Do have a read of my blogpost earlier this month - press this link here - for an update on my latest book. I have now completed chapter 10 in which, as referenced in the blogpost, I present the case for MMT as a means for transforming our economy and society. But it's going to take political will.
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| Professor Stephanie Kelton, advocate for MMT |
Here is a shortened version of my account of the power of MMT, taken from my draft of chapter 10 in 'Dying to Know'. I hope you are as excited as I am by what I discovered. This is your taster. I have also included a couple of YouTube videos for those of you curious to find out more.
'Stephanie Kelton and other MMT advocates are pointing out the simple truth that any government that issues its own currency can never run out of money. The US government issues its own currency – the dollar. The UK government issues its own currency – the pound sterling. Economists and politicians and
the media have, for whatever reasons, blinded themselves – and us - to this fact and all that follows from such a truth. We can build so much better an economy and society and world if we realize and act on this new understanding.
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| Professor Kelton debunking the myths that cost us so much |
MMT describes the real world where the government spends first and then taxes or borrows afterwards. Here in the UK, chancellor Sunak ordered buttons to be pushed to create the billions of pounds of support in this pandemic crisis. He was not waiting on our taxes or loan advances from financiers before doing so.
In fact, our taxes do not actually
pay for anything, at least not at the level of central government in the UK nor
at the federal level in the US. The government does not need our money. We need
their money. We have got the whole thing backwards!
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| Warren Mosler - 'the father of MMT' |
Warren Mosler, a successful financial trader on Wall Street in the USA, cottoned on to this truth in the 1990s and is regarded as the father of MMT but the idea itself can be found in earlier economists including Adam Smith and John Maynard Keynes. What MMT describes is our present fiscal reality. In 1971, President Richard Nixon ended the US link to the gold standard, where the dollar was pegged to the value of gold – and all other currencies then pegged to the value of the US dollar. From that act of state, a new range of possibilities opened. But much of our economic and political conversation is still rooted in an outmoded, pre-1971 way of thinking.
Video 1:
Ten minutes of explanation from Stephanie Kelton
To repeat, unlike a household, the government issues the currency it spends. Therefore, it can never go broke. That fact, of course, raises the question of why should the government need to take any money in taxes? Let me take you through the four reasons that are presented by Stephanie Kelton.
First, it is a relatively soft way
of ensuring social cohesion and obedience – that is how taxes began their life as
nation states began to form. We need citizens willing to go to work and produce
things, or train to be doctors or teachers or lawyers and so on, in exchange
for the government’s currency which can then be used for personal expenditure
including the payment of taxes.
Second, taxation provides a means
for the government to manage inflationary pressures. It can reduce the pressure
that leads to rising prices.
Third, it provides a powerful tool
to reshape the distribution of wealth and income. When most of the income in a
society goes to a few people at the top who save rather than spend, economies
tend to stagnate.
And finally, taxes can be used to
encourage or discourage certain behaviours. Carbon taxes can help lower
emissions, as will tax rebates on electric cars.
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| Professor Kelton became Bernie Sanders' economics advisor |
The defenders of the status quo say deficits will burden the next generation. Not so. The so-called national debt is a misnomer. It poses no financial burden whatsoever. We need a new name for it.
Those who are resistant to this new
way of seeing the world say deficits are harmful because they crowd out private
investment. Not so. The reverse is true. It is fiscal surpluses, not fiscal
deficits, that eat up our financial savings. When money remains in the
government’s treasury, the people cannot access it and their ability to save is
diminished.
As part of her doctoral studies, Stephanie Kelton had spent time in England at Cambridge with world-renowned economists. None of them paid any attention to the ideas of Warren Mosler. How could they be wrong and he right? He was, after all, a successful Wall Street investor, not an economist. She did her best to refute Mosler through her research into governmental fiscal and monetary policy. And then came the Eureka moment. She realized MMT was actually sound economics.
Video 2:
In five minutes, Stephanie Kelton explains what a deficit is.
Hers is such an enriching outlook.
Having shown the emptiness of contemporary thinking about fiscal deficits, Kelton
turned her attention to the deficits that do matter. She writes for an American
readership, but these deficits apply to other nation states that are living a
half-century behind the curve. Her list of the deficits that really matter is
heart-warming – a wonderful litany of the values of a humane and civilised
society. In chapter 10 of 'Dying to Know' I give full attention to such deficits.
I hope you have found this account of MMT useful and inspiring. I would be so grateful if this taster for 'Dying to Know' persuades you to press the Follow button at the top of the blog post (on a full screen) - 27 followers to date.
Thankyou Rob. I find its very hard to explain this theory to a person convinced the government budget is like a personal one-the view Thatcher maintained so forcefully. MMT is not mentioned by politicians. Strangely it also stands for Magic Money Tree. The part I do not understand properly is how to avoid inflation-I believe it can be managed but I don't understand it well enough to explain it to someone and perhaps that is why politicians don't mention it because they can't either.
ReplyDeleteThe mainstream view is that a certain amount of unemployment is necessary to keep inflation stable. But the reality over the last decade or more is that we have been faced with the opposite problem - underinflation. No country has achieved the magic target of 2% steady inflation. We need a better mix of fiscal and monetary policy to keep the economy operating at its full employment potential. Most economists - and politicians - are content to allow the market to figure out how many jobs to provide. We have placed too much responsibility on central banks to manage the economy - but they cannot alter taxes or spend money directly into the economy. The economists behind MMT recognise there are real limits to spending and pushing beyond these will lead to excessive inflation. However, what can be done is to run our economy at its maximum productive capacity. As Keynes pointed out, involuntary unemployment can be eliminated to everyone's advantage. Running a deficit to achieve this makes good sense; such a deficit should not be labelled as overspending. We need a government committed to spending, with tax adjustments that will offset excessive inflation - and a national job guarantee to ensure full employment and price stability. We can build a care economy through funding jobs that aim at caring for our people, our communities, and our planet. Anyone seeking paid work has guaranteed access to a job at a rate of remuneration established by the government - the kind of job guarantee that was the backbone of Roosevelt's New Deal. Remember, the government cannot run out of money. It is the currency issuer. Since the job guarantee is always in effect, we get a smoother overall economic ride, which helps to stabilise inflation. Stephanie Kelton presents a number of specific reasons why the national job guarantee is good news in helping control inflationary pressures (pp.64-9).
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