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Neo-liberal myths constrain our understanding of poverty

I was on a panel last night discussing the causes of poverty in Australia. The panel was rather diverse with housing, welfare and other representatives. There was a crowd of around 400 I believe. The format was difficult given that the panel of six was assembled in line at a table so could not see each other easily. But the real problem was that the facilitator, a national journalist, who had the role of asking questions to the panellists, chose to assert the standard neo-liberal macroeconomic myths in response to statements I made with respect to the causes and solutions to poverty. I was confronted with as-if facts such as “they have to get the money from somewhere before they can spend” in response to questions about public debt eventually becoming too large and foreigners funding our national (currency-issuing) government. I thought a facilitator was not meant to have an agenda but in this case holding out these neo-liberal myths perpetuated the standard agenda which guarantees that poverty will continue to worsen. There is a lot of work to be done before people will identify these neo-liberal myths as non-knowledge and readily understand that national, currency-issuing governments such as in Australia have no financial constraints and they spend out of ‘thin air’. Once that knowledge is accepted a whole new world opens up that allows us to see the path to reducing poverty and inequality.

Earlier this week (October 20, 2015), the American Enterprise Institute showed how foolish they are. They published an Op Ed – Progressives like Bernie Sanders have a novel economic theory that says they can spend, spend, spend – which attacks “something called modern monetary theory” in the context of how will Bernie Sanders “pay for his socialist utopia”.

First, I don’t see Bernie Sanders as being a socialist. The association that the conservative media continually makes in this regard is obviously designed to discredit Sanders without any serious appraisal of his proposed policy platform should he bcome president.

Second, when they do get to the policy level, the conservatives short-circuit any debate by questioning how he will “pay for his socialist utopia”.

The record hits the scratch – “How is he going to pay for all this?” Been there many times.

The AEI article uses an Economist Magazine definition of Modern Monetary Theory (MMT) to set the scene. Clearly, the journalist is too lazy to read the primary literature which is an issue. But the cited paragraph includes the bolded paragraph and a further sentence:

The neo-chartalists believe that because paper currency is a creature of the state, governments enjoy more financial freedom than they recognise. The fiscal authorities are free to spend whatever is required to revive their economies and restore employment. They can spend without first collecting taxes; they can borrow without fear of default. Budget-makers need not cower before the bond-market vigilantes. In fact, they need not bother with bond markets at all.

So not the best summary of MMT but it does establish that:

1. A sovereign government is never revenue constrained because it is the monopoly issuer of the currency.

2. Tax revenue is not used to fund government spending. Governments tax for a number of reasons, which include creating a demand for its currency buy forcing the non-government sector to offer goods and services for sale in order to get access to that currency so that it can relinquish its tax obligations.

3. A sovereign government can always meet any of its liabilities which are denominated in its own currency.

4. A sovereign government does not have to issue debt in order to spend. In fact, governments just borrow back prior deficit spending. A government can always deficit spend without matching that net spending with debt-issi

5. A sovereign government is clearly able to spend freely to restore employment. It can always purchase any idle resources that are for sale in the currency that the government issues.

6. The government via its central bank sets the interest rate and can control interest rates along any segment of the maturity curve should it desire to do so. Bond markets do not have power over a soverign government.

7. A corollary is that foreigners can never fund government spending. China investors do not issue Australian dollars!

Okay, so how does that relate to Bernie Sanders?

The AEI author quotes the polling evidence in the US very selectively indeed. We read that:

A 2014 survey from GlobalStrategyGroup found voters said they prefer a presidential candidate focused on “more economic growth” versus “less income inequality” by 80% to 16%. And voters preferred by 62% to 33% a candidate focused on “economic growth to provide more opportunities for everyone to succeed” versus one focused on “economic justice to level the playing field for middle and low-income Americans.”

It all depends on how the question is asked.

The Gallup Poll published on May 4, 2015 – Americans Continue to Say U.S. Wealth Distribution Is Unfair – reported that:

– 63% of Americans say money and wealth distribution is unfair

– These attitudes are substantially unchanged over past 30 years

– Slight majority of 52% favor heavy taxes on rich as fix

Further, over the last 75 years, the proportion in favour of “heavy taxes on the rich” as “one method of redistributing wealth” has increased from 35 per cent initially to 52 per cent now.

The New York Times-CBS New Poll (June 3, 2015) – Americans’ Views on Income Inequality and Workers’ Rights – found that:

Most Americans say that it is mainly just a few people at the top who have a chance to get ahead and that the money and wealth in this country should be more evenly distributed …

Further, 66 per cent think that there should be income and wealth redistribution in the US. 65 per cent thought that the “the gap between rich and poor in this country is a problem that needs to be addressed now”.

And, 57 per cent said the “government … [should] … do more to reduce the gap between the rich and the poor”.

And, 68 per cent said they wanted higher taxes for the rich.

On Workers’ rights, 71 per cent favoured raising the “federal minimum wage” from $US7.25 an hour to $10.10.

So American clearly want the Federal government to deal reduce income and wealth inequality. They also want it to “grow and expand the economy” (Gallup Poll, 2011).

The two concerns are not incompatible and do not represent some sort of ‘trade-off’ that the government has to choose between.

This is especially the case when we consider that the IMF is even producing evidence that higher income inequality is detrimental to the growth prospects of a nation.

The IMF paper (April 8, 2011) – Inequality and Unsustainable Growth: Two Sides of the Same Coin? – concluded that:

… longer growth spells are robustly associated with more equality in the income distribution.

A prerequisite for resolving the unsustainable imbalances that led to the financial crisis will be to dramatically redistribute income back to workers – so that real wages growth closely tracks productivity growth and workers in sectors with little union representation are able to similarly participate in national productivity gains.

And the IMF is also now releasing research findings that demonstrate how fiscal policy can stimulate growth and reduce income inequality.

For example, the IMF Staff Discussion Notes paper (No.12/8R) – IMF Income Inequality and Fiscal Policy (2nd Edition) – which was published on September 27, 2012, noted that fiscal policy can influence the distribution of income:

1. “directly through its effect on current disposable incomes”.

2. “indirectly through its effect on the future earnings capacities—and therefore on market (i.e., pre-tax-and-transfer) incomes—of individuals”.

In the period before the GFC (and the fiscal austerity) the IMF paper concluded that “(f)iscal policy has played a significant role in reducing income inequality in advanced economies, especially in economies with high initial pre-tax and transfer inequality”:

In every year between 1985 and 2005, fiscal policy (i.e., direct income taxes and transfers) decreased the average Gini in 25 OECD countries by about one-third, that is, by around 15 percentage points …

They document nation-by-nation breakdowns of the extent to which fiscal policy has played a role in reducing income inequality up to 2005.

Significantly, the design of fiscal policy matters:

Most of the redistributive impact of fiscal policy is achieved through the expenditure side of the budget, especially non-means-tested transfers, although income taxes are also important in many economies.

The AEI author claims criticises the elevation of income inequality is a major issue non-issue “despite weak economic evidence that inequality is bad for economic growth”.

The evidence now being produced is anything but weak. The results linking increasing income inequality to inferior economic growth performance are statistically robust and powerful.

This is a precursor to the AEI attack on MMT.

He attacks any notion that advanced, currency-issuing nations should “boost demand and growth” through “more public investment, like infrastructure spending”.

Why is that a problem? He prepares us for the standard neo-liberal lies through the questions and cynical answer:

But is that possible given America’s large public debt and a deluge of entitlement spending on the way?

If only the debt, I dunno, didn’t matter and government could just spend, spend, spend. The final piece of the puzzle. Maybe even a holy grail or sorts. But with MMT, as Darth Vader put it, “The circle is now complete.” And it’s ironic: Democrats used criticize Republicans for supposedly saying, “Deficits don’t matter.” Now they might be saying it, too.

Deficits do matter but not in the way the conservatives claim. They matter because they have to be sufficient to allow for the non-government spending withdrawal from the income stream.

First, governments can spend without the tax revenue.

What the tax liabilities do is reduce aggregate demand in the private economy so that the government can have real resource space to buy the unsold output and use the purchased goods and services to pursue its socio-economic program (its ‘mandate’).

Another way of thinking of this, which is slightly more lateral is to consider the following.

The purpose of government spending is to move real resources from private to public domain to facilitate the government’s economic and social program.

As government spending is not revenue-constrained, taxation functions to promote offers from private individuals to government of goods and services in return for the necessary funds to extinguish the tax liabilities and fulfil net savings desires.

So by design tax impositions can be said to create unemployment (people seeking paid work) in the non-government sector, while government spending reduces the unemployment as it satisfies the need for funds created by the tax liabilities.

As a matter of accounting, for aggregate output to be sold, total spending must equal total income (whether actual income generated in production is fully spent or not each period).

Involuntary unemployment is idle labour unable to find a buyer at the current money wage. In the absence of government spending, unemployment arises when the private sector, in aggregate, desires to spend less of the monetary unit of account than it earns.

Nominal (or real) wage cuts per se do not clear the labour market, unless they somehow eliminate the private sector desire to net save and increase spending.

So whatever Darth Vader said the fact is that deficits do matter. They have to be sufficiently large (or small – whichever way you think about it) to allow the economy to sustain full employment and ‘fund’ the non-government’s desire to save overall (as manifest by the private spending decisions).

Within that charter, the composition of the net public spending (the deficit) can be designed to ensure that income inequality and poverty is prioritised. There is no conflict in the two aims – sustaining full employment expenditure levels and reducing inequality.

Last night, at the forum, I offered views like this. I was met with some hostility from the facilitator. My understanding of the role of a facilitator is to probe rather than assert specific (ideological) viewpoints.

For example, instead of stating (as if fact) – “the government has to get the money it spends from somewhere … so debt is a problem” the correct framing would have been “but the conservatives would say that debt is a problem because the government has to finance its spending, what do you say about that?

But, alas, it was mostly the former approach. As if the government was a household and couldn’t run up too much debt otherwise foreigners would stop funding it!

The facilitator might have reflected on the interchange in March 2009 between the US 60 Minutes program and the then Federal Reserve Chairman Ben Bernanke.

The interview is largely a litany of mainstream statements but at one point the Chairman gives the game away to the interviewer Scott Pelley.

Bernanke provided a very clear statement about how governments that issue their own currency actually spend.

At around the 8 minute mark of the segment, Bernanke starts talking about how the Federal Reserve Bank (the US central bank) conducts its ‘operations’ (in this case, how it conducts government spending).

Interviewer Pelley asks Bernanke:

Is that tax money that the Fed is spending?

Bernanke replied, reflecting a good understanding of what we call central bank operations (the way the Federal Reserve interacts with the member banks):

It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. It’s much more akin to printing money than it is to borrowing.

That is, the US government spends by creating money out of ‘thin air’.

There is no financial constraint on national government spending (government spending is not financed by taxes) where that government issues its own currency.

Such a government spends by making electronic entries into accounts in the commercial banks.

No printing press. No debt is required. No taxpayer revenue is used.

Conclusion

A currency-issuing government can always do that and should net spend so that all the idle resources (particularly labour) are productively employed.

The solution to poverty is not complex. It is about a lack of income. That is often due to unemployment and insufficient wages (working poor).

By ensuring there are enough jobs for all – and maintaining that continuity across the private spending cycle by introducing a – Job Guarantee – a national government can use its fiscal capacity (driven by the fact it issues its own currency) to reduce poverty and income inequality while sustaining economic growth.

I also note that a lot of comments have been coming in about how academics should not ‘lecture’ to those not trained in certain fields as if they are superior or something. I am deleting all these comments now – the point has been made and personal attacks are unnecessary and pointless.

The point is that academics have a responsibility to bear witness to the public debate and provide knowledge to citizens to inform their judgement. Knowledge is powerful and should always be privileged over intuition or ‘opinion’.

The knowledge provider is not better than others or superior. They just have worked things out in specific areas and have a duty to pass that knowledge on.

Claiming that politicians should be given a soft ride because they are just meeting the expectations of the public who have genuine desires and preferences is a curious argument for a progressive to make if the public is forming those desires and preferences on the basis of non-knowledge – for example, falsehoods about how the monetary system works.

In that instance, I have a duty to point out the myths and criticise politicians who perpetuate them whether by design or through their own ignorance. That duty doesn’t imply any class distinction, superiority, “snooty nose’ or whatever other insulting comments you wish to post. A duty is a duty and an academic life is a calling based on that duty.

But, knowledge is always superior to myth.

That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.

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    This Post Has 32 Comments
    1. The Social Credit policies of a universal dividend and a retail discount to prices which is then rebated back to participating merchants immediately accomplishes everyone of the positive things MMT wants to do above including stimulating a lot more employment both public and private. I would like to have a serious discussion of Social Credit here to flesh out that theory and to attempt to bring consciousness to what I believe are misconceptions about it and/or lingering monetary orthodoxies/biases that MMT theorists in fact may unconsciously be holding onto. An open minded discussion, that is. who’s up to that?

    2. “The record hits the scratch – “How is he going to pay for all this?””

      To which I respond ‘by spending the money. It all goes round in a big circle. Money is made round to go around’.

      Smartass questions deserve a Smartass answer.

    3. “The purpose of government spending is to move real resources from private to public domain to facilitate the government’s economic and social program.”

      The narrative I’m using now gives the government spending two roles to ‘contain’ the ‘reactor’ of the private sector.

      Government has first access to a state’s resources which it uses for the required public purpose. This is the bit where tax, bank restrictions and other space making tools are used to ensure real resources are not overbid. After that the private sector is allowed to work with what is left within a sensible regulatory structure. What the private sector then fails to engage, the public sector uses for the ‘nice to have’ public purpose. Since the private sector has already made the space, no need to use the space making tools on this bit.

      So public spending bookends and contains private sector activity – ensuring all real resources that can be used are used at any point in time.

      Full employment and price stability in a nutshell.

    4. i was in the audience bill and was very annoyed when she cut you off.you were able to give some explanation later on which was well accepted but i doubt most really understood the importance of what you were saying.what i don’t understand is that the people with most to gain by learning about mmt,that is the alp seem most resistant.the conservatives just ignore it probably because they recognise the danger it poses for them but those on the left would have a compelling narrative and would be able to challenge the assumption that there is no alternative.

    5. Dear Bill

      You say that governments don’t tax in order to raise revenue but for other reasons. That may be reality, but how many decision-makers in governments all over the world look at it that way? Probably very few. The general assumption, both inside and outside government, is that a governments should cover their expenditures with taxes and only in exceptional cases borrow. In other words, it is almost universally believed that a government isn’t different from a household, that it is revenue-constrained, and that governments can borrow only so much. If they borrow too much, then they will go bankrupt, just like an excessively indebted household.

      The larger government expenditure as a share of GDP is, the more of it has to covered by taxes in order to avoid inflation. A night-watchman state could probably operate without any taxes at all and still have price stability, but not a state that spends over 40% of GDP.

      Regards. James

    6. Dear Bill

      The American Enterprise Institute never intended to inform people about how MMT (or functional realities at a central bank) work.
      It just ‘cherry picked’ and ‘handcrafted’ analysis in the article to further its own dim-whitted purposes. They can never have enough confirmation bias now can they.

      “”If only the debt, I dunno, didn’t matter and government could just spend, spend, spend. The final piece of the puzzle. Maybe even a holy grail or sorts. “””

      I ‘dunno’ either.
      Can we just say ‘spend, spend spend’ that’ll convince people ingrained with government == household myth.

      Even the name of the piece rubbish “novel economic theory”. Really what so someone missed all the central banker statements under senate oath ;) Someone missed the non convertability into gold… what someone missed that period since WW2.

    7. The household and Neo-liberal narrative has been so heavily ingrained in people that even smart open-minded progressive economists I’ve met are very hard to talk to about MMT. They are still caught in what I think is a genetically programmed mode of limits of things in nature. Of course in nature it’s true as Bill has said over and over but people then see money as the same thing. Some people get it straight away. It seems like the more economically trained people are the less open that are to it. Then there are just rusted on regressive a (AKA ‘conservatives’) who will just never get it so it’s not with wasting time trying to convince them.

      Others may have seen this short 3min MMT video on YouTube: http://youtu.be/bTZGU9s0idM
      I only found it recently but it’s now given me an outlet to spread this video far and wide and hope the short attention sown people will watch it and hopefully help break the Neo-liberal mindset of government budgets.

    8. Ron, you are right. I don’t understand what they think they are doing either. I know Neil has a hypothesis that may well be largely right, that, in a few words, they are stuck in the past. In support of this, I have a friend who went to a Labour Party meeting six or so months ago in the north of England and all that the group wanted to talk about at this meeting was the miners’ strike. Not about a new, relevant narrative for present circumstances.

      I recently chaired a local Labour party meeting on economics and discovered that no one wanted to listen to anything. Rather, what they wanted to do was vent and air their views. It was impossible. If this is how it is going to be, then they haven’t a cat’s chance in hell of winning the next election and everything that the Attlee government did after the war will be gone.

      And to top this off, Goldman Sachs has a new CDO that they have set up that they naturally claim is much, much safer than the previous ones and the US government seems to be uninterested. These pieces of crap were one of the major causes of the last GFC. Unfortunately, it seems that quite a lot of people in positions of power and political influence in the present or recent past, such as Monti and Mario Draghi, have some past or present association with GS. Not only is Neil’s money round, so is the circulation of GS associates. Round and round they go … .

    9. That’s not correct James. Assuming exports equal imports (X = M), for a given level of central govt net spending (G – T), the level of taxation required to quell inflationary pressure will depend on the net spending desires of the private sector (S – T). The higher is the latter, the less a central govt must tax for a given level of govt spending. Hence, a central govt that spends before it taxes does not end up operating as if it taxes (earns revenue) to finance its spending.

    10. @Robert

      It’s Bill’s call of course, but knowledge and understanding has never actually done anyone any harm…just disproved or expanded a theory.

    11. There are some persons—who when they speak, we need to pull up a chair and listen—and such is true of Dr. William Mitchell—as the multitude who follow this blog are fully aware…..what struck me about his blog, today, is his comment re a facilitator “who had the role of asking questions to the panellists, chose to assert the standard neo-liberal macroeconomic myths”….for those who are looking for the truth/for solutions, it is very frustrating when the starting point in a discussion is BS….If the premise we start from is BS, the proposed solution is BS—unworkable…[sadly true of many situation—for instance, the insane Benghazi hearings wasting our time in America]…and this is true of the ubiquitous, and most pernicious belief, today: That “the market can provide anybody wanting a job, with a job”—it is pernicious because—at least in the U.S, and since WW II, it has prevented our finding a solution to pervasive unemployment—[and given “automation”, alone, the adverse consequences of unemployment gets progressively worse with each passing year going forward]—but in the U.S. this BS solution has resulted in turning our inner-cities into war zones, with 60% minority unemployment, drug wars, and an epidemic of gun violence.

    12. What happens if you don’t believe in liberal myths period.
      You get censored.

      What is striking about current events is the deeply fascist tendencies of liberals.
      On the surface it is wonderfully ironic but deep down you come to realize its the inner truth .

    13. Good article, Bill.

      The phrase I hear repeatedly that causes me to grit my teeth is “spending taxpayers money”. This is typically uttered by policy makers and “expert” commentators when discussing fiscal policy. The concept of federal government spending taxpayers’ money is flawed, as if each public expenditure incurs a debt or charge that we, taxpayers, must collectively pay each year. Last I checked our income taxes are based on personal income, not public spending. However this phrase is repeated often but rarely questioned.

      Much of the terminology used by neoliberals is specifically designed to invoke emotional and angry reactions from the public, I’m convinced. Another example: “printing money”. Even if the experts know this is sloppy and imprecise, they repeat it for a purpose and know it won’t be questioned.

    14. One of the ways I try to explain it is to identify the government as the sole issuer of the currency, and as therefore responsible for exactly how much money there is. I then note that the implication of balance budget policy is that the amount of money there is now is exactly the amount of money the economy needs. Finally I’ll note that there is exactly zero research into what the correct amount of money for an economy is (only on the delta from where we are), which in turn means there’s no scientific support indicating a balanced budget is correct policy.

    15. There appears to be a disturbing documented history of mainstream journalists being paid to add a bias into everything they speak or write. In some instances they are just handed a script rather than preparing material on their own. A critic of this development from the US coined the term “presstitute” to describe those willing to take money to propagandize.

      This is very disturbing because it demonstrates a pattern exists of implanting false beliefs into overly trusting minds. Ordinary people who have been steeped in these beliefs for most of their lives just tilt their heads like the RCA Victor dog and become unsettled when these beliefs are challenged.

      It’s likely that most who communicate/promote such strong neo liberal bias have simply learned that when they use neo liberal speak their career moves forward and when they don’t it takes a step back. We can’t really tell in any particular instance what the case is unless the journalist her/him self comes forward as was the case with German journalist Udo Ulfkotte who wrote a book about his experiences. This is also a possible explanation of mainstream academia’s stubborn support for ideas that clearly are not true.

      It’s very unlikely that we would arrive at todays level of acceptance of the more farcical of the current mainstream narratives had most journalists and academics been free to think, speak and write their own critical works for the past few decades.

      Even public comments made on publicly operated media web pages get censored out by bots or the posting delayed until attention has moved on, if they are overly critical of the mainstream views being presented, or contain matter that evokes too much thought. So there is classical conditioning of minds to further complicate matters.

      Bill must be gaining some following when the mainstream journalists armed with standard neo-liberal rhetoric on the tip of their tongues are positioned to strike out at MMT in public forum for discussion; or perhaps she was trying to undermine the dominant paradigm by shrewdly inviting a rebuttal of the mainstream myths?

    16. I concur with James….. the vast majority of the population imagine the Government acts like a giant household. Even worse there are a lot of seemingly logical “common sense” conclusions they draw from their conceptual understanding, for example:

      1) Reducing Government spending will reduce their own taxes and give them greater spending power.
      2) The private sector is financing the public sector.
      3) My taxes pay the teachers/ policeman’s salary (Ergo they work for me).

      There is no evil right wing think tank or media collusion to make the people think this way. They arrive at these ideas all by themselves. Pete Peterson and other small government ideologues are just riding a wave people are already inclined to believe. It is their good fortune, not their political skill. They would have very little traction if the reality of the monetary system was intuitively interpreted differently.

      The good news is this. Once you have learned a better conceptual understanding of the monetary system (as presented by Bill) it is very difficult to unlearn, MMT economics makes so much more sense and is logically coherent. Mainstream Neo-classical economics is so full of inconsistencies and bull shit, like religion, it eventually repulses the rational inquiring mind (unless you need to make a living from it).

      Whilst it is very hard to swim against the tide of public opinion. Most progressive/ democratic/ socialist causes will be lost in the wilderness until Government spending and deficits are considered either beneficial or benign (with due regard to inflation). I see no other way forward than continue to fight and educate my fellow citizens on the reality of the money system. “Once unlearned never relearned” one by one we have to educate the world. The consequence of non action is to live in a declining and mediocre society with increasing wealth disparity.

      Thanks to Bill and others. Keep on keeping on! …..(wink to soul brothers)

    17. Bill, We just need to keep plugging away at the mischief of mainstream economics.
      I actively participate in many blogs like “The Conversation” and am always correcting mainstream mistakes, such as the use of “taxpayer money” However over the past 2 years there are quite a few contributors who do understand MMT and we all contribute. Nobody can defend the mainstream position as they only have a vague belief to back them up.

      So I think we are making progress. Some journalists have half an idea, and some know but seem to hold their tongues. They will come out of the woodwork when the ideology shifts, when the mainstream realises just how damaging they are to the social fabric.

      I imagine you are well versed in receiving combative journalism and commentary, so I hope you are honing your retort skills. The art of “The Perfect Squelch” was an old Saturday Evening Post segment. Well worth practising!

    18. Dear Phil

      I agree with you that, if the private sector in a country wants to be a net saver and X =M, then the government must run a deficit big enough to match the net savings of the private sector. However, where do we find a private sector that wants to save more than 40% of GDP or even something near it?

      Regards. James

    19. The owners of capital do not want people to understand MMT.

      To understand MMT means we can have full employment. We can reduce income inequality and improve education, and thereby improve social mobility.

      The wealthy prefer a “muddle through” economy with a consistently weak labour market to extract greater profit share & entrench the wealthy class. After all, is that not why they invented the NAIRU?

    20. Neo-liberal myths constrain our understanding of ALL the politics around us. Of course poverty is one particular case, and it’s worth showing how in each case the myths are used to create obfuscation and misinformation.

    21. William said: “Cut to the chase. Collected taxes are not spent by government, they are destroyed. The money simply expires. ”

      Yes, you and I know that the central government does not horde taxes. However this also implies that Treasury’s credits in its account with the central bank are not a form of money, not even banking reserves. This in turn implies that Treasury’s account is an operating account, rather than a spending account. The entries into it are made in reaction to the central government’s spending and taxing, but do not represent a transfer of real money.

      The orthodoxy and much of the heterodoxy would assert that these credits are a form of state fiat money which is interchangeable with reserves. That’s the lazy and unthinking position. However closer examination will reveal that this “money” does not actually operate as a medium of exchange. Unfortunately I do not have sufficient space here to elaborate on the argument supporting this proposition. Truth is a very elusive beast, and is often counter-intuitive — ask any physicist who has a reasonable understanding of quantum theory.

    22. The collected taxes in Ireland to the tune of 19 billion net is not spent nationally.
      I would suggest that most of this money flows to London.
      All european countries must act in a desperate manner to export so as to get enough money to survive.
      This is strange but the UK has doubled it’s imports from the EU 28 since 2011……how could that be I wonder???????

      These observations do not require cats in little boxes.

    23. Dork,
      Precisely. Exports are actually just the present necessity to attempt to garner enough individual income from other economies….to make up for the scarcity of such in the domestic one. Unfortunately that is a game of musical chairs. The only ways to remedy this are to begin exporting to the Moon or Mars, or make the domestic economy self liquidating by policies of a universal dividend and a discount to retail prices. I leave it to the forum to decide which is more practical.

    24. Steve

      You export to the home counties.
      No exotic mechanism needed.

      No canals on Mars required.

      The system given its highly concentrated nature can only deal with highly concentrated goods given the specific impulse required to acheive escape velocity but no matter ……..
      The system is not designed around viable production / consumption loop.

      These peoples goals are completely divorced from localism.

    25. “Job Guarantee”. I wish MMT would drop this. It’s nonsense and unnecessary. Creating pointless low paid jobs just because.

      I find it hard to get the point across before people switch off. What I try to do now is explain the two sides of debt. Like posting –> stop focusing on the irrelevant liability side (for monetary sovereign Govt’s) and instead focus on the critically important asset side that can fund new housing etc.

      Or like this

      “It’s almost a miracle. But people can not see it. Monetary sovereign Govts can spend without limit. And should do within reason as this creates funds for the Govt to spend to support the poor, new housing, clean green investments etc. PLUS AT THE SAME TIME a new asset for an aging population to invest in.

      or this
      “And the world has the technology to do this today. BUT AN IRRATIONAL FEAR OF GOVT DEBT HOLD US BACK. Nothing more.”

      Because if I go into too much detail people just switch off. But I always strongly counter the Govt debt is bad lie. They often follow up with Zimbabwe / Germany etc then I need to counter this.

      It’s a battle but its need to be fought. Otherwise ignorance (about money and debt) could bring down the West. Rather than entering a period of prosperity and abundance due to massive technology improvements. We will enter a new dark age due to ignorance about money and debt. And a fear of journal entries.

    26. Dear RJ (at 2015/10/26 at 13:33)

      “Job Guarantee”. I wish MMT would drop this. It’s nonsense and unnecessary. Creating pointless low paid jobs just because.

      Perhaps you should read more deeply about the place of the Job Guarantee in macroeconomic theory. Your comments betray you in this regard. There is much more to the JG than “creating pointless low paid jobs”.

      Further, who said anything about ‘pointless’ jobs anyway.

      best wishes
      bill

    27. Why not integrate a job guarantee and a universal dividend that guarantees a middle class lifestyle thus giving those people who have personally uninteresting or stultifying jobs the option to quit or reduce their time on the job to say 16-20 hours/week…and then spreading the rest of the hours around to whomever wishes to have them?

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