MMT

Hy Minsky, Low Finance: Modern Money, Civil Rights, and Consumer Debt

Published by Anonymous (not verified) on Fri, 29/09/2017 - 9:41pm in

Hy Minsky, Low Finance: Modern Money, Civil Rights, and Consumer Debt

By Raúl Carrillo I delivered the remarks published below at the First International Conference on MMT on September 22nd, 2017. The panel, entitled “Modern Money, Courts, and Civil Rights — Against Legal Predation”, explored the interplay between the cycle of … Continue reading →

Hy Minsky, Low Finance: Modern Money, Civil Rights, and Consumer Debt


Italy’s Great Experiment

Published by Anonymous (not verified) on Wed, 27/09/2017 - 7:21pm in

Italy’s Great Experiment

By J.D. ALT Italy is experimenting with giving tax-cuts to its citizens in exchange for public services―such as pulling weeds and cutting grass. Wow. What an amazing idea! The government issues a tax credit, and uses it to pay a … Continue reading →

Italy’s Great Experiment


MMT and Politics: A Brief Explanation

Published by Anonymous (not verified) on Mon, 11/09/2017 - 2:50am in

“I see my role as an academic to provide the knowledge to expose the arguments that are used to stack the cards and hide the fact that they are being stacked. That is my role. It is the role of the progressive political scientist to then use the insights that MMT provides to research and[...]

The post MMT and Politics: A Brief Explanation appeared first on Ellis Winningham.

Federal Taxpayers Do Not Fund the Federal Government; The Federal Government Funds Federal Taxpayers

Published by Anonymous (not verified) on Tue, 05/09/2017 - 2:28am in

Well that title is blunt, isn’t it? I like blunt. That’s why I chose it. As I always say, blunt cuts through bullshit. It’s my bet that it is sure to cause irritation for those persons who play immature games of semantics with the word ’fund’. Good. Look, we all know what people mean when[...]

The post Federal Taxpayers Do Not Fund the Federal Government; The Federal Government Funds Federal Taxpayers appeared first on Ellis Winningham.

Professor Bill Mitchell to Speak On the 25th of September in Brighton

Published by Anonymous (not verified) on Wed, 30/08/2017 - 11:22am in

Tags 

MMT, neoliberalism

The growth of the Labour Party movement and the popularity of Corbyn are a response to social problems which can be traced back either directly or indirectly to the economic ideology that has defined the last four decades: Neoliberalism. Faced with issues of inequality, democracy, war and humanity’s environmental demise, never has activism been so[...]

The post Professor Bill Mitchell to Speak On the 25th of September in Brighton appeared first on Ellis Winningham.

“Look for the Helpers” – Fred Rogers Has Something to Say to Laypersons and Students

Published by Anonymous (not verified) on Sat, 12/08/2017 - 7:49am in

Tags 

MMT

Most of us know Fred as Mr. Rogers from the children’s television program “Mr. Roger’s Neighborhood”. Now, you might find it strange or even a bit juvenile of myself to invoke Mr. Rogers as an opportunity to teach interested laypersons and students of MMT. But rest assured, in my view, it is neither strange nor[...]

The post “Look for the Helpers” – Fred Rogers Has Something to Say to Laypersons and Students appeared first on Ellis Winningham.

Non-Technical Review of the "10,000 Year Explosion".

Published by Anonymous (not verified) on Tue, 25/07/2017 - 5:56pm in

[A]
Nope. I didn't write it. I'm neither a qualified nor an impartial judge for Gregory Cochran and Henry Harpending's 2009 "The 10,000 Year Explosion".

That out of the way, I'll tell you what I did. I did something better: I searched the net for reviews to outsource the task. This is what I found.

Like most books, "The 10,000 Year Explosion" has had multiple reviews, some more technical, some less so, some favourable, others no so much, from the broader public and scholars.

Then I found this really thought-provoking gem. I consider it so for several reasons. Its author is one Emil O. W. Kirkegaard (unrelated to that Kierkegaard): he sounds like a normally intelligent and reasonably educated layman with a self-professed interest in science. Given that scholarly reviews commend the book for its non-technical language, appropriate to undergraduates, Kirkegaard's judgement suggests how the book could be received by its public.

Just as importantly, Kirkegaard is highly enthusiastic and his review leaves no room for doubt on that. I'll quote only the opening paragraph (do read the whole thing). Without further ado (emphasis mine):

"Review of The 10000 Year Explosion (Gregory Cochran and Henry Harpending)

"November 7, 2012 by Emil O. W. Kirkegaard

"This is a nontechnical overall introduction to how human evolution has happened. it mentions a lot of stuff i didnt know. i wud have liked more references. the book is openly race realist, and i was waiting for it to mention that the reason Africa is so backwards is that africans are so dumb, but it was only hinted at. instead, the authors focused the last chapter on a higher than average group, the jews. this is probably a smart move. once it has been acknowledged that the asians and jews are smarter than whites, one cannot shrug off other racial differences as being due to white racism, white supremacy, biased IQ tests, and so on."

How much of that is only a reflection of a non-professional reviewer's previous biases? Co-author Henry Harpending's profile at the Southern Poverty Law Center suggests Kirkegaard did not distort the book's basic message much, if at all.

----------
Social democracy has always been little more than a conclusion in search of an argument. That is not peculiar to social democracy. With social democrats, however, this became an art form.

That pre-ordained conclusion is twofold: (1) capitalism must be saved come what may, and (2) they are capitalism's saviours.

To uphold that conclusion is costly. New challenges pop up every day. In an emergency, any argument supporting The Conclusion will have to do. That explains social democrats' attraction to Keynes and to the less mainstream versions of his ideas. That also explains their often hard to disguise adoption of extreme right-wing ideas: ready-made arguments galore.

Fear not, a long and boring argument is not in this post. There is, I think, a more efficient argument. A picture is worth a thousand words:

(source)
In this particular case, however, the label "post Keynesian" involves not only a shady social democratic blogger posing as an academic while endorsing kooky thinkers with kooky ideas and links to doubtful groups, but real academics with a professional reputation to maintain who might think those endorsements aren't such a good idea. Like Caesar's wife, public intellectuals must be not only chaste, but beyond suspicion.

You see the problem there, don't you?

----------
Tyler Cowen reviews "The 10,000 Year Explosion" (January 22, 2009).

Steven Pinker's guarded but otherwise sympathetic comment on their earlier (and to Pinker evidently flattering) 2005 paper "Natural History of Ashkenazi Intelligence", also reported in their book. It's interesting to observe Pinker attempting to remain impartial and detached. To his credit, he did try. Did he succeed? You be the judge.

Image Credits:
[A] "The BADGER explosion on April 18, 1953, as part of Operation Upshot-Knothole, at the Nevada Test Site". Author: National Nuclear Security Administration / Nevada Site Office. Source: Wikimedia. Work in the public domain.

'Straya: Basically, she's rooted mate

Published by Matthew Davidson on Thu, 06/07/2017 - 10:58am in

Charts! Nobody asked for them, but I have them anyway! Over the last few years the Bank for International Settlements have been publishing a fab set of statistics that are not usually brought to bear in the tea leaf reading of mainstream economists. This is a shame, as they are exactly the sort of statistics which would indicate the risk of imminent financial crisis. Last month the BIS updated the data to the end of (calendar year) 2016. Here's an illustration (courtesy of LibreOffice) of where Australia is, relative to some comparable and/or interesting countries (click to embiggen):

As the BIS explains, the Debt Service Ratio (DSR):

"reflects the share of income used to service debt and has been found to provide important information about financial-real interactions. For one, the DSR is a reliable early warning indicator for systemic banking crises. Furthermore, a high DSR has a strong negative impact on consumption and investment."

So as a measure of Australia's ability to pay at least the interest on our private sector debts, if not pay down the principal, you might think this is not a bad result. We clearly substantially delevered after the GFC, thanks in large part to the Rudd stimulus pouring public money into the private sector, then levered up a bit since, but we've ended up between Canada and Sweden, which is a pretty congenial neighbourhood. But this is total private sector debt; what happens when we take business out of the equation and just look at households (and non-profit institutions serving households - NPISHs)?

Woah! Suddenly we're in a league of our own. Canada's flatlined here since the GFC, meaning the subsequent increase in their total private debt burden has largely come from investment in business capital. In such a case, provided this investment is directed at increasing productive capacity, and is accompanied by public sector spending to proportionally increase demand, this is sustainable debt. Australia has been doing the opposite.

Here's another way of looking at the coming Australian debt crisis, private sector credit to GDP:

This ratio will rise whether the level of debt rises, GDP falls, or both, so it's another good indicator of unsustainable debt levels. The current total level (in blue) of over 200% is at about the ratio Japan was at when its real estate bubble burst in the early 1990s. Breaking this down again into household and corporate sectors, we see that over the mid-1990s Australia switched the majority of its private sector borrowing from business investment to sustaining households. What happened in the mid-90s? Data here from the OECD:

 

From the mid-1990s to 2007 Australia experienced the celebrated run of Howard/Costello government fiscal (or "budget") surpluses. We all know, or should know, thanks to Godley's sectoral balances framework, what happens when the public sector runs a surplus: the private sector must run a corresponding deficit, equal to the last penny. There is nowhere else, net of private sector bank credit creation (which zeroes out because every financial asset created in the private sector has a corresponding private sector liability), for money to come from. When the government taxes more than it spends, it is withdrawing money from the private sector. Mainstream economics calls this "sustainable", and "sound finance", meaning of course it is nothing of the sort.

How did the private sector, and the household sector in particular, continue to spend from that point onward, behaving as though losing money (not to mention public infrastructure and services) down the fiscal plughole was not merely benign but quite wonderful? It chose to Nimble it and move on, going on a massive credit binge. The banks were happy to provide all the credit demanded, because the bulk of the lending was ulitimately secured by residential real estate prices, and these were clearly going to keep rising without limit (thank heavens, because if they were to fall like they did in the US in 2007…).

The Global Financial Crisis put a dent in the demand for credit, but as subsequent government fiscal policy has tightened, under the rubric of "budget repair", it is rising again. We are already in a state of debt deflation: Australia's household debt service ratio (as above), at between 15 and 20 percent of household income for over a decade, has dampened domestic demand, leading to rising unemployment and underemployment, leading to more easy credit as a quick fix for income shortfalls ("debtfare"). More of what income remains is redirected to debt servicing rather than consumption, and so we spiral downwards, our incomes purchasing less and less with each turn. [I will post more about some of the social and microeconomic consequences in (over-)due course.]

The Australian government needs to spend much, much more - and quickly. Modern Monetary Theory, drawing on an understanding of the nature of money that goes back a century, shows us that government spending (contrary to conventional wisdom) is not revenue-constrained; a currency-issuing government can always buy anything available for sale in the currency it issues. There is nothing about our collective "budget" that needs repairing before we can do so. The same data from the OECD shows that most currency-issuing governments with advanced industrial economies run fiscal deficits almost all the time:

In fact, under all but exceptional conditions, government fiscal surpluses (i.e. private sector fiscal deficits) are a recipe for recession or depression. The greater the surplus, the greater the subsequent government spending required to lift the private sector out of crisis, as can be seen above in the wild swings in neoliberal governments' fiscal position from the mid-90s on. The fiscal balance over any given period is nothing more than a measurement of the flow of public investment into the private sector. What guarantees meaningful sustainability is a government's effective use of functional finance to manage the real (as opposed to financial) economy in pursuit of public policy objectives. Refusing to mobilise idle resources (including, crucially, labour) for needed public goods and services is not "sound finance"; it is the very definition of economic mismanagement, as was once widely recognised:

"It is true that war-time full employment has been accompanied by efforts and sacrifices and a curtailment of individual liberties which only the supreme emergency of war could justify; but it has shown up the wastes of unemployment in pre-war years, and it has taught us valuable lessons which we can apply to the problems of peace-time, when full employment must be achieved in ways consistent with a free society.

"In peace-time the responsibility of Commonwealth and State Governments is to provide the general framework of a full employment economy, within which the operations of individuals and businesses can be carried on.

"Improved nutrition, rural amenities and social services, more houses, factories and other capital equipment and higher standards of living generally are objectives on which we can all agree. Governments can promote the achievement of these objectives to the limit set by available resources.

"The policy outlined in this paper is that governments should accept the responsibility for stimulating spending on goods and services to the extent necessary to sustain full employment. To prevent the waste of resources which results from [un]employment is the first and greatest step to higher living standards."

Australian Government, 1945, White Paper on Full Employment

We chose to forget all this from the 1980s onward. We can choose to remember it at any time.

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.

The Joy of Economic Irresponsibility: or how I learned to stop worrying and love the public debt

Published by Matthew Davidson on Thu, 19/05/2016 - 2:50pm in

If there's one thing I've learned in the last year that I think is so important it's worth shouting from the rooftops, it's that simultaneously studying economics and the psychology of stress while also being personally stressed about money is a very, very bad idea.

If there are two important things I've learned in the last year, I'd say that the more generally applicable one to the citizen in the street is that a government which issues it's own money can never run out of it.

Such a government can of course pretend, or at least behave like, it can run out of money. In fact, many have done so for the last thirty years or so, and the results have been disastrous. You don't have to take my word for it. Here are some graphs, mostly from the RBA Chart Pack, except where otherwise indicated. Here's the Australian government fiscal balance, misleadingly labelled "budget balance" as per the conventional misunderstanding of reality.

Things took a dip from 2007/8, but deficits are improving, and we were in surplus for most of the preceeding decade. And that's good, isn't it? Surpluses mean we have more money, don't they?

Generally, yes. A "budget surplus" for a business or household means more money at hand to spend later. However, for an economy with a sovereign-currency-issuing government, public fiscal surpluses mean we have less money.

How is this possible? To understand this, you have to understand that accountancy—specifically double-entry bookkeeping and balance sheets—is the foundation of economics; at least economics of a realistic kind. All money is credit money. You make money—literally—by being in debt to somebody, and by denominating this debt in the country's transferrable unit of account. Spending is the simultaneous creation of a debt on the buyer's side of the ledger, and a corresponding credit on the seller's side. However, if you happen to hold enough credits that have already been generated as the flipside of a debt in your favour, you can use these credits to immediately cancel the debt of the current transaction. One way most of us do this on a daily basis is by using cash. Cash is a transferrable token of public sector debt and private sector credit.

Three percent of the immediately-spendable money in the private sector is in the form of cash. The other 97% is just numbers stored on computers in the commercial banking sector. Most of this is money that originated as commercial bank loans, and will disappear from the bank's balance sheets as those loans are repaid (though of course in the meantime more loans will have been made). However, a significant amount of money originates as loans the government makes to itself (technically the central bank lends to the treasury), eventually ending up in the private sector as cash, or (through a mindbending process I will mercifully omit from this account) as commercial bank deposits. A currency-issuing government can always lend more money to itself in order to spend, and never has to pay it back. It follows that such a government does not need to tax in order to spend, and only ever taxes for other reasons. Economics textbooks, and economic commentators, routinely get this utterly and comprehensively wrong. Consider this textbook description of economic "automatic stabilisers":

"During recessions, tax revenues fall and welfare payments increase thereby creating a budget deficit. In times of economic boom, tax revenues rise and welfare payments fall creating a budget surplus."

Budget deficits are not an eventual consequence of government spending; the spending and the creation of a debt are the same operation. Tax revenues merely redeem a part of the already-accrued debt; the money issued by public spending  is a public IOU that effectively disappears when private parties use it settle their tax debt owed to the public. Tax revenues therefore cannot be used to fund public spending; in order to spend, new public debt must be issued. The automatic stabilisers are real (assuming a somewhat sensible tax system), but the important part of their function is on the private side: injecting new money to stimulate demand when needed, or putting the brakes on dangerous speculative activity in a boom. The government's fiscal position from one year to the next is an inconsequential side-effect.

Taxation is the elimination of money, and hence of the demand for goods, services, and assets that drives the private sector economy. Don't believe me? Lets take a wider focus on the fiscal balance numbers above:


[Source]

Generally, and especially prior to the neoliberal period, public fiscal surpluses are the exception, not the rule. And for a good reason; it's generally not a good idea to drain demand out of the economy. So what happens when you toss good sense aside, and insist on surpluses for their own sake? Here's what happened to public sector debt:

I'm presuming (the ABS Chart Pack doesn't specify) that this is debt owed to private sector banks in the form of loans and government securities. I should stress that, as with taxation, these operations are not required to finance spending, and are only ever done for other reasons (such as hitting interest rate targets). Also, because they don't issue currency themselves (though this is possible, and has worked elsewhere), lower levels of government do have to rely in part on revenue-raising to fund spending, though grants from the federal government also play a big part in determining their fiscal position.

Still—phew!—we got that scary public sector debt under control until the GFC, and we can do it again! But hang on, if that's taking money out of the private sector, where does the private sector get the money to sustain demand? Here's the private sector debt over the same period:

Note that this is one and a half times GDP, compared to the one third of GDP outstanding to the public sector, at the height of its alleged fiscal irresponsibility. When government self-imposes limits on its ability to spend, private sector credit creation takes up the slack. Who do you want controlling how much money is created, who gets it, and what it gets spent on? A mix of the commercial finance sector and a (somewhat) democratically-accountable government? Or just the bankers?

Most of private-sector money creation is commercial bank loans, and as economist Michael Hudson notes, in the US, UK, and Australia, 70 percent of bank loans are mortgages. That's a hell of a lot of money (what's 70 percent of one and a half times GDP?) dependant for its existence on the soundness of pricing for a single class of asset. If real estate prices suddenly crash, and mortgagees start to default on their loans, poof! The corresponding credits on the other side of the ledger are gone too, and the real estate sector takes the whole economy down with it. You can't argue with balance sheets.

Still, I expect we'll be fine as long as we stay the fiscal responsibility course, and don't let the government "spend more than it earns". Real estate prices only ever go up, don't they? And it's not like bankers would ever be led by their own short-term interests to make a huge amount of risky loans and inflate an enormous real estate price bubble…

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