Key Points From MMT Economics Textbook Draft

Today Bill Mitchell posted some draft material from the MMT-oriented textbook he’s co-authoring with Randall Wray, another leading MMT thinker.  I thought I’d post a few brief excerpts from it, since they nicely summarize several core elements of MMT.  The first point relates to achieving full employment.  The second (and related) point is focused on how best to control inflation.

[A] nation will have maximum fiscal space:

1) If it operates with a sovereign currency; that is, a currency that is issued by the sovereign government and that is not pegged to foreign currencies; and

2) If it avoids incurring debt in foreign currencies, and avoids guaranteeing the foreign currency debt of domestic entities (firms, households, or state, province, or city debts).

Under these conditions, the national government can always afford to purchase anything that is available for sale in its own currency. This means that if there are unemployed resources, the government can always mobilise them – putting them to productive use – through the use of fiscal policy. Such a government is not revenue-constrained, which means it does not face the financing constraints that a private household or firm faces in framing their expenditure decision.

To put it as simply as possible – this means that if there are unemployed workers who are willing to work, a sovereign government can afford to hire them to perform useful work in the public interest. From a macroeconomic efficiency argument, a primary aim of public policy is to fully utilise available resources…

But what about controlling inflation you might ask:

…there are two broad approaches to control inflation available to government in designing its fiscal policy choices.  The concept of buffer stocks are involved in each…:

Unemployment buffer stocks: The mainstream approach, which describes the current policy orthodoxy, seeks to control inflation through the use of higher interest rates (tighter monetary) and supportive fiscal policy (austerity), which leads to a buffer stock of unemployment…this approach is very costly and provides an unreliable target for policy makers to pursue as a means for inflation proofing; and

Employment buffer stocks:  Under this approach the government exploits its fiscal capacity, inherent in its currency issuing status, to create an employment buffer stock approach.  In MMT, this is called the Job Guarantee (JG) approach to full employment and price stability…

The MMT macroeconomic framework shows that a superior use of the labour slack necessary to generate price stability is to implement an employment program for the otherwise unemployed as an activity floor in the real output sector, which both anchors the general price level to the price of employed labour of this (currently unemployed) buffer and can produce useful output with positive supply side effects.

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One Response to Key Points From MMT Economics Textbook Draft

  1. Bogart Alan says:

    [A] nation will have maximum fiscal space:

    1) If it operates with a sovereign currency; that is, a currency that is issued by the sovereign government and that is not pegged to foreign currencies; and

              Sovereign currency implying fiat currency. from what I know, this economic philosophy only deals with fiat currency.  (see http://wiki.mises.org/wiki/Fiat_money) And therefore the people, or serfs under this economy, allow elected officials and unelected bureaucrats to dictate to them what the value and issue of currency is. In this case useless paper is used which has no market value other than that imposed by fiat, hence fiat currency.

    I would also like to see how the “sovereign government” allows for imports and exports without being “pegged” to foreign currencies? As a fiat currency there is no common backing between them, such as gold, silver or other commodities, and therefore a pegging would inevitably need to be established. Otherwise, how would international commerce take place. How would this economist drink his coffee as it most likely must be imported. Must he try to find a coffee farmer who is willing to accept a currency unknown in comparative value. Perhaps half a chicken for 5 pounds of coffee beans would be the resulting transaction.?. now if the author refers to pegged as there being a reserve currency or non-competing currencies then I agree, but the author uses foreign currencies in the plural and implies, to me, exchange rate.  I am not sure of the technical terminology but the problem once again goes back to a fiat currency. A fiat currency is a currency which must be enforced with legal tender laws and therefore violates voluntary association in the economy.

    2) If it avoids incurring debt in foreign currencies, and avoids guaranteeing the foreign currency debt of domestic entities (firms, households, or state, province, or city debts).

              This inference is well intended but neglects the fact that fiat currencies ALL become inflated and grow government to tyrannical levels. By incurring debt in foreign currencies, the nation is under-productive in relative terms. In the nationalistic sense, a country must eventually pay for its imports with its capacity to export. Otherwise foreign debt accumulates, and as all government debt is under the coercive obligation of its serfs, the productivity becomes wasted in an attempt to service debt. when the author proclaims the austerity measure of avoiding the guaranteeing of “foreign currency debt of domestic entities” he advocates that a centralized federal government shall impose a fiat currency upon its lesser entities, that it may work and impose an economic system of debt financing, but that this cannot be done at the local level of the economy. Once again a double standard has been established. If a group of the most disgusting individuals in the world (politicians) have the right to endlessly print fiat currency, why then is the individual not awarded the same “right”? “We the all mighty, all knowing social elite may impose upon you underprivileged the burden of debt finance to which your servitude must back with productivity, and if you wish to do this so yourself, this will not be allowed. For we are the state, we are the ones who tell and do not listen, the ones who preach but do not follow. Bow before us, we have created wealth out of paper and your servitude is all that is needed.” 

    Under these conditions, the national government can always afford to purchase anything that is available for sale in its own currency. This means that if there are unemployed resources, the government can always mobilise them – putting them to productive use – through the use of fiscal policy. Such a government is not revenue-constrained, which means it does not face the financing constraints that a private household or firm faces in framing their expenditure decision.

             Now this is where the economic theory gets quite crazy. The first sentence states that “under these conditions, the national government can always afford to purchase anything that is available for sale in its own currency.” this is an illusion as the government cannot afford anything to purchase that it does not steal from the productive elements of society. If the government inflates its currency, it steals the purchasing power of the currency from its loyal slaves, thereby impoverishing everyone involved in that economy, particularly the poor who experience greater hardships when purchasing power is robbed from them as they are closer to subsistence level living. (http://mises.org/daily/908)

    The second sentence states: “this means that if there are unemployed resources, the government can always mobilise them – putting them to productive use – through the use of fiscal policy.” Now this is getting real scary. Imagine a world in which the all knowing politician or bureaucrat “mobilizes” resources into “productive use.” if Communist Russia sounds like the optimistic socio-economic situation to you then read no further, for you are a lost and sad individual. Once again, government directed productivity is pursued at the expense of private productive elements under serfdom. Perhaps the unemployed resources should be directed into the hundreds of subsidized and politically connected industries. Let’s all praise Solyndra! (http://en.wikipedia.org/wiki/Solyndra)

    Continuing, “Such a government is not revenue-constrained, which means it does not face the financing constraints that a private household or firm faces in framing their expenditure decision.” Where does the purchasing power of this utopian currency come from if not from the people it is thrust upon. Such a government is not revenue-constrained because it can add zeros to the balance sheet at will, and in doing so eventually turning a $1.00 loaf of bread into a $10 or $100 loaf of broad. (http://mises.org/daily/2347)
    We already deal with an unconstrained government who refuses to acknowledge the detriment of its expenditure decisions. 

    To put it as simply as possible – this means that if there are unemployed workers who are willing to work, a sovereign government can afford to hire them to perform useful work in the public interest. From a macroeconomic efficiency argument, a primary aim of public policy is to fully utilise available resources…

    The sentence should begin “to put it simple-mindedly as possible” as there is the complete ignorance of capital, labor and resource allocation within the market. Workers are unemployed for the following reasons: 1). the worker believes that they are worth more than the available wages for their skill sets (and would rather collect unemployment or welfare subsidies), 2). The skill set to which they are qualified pertains to an industry that is not of market availability for their desired wage (ie a construction worker in the over saturated housing market), 3). A worker whose labor would be beneficial to productive output but is a risk of hiring due to over regulation and arbitrary expenditures (minimum wage laws and the numerous risks and obstacles behind employing additional labor). 

    The first two deal with socialist dependency issues and the belief that one is entitled to a specific wage. The stage coach driver may have had a job to rely upon in the 19th century, but upon the availability of motor vehicles his service is no longer needed and must direct his labor to other resources, regardless of the wage he previously enjoyed. The third (3) deals with a government which has the ability to create money out of thin air and therefore purchase its expansion and tyrannical overreach into the economy and the lives of sovereign individuals and entities which act in this economy. 

    To “fully utilise available resources” look no further than the voluntary association of profit seeking individuals within the market. If I seek to feed myself I will seek to find labor at whatever compensation. If a business seeks labor they will compensate to the capacity that profits do not decline with the hopes of increasing. Capital will be directed in a manner that best suits it’s productivity, not because some politician decides they would like to subsidize a particular industry for votes and riches, but for the demand placed within the market by consumers. (http://mises.org/humanaction/chap15sec4.asp)
    Another cautioned statement is “to hire them to perform useful work in public interest.” public interest is determined by market demand as the people in commerce will “vote with their dollars” in regards to what is useful. Or is it better to have your slave master force which resources should be directed on this plantation we call Earth.

    There is no “social contract” and there is no “common good.” these are totalitarian and egalitarian assertions to deprive the individual of his or her rightful sovereignty. Look no further than the VOLUNTARY association among the billions of individuals acting in commerce with one another. 

    Stop looking to governments and those who advocate government intervention into markets. Until we ourselves become gods, there will never be an individual or group of oppressors who will have the vast and almost infinite knowledge required to orchestrate a functional economy. (http://mises.org/daily/4736)
    There will only be a little boy playing with the ant hill forcing some to take a route which they did not choose at the cost of the already established efficiency of the poor ant worker. Unfortunately, the little boy has a magnifying glass and some pretty evil thoughts. By excepting this monetary policy/system you are giving the child a magnifying glass and patting him on the head every time he executes his vicious actions. Thank you but we already have this in our supposed “Land of the Free”

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