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MINSKY AND MODERN MONEY THEORY: Was Minsky a “forefather”?

Published by Anonymous (not verified) on Sat, 25/02/2017 - 1:03pm in

MINSKY AND MODERN MONEY THEORY: Was Minsky a “forefather”?

By L. Randall Wray A few weeks ago, a video of a lecture that Hyman Minsky gave at Westminster College on Oct 30, 1991 was made available. Although the Levy Institute has some audio of Minsky, this is the only video … Continue reading →

MINSKY AND MODERN MONEY THEORY: Was Minsky a “forefather”?


L. Randall Wray on MMT and Positive Money

Published by Anonymous (not verified) on Fri, 17/02/2017 - 5:19am in

L. Randall Wray on MMT and Positive Money

Published by Anonymous (not verified) on Fri, 17/02/2017 - 5:19am in

Wednesday, 15 February 2017 - 5:22pm

Published by Matthew Davidson on Wed, 15/02/2017 - 5:34pm in

I'm ranting altogether too much over local "journalism", and this comment introduces nothing new to what I've posted many times before, but since the Advocate won't publish it:

Again I have to wonder why drivel produced by the seething hive mind of News Corp is being syndicated by my local newspaper. This opinion comes from somebody who appears to be innumerate (eight taxpayers out of ten doesn't necessarily - or even very likely - equal eight dollars out of every ten) economically illiterate, and empirically wrong.

Tax dollars do not fund welfare, or any other function of the federal government. Currency issuing governments create money when they spend and destroy money when they tax. "Will there be enough money?" is a nonsensical question when applied to the federal government. As Warren Mosler puts it, the government neither has nor does not have money. If you work for a living, it is in your interest that the government provides money for those who otherwise wouldn't have any, because they spend it - and quickly. Income support for the unemployed becomes income for the employed pretty much instantly. Cutting back on welfare payments means cutting back on business revenues.

And the claim that the "problem" of welfare is increasing in scale is just wrong. Last year's Household, Income, and Labour Dynamics in Australia (HILDA) report shows dependence on welfare payments by people of working age declining pretty consistently since the turn of the century. This opinion piece is pure class war propaganda. None of us can conceivably benefit in any way from pushing people into destitution in the moralistic belief that they must somehow deserve it.

Who will play the Harlequin?

Published by Anonymous (not verified) on Tue, 10/01/2017 - 9:32am in

Who will play the Harlequin?

By J.D. ALT In a recent essay (“A Strategic Thought”) I suggested that right now is an opportune moment for some brave progressive leader to step out and explain what modern fiat money is, why we’ve been using, in fact, … Continue reading →

Who will play the Harlequin?


Xmas Cheer: The Debt Is Not Our Biggest Problem

Published by Anonymous (not verified) on Sun, 01/01/2017 - 2:01pm in

Why do so many pundits and politicians, including the future director of the Office of Management and Budget, beat the debt drum so loudly and so often? It’s one of the most effective, and most abused, wedge issues in American politics.

by Kerry Pechter

The nomination of Mick Mulvaney—deficit hawk, three-term Republican congressman from South Carolina and founding member of the House “Freedom Caucus”—to the cabinet-level directorship of the Office of Management and Budget is not good news for the financial system.

Mulvaney has said (and perhaps even believes) that one of the “greatest dangers” we face as Americans is the annual budget deficit and the $20 trillion national debt. This notion is an effective political weapon, but it’s dangerously untrue. If it were true, the country would have failed long ago.

Debunking this canard should be a priority for anybody who cares about retirement security. As long as we believe in the debt bogeyman, we can’t productively solve the Social Security and Medicare funding problems, defend the tax expenditure for retirement savings, or even create a non-deflationary annual federal budget. Everything will look unaffordable.

Hamilton, the Broadway star

If you don’t believe me, believe Alexander Hamilton. In 1790, the new nation was awash in government IOUs but had little cash or coinage for daily commerce. Hamilton, the impetuous future Broadway subject, resolved the crisis with a simple argument. He reminded his fellow founders that debts are also assets, and that the most secure assets are those that yield a guaranteed income stream from a sovereign government with the power to tax.

At the time, according to Hamilton’s “First Report on the Public Credit,” the U.S. debt in 1790 stood at $54.1 million and change. In that document, the first Treasury Secretary laid out his plan—over the protests of deficit hawks—to restore the debt’s face value, secure the new nation’s credit rating, and put new money into circulation through interest payments on the debt, with revenue from taxes on imports.

The plan worked. With its par value established, U.S. debt became—and still is—the basis of the nation’s money supply. “In countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money,” Hamilton wrote. “Transfers of stock or public debt are there equivalent to payments in specie; or, in other words, stock, in the principal transactions of business, passes current as specie.”

Not a burden on our backs

Since then, during times of doubt, others have re-explained all this. In 1984, many people were panicking that the federal budget deficit had reached $185 billion. That July, economic historian Robert Heilbroner, author of The Worldly Philosophers, explained in a New Yorker essay that their fear was based on a misconception.

“The public’s concerns about the debt and the deficit arises from our tendency to picture both in terms of a household’s finances,” Heilbroner wrote. “We see the government as a very large family and we all feel that the direction in which these deficits are driving us is one of household bankruptcy on a globe-shaking scale.”

That’s not so, he explained. The government is more like a bank, which lends by creating brand new liabilities. (You can also think of it as the cashier at a casino, who has an infinite number of chips at her disposal.) “As part of its function in the economy, the government usually runs deficits—not like a household experiencing a pinch but as a kind of national banking operation that adds to the flow of income that government siphons into households and businesses,” he wrote.

Robert Heilbroner

“The debt is not a vast burden borne on the backs of our citizenry but a varied portfolio of Treasury and other federal obligations, most of them held by American households and institutions, which consider them the safest and surest of their investments.”

‘Heterdox’ economic view

Over the past 30 years, however, as the national debt has become a political football, this common-sense explanation of it has been suppressed. You hardly ever hear it articulated. It is kept alive mainly by “heterodox economists” like Stephanie Kelton and L. Randall Wray.

In the 2015 edition of his book, Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems, Wray explained the flaw in the idea that the deficit, the debt or the interest on the debt will eventually overwhelm us. It’s the kind of straight-line forecasting, he wrote, that ignores self-limiting factors or feedback mechanisms.

“If we are dealing with sovereign budget deficits we must first understand WHAT is not sustainable, and what is,” Wray wrote. “That requires that we need to do sensible exercises. The one that the deficit hysterians propose is not sensible.” He uses the analogy of Morgan Spurlock, the maker of the 2004 documentary Supersize Me, to illustrate his point.

In the movie, Spurlock wanted to discover the effects of consuming 5,000 calories worth of food at McDonald’s every day. Wray pointed out that, if you ignored certain facts about human metabolism, the 200-lb Spurlock would inevitably weigh 565 pounds after a year, 36,700 pounds after 100 years and 36.7 million pounds after 100,000 years. Of course, that can’t happen.

Randall Wray

“The trick used by deficit warriors is similar but with the inputs and outputs reversed,” according to Wray. “Rather than caloric inputs, we have GDP growth as the input; rather than burning calories, we pay interest; and rather than weight gain as the output we have budget deficits accumulating to government debt outstanding.

“To rig the little model to ensure it is not sustainable, all we have to do is to set the interest rate higher than the growth rate – just as we had Morgan’s caloric input at 5,000 calories and his burn rate at only 2,000 – and this will ensure that the debt ratio grows unsustainably (just as we ensured that Morgan’s waistline grew without limit).”

Fooling the people

Like any other threat, the debt’s scariness factor depends on how you frame it. The 2016 budget deficit was $587 billion, which sounds terrible. But that was just 3.3% of Gross Domestic Product. The U.S. debt reached $19.9 trillion in 2016, which also sounds terrible. But that is the amount accumulated since 1790. Our annual GDP is almost $18 trillion.

To enlarge the frame, we should include the whole “financial position” of the United States. According to Wikipedia, it “includes assets of at least $269.6 trillion and debts of $145.8 trillion. The current net worth of the U.S. in the first quarter of 2014 was an estimated $123.8 trillion.” In that context, neither the deficit nor the debt seem like terrible threats.

If you’re bent on making the math look scary, you can easily do it. As Wray noted above, “If the interest rate [i.e., costs] is above the growth rate [i.e., revenues], we get a rising debt ratio. If we carry this through eternity, that ratio gets big. Really big. OK, that sounds bad. And it is. Remember, that is a big part of the reason that the global financial crisis (GFC) hit: an over-indebted private sector whose income did not grow fast enough to keep up with interest payments.”

But the government doesn’t face the same constraints as the private sector (which is why it could bail out the private sector in 2008-2010). Once you recognize that U.S. assets are huge, that U.S. debts are also private wealth, and that the debt needs to be serviced but never zeroed out, then today’s debt shrinks into the manageable problem that it is and not a source of panic. (Paying down the national debt—in effect, deleveraging the government—would be disastrously deflationary; that’s a topic for another article.)

So why do so many pundits and politicians, including the future director of the Office of Management and Budget, beat the debt drum so loudly and so often? The answer is obvious. It provides an evergreen reason to delegitimize any and every type of government spending, regulation and taxation. It’s one of the most effective, and most abused, wedge issues in American politics.

Kerry Pechter is the founder and editor of the Retirement Income Journal. Reprinted with permission.

Xmas Cheer: The Debt Is Not Our Biggest Problem

Published by Anonymous (not verified) on Sun, 01/01/2017 - 2:01pm in

Why do so many pundits and politicians, including the future director of the Office of Management and Budget, beat the debt drum so loudly and so often? It’s one of the most effective, and most abused, wedge issues in American politics.

by Kerry Pechter

The nomination of Mick Mulvaney—deficit hawk, three-term Republican congressman from South Carolina and founding member of the House “Freedom Caucus”—to the cabinet-level directorship of the Office of Management and Budget is not good news for the financial system.

Mulvaney has said (and perhaps even believes) that one of the “greatest dangers” we face as Americans is the annual budget deficit and the $20 trillion national debt. This notion is an effective political weapon, but it’s dangerously untrue. If it were true, the country would have failed long ago.

Debunking this canard should be a priority for anybody who cares about retirement security. As long as we believe in the debt bogeyman, we can’t productively solve the Social Security and Medicare funding problems, defend the tax expenditure for retirement savings, or even create a non-deflationary annual federal budget. Everything will look unaffordable.

Hamilton, the Broadway star

If you don’t believe me, believe Alexander Hamilton. In 1790, the new nation was awash in government IOUs but had little cash or coinage for daily commerce. Hamilton, the impetuous future Broadway subject, resolved the crisis with a simple argument. He reminded his fellow founders that debts are also assets, and that the most secure assets are those that yield a guaranteed income stream from a sovereign government with the power to tax.

At the time, according to Hamilton’s “First Report on the Public Credit,” the U.S. debt in 1790 stood at $54.1 million and change. In that document, the first Treasury Secretary laid out his plan—over the protests of deficit hawks—to restore the debt’s face value, secure the new nation’s credit rating, and put new money into circulation through interest payments on the debt, with revenue from taxes on imports.

The plan worked. With its par value established, U.S. debt became—and still is—the basis of the nation’s money supply. “In countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money,” Hamilton wrote. “Transfers of stock or public debt are there equivalent to payments in specie; or, in other words, stock, in the principal transactions of business, passes current as specie.”

Not a burden on our backs

Since then, during times of doubt, others have re-explained all this. In 1984, many people were panicking that the federal budget deficit had reached $185 billion. That July, economic historian Robert Heilbroner, author of The Worldly Philosophers, explained in a New Yorker essay that their fear was based on a misconception.

“The public’s concerns about the debt and the deficit arises from our tendency to picture both in terms of a household’s finances,” Heilbroner wrote. “We see the government as a very large family and we all feel that the direction in which these deficits are driving us is one of household bankruptcy on a globe-shaking scale.”

That’s not so, he explained. The government is more like a bank, which lends by creating brand new liabilities. (You can also think of it as the cashier at a casino, who has an infinite number of chips at her disposal.) “As part of its function in the economy, the government usually runs deficits—not like a household experiencing a pinch but as a kind of national banking operation that adds to the flow of income that government siphons into households and businesses,” he wrote.

Robert Heilbroner

“The debt is not a vast burden borne on the backs of our citizenry but a varied portfolio of Treasury and other federal obligations, most of them held by American households and institutions, which consider them the safest and surest of their investments.”

‘Heterdox’ economic view

Over the past 30 years, however, as the national debt has become a political football, this common-sense explanation of it has been suppressed. You hardly ever hear it articulated. It is kept alive mainly by “heterodox economists” like Stephanie Kelton and L. Randall Wray.

In the 2015 edition of his book, Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems, Wray explained the flaw in the idea that the deficit, the debt or the interest on the debt will eventually overwhelm us. It’s the kind of straight-line forecasting, he wrote, that ignores self-limiting factors or feedback mechanisms.

“If we are dealing with sovereign budget deficits we must first understand WHAT is not sustainable, and what is,” Wray wrote. “That requires that we need to do sensible exercises. The one that the deficit hysterians propose is not sensible.” He uses the analogy of Morgan Spurlock, the maker of the 2004 documentary Supersize Me, to illustrate his point.

In the movie, Spurlock wanted to discover the effects of consuming 5,000 calories worth of food at McDonald’s every day. Wray pointed out that, if you ignored certain facts about human metabolism, the 200-lb Spurlock would inevitably weigh 565 pounds after a year, 36,700 pounds after 100 years and 36.7 million pounds after 100,000 years. Of course, that can’t happen.

Randall Wray

“The trick used by deficit warriors is similar but with the inputs and outputs reversed,” according to Wray. “Rather than caloric inputs, we have GDP growth as the input; rather than burning calories, we pay interest; and rather than weight gain as the output we have budget deficits accumulating to government debt outstanding.

“To rig the little model to ensure it is not sustainable, all we have to do is to set the interest rate higher than the growth rate – just as we had Morgan’s caloric input at 5,000 calories and his burn rate at only 2,000 – and this will ensure that the debt ratio grows unsustainably (just as we ensured that Morgan’s waistline grew without limit).”

Fooling the people

Like any other threat, the debt’s scariness factor depends on how you frame it. The 2016 budget deficit was $587 billion, which sounds terrible. But that was just 3.3% of Gross Domestic Product. The U.S. debt reached $19.9 trillion in 2016, which also sounds terrible. But that is the amount accumulated since 1790. Our annual GDP is almost $18 trillion.

To enlarge the frame, we should include the whole “financial position” of the United States. According to Wikipedia, it “includes assets of at least $269.6 trillion and debts of $145.8 trillion. The current net worth of the U.S. in the first quarter of 2014 was an estimated $123.8 trillion.” In that context, neither the deficit nor the debt seem like terrible threats.

If you’re bent on making the math look scary, you can easily do it. As Wray noted above, “If the interest rate [i.e., costs] is above the growth rate [i.e., revenues], we get a rising debt ratio. If we carry this through eternity, that ratio gets big. Really big. OK, that sounds bad. And it is. Remember, that is a big part of the reason that the global financial crisis (GFC) hit: an over-indebted private sector whose income did not grow fast enough to keep up with interest payments.”

But the government doesn’t face the same constraints as the private sector (which is why it could bail out the private sector in 2008-2010). Once you recognize that U.S. assets are huge, that U.S. debts are also private wealth, and that the debt needs to be serviced but never zeroed out, then today’s debt shrinks into the manageable problem that it is and not a source of panic. (Paying down the national debt—in effect, deleveraging the government—would be disastrously deflationary; that’s a topic for another article.)

So why do so many pundits and politicians, including the future director of the Office of Management and Budget, beat the debt drum so loudly and so often? The answer is obvious. It provides an evergreen reason to delegitimize any and every type of government spending, regulation and taxation. It’s one of the most effective, and most abused, wedge issues in American politics.

Kerry Pechter is the founder and editor of the Retirement Income Journal. Reprinted with permission.

Answers to a Few Questions from Real Progressive’s Viewers

Published by Anonymous (not verified) on Wed, 28/12/2016 - 3:06am in

Tags 

MMT

Q: “Wouldn’t a decrease in CEO salaries help job creation and could also decrease the debt THEN?” What we need to do is ignore CEO salaries and focus on the macro level. Here, we understand that the market, business, and CEOs do not fund the US economy – the US Government does. Because the US[...]

The post Answers to a Few Questions from Real Progressive’s Viewers appeared first on Ellis Winningham.

A Walk in the Forest after the Election

Published by Anonymous (not verified) on Thu, 17/11/2016 - 9:09am in

A Walk in the Forest after the Election

By J.D. ALT On November 8, I happened to be complacently immersed in one of the important books now available to the human species—The Hidden Life of Trees, by Peter Wohlleben.  On the morning of November 9, I realized that … Continue reading →

A Walk in the Forest after the Election


Perspectives for the Spanish Left

Published by Anonymous (not verified) on Wed, 16/11/2016 - 8:02pm in

by William Saas, Jorge Amar, David Glotzer, and Scott Ferguson

This article is the full text of a three-part series on Spain’s economic crisis, the program of the new leftist political party Podemos, and both the limitations and potential of the Spanish left today. The authors point to the importance of employment policy (and especially a job guarantee) for pulling Spain out of the crisis, the necessity of a “left exit” (lexit) from the euro, and the relevance of Modern Monetary Theory (MMT) in transcending conventional balanced-budget thinking.

They are beautiful sights, the public squares of Madrid—open spaces, lush gardens, and sparkling fountains, all surrounded by striking architecture dating from the city’s days as seat of a colonial empire. These ornate public spaces now serve as makeshift residences for a growing number of Spanish dispossessed. After nearly a decade of austerity, depression, chronic unemployment, and perpetual political submission to the dictates of the Troika (the International Monetary Fund, European Central Bank, and European Commission), thousands displaced from work and home are left with little choice but to seek refuge in the few parcels of public infrastructure that remain available to them.

Improvisation is the name of the game for members of the new Spanish precariat. At Madrid’s main square, the Plaza Mayor, newly homeless citizens (some highly educated) rise early for work busking or selling scrap metal. Throughout the country, members of the growing reserve army of ninis—or “neither nors,” the quarter of the young Spanish who are neither in school, nor employed, nor in training programs—forage for food to take home to their squatted apartments. Los irrecuperables (“unrecoverables”), the more than half of long-term unemployed Spanish over age 50, are meanwhile forced to figure out how to subsist on severely reduced pensions and the charity of their fellows.

The homeless, ninis, and irrecuperables are not alone in their plight. Indeed, stability and security elude even the employed afortunados in austerian Spain. Recent labor law reforms, first passed by the center-left (and resolutely neoliberal) Spanish Socialist Workers’ Party (PSOE) and then expanded by the conservative People’s Party (PP), have eroded workers’ rights and enabled employers to seize an even larger share of national income. Wages and benefits are taking a beating, too. Total worker compensation fell from about €523 million in 2007 to less than €510 million in 2015. Even as unemployment has risen, total spending on unemployment benefits has fallen more than 25%. Temporary work is replacing traditional employment, with the average length of contract falling from 77 days in 2008 to 57 by 2014. (Formal contracts between employer and employee are legally required in Spain.) Part-time work constitutes one third of all labor contracts. Finally, the percentage of unpaid overtime rose from less than 40% in 2008  to over 55% in 2015—a sum equal to the lost income of approximately 87,000 full-time jobs.

Nearly 30% of the Spanish population is currently classified by the Unión General de Trabajadores (General Union of Workers, or UGT) as “at risk” of poverty. Any may consider joining the estimated 700,000 Spaniards who have fled the country to find marginal employment elsewhere. Most will opt to stay, however, knowing full well that that they are not welcome in other EU countries, and that their prospects would not improve by much in any of those countries, anyway.

What relief does the Spanish left have to offer a population so imperiled? The simple answer is: not much. On the one hand, the PSOE has consistently—if not exclusively—made things worse for Spain over the last decade. That the PSOE is presently in the throes of a slow and torturous death spiral is no consolation for the years of impoverishment and despair that resulted from the party’s servile deference to the Troika’s commands. On the other hand, the slick façade of the only-slightly-further-left Podemos makes poor cover for the purple party’s own orthodox underbelly. In the face of all evidence to the contrary, Podemos leadership appears convinced that “balanced budgets” are the best remedy for Spain’s economic ills. As recent elections have demonstrated, Spanish voters were less than inspired by Podemos’ master plan to squeeze more euros out of domestic businesses and middle-class families in order to facilitate increases in public spending. A similar plan—to transcend austerity through more efficient tax collection—has clearly not worked out well for Syriza and the Greeks. Spaniards simply want—and deserve—better.

The far left coalition, the United Left (UL), would give it to them, were it in a position to do so. While Podemos’ top economist Nacho Álvarez advocates for better tax enforcement as the key to achieving a more symmetrical balance sheet, Eduardo Garzón, economic advisor to UL and researcher at the Fundación por la Europa de los Ciudadanos, argues that a municipal jobs guarantee program is the only viable path to renewed Spanish prosperity. For Álvarez, the vital first steps to recovery are to “reduce the deficit more slowly” and to “broaden the tax base.” For Garzón, deficits and taxes are secondary to the need for “construction of a new alternative economic model that puts the current economy at the service of the people.” The disparity of ambition between the proposals of Álvarez and Garzón—an archaic and conservative accounting target for the former, a progressive full-employment agenda for the latter—is stark. Of the two, only one bears any real chance of achieving meaningful relief for the Spanish working class. Unfortunately, the force of Garzón’s rejoinder to Álvarez’s plan for functional-in-name-only finance is presently attenuated by UL’s minority position in the Podemos-led Unidos Podemos (“United We Can”) coalition, where the spirit of “sound finance” otherwise prevails unabated. Moreover, the very public conflict between Podemos’ top officials—“number one” Pablo Iglesias and “number two” Íñigo Errejón—makes for splashier headlines than does news of disagreement within the coalition regarding how best to escape from austerity.

The Jobs Guarantee

A “jobs guarantee” program is the best political tool for breathing new life into the Spanish economy. A proposal of this kind was presented to the Spanish parliament in 2014. Designed by Eduardo Garzón and presented to parliament by his brother, Alberto Garzón, the jobs guarantee program would have put a large portion of the ninis, irrecuperables, and the homeless back to work. As opposed to the current system, under which the last to be fired is the first to be hired, the Spanish jobs guarantee program sought to put most idle labor to work immediately, involving Spain’s dispossessed in socially meaningful and adequately compensated communal projects. In accordance with MMT, meanwhile, financing for Spain’s full employment economy would not be contingent upon tax revenues or government borrowing. Unlike the short-term and revenue constrained New Deal programs deployed in the United States during the 1930s, the Spanish jobs guarantee program should be financed through direct government authorization and appear as a fixed charge on the federal balance sheet.

Garzón’s proposal suffered a resounding defeat in 2014. Deluded by the poor logic of the neoliberal consensus and a punishing phantom gold standard, opponents of the program ignored Garzón’s arguments and voted against the bill without comment (here the Spanish saying, “no hay mayor desprecio que no hacer aprecio” or, there is no bigger contempt than not listening at all, is apt). It is also worth noting that, had the jobs guarantee been implemented under the aegis of the EU’s budget rules, the policy’s overall impact would have been severely limited by the fiscal straitjacket of Maastricht.

When one shifts focus from the public spectacle of political discord to the more vital behind-the-scenes debate over political economy, the prospects for the Spanish left look a lot more promising. Several major figures in Unidos Podemos, besides Garzón, do understand that the fiscal strictures forced upon Spain by the Troika institutions foreclose any hope for true economic recovery. Informed by the insights of Modern Monetary Theory (MMT), a select and well-placed few clearly see that monetary union without fiscal union is a tried-and-true recipe for endless austerity (see Alejandro Reuss, “European Social Democracy and the Roots of the Eurozone Crisis: Part 1—Monetary Union and Fiscal Disunion,” D&S, July/August 2016). They recognize that jobs and demand, not equilibrium and “confidence,” are the key ingredients of economic well-being. Most importantly, they understand that the last best hope for Spain is to again become sovereign in its own currency.

The impending collapse of PSOE will leave masses of Spanish voters alienated and in search of alternatives to the newly formed PP-led government. While some voters might prefer the familiar feel of PP’s austere embrace, it is a safe bet that many more will defect to the parties that make up the Unidos Podemos coalition. This is, we feel, a very promising development. But in order for a reinvigorated Unidos Podemos to follow through on its promise to deliver the Spanish working class from austerity, the coalition must finally disavow, without apology or regret, the utopian dream of a single-currency Europe.

Modern Monetary Theory

Modern Monetary Theory (MMT) is a school of heterodox economic theory that describes how monetary systems operate in modern states. MMT’s critical insight is that states that are sovereign in their own currency cannot ever run out of money, and so can always afford to purchase anything that is priced in their own currency. This is true for any state that does not “peg” the value of its currency to a metallic standard (like the gold standard) or other government currencies (like a “dollar peg”), but instead issues its currency by “fiat” and allows its value to “float.” The only real spending constraints in such a system are 1) access to real resources and 2) concerns about inflation (though such concerns can be, and often are, overstated). Any additional constraints on domestic spending—e.g., a balanced budget rule—are artificial, political, and hence contestable.

Furthermore, MMT explains that taxation and public borrowing are both fiscal policy instruments designed to regulate the growth of the economy—not means for generating necessary revenue. This is because states that are sovereign in their own currency have no natural need to raise revenue. For this reason, MMT suggests that fiscal policy decisions ought always to be taken in service of the “public purpose.”  Typically, the public purpose is best served by the full employment of national resources, including and especially labor. Toward that end, MMT advocates conclude that a government-supported jobs guarantee is the optimum policy for full employment of national resources in a state with a sovereign monetary system. Such a program, they argue further, will function as both a price floor and an economic stabilizer. MMT advocates have long objected to the euro currency project on the grounds that the monetary union deprives EU states of the fiscal authority necessary to adequately provide for the care and employment of their citizens.

The Story So Far

That the euro currency experiment has been an abject failure is a truism across the European left. Most non-centrist leftists recognize that what was sold as a means to achieve the dream of an open and unified Europe has in practice resulted in more deeply entrenched nationalism and still greater economic division. As Podemos leader Pablo Iglesias pithily summarized, “This Europe doesn’t work. This Europe is dying.”

It is one thing to notice that Europe is dysfunctional and dying. It is quite another to identify precisely what is killing Europe and, following from that diagnosis, to do what is necessary to restore individual European nations to good health. While Iglesias and his cohort on the European further-left seem to grasp the severity of the pathology, their prescriptions for ailing European nations have so far been shockingly modest in scope and frustratingly palliative in nature. What’s more, these prescriptions exhibit signs of contamination by the sorts of groupthink and denial that are endemic to the neoliberal European consensus. They have only extended Europe’s suffering.

Spain’s current case of chronic and intractable debt deflation—sky-high private debt levels and suppressed wages and pensions that make paying down private debts impossible—exemplifies neoliberalism’s dead-end political-economic wisdom. Between 1998 and 2007, rapid expansion of private credit precipitated the tripling of property prices in Spain. When the global credit bubble burst in 2008, property prices crashed but private debt levels remained high. The next part of the story mirrors events in the United States: millions of people lost their homes, their jobs, and their access to easy credit. What separates Spain’s experience from that of the United States, however, is that the Spanish government was not empowered to defend and stimulate its economy through proactive fiscal policy. Rather, because it is not sovereign in its own currency, Spain was forced to borrow €100 billion from the European Stability Mechanism to stop the collapse of its banks. The rules of the monetary union strictly prohibited the Spanish government from deficit spending to keep its citizens fed, housed, and employed. Meanwhile, the United States was able to spend as needed by issuing Treasury bonds payable in its own currency (deficit spending).

The sustained annual deficits needed to get Spain out of its current depression likely exceed 9% of GDP—roughly three times the limit imposed by the EU. If Spain were to breach that limit, it could set in motion the EU’s Excessive Deficit Procedure (EDP), an arbitrary law that would drain up to 0.2% of Spain’s total economic output. The social and economic costs of a possible EDP fine are outstripped by the potential output currently being sacrificed in the name of budgetary balance, only underscoring the fickleness of the Troika’s rules and the misguidedness of obedience to them. To make matters worse, the Spanish government cannot control the interest rates on its national debt. This leaves the Spanish economy almost entirely subject to the whims of both the international bond market and the supranational European Central Bank.

To be sure, of all the proposals to address Spain’s debt deflation problem, Podemos’ has been among the least terrible. Much like the budget plans of so-called “deficit doves” in the United States, Podemos’ plan prescribes increased domestic spending in the near-term and balanced budgets over the long-term. To pursue the doves’ path within the strictures of the EU is difficult if not impossible. To hear Podemos’ Nacho Álvarez tell it, however, all that is needed for Spain to save its citizens and balance its budget is better and more consistent tax collection. Revenue gained through more effective tax collection could be used immediately to increase funding for vital social welfare programs. Over time, Álvarez argues, this process would have the salutary effect of bringing government revenues into balance with public expenditures.

This policy agenda has its heart in the right place, but it is irretrievably diluted by wrong-headed economic analysis. MMT’s “deficit owls” will immediately notice the sources of error. First of all, there is little reason to believe that Álvarez’s plan for more effective tax collection will work, so long as Spain remains in the euro currency union. This is because adequate tax collection in a free capital zone is nearly impossible without a supranational tax authority that is empowered to both enforce and collect. Otherwise it’s entirely too easy for private citizens and corporations to shuffle their euros between EU countries without notice.

More importantly, the idea that governments are naturally revenue-constrained and so always ought to strive to balance their budgets is a debilitating economic myth. Typically, governmental revenue constraints are artificial and self-imposed. That is, revenue constraints are first and foremost political constraints. In the eurozone, the balanced budget political constraint was formally codified with the Maastricht Treaty in 1992. Against the advice of numerous, ideologically diverse economists, the signatories of the Treaty entered into an economic system governed by what Scott Ferguson and Jorge Amar (two of the co-authors of this article) have recently called a “phantom gold standard.” Like the gold standard of old, the EU’s phantom standard functions to constrain the number of euros in circulation. Instead of precious metal, however, the Troika backs the euro with a capricious moralism. We will not allow your government to spend in excess of its current and anticipated revenues, the institutions protest, because to do so would be imprudent. It is unfortunate that millions must meanwhile starve and go without shelter, but such concerns are only incidental to the greater moral responsibility of the institutions to maintain euro-equilibrium.

The Way Forward

In order to escape its cycle of debt deflation, Spain must ultimately do what its counterparts on the European “periphery” have so far failed to do: exit the eurozone. To proceed otherwise—to continue to acquiesce to the destructive rules of the institutions—is to guarantee the continued immiseration of the Spanish working class.
It is time for leaders within Unidos Podemos to pledge, in no uncertain terms, to take the steps that are necessary to restore Spain to prosperity. The most controversial of these steps will be the Spanish Left-exit, or “lexit.” Path-breakers in a lexit-oriented Unidos Podemos must anticipate and account for popular reluctance to depart the euro. With the example of UKIP’s noxious campaign for Brexit fresh in their minds, some Spaniards will doubtless view Spanish lexit as an inherently reactionary proposal. In stark contrast with UKIP, however, a lexit-oriented Unidos Podemos will be able to supplement its proposal with a roadmap for a prosperous post-euro Spanish economy, as well as a leadership that is prepared to execute the requisite sharp left-turn.

Several prominent members within the Unidos Podemos coalition understand the urgent need for a Left-exit (or “lexit”). Indeed, while his public actions have often been less than encouraging, Pablo Iglesias has himself subtly signaled that he knows Spain must exit the euro if the nation is to have any hope for meaningful economic recovery. What Iglesias needs to do now is publicly embrace what he knows privately to be true—and to act accordingly. His first act ought to be to discard the conciliatory politics and cloying branding strategies of Podemos’ peacemaker-in-chief, Íñigo Errejón. Placating peace-signs and Ikea-style adverts have already proven to be political dead-ends and will surely not do the trick when it comes to selling the Spanish lexit. Next, Iglesias should form a new cabinet of economic advisors made up of pro-lexit comrades like Juan Laborda, Miguel Urbán, Adoración Guamán, and Eduardo Garzón.

The pernicious nature of the EU system is not news to Juan Laborda, friend of Nacho Álvarez and economic advisor to Podemos. Indeed, Laborda’s recent embrace of MMT has enabled him to see clearly that the “consensus among the extractive European elites on austerity is not based on any logical understanding of the modern monetary system and deliberately ignores many of the actual options that are at the disposition of a fiat currency issuing government. …The objective is to continue maintaining behaviors and institutional structures that limit the spending capacity of the government.” Observing this to be the case, and recognizing also that there is little hope for creating different conditions within the confines of the euro, Laborda argued in the lead-up to last summer’s elections that “the best option for countries like Italy, Spain, Greece or Portugal is exiting unilaterally from the monetary union by restoring their own economic and political sovereignty.”

An audacious proposal for lexit from Iglesias could expect further support from Miguel Urbán, EU MP and prominent member of the United Left. Urbán has long been both an outspoken critic of the euro and a dedicated advocate of restoring popular sovereignty to nations in the eurozone. Most importantly, Urbán understands that lexit ought to be the inaugural gesture for a left Spanish government. “The first thing that a progressive government should do, that wants to protect the people,” Urbán has said, “would be to disobey the EU’s treaties. … We have to break these rules in order to make clear that this political and economic framework is not workable.”

Iglesias would then do well to consult Adoración Guamán, director of the progressive Fundación por la Europa de los Ciudadanos think-tank, and Eduardo Garzón, chief economic advisor of UL, for a workable alternative to the EU’s austere economic framework. Like Laborda, Guamán and Garzón have leveraged the insights of MMT to argue that Spain must break loose from the fiscal straitjacket of the euro before it can have any hope of restoring prosperity to Spaniards. But Guamán and Garzón further recognize that a swift and remorseless lexit is only the first step toward recovery. Once out of the euro, the Spanish government will have to follow through on its pledge to provide for the health and welfare of its citizenry. It will have to put Spain back to work.

Of course, such a maneuver will require a level of coordination and agreement that is not readily found in the current configuration of Unidos Podemos. But the schematics for a new and more effectual configuration are easily sketched. Our proposal: Retain Pablo Iglesias as the political and ideological leader of Unidos Podemos. Assign Adoración Guaman and Eduardo Garzón to serve as Iglesias’ chief financial advisors. Invite Juan Laborda and Miguel Urbán to oversee the implementation of UP’s new plan to restore Spain to prosperity through lexit and the job guarantee. Íñigo Errejón and Nacho Álvarez will be left to decide whether they want to get on board with this revolution in Spanish political economy, or remain behind in futile pursuit of squeezing ever more euros out of the already destitute.

The economic prospects of Spain in 2016 remain as dour as they were in 2014. Unlike 2014, however, today there is a critical mass inside the Unidos Podemos coalition that is ready to support a fresh and genuine alternative agenda for Spain. With the specter of a PP-led government looming on the horizon, it is likely that Iglesias and Unidos Podemos will soon be faced with a stark choice: stay the course and hope for change, or change the course and make a better future.

This article was published in a three-part series by the magazine Triple Crises. We thank the authors for their kind permission to publish.

William O. Saas is an assistant professor of rhetoric at Louisiana State University. His work has appeared in symplokē and Rhetoric & Public Affairs.

Jorge Amar is a Spanish economist, president of Asociación por el Pleno Empleo y la Estabilidad de Precios, or Full Employment and Price Stability Association. Recently, Amar served as economic advisor for Spain’s Unidad Popular party.

David Glotzer is a valuation analyst at Solidifi, and freelance writer whose background is in Economics and Mathematics. His writings have appeared in CounterPunch, Investig’Action, Strategic Culture Foundation, and Young Progressive Voices.

Scott Ferguson is an assistant professor of humanities and cultural studies at the University of South Florida. He is also a Research Scholar at the Binzagr Institute for Sustainable Prosperity. His essays have appeared in CounterPunch, Naked Capitalism, and Flassbeck Economics International.

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