Chart of the day: THE RISE AND FALL OF (‘Prescription’) MMT

H/T Jim ‘MINETHIS1’ Boukis

Modern Monetary Theory had a wonderful opportunity to keep the description PURE and help people better understand the monetary system. The benefits and limits of deficits not only for their own lives but also for the overall economy. How using deficits appropriately is a great economic tool, that has in certain times, assisted in getting us better overall economic health over the decades. Since 1983 we have had only 3 recessions—one being the Great Financial Crisis of 2008. However, the trade-off for a more stable economy over that long run has been increased inequality.

MMT description also had the opportunity to explain that the inequality we see today is not the same that one would think of traditionally under a gold standard—where the rich take from the poor in a zero-sum game.

Modern day inequality under a FIAT system is vastly different. Where deficits and private debt naturally flow through the sectoral balances chart: Gov’t 》 productive economy (99%) creating income/dissavings 》 Business (1%) Profit/Savings unproductive economy》 to investment such as buying Gov’t Bonds for deficit spending starting the cycle over again.

Of course some of these deficits end up external via imports; some are reinvested back to the productive economy; and as investments in other asset classes i.e. real estate, commodities and stocks, causing asset price inflation from a glut of ever-increasing savings fueled by Govt and Private debt in the hands of the few.

MMT description PURE could have clearly illustrated that while deficits can be a great economic tool in certain cases, the solution to more inequality and a healthier economy is NOT predicated on deficits, but rather a self sustaining eco system feedback loop between productive and unproductive parts of the private sector within an economy. Learning to lower that debt to GDP ratio (meaning productive growth and more real wealth for everyone). Thus we require more ‘pen strokes’ rather than ‘keystrokes’.

It is unfathomable that any political ideology could argue against what is self evident mathematics.

Instead MMT chose the Political PRESCRIPTIONS Fantasy that the reverse is true. More deficits & more private debt is the key to prosperity by handing out free stuff to all for a vote. A Soviet-inspired, feudal-system style of economics. Where everyone serves to provision the Gov’t and those very few in the political ruling party are the beneficiaries—who must be worshiped by all as they hand out free candy from the goodness of their hearts while we all lavish in an ever-increasing free ‘this’ and free ‘that’ postmodern neomarxist utopia. Like I said before, fantasies.

For these reasons #FAKEMMT Prescription ultimately screwed the pooch by being rejected worldwide and died out before it even got started. Something we PUREMMTers predicted would occur. I hope they enjoyed their 15 minutes of fame.—Jim ‘MINETHIS1’ Boukis http://Patreon.com/RealMacro

Thanks for reading,

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P.S.

07/1719:

H/T Charles Kondak

Regarding the above quote by Mathew Forstater http://@mattybram (Professor of Economics at UMKC, and research director of the GLOBAL INSTITUTE FOR SUSTAINABLE PROSPERITY), the full quote was:

“Yes, Supply Side Economics has been a complete and utter failure. However, it was never instituted during a time when the Economy was not in a technical recession. This was not the case this time around. That is not to imply it will work this time around, but to point out that this could be called Supply Side Economics last stand. It will likely fail this time around, because there is not a sufficient back and flow of money between the Financial Savings Asset bubble and the Functional Economy where most of us live.”

It’s good to see that more and more in the MMT community are now grasping the ‘feedback loop’ insight, albeit not fully since even demand-side stimulus is ineffective if the loop of $$$ draining to the functional ‘real’ economy (where capital creates production) is still being overpowered by the loop of $$$ draining to the nonproductive ‘financial’ economy (where capital just creates more capital).

“I suspect these academics get half the equation and can’t see that demand-side economics as well, in the absence of a recession, would also result in many of the same results as Supply side with out the back and forth flow.”—Charles ‘Kondy’ Kondak

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