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Wait a minute. If money grows as one-dollar bills, how long would it take to harvest $1.9 trillion for a COVID relief bill? Snag.
I have been trying to get my head around Modern Monetary Theory (MMT), but every time I try I end up wound around its axles. I don’t understand why I’m having such difficulty, since every congresscritter and would-be congresscritter in America is talking about it as if they totally understand it. It seems to me that its core proposal is that if you’re the federal government, money really does grow on trees.
Deficits don’t matter, MMTers insist, neither does the national debt. Just today I heard a congresscritter lamenting on TV that the trillions of dollars the country is spending on COVID relief will have to be repaid by our unfortunate grandchildren. Not so, say MMTers, we don’t repay the loans, we roll them over — that is, when they come due we borrow enough to pay them off. And if we need more money t0 pay the ever rising interest costs, we just print it. (Actually, I think that metaphor is out of date; no need to print it now, we just imagine it into being, electronically. With artificial intelligence, or something.)
Thus, according to MMTers, it is impossible for a sovereign nation with its own currency to default. (I guess nobody got the memo to the 16 sovereign bond issuers that have defaulted since 1998. Greece and four other countries — Ecuador, Jamaica, Belize and Argentina — have defaulted twice in the last 17 years.) Therefore, say the MMTers, spend whatever it takes to stop the pandemic or rebuild your infrastructure because there will always be money. You can also consider bitcoin like kjope bitcoin or sell your gold as part of your investment strategy.
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Reminds me of a song Burl Ives made popular when I was a kid, The Big Rock Candy Mountains:
Where the boxcars all are empty
And the sun shines every day
And the birds and the bees
And the cigarette trees
The lemonade springs
Where the bluebird sings
In the Big Rock Candy Mountains
It also reminds me of the fact that the great majority of serious economists, business and political leaders, believe that the economy and the population can grow forever on a finite planet, which is not only logically but demonstrably impossible. I am of course intimidated by the intellectual firepower of the advocates of growth, and of MMT, because they are learned, articulate, sophisticated, rich and powerful. They are also wrong. I think.
Common sense says that MMT is correct only so long as everyone — not only everyone in the sovereign country, but everyone in the world who invests in its treasury bills — has total confidence in the currency, believes that it rests on a stable and flourishing economy, and that the country will not flood the market with imaginary cash and devalue its currency that way. (Remember the pictures of people in prewar Germany taking wheelbarrow loads of currency to the store to buy a loaf of bread? That.)
Of course it must be said that common sense, like modern monetary theory, has its limits. It stands helpless before quantum mechanics, Bitcoin and Brexit. Maybe it is simply incapable of grasping the reality of the Big Rock Candy Mountains.
All the counties you listed defaulted in other currencies. The US owes debt in US dollars and has few debts denominated in other currencies.
We’re playing a game with currency—it has value to buy real things in the real world until other sovereign nations refuse to play along anymore. They play along because the game, for now, still has benefits for them. When it doesn’t anymore, the U.S. dollar stops being the world’s reserve currency. Game over.
Tom, your brilliance and wit never cease to amaze me.
“I have been trying to get my head around Modern Monetary Theory (MMT) … ”
No you haven’t. At it’s core MMT is about arresting the power of money creation away from international banks, the 1%, Wall Street, the catabolic capitalist class, and all those who serve them and the infinite growth paradigm.
In an MMT regime, money would be spent into existence by – hopefully, in our case – elected government officials, and not lent into existence by private capital concerns as it is now.
By definition, there would be no debt in MMT regime. No T bill offerings to worry about. No rolling it over. No $27 trillion deficit. There would be no such thing as the intentional INFLATION* of exponential debt bubbles, like for example, the $1.5 quadrillion derivatives bubble …oops, market… that currently hangs like a giant anvil over the measly $80 trillion world economy.
*Hmm, inflation. There’s that word. The old MMT bugaboo. Wiemar, Argentina, Rhodesia. Wheelbarrows of full of cash. Couldn’t overprinting by overzealous elected representatives lead to hyperinflation?
Yes, it could. No matter who has the power over money creation, too much if it can lead to inflation. I mean, what is a $1.5 quadrillion market, really, if not some new super duper form of hyperinflation on a planetary scale?
Note: ” … we just imagine (money) into being, electronically.”
Take a wrong turn somewhere in the 1960’s?
Yes Tom, money does grow on trees. Always has. The only question is, who would you prefer to do the planting and the picking?
Personally I advocate for public banking/MMT, or the control of money creation by the commons, precisely because I live on a finite planet.
MMTers recommend controlling inflation via highly progressive taxation, especially on passive income (‘rents’), a la Henry George, or, more recently, Michael Hudson. This, along with a small tax on financial trades, ought to seriously curb speculation.
I would also recommend serious credit market reforms, including much, much higher asset ratio requirements in the banking system, tighter lending standards, etc… It’s access to credit that really drives asset inflation in the paper markets. And reinstate Glass-Steagall too.
In the real world, we need to worry about resource depletion and shortages as well, so I would try to encourage services consumption over goods, probably via a phased-in fee and dividend carbon tax– based on James Hanson’s proposal from almost 20 years ago.
We’ve no shortage of resources (yet) to ensure everyone a modest lifestyle. Poverty and homeless exist because we allow it (pick your reason). In a degrowth economy, which is inevitable– and maybe already begun– inequality becomes harder and harder to justify, at least if you take American beliefs about meritocracy at face value.
“In a degrowth economy, which is inevitable … ”
Yes it is, and switching to MMT regimes would at least afford nation-states the opportunity to make an unlikely attempt, to manage it.
Otherwise, “de-growth” will be nothing more than a descent into rapacious madness.
https://www.counterpunch.org/2018/11/01/catabolism-capitalisms-frightening-future/
I can’t get past the question, “If we can print or electronically create money into existence, then why does the government need to borrow it from the Chinese?”
The US government doesn’t “need” to borrow from anyone. It chooses to do so.
Sovereign nations needlessly borrowing money created by private institutions is a banking scam, plain and simple, and one in which every major nation on the planet has agreed to be a party to, save China.
The basic organizational structure of human cognition is narrative (a/k/a storytelling). It used to be that narrative was anchored to real things in the world because they possess threat and value. However, in the version(s) of the story we now tell ourselves about reality, we’ve lost those anchors and are freed to believe basically whatever we want. Surprisingly, some amount of that fiction sticks. The fiction about MMT is one instance — for now. Because the sociology of money is bound up in social consensus and markets, so long as a sufficient number of people are convinced that wealth dreamed into being has actual value, then for all intents and purposes, it does as a medium of exchange. But it’s a temporary condition, a papering over, if you will, of an obdurate reality immune to human fantasy. Lots of people know full well that what’s going on in the economy, in markets, in politics, and throughout the culture is fundamentally fraudulent and cannot stand for much longer. As with ecological collapse, it’s only a waiting game.
MMT assumes a functioning economic system. No economic system can function where the medium of exchange does not move through the system. At the point where all you can purchase with money is money you have reached the event horizon.
There must be a reason that some lust for artificial intelligence and eschew organic. Mining (computing) irrational number sets as a source
of wealth, set against a store of MMT created value of exchange seems to be a good description of why MMT is real but will not affect the economy in the least.. Yes the observation of the information is real, “what profit a man?”.
Remember Level 42? “Is it so wrong, to be human after all?”
If you would at least try to understand MMT, I recommend “The Deficit Myth” by Stephanie Kelton. The one wrinkle in the concept is that declining fossil fuel energy reserves would set a hard limit on how much money can be created without tipping the economy over into inflation.
Money, after all, is really just a token for energy. It used to work just fine to have money backed by gold because the only surplus energy there was before the nineteenth century came from sunlight photosynthesizing plants combined with human and domesticated animal muscle-power (along with some supplementation from windmills and water-wheels). However, once we started utilizing our massive savings account of stored-sunlight in the form of fossil fuel energy, the economy needed to expand. PM-backed currency had to be abandoned because of its pronounced deflationary effect on the industrial economy.
It’s all about the money, as always…
https://www.youtube.com/watch?v=YcXMhwF4EtQ
If you are a twenty five year old trying to buy a first home, you already live in a world of high inflation. If you finally have some income and want to buy stock, the same. Inflation predates MMT, even if only unofficially. As long as food prices are stable, we’re good.