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What you consume or what you produce?

For some time I have been promising to write a blog about the role that manufacturing plays in a modern economy. There is a strong presumption, especially from the progressive side of the political debate that manufacturing – or what you produce – defines the capacity for a nation to enjoy growth in real wages and therefore standards of living. So when I have said in the past that I am against industry protection I usually get attacked from the left and I note that this if often coming from people who think it is cute to sound technical by saying the government should balance their budget over the course of the business cycle. As if! Neither viewpoint coming from that quarter has much credibility. I take a more experiential viewpoint. People prefer to consume than to work. What we consume is more likely to give us joy than what we produce especially if the latter is in the context of exploitative capitalist production relationships. I am painting this in black and white terms to garner your interest. Clearly it is more complicated but in general I do not think you need a manufacturing sector to enjoy strong growth in material living standards and perhaps a polluting manufacturing sector erodes the capacity to enjoy broader concepts of growth and well-being. My flame resistant suit is now in place … so here goes.

I also don’t think you should see this as my definitive statement on the matter. I am just musing today – looking back through old notes and snippets from the press.

A related argument about manufacturing concerns phobias about trade. This blog is not extolling the virtues of free trade. I support fair trade only. That is the topic of another blog.

But from a monetary perspective I don’t think worrying about external deficits is valid. I would rather advocate the enjoyment of advantageous real terms of trade while you can because if the situation ever turns sour (as foreigners start losing their desire to accumulate financial assets denominated in your currency) and the currency depreciates then you have to make corrections in your real living standards and these adjustments might have to be made rather quickly if the exchange rate depreciates quickly enough.

But I live in a nation that has made its wealth independently of manufacturing and experiences very large terms of trade fluctuations regularly. While there are distributional consequences of this our long-term per capita living standards have not been severely impacted relative to other nations. The evil hedge funds have not destroyed our floating currency and our lowest exchange rates have been associated with record budget surpluses. There is no statistically significant relationship that has been found between the fiscal stance and movements in our exchange rate. That result broadens to all nations.

I also note a commentator made the point the other day that considering exchange rate adjustments to be an aid to an external balance was a neo-classical solution and therefore the implication was that it was a morally bereft position to take for a progressive economist.

However, Modern Monetary Theory (MMT) considers floating exchange rates to be the only way to maximise the potential of fiscal (and monetary) policy in pursuit of domestic public purpose. Once a nation ties its currency to any arrangement with another country, full currency sovereignty is lost.

But it is not an exclusively neo-classical (that is, mainstream free-market) position to note that price adjustments invoke quantity changes. All economists understand that impacts emerge from changing prices and changing incomes. The neo-classical position is to maintain that the price responsiveness is much stronger than the income effects whereas the “Keynesian” position is the reverse.

So in acknowledging that movements in exchange parities (for example, a depreciation) may improve the trade prospects for the export sector and choke off some import demand is in no way a “neo-classical” position. They do not have a monopoly on recognising relative price movements as being capable of impacting on real demand and supply.

Further, one of the sub-themes here is that the austerity push in the Eurozone at present is predicated on a naive belief in trade-led revivals with competitiveness in manufacturing seemingly paramount in this strategy. I plan to examine the Eurozone situation soon – I am just accumulating data at present.

The short insight is this: despite their harsh attack on standards of living in some of the weaker EMU nations or exchange-rate tied neighbours, there is very little evidence that the strategy is working and lots of evidence to say it is not. Real terms of trade are not moving very quickly in their favour and exchange rate movements between the Euro and other non-Euro (non-tied) currencies seem to be more important than domestic cost pressures in determining competitiveness.

In the New York Times (September 4, 2010) Thomas Friedman’s article – Superbroke, Superfrugal, Superpower? – argued that the world of “too little American power” was “coming to a geopolitical theater near you”. Friedman said:

Yes, America has gone from being the supreme victor of World War II, with guns and butter for all, to one of two superpowers during the cold war, to the indispensable nation after winning the cold war, to “The Frugal Superpower” of today. Get used to it. That’s our new nickname. American pacifists need not worry any more about “wars of choice.” We’re not doing that again. We can’t afford to invade Grenada today.

This sort of stuff could only be written by an American in denial of reality and in the sense that he invokes fiscal statements (being able to afford to invade Grenada) he also demonstrates his lack of knowledge of monetary systems.

Please read my blog – It will only take 6 months – for the last time I bothered to comment on Friedman’s opinions.

The only reason America might not be able to afford to invade Grenada is because they have used up all their real resources (unlawfully) invading several other countries.

Friedman claims that the US cannot afford these wars anymore and he quotes from a recent book:

This — on top of all the costs of bailing ourselves out of this recession — “will fundamentally transform the public life of the United States and therefore the country’s foreign policy.” For the past seven decades, in both foreign affairs and domestic policy, our defining watchword was “more,” argues Mandelbaum. “The defining fact of foreign policy in the second decade of the 21st century and beyond will be ‘less.’ ”

When the world’s only superpower gets weighed down with this much debt — to itself and other nations — everyone will feel it. How? Hard to predict. But all I know is that the most unique and important feature of U.S. foreign policy over the last century has been the degree to which America’s diplomats and naval, air and ground forces provided global public goods — from open seas to open trade and from containment to counterterrorism — that benefited many others besides us. U.S. power has been the key force maintaining global stability, and providing global governance, for the last 70 years. That role will not disappear, but it will almost certainly shrink.

The US has incurred significant “costs of bailing” themselves out of the recession in the sense that they are leaving a significant proportion of their productive resources idle. This waste is the cost and it would have been better if the idle labour and capital was in use.

In other words, fiscal policy has not been expansionary enough to incur enough “costs”. The numbers on the budget spreadsheet which Friedman and his ilk always invoke in these sorts of discussions are not costs at all. There is no opportunity cost in the government writing a number in its budget. Only when these spending flows engage real resources do you start measuring the cost!

Further, apparently this decline in America’s capacity to continue in its role as global governor or peacemaker will make “the world will be a more disorderly and dangerous place …”

You mean that the last 10 years of US interaction with the rest of the world has been making it a safer place? If the US does reduce its martial excesses around the world perhaps some degree of peace will emerge. But this is off my topic and distant from my actual professional expertise so I will just leave that.

As a non-American I reject the martial influence that the US government imposes on us in the name of peace and freedom. I would recommend they withdraw their troops from all foreign soils and defend their own borders and spend the military budget on helping nations achieve full employment. I may write another blog someday about the relationship between unemployment and terrorism!

Anyway, the reason Friedman’s article took my eye is because in proposing “(h)ow to mitigate this trend” Friedman says:

… we need to get ourselves back on a sustainable path to economic growth and reindustrialization, with whatever sacrifices, hard work and political consensus that requires.

Reindustrialisation – promote the growth of manufacturing as the engine of growth. This argument comes up everytime there is a recession. Each time it is largely flawed.

But it remains a powerful “working class” narrative and allows all sorts of racist and xenophobic arguments to command “respectability” in the public debate. Almost all the arguments are spurious.

Former Cambridge economist, Nicholas Kaldor set out four observations which became known as Kaldor’s growth laws, which supported the proposition that a nation’s standard of living depended on its level of industrialisation.

Three nations defied these laws – Australia, Canada and New Zealand – which became and stayed rich by exploiting agriculture and primary commodities in general. That is a strong lesson which is normally ignored.

Kaldor’s growth laws (which were just correlations) indicated that:

  • The growth of the GDP is positively related to the growth of the manufacturing sector (the share of industry in GDP is rising).
  • There are increasing returns to manufacturing (Verdoorn’s Law) – so the larger the sector the lower the average costs with learning by doing an important source of these gains.
  • The productivity of the non-manufacturing sector is positively related to the growth of the manufacturing sector. Allegedly, the non-industrial sector has diminishing returns to scale so if increase all inputs proportionately, you get a less than proportionate increase in total output.

Kaldor also extended the notion of circular and cumulative causation that had initially been developed by Allyn Young. The basic argument is that the process of industrialisation is cumulative. So capital goods manufacturing precedes consumer goods production and the economy moves from local sale to export sale.

Of crucial importance to this cumulative causation process is the primacy of manufacturing. The argument is based on the idea that only manufacturing can exploit the division of labour that growth permits and that increasing specialisation benefits the wider economy. This was the basis of explaining the benefits of vertical integration.

Ultimately, the growth of manufacturing drives the entire economy and increase productivity growth in other sectors via technological change. Specialisation generates increasing returns (unit costs fall) and strong complemenetarities via learning by doing.

Once products are cheap enough and of sufficient quality, then export markets open up and provide a relief from the saturated local markets.

This is what was considered to be a virtuous cycle where productivity increases would drive costs lower which would stimulate further growth as long as aggregate demand was strong enough to absorb the production.

Ultimately, export-led growth models are traced back to this (flawed) idea. There was not real understanding presented as to how this process evolves.

Further, Kaldor’s observations were never concretely established by the empirical literature. You might want to read the article in the Economic Journal in 1975 – What Remains of Kaldor’s Law? – by fellow Cambridge economist Bob Rowthorn who was also sympathetic to Marxian interpretations.

In explaining how Kaldor “found a strong positive relationship between productivity growth and employment growth in manufacturing”, Rowthorn shows how Kaldor “followed an inappropriate statistical procedure” and “he used a misleading sample of countries”.

More recently, many progressive people were influenced by the 1987 book (published by Basic Books) Manufacturing matters : the myth of the post-industrial economy written by Stephen Cohen and John Zysman. Their basic argument is that manufacturing and services are complementary (whereas other progressives argue they are substitutes) and so without a strong manufacturing sector you cannot have a sophisticated services sector.

In Chapter 2, Cohen and Zysman argue that:

There are … other kinds of linkages in the economy, such as those which tie the crop duster to the cotton fields, the kethchup maker to the tomato patch, the wine press to the vineyards (to return to our focus on agricultures [as a parallel]). Here the linkages are tight and quite concrete … the linkage is a bind, not a junction or substitution point. Offshore the tomato farm and you close or offshore the ketchup plant. No two ways about it.

In his book Protectionism (page 114), Columbia University’s Jagdish Bhagwati noted that as he read that paragraph he was eating his favourite English marmalade and wasn’t aware that “England grew its own oranges”.

But the debate is regularly aired. In the recession of the early 1980s, it was fear of Japan and the NICs (South Korea, Singapore, Hong Kong and Taiwan). Today it is China and India.

In the early 1980s, for example, the former US Vice President, Walter Mondale, who at the time was lobbying to become the 1984 Democratic Presidential nomination was a pursuing “a more strident and protectionist theme” than in his earlier days.

The New York Magazine (January 30, 1984) ran a story – Is Mondale the Man and recounted how in the early 1970s he was a free trader but by the time he sought the Presidency as a Democrat he had become converted to “protectionism” as part of his “new look”.

In 1970, he was quoted as saying “Protectionism is no solution … [it’s a] … Pandora’s box … ]that] … openly invites higher prices to the American consumer and serious retaliation.”

By 1984, he was quoted as saying “I am not a sucker … From now on it’s going to be fair … We’re all going to play on a level table … If they lowball us, we’re going to lowball them.”

On October 13, 1983, the New York Times ran a story – Washington: Mondale’s Tough Line – where Mondale outlined his protectionist stance. He said:

We’ve been running up the white flag when we should be running up the American flag … What do we want our kids to do? Sweep up areound the Japanese computers?”

Interestingly, Mondale later became the US Ambassador to Japan in the Clinton Adminstration and was full of praise for them.

Consume or produce?

Is it necessary to produce goods if you can consume them via trade? Much of the argument rests on whether there are learning and efficiency gains in services. The cumulative causation argument suggest that firms improve by receiving feedback from customers and if this capacity is spatially separated quality suffers.

Hence you need to have a localised manufacturing sector.

This is another positive externality generated by local high technology manufacturing. It is also an important feature of localised clusters which are either horizontal or vertically integrated along the production chain.

Clustered development is said to further entrench the increasing returns to scale and the transfer of knowledge and provide competitive trade returns.

But it is not clear whether the production and the specialised services (design, etc) are the source of the gains. It is true that a lot of the now outsourced services were formerly part of the manufacturing firm and service-based firms (engineering, design etc) are still dependent on the production-segment of the industry for growth.

In the UK Guardian last week (August 30, 2010) Jagdish Bhagwati wrote that There is no proof that economic health depends on manufacturing. His argument is that there is no solid evidence and indeed conflicting evidence relating to this proposition.

Bhagwati said:

Economists long ago put to rest the error that Adam Smith made when he argued that manufacturing should be given primacy in a country’s economy. In the second volume of The Wealth of Nations, Smith condemned as unproductive the labours of “churchmen, lawyers, physicians, men of letters of all kinds; players, buffoons, musicians, opera-singers, opera-dancers, etc.” We may agree with Smith (and Shakespeare) about the uselessness of lawyers, perhaps, but surely not about Olivier, Falstaff, and Pavarotti. But the manufacturing fetish recurs repeatedly, the latest manifestation being in the United States in the wake of the recent crisis.

He reflects on Kaldor’s law and says that the observations were “clearly at odds with the massive technical changes sweeping across the retail sector, and eventually the communications industry, which soon produced Fedex, faxes, mobile phones, and the internet.”

You might want to read an address that Bhagwati gave to the World Trade Organisation in 2007 where he outlines the “semiconductor chips versus potato chips” argument that also is rehearsed in the Guardian article.

He notes that semiconductors are “fitted onto circuit boards in a mindless, primitive fashion” while potato chips can be “produced through a highly automated process”. But this impacted on the consume or produce argument. He said:

Many proponents of making semiconductor chips also presumed that what you worked at determined whether, in your outlook, you would be a dunce (producing potato chips) or a “with-it” modernist (producing semiconductor chips). I have called this presumption a quasi-Marxist fallacy. Marx emphasized the critical role of the means of production. I have argued, on the other hand, that you could produce semiconductor chips, trade them for potato chips, and then munch them while watching TV and becoming a moron. On the other hand, you could produce potato chips, trade them for semiconductor chips that you put into your PC, and become a computer wizard! In short, it is what you “consume”, not what you produce, that influences what sort of person you will be and how that affects your economy and your society.

I have some sympathy for this argument and will elaborate on it in later blogs (if I get time).

The vital part of the argument that I support is that increasing returns, cluster development etc can also come from within the services sector.

While many believe that nations can only support the growth of high value-added services if they also have strong manufacturing sectors the evidence is not convincing. In the past, the computer industry has been cited – that was before the manufacturing part was shipped off to China and India.

Please read my blog – Protect your workers for the sake of the nation – where I promised to consider this issue.

It is often thought that the rise of manufacturing sectors in poorer nations steals jobs from the richer nations. So at present China is undermining the opportunities for industrial workers in the US and elsewhere. But this ignores the fact that “a majority of China’s exports to the US are produced by US-funded companies and huge profits go back into American pockets … half of China’s exports came from the processing trade — where imported components were assembled at factories in China and 60 percent were made by foreign-funded companies or joint ventures with foreign partners” (Source)

Some US researchers at UC Irvine studied this question and in 2009 published – Innovation and Job Creation in a Global Economy: The Case of Apple’s iPod. They examined who benefits when there are large investments in new technologies and infrastructure in a global economy.

They were seeking to see whether investment in the US (perhaps as a fiscal stimulus measure):

… will create more jobs outside the U.S., because many high-tech products currently are manufactured offshore … The same could turn out to be true of alternative energy, hybrid/electric cars, and other new technologies. While these investments have other merits beyond their job-creation potential, it is worth looking at how innovation in a global economy creates jobs in the U.S. and elsewhere.

They used the iPod as a case study and “looked at which companies and countries capture financial value” from their production. They found that in 2006, iPod’s “accounted for about 41,000 jobs worldwide” (27,000 outside the US). The “offshore jobs are mostly in lowwage manufacturing, while the jobs in the U.S. are more evenly divided between high wage engineers and managers and lower wage retail and non-professional workers”. China had the largest share of off-shore jobs.

They found that “the iPod supports nearly twice as many jobs offshore as in the U.S., yet wages paid in the U.S. are over twice as much as those paid overseas.”

In relation to who benefits overall, they found that:

We found that the largest share of financial value (defined as gross margin) went to Apple, which captures a large margin on each iPod. Although the iPod is assembled in China, the value added in China is very low … So it appears that innovation by a U.S. company can benefit both the company and U.S. workers, even if production is offshore and foreign suppliers provide most of the inputs. However, there is no guarantee that U.S. firms will keep engineering and other white collar jobs in the U.S. in the future.

The computations on a $US300 iPod suggests that China retains $US4 of value-added yet the whole value is billed against China’s exports.

So the real debate in this situation might be about a fairer distribution of income within the US and more public employment rather than seeking to constrain trade.

It is clear that once the computer industry split its high- and low-wage components across national borders that the traditional manufacturing arguments about clusters etc faded.

Even the claims (by people influenced by the likes of Michael Porter in the The Competitive Advantage of Nations that linkages between the production and associated service have to be within national borders do not bear scrutiny. Sure enough the development of a product usually requires an accompany service to be established (equipment servicing, systems design and maintenance, training, consulting etc).

But it doesn’t matter where the good is manufactured for this service function to be viable. We make very few cars in Australia relative to the total market but there is a huge service sector associated with the motor trade.

Even the development of so-called service-enhanced products is not dependent on having a local manufacturing sector. Companies can specialise in design, customisation, delivery chain dynamics etc and sell those services locally or abroad. The cluster can be within or across national borders. These high level services are more likely to emerge in a nation with a strong commitment to public education than one which adopts fiscal austerity strategies and dumbs-down its workforce in a race to the bottom.

Trade and Protection

Many progressives (and others) think that manufacturing is an essential vehicle to improve trade deficits, which they erroneously consider to be problematic.

It is a reality that currency speculators will usually chase relative margin. But the notion that a current account deficit is something that is a problem is well-rehearsed in the orthodox economics literature and public debate.

We have been instilled with the notion that exports are ‘good’ and imports are somehow ‘bad’. However, if we take a material perspective (which all economic measures do and this debate is no exception) then exports are a real costs and imports are a real benefit. If we can persuade the rest of the world to send more ships packed with goods to us than we have to send to them then we are relatively (in real terms) better off!

So to repeat: exports are a cost. They constitute real resources that we send away and cannot consume ourselves.

The issue about us buying imports is this. If we buy more imports than we sell in exports then in net terms we are using up ‘purchasing power’ and that means that we will not have enough private spending capacity to purchase all of the domestic goods and services which we could produce if we fully employed everyone and everything (capital).

The solution – the national government has to run budget deficit (net spending) of sufficient magnitude to fill this spending shortfall. The benefits of this are obvious but typically lost on neo-liberal economists: (a) we have full employment – only frictional unemployment of short duration remains; (b) we enjoy the benefits of higher government spending – both households and private producers benefit from better infrastructure, better public services, and such AND/OR we enjoy lower taxes; (c) we enjoy access to the commodities from abroad – that is we can consume BOTH whatever we can produce AND whatever the rest of the world wants to (net) send us.

That does not sound like a trade rut to me. A rut is something you never want to get stuck in. The only problem with the deficit in net exports is that the Government does not have an appropriate policy response – it should be running higher budget deficits to ensure there is sufficient aggregate demand to plug the output gap and thus push us to full employment.

And what of the warning about currency markets abandoning our currency? From a ‘money’ perspective, the fact we can ship less and receive more (trade gap) reflects the fact that foreigners have a current desire to net save in $A financial assets. The only way they can realise this desire is to net export to us hold the net $A as cash or financial securities denominated in $As.

It does not have any connotation that we are dependent on foreign borrowing to maintain our ‘profligate’ importing. It just means that offshore investors want to hold $A financial assets. Our trade gap ‘finances’ that desire. Everyone is better off! We get lower priced imports provided as foreign producers compete among each other for our business (to get the $A).

So what about when they ‘abandon’ the $A? Despite all the fear rhetoric that pours out daily from the spokespersons with vested interests from the financial markets, all they are saying is that there may come a time when the foreign investors lose their desire to hold $A which means they will either spend them here or not sell us products to begin with – which means the current position we enjoy in real terms (more imports, less exports) will move more towards a balanced trade position.

It could mean some adjustment in foreign currency markets as the $A is sold down – this is reality but not a financial crisis for Australia. It just means it is harder to buy imports at the previously attractive terms.

In my view progressives (including many Post Keynesians) also get it wrong. They talk about ‘exporting jobs’ to cheap labour countries. Domestically, the appropriate use of fiscal policy (deficits) is the way to ensure that we all have enough spending power to purchase both our own full employment output and anything the foreign sector may wish to sell us to meet their savings desires.

If we do not like the labour or environmental practices of some of our trading partners then we can deal with that by government to government dialogue, which may mean the Australian Government (legitimately) bans some imports and/or provides consumers with adequate levels of education and information so that we will also not purchase unfair traded goods.

Is there any role for tariffs? Not generally, they are massive profit subsidies to capitalist interests and provide disincentives to invest in best practice, high productivity, high real wage capital.

Some industries might be considered to be of strategic importance – such as the steel industry – in times of war you need to build tanks (do you anymore?). In that case, tariffs still are not useful. Once again a straight Government decree that defence contractors have to buy local steel would be sufficient. Non-strategic steel would then be cheaper but we can still wage our wars!

In the late 1970s a major Australian government report (I can no longer find the reference to it) said that the levels of protection to car manufacturing in Australia were so high that the Australian government could “save” outlays by closing the industry down and paying the same wage bill to the workers. Meanwhile all the rest of us consumers were getting cars that were of no quality or reliability match to the Japanese imports.

I also think that as a private capitalist industry closes and moves to where there is cheaper labour that presents an opportunity to the nation to harness that labour in more productive and forward-looking sectors. It does require a policy framework based on what I have called a Just Transition approach.

Economic restructuring at a regional level is always painful and the decline of manufacturing usually hurts specific cities/regions. In a Commissioned Report that I co-authored modelling the transitions away from coal-fired power to renewables, we noted that a just transition policy recognises that people and ecology are both important.

But in general, the just transition policy approach can be applied to any industrial restructuring. A just transition ensures that the costs of economic restructuring and the shift to new industries do not fall on workers in declining industries and their communities. A just transition in any declining region requires government intervention and community partnerships to create the regulatory framework, infrastructure and market incentives for the creation of well-paid, secure, healthy, satisfying environmentally-friendly jobs with particular attention to appropriately meeting the needs of affected workers and their communities.

Please read my blogs – The Budget (what else) and a parrot or two and Would the Job Guarantee be coercive? – for more discussion on this point.


I recognise that this debate is an emotional one and this blog doesn’t address all issues.

But I agree with Bhagwati’s sentiment that “financial services are unproductive – even counterproductive – and need to be scaled back by governmental intervention” but as he says this does not make a case for expanding manufacturing again.

As he notes:

Even if you wanted to curtail financial services, you could still focus on the multitude of non-financial services. Diesel engines and turbines are not the only alternatives; many services, like professional therapy, nursing, and teaching are available. The case for a shift to manufacturing remains unproven, because it cannot be proved.

Most advanced nations have seen a sharp shift in the composition of industry towards the services at the relative (and in some cases absolute) expense of manufacturing. The approaches by governments in different cases has been very significant.

In the Anglo-speaking nations we have seen the services sector largely develop as a low-wage, precarious employment sector with little innovation or clustering. Most of the service sector growth has been in the private sector.

In nations like Norway, they have seen a rapid rise in the service sector too. But the government has played a major role and created many high-skill, well-paid and secure service sector jobs in the public sector which have allowed complementaries and productivity gains to be made elsewhere in the economy.

This should be the focus on nations rather than become obsessed with keeping dirty jobs that only involve them in a race to the bottom with developing nations like China in terms of wages and conditions.

That is enough for today!

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    This Post Has 126 Comments
    1. Further to my above comment, in order to get inovative new technologies to market what is needed is patient capital not more capital. What is needed is for venture capitalists to put in $1M a year for ten years so as to at the end have a $100M company. Having a glut of capital does not lead to patient capital. A glut of capital actually of itself creates distracting get rich quick speculation opertunities due to asset price volatility.

    2. Dear Bill,

      In giving that example, you are making a statement that external debt doesn’t matter (even if denominated in the domestic currency). Right now the external debt is 56.2% ? Your strategy will just make this number grow higher and higher. However by saying that one shouldn’t worry about ratios, and that resources are important, you are avoiding talking of this altogether. How far can this number grow – 100%, 200%, 300% ? No limits on this ? Any mechanism to keep this number under control ? As far as I know net exports are the only way to bring any reversal. A miraculous way of this happening is if foreign assets start earning a lot or if a devaluation of the currency by market forces leads to the negative income from abroad easing. The latter cannot be guaranteed to happen – at least for other nations.

      Ref_$File/53020_jun%202010.pdf tables 37 and 39.

      Also you are comparing two situations – a non-full-employment targeting government and a full employment targeting. The data set you are providing to prove something is for the former. You are proposing the latter using a data set where the fiscal policy is of the former type. I understand that you say that “Further, the idea that governments have kept things stable because they have contracted when the external balance has expanded is not borne out by the evidence.” but Australia seems to be governed by strong fiscal hawks!

      The statistical information can equally be used against what you are saying. For example, one could say that the budget has been in surplus quite a lot and no sky has fallen yet. The private balance has been negative for a long time – surely no cause for concern. Of course I myself won’t make such arguments – just pointing out to the usage of statistics.

      Quote:”You are trying to say it goes further than that and pretends to deny the business cycle and/or deny that the private sector can never get into serious trouble.”

      No didn’t say that. Just pointing out that fiscal policy is useful as long as the external sector permits it to be useful. However, relying on creditors is a dangerous strategy – exports can do the job more easily.

      I also fully understand the complex ways foreign exchange moves. For example, in the case of Australia, if there is an expansion, foreigners may rush in to purchase equities causing the currency to appreciate. However such movements hide the detailed mechanism underlying growth and its relation to the external world.

    3. Ramanan,

      An external imbalance is sustainable and can grow forever, provided that its growth rate doesn’t permanently exceed the growth rate of the domestic economy.

      That’s a lot of room in terms of current account manoeuvrability.

    4. P.S.

      There is no corresponding upper limit on stocks ratios – the constraint is on relative flows in what is effectively an infinite series of flows.

    5. JKH,

      I agree that there is a lot of room for maneuver.

      So there is some talk of ratios here which is a great thing.

      The only answer I know from PKE literature is that stock-flow norms – the ratios are within limits. Of course, in the real world, they move in all directions – and why not, the world is full of uncertainty. Of course that is a hypothesis and you can say that you don’t believe in them which is a fair point. Of course nations can do a concerted effort to take the norms to a higher level.

      The point about external imbalance is that if discretionary attempts are not made, the numbers diverge from one another.

      Let us take your example – if the external debt is just $1, it can grow faster than the growth rate of the domestic economy surely. So the absolute value of the external debt also matters.

      Also remember, a fiscal expansion done without less attention to exports policy will lead to higher current account deficits. This is because it is a reasonable assumption that imports depend on the incomes – proportionately. Exports depend on the demand in the external world. A fiscal expansion improves domestic demand but leads to higher imbalances.

      Any reference for your rule of thumb? Which number’s growth are you talking ?

    6. Also remember, the good thing about PKE is the emphasis on endogeneity of things such as public debt, deficits etc. So one has to be careful about not assuming something like the fiscal deficit is 3% in rules of thumb. If the current account deficit is 5%, this requires at least 5% of fiscal deficits and if one is not worried about exports, the fiscal deficit keeps growing because of interest payments. So one has to be careful.

    7. Ramanan at 9/12 17:41: Here is a stylized fact – international trade should be balanced.

      Exactly. This is what I have been saying, perhaps not clearly enough by saying that this is essentially a demand problem, which, I think, is what MMT is saying. The reason there is imbalance in world trade is because of mismatches and these mismatches result from demand/income deficiencies. Ideally, all countries and regions would be operating on a par and trading on that basis. However, the present state of the world is nowhere close to that, so there are horrible consequences of some mismatches, even starvation, in spite of huge global overcapacity. The problem is not supply; it is distribution, and that is a deficiency of effective demand. Remember, economics, according to MMT, is about real resources and their uses.

      “Money” is just a way of facilitating distribution (medium of exchange) and keeping score (unit of account), as well as storing effective demand (stor of value) and drawing forward effective demand (debt). Money has no intrinsic value beyond its economic use. It is just a token for real resources through which claims on real resources are represented. In an ideal society, which one would hope the global economy would underpin materially, real resources would be distributed justly and used sustainably to promote the survival and progress of humanity as a species conscious of itself and its destiny, and to cultivate its ecological home.

      My point is that we are entering the era of globalism, including the development of a global economy. The globalized world is going to reflect the economic infrastructure (institutions) on which material living is based. According to MMT as I understand it, the emphasis needs to be on creating sustainable and distributed demand/income in order to clear the present overcapacity that results in cycles of boom and bust, as well as to redefine the role of finance so that it serves productive investment instead of rent-seeking, which is prone to instability due ro excess leverage, as Minsky observed.

      My quibble with your criticism of MMT is that you seem to take some statements as absolutes, and unfortunately, sometimes it may seem that they are make with that intention. But when economists do that, they are usually implying ceteris paribus, or some such qualifier. No economist would claim that that a nation can be profligate and not suffer eventual consequences either through inflation or devaluation. No economist would rule out unanticipated consequences of external shock, either. The point is that MMT shows how to avoid this and also how to correct it, should it happen, without erring on the other side either.

      For example, while it is clear that “too much money chasing too few goods” is correct, it is only correct under very specific circumstances and it can be corrected in that case by reducing excess demand through fiscal policy, as MMT points out. On the other hand, people who understand “too much money chasing too few goods” as evidence that deficit spending is always economically undesirable are needlessly restricting demand when it is lagging and needs to be bolstered.

      The situation with fx is similar. Devaluation is an extreme case, and concern about it when there is not threat of it is as ill-advised as refusing to use a budgetary deficit to increase demand in the face of persistent disinflation that threatens deflation (as presently in the US). So too, in the US, concern about the trade deficit with China is a canard. It is, in fact, exactly what the US should be doing, and the developed world should be doing this with the emerging world as long as developing nations need to build a domestic economy with adequate domestic demand. However, instead of looking at this in the long view and the big picture of building the global economy, nations strive for advantage. That is where the mismatches and dislocations occur that lead, e.g., to currency problems. Imbalances are not always “bad” in themselves. They have to be looked at in light of conditions and objectives. For instance, if the US were to tighten domestically and seek to decrease the CAD, this could have deleterious effects not only domestically but also for the world economy without the GFC being unwound (which it is not).

      Some people think categorically that all debt is “bad.” Well, unless they are wealthy, they will likely never own a house and will be driving the same car until it fails and then buying another clunker. The reality is that taking on debt one cannot afford is a bad choice, which means having a buffer. Does that mean that bankruptcy is out of the question? Of course not. There is still the possibility of an unanticipated shock like a serious illness or natural disaster. While this is an imperfect analogy for the global economy, it illustrates the folly of categorical thinking. I don’t see MMT’ers doing that, but I do see others doing it.

    8. @ stone on 9/12 at 19:19: We both agree that money needs to be dished out to potential consumers, our only disagreement is whether it is ok for money to accumulate as wealth (the MMT position) or not.

      If I led to you to think that this is my position it is not, although this requires a clearer specification of “wealth.” One cannot logically be opposed to “wealth” in a capitalistic economy, but one can be opposed to wealth accumulation that is non-productive and non-contributory, and which amounts to capital sequestration. I am opposed to the latter, as I believe MMT is also. The world doesn’t lack adequate effective demand owing to lack of wealth or capital. There is plenty. It is just not being used efficiently and effectively. It is basically a distributive problem.

      MMT incorporates Minskian views about “financialism,” which includes the views of Michael Hudson that I have been citing. It is “rentierism” (rent-seeking) that results in accumulations of wealth that serve no useful purpose. Without land rent, monopoly rent, and financial rent, along with the political corruption involved in establishing the institutions that support this, finance would serve productive investment, which would produce incomes that would support demand for supply produced at full capacity. When this is not happening, it is due to some leakage into non-productive accumulation. MMT is opposed to such non-productive uses and would seek to end them. However, this involves not only economics but politics. There are obviously many powerful vested interested standing in the way of such reform. There are a lot of Midas’s out there and right now they are in control of the political process.

    9. Tom Hickey, I find unfathonable the MMT dual position of being relaxed about creating a ballooning glut of wealth (as that is what running long term deficits equates to) and yet having a grand sweeping condemnation of “rent seeking”. What exactly do the MMTers propose should happen to the wealth? I believe that there should be a fixed amount of wealth that is in limited supply and so is fully occupied in constructive investment. You say “One cannot logically be opposed to “wealth” in a capitalistic economy, “-I am not opposed to wealth I am just saying that it needs to be of a fixed amount. Gold bugs say gold should be the only currency. They are advocating a fixed amount of wealth just as I am. I’ve never heard gold bugs being accused of being opposed to wealth. Until MMTers put forward a coherant proposal as to how they hope to constrain a ballooning glut of wealth in a functioning economy, I’ll continue to wring my hands about the seeming folly of the whole idea (to me at least). Bill has put forward some very good recomendations for bank reform on this site but they don’t at first sight seem to constitute a way of coping with a situation where the amount of wealth is constantly expanding. What seems worse to me is that the MMTers seem to not be saying “put in place adequate safe guards then run a deficit”. Instead they seem to be saying “there clearly are no safeguards but run the deficits regardless”. My primary objection to expanding the total stock of wealth is a practical one in that it deranges the capitalist system. However I also have some other feelings that it somehow runs counter to ideals of transparency, honesty and respect for others. To me honesty means having a money system that is comprehesible to everyone partaking in it. Expanding the total stock of wealth seems to me deceitful. I believe the more comprehesible a money system is, the less prone it is to malign manipulation. My impression is that the workings of the expanding fiat money system are fully understood and exploited by elite speculators who pull all the strings and then put out nonsense in the press that you guys point out is nonsense. I have yet to comprehend why MMTers want to expand private wealth. My only grasp on this is that somehow MMTers want people to strive to accumulate wealth and MMTers believe that in so striving people will be “better citizens”. I think people should decide for themselves what kind of citizens they choose to be and if money comes into the equation then it needs to be comprehensible in order for them to make a reasoned decision. I think it needs to be understood by everyone that the price of a loaf of bread used to have the potential to earn them a certain amount of income if invested but that ratio is in constant errosion due to the expanding fiat currency hence they might as well vote for a system that takes the wealth off them or else not let money determine what they do to such an extent even if that means them not building up wealth.

    10. stone, I think you are just dreaming if you think that limiting the amount of wealth will alter distribution and use. It never has historically, and there is no reason to believe it will now. In a rigged game, the house always wins, no matter how much or little is on the table. The solution is not decreasing the amount of money but leveling the playing field.

      Conversely, MMT proposes reforming the system by removing perverse incentives, cheating, etc., and taxing away non-productive accumulation, while incentivizing productive investment that increases productivity and also sharing of the productivity gains with worker.

      We don’t have a wealth problem. We have a demand problem. It arises from inadequate income relative to capacity that results in oversupply, which manifests as excess inventory, signaling businesses to cut back, thereby reducing income, hence effective demand, consequently recession and rising unemployment. Or else workers are induced to borrow in order to sustain their lifestyle, and since this is unsustainable, there is a bust as more and more debt cannot be serviced.

      The wealth problem, if there is one, is that wealth accumulates at the top and is spent on asset acquisition and commodity speculation, which are non-productive. Moreover, this accumulation at the top creates a deficiency of demand at the middle and bottom. The solution is not less wealth but more equal distribution, so that output at full capacity can be purchased and productive investment can spur the economic growth necessary to match population growth.

      You don’t seem to want to go back to gold. After all, the gold standard did not prevent the Great Depression. So what do you propose? Right now you are just ranting about your idea of MMT’ers “wanting to expand private wealth,” which is not accurate.

    11. Tom,

      “MMT proposes reforming the system by removing perverse incentives, cheating, etc., and taxing away non-productive accumulation, ”

      I’m not sure MMT does at all.

      MMT is just a consistent description of the way monetary systems work – particularly fiat monetary systems. The theory doesn’t suggest any political position.

      IMHO what it does is provide the theoretical backing to a simple proposition – the “we can’t afford it” argument is baloney.

      Beyond that you can implement any political structure you like with it. For example putting a slightly warped head on, you could argue that rounding up the unemployed and forcing them through gas chambers is entirely consistent with MMT, since it eliminates the drain on real resources from the feckless and idle and stops their uncontrolled breeding. That leaves more available for the productive members of society. And you can always afford to build the gas chambers since the state is not financially constrained…

    12. Tom, to my mind when you say it is just a distributional problem you are talking about the distribution between savings/investments/assets versus wages/consumer prices. That is the same thing I’m talking about. Clearly if wages/consumer prices and savings/investments/assets were in unison all increased by 10x (with debts and credits too) then nothing would change. It is the ratio between wages/consumer prices versus savings/investments/assets that gets out of whack when deficit spending is on purpose set at a level that fails to increase wages/consumer prices as fast as savings/investments/assets.
      Neil Wilson, I take your point about MMT being a description of the workings not the aims. I would understand that if all Bill’s blogs were celebrating the glorious ascendancy of Goldman Sachs to total world domination. Bill’s blogs are not and that is what leaves me scratching my head.
      I really appreciate all the help I have been given by you guys in my trying to understand MMT but I’ve promised my other half not to look at economics stuff on the web again :) so I’m going to leave you in peace!

    13. Neil on 9/13 at 16:54

      I’m not sure MMT does at all. MMT is just a consistent description of the way monetary systems work – particularly fiat monetary systems. The theory doesn’t suggest any political position.

      I don’t think that is quite correct, Neil. MMT does “consistent description of the way monetary systems work,” but Bill, among other MMT’ers has made clear that MMT is NOT “just” a consistent description of the way monetary systems works. If you read MMT’ers, their thought is broader than that, and often includes policy options and proposals. MMT is a macro theory, in addition to being an operational description of monetary systems. Macro theories make predications in addition to explaining, and they therefore have policy implications. Moreover, at least some MMT’ers are in the Minsky camp (Randy Wray was a student of Minsky), are well aware of financialization and financial instability, and propose corrections to the present system, based on MMT.

      I should add that there are people on the right that fully understand the MMT operational description of the present monetary system and use it for their own purposes, although disingenuously not letting on. It would not be correct to call them MMT’ers, however, since they have contributed nothing to the literature that represents MMT and which defines MMT.

    14. stone: It is the ratio between wages/consumer prices versus savings/investments/assets that gets out of whack when deficit spending is on purpose set at a level that fails to increase wages/consumer prices as fast as savings/investments/assets.

      If treating recessions with deficits were all there were to MMT, I would agree that such a proposal would just perpetuate a broken system. But that is just one aspect of MMT. In the end, the fiscal injections just funnel toward the top and also funnel externally through hard pressed nationals purchasing cheap imports right off the bat. MMT’ers are aware of these criticisms and have addressed them through taxing away rents in the case of non-productive wealth accumulation that threatens asset bid-up. Warren Mosler has proposed financial reform here. Regarding the external situation, Marshall Auerback just wrote a scathing article addressing China as a renegade nation here.

    15. “If you read MMT’ers, their thought is broader than that,”

      I’m sure they are. That’s why they investigated the issue. But I would disagree that MMT is about that.

      For example it is consistent with MMT to provide as much money as is required to prosecute the war in Afghanistan and ‘finish the job’. “We can’t afford it” isn’t a valid excuse. You need a different political reason for not pressing ahead.

      The nature of fiat money systems can be used for any political system. It would be a myth to suggest that adopting it will somehow lead to a progressive utopia. It gives just as much firepower to the opposite view because MMT is ‘how the money system works’.

      Separate from that is the argument ‘and given that, we can do this, which is a great idea for these reasons…’.


    16. Neil, check out this statement of purpose just posted at New Economic Perspectives, a key MMT blog.

      This website offers policy advice and economic analysis from a group of professional economists at the University of Missouri-Kansas City. We created this site in order to weigh in on the serious challenges facing the global economy today. We aim to provide an accurate description of the cause(s) of the current meltdown as well as some fresh ideas about how Congress, the U.S. Treasury and the Federal Reserve should respond. Our approach, which has been dubbed “The Kansas City School,” builds on the work of Abba P. Lerner, John Maynard Keynes and Hyman P. Minsky. Above all, we are careful to provide analyses and policy recommendations that are applicable under a modern, fiat money system.

      Nothing is even mentioned about the operation description of monetary systems, and a lot of what is published there is policy oriented.

      See also Bill’s Modern Monetary Theory — a personal note for his take on this.

      James K. Galbraith’s recent Thoughts on a Plan B presents a broad policy proposal from the MMT side.

    17. Dear Ramanan @ Sep12 18:02,

      Please feel at ease! I would count you definitively as one of the ‘reasonable people’ commenting on this blog. This is because I know that human beings come in many layers; the more layers that come off the more interesting people become. I don’t think we really understand just how beautiful a being each person actually is. I try not to get caught up in conceptual layers. It is this layering shining through the creative writings of leaders in the MMT camp that I find interesting and enjoy!

      Speaking of a conceptual world most of us would have agreed (long ago when we lived in caves and wore bear-skins ) that the sky was blue and the earth green. It took a little while longer to work out where the rain came from. The important point was that the concepts matched reality. Intellection was used to discriminate between the real and the imagined, thereby deepening understanding. The trick was concentration followed by contemplation. The mind is inherently mercurial, and not as disciplined as we would like it to be: the trick is always to slow it right down, building on thoughts carefully and sequentially, always checking the imperial evidence. Then our conceptual world may reflect some temporal (temporary) or inner reality. For example, the neoclassical conceptual world is more the marriage of greed, misuse of power, and faulty intellection; rather than pure thought (which can only arise from altruistic ‘feeling’).

      If one truly desires to follow the development of MMT thought then such a study is warranted. You have to accord to the original thinkers in the field starting out (20 years ago?) the same capacity for intellection and integrity in motive as you possess. They would dearly love to find something new, conceptually useful, and temporally backed by evidence. Their work is important to them. They are also incredibly helpful with people who are genuinely trying to understand their conceptual edifice, and naturally defend it if under attack. Genuine points of inquiry or debate they often relish, time permitting; or previous coverage extant.

      I don’t really doubt people’s essential mental integrity (because of the layers). Obviously however, many just like crossing conceptual swords for the sake of battle and they are rightfully ignored as time wasters. If you are getting answers then you are respected. I do think in general, commentators need to become more skilled at asking the right questions, providing evidence, and doing their homework.

      May your conceptual world delight and inspire you Ramanan. When you walk in somebody else’s garden, to see it through their own eyes is just as enlightening as to see it through your own. Sat chit anand!

      Cheers …


    18. Re: “Three nations defied these laws – Australia, Canada and New Zealand – which became and stayed rich by exploiting agriculture and primary commodities in general. That is a strong lesson which is normally ignored.”

      What should have happened in so much of the colonial world, esp. Africa and L. America. Instead, comprador elites sold out their countries to the industrial North and thus created in their countries “islands of wealth in oceans of poverty.” Corruption and Kleptocracy are at the core of third world poverty, since it is that which allowed the looting and pillaging of these lands by the great foreign companies supported by their own governments.

    19. Just a note: the “commissioned report” Bill provides a link to (“In a Commissioned Report that I co-authored modelling the transitions away from coal-fired power to renewables, we noted that a just transition policy recognises that people and ecology are both important.”) is password locked and cannot be downloaded.

    20. Tom Hickey: you say: “MMT’ers are aware of these criticisms and have addressed them through taxing away rents in the case of non-productive wealth accumulation that threatens asset bid-up.” All I’m saying is that in order to be sufficient to prevent a worsening of financialization, such taxes need (over the global economy as a whole) to be equivalent to the money spent by governments (ie budgets need to balance over the business cycle globally to limit financialization). I’m breaking a promise by looking at this type of website :)

    21. Frankly, I’m disappointed with this post.

      I will refer here exclusively to the part of Prof. Mitchell’s argument supported on the report
      “Innovation and Job Creation in a Global Economy”.

      It is unwarranted to conclude with the authors of the report that:

      “They found that in 2006, iPod’s ‘accounted for about 41,000 jobs worldwide’ (27,000 outside the US). The ‘offshore jobs are mostly in lowwage manufacturing, while the jobs in the U.S. are more evenly divided between high wage engineers and managers and lower wage retail and non-professional workers’.”

      As the figures contained in the report are mere estimates, based on questionable assumptions.

      More details at

    22. @ stone on 9/14 at 20:21

      Yes, progressive taxation as well as targeted taxation would have to be high unless the funneling up is reduced through some other means, such as reformed incentives. The top bracket in the US has been up to 90% and the rich didn’t go bust and the incentive for them to earn and contribute did not plummet, either. But with selective taxation of rents — land rent and monopoly rent as well as financial rent — a lot of the problem could be resolved. Reasonable gain from productive investment in sustainable innovation is not the problem, and it can be reasonably rewarded as an incentive. It’s not wealth per se that is problematic, but how it is distributed and used.

      However, as Ravi Batra observes in The New Golden Age: The Coming Revolution Against Political Corruption and Economic Chaos, the principal economic problems are not economic per se. Rather, they arise from corruption, which he finds endemic. This ties in with Jorge’s post of 9/14 at 9:03, but it is not only limited to exploitation of underdeveloped regions by the elite of the developed regions. These elites are ripping off everyone they can get their hands on and are always trying to extend their reach. This goes by the name of neoliberalism, neo-imperialism (aka neoconservatism) and neocolonialism among critics from the left (like me). Because it is not simply an economic problem, Batra contends that it will take a global revolution to correct it and he sees this in the cards. Marx may turn out to have been essentially correct after all, even though Batra is not writing from a Marxian perspective.

      From the Wikipedia entry on Batra:

      Batra rejects the basic foundations of materialist economics, including the need to consume and acquire without limit, as well as the premise that the saving of capitalists promotes the greater good through investment, itself the penultimate justification for allowing inequality to exist. Instead, Batra promotes raising the incomes of people with the sole purpose to increase their consumption, but in a balanced and sustainable way—in harmony with nature, each other and other life forms. An equitable distribution is not seen as a means to only ensure material welfare but also to secure the ability of all to develop a full personality. This is an integral part of Sarkar’s practical theory of PROUT—PROgressive Utilization Theory.

      Batra is a follower of the Indian spiritual leader P.R. Sarkar (1921–1990) aka Shri Shri Anandamurti, the founder of Ananda Marga (Path of Bliss). Recent spiritual luminaries have also predicted a new “golden age” (Sat Yuga) after the travail of a “phase transition” during which selfishness will be replaced by altruism as dominant. Notable examples include Avatar Meher Baba (1894-1969), Maharishi Mahesh Yogi (1914-2008) and Sant Kirpal Singh (1894-1974). So maybe there’s hope for us yet. :)

    23. @ stone
      Here is a brief article by Michael Hudson showing how taxing land rent solves the infrastructure problem, whereas the present system of infrastructure “stimulus” shovels wealth to the top and preys on the public through increased costs. This is what I am talking about.

    24. Quote: “My naive impression of the Thai 1997 crisis was that the peg to the USD was what enabled the hedge funds to mount the speculative attack I thought that the peg was only dropped after the speculative attack was impossible to withstand (as with UK coming off the ERM on black wednesday).”

      The Asian crisis started after the Thai government decided not to defend their currency i.e. leave it pegged and that started a huge chain reaction that destroyed many currencies including ones that were floating such as the rupiah. The fact is that none of the speculative attacks could have taken place without a global floating rate system. There was no George Soros during Breton Woods because such operations were banned under the treaty rules for bank transfers.

      Quote: “Septus7, I reread your comment-are you advocating a return to the Bretton Woods gold backed USD system? ”

      No, I don’t believe in “backing” a currency because a currency is backed by the physical economy of the nation and taxes. I am suggesting a system that has never been tried namely a fixed parity fiat. Exchange rates are not allowed to bid upon but are decided according the rules specified according to treaty. The paradox you mentioned wouldn’t happen in my system. My system is like MMT except we only float when we restructure if an imbalance occurs due to some error and then we get back to peg ASAP. We don’t allow speculation so we don’t have to hedge because we have long term development credit agreements.

      Quote: “Working in agriculture can be very creative imo, same for architecture, building and construction, arts, food service, infrastructure, healing, etc, There are many ways for us to satisfy our creative desires without exporting necessarily no?.”

      Who said anything about exporting? I believe in a manufacturing base for domestic consumption not exporting. China’s big mistake was overbuilding export capacity at the expensive of domestic consumption by driving down internal demand. Now, they are locked into Chinamerica and because American leadership is about as good the French military in WWII they are stuck with our depression almost much we are.

      On subject of the creativity, I am not referring to some novelty but rather creativity in the scientific sense where the discovery of scientific principles by the imagination allow for man to transform matter to his purposes without the culture of physical production i.e. manufacturing. The culture that says in order to have it I must work for it creates a sense of value human being have in that they can change their capacity to work i.e. if work is valuable then working better is more valuable and the culture of improvement breeds imagination which is basis of the real economy.

      What we needed to do and I’ve been saying this since 2008 is to issues 1 trillion of credit yearly for a “great project” infrastructure (Transcontinental Maglev, or NAWAPA, 2000 Public Hospitals) and CCCs for jobs and we have domestic manufacturing produce the trains, the lifts, the power plants. We can export after we have build up excess capacity for core infrastructure and consumption domestically. We simply go back to the American system see
      My only problem with MMT is floating rates and Keynes idea that consumption is all there is to man’s economy. Keynes idea comes from British Imperial doctrines described by Jeremy Bentham and are against any classical understanding of a sovereign republic. I suggest you read Michael Hudson’s book “America’s Protectionist Takeoff” and the writings surveyed. It will open an entire new world of economics to you.

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