MMT And Helicopter Money Are Monetary Socialism!

We continue our series on MMT with a discussion between WIlson N. Sy (Ex. APRA and ASIC), Economist John Adams and Analyst Martin North.

Specifically we examine Wilson's thesis that MMT is i) Not New and ii) Another version of Socialism.

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[killzthief]

Privatise the profits and socialise the debts/environmental destruction....brilliant on behalf of the eltes

[mattpettiford]

Great to see you having Wilson Sy on. Love this guy.

[RCPanzerTank]

On key points of MMT Macroeconomics

“10 bullet points of what I include in MMT:

1. What is money: An IOU denominated in a socially sanctioned money of account. In almost all known cases, it is the authority—the state—that chooses the money of account. This comes from Knapp, Innes, Keynes, Geoff Ingham, and Minsky.

2. Taxes or other obligations (fees, fines, tribute, tithes) drive the currency. The ability to impose such obligations is an important aspect of sovereignty; today, states alone monopolize this power. This comes from Knapp, Innes, Minsky, and Mosler.

3. Anyone can issue money; the problem is to get it accepted. Anyone can write an IOU denominated in the recognized money of account; but acceptance can be hard to get unless you have the state backing you up. This is Minsky.

4. The word “redemption” is used in two ways—accepting your own IOUs in payment and promising to convert your IOUs to something else (such as gold, foreign currency, or the state’s IOUs).The first is fundamental and true of all IOUs. All our gold bugs mistakenly focus on the second meaning—which does not apply to the currencies issued by most modern nations, and indeed does not apply to most of the currencies issued throughout history. This comes from Innes and Knapp, and is reinforced by Hudson’s and Grubb’s work, as well as by Margaret Atwood’s great book: Payback: Debt and the Shadow Side of Wealth.

5. Sovereign debt is different. There is no chance of involuntary default so long as the state only promises to accept its currency in payment. It could voluntarily repudiate its debt, but this is rare and has not been done by any modern sovereign nation.

6. Functional Finance: finance should be “functional” (to achieve the public purpose), not “sound” (to achieve some arbitrary “balance” between spending and revenues). Most importantly, monetary and fiscal policy should be formulated to achieve full employment with price stability. This is credited to Abba Lerner, who was introduced into MMT by Mat Forstater.In its original formulation, it is too simplistic, summarized as two principles: increase government spending (or reduce taxes) and increase the money supply if there is unemployment (do the reverse if there is inflation). The first of these is fiscal policy and the second is monetary policy. A steering wheel metaphor is often invoked, using policy to keep the economy on course. A modern economy is far too complex to steer as if you were driving a car. If unemployment exists, it is not enough to say that you can just reduce the interest rate, raise government spending, or reduce taxes. The first might even increase unemployment. The second two could cause unacceptable inflation, increase inequality, or induce financial instability long before they solved the unemployment problem. I agree that government can always afford to spend more. But the spending has to be carefully targeted to achieve the desired result. I’d credit all my Institutionalist influences for that, including Minsky.

7. For that reason, the JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability. This comes from Minsky’s earliest work on the ELR, from Bill Mitchell’s work on buffer stocks and Warren Mosler’s work on monopoly price setting.

8. And also, for that reason, we need Minsky’s analysis of financial instability. Here I don’t really mean the financial instability hypothesis. I mean his whole body of work and especially the research line that began with his dissertation written under Schumpeter up through his work on Money Manager Capitalism at the Levy Institute before he died.

9. The government’s debt is our financial asset. This follows from the sectoral balances approach of Wynne Godley. We have to get our macro accounting correct. Minsky always used to tell students: go home and do the balance sheets because what you are saying is nonsense. Fortunately, I had learned T-accounts from John Ranlett in Sacramento (who also taught Stephanie Kelton from his own, great, money and banking textbook—it is all there, including the impact of budget deficits on bank reserves). Godley taught us about stock-flow consistency and he insisted that all mainstream macroeconomics is incoherent.

10. Rejection of the typical view of the central bank as independent and potent. Monetary policy is weak and its impact is at best uncertain—it might even be mistaking the brake pedal for the gas pedal. The central bank is the government’s bank so can never be independent. Its main independence is limited to setting the overnight rate target, and it is probably a mistake to let it do even that. Permanent ZIRP (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. I credit Keynes, Minsky, Hudson, Mosler, Eric Tymoigne, and Scott Fullwiler for much of the work on this.”

[james_]

Wilson Sy is exactly correct we must SAVE and Invest not spend and consume. We have it backwards. The central banks are encouraging an economic disaster.

[richardshaules]

Great video- hope to hear more of Wilson, North and Adams soon again. Keep up the great work guys!

[turbostyler]

I had a 500 billion dinar note as a kid from the Yugoslav hyper inflation that occurred throughout the 90s. I remember my uncle (RIP) kept them as a souvenir as he was an economist and gave me a some to keep. If we keep printing money like this and manipulating the price of credit then we are doomed to follow the same fate. Hopefully we have an economic crash before that happens as it would probably be less devastating.

[barrydisch]

I think you should interview Bill Mitchell, Steve Keen, Michael Hudson or Stephanie Kelton. They could explain MMT and you can wrap your head around it. I feel there is some basic misunderstanding from Scott and Wilson because of their more conventional academic backgrounds. Steve Keen would be better for Wilson to talk to because his modelling is more engineering based. Hudson could school them more on the history of economics.Both are professors of economics with non traditional backgrounds.

[richardminhle]

Socialism for the rich to be specific and precise.

[evogardens]

It always bugs me what some people can earn in a week, takes me a whole year to earn. Yet we all pay the same for a pint of milk.
Income inequality is a huge issue rarely talked about, so thanks Wilson, John and Martin for bringing it up.

[scottmorrison]

MMT is an equation. It feeds money to both the production and supply side. All the participants here think that MMT only addresses consumption.

[euclid]

There are a lot of myths of what MMT is and is not, and a few have unfortunately been added in this post. A quote from one of originator, Professor Bill Mitchell of MMT hopefully might prompt additional research and understanding.
"MMT should not be seen as a regime that you ‘apply’ or ‘switch to’ or ‘introduce’.
As I have noted regularly, MMT is rather a lens which allows us to see the true (intrinsic) workings of the fiat monetary system. It helps us better understand the choices available to a currency-issuing government and the consequences of surrendering that currency-issuing capacity (as in the Eurozone). It lifts the veil imposed by neoliberal ideology and forces the real questions and political choices out in the open. An MMT understanding means that statements such as the ‘government cannot provide better services because it will run out of money’ are immediately known to be false. Such an understanding will change the questions we ask of our politicians and the range of acceptable answers that they will be able to give. In this sense, an MMT understanding enhances the quality of our democracies".
MMT is all around us in the form, structure and operation of a fiat monetary system but is being used by institutions and people with a values system that benefits the few, with 'trickle up' economics. The neoliberals, encouraging excessive use of monetary policy have burdened households with excessive debt that is not balanced by appropriate levels of fiscal spending. They have hijacked the system for their own benefit while progressives have been co-opted into a 'neoliberal light' mindset of believing that money is a scarce and public services should substantially fund themselves or be privatized.

[mickyd]

They can send helicopter money my way, I'll put it toward sending the gold price through the roof...

[Natpoo]

I can’t believe we are talking about MMT and helicopter money. What has the world come to! How big does this debt bomb need to be!

[anthony]

A doctor of mathematics and economics and has no understanding of Central Banks or their Creation, We are screwed

[scottmorrison]

Wilson, the QE for last 10 years have gone to the top 1% . That's why the economy is struggling. MMT will spend into the general population.

[haimona]

The analysis here seems sound to me but I would tighten up the language. The redistribution from the money printing described is not accurately described as socialism. When I was at university redistribution in favour of corporations was described as corporatism. Since the GFC, the banks (corporates) have been the ones printing money (with state backing in the form of the implicit guarantee) and this transferred resources to corporations (anyone with access to debt markets), increasing inequality, as I think everyone acknowledges (Alberto Gallo is good on this). That hasn't done much for the economy (whether production or demand), so now there is a push to a more explicit form of money printing and this will just continue to transfer resources to corporations. Let's be very clear, however, this isn't socialism. Socialism is where resources are transferred from the haves to the have nots. Yes, that might be an intervention but perhaps it's to correct an earlier intervention - the misallocation of resources by the State - creation of monopoly power, exclusive transfer of public assets such as energy and minerals, excess protection of intellectual property. There is no property without the State! Nozick overlooks this. What we are seeing now is States (and central banks) just acting as instruments of corporates and redistributing resources accordingly. Look at labour's falling share of national income.

[amraceway]

Focus should be on bang for the buck. Governments shower private corporations with taxpayer money on over priced services.

[Patrick-rjgh]

What about the Cantillon effect. Monetary vs fiscal policy. Monetary policy’s had the effect of hyperinflating financial assets while contracting the real economy in a perverse feed-back loop. The pitchforks are almost out. I can see Fiscal policy flipping the feedback loop in the reverse direction suppressing asset prices. That’s why it will be resisted. Just my humble opinion.

[GlenisRetiredNZ]

Investing in Government bonds takes money away from production. It's good to be reminded of things I knew but with all the smoke and mirrors it had been buried in my memory and become of no consequence.

[ewtwetrwerwteet]

As I've said many times, socialism is a wonderful thing. As long as I am in receipt of the benefit and everyone else is paying.