The thing that has been occupying most of my mental energy lately is MMT, Modern Monetary Theory also known as Chartalism. Far be it for me to act as the BCS of MMT economists, ranking the proponents of the theory on the basis of say, "How well they take down the Chicago school arguments" or maybe " The ease with which they take mundane subjects like trade deficits and make them understandable" but four names (well 3 names and an alias) have shown up time and time again when exploring this school of thought. Billy Mitchell , Warren Mosler , L Randall Wray and Winterspeak . Now I am not an economist nor did I ever take an economics course but my training in medicine did teach me to analyze and problem solve. I can look at two arguments and, given some standards for evaluation, decide which is a better argument. I am far from alone in this ability. I imagine most anyone who scored over 1000 on their SAT has the tools to do this but most of us dont think about economics as something which is amenable to that type of analysis. Regarding economics, most of us get all our info from TV talking heads and when the consensus is saying "Government deficits are bad' or "hyperinflation is a real danger around the corner, remember Weimar Germany" we really don't think to evaluate the veracity of those claims.
Now I wasn't looking to question those claims. There wasn't a voice in my head going "Ya know that just doesnt sound quite right to me" but I was following various econ blogs daily just to try to get a handle on this crisis. I did have a sense that this current crisis might be the most important event of my lifetime and I was a sponge for anything regarding it. Interfluidity is one of my regular stopping spots. Steve Randy Waldmann is a great writer and has such an interesting take on things I was really attracted to his site. He doesnt post daily so you find yourself looking forward to what he has to say.( As an aside, treasury officials invited some econ bloggers to Washington a week or so ago and Mr Waldmann was one of them so I think they read him too!) One of his posts linked me to Winterspeak and I read something that just blew me away;
The Federal Government does not need taxes in order to spend. At the Federal level, because the Fed is a currency issuer, the sole purpose of taxes is to extinguish money, reduce aggregate supply, and therefore limit inflation to a tolerable level.
What? We dont use taxes for spending? How can that be? Is this really true? Were we not behind on taxes for the entire Bush presidency? This idea was profoundly new to me. We had run deficits most of my life and I really thought they were deficits. That we owed something to someone else. That was the paradigm I was operating from. A zero sum, if you take from here you are depriving there, kind of model. Well as I soon found out......not true!! Whats even worse is that lots of people know this. Lots of people who talk about our national budget dont tell us that the deficit isnt a deficit at all! It is categorically NOT something we owe to anyone.
The deficit is simply an accounting operation that says how many credits (in our case in the US, dollars) the government has given to us. It says nothing about how they are distributed mind you, just how many are out there.
So MMT says; "deficits aren't bad, they just are". Now this started to have a ring of truth because I knew that all my life we had run deficits. If they really were bad how could we run them for all this time? In all fairness, MMT would more accurately say that deficits account for the current level of new financial credits in the private sector. That is a neutral statement but that does not mean that we can always let that deficit rise. It does have consequences. However it must be recognized that at times of low utilization of resources (like potential workers or factories at low capacity) a rising deficit will work towards increasing utilization of those idle resources. Certainly there are times when we need to lower the financial credits in the private sector to stave off inflation.......this is known as taxation. Now the circle was being completed for me.
Well that addressed the deficit talk for me but what about that hyperinflation? Is that a worry?
I was less convinced that we should be fretting about that after realizing all the misinformation about the deficit. I've found that people who screw up one concept badly are prone to screw up another related concept equally badly. Weimar Germany was certainly a terrible time to be a German citizen and all the talk regarding that era focused on the fact that they "kept trying to print their way out of trouble". Well I now knew there had to be more than that. Billy Mitchell gives a very thorough and concise analysis of the troubles facing Weimar Germany and modern day Zimbabwe in his article Zimbabwe for Hyperventilators 101 . After reading this I must say that the chances of any developed nation becoming a Weimar Germany today would take monumental errors on the parts of many people, not just the guys running the "money printers". I know I'll sleep better now.
Finding out about MMT has been like a new toy. I really think the principles of it should be and easily could be taught to 7th graders. Its important for us to understand the nature of our monetary system so we dont get scared by people with either an agenda or just too much ignorance for everyone elses own good (when your ignorance is only negatively affecting you thats acceptable, but dont infect my house with your ignorance). Take the time to learn this powerful paradigm. Thats what it is, its a new, complete way of viewing how our monetary system operates. We are still partially stuck in a gold standard paradigm and we are not in a gold standard world. Get with the program guys!
Well thats all for now.
Peath out brotha