Ann, the problem we face is the monopolistic monetary and financial paradigm for the creation and distribution of new money, namely Debt Only. Yourself and all of MMT, Keen's Minsky's Financial Instability Hypothesis, UBI, Michael Hudson's financial parasitism have the problem well surrounded it's just that we need to "up our game" to the level of paradigmatic analysis. Reforms are all well and good, but an entire pattern/paradigm change is what truly changes things. Paradigms are single concepts that describe the operant factor of a system, body of knowledge and new paradigms change the character of a pattern under analysis. The single policy of a 50% Discount to the consumer at retail sale all of which is rebated back to the merchant by the monetary authority mandated to do such would change the pattern of finance and the economy because it would 1) mathematically eliminate inflation by implementing beneficial price and asset deflation. Whew! That's mind blowing, no? 2) It would immediately and directly double the purchasing power of every individual economic agent and potentially double all demand for every enterprise's goods and services. 3) if inflation is condemned to the dust bin of history, then fiscal deficits for sovereign currency nations could be hugely increased in order to fund the mega projects necessary to confront climate change.
If you or anyone else can come up with a single policy that creates so much beneficial change and solves as many problems I'd be happy to hear about it. The above policy and the rest of the policy program of the new monetary and financial paradigm can be found in my book if anyone cares to investigate it.
Ann this is so important at the moment - to se the links you set out - I wonder do you have anything we could publish as a blog for the Rapid Transition Alliance?
Thanks David, and yes you're right I must write more about what re-integration means. In fact, there I deal with it in my book, The Production of Money...and also to an extent in The Case for the Green New Deal...I like the Bridgetown Agenda, and Ms Mottley is a fine leader...but the Agenda deals mainly with the IMF and WB which definitely need reform, and they are but a small part (a very big part for poor countries) of the global system. I would like to see a more radical agenda, aimed at reforming a system which has Wall St. in effective charge of the main levers of the economy....
I'm in the midst of trying to make sense of MMT. Can you point me to a resource that consolidates your views? I've been looking around and you seem in some instances/respects for, and in others, against?
I see some MMT advocates have been rude to you on Twitter, not a good sign.
I gave someone else this summary, not sure if it's fair:
> The name is somewhat misleading, I think, as it appears in some respects to be just objectively true (in its description of money creation), but has also come to be used as a catch-all moniker for a bundle of policy recommendations advocated for by its supporters, mostly US centre-left.
> In essence, they argue that governments with sovereign currencies are free to – and should – create as much money through spending as is compatible with actual economic resources, rather than being misled by the common rightwing notion that government debt is a bad thing in the same way that household debt is a bad thing.
> But they tend to bundle that idea with others, such as a government job guarantee, that I (as a supporter of UBI) am not so keen on and which seems intrusive on people's freedom.
> Even if one agrees with MMT in broad strokes, it's not clear that it offers many opportunities for economies other than the US. Are there potential structural limitations beyond investor sentiment? I'm not sure, my understanding grows hazy at this point.
David thank you for this...I have serious problems with MMT...mainly because it derives much of its authority from the world's reserve currency - the dollar. And yes, the US can, and does theoretically "print" as much currency as it needs. But very few sovereigns have that privilege..I am a supporter of Keynes's monetary theory and policies....and as such argue that governments through their central banks raise finance through the issuance of bonds/debt. MMTers ridicule that approach as you rightly note. The problem is that bond issuance is visible in plain sight. And like Keynes, I am not a great fan of big government deficits/debt ...even while I recognise that when the private sector slumps - governments must of course step in and spend. Keynes's case is that to stabilise debt, full employment is required. South Africa is a classic case of high public debts generated by economic failure/extraordinary high rates of unemployment. The job of governments is to spend to create jobs, when the private sector is too timid, and risk averse to do so.
Jobs, as we all know generate income - both for the employee, the private sector...but most importantly for the state - in the form of tax revenues. Those can be used to "balance the books"....As for inflation - that is a long story, and I recommend you find Claudia Sahm a US macroeconomist who has just published (on Twitter) her slide show on inflation and its causes. I think that increasing taxes (as MMT proposes) to deal with inflation assumes that it is demand-led. Today we are in a situation of economic weakness (prolonged since the GFC) and yet we have inflation - thanks to globalised markets in commodities (energy and food) that cannot - or at least are deliberately not - managed at the domestic level...by raising taxes! Like the hopeless decisions of Cbers to tackle inflation by raising rates to destroy 'demand' - the idea of raising taxes in this economic context would be unwise to say the least....
Finally, we differ in another respect too: I am opposed to UBI, even while its main advocate, Guy Standing is a good friend of mine...But that is another story!
Many thanks for your detailed response, Ann. I'm still baffled to be honest, as this debate seems not to be so much a matter of theory but of evidence of actual practice – how money is in fact created in financial systems.
As you rightly state, bond issuance is visible in plain sight. But my impression is that that is a somewhat separate matter to currency creation by a central bank...? In South Africa at least, the process would be seem to be that currency is created by the central bank, and bonds are issued by the treasury, as outlined in this article written not by an economist, but by a lawyer describing the provisions of the relevant legislation:
I would be very interested to know your thoughts on how our South African unemployment could be addressed.
Also, are you opposed to BIGs as well as UBI?
I cannot justify my support for UBI in terms of economic theory. For me, it is predicated on my very non-expert observation (and personal experience) that wealth creation seems to be a function of the ability to use land + resources + finance + knowledge + social connection + infrastructure + access to markets, that access to these functions comes largely automatically to the wealthy and middle classes via family and society, and that those who are not thus endowed by birth need to be assisted financially to make up for it.
It's a pity that so many of the discussions around these issues seem to degenerate into arguments steeped in toxic masculinity. I hope to learn from you without falling prey to such tendencies!
Ann, the problem we face is the monopolistic monetary and financial paradigm for the creation and distribution of new money, namely Debt Only. Yourself and all of MMT, Keen's Minsky's Financial Instability Hypothesis, UBI, Michael Hudson's financial parasitism have the problem well surrounded it's just that we need to "up our game" to the level of paradigmatic analysis. Reforms are all well and good, but an entire pattern/paradigm change is what truly changes things. Paradigms are single concepts that describe the operant factor of a system, body of knowledge and new paradigms change the character of a pattern under analysis. The single policy of a 50% Discount to the consumer at retail sale all of which is rebated back to the merchant by the monetary authority mandated to do such would change the pattern of finance and the economy because it would 1) mathematically eliminate inflation by implementing beneficial price and asset deflation. Whew! That's mind blowing, no? 2) It would immediately and directly double the purchasing power of every individual economic agent and potentially double all demand for every enterprise's goods and services. 3) if inflation is condemned to the dust bin of history, then fiscal deficits for sovereign currency nations could be hugely increased in order to fund the mega projects necessary to confront climate change.
If you or anyone else can come up with a single policy that creates so much beneficial change and solves as many problems I'd be happy to hear about it. The above policy and the rest of the policy program of the new monetary and financial paradigm can be found in my book if anyone cares to investigate it.
Ann this is so important at the moment - to se the links you set out - I wonder do you have anything we could publish as a blog for the Rapid Transition Alliance?
Nicky...Hmmmm...will give it a think..and be in touch.
Your insights are invaluable, Ann, thank you so much. I wish this analysis was in the Economist; but I'm not clear on your prescription for repair? What does reintegrating markets in society look like, in practice? Could that be combined with the Bridgetown Agenda? https://www.climatechangenews.com/2022/09/23/mia-mottley-builds-global-coalition-to-make-financial-system-fit-for-climate-action/
Thanks David, and yes you're right I must write more about what re-integration means. In fact, there I deal with it in my book, The Production of Money...and also to an extent in The Case for the Green New Deal...I like the Bridgetown Agenda, and Ms Mottley is a fine leader...but the Agenda deals mainly with the IMF and WB which definitely need reform, and they are but a small part (a very big part for poor countries) of the global system. I would like to see a more radical agenda, aimed at reforming a system which has Wall St. in effective charge of the main levers of the economy....
Thanks, Ann.
I'm in the midst of trying to make sense of MMT. Can you point me to a resource that consolidates your views? I've been looking around and you seem in some instances/respects for, and in others, against?
I see some MMT advocates have been rude to you on Twitter, not a good sign.
I gave someone else this summary, not sure if it's fair:
> The name is somewhat misleading, I think, as it appears in some respects to be just objectively true (in its description of money creation), but has also come to be used as a catch-all moniker for a bundle of policy recommendations advocated for by its supporters, mostly US centre-left.
> In essence, they argue that governments with sovereign currencies are free to – and should – create as much money through spending as is compatible with actual economic resources, rather than being misled by the common rightwing notion that government debt is a bad thing in the same way that household debt is a bad thing.
> But they tend to bundle that idea with others, such as a government job guarantee, that I (as a supporter of UBI) am not so keen on and which seems intrusive on people's freedom.
> Even if one agrees with MMT in broad strokes, it's not clear that it offers many opportunities for economies other than the US. Are there potential structural limitations beyond investor sentiment? I'm not sure, my understanding grows hazy at this point.
David thank you for this...I have serious problems with MMT...mainly because it derives much of its authority from the world's reserve currency - the dollar. And yes, the US can, and does theoretically "print" as much currency as it needs. But very few sovereigns have that privilege..I am a supporter of Keynes's monetary theory and policies....and as such argue that governments through their central banks raise finance through the issuance of bonds/debt. MMTers ridicule that approach as you rightly note. The problem is that bond issuance is visible in plain sight. And like Keynes, I am not a great fan of big government deficits/debt ...even while I recognise that when the private sector slumps - governments must of course step in and spend. Keynes's case is that to stabilise debt, full employment is required. South Africa is a classic case of high public debts generated by economic failure/extraordinary high rates of unemployment. The job of governments is to spend to create jobs, when the private sector is too timid, and risk averse to do so.
Jobs, as we all know generate income - both for the employee, the private sector...but most importantly for the state - in the form of tax revenues. Those can be used to "balance the books"....As for inflation - that is a long story, and I recommend you find Claudia Sahm a US macroeconomist who has just published (on Twitter) her slide show on inflation and its causes. I think that increasing taxes (as MMT proposes) to deal with inflation assumes that it is demand-led. Today we are in a situation of economic weakness (prolonged since the GFC) and yet we have inflation - thanks to globalised markets in commodities (energy and food) that cannot - or at least are deliberately not - managed at the domestic level...by raising taxes! Like the hopeless decisions of Cbers to tackle inflation by raising rates to destroy 'demand' - the idea of raising taxes in this economic context would be unwise to say the least....
Finally, we differ in another respect too: I am opposed to UBI, even while its main advocate, Guy Standing is a good friend of mine...But that is another story!
Many thanks for your detailed response, Ann. I'm still baffled to be honest, as this debate seems not to be so much a matter of theory but of evidence of actual practice – how money is in fact created in financial systems.
As you rightly state, bond issuance is visible in plain sight. But my impression is that that is a somewhat separate matter to currency creation by a central bank...? In South Africa at least, the process would be seem to be that currency is created by the central bank, and bonds are issued by the treasury, as outlined in this article written not by an economist, but by a lawyer describing the provisions of the relevant legislation:
https://www.dailymaverick.co.za/opinionista/2021-03-05-common-cents-how-the-national-budget-and-expenditure-are-determined/
Am I missing something here?
I would be very interested to know your thoughts on how our South African unemployment could be addressed.
Also, are you opposed to BIGs as well as UBI?
I cannot justify my support for UBI in terms of economic theory. For me, it is predicated on my very non-expert observation (and personal experience) that wealth creation seems to be a function of the ability to use land + resources + finance + knowledge + social connection + infrastructure + access to markets, that access to these functions comes largely automatically to the wealthy and middle classes via family and society, and that those who are not thus endowed by birth need to be assisted financially to make up for it.
It's a pity that so many of the discussions around these issues seem to degenerate into arguments steeped in toxic masculinity. I hope to learn from you without falling prey to such tendencies!
(To the list of factors needed for wealth creation, I should have added "a healthy environment"!)
So helpful for non economists!
So terrifying that no lne seems to hear.