This is solid advice but let’s also focus on creating high paying job training programs that will help with green infrastructure. Working on a public private partnership to create jobs in emerging technology areas with philanthropic involvement. Stay tuned for developments!
Lifelong socialist-leaning activist here: Public policy/finance should definitely lead the way--really as it always has. But there is a role for the private sector, hence the “public-private” idea. Dr. Kelton and the MMT people have always said this.
MMT advocates public spending for the public good. Spending into the economy always provides opportunity for the private sector. The vision is that government spending is an investment not a cost. But it requires a public good can be agreed upon - is it free health care or sanitized public school textbooks? Government spending can ensure either or both? What’s your choice?
The trouble with so-called public-privates is that it ends up with public investment in private projects with benefits privatized and losses socialized.
So I much prefer a well articulated public goal with public spending - no problem if it’s implemented by private firms - under the control of democratic government.
Basically agree. Orthodox/mainstream economics is about political control by wealthy people. I believe we can get past that by agitating, educating and electing better politicians. Then, a private sector truly engaged with innovation, creativity, entrepreneurship etc. would thrive as never before; all their customers would have jobs (buy-in to the system) and money to spend!
When you think about it, war is the perfect example of GDP-think. Production is immediacy blown up so needs continuous replacement and destruction requires whole cities to be rebuilt. It’s really the perfect business model. Except...
MMT is undergoing a revolution. When the Founders started, 30 years ago, the playing field was consumers, banks, and the Central Bank. But what happens, now, when you ApplePay? There are a host of fintech intermediaries that mine your purchasing data, package it, cross-correlate it, sell it, and report it to the government if it's remotely suspicious (the infamous Patriot Act). It's a whole new world.
In contrast, the only people who knew anything about your cash transaction was you, the other party to the transaction and your respective banks.
The role of public money is deep and goes far beyond the confines of this discussion.
A bit off-topic, but I believe the world's economic issues could be resolved with 3 policies; sadly, this will likely take centuries to implement when it should be done within a single generation.
..We the People, need to reclaim ownership of all our Natural Resources.
..When goods & services become commodified, there should be public ownership of these production, distribution and consumption enterprises with worker coops.
.. Eliminate compound interest rates.
Public Banks would be an effective first step toward these ends.
Eliminating compound interest is akin to Mosler's belief that the FED should stop issuing long-term debt.
It would mean banks awash with reserves meaning the overnight rate would fall to zero. Without long-term bonds, portfolios would be more susceptible to risk, including pension funds that are another example of pointless financial activity - why back pension funds with unstable long-term bonds when you can just have government pensions? As in government cheques can never bounce and the House is currently re-banging its head against the same-old, same-old wall.
Mosler advocated for a payroll-tax holiday as well. Indeed, 'taxing' all paycheques is a pointless and powerful damper on the economy.
The madness of backwards macro thinking just doesn't end.
My preference is 100% tax on Net Worth over $10 Mil and Incomes over $500k.
The only reason the 'west' has vast wealth is the exploitation of natural resources and workers spanning the globe for centuries with compound interest.
Big money also uses supposed differences in income to reduce their tax rates, e.g. dividends, capital gains, earned interest etc...it's all in coming cashflow when it's received.
How about this issue? The US with 5% of the world's population is consuming 20% of its resources. If China with 4 times our population was consuming resources (natural & human) at the same rate as the US, then ALL the world's resources would be consumed by the US and China with NOTHING left for the rest of the world.
MTMT when Stephanie and Randy are part of MMT. Bit of a dilemma for an acronym! One could go on to say that the fed is MT -- empty -- of any good ideas and .... I’ll leave now!
"The Jimmy Stewart savings and loan sector was allowed to recess into a distant memory of Christmas past. Banks started treating borrowers like one-night stands and loans like toxic waste, something to bundle up and quickly offload onto pension funds and other investors."
Bravo! That is some seriously fine writing!
And then there's this: "We need to move--quickly--to a system of FDIC insured BANKS, not FDIC insured DEPOSITORS." Is the implication here that the Fed should stop selling bonds altogether (after all, the whole point of a treasury bond is to have your money protected) and adopt a policy of "Interest On Excess Reserves" for ALL bank deposits?
Another bailout for the ruling elite. Both Silicon Valley & Signature Banks had over 90% of the deposits uninsured so they could be invested in higher risk/higher return enterprises. Now, they want another bailout claiming their protecting the little guys. NONSENSE.
They could have used The IntraFi Network Deposits program which allows you to get FDIC insurance on millions of dollars through a network of financial institutions without having to open accounts at multiple banks. Instead, you can keep all your money at one bank, and as long as that bank is part of the IntraFi Network, the program will funnel your money into deposit accounts of your choice at other network banks.
They messed up and now they're crying with crocodile tears to Uncle Sam.
Worth reading multiple times over to be honest with you. Great piece here by Kelton and Wray. Its too bad these so called economists simply don't understand what they're talking about when it comes to interest rates, deficits, and the economy. It's long overdue that the fed needs to stop weaponizing rates, the results for decades have been a disaster.
I still can't figure out how any policy-making institution can "fight inflation" without having an empirically valid theory that explains the thing being fought -- a theory that's capable of making accurate predictions and making sense of historical evidence. As best as I can tell -- and I am, admittedly, a rank amateur -- no such theory exists and MMT doesn't really have one.
The standard Friedmanite theory -- that inflation is "always and everywhere" a monetary phenomenon -- is obviously wrong both empirically and logically. In itself, it's so far off the mark as to be "not even wrong." The MMT theorists seem, on the one hand, to reject Friedman, but, on the other, to have no compelling story of their own to tell about the causes of inflation. Indeed, MMT often seems to embrace a sort of mealy-mouthed Friedmanism: Too much money floating around in the economy-- particularly money injected by federal deficit spending -- can "cause" prices to rise.
But what's the actual "causal" mechanism in the MMT theory? Sometimes I hear mumbling about excess money "causing" prices to be "bid up" by people flush with excess cash. But this also seems wrong, or, at best, incomplete: The prices of most consumer goods (with the possible exception of housing) aren't determined by auctions in which bidding occurs: The sellers of most consumer goods simply set prices. The microeconomists clearly seem to understand this, but the macroeconomist don't, or can't, or won't.
Apart from housing markets, the only places in which prices are set by buyers "bidding" for stuff are commodity markets (and labor markets -- but that's a rather different story). It's possible, I suppose, that members of the investor class, who always and everywhere control a hugely disproportionate share of the "money supply," might use "excess" cash to bid up the prices of commodities, thereby driving up costs for downstream producers, distributors and vendors who then pass those costs along to consumers, and that's where inflation -- or, at least, some of it -- comes from. Is that the theory? Is there any evidence to support it?
And then there's the market for labor. There's a "bidding up" process that often occurs when, as in the last few years, labor supply contracts (or fails to expand): Employers who are short of employees often "bid up" their wage and benefit offers to attract workers, and that process is, at least in theory, inflationary. But this isn't obviously a monetary phenomenon at all, except perhaps obliquely. And it fails to account for the fact that some significant portion of any inflation resulting from the bidding up of the price of labor will result from firms raising prices to maintain (or increase) profit targets, and will reflect the relative ability of those firms to get away with price increases in excess of their increased labor costs (which will depend, in turn, on things like their position in the market, the elasticity of the demand for their products).
Does MMT have a workable theory of inflation? I haven't really seen one. But, to be fair, I question whether a falsifiable theory of inflation is even a possibility. The economy is a chaotic system. It's a system that includes, effectively, just about everything that happens in the universe -- including all the stuff that happens in the brains of human beings (and each human brain is its own chaotic system). How can this system possibly be modeled in a way that would give rise to useful predictions? Beats me. Glad it's not my job to figure it out.
Correct VCA. The fact is that inflation is caused...by the fact that the system provides no effective/non-punishing means of dealing with/ending inflation AT ALL. In other words its a CHAOTIC situation that Finance/The FED can exploit by alternately goosing and strangling with the blunt instrument of money creation and lowering or raising of interest rates.
Inflation IS the biggest economic bugaboo of economic theory and is never going away...until even progressive economists like Wray and Kelton and Keen wake up and realize that its the paradigmatic concept of Debt ONLY as the only/monopolistic form and vehicle for the creation of new money that is at the root of not only inflation but also keeps the rest of our deepest problems in a continual state of non-resolution....and Monetary Gifting is the new concept that will change the ENTIRE PATTERN of economics. Especially with a 50% Discount/Rebate policy at retail sale. If you can buy gas for $2.10/gal here in Phoenix and lower when the recent inflations have been redressed), a $60k Tesla for $30k and buy a $450k 3 BDR/2 Bath house for $225k...how are you going to experience inflation??? Retail sale is participated in/experienced by EVERYBODY. Hence a discount/rebate policy there has MACRO-ECONOMIC effects. That right there is a NEW macro-economic insight that even the best above economists are not perceiving.
Until the above wake up to the 50% discount/rebate policy and additional ways to integrate Monetary Gifting into the Debt ONLY based system they're all just non-integrative "epicycle" reformists.
By the way, in my book I address all of the standard present paradigm retorts to the above like:
1) How are you going to stop commerciall agents from just raising their prices to destroy the beneficial effects of the discount/rebate policy?
2) "Oh my god, we'll have a doubling of consumption/economic throughput, the planet can't handle that!
4) It will never happen! (Cynicism, which is two microns above total apathy and hence never ever solved a problem. The Sun Stu Japanese military strtategist who knew that if you convince everyone and yourself that fighting is useless you won't even have to worry about fighting a war...even a paradigmatic war.
It depends on what is driving the inflation. Read John Maynard Keynes 1940 paper. (small book) "HOW TO PAY FOR THE WAR!" The problem is not that we don't know how to control inflation, the problem is no one is willing to say or take the necessary steps. FDR was not!
John Maynard Keynes 1936 "General Theory" is central to the macroeconomics textbook written by Mitchell, Wray and Watt according to its authors. In today's toxic political environment I understand why someone like Stephanie Kelton would use caution when advocating for the necessary steps, but instead throw down breadcrumbs...AKA Fiscal Policy. It's not that hard to figure out.
There is indeed more than one reason for inflation, but inflation IS inflation. So the point is to not only to end inflation, but to transform it into beneficial price and asset DEFLATION. A reform (sometimes and painfully) does the former while complete and BENEFICIAL inversion of pattern reality is one of the classic signatures of paradigm change. Thus the 50% Discount/Rebate policy at retail sale.
Also, historically reforms last for a while (Keynesianism lasted for 40 years and then got morphed into Neo-classical macro) but again, historically, everything adapts to a new paradigm, not the other way around.
Ending inflation forever also opens up the ability to run the kind of fiscal deficits MMTers only have wet dreams about. The better to confront climate change, so it aligns with their intentions.
"The problem is not that we don't know how to control inflation, the problem is no one is willing to say or take the necessary steps. FDR was not!"
FDR initiated heroic efforts to control inflation during WW II. This includes rationing of basic foodstuffs and fuel; and wage/price controls. I believe this worked reasonably well. Of course, there was a lot of cooperation by labor and business during wartime.
Some consideration of wage and price controls when inflation gets excessive--rather than suppress demand via traumatic recessions--might be needed. Would MMT have much to contribute to this discussion....?
We know how to kinda control inflation...within the present paradigm which has many "legal" and economic orthodoxy means of making sure...that its not controlled AT ALL. We need to finally get real about this. The present monetary and financial paradigm for the creation and distribution of new money is Debt ONLY. The word ONLY marks it as a monopoly paradigm which is much more powerful and stupid than the powerful and stupid mere systemic monopoly to create 97% of our money. The latter is deeply aculturated and hides in plain sight, but the former is protected by almost entire unconsciousness and the fact that perceiving new paradigms requires the willingness and ability to embrace an exceedingly rare mental quality, namely illogic...because every historical new paradigm has been in conceptual opposition to the the present one and all of its orthodoxies.
We are deeply into an anomalous present paradigm as Kuhn correctly observed of the process, but he and virtually every professional economist never discerned the historical signatures of imminent and accomplished paradigm changes which observe and confirm its conceptual reality and demonstrate its problem resolving/temporal universe inverting changes. In my book I list all of these historical markers and show how the new paradigm of Monetary Gifting is validated by each one.
Mosler's "theory of inflation" is that sovereign currency is a simple public monopoly and that the price level is ultimately set by what the government is willing to pay for the resources (including labour) it appropriates in the service of public purpose.
Honestly? I find it to be completely baffling. Looks like he's written and spoken a lot about inflation. I'll keep looking for stuff of his that doesn't tie my brain in knots.
Try this interview (skip to the 2 minute mark to avoid the heavy metal intro music) from about a year ago. At about 11:45 he starts talking about how the sovereign currency is a public monopoly and then at 13:45 he goes on to explain where inflation comes from.
Loved it, as per usual, except the mistaken belief that regulators had anything to do with this travesty. Regulators can never be held responsible for the failure and stupidity of modern man. Those in charge, need to be "bankrupted" eg fired, and then sent to pause land for a time, before our memories are wiped and they can screw us again. If history proves anything, there is another crisis coming and we will have no means to prevent it. Just get the buckets and start bailing, we need banks, good ones and bad ones.
What is the magical full employment level and interest rate that the Phillips Curve supposedly predicts ? Full Employment Act was thrown under the bus.
/2. I’m intrigued by the amount of hedging the general public will require (Piketty’s works) due to the ungodly sums the excessively wealthy families control both in banking and financial institutions in general. Exponentially beyond The Gilded Age parameters of inequality.
To the best of my knowledge the Phillips Curve does not attempt to predict interest rates or to draw some sort of correlation between interest rates and the level of employment.
The Phillips Curve was introduced (by Mr Phillips!) in 1958 to describe a correlation between unemployment rates and changes in wage rates in the U.K. As unemployment increases, workers have less bargaining power and are less able to win increases in wages. If unemployment decreases (or, conversely, employment approaches "full" employment), workers have more bargaining power and are more able to win wage increases. If you were to map unemployment on the horizontal axis and wage increases on the vertical axis and plot observations, you would get a downward-sloping curve depicting an inverse relationship between the unemployment rate and the rate of wage increases.
So far, simple supply and demand. But when Paul Samuelson and Robert Solow transferred the Phillips Curve to the U.S. context in 1960, they made one crucial change. They introduced the assumption that price increases would track wage increases (a "cost-plus" theory of prices) and that they could now draw a downward-sloping curve depicting an inverse relationship between the unemployment rate and the rate of *price* increases. This relationship would, they claimed, provide "policymakers" with a "menu of policy choices" in which society could "trade off" unemployment and inflation against each other. Hence, the notion prevalent ever since that if inflation gets out of hand, the government has to step in and cause workers to be thrown out of jobs, thereby alleviating upward pressure on prices. This "cooling" of the economy is a task turned over to the Federal Reserve to be accomplished by raising interest rates.
As you noted, this effectively threw the Full Employment Act (1946) under the bus.
Milton Friedman and large portions of the economics profession subsequently got into the act. They introduced complications such as the "Natural Rate of Unemployment," the "Non-Accelerating-Inflation Rate of Unemployment" (NAIRU), rational expectations theory and so forth. To study this will make your head spin. All you really need to know is that when someone like former Treasury Secretary Larry Summers calls for unemployment to go to over seven percent in order to get inflation under control, he's still acting based on the Samuelson-Solow version of the Phillips Curve: the alleged unemployment-inflation tradeoff.
KeltonBideninflation. Napalm on a forest fire 🔥. Joe knew. Confidence in our debt, Spending, leadership and finances are being questioned. Sadly for good reason. Rate and inflation instability has led to a run on the banks. Confidence in our financial system is in question.
I don't know enough about the financial sector to follow these arguments. My impression is that interest rate hikes serve two purposes which are dear to the heart of the corporate feudal class - creating unemployment and job insecurity among the masses, and increasing economic inequality.
This statement puzzles me a bit "Central banks can’t control the money supply (despite the carnage, the Fed never hit its money targets), and money supply growth isn’t related to inflation (money grew rapidly as inflation finally began to drop)."
How to reconcile this with the (MMT) concept that one purpose of tax is to reduce/increase money in circulation to stop overheating/boost economy. With full employment being the objective.
Because one is lending (monetary policy), and the other is a direct injection/removal of money (fiscal policy). Orthodox economics builds their theory around the loanable funds theory and fails to recognize the difference between the "currency issuer" and "currency users" are two of the major problem.
Just because the fed lowers interest rates does not automatically mean borrower will take out loans (add to the money supply). We KNOW private sector debt leads to "boom-and-bust" cycles.
If they do take out loans how does that effect their future consumption (spending). If you don't fully grasp the difference between monetary policy and fiscal policy then you will have a hard time reconciling most everything about MMT.
The only two time the US has had macro demand exceeding supply problem has during WW2 and the resent COVID pandemic, and in both cases it was due to a supply problem. Outside of that, inflation has come from abusive market power (monopolies), which is always problem.
There's only so much regulation and oversight can do. At some point, one needs responsible management. The Financial Times reported that Blackrock warned SVB about it's weak risk controls. From the article "The January 2022 risk control report gave the bank a “gentleman’s C”, finding that SVB lagged behind similar banks on 11 of 11 factors considered and was “substantially below” them on 10 out of 11, the people said."
And your solution is? Just throw your hands in the air and say, we can't do anything about it. Actually, the Glass-Steagall act prevented most of this (regulation).
Where did you get that from? No, regulations are needed. But regulation and oversight are weak solutions and can't replace responsible management. It's a fantasy to think otherwise. In this case, backstopping all depositors was a mistake. A small haircut - say 5% loss on corporate deposits - would have gotten the message across that CFOs need to take some responsibility. SVB had a CEO, CFO, risk committee, board of directors. Where was everyone? Wiping out shareholders was a good idea.
I agree with much of this. But most of this recounts history and does little to explain inflation. I do not agree that money supply has no impact. M2 money stock was increased more than 30% post-COVID. The inflation that I and others expected predictably followed. Somebody needs to credibly disprove Milton Friedman before anyone can believe otherwise.
I absolutely agree though that many of our financial crises are rooted in Fed behaviors. Jimmy Carter squeezed three Fed Chairs in four years for easy money. He got much of what he wanted, sadly. I'm older than Dr Kelton and remember 13% inflation and gasoline lines. I respectfully disagree - Volker did what he needed to do to destroy Carter's economic train wreck.
Greenspan tried to make the job look like the work of Merlin. Speaking in prose that often left people guessing at its meaning, the Greenspan Fed mostly followed rates down as the Reagan era boom continued through the 1990's. Greenspan spent too much time fretting over irrational exuberance instead of embracing the explosion in innovation that was fueling 1990's growth.
Then came 9/11. Here is where the Fed really went off the rails. They lowered interest rates to near-zero, arguing that the nation could not easily recover without ZIRP. Never mind that our productive capacity was totally intact after 9/11. Yes, it was heinous but no factories, refineries, smelters, power plants etc were destroyed on 9/11 - just buildings and more than 3,000 lives & families. The Fed response to 9/11 didn't call for ZIRP.
Since 9/11, central banks have responded to one 'crisis' after another with more damaging long-term results. Greenspan's low post-9/11 rates fueled the housing bubble that the Fed was too blind to see. Franklin Raines of Fannie Mae told Congress that housing was one of America's safest & best investments, and Congress believed him.
2007-2009 brought lots of extraordinary measures from the Fed. The nation got through the crisis that was wrought in no small measure by ZIRP and FAS157.
Then came COVID - a pandemic that may have been created in-part with taxpayer dollars. We irresponsibly shut down the entire economy. The Fed dutifully printed lots of money to buy Treasuries so that both the Trump and Biden Administrations could helicopter money everywhere for people to not work. Is it any wonder consumer spending went through the roof in 2021 & 2022?
The Fed kept rates near zero for nearly a decade. They embedded the expectation that ZIRP would be quasi permanent and necessary for the economy to function. It's what people came to expect because ten years of recency bias taught them that. Then people wonder why problems erupt when the Fed pushes up rates 400 bps in less than a year. SVB just passed a bank examination a few weeks ago - what the examiners actually looked at appears to be unclear, but they passed. Why though would SVB's unqualified board worry about duration after a decade of ZIRP? After all, they held 'safe' treasuries in an era of ZIRP that they seemingly thought would not end.
Lurching from one crisis to the next, followed by one Fed keystone cop exercise after another, is no way to run the central bank. It's no way to 'manage' the economy. Nor is it sensible to nationalize banks, guarantee all banks & deposits and thereby nationalize risk & moral hazard. If there is no consequences for imprudent risk, there's no disincentive for reckless economic & financial behavior.
Academics have spent a century debating the proper role of the Fed. 'Abolish the Fed' advocates probably have a point. But bank failures were prevalent before the Fed too - 1907 is why we got the Fed. I wish someone would take a closer look at the Taylor Rule again. Putting some practical guidelines around interest rate policy seems a heck of a lot more sensible than anything we've done the past two decades. And while we're at it, abolish the Congressional Budget and Impoundment Act of 1974. Let the Executive Branch have a true budget veto once again.
Contemporary Capitalism is leveraging cashflow, where 92% of everything is owned by the upper 1%, greatly aided by creating the laws via their politician pawns, and of course, compound interest rates.
This is solid advice but let’s also focus on creating high paying job training programs that will help with green infrastructure. Working on a public private partnership to create jobs in emerging technology areas with philanthropic involvement. Stay tuned for developments!
Why public-private and not just public?
Lifelong socialist-leaning activist here: Public policy/finance should definitely lead the way--really as it always has. But there is a role for the private sector, hence the “public-private” idea. Dr. Kelton and the MMT people have always said this.
I’m with you but...
MMT advocates public spending for the public good. Spending into the economy always provides opportunity for the private sector. The vision is that government spending is an investment not a cost. But it requires a public good can be agreed upon - is it free health care or sanitized public school textbooks? Government spending can ensure either or both? What’s your choice?
The trouble with so-called public-privates is that it ends up with public investment in private projects with benefits privatized and losses socialized.
So I much prefer a well articulated public goal with public spending - no problem if it’s implemented by private firms - under the control of democratic government.
Basically agree. Orthodox/mainstream economics is about political control by wealthy people. I believe we can get past that by agitating, educating and electing better politicians. Then, a private sector truly engaged with innovation, creativity, entrepreneurship etc. would thrive as never before; all their customers would have jobs (buy-in to the system) and money to spend!
Follow-up comment on this subject...https://twitter.com/wbmosler/status/1637409339034988544
The factor underlying many of these shocks are America's wars and the need to continue funding them.
When you think about it, war is the perfect example of GDP-think. Production is immediacy blown up so needs continuous replacement and destruction requires whole cities to be rebuilt. It’s really the perfect business model. Except...
Wars cause external shocks, for instance in commodity prices, and requires investments that mostly yield a negative ROI.
Any thoughts on: 1) public-sector banks and 2) a new tax regime for speculative income?
On average, state-owned banks hold 21 percent of the assets of the banking system worldwide.
https://www.imf.org/en/Blogs/Articles/2014/06/04/banking-on-the-government#:~:text=Government%20ownership%20of%20banks%20is,of%20the%20banking%20system%20worldwide.
U.S. Federal, State, County, City government spending/cashflow is $9 Trillion. The U.S. economy is about 21 Trillion.
Thanks, a great reply.
MMT is undergoing a revolution. When the Founders started, 30 years ago, the playing field was consumers, banks, and the Central Bank. But what happens, now, when you ApplePay? There are a host of fintech intermediaries that mine your purchasing data, package it, cross-correlate it, sell it, and report it to the government if it's remotely suspicious (the infamous Patriot Act). It's a whole new world.
In contrast, the only people who knew anything about your cash transaction was you, the other party to the transaction and your respective banks.
The role of public money is deep and goes far beyond the confines of this discussion.
A bit off-topic, but I believe the world's economic issues could be resolved with 3 policies; sadly, this will likely take centuries to implement when it should be done within a single generation.
..We the People, need to reclaim ownership of all our Natural Resources.
..When goods & services become commodified, there should be public ownership of these production, distribution and consumption enterprises with worker coops.
.. Eliminate compound interest rates.
Public Banks would be an effective first step toward these ends.
Eliminating compound interest is akin to Mosler's belief that the FED should stop issuing long-term debt.
It would mean banks awash with reserves meaning the overnight rate would fall to zero. Without long-term bonds, portfolios would be more susceptible to risk, including pension funds that are another example of pointless financial activity - why back pension funds with unstable long-term bonds when you can just have government pensions? As in government cheques can never bounce and the House is currently re-banging its head against the same-old, same-old wall.
Mosler advocated for a payroll-tax holiday as well. Indeed, 'taxing' all paycheques is a pointless and powerful damper on the economy.
The madness of backwards macro thinking just doesn't end.
Higher risk to Big Money is no concern of mine.
My preference is 100% tax on Net Worth over $10 Mil and Incomes over $500k.
The only reason the 'west' has vast wealth is the exploitation of natural resources and workers spanning the globe for centuries with compound interest.
Big money also uses supposed differences in income to reduce their tax rates, e.g. dividends, capital gains, earned interest etc...it's all in coming cashflow when it's received.
How about this issue? The US with 5% of the world's population is consuming 20% of its resources. If China with 4 times our population was consuming resources (natural & human) at the same rate as the US, then ALL the world's resources would be consumed by the US and China with NOTHING left for the rest of the world.
I hope all interested conversants here know about this upcoming conference. https://ourmoneyourfuture.org/
MTMT when Stephanie and Randy are part of MMT. Bit of a dilemma for an acronym! One could go on to say that the fed is MT -- empty -- of any good ideas and .... I’ll leave now!
"The Jimmy Stewart savings and loan sector was allowed to recess into a distant memory of Christmas past. Banks started treating borrowers like one-night stands and loans like toxic waste, something to bundle up and quickly offload onto pension funds and other investors."
Bravo! That is some seriously fine writing!
And then there's this: "We need to move--quickly--to a system of FDIC insured BANKS, not FDIC insured DEPOSITORS." Is the implication here that the Fed should stop selling bonds altogether (after all, the whole point of a treasury bond is to have your money protected) and adopt a policy of "Interest On Excess Reserves" for ALL bank deposits?
Another bailout for the ruling elite. Both Silicon Valley & Signature Banks had over 90% of the deposits uninsured so they could be invested in higher risk/higher return enterprises. Now, they want another bailout claiming their protecting the little guys. NONSENSE.
They could have used The IntraFi Network Deposits program which allows you to get FDIC insurance on millions of dollars through a network of financial institutions without having to open accounts at multiple banks. Instead, you can keep all your money at one bank, and as long as that bank is part of the IntraFi Network, the program will funnel your money into deposit accounts of your choice at other network banks.
They messed up and now they're crying with crocodile tears to Uncle Sam.
Worth reading multiple times over to be honest with you. Great piece here by Kelton and Wray. Its too bad these so called economists simply don't understand what they're talking about when it comes to interest rates, deficits, and the economy. It's long overdue that the fed needs to stop weaponizing rates, the results for decades have been a disaster.
I still can't figure out how any policy-making institution can "fight inflation" without having an empirically valid theory that explains the thing being fought -- a theory that's capable of making accurate predictions and making sense of historical evidence. As best as I can tell -- and I am, admittedly, a rank amateur -- no such theory exists and MMT doesn't really have one.
The standard Friedmanite theory -- that inflation is "always and everywhere" a monetary phenomenon -- is obviously wrong both empirically and logically. In itself, it's so far off the mark as to be "not even wrong." The MMT theorists seem, on the one hand, to reject Friedman, but, on the other, to have no compelling story of their own to tell about the causes of inflation. Indeed, MMT often seems to embrace a sort of mealy-mouthed Friedmanism: Too much money floating around in the economy-- particularly money injected by federal deficit spending -- can "cause" prices to rise.
But what's the actual "causal" mechanism in the MMT theory? Sometimes I hear mumbling about excess money "causing" prices to be "bid up" by people flush with excess cash. But this also seems wrong, or, at best, incomplete: The prices of most consumer goods (with the possible exception of housing) aren't determined by auctions in which bidding occurs: The sellers of most consumer goods simply set prices. The microeconomists clearly seem to understand this, but the macroeconomist don't, or can't, or won't.
Apart from housing markets, the only places in which prices are set by buyers "bidding" for stuff are commodity markets (and labor markets -- but that's a rather different story). It's possible, I suppose, that members of the investor class, who always and everywhere control a hugely disproportionate share of the "money supply," might use "excess" cash to bid up the prices of commodities, thereby driving up costs for downstream producers, distributors and vendors who then pass those costs along to consumers, and that's where inflation -- or, at least, some of it -- comes from. Is that the theory? Is there any evidence to support it?
And then there's the market for labor. There's a "bidding up" process that often occurs when, as in the last few years, labor supply contracts (or fails to expand): Employers who are short of employees often "bid up" their wage and benefit offers to attract workers, and that process is, at least in theory, inflationary. But this isn't obviously a monetary phenomenon at all, except perhaps obliquely. And it fails to account for the fact that some significant portion of any inflation resulting from the bidding up of the price of labor will result from firms raising prices to maintain (or increase) profit targets, and will reflect the relative ability of those firms to get away with price increases in excess of their increased labor costs (which will depend, in turn, on things like their position in the market, the elasticity of the demand for their products).
Does MMT have a workable theory of inflation? I haven't really seen one. But, to be fair, I question whether a falsifiable theory of inflation is even a possibility. The economy is a chaotic system. It's a system that includes, effectively, just about everything that happens in the universe -- including all the stuff that happens in the brains of human beings (and each human brain is its own chaotic system). How can this system possibly be modeled in a way that would give rise to useful predictions? Beats me. Glad it's not my job to figure it out.
Correct VCA. The fact is that inflation is caused...by the fact that the system provides no effective/non-punishing means of dealing with/ending inflation AT ALL. In other words its a CHAOTIC situation that Finance/The FED can exploit by alternately goosing and strangling with the blunt instrument of money creation and lowering or raising of interest rates.
Inflation IS the biggest economic bugaboo of economic theory and is never going away...until even progressive economists like Wray and Kelton and Keen wake up and realize that its the paradigmatic concept of Debt ONLY as the only/monopolistic form and vehicle for the creation of new money that is at the root of not only inflation but also keeps the rest of our deepest problems in a continual state of non-resolution....and Monetary Gifting is the new concept that will change the ENTIRE PATTERN of economics. Especially with a 50% Discount/Rebate policy at retail sale. If you can buy gas for $2.10/gal here in Phoenix and lower when the recent inflations have been redressed), a $60k Tesla for $30k and buy a $450k 3 BDR/2 Bath house for $225k...how are you going to experience inflation??? Retail sale is participated in/experienced by EVERYBODY. Hence a discount/rebate policy there has MACRO-ECONOMIC effects. That right there is a NEW macro-economic insight that even the best above economists are not perceiving.
Until the above wake up to the 50% discount/rebate policy and additional ways to integrate Monetary Gifting into the Debt ONLY based system they're all just non-integrative "epicycle" reformists.
By the way, in my book I address all of the standard present paradigm retorts to the above like:
1) How are you going to stop commerciall agents from just raising their prices to destroy the beneficial effects of the discount/rebate policy?
2) "Oh my god, we'll have a doubling of consumption/economic throughput, the planet can't handle that!
3) Free Money! HYPER-Inflation, HYPER-inflation, HYPER-inflation!
4) It will never happen! (Cynicism, which is two microns above total apathy and hence never ever solved a problem. The Sun Stu Japanese military strtategist who knew that if you convince everyone and yourself that fighting is useless you won't even have to worry about fighting a war...even a paradigmatic war.
It depends on what is driving the inflation. Read John Maynard Keynes 1940 paper. (small book) "HOW TO PAY FOR THE WAR!" The problem is not that we don't know how to control inflation, the problem is no one is willing to say or take the necessary steps. FDR was not!
John Maynard Keynes 1936 "General Theory" is central to the macroeconomics textbook written by Mitchell, Wray and Watt according to its authors. In today's toxic political environment I understand why someone like Stephanie Kelton would use caution when advocating for the necessary steps, but instead throw down breadcrumbs...AKA Fiscal Policy. It's not that hard to figure out.
There is indeed more than one reason for inflation, but inflation IS inflation. So the point is to not only to end inflation, but to transform it into beneficial price and asset DEFLATION. A reform (sometimes and painfully) does the former while complete and BENEFICIAL inversion of pattern reality is one of the classic signatures of paradigm change. Thus the 50% Discount/Rebate policy at retail sale.
Also, historically reforms last for a while (Keynesianism lasted for 40 years and then got morphed into Neo-classical macro) but again, historically, everything adapts to a new paradigm, not the other way around.
Ending inflation forever also opens up the ability to run the kind of fiscal deficits MMTers only have wet dreams about. The better to confront climate change, so it aligns with their intentions.
"The problem is not that we don't know how to control inflation, the problem is no one is willing to say or take the necessary steps. FDR was not!"
FDR initiated heroic efforts to control inflation during WW II. This includes rationing of basic foodstuffs and fuel; and wage/price controls. I believe this worked reasonably well. Of course, there was a lot of cooperation by labor and business during wartime.
Some consideration of wage and price controls when inflation gets excessive--rather than suppress demand via traumatic recessions--might be needed. Would MMT have much to contribute to this discussion....?
We know how to kinda control inflation...within the present paradigm which has many "legal" and economic orthodoxy means of making sure...that its not controlled AT ALL. We need to finally get real about this. The present monetary and financial paradigm for the creation and distribution of new money is Debt ONLY. The word ONLY marks it as a monopoly paradigm which is much more powerful and stupid than the powerful and stupid mere systemic monopoly to create 97% of our money. The latter is deeply aculturated and hides in plain sight, but the former is protected by almost entire unconsciousness and the fact that perceiving new paradigms requires the willingness and ability to embrace an exceedingly rare mental quality, namely illogic...because every historical new paradigm has been in conceptual opposition to the the present one and all of its orthodoxies.
We are deeply into an anomalous present paradigm as Kuhn correctly observed of the process, but he and virtually every professional economist never discerned the historical signatures of imminent and accomplished paradigm changes which observe and confirm its conceptual reality and demonstrate its problem resolving/temporal universe inverting changes. In my book I list all of these historical markers and show how the new paradigm of Monetary Gifting is validated by each one.
Mosler's "theory of inflation" is that sovereign currency is a simple public monopoly and that the price level is ultimately set by what the government is willing to pay for the resources (including labour) it appropriates in the service of public purpose.
I went looking for Mosler's theory of inflation and, most immediately I found this:
https://warrenmosler.com/aframeworkfortheanalysisofpriceandinflation/
Honestly? I find it to be completely baffling. Looks like he's written and spoken a lot about inflation. I'll keep looking for stuff of his that doesn't tie my brain in knots.
Try this interview (skip to the 2 minute mark to avoid the heavy metal intro music) from about a year ago. At about 11:45 he starts talking about how the sovereign currency is a public monopoly and then at 13:45 he goes on to explain where inflation comes from.
https://www.youtube.com/watch?v=wIvhTDp6O9s
If you're like me, you might find it easier to understand him by listening rather than trying to read his writing.
Thanks. I'll check that out later today.
Loved it, as per usual, except the mistaken belief that regulators had anything to do with this travesty. Regulators can never be held responsible for the failure and stupidity of modern man. Those in charge, need to be "bankrupted" eg fired, and then sent to pause land for a time, before our memories are wiped and they can screw us again. If history proves anything, there is another crisis coming and we will have no means to prevent it. Just get the buckets and start bailing, we need banks, good ones and bad ones.
What is the magical full employment level and interest rate that the Phillips Curve supposedly predicts ? Full Employment Act was thrown under the bus.
/2. I’m intrigued by the amount of hedging the general public will require (Piketty’s works) due to the ungodly sums the excessively wealthy families control both in banking and financial institutions in general. Exponentially beyond The Gilded Age parameters of inequality.
To the best of my knowledge the Phillips Curve does not attempt to predict interest rates or to draw some sort of correlation between interest rates and the level of employment.
The Phillips Curve was introduced (by Mr Phillips!) in 1958 to describe a correlation between unemployment rates and changes in wage rates in the U.K. As unemployment increases, workers have less bargaining power and are less able to win increases in wages. If unemployment decreases (or, conversely, employment approaches "full" employment), workers have more bargaining power and are more able to win wage increases. If you were to map unemployment on the horizontal axis and wage increases on the vertical axis and plot observations, you would get a downward-sloping curve depicting an inverse relationship between the unemployment rate and the rate of wage increases.
So far, simple supply and demand. But when Paul Samuelson and Robert Solow transferred the Phillips Curve to the U.S. context in 1960, they made one crucial change. They introduced the assumption that price increases would track wage increases (a "cost-plus" theory of prices) and that they could now draw a downward-sloping curve depicting an inverse relationship between the unemployment rate and the rate of *price* increases. This relationship would, they claimed, provide "policymakers" with a "menu of policy choices" in which society could "trade off" unemployment and inflation against each other. Hence, the notion prevalent ever since that if inflation gets out of hand, the government has to step in and cause workers to be thrown out of jobs, thereby alleviating upward pressure on prices. This "cooling" of the economy is a task turned over to the Federal Reserve to be accomplished by raising interest rates.
As you noted, this effectively threw the Full Employment Act (1946) under the bus.
Milton Friedman and large portions of the economics profession subsequently got into the act. They introduced complications such as the "Natural Rate of Unemployment," the "Non-Accelerating-Inflation Rate of Unemployment" (NAIRU), rational expectations theory and so forth. To study this will make your head spin. All you really need to know is that when someone like former Treasury Secretary Larry Summers calls for unemployment to go to over seven percent in order to get inflation under control, he's still acting based on the Samuelson-Solow version of the Phillips Curve: the alleged unemployment-inflation tradeoff.
KeltonBideninflation. Napalm on a forest fire 🔥. Joe knew. Confidence in our debt, Spending, leadership and finances are being questioned. Sadly for good reason. Rate and inflation instability has led to a run on the banks. Confidence in our financial system is in question.
I don't know enough about the financial sector to follow these arguments. My impression is that interest rate hikes serve two purposes which are dear to the heart of the corporate feudal class - creating unemployment and job insecurity among the masses, and increasing economic inequality.
This statement puzzles me a bit "Central banks can’t control the money supply (despite the carnage, the Fed never hit its money targets), and money supply growth isn’t related to inflation (money grew rapidly as inflation finally began to drop)."
How to reconcile this with the (MMT) concept that one purpose of tax is to reduce/increase money in circulation to stop overheating/boost economy. With full employment being the objective.
Because one is lending (monetary policy), and the other is a direct injection/removal of money (fiscal policy). Orthodox economics builds their theory around the loanable funds theory and fails to recognize the difference between the "currency issuer" and "currency users" are two of the major problem.
Just because the fed lowers interest rates does not automatically mean borrower will take out loans (add to the money supply). We KNOW private sector debt leads to "boom-and-bust" cycles.
If they do take out loans how does that effect their future consumption (spending). If you don't fully grasp the difference between monetary policy and fiscal policy then you will have a hard time reconciling most everything about MMT.
The only two time the US has had macro demand exceeding supply problem has during WW2 and the resent COVID pandemic, and in both cases it was due to a supply problem. Outside of that, inflation has come from abusive market power (monopolies), which is always problem.
Thanks
There's only so much regulation and oversight can do. At some point, one needs responsible management. The Financial Times reported that Blackrock warned SVB about it's weak risk controls. From the article "The January 2022 risk control report gave the bank a “gentleman’s C”, finding that SVB lagged behind similar banks on 11 of 11 factors considered and was “substantially below” them on 10 out of 11, the people said."
And your solution is? Just throw your hands in the air and say, we can't do anything about it. Actually, the Glass-Steagall act prevented most of this (regulation).
Where did you get that from? No, regulations are needed. But regulation and oversight are weak solutions and can't replace responsible management. It's a fantasy to think otherwise. In this case, backstopping all depositors was a mistake. A small haircut - say 5% loss on corporate deposits - would have gotten the message across that CFOs need to take some responsibility. SVB had a CEO, CFO, risk committee, board of directors. Where was everyone? Wiping out shareholders was a good idea.
I agree with much of this. But most of this recounts history and does little to explain inflation. I do not agree that money supply has no impact. M2 money stock was increased more than 30% post-COVID. The inflation that I and others expected predictably followed. Somebody needs to credibly disprove Milton Friedman before anyone can believe otherwise.
I absolutely agree though that many of our financial crises are rooted in Fed behaviors. Jimmy Carter squeezed three Fed Chairs in four years for easy money. He got much of what he wanted, sadly. I'm older than Dr Kelton and remember 13% inflation and gasoline lines. I respectfully disagree - Volker did what he needed to do to destroy Carter's economic train wreck.
Greenspan tried to make the job look like the work of Merlin. Speaking in prose that often left people guessing at its meaning, the Greenspan Fed mostly followed rates down as the Reagan era boom continued through the 1990's. Greenspan spent too much time fretting over irrational exuberance instead of embracing the explosion in innovation that was fueling 1990's growth.
Then came 9/11. Here is where the Fed really went off the rails. They lowered interest rates to near-zero, arguing that the nation could not easily recover without ZIRP. Never mind that our productive capacity was totally intact after 9/11. Yes, it was heinous but no factories, refineries, smelters, power plants etc were destroyed on 9/11 - just buildings and more than 3,000 lives & families. The Fed response to 9/11 didn't call for ZIRP.
Since 9/11, central banks have responded to one 'crisis' after another with more damaging long-term results. Greenspan's low post-9/11 rates fueled the housing bubble that the Fed was too blind to see. Franklin Raines of Fannie Mae told Congress that housing was one of America's safest & best investments, and Congress believed him.
2007-2009 brought lots of extraordinary measures from the Fed. The nation got through the crisis that was wrought in no small measure by ZIRP and FAS157.
Then came COVID - a pandemic that may have been created in-part with taxpayer dollars. We irresponsibly shut down the entire economy. The Fed dutifully printed lots of money to buy Treasuries so that both the Trump and Biden Administrations could helicopter money everywhere for people to not work. Is it any wonder consumer spending went through the roof in 2021 & 2022?
The Fed kept rates near zero for nearly a decade. They embedded the expectation that ZIRP would be quasi permanent and necessary for the economy to function. It's what people came to expect because ten years of recency bias taught them that. Then people wonder why problems erupt when the Fed pushes up rates 400 bps in less than a year. SVB just passed a bank examination a few weeks ago - what the examiners actually looked at appears to be unclear, but they passed. Why though would SVB's unqualified board worry about duration after a decade of ZIRP? After all, they held 'safe' treasuries in an era of ZIRP that they seemingly thought would not end.
Lurching from one crisis to the next, followed by one Fed keystone cop exercise after another, is no way to run the central bank. It's no way to 'manage' the economy. Nor is it sensible to nationalize banks, guarantee all banks & deposits and thereby nationalize risk & moral hazard. If there is no consequences for imprudent risk, there's no disincentive for reckless economic & financial behavior.
Academics have spent a century debating the proper role of the Fed. 'Abolish the Fed' advocates probably have a point. But bank failures were prevalent before the Fed too - 1907 is why we got the Fed. I wish someone would take a closer look at the Taylor Rule again. Putting some practical guidelines around interest rate policy seems a heck of a lot more sensible than anything we've done the past two decades. And while we're at it, abolish the Congressional Budget and Impoundment Act of 1974. Let the Executive Branch have a true budget veto once again.
Thanks very much for shedding some light on this.
Wheres the instrument to fight
Free range
Mark ups
By market power firms ?
We need a price regulation system if not micro then macro ie the price level path
Lerner was all over this
from 1948 to 1980
Hes one of your Rushmore guys
Go to him
Contemporary Capitalism is leveraging cashflow, where 92% of everything is owned by the upper 1%, greatly aided by creating the laws via their politician pawns, and of course, compound interest rates.