for the love of it and ignore that you have to pay wages and rentals etc to keep afloat.

The problem is compounded because academic scrutiny of the public debate is in decline. Under the neo-liberal onslaught, academics are now pressured to conform to new corporatist structures that manage universities around the world. As tenure wanes, the fear of losing one’s job has generally overpowered the sense of responsibility to bear witness to the public debate. You get very little intervention from academic economists these days, which is probably a good thing given how bereft the mainstream paradigm is.

But I will always assert my right to say what I like without worrying about the consequences if I think it is worth saying and it backed by credible research and comprehension.

In terms of rights – “to dictate MMT “positions” on policy”, I have never held out that I am speaking on behalf of any cabal – MMT or otherwise. I don’t own MMT. I am one of the leading proponents of it. But it is not some organisation that distributes rights of representation. I can say what I like about the work I do. It is something of a non sequitur to even construct the matter in this way.

But it seems that statements such as “The sovereign government, which is not revenue-constrained because it issues the currency, has a responsibility for seeing that the workforce is fully employed” are deeply offensive to Americans and my US-based colleagues would never say anything like that.

Apparently, my US-based colleagues have agreed to present MMT as a policy-neutral framework so that a smorgasbord of choice is available. The aim apparently is to get people – right or left – to understand that MMT closely describes the operational realities of the monetary system but to extend the implications of that into specific policy is outside of this agenda.

I jointly presented a Teach-In to a group of senior financial market participants and business owners in Boston last week with my close friend Warren Mosler. I certainly didn’t get the impression that it was a policy neutral zone. I also heard both of us tell the audience that the fundamental role for a government in a fiat currency system is to advance public purpose.

Over many years, the MMT writers have indicated that a basic principle of MMT is that government only should work to advance public purpose. Given the fiat-issuing government has an undisputed monopoly over the currency, we want to make sure that monopoly is not abused.

Further, and consistent with public debates for many years (reflect back on the UN Charter which captured the immediate Post Second World War consensus), public purpose includes the goal of full employment. We have recognised that this goal satisfies a rights agenda but also makes sense in a narrow economic sense – not wanting to waste real resources and desiring to maximising economic outcomes.

If you examine the body of work that has been produced by MMT writers, especially over the last 15 years you will find two consistent themes running through all of it – full employment and price stability.

So this emphasis is not something I have made up as some sort of Antipodean curiosity, which reflects my obvious lack of awareness of what the (precious) US population might find to be acceptable. It is a core emphasis in all our work.

But apparently, most people in the US would “reject the idea that government should play a role in assuring full employment, much “has a responsibility”. Well we might just ask what the hell has gone wrong with the US education system if that statement is true.

More seriously, if the public do not understand what the role that government has to play in a fiat monetary system for everyone who wants a job to be able to find one, then that just demonstrates the grip that the mainstream economics profession has had in moulding the public debate. I don’t see myself as being restricted to play within the domain set out by that corrupt and erroneous economic framework.

My role is to explain to the best of my ability how the monetary system works and what opportunities it presents the currency-issuing government. If the vast bulk of the population don’t agree at this point in time I am hardly going to compromise my message to fit in with a deficient understanding. Eventually, the ideas will become current because people will realise that mass unemployment cannot sustain acceptable standards of living in advanced nations.

These changes will come as the youth break free of the restricted cultures imposed upon them by their ignorant parents (in the same way the boomers broke in the late 1960s and forced widespread social change).

The changes will also come through environmental constraints. The only issue is whether there will be evolution or revolution. Either will do the trick.

MMT clearly provides an explanation for mass unemployment, which is shared across other Keynesian-Marxian-inspired schools of thought. But only MMT is fully stock-flow consistent among these schools.

MMT shows that if there is a non-government spending gap then there is only one sector left to fill it – the government sector. So if you want the spending gap filled then it has to become the role of the government. I call that a responsibility because I do not believe the citizenry in general do support mass unemployment.

They just haven’t been educated in stock-flow consistent macroeconomics to understand why the mass unemployment occurs. They have been indoctrinated by the mainstream economists and the press lackeys they call up to disseminate their folly to believe that mass unemployment is the fault of the victims – the unemployed.

My role is to educate people that mass unemployment is a systemic-failure and the individual is powerless when the macroeconomic constraints (deficient aggregate demand) start to bind.

Clearly you can fill the spending gap in more than one way. But it has to a fiscal initiative – a choice of government – to create the dynamic to fill it. It may choose to cut taxes or it may choose to increase spending (or both). It may increase spending by directly hiring labour (for example, a Job Guarantee) or it might inject additional spending via procurement into the private sector and rely on the increased activity occurring there. These are all political choices.

But you don’t get out of a spending gap (after a collapse in private spending) without manipulating fiscal policy (I discount the effectiveness of monetary policy).

All sides in the debate express a desire to have full capacity utilisation although they construct the meaning of that term in different ways.

The ideological element for neo-liberals is that they want a reserve army of unemployed to discipline wage costs and to provide a threat to those working but cannot admit that this is their motivation in public. So they have to conjure up weird theories that the mass unemployment is actually the outcome of voluntary, optimising decisions made by individuals who at some point in time prefer leisure to work. To further give this view weight, the mainstream implicate welfare payments as increasing what they call the reservation wage (the wage at which you are indifferent as to whether you work or not) and distorting the work-leisure choice in favour of leisure.

There is always an absolute denial that there are not enough jobs or working hours to go round. After all, the unemployed can always start a business as entrepreneurs if they really wanted to work.

Economists are among the worst of the social sciences in citing other social science research. The palpable arrogance of my profession is demonstrated by its unwillingness to consult developments in other disciplines. Why is that? Because economists think they have a complete theory of human behaviour. The reality is that the underlying assumptions made about homo economicus (rational, optimising, self-seeking etc) are not found to be motivating forces in real humans.

The emerging behavioural economics has demonstrated categorically that the assumptions that mainstream economists use to motivate their theorising are not applicable to human behaviour. Why students continue to learn mainstream economics remains one of those unsolved mysteries.

So driven by this erroneous view of unemployment, the government might choose to leave the spending gap open and adopt a belief that full employment is related to the mythical concept of the NAIRU. There is clearly a choice of which buffer stock you use to provide a nominal anchor. All the credible research evidence suggests that using unemployment as the buffer is very costly. The denials raised by the extremists in the mainstream are ignorant to the plethora of research in clinical psychology, sociology, family studies, etc which demonstrate how costly entrenched unemployment is to the individuals, their families and their communities.

Further they seem to ignore the daily permanent losses in real income arising from leaving significant proportions of the available labour supply idle in various ways and for extended periods of time. Even in narrow economic terms, mass unemployment doesn’t make sense. As noted, the mainstream just go into denial and say the unemployment problem is overstated.

But a central plank in MMT is that the use of endogenous employment buffers is the optimal way to manage cyclical fluctuations in aggregate demand and ensure there is an effective nominal anchor in place. All serious MMT writers share that view which is integral to our macroeconomic framework. There are lots of different attitudes about how that buffer stock should be made operational which reflect our different ideological slants.

However, there is no question that it is a central part of the inflation proofing capacity of a fiat currency economy and one of the first things a sovereign government should implement.

I often make the point that there is a different between the logical implications of MMT and the ideological choices you can make once you understand those implications. There is some difference among the MMT clan on how the types of policies that will enhance public purpose, which reflect our different cultural and socio-economic backgrounds. But these differences are minor.

There has been some discussion in the past about whether MMT is a theory given that it provides insights that are derived from basic national accounting structures. So it is just a stock-flow consistent accounting framework which would not qualify it to be a theoretical edifice?

The answer is to this question is clear. If you restricted yourself to understanding the accounting relationships (that is, the arithmetic) you wouldn’t get very far because you would just come up against the silence of numerical identities. What more can you say that the government deficit equals the non-government surplus? It is important, but doesn’t get us very far to say that the sum of the sectoral balances has to be equal to zero.

What drives the individual balances and how are they interlinked? Those are the interesting questions because to explore policy choices and their consequences the analyst has to be able to reason at the behavioural level. As soon as we start asking questions about the driving forces underlying the accounting we are in the realm of theory.

So MMT goes well beyond a recognition that the accounting is important and that you have to ensure your models add flows to stocks across time in consistent ways.

Those behavioural understandings also demonstrate that the government has a central role to play in maintaining high levels of capacity utilisation which in labour market terms amounts to full employment.


First, I reject the notion that the US-based MMT writers have decided to stop advocating full employment as a principle dimension of the government’s responsibility to advance public purpose. While I am not going to delineate a ranking of US-based MMT writers the main players are clearly still advocating full employment as an integral part of the development of our paradigm.

Second, I have often made the point that an understanding of MMT doesn’t preclude you from advocating mass unemployment if that is your policy persuasion. But then you are naked because you cannot rely on the usual ploys and dodges that mainstream economics uses to cover up the fact that they prefer mass unemployment for ideological reasons to advance the interests of capital.

Then you will have to openly say that and, then I would contend the advocate would feel the scorn of the populace. Once the chimera of individual responsibility was taken away from mass unemployment I doubt any poll would show that people thought it had nothing to do with a fiscally-effective role for government.

Relatedly, I am often careful to state that the basic principles of MMT can be taken up by different ideologies given that they describe the operational realities of any fiat monetary system. But what an understanding exposes are things like the democratic repressions (the voluntary constraints that governments impose on themselves to limit their capacity to advance public purpose). Once these are exposed the debate changes because the mainstream can no longer hold these constraints out as being financial imperatives.

Third, this blog will sit in cyber-space for years to come and might help future generations realise how stupid the current short-termism biases in the public debate are. So it is better to lay the body of theory and optimal policy design out in full and ignore what the current popular opinion is.

Fourth, I am not bound to any rules as to what I say. That is the freedom I enjoy as an academic. Most of my academic colleagues have run scared as managerialism has overrun our universities. I see that development as providing even more motivation to assert my right to say what I like. While my fellow MMT colleagues are in most cases also my good friends (in some cases among my closest friends) I also respect their right to say what they like.

If they no longer agree that full employment is a legitimate goal or one they should dare to speak of in public in case they incur the wrath of the US public then they are free to say that.

Finally, my blog attracts considerable daily traffic and it comes from all over the world. The US is not a particular focus of my research although it interests me.

This is not my definitive answer to all these issues but presents all I have time to devote to it today.

Admin note

You will recall a couple of weeks ago that I indicated that I was going to change policies to give myself more time at weekends to spend with my family. I plan not to write a dedicated Friday blog any more and I will make the Saturday quiz available on the Friday with answers and discussion available on the Sunday.

But occasionally I will still write a special Friday blog – such as today.

Saturday Quiz

The Saturday Quiz will be back sometime tomorrow – even harder than last week!

That is enough for today!

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    61 Responses to Modern Monetary Theory – a personal note

    1. Bill, That’s a terrific statement. I commented on Yves comment on your work at Naked capitalism and also here:

      But I also have to say I have no idea where she gets the notion that MMT people have stopped advocating for full employment. I remember the exchanges during our fiscal sustainability Conference on April 28th, in which Warren Mosler, Stephanie Kelton, Marshall Auerback, Randy Wray, and Pavlina Tcherneva, in addition to yourself, all gave presentations and participated in lengthy Q and As and I don’t remember a single person failing to advocate for full employment and the Federal Job Guarantee at one point or another in the Conference. And since that time all have written pieces advocating for the FJG as well.

      So, where is Yves coming from? I can’t imagine.

    2. Brianovitch says:

      Of course ‘society’ should ‘intervene’ to ensure that all have the wherewithall to live; otherwise it’s a denial of ‘life’. An excellent statement of Public Purpose — the real McCoy.

    3. A problem with MMT as defined by Bill above is that it includes two quite different and independent ideas.

      First there is the Abba Lerner / Karl Marx insight, namely that national debts are a nonsense, and the best way to regulate aggregate demand and inflation is simply to have government print money and spend more when unemployment is too high (and raise taxes, and rein in money and extinguish it when inflation looms). Warren Mosler advocates this regime, as did Milton Friedman in his 1948 American Economic Review “Framework” paper.

      Second, trying to attain near 100% full employment via JG is a separate idea. JG can operate in any environment. For example in a non “Abba Lerner print money” environment one can perfectly well operate a crude JG system: just tell the unemployed their benefits are henceforth conditional on their walking up and down their street keeping it free of litter. Those who refuse are not counted as unemployed because they have refused work. Hey Presto: unemployment has vanished.

      Personally I’d like to see the label MMT reserved for the Abba Lerner insight.

    4. Neil Wilson says:

      There has to be a conversion of the economic to the political, and a way of expressing these counter-intuitive views in a way that changes the debate and exposes the realities of what monetarism is really about.

      Less ‘smash the system’ and more explanation of cause and effect would help. One of the reasons I like Bill’s blog is that he is able to express fairly complex ideas in an understandable way. It’s a rare talent.

      A touch less of the loaded language would help, but then if I’d spent thirty years trying to point out the world had gone mad, I’d probably use stronger language as well. Bill is probably being restrained. :)

    5. hrvoje says:

      Bill rocks!

    6. beowulf says:

      Ralph, that is an excellent observation, a deficit dove (or even a deficit hawk) might be in favor of a JG but I can’t imagine anyone who wasn’t also MMT supporter endorsing Abba Lerner’s ideas. Its the monetary insights that are the most powerful component of MMT.

      Bear in mind too, that my Republic has a rather peculiar political system. To givea few examples, Treaties are the supreme law of the land, but unless its self-executing, Congress has to pass enabling legislation first (which they often don’t). So no, the UN Charter doesn’t provide enforceable rights under the Constitution. However, the Federal Reserve Act (as modified in 1946 and 1978) does announce the dual economic policy goals of maximum employment and stable price levels. For reasons that are unbelievably tedious, even those goals are basically unenforceable. Part of this is racism against African-Americans, widespread in 40’s, common in the 70’s and still a factor even today that has stopped cold an awful lot of desirable pieces of legislation (civil rights laws obviously, but also national health insurance, universal military training, an enforceable Full Employment Act… all defeats suffered by President Truman).

      What’s more the only kind of votes that the US Senate can pass with 50 votes (with the Vice President providing a tie-breaking vote) are revenue bills– adjust taxes or spending levels. Anything else, including setting up an JG system would be debated under regular rules, which require 60 votes to pass in the Senate.

      So Bill’s quite correct to not trim his sails in the face fo the absurdity of American politics. I appreciate his perspective on things (and I’ve learned a bit about Australian politics along the the way). I have always assumed MMT was Bill’s baby anyway. If you’ll recall, I’m the one who suggested Bill rebrand it “Australian Rules Economics”. :o)

    7. What interesting comments from Yves Smith. I always understood MMT to show that US (and other fiat currency countries) underutilized the resources available to it to fully employ its people. As an American (maybe not a “mainstream” MMT writer) I guess I missed the memo.

      Why would anyone care to gain acceptance from “right and left” unless of course the motive was to profit from such theory.

      Yves Smith’s comments may be an indication that MMT is very valid and accepting to Wall Street-types but there is that nagging sub-part of “full employment” for the masses and heaven forbid that Wall Street-types and oligarchy would want that.

      It is interesting how theories like MMT or Minsky’s financial instability hypothesis are accepted in part but ignore the policy prescriptions that follow from these theories – very interesting.

      It is an interesting human element of adoption or better yet co-opting of a theory for profit.

      Professor please continue the good work – as one American, I fully support your work including the Job Guarantee. Thanks.

    8. Peter Gray says:


      I’m a constant scanner of Naked Capitalism and an occasional scanner of billy blog. I think Yves has done a great job in some areas, but not in others. In this instance, I am really disappointed with Yves position, and wholeheartedly support your position.

      If, in fact, Yves is on the “liberal” side of US policy thinking, and doesn’t regard “full employment” as an appropriate policy objective, then it is a pretty sure bet that Obama’s Economics team doesn’t think so either, which would explain why the US has been so tardy in addressing its overwhelming unemployment. And that will be a major factor in getting that administration voted out next election. Good riddance!

      I also applaud your view of academic freedom, and academic integrity. The devolution of our Universities into export-focussed degree factories has not been pretty to watch.

    9. Piotrek says:


      As a foreigner in US I can tell you that Yves is right, you don’t understand the political culture in US, how much to the right it is skewed. You will not be able to explain your theoretical arguments to the population, and if you start with the govt ordering full employment, you will face a tsunami of ridicule in US media. They sold the story that Saddam surely has WMDs, so they can sell anything they want. You need the media on your side to make any headway.

      And invoking the fact that UN charter dictates this or that, and that US should follow UN on anything reveals your total political naivete. UN is the poster straw man in US, it has no credibility with Americans whatsoever. You cannot do worse than invoke a UN-made recommendation in a political discussion in US.

      You need to ask yourself a question: if you want to make MMT part of the mainstream in US, do you want to do it smartly, or by brute force, facing increasing hostility of the population? And, believe me, Americans become very hostile to ideas they consider foreign to their belief system, and imposed on them. Then your only hope is a violence-backed leninist-style revolution. This truly makes no sense.

      You need to be smart about it, listen to what people knowing US are telling you.

      Best regards

    10. Alexis Jutras-Binet says:

      Hi Bill,

      I work in New York City for a hedge fund and the way you present MMT deeply resonates with me. I credit your blog, Michael Hudson’s website and the UKMC blog in being instrumental in de-programming all the neoliberal propaganda that has been shoved down my throat through my academic formation and in this I include the CFA program. Thanks for your service and please continue, by all means!



    11. And another thing was it this type of thinking – “softening” theory for acceptance by mainstream – that lead to neoclassical synthesis and a “bastardization” of Keynes? Just say’in.

    12. Tom Hickey says:

      Oh, good. Now we are getting into the nitty gritty of policy. It is important to debate the merits of political strategies because that is how an MMT policy agenda has be implemented. Otherwise, it will remain just a possibly good idea that was never tested.

      I agree that MMT economists and academics are best advised to ignore the political conditions and put out a comprehensive analysis as they see it. Then, policy wonks, political activists, and candidates have to figure out how to best adapt those views to winning political strategies. This is a considerable challenge in the US because in a recent poll 42% self-identified as conservatives and only 20% as progressives. It is not going to be an easy row to hoe, nor a quick one. It appears to me that the conservative Zeitgeist still has a way to go, and that will likely mean another round of Reaganism before this is over, just as the UK is revisiting Thathcherism now.

      On the other hand, Warren is running for the US Senate. Accordingly, he has featured a payroll tax holiday and per capita federal grant to states, both of which are not particularly progressive positions in comparison with the JG, and have universal appeal except to the extreme right. Even the right would have difficultly opposing a payroll tax holiday. Warren has not featured the JG, perhaps because it would almost certainly be highly contentious even among conservative and centrist Democrats that likely comprise the majority of the party and certainly own the power structure. While Warren is running as an independent, he would have to capture a significant number of Democrats to win, as will as a number of Republicans. He has emphasized the need to close the output gap and return the country to full employment ASAP, which appeals to working people of both parties. He has also explained why larger deficits are not inflationary under the circumstances, also a major concern of most people who have been scared by relentless conservative propaganda.

      I think that this is a reasonable strategy and I support it. I don’t see that putting forward the whole MMT view in his campaign would improve his chances of winning and would very likely paint him as not a serious candidate given the position of the Overton window in the US, even in fairly liberal Connecticut.

      Over at Warren’s place, a suggestions was made that we (presumably including Warren’s senate campaign) should just go for it and present a full blown plan for overhauling the system in line with possibilities discussed there that go even beyond MMT as it is currently presented, which some feel just perpetuates the status quo, albeit improving it greatly. But many want to see the monetary system revised radically, believing that this is the only way to break the lock of finance capitalism and plutocratic oligarchy. I agree that this is ultimately necessary. But I don’t see it as the initial step. In my estimation it has no chance politically at this point. If there is a depression, all bets are off though.

      I said that I agree in principle with the agenda, and I have spoken forcefully in favor it as an absolute necessity to prevent globalization from succumbing to multinational corporate statism run by finance capital. But that I see it as an unworkable strategy for a political campaign like Warren’s. I think it would isolate MMT from the debate instead of introducing it further into the contemporary universe of discourse. MMT would be lumped in with conspiracy theories and dismissed out right, just as Tim Russert ended Dennis Kucinich’s political campaign with a question about UFO’s. I stand by that. In fact, when MMT’ers go on TV in the US, this is just what the media attempts to do by dismissing it as “printing money,” which “everyone knows” will just lead to hyperinflation, or wasting taxpayers money on boondoggles.

      I further think that this is a complex issue that is not going to won on the issues. It will be won on the framing and appeal to high value conceptual framework. That frame in the US in now overwhelming conservative and conservatives own the universe of discourse. In order to counter this, a lot of work has to be done to replace that frame.

      George Lakoff describes the challenge and how to overcome it in his political writings on how to use the discoveries of cognitive science in messaging. He presents a short summary here. His point is that using the opponents conceptual framework strengthens it be deepening those neural pathways. Incrementalism does not means adopting the opponents universe of discourse. Rather, it must be rejected. However, as a matter of neurology, this cannot be done all at once. There has to be a weakening and chipping away rather than trying to shift the universe of discourse through an Aha experience.

      Lakoff observes that most people are “bi-conceptual,” that is, this they do not have a consistent worldviews, as do people at the extremes of the political spectrum. This is the center that decides elections. Lakoff contends that there is no actual centrist position as a conceptual framework. Thus, the way to win is to play on the aspects of the high value conceptual framework of bi-conceptuals that agrees with the progressive viewpoint rather than the conservative one.

      This is serious business and I believe that the future of mankind hangs in the balance in this century. I further believe that MMT is a vital tool in the struggle to build a free, fair, and progressive world economy. So we need to get this out in the open and have a good debate about it.

      We also have to be aware that MMT has allies that do not consider themselves proponents of MMT. Yves is one. Ed Harrison is another. They are important allies and alienating them for reasons of “purity” would be unwise in my humble opinion. That does not mean changing what one stands for or caving. It does means being diplomatic. (Bill no criticism of your clarification to Yves implied here.) For example, I have been impressed by the way Rob Partineau has respectfully addressed even disrespectful criticism as an occasional guest poster at Yves’s place.

      Since I am not an economist or in fiance, let alone an MMT’er, I will still argue that anyone can profit from understanding MMT insofar as it is an operational description of how a nonconvertible floating rate monetary system works. The sectoral balance approach is also central, but as I understand it, the sectoral approach MMT uses was largely developed by Wynne Godley prior to and independently of the development of MMT. Similarly, there are other economists whose work is either at least partially supportive of MMT or contributed to its development. Abba Lerner and Bill Vickrey come to mind. I would not only be looking beyond MMT in economics, e.g., institutional economics, energy economics, and environmental economics, but also beyond economics, e.g., to philosophy, evolutionary biololgy, and the social sciences, as well as to operations research and military strategy and operations. NOr does it end there. This is an interdisciplinary endeavor to which many minds can contribute.

    13. WHQ says:

      …you don’t understand the political culture in US, how much to the right it is skewed.

      I don’t think it’s so much a matter of not understanding so much as not thinking it relevant. Did you read the post? You can disagree with the reasoning, but you have to understand the reasoning properly first.

      I’m an American, and I will be putting forth bill’s ideas by word of mouth and on other blogs in the hope that others will be persuaded as I was to consider MMT as a way to look at macroeconomics that doesn’t rely on bogus micro-behaviorism as its inputs (i.e. doesn’t suffer from garbage-in/garbage-out modeling). The ideas spread slowly over time this way, as the lightbulb goes on for more and more people until, some day, it becomes not-so-radical and less threatening. You don’t get the media first. The media tell people what the media thinks the people want to hear. You have to get the people first and the media will follow.

      There are some people in the US right now who cannot be reached. They will not accept what bill is writing regardless of how he presents it. There’s no point in worrying about how they will react, because they will react badly no matter what (short of not presenting MMT at all). There are others who can be reached. As far as I can tell, as one of the reachable people, bill’s presentation is excellent at persuading those who are open to persuasion.

      It may take a generation or two to change how people think on a large scale. Look at views on race. Anecdotally, I can tell you that my soon-to-be 90-year-old grandmother uses the n-word as a descriptor for black people. She doesn’t even mean it derogatorily all the time. It’s just the word she uses. That’s not to say she doesn’t hate black people or that she doesn’t understand what the implications of the word are. It is to say that she’s so comfortable speaking that way that she doesn’t even think about it. I, her own grandson, feel like someone punched me in the stomach whenever that word casually pops out of her mouth. It an abhorrent anachronism to me. I find it to be ugly and disgusting, particularly coming from my own grandmother, whom I love.

      The point I’m trying to make is that views can change drastically over a couple of generations, but that it may take a couple of generations. The corollary is that there is no point in worrying about how my grandmother will react to statements of advocacy for racial equality. She’s not open to them regardless of how they’re presented, so focus on persuading those who are open to the idea.

    14. Adam (ak) says:


      You are absolutely right and the Americans as a society will pay a very high price for they way their blindness. They will pay it very soon probably in the next 10-20 years time. This is sad as so many decent people live there. The reason they are doomed is because too many people think that consumption is everything and production of goods is a little dirty thing which should be done overseas by stupid Asians and maybe Eastern Europeans or South Americans. One day cargo will stop arriving …. what will happen then? Unemployment is just one of the element of the de-industrialisation. (Oh I forgot we live in a post-industrial era, the history has ended and we are suffering from great moderation).

      The second important obsession shared by the mainstream Americans are absolute property rights and absolute individualism. There is no room not only for common property but any notion of the common interests. To me this is the key reason why people there will reject MMT no matter what. Because it is not based on the idea of the absolute private property rights disguised as the “basic freedom of the individuals”. MMT contains ideas that money as claims on the future goods and services is not a pre-existing commodity and can be diluted by the government acting in the common interest. This is communist and sacrilegious for them.

      The rejection of the idea of the common interest in the American society is the second important reason why I believe they will undo their empire pretty soon. Corporations and banks have hijacked the democratic process. But some of the interests and policies of corporations (e.g. to kill the competition by applying Intellectual Property Rights) directly contradict the common interest of the whole society or even the humanity (scientific and technological progress achieved by utilising common knowledge). What if other societies operate differently and can overtake the Americans? Also – what if we “suddenly” discover that our natural resources are limited and the environment already screwed up by us? If there is no government intervention private debt deflation can have serious consequences too.

      The only country which I visited where I found the local culture really strange and bizarre was not Russia (where I spent over a month in total – I really enjoyed the warm Slavonic culture) or even not China. It happened to me in the US. I switched on the TV set in the hotel room and my jaw just dropped. How can normal people watch anything like that?

      It is not that I had never seen an American movie before or that newscorp(s) serves us better quality commentary but I just had dealt with a diluted version.

      So if you mention employment as a human right you are a communist…. that is fine please count me as a communist or criminal traitor or a human grub, too.

    15. Stephan says:

      Hmmm … I can only join Alexis and say “Thanks for your service and please continue, by all means!” On the other hand it’s hard to ignore Piotrek’s objections. For sure these reflect reality. I think it’s upon us non-scholars to transform the message into some sort of new mainstream. Why would we ask some scholar to distort his findings for the purpose of making them more acceptable? Once we walk down that road we shouldn’t wonder that according to public opinion the shape of the earth is flat. An opinion which goes along with my everyday layman experience.

      So what’s missing? I just received an invitation to the yearly “Austrian School” conference in Vienna. On the website the usual suspects: Menger, Böhm-Bawerk, Mises and Hayek. And the contemporary keynote speakers? Ron Paul and Marc Faber. My conclusion: much to learn from “Austrian” marketing. Reading Alexis comment and knowing myself some financial markets participants it is perfectly feasible because it is only rational to gather some MMT “Marc Faber” financial cheerleaders. What’s missing is the media and politicians like Ron Paul.

      Now my understanding is that Warren Mosler wants to become the “Ron Paul” of MMT. Perfect! Good luck! And the media is not such an insurmountable obstacle. But some spin and money is needed. Piotrek’s remark in regard to Lenin is good. He seized the opportunity. What better opportunity than the GFC to ascertain MMT?

    16. nmtdoc says:


      It saddens me deeply to see your current state as “depressed”. I marvel daily at the amount of work you put into this site, and thank you from the bottom of my heart for it. I imagine that in the not to distant future the majority of Americans will be quite happy the government is providing jobs, just as they were during the last great depression.

    17. Apart from Yves Smith, another long term critic of Bill is Malcolm Sawyer. See:;jsessionid=M3GXb1n4TQZSL6JpQjyv0lFDP9JGTvJDLhqF2sm4yT4gw7vvRJKn!1896127874!1380883283?docId=5002080292

      I find Billyblog interesting and stimulating. The world is indebted to Bill, but he isn’t perfect. I agree with some of Smith and Sawyer’s criticisms.

      Also this phrase which Bill keeps using is naive: “The sovereign government, which is not revenue-constrained because it issues the currency”. I know what Bill means, but conservative critics will jump on that phrase and tear Bill to bits. They’ll claim it amounts to saying “let’s print money like Mugabwe”.

    18. joebhed says:

      I think Bill knows that as a monetary reformer, and as one of those far-outists described by Tom as on the fringe of this and other blogs, my questioning of Bill’s MMT theories have to with not going far enough in the progressive direction with openly advocating public-purpose monetary system science. If it is, it is.
      My attraction to MMT is in the recognition by Bill and others of “monetary sovereignty” as a political-scientific reality today.

      My failing with MMT is that I do not see this sovereignty and public control of the money system as deriving from a floating-rate, fiat money accident of geo-poli-sci evolution of Roosevelt and Nixon. Rather, it is an absolute and essential foundation of all modern quasi-democratic societies, whether they are aware of it or not.
      Here in the US, our Constitution has given us the rights and the power to control the issuance of currency, debt-free.
      Instead we let private bankers lend our money into existence, and we pay them a tax for the use of that money.

      This is significant because many MMt-ers prescribe that the government-sector fulfillment of providing the financial wherewithal for things like full-employment as being properly done WITHOUT issuing any debts by the same government.
      We recently posted a video discussion of the 1939 paper called A Program for Monetary Reform, written by Paul Douglas, Irving Fisher, Frank Graham and others at our website.
      This paper lays out the legal and monetary mechanism that are needed in order to return our sovereign monetary system back to the scientific basis originally spelled out in the works of Kittson, Soddy and others.

      I see this little tete with Yves as not even a bump in the advancement of MMT, but rather an opportunity for advancing the understanding of why a progressive approach to monetary economics can be good for people, business and politics, if we can just get beond the MSM rhetoric.
      Full-speed ahead.
      Thanks, Bill.

    19. Tom Hickey says:

      joebhed, A search doesn’t turn up “A Program for Monetary Reform” by Paul Douglas, Irving Fisher, Frank Graham. Do you have a link to a copy? TIA.

    20. rvm says:

      Great blog today!

      Tom Hickey, fully share your view that more diplomacy is needed in popularization of MMT ideas.
      You always provide very interesting, and new I believe not only for me, information. It is a real science the way political messages a presented to the general public, and MMT representatives sure have to find best use of it.
      I also feel optimistically about the future and truly believe it won’t be far when people somewhere in the world will chose the first MMT government or at least MMT members of a government body.

    21. Stephan says:

      Tom. Always a good idea to surf to the site of the author of the comment ;-) Here’s the link on his site (BTW: joebhed cool site! On my ToDo list.) The link: Replace the ~ with / and make a normal link. No need to wake Bill up! He needs some sleep to overcome his depressed status. Bill: The only thing I take personally is Germany winning in any soccer game ;-)

    22. Tom Hickey says:

      Thanks, Stephan. I did search there but didn’t get a hit.

    23. piotrek at 2:58, I’ve lived in the United States all my life, and I’m afraid I don’t think your observations are valid. America is a complex place and there are many shades of opinion. You may be living in a particular milieu where your experience is valid. But most people I know do think that the Government has an obligation to help the economy get to full employment.

      If MMT leads with full employment and price stability, I think it can get plenty of support. As for getting the media on our side, that won’t happen by refusing to talk about one of most positive points MMT has going for it in relation to making people sit up and take notice. The media gets on one’s side, when and if, enough people are bothered about a particular problem, that an approach offering a solution can get through the noise they generate day-to-day. I think MMT has been making progress in this respect, and that we are much closer to getting media attention than we were a year ago.

      In my view Bill’s approach to fiscal responsibility is just right. It is an old-style Democratic approach; a New Deal 2.0 approach. That approach is the future, especially after the neo-liberal austerity programs fall on their faces which should be apparent during the next 6 months.

    24. Geoff says:

      Tom Hickey

      You are on the right path with Lerner, Vickrey and Godley.

      They are related to MMT, but not the same.


      Wynne Godley

      “”Fiscal policy alone cannot, therefore, resolve the current crisis” –

      Read the whole thing.

      Godley’s SFC has some features in common with MMT as propounded on this blog, but also has important differences.

    25. bill says:

      Dear Piotrek

      You said:

      As a foreigner in US I can tell you that Yves is right, you don’t understand the political culture in US, how much to the right it is skewed.

      I pretty much agree with Yves about the points regarding popular culture in the US. I understand the influence that the Glen Beck’s and Fox News and the evangelical right have on political opinion in the US. It is fairly transparent. We also study American history and politics in depth in our schooling system here. So it is not that I do not understand what is going on in the US.

      It is just that as an academic I am not communicating with the popular culture on its terms. The battle of ideas is going to be not won by a single academic taking on News Limited and pitching the message at the level of sophistication they choose to communicate with.

      Further, ideas permeate slowly. MMT academics have been busy training PhD graduates who over time are taking academic positions around the place and spreading the word. We are doing work with select groups of influential people – for example, the Boston Teach-In last week. All these things will garner a base for the future. The battle of ideas is going to be a long drawn out affair and I won’t be leading the charge when the final skirmishes are being engaged. But perhaps my work which I will leave as a legacy of my research career will provide some of the ammunition. That is the way I see my role.

      best wishes

    26. bill says:

      Dear Ralph Musgrave (at 2010/07/10 at 2:20)

      If you are raising the debate that Randy Wray and I had with Malcolm Sawyer in 2004-2005 then you should also have provided a link to our reply. And you should have noted in particular the less than acceptable way that Malcolm chose to represent our views.

      Here is a working paper (free) of our reply which was published in the US-based Journal of Economic Issues in 2005. It will demonstrate how far fetched Malcolm’s very selective analysis was.

      In Defense of Employer of Last Resort: a response to Malcolm Sawyer

      In general, “progressives” like Malcolm are part of the problem not the solution.

      As to the “let’s print money like Mugabwe” – I have heard that all my academic career although it used to be like Weimar. At least the younger generation have a more modern demon to use. All I can say is that the neo-liberal era is enjoying its day in the sun. It has been a long 30 years in human suffering terms but a short period in the context of how knowledge paradigms evolve and fail. We have now had a major economic crisis in that time. And given the way the governments are now dealing with that crisis, another one is in the offing in the coming years. Eventually societies reject idea systems that don’t work. Neo-liberalism (and the print money epithets) will be rejected because they cause prolonged human suffering. Once that suffering penetrates the middle class, which it surely is as a result of the current crisis, the dynamic will start to change.

      Human history is replete with popular uprisings driven by misery.

      best wishes

    27. bill says:

      Dear Tom (at 2010/07/10 at 0:49)

      You said:

      That does not mean changing what one stands for or caving. It does means being diplomatic.

      My professional status is as an academic not as a member of the foreign service.

      I mean nothing personal against Yves. I think she does a great job. My point lies above all personal matters and relates to my conception of academic freedom and the role that I should play in the expansion of knowledge. It is for others to popularise or whatever the ideas that academic researchers generate. I am interested in knowledge and education not propaganda.

      best wishes

    28. bill says:

      Dear Peter Gray (at 2010/07/09 at 22:43)

      Thanks for your comment.

      You said:

      I’m a constant scanner of Naked Capitalism and an occasional scanner of billy blog. I think Yves has done a great job in some areas, but not in others. In this instance, I am really disappointed with Yves position, and wholeheartedly support your position.

      My post was not an attack on Yves personally. As you note she does a great job and I am glad she occasionally links to my site. My thoughts went beyond the personal plane. In general, I don’t attack people as people.

      best wishes

    29. bill says:

      Dear Ralph Musgrave (at 2010/07/09 at 18:33)

      You said:

      A problem with MMT as defined by Bill above is that it includes two quite different and independent ideas.

      The employment buffer stock capacity to provide the inflation anchor and create what we call “loose” full employment using JG is integral to the macroeconomics of MMT. It is what differentiates MMT from the earlier work that our macroeconomic thinking is derived from. It is anything but independent.

      best wishes

    30. “I consider that a sovereign government, which is not revenue-constrained because it issues the currency, has a responsibility for seeing that the workforce is fully employed.”

      Given: in the first instance, the point of the monetary system is to provision the govt/move real goods and services from private to public domain.

      Fact: taxes function to create what we define as unemployment- people seeking work paid in that unit of account.

      Fact: govt spending then hires those seeking said work/buys goods and services from those desiring the unit of account.

      For a given level of taxation, if the govt does not want to spend enough to satisfy the desire to get the funds to pay the tax and net save, it has the responsibility of cutting the tax until that point is reached.

      Why tax and then not provide the means to pay the tax and the residual savings desires?

      So yes, some form of full employment is an obvious ‘responsibility’ unless unemployment is a desired outcome.

    31. /L says:

      There is probably a difference between doing the political foot work and the academic to inform about ideological and scientific facts.
      If one wants to achieve political goals one has to adapt the strategy to the present political climate. As the neo-liberal revolution did. At the time 30-40 years ago the climate was much more leftwing, to be accepted in the general debate they had to be in the middle spectra. So they positioned them self’s in the middle but on the right edge; “see we are not extremists, we are in the middle just like you albeit somewhat to the right”. Bit by bit they moved the middle ground so their initial position today probably should have been considered on the left border of the middle.

      The neo-conservative revolution have been tremendously successful in achieving its goals, there might be one or two things to learn about how they did that. They did it in the world we live in today, in the modern framework.

      I don’t only know about USA what I read, but as I understand it it’s the republicans that have the grassroots movement. Chomsky made an interesting remark on the phenomena of right wing talk radio. He used to listen to them when he was driving. At start Chomsky’s liberal audience snigger when they heard about the airways of glen Beck and Rush Limbaughs but they soon have to choke it. As Chomskey explained ordinary people who are the victims of decades of neo liberal policies phone in with their problems and these fellows give answers relating to their problems. The answers is of course way of from what really is going on, but as Chomsky pointed there is really no one else giving any plausible answers to these people’s concerns. The American left (liberals) has long ago abandoned the working class, as the social democrats have in Europe.

      As someone explained about the election with Kerry. He fly in students from fancy east coast universities to campaigning in poor mid west and Appalachian towns to knock doors and persuade people to register and vote for the democrats. The republicans didn’t have to do that, they already had grassroots movement with presence all year around by for example local business people and so on.

      A while ago I did see some photographs of a tea-bagger demonstration, the usual stuff Obama is Stalin, Hitler and so on. Then there was some people with signs that said “don’t touch my Medicare”. I didn’t know much about Obama’s reform, so I thought they where ignorant, Medicare is a public program. But of course I was wrong and they were right to be concerned about their public health care put on the line by Obama.

    32. /L

      Right-wingnuts in U.S. has a well oiled propaganda machine. It has well financed think tanks and media noise machine behind it. Chomsky was right – the wingnuts crafted a message that appealed to working class whites – particularly males. They appeared to be the “answer” to the “welfare friendly, tax and spend” democrats and democrats and liberal establishment never responded.

      I am not sure what the answer is but my sense is that any real change is going to have to come from “grassroots” level. The battle is for the hearts and minds of working people of all colors. Crafting a message, supported by theory and facts, will be challenging but not impossible.

    33. Stephan says:

      I would like to add a short comment in addition to Bill “Dear Ralph Musgrave (at 2010/07/10 at 2:20) … Human history is replete with popular uprisings driven by misery.” Ralph you might want to reread Karl Polanyi “The Great Transformation”. At the end of the day society resists. Good night and good luck ;-)

    34. pebird says:


      I agree with many of the above comments that this is an excellent post.

      I have never agreed with the political view that progressives should tone down their demands to avoid a backlash from the inbred-right wing US populist mob. First of all, the right-wing US populist mob is to a large part a media creation, but even if one grants some Neanderthalic tendencies in US popular culture, it doesn’t matter if the neo-liberals and true progressives/left can’t agree on a program, we will never earn the right to be taken seriously.

      The neo-liberals are more dangerous than the right wing. They are an obstacle to progresssive change.

      When Yves says her blog skews left – I think it is more accurate to say that sometimes it skews neo-liberal – in some comments there is this idea that “hey we are professionals, we know how the world really works”, because they achieved some level of advancement due to their ability to work within the constraints of the system.

      I really disagree with the statement that “…many people here would rather suffer in the name of small government and their belief that government encroaches on personal liberties.” No, many people want OTHERS to suffer in the name of small government. Yes, having a fire department and police department and public water is a huge encroachment on my liberty – is that really a serious argument or just an excuse?

      You read comments where people say something along the lines that “you don’t understand, you just can’t trust government, they are too corrupt”. And everyone agrees. Then someone says that the US Administration should be investing more in green technology. And everyone agrees. We can’t find our ass with both hands. Once the neo-liberals figure out how to advance their personal careers with the Job Guarantee, then they will support it.

      The funny thing is that I think many who read NC would agree that people who have been tossed out of work due to this crisis should be provided some kind of unemployment compensation. Why is so hard to think that there should be a requirement to provide something of value (work) in return for that compensation? And then it is a short mental leap to the Job Guarantee.

      Of course, we can’t ask those receiving unemployment benefits to work, then they wouldn’t have time to search for a private sector job – so let’s just waste human resources, for some reason that doesn’t create inflation. But no one asks why.

      Anyway, enough of a political rant.

    35. Tom Hickey says:

      Bill at 5:22

      Bill, i think I said at least once that I take your response to Yves to be right on. What I said about being diplomatic is aimed at those attempting to present MMT strategically. I don’t think that MMT economists and academics should be concerned with strategy or diplomacy. They should by working at presenting a comprehensive understanding of monetary economics and macro, including the relevant policy options that this entails, such as using a JG as a price anchor. This has economic justification as I understand it, rather than being politically partisan, based chiefly on ideology instead of sound economic reasoning. Of course, it can also be viewed as normative, but economics is a normative science, as is political science, as they are currently practiced.

      Of course, as citizens, anyone can be as partisan as they please. But professionals should just aware of what hat they are wearing so they don’t become perceived as political flaks in their professional work, unless that is their intention.

      However, in the US, everyone is automatically cast in this light, regardless of their intentions and best efforts. Moreover, many professionals conceal what they really think to protect their investment. That is just wrong, and cowardly to boot. Of course, being disingenuous is despicable.

    36. anon says:

      Regarding Warren Mosler’s comment:

      That’s some pretty powerful logic. I gather it has Chartalist roots. Fiat currency is created as the means to pay taxes, unemployment interferes with the obligation to pay taxes; ergo, by logical and moral deduction the government has a first principles responsibility for full employment, etc.

      It’s obviously not the first time it’s been presented that way. I guess the only question is whether this logic is fully embraced without question by MMT. I believe it is.

      If it is accepted, then it simply becomes embedded as part of MMT, so much so as rejection of the money multiplier concept and recognition of unconstrained government revenue capacity, etc.

      In other words, this idea of full employment shouldn’t be a policy “option” under MMT. It should be a policy requirement of MMT and explained to Naked Capitalism and others as such. Then the policy options become things like the zero natural rate and no bonds, I guess. But you’ve got to be specific about policy requirements versus policy options. I don’t think MMT has been clear as it might be on that precise distinction.

    37. Tom Hickey says:

      anon at 9:13, I agree that MMT should be presented professionally as a comprehensive monetary and macro theory that has policy implications because it is sound economics.

      Strategically, it is unlikely that MMT would be adopted as a complete package short of a shock (depression) that elicited a strong public demand for implementation of a comprehensive solution immediately. That is a distinct possibility that is unfolding and we need to be ready if it does. In that case, I would recommend going even further in redesigning the monetary system in the US than MMT is proposing from the economic vantage. After all, MMT is describing the current system and its possibilities and policy implications. That system is not set in stone. For example the Federal Reserve Act dates to 1913. It needs to be completely revised and updated, if not replaced as many are calling for.

      Absent that transformative juncture, practical solutions that could gain traction, such as Warren’s proposals, are the way to go. I don’t see that as a cop out.

    38. Fred says:

      Will some kind soul please write what JG is.

    39. Frank Ashe says:

      @Alexis Jutras-Binet

      In regard to the CFA, I’ve presented MMT to Singapore CFA in June, and will be presenting to HK CFA in early September. A grass roots campaign is underway.

    40. bill says:

      Dear anon (at 2010/07/10 at 9:13)

      You said:

      That’s some pretty powerful logic. I gather it has Chartalist roots.

      If you go back to some of my basic posts – for example, the Deficit suite – (particularly Part 2) – Deficit spending 101 – Part 1Deficit spending 101 – Part 2Deficit spending 101 – Part 3 – the insights about taxes are all outlined there in detail.

      It is a basic aspect of MMT. Taxes create unemployment, and public spending then offers the jobs back.

      best wishes

    41. Spadj says:

      Dear Billl,

      On an offnote, would it perhaps be possible sometime where you could write a critique of this article on the necessity of public debt and its long-run viability: Aspromourgos A (Tony), Rees D and White G 2010 ‘Public debt sustainability and alternative theories of interest’, Cambridge Journal of Economics, vol.34:3, pp. 433-47. The abstract reads:

      “This paper reappraises sustainable trajectories of public debt and fiscal balance, with particular reference to the possible relations between the interest rate on debt and the growth rate of the economy. From the standpoint of the approach to the theory of interest proposed by Keynes—and, in a certain sense, also by Sraffa—the analysis opens up the possibility of sustaining permanent primary budget deficits. However, the extent to which this standpoint enables one to revise the spectrum of feasible empirical magnitudes for sustainable fiscal balances appears rather modest…”

      The last sentence to me seems problematic, and deploy some outdated gold-standard thinking.

    42. Senexx says:

      To state it broadly most of the Australian community would sit to the Right of the EUropean community and most of the American community would sit to the Right of the AUstralian community.

      We really should not get into what the Australian Demographic thinks of the United States political community.

    43. Tom Hickey says:

      Bill: “If you examine the body of work that has been produced by MMT writers, especially over the last 15 years you will find two consistent themes running through all of it – full employment and price stability. So this emphasis is not something I have made up as some sort of Antipodean curiosity, which reflects my obvious lack of awareness of what the (precious) US population might find to be acceptable. It is a core emphasis in all our work.”

      Randy Wray’s primer on MMT, Understanding Modern Money, is subtitled The Key to Full Employment and Price Stability. It lays out the paradigm in a form accessible to non-economists from the history of money and Chartalism to the Job Guarantee (JG) aka Employer of Last Resort (ELR) as providing a price anchor and its role in achieving price stability.

      Wray is an American professor, so there should be no question about MMT as a comprehensive program as presented in the US. Moreover, it is not concealed in a way that is available only to cognoscenti, the way much academic literature is. Moreover, there are many technical papers available free at The Levy Institute of Baird College, a US site. So it is hardly the case that MMT is in anyway unavailable in its comprehensive form there.

      It is true that many proponents of MMT emphasize certain aspects of MMT in interviews, but they are generally responding to interviewer’s questions, so their responses are necessarily limited. The interviewers don’t do their homework and do the relevant research, so the questions are generally things they want to talk about. Given this environment, its clear that MMT’ers are pretty limited in scope.

      In the blogs, the MMTer’s are quite up front about the comprehensive range of MMT, although, again, they tend to aim their posts, necessarily limited in scope, to areas that they know are of current interest.

      So apparently Yves isn’t very familiar with the MMT lit and blogging in making the criticism she did. Or perhaps she is. Many comments around the blogs are about MMT as operationally descriptive of the current monetary regime and banking system, which is germane to her interests, so she may have concluded that MMT is something less than it is. I can see where she might have gotten this idea. In fact, quite a few people think that MMT is just this operational description.

      MMT does indeed provide such an operational description. It picks up on Abba Lerner and is based on his functional finance. Chartalism long precedes MMT, and Godley developed the sectoral balance approach using accounting identities prior to MMT also. MMT’ers are also aware of and integrate “heterodox” ideas from Marx to Minsky. But what is original and unique is the way that MMT puts it all together as a paradigm for harnessing the power of government as monopoly provider of a nonconvertible floating rate currency for public purpose, which includes achieving full utilization/full employment along with price stability as a possibility.

      Doing less than is possible in this regard, either through ignorance or political favoritism, would be to forego huge opportunity at considerable cost and operate inefficiently and ineffectively. Thus the “should” is not only a moral imperative but also an economic and policy prescription that is reality-based, and neither ideological nor “theoretical” (hypothetical) in the pejorative sense of being based on untested assumptions. That is to say, the “should” is not an arbitrary ideological norm or a categorical imperative, but a hypothetical imperative based on inputs and outcomes.

      If people criticizing MMT bothered to read Randy’s primer, they would find at least the outline of this comprehensive paradigm for monetary economics and macro relative to policy. Bill lays things out in greater detail in the archives here in a way that is still accessible to non-economists. Those that care to go deeper, and are able to handle it, can read the professional literature. Criticizing MMT without doing one’s homework beforehand is not appropriate, IMHO.

    44. jrbarch says:

      Dear Bill,

      If the powers that be wanted to end wars they could do so, easily – via a simple and very inexpensive telephone call made right now – and for forever, if that is what they wanted. Or just change the Ministry for War to the Ministry for Peace with a tenth of the same budget and it would be a done deal; in fact they probably wouldn’t even need the budget – just leaving other countries alone to mind their own business could do the trick. Ditto for financial stability, or full employment for anybody that wanted a job. It could easily be achieved, along with thriving health, education, arts and sciences for example, if those powers wanted what people wanted, and people wanted these developments. But we all know leaders often have their own agendas, replete in a vacuum of ignorance and subsequent inflow of arrogance! They are not the long hoped for ‘enlightened’ leaders of populations. The GFC, recession and subsequent bailout clearly painted that message on the WALL (St.); and the propaganda and war machine hasn’t missed a beat since. As is often stated, financiers like volatility because they make money on both the way up and down, and industry likes a pool of cheap docile unemployed labour; governments become intoxicated by the illusion of power. We all know the bloody problems.

      In such a world you are absolutely right to shield your academic freedom. And use the sword to chop the economic myths to bits. As you are about human uprisings driven by (unnecessary) calamity and misery, engineered by dull human stupidity.

      The simple fact is that people need to wake up to what is going on around them and anything that lends to that awakening helps! Anybody that says anything to this end in their own way, need not be meddled with or criticised (given if they have that much understanding 99% of the time they will learn from their own mistakes). It is more important people take heart, speak out, and play an active role in the world of which they are a part. And in which, they find themselves reflected!

      Cheers ….


    45. Fred says:

      Thank you Tom!

    46. Peter Gray says:

      I find one aspect of this episode with Yves particularly frustrating.

      The Economics profession has been in somewhat of a tizzy, particularly after the Queen of England asked the LSE “Why didn’t you see it (the GFC) coming?”. The point here is that economics, as a discipline capable of explaining the potential results of policy choices, is in total disarray. We have Paul Krugman often taking pot-shots at the “Fresh Water people”, and so on. All the way down the line – the old saw “Ask two Economists the same question, and get three answers” is another illustration.

      In the hard sciences, you don’t get arguments about what will happen if you, for example, put together a critical mass of U235. You might get arguments over details, but not the basics. Economists tend to hide behind the “you can’t model human behaviour” excuse – sorry, I don’t buy that – if it is not a dependent variable, then you have to measure the damn thing.

      Recently, Soros promoted the INET conference in the UK in an effort, as I understood it, to bring some coherence to Economics. But that seems to have gone nowhere.

      There is no simple way to assess the total human misery caused by the Global Financial Crisis. But it should be very clear to everyone that humanity is at a point where we urgently need adequate tools to manage our Economy.

      Under these circumstances, it is totally inappropriate to brush off any serious effort to contribute.

    47. Mason says:

      Hey Bill: I ready your blog daily and enjoy it. I have to say though I need an answer from you if MMT as you envision it is going to be taken seriously in a practical sense. In the US, the long term debt is a problem – it seems that simply printing $ and paying it off would lead to unacceptable inflation – can you provide the MMT point of view for a strategy to get the US out of debt? (that is add a 3rd view to the Krugman v. Neil Ferguson debates!).

      Also – is there an example of a government that uses MMT as you envision it?

      Metta – Mason

    48. anon says:

      Bill (Saturday, July 10, 2010 at 12:43)


      By coincidence, I happened to come across the following piece on deflation risk, which happened to be lauded by Krugman. It is an unbelievably wretched, money multiplier based interpretation of the crisis, all the more tragic for its potential to look in the right spots for the questions and the answers, but with a totally malfunctioning flashlight. I mention it because it seems to me MMT still has a gargantuan task ahead in attempting to convert mainstream economic thinking on the most rudimentary aspects of MMT accounting based analysis. That makes the analytic/policy nexus all the more difficult in terms of effective communication of what MMT is.


    49. Alan Dunn says:


      MMT does not advocate the printing of money so I’m not sure why you assume that it does.

      With respect to your own analysis:

      What level of debt constitutes a problem for the USA and how have you calculated the unacceptable level of inflation ?

      I’m not clever enough to completely understand the dynamics of inflation so if you could explain it for me I’d really appreciate it.


      Alan Dunn

    50. Tom Hickey says:

      Mason @ 20:44,

      Randy Wray already provided it. See his post at New Economic Perspectives, Memo to Congress: Don’t Increase the National Debt Limit.

      Hint, under a nonconvertible floating rate monetary regime, a monetarily sovereign government that is the monopoly issuer of its currency does not need to fund itself with taxation or finance itself with debt. Debt issuance is voluntary — a political choice. Congress could just end debt issuance, if it thinks the national debt is a problem.

      Bill suggests doing this anyway, because debt issuance is not necessary to advance public purpose and is a government favor benefiting special interests, hence a form of subsidy (dead weight).

      What about the debt already in existence? Treasuries are just savings accounts at the Fed that store reserves in another asset form that pays interest. The Tsy’s were bought with reserves and when they are cashed, the stored asset (an interest-bearing security) is just shifted back to a liquid asset (bank reserves in an account at the Fed and bank deposits in the private banking system).

      This is just much ado about nothing. Krugman should know better. Ferguson is just talking his own conservative book.

    51. Hi Spadj

      I would refer you to my paper, “Interest Rates and Fiscal Sustainability,” from 2006 at (WP 53) for an integration of MMT with the “sustainability” literature that is based on the intertemporal budget constraint. I haven’t read that precise paper, but I’ve seen earlier versions by same author, and I think your concerns are warranted. My recollection was that the author(s) presumed the cb couldn’t have any control over interest rates, though perhaps I’m mistaken (it’s been a few years).


    52. Roger Erickson says:

      government” is anything other than “us” ???

      regarding all the hoopla about how the median US voter would not countenance a “government” dictating full employment – that also is a non-issue, or at least only a tempest in a teapot; despite such pronouncements, when actually given options, electorates have always been found to be unpredictable

      Small minds are forever presuming that “government” is anything other than “us”.
      There was a great joke on this in some B-grade movie years ago, where two rednecks muttering in a cafe are heard to say “Before you know it, the government will be running the whole damn country!”

      That is, of course, exactly what George Washington & Tom Jefferson et al intended.

      Ironically, we actually do have a lot of small minds actually upset with the prospect of their compatriots telling them that voting might someday be compulsory! Some Texans have actually been known to get it confused with something known there as “habeus corpus christi” – as in, “You have the right to remain silent ….”

    53. Robert Dudek says:

      I’m curious,

      Since federal budget deficits are meaningless, wouldn’t it be a good tactic to phase out federal income tax while continuing to spend to create needed demand? This would be highly popular in many quarters of the populace.

    54. Piotrek says:

      Even if you want to talk over the mass-culture fray, my advice would be to take into account biases of the audience. And Americans have a Pavlov-effect-like distaste for anything government. They have been trained to, it is part of the culture now. It will apply even to rational, successful people.

      My advice: craft your message to the cultire of the audience. I wouldn’t start with Americans by telling them the govt. should run a jobs program, even if it was the centerpiece of my theory :)

      Best regards.

    55. nikhil says:

      As an American I can say that it is not necessary to abandon speaking about full employment or a JG to make the ideas of MMT popular over here. I agree that the electorate skews rightward especially on economic issues, but there are ways to appeal to these people. Just reframe the JG as a “welfare to work program”. This can be said for unemployment payments as well. When describing all one has to say is “Would you rather these people have HANDOUTS (This is the best code word ever for right-wingers) or have to work for their government subsidy?” The answer will be obvious. A lot of what motivates these peoples’ anger towards the unemployed is the notion of a “free lunch” off “their” tax dollars. Explaining to them the mechanics of MMT may not go far until that emotional argument is blunted. Like I said a simple re-framing, speak to them through their prejudices and fears and you will get far.

      Anyway to the larger argument. I agree with Bill the way to advance these ideas is not his job. Let politicians come up with ways to make it palatable to large segments of the population, that is their job. Personally I find the candor and intellectual honesty of this blog refreshing. Wat is great about this writing is that it is actually creating a language to combat neo-liberal ideology . In a way that puts them on the defensive and without accepting their assumptions.

      I say keep up the good work. Go for the throat with your writing it is refreshing. Not many institutions, on the web or otherwise, have the guts to present ideas without obfuscation or pandering and let the chips fall where they may. Especially in the United States where much of the discussion is worried about who’s toes you might be stepping on rather than what is said. Kudos to Bill for having the guts.

    56. Buck says:

      “And invoking the fact that UN charter dictates this or that, and that US should follow UN on anything reveals your total political naivete. UN is the poster straw man in US, it has no credibility with Americans whatsoever. You cannot do worse than invoke a UN-made recommendation in a political discussion in US.”

      I don’t mean to be the snarky American here, but I must second the above statement. I absolutely laughed out loud when I read the UN Charter argument.

      Otherwise I agree with you, Bill.

    57. Puzzle says:

      American right-wing demagogues have a hidden source of power, one that never runs out. It’s called racism, a deeply hidden racism that is never brought out or admitted. They are ready to do anything, lie and cheat to advance their agenda and they gather large number of “true believers” who are simply easily persuaded by this type of propaganda.

      The way racist people think is exactly opposite of the liberals – when liberals want to help people, racist people would like to hurt people. This mindset is so alien to normal people they just cannot understand any of it.

      That is why they will never give up, even a small victory is step to right direction, and policy can never be right enough, until poor minorities just die of hunger and disappear. :(

      It is so unfortunate that this whacko country defines normality in economics and holds all important economic institutions – world bank, IMF, wto etc.

    58. Tom Hickey says:

      @ Puzzle

      Unfortunately, this is the not so hidden dynamic driving US politics and therefore policy. Much of the right wing talk is coded if not actually blatant. Minorities found no savior in a minority president, who has to play the political game involving money, and identity and interest politics.

      Yet, on the bright side, the US is becoming highly integrated. This is a typical historical dialectic, and multicultural is winning in the US. In a generation or two, it will be dominant, just as women have been successfully integrated, albeit not without great travail either, and discrimination lingers on that front, too.

    59. Blissex says:

      «Since federal budget deficits are meaningless,»

      This is classic corporatist/extreme right propaganda (see Reagan, Cheney and many others).

      That’s a very wrong statement and has nothing to do with MMT. They are far from meaningless, from the *fiscal* side, the demand management side, just meaningless from the *monetary* side. That is how they are financed is sort of irrelevant.

      They are not at all meaningless as to management of resource allocation.

      «wouldn’t it be a good tactic to phase out federal income tax while continuing to spend to create needed demand? This would be highly popular in many quarters of the populace.»

      This is classic extreme right propaganda too.

      Sure it would be popular with the wealthiest who own a lot of real goods who would appreciate from the resulting inflation, and who pay more tax as they spend a lower proportion of their income.

      Federal income tax has the purpose of suppressing demand, and since the highest earners save more, they got to pay more tax (the millionth dollar is a lot less useful than the ten thousandth).

      Extremist right propagandists always call the the abolition of the federal income tax, which is one of the smaller tax burdens, one with the least influence on aggregate demand, and the only one that is not grossly regressive. Strangely those propagandists never call for abolishing sales taxes (which hit the poor most) or payroll taxes (which hit the low paid the most).

      Anyhow in the perspective of MMT taxes are fully justified as nominal demand suppression, to prevent inflation, and government spending is more effective at stimulating nominal demand, especially if in transfer to people who spend of their income.

    60. Nathanael says:

      “But apparently, most people in the US would “reject the idea that government should play a role in assuring full employment, much “has a responsibility”. Well we might just ask what the hell has gone wrong with the US education system if that statement is true.”

      200-year campaign by the rich and powerful for their own benefit, to put it simply. You’re an economist, but this is an essentially political problem. They’ve convinced all too many Americans that allowing big business to poison their water — POISON THEIR WATER — is morally good, so a little thing like convincing people that full employment is a bad idea and should not be pursued by the government is easy for them now.

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