Correct me if I'm wrong. Are you saying QE requires the government to pay interest because you are selling debt in the form of treasuries, and the Fed depositing (spending directly with key strokes) does not cost the government interest payments?

Expand full comment

Please do enlighten me on the mechanics of Federal Government expenditures.

If government wishes to engage in the supply of some public good, how does it obtain the resources necessary to do the job? Does it wave its magic wand and the resources appear? How does it obtain the labour and cooperation of all those firms and workers with a bank account balance of zero at the Fed?

Expand full comment

Stephanie, it would be very helpful to reply to some of these comments from an MMT perspective.

Expand full comment

When people say MMT advocates government financing spending by 'printing money' they're not referring to literal printing presses or physical banknotes. They're referring to the creation of new base money. They will not be swayed by the response that we're not making new cash we're crediting accounts at the fed. Whether a keyboard is used to issue new reserves or new cash is printed at the mint, it will be described using the phrase 'printing money'. We can't disavow 'printing money' because it is being used to describe the principle of expenditure that involves creating new money and spending it. We imagine we would be disavowing a specific outdated process for issuing money, whereas they would interpret it as a fundamental disavowal of governments creating money from nothing, which is where all money comes from and in the long run can't be avoided.

The correct rebuttal isnt to go after the phrase 'printing money': when we say the money is actually created by keystrokes it comes accross as though we are using technicalities and jargon to disguise opinions we felt might be shameful (that governments creating money from thin air isn't only routine, it is where all money comes from originally). If we insist that MMT does not support 'printing money' it implies acknowledgment that issuing new money is fundamentally wrong. We shouldn't be tackling critics by saying that we're not printing money. Instead we should be combatting the principle being advocated that spending by creating money rather than taxing it is inherently distructive. Rather than disavowing printing money (which sounds like we're disavowing issuing it), we should emphasize that all money had to be 'created' at some point, that borrowing, by creating government liabilities is a form of 'printing money', that all deficits involve issuing/printing new money that flows to the private sector and that to avoid doing so on principle is dangerous and deflationary. We should challenge the idea that issuing/printing money leads to inflation in an economy with unemployed resources, and point out that the hyperinflation they fear isn't the outcome of 'money printing', it's follows a collapse of the tax system.

As I understand it MMT has no reason to object to printing money any more so than it objects to crediting deposits held at the fed. Rather if one takes the functional finance stance, the view that MMT holds on 'printing money' depends on whether there is sufficient demand in the economy that all goods produced find a buyer (indicated by inflation) or whether it is operating below capcity (indicated by constant or falling prices, unemployment and unsold inventory). If deficits are necessary and they can be achieved by keystrokes at the fed, printing cash or issuing bonds, objecting specifically to the act of printing is a red herring that fails to address the fundamental criticism: the argument should be over the principle of issuing money, not the mechanism by which it happens.

By focusing on repudiating 'printing money', we concede by implication all the intellectual baggage behind the objection to creating money from nothing. A listener would assume we agreed that money creation should or (in the long run) could be avoided, or that the process that leads to money creation (expenditure beyond tax revenue) is reckless and unsustainable (when the reverse is true). If we overtly reject 'printing' it will be assumed we are doing so for the same reasons as our critics: that governments issuing money would lead to high levels of inflation. One fundamental error they make is that when we issue liabilities if they are called treasuries we call it 'borrowing' but when we call them 'cash' we call it 'printing', when we call them reserves we are 'crediting' when all these are examples of issuing money. Anyone MMT gained favour with by the repudiation of 'printing money' would be under the misapprehension that we are repudiating 'creating money', and that we agree with the arguments usually given for avoiding money issuance. Rather than mask our beliefs to sound more sensible we ought to make it clear that 'printing money' is the reason we have money, and that a variant of printing money has been the policy of almost every modern government.

Objecting to 'printing', a phrase people interpret it to mean creating money from scratch obscures numerous fundamental truths about MMT: that all government deficits are financed by creating money from scratch, that in the long run governments must create money first if they intend to tax it, that much as with a printing press, all money is issued from nothing. Most significantly, people are wary of duplicitous intellectuals and looking for reasons to discredit MMT. When people hear us object to the term 'printing' on the basis that we don't use actual printing presses to create base money, we look disingenuous.

Expand full comment