It was not a good February 2019 for political ‘prescription’ MMT (nor for their anti-central bank, anti-capitalist, gloom-and-doom choir).
On February 1st, Keith Weiner wrote a piece titled ‘Modern Monetary Theory Is A Cult’, referencing the real-life islander tribe known as the ‘cargo cult’. Just like a fake MMTer who doesn’t fully-understand concepts like ‘value’ or ‘productivity’, the cargo cult assumed that all they had to do was to build a runway—just ‘keyboard’ it in—and then airplanes full of cargo would come.
Nonfarm Payrolls (monthly unemployment figures) blew away expectations, meaning that the Longest Job Expansion In United States History—now 100 straight months strong—continued. Which (yet once again) kicked the ass of anyone still left that actually thinks a $500B federal program that creates ‘job’ guarantees DURING A LABOR SHORTAGE is a good idea.
‘The Intercept’ dropped this on the gullible MMT community (who still didn’t get the hint after Democrats re-instituted PayGo and Speaker Nancy Pelosi frustrated Green New Deal proponents by not giving them the kind of committee they wanted): “Pelosi Aide Privately Tells Insurance Executives Not To Worry About Democrats Pushing Medicare For All”—Ryan Grim
Which didn’t go over too well with MMT academics: “Democrats, Do you deny that you are the PARTY OF SATAN?”—Bill Mitchell
If Professor Mitchell had fully understood the article, he would have realized that the Democrats had simply made the decision that M4A was a political loser and that for now policymakers should focus their messaging on lowering drug prices. “The comfort level with a broader base of the American people (for single payer) is not there yet,” as per Speaker Pelosi (read: She will be aligned with private insurers and will oppose Big Pharma).
When asked if federal deficits will be mentioned in the February 5th SOTU Address, White House chief of staff Mulvaney said ‘no’ because ‘nobody cares’.
Is it because of that Progressive ‘revolution’ that nobody cares about deficits?
“Republicans…are the biggest MMT people we’ve seen in our lifetime.”—Logan Mohtashami
“One of the funny things that happened is that in a way, the Republicans…kind of advanced the MMT agenda.”—Stephanie Kelton
Then during the SOTU speech, after the president said “We were born free and we will stay free…The United States will never be a socialist nation,” even some over on the Democrat side of the aisle cheered (while Sen. Sanders fumed).
Meanwhile, another bullet hole in ‘bulletproof’ MMT is that, just like the cargo cult, the political ‘prescription’ MMT community has the blinders on when it comes to inflation. They think that consumer prices are the only thing to measure (that only consumer price inflation is the risk) and refuse to see anything else (like asset price inflation being fed by deficits that is worsening wealth inequality). Fake MMTers just look at consumer price inflation and not at the asset price inflation (stocks, bonds, real estate, aka the ‘savings bubble’). Furthermore, they also haven’t figured out that an increasing ‘Debt’ / GDP = a decreasing GDP / ‘Debt’ = a collapse in production = the ratio is going in the wrong direction (just like their ‘poster child’ Japan).
“They are fond of saying ‘deficit spending should be large enough to satisfy the desire of the private sector to save’ as if there is a limit on the price of financial assets.”—Charles Kondak
Bingo…Either the political ‘prescription’ MMT community is not fully grasping how incomplete it is to say that it’s fine to deficit spend ‘as long as there is no (consumer) price inflation’, or they are just bullshitting everyone—again. H/T to Jim ‘MineThis1’ Boukis for being the first one to sound the alarm on the savings bubble imbalance and those deficits that feed it (those Gov’t Deficits that = THEIR Savings). To just say it’s fine to deficit spend ‘as long as (consumer price) inflation is low’ is not only fake MMT, it’s borderline dangerous for the stability of the nation to not include asset price inflation in that federal spending calculus (to not consider creative pen strokes instead of keystrokes). Instead of calling it wealth inequality, perhaps we should call it ‘wealth inflation’ and then maybe these MMTers would get it.
Which is unlikely because MMT was carjacked and the first thing the carjackers did was to throw that pure ‘description’ baby out the window—which ended that era when MMT was The Description Not The Prescription. If asked to pinpoint when this happened, my guess would be April 26, 2018. That was the day when Bill Mitchell (the economist in Australia who—even though Australia has had 28 straight years without a recession thanks to export-led economic growth—says that ‘Exports are a cost’) wrote that “the Job Guarantee is a specific and intrinsic element of MMT.” What really bothers Professor Mitchell and all ‘prescription’ MMTers is that pesky political constraint to federal spending—they can’t stand knowing that we can afford any policy proposal, BUT it still has to be approved. To these MMTers, all their policy proposals SHOULD be approved because all their ‘prescription’ roads lead to the same place: More free ‘this’ for the ‘general welfare’ and more free ‘that’ for the ‘public purpose’ (without considering the unintended consequences of their good intentions). When saying that we should spend on whatever THEY want—and don’t worry about How To Pay For It—’because MMT’—these post-modern neomarxists keep showing their true ideals: Usurp the Power of the Purse of Congress, take away the Fed’s ability to change interest rates, cede control completely away from some private sector industries and slowly dismantle capitalism (to replace it with a cradle-to-grave welfare state). NOTE: There is absolutely nothing at all wrong with believing in that; however, don’t push your ideological agenda (the political ‘prescription’) under a guise of promoting the econ (the pure ‘description’)—if you want to be taken seriously by experts in the field.
Perhaps one of the biggest whoppers overheard during February was that oft-repeated, wishful-thinking that ‘MMT is getting more mainstream’. In other words, while peddling their political ‘prescription’ MMT (that has little chance of seeing the light of day) under the guise of promoting pure ‘description’ MMT (that has a big chance of seeing the light of day), the MMT community is now getting pissing on—while MMT academics are telling them that it’s ‘raining’ (that it’s ‘mainstream’).
Here’s some more examples of the ‘mainstream’ that is now pouring down on the legs of the political ‘prescription’ MMT community:
FEB 07: Noah Smith (Bloomberg Opinion and former assistant professor of finance at Stony Brook University): “So until the Green New Deal proposal is substantially revamped, every Democrat’s answer to the question ‘Do you support the GND?’ should be NO.”
FEB 08: Tucker Carlson: Why would we ever pay people quote ‘unwilling to work’?
Robert Hockett: We never would. AOC has never said anything like that. I think you’re referring to some sort of doctored document that someone other than us has been circulating.
Tucker Carlson: That was from the backgrounder from her office.
Robert Hockett: No. She actually laughed at that, she just tweeted out that apparently some Republicans have put that out there.
Tucker Carlson: Ok, good, thank you for correcting me. That seems a little ridiculous. Almost as ridiculous as the idea that we’re going to build enough rail to make airplanes unnecessary which I think is actually from the plan.
Robert Hockett: I don’t know where you got that from either Tucker. I’m not clear on where that ‘airplane disappearance’ is coming from.
Tucker Carlson: This is the Frequently Asked Questions released by her office and I’m quoting from it. Maybe this is fraudulent and I hope you’ll correct me. It says, and I’m quoting, the Green New Deal will totally overhaul transportation, building out high-speed rail at a scale where air travel would stop becoming necessary. Hawaii Democrat Senator Mazie Keiko Hirono responded by saying that would be hard for Hawaii—so I don’t think that’s made up.
Robert Hockett: It’s being misunderstood. We are talking about expanding optionality, not getting rid of anything.
Tucker Carlson: I’m now being told that the ‘unwilling to work’ thing, that is absolutely confirmed, that was in the backgrounder that her office released.
Robert Hockett: No, no, definitely not.
Tucker Carlson: It was in the overview document.
Robert Hockett: It’s the wrong document.
Tucker Carlson: We’ll follow up on this next week. That ‘unwilling to work’ line that you are obviously embarrassed by, you should be embarrassed, it was in the document.
Robert Hockett: No Tucker, it’s not embarrassing, it wasn’t us. We’re not embarrassed by what’s not ours.
Tucker Carlson was right. It wasn’t a doctored document put out by the Republicans. The actual resolution (the legislation) submitted to Congress that outlined the Green New Deal didn’t include the ‘unwilling to work’ part; but the overview document (the accompanying FAQ document), released by New York Rep. Alexandria Ocasio-Cortez’s office, did include the ‘unwilling’ language…and they were embarrassed by it—AOC’s staff was forced to take the gaffe-riddled summary of the bill off their website. Robert Hockett later tweeted “Typo in a draft doc that went up by mistake and was taken down once noticed.”
Included in Ocasio-Cortez’s original FAQ document was the promise of “economic security to all who are unable or unwilling to work,” it called for a “build out of high-speed rail at a scale where air travel stops becoming necessary,” it said that we “plant lots of trees” to reduce emissions, it laid out the goal to “move America to 100% clean and renewable energy” within 10 years and it explained how the resolution submitted to Congress used the term “net-zero emissions, rather than zero emissions” because “we aren’t sure that we’ll be able to fully get rid of cow emissions and airplanes that fast.”
FEB 09: “For all I know, we might populate the moon, equip every U.S. citizen with a Ferrari, or fill Lake Meade with champagne, technically speaking. But I’m quite certain we can’t afford to. My criticisms of Professor Kelton’s op-ed are, I hasten to add, not criticisms of the Green New Deal per se. Perhaps the programs it entails are worth whatever sacrifices they might involve; and perhaps they, or some of them at least, will ultimately pay for themselves by enhancing productivity, as Professor Kelton also believes. Finally, I don’t doubt that many will find Professor Kelton’s arguments comforting. According to one of her many Twitter admirers, she is giving the public hope. Perhaps. But she’s doing so by promising them the moon.”— George Selgin, director of the Center for Monetary and Financial Alternatives at the Cato Institute, ‘The Modern New Deal That’s Too Good to be True’ https://www.alt-m.org/2019/02/08/the-modern-new-deal-thats-too-good-to-be-true/
FEB 12: Bill Gates called modern monetary theory (MMT) – which asserts that because the government controls its own currency, there is no need to worry about balancing the budget some ‘crazy’ talk. “Well, that’s crazy. I mean, in the short run actually because of macroeconomic conditions, it’s absolutely true that you can get debt even to probably 150 percent of GDP in this environment without it becoming inflationary. But it will come and bite you.”
FEB 16: No question that things are NOT going well for political ‘prescription’ MMT when even Breitbart agrees with Mayor Bill de Blasio (about Rep. Alexandria Ocasio-Cortez being too far to the left).
FEB 25: “MMTists make dubious semantic claims, such as that taxes and borrowing don’t actually ‘fund’ government spending. In a modern banking system, all credits require debits. The only entity that can credit without debiting is the one authorized to issue the money. Expenditure is carried out by the Treasury, so let’s start there. The Treasury is not authorised to issue the money that is actually used for spending—called bank reserves—and I believe MMTists will agree with me so far. The Treasury has to secure this money in order to spend it [or else there’s a gov’t shutdown]. Which it does by debiting its spending account [its Treasury General Account] at the central bank [at the Fed] in order to credit other accounts. An important point is that the Treasury cannot overdraw from its account [from its TGA]. It is currently illegal [since 1981] for the Treasury to have an overdraft with the Fed. The Treasury can only spend by first ensuring it has adequate funds in its account with the central bank. How does it do this? By collecting taxes and selling bonds. Thus, taxing and borrowing does indeed fund Treasury spending specifically. MMTists dismisses such legal obstacles as ‘self imposed constraints’, but this is a red herring. Ultimately all economic institutions are largely composed of ‘self imposed constraints’. It is by these constraints that we define how our present economic institutions govern [it’s our modern monetary reality that keeps getting in the way of their modern monetary theory]. For the sake of argument, since money is ultimately created by the government (by the central bank) in the first place, it didn’t need those taxes or borrowing—so does it then make sense to say that taxes/borrowing funds spending? The answer is yes, in practice, it does make sense. Whether MMTists want to admit it or not, while the central bank is an agent of the government, it does still operate independently. When the government wishes to spend, it cannot simply demand funding from the central bank directly or even indirectly—it has to engage in borrowing and taxation. Now let’s move onto ‘real’ funding. By this I mean providing the real resources necessary to purchase or deploy real goods and services. Both MMT (and most of the mainstream) essentially agree that governments have finite fiscal space—that is the ability to utilize idle resources to achieve its goals without competing with and bidding up already utilized resources. Here again many MMTists tend to argue then that government spending is simply the process of acquiring and utilizing resources and that the purpose of taxation/borrowing is for when the government is close to an idle resource constraint but needs more resources. To claim that taxation or borrowing here should not be considered funding is manifestly absurd. It is quite clear that in a real sense, a government’s ‘funds’ ARE its fiscal space (defined as idle resources in real terms); and the only way to acquire more fiscal space than is already available—without reducing its own outlays—is to take it from others. In other words, either by taxing them or by borrowing from them. Ergo, in real terms, taxing and borrowing unequivocally funds the government.”—Upholding Economics, Feb 25, 2019, ‘What’s wrong with MMT?’ https://blog.usejournal.com/whats-wrong-with-mmt-a41e10c7203b?gi=dec7d1bf0fc
FEB 26: In testimony before the Senate Banking Committee on Capitol Hill, Fed Chair Jay Powell said this:
“Let me say I haven’t seen a carefully worked out description by what is meant by MMT. It may exist but I haven’t seen it. I have heard some pretty extreme claims attributed to that framework and I don’t know whether that’s fair or not. I will say this. The idea that deficits don’t matter for countries that can borrow in their own currency, I think is just wrong. I think US debt is fairly high, at a level of GDP and much more importantly than that, it’s growing faster than GDP, significantly faster. We are not even close to ‘primary balance’, which means the deficit before interest payments. So we’re going to have to either spend less or raise more revenue. In addition, to the extent people are talking about using the Fed as a sort of [financing], our role is not to provide support for particular policies. That’s central banks everywhere. Our role is to achieve maximum employment and stable prices—that’s what it is. Decisions about spending, about controlling spending and about ‘paying for it’, are really, for you.”
—Fed Chair Powell, 02/26/19
FEB 27: In the next day’s testimony before the House Financial Services Committee, Fed Chair Jay Powell pushed back on the MMT ‘prescription’ (on Mr. Mosler’s 7DIF Part III Public Purpose proposal) to anchor the federal funds rate to 0% (to completely take away the Fed’s ability to quickly respond to either an economic crisis or an approaching crisis like a dangerously overheating economy):
“There is a new sort of focus on modern monetary theory that says taxes can better fight inflation than monetary policy. Do you have a basic philosophical view on that?”—Rep. Steve Stivers (R-Ohio)
“That aspect of it would be a complete change. I would say the reason why the Fed does that is that we can move quickly with our tools (we can move immediately), and to give the legislature that responsibility—in principle you can do that—but we have a system, that’s got lots of checks and balances.”—Fed Chair Powell, 02/27/19
Notice that most of the MMT criticism during the month of February 2019 was not questioning the politics of the proposals—it was mostly questioning the validity of the economics. Meaning that if you are getting the economics (the ‘description’) wrong, you are making it harder for the world to take your pet policies (your ‘prescriptions’) seriously. Political ‘prescription’ MMTers may also want to rethink their constant bashing of the federal gov’t. Every time these MMTers mock the White House, mock the Treasury, mock the Fed (who have the ‘peddles backwards’); these MMTers are melting the ice under their own ‘prescriptions’—that calls for giving more control to that same federal gov’t.
Finally, during the month of February 2019 when Econ Ph.D Stephanie Kelton was again tweeting that Gov’t Deficits = OUR Savings (that THEIR red ink is OUR black ink), Warren Buffett disclosed in his annual Shareholder Letter that Berkshire had $112B in US Treasury bills (which is almost 1% of the entire $15.5T US marketable Debt Held by the Public).
In conclusion, it’s fine if you think that we need a ‘JG’, a ‘GND’, ‘M4A’, +/or student debt forgiveness—the more policy suggestions the better. It’s even fine if you hate the president—everybody goes through that political phase (just like we all go through that phase in sports when we think that ‘our’ team is ‘great’ and the ‘other’ team ‘sucks’).
Here’s some advice for the ‘prescription’ MMT community: If you mix your politics with your economics, you dilute your expertise in both at the same time—so stop naively buying into every dopey MMT meme.
In an age of ‘fake news’, you need to go Beyond The Memes—you need to become your own journalist. Don’t be afraid to do some due diligence on your own about the veracity of the claims made by MMT academic ‘scholars’ (before you too sound like someone that spent their entire lives in a classroom).
Meanwhile, until morale improves (until MMT returns back to being The Description Not The Prescription), the beatings will continue.
Thanks for reading,
Pure MMT for the 100% https://www.facebook.com/PureMMT/
If you want to know how money works, it may help to know how money trades. Follow MineThis1 at Real Macro for the 100%:
“Let me say I haven’t seen a carefully worked out description by what is meant by MMT. I have heard some pretty extreme claims attributed to that framework and I don’t know whether that’s fair or not. I will say this. The idea that deficits don’t matter for countries that can borrow in their own currency, I think is just wrong. I think US debt is fairly high, at a level of GDP and more more importantly than that, it’s growing significantly faster than GDP. In addition, to the extent people are talking about using the Fed…our role is not to provide support for particular policies. Decisions about spending, about controlling spending and about paying for it are really for you.”—Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System, testimony before Congress, 02/26/19
“One of the questions Fed Chair Powell was asked was about modern monetary theory. This is a new slogan that has just come up which says, I guess, that you can run deficits indefinitely. I think it’s kind of another fad slogan that has appeared at this time that might be politically useful to some people.”—Economist Robert Shiller, 2013 Nobel Laureate, best-selling author and presently serving as a Sterling Professor of Economics at Yale University, 02/27/19
On February 28th, former Fed Chair Alan Greenspan did not sound too enthused with the ‘prescription’ MMT proposal to curtail the Fed’s role as ‘price setter’ and the notion that we should leave all that up to fiscal policymakers because the Fed doesn’t know what they’re doing (because the Fed ‘has the pedals backwards’).
As per the Maestro, if you shut down the Fed’s ability to immediately respond to changing economic conditions (if you take away the Fed’s agility at influencing prices with changes in interest rates); then while you’re at it, to stop the stampede out of the US dollar, you should probably shut down our foreign exchange market as well—so that nobody will be able to dump their dollars (even after it’s too late for them to save themselves):
Bloomberg’s Mike McKee: “There is a theory out there, modern monetary theory, MMT, a lot of people are debating it. It suggests that a country that prints money in its own currency doesn’t have to worry about deficits as long as inflation isn’t breaking out, if it does, then the fiscal agent comes in and raises taxes [+/or cuts federal spending]. What do you think of that idea because it’s being rooted as a way to spend more money, on infrastructure, on the Green New Deal, things like that?”
Former Federal Reserve Chairman Alan Greenspan: “You’d have to shut down your foreign exchange markets. How do you exchange (laughs)? People will be trying to fly out of your currency and if there’s no vehicle in which they can do it, it doesn’t happen.”
Matt Bruenig: Advocates of Modern Monetary Theory (MMT) say that we should understand all government spending as being funded by seignorage, which is the technical term for when a government creates new money and then spends it. For instance, both Mosler and Kelton have suggested that we could do Medicare for All without raising taxes, and even suggested we might need to cut taxes to do it. But if we eliminated all private spending on health care and printed new money to replace it, then that would mean individuals and businesses would now have money in their pockets equal to the current level of private expenditure on health care. Private spending on healthcare is currently 8.8 percent of GDP, or $1.8 trillion, or $5,500 per capita. Thus, using seignorage to pay for Medicare for All without offsetting taxes would be equivalent to paying out a $5,500 UBI with newly created money every year. You could argue of course that we are currently so far below capacity that, along with the small disemployment effect of Medicare for All, a $5,500 UBI will not be inflationary in the extremely short term. But do they really mean to say we could sustain such a UBI over the medium term without increasing taxes?
If so, then they are at odds with their prior statements on inflation:
“The value of the dollar is determined on the margin by what must be done to obtain it. If money ‘grew on trees’, its value would be determined by the amount of labor required to harvest money from trees. In an ELR [Employer of Last Resort] program, the value of the dollar is determined on the margin by the number of minutes required to earn a dollar working in the ELR job. Assuming that BIG [Basic Income Guarantee] provides a payment of $20,000 per year to all citizens (equivalent to a JG [Job Guarantee] job paying $10 per hour for a maximum 2000 hour working year), the value of the dollar on the margin would be the amount of labor involved in retrieving and opening the envelope containing the annual check from the treasury, divided by 20,000. For a couple of minutes of labor effort, you get $20,000. Obviously, the purchasing power of the dollar in terms of labor units required on the margin would be infinitesimally small. Remember that everyone gets this check. It might not happen overnight, but this would be your mom’s equivalent to money growing on trees, and would raise the price of labor (or devalue the currency—depending on how you want to look at it).”— Randy Wray
“If the [basic income] program is implemented as an ‘add-on,’ rather than a replacement for existing government programs, spending on UBI could be as high as 20–35% of GDP annually. UBI would be an enormous fiscal impulse by any measure. The worry is not that it would compromise the government’s budget, but that the expenditure represents vast purchasing power and command over real resources, equivalent to a fifth or more of the US economy. Would the economy produce the needed additional output to satisfy this new demand? If not, how would the resulting real resources be distributed and priced, in order to soak up the additional purchasing power? If output does not adjust sufficiently, the program would prove to be inflationary.”— Pavlina Tcherneva
“If you start multiplying [the basic income amount] across the number of people who would receive that, this is a huge share of GDP. And so if you push [basic income advocates] and say ‘how are you going to put that much money into people’s hands and fuel spending in the economy without setting off a massive inflationary problem?’”—Stephanie Kelton
Once again, MMT is pointless word games—to make people believe in things that even MMT advocates themselves do not believe.—Matt Bruenig, ‘What Do Modern Monetary Theorists Think About Inflation?’, 03/02/19
“She [Cortez] said she was open to Modern Monetary Theory, a burgeoning theory among some economists positing that the federal debt is not an economic restraint for the US. She said the idea, which holds that the government doesn’t need to balance the budget and that budget surpluses actually hurt the economy, ‘absolutely’ needed to be ‘a larger part of our conversation.’ So in her world, the deficit is only something we should be worrying about when it’s shrinking, apparently. If it sounds bonkers, that’s because it is. The University of Chicago’s Booth School of Business’ IGM Poll asked a panel of top economists two questions about MMT; one regarding whether it’s true that countries shouldn’t have to worry about deficits because they can always print more money, and the second on whether or not money printing enables endless government spending. Zero percent of economists agreed.”—Matt Palumbo, March 23, 2019