Talk "MMT and the 7 Deadly Innocent Frauds of Economic Policy"

presenter: Nirvana Bloor

A well attended talk, with many new faces. The slides can be downloaded here  150629 Nirvana - Modern Money Theory (MMT).pdf

Introduction

Peter set the context by explaining that Positive Money and MMT are two different approaches to monetary reform. While PM seeks to reform the private banking system, which creates 97% of our money supply, MMT gives greater emphasis on public sector finances. However, both advocate some form of public control of the money supply, and are best viewed as parallel arguments. This is exemplified by the situation in Greece which faces both a sovereign debt crisis, and a run on the (private) banks. - both MMT and PM have important contributions to solving this.

Nirvana then started her talk by describing the history, key players and the growth in support for MMT. For instance, a conference in Rimini attracted 2000 delegates in 2012. MMT is a Post-Keynesian economic theory, and is converging with Monetary_circuit_theory (which states basically that 'money' is credit, created endogenously by the banking sector).

Key to understanding MMT is that the private sector behaves pro-cyclically (the paradox of thrift), and that the Government is the only agent that can act in an counter-cyclic way, providing it has sovereign control of the money supply.

MMT thinking is revolutionary - "Copernican". Much of our thinking is back to front eg.  the government doesn't need to tax (or borrow) in order to spend; running a public sector surplus impoverishes the private sector.

The Seven Frauds

"Seven Deadly Innocent Frauds of Economic Policy" is the title of a book by Warren Mosler (see 'Further Reading' below for download)

Fraud 1: Government must raise funds through either taxation or borrowing in order to spend.

• Fact: a sovereign government can always make payments in its own currency no matter how large the deficit.

Fraud 2: Public deficits leave a debt burden to our children.

• Fact: no REAL output gets thrown away because of debt. Our children will consume the (real) output they produce.

Fraud 3: Public budget deficits take away savings.

• Fact: Public budget deficits ADD to savings. It is a budget SURPLUS that takes away savings.

Fraud 4: Social security is broken.

• Fact: Pensioners are not a burden. The real question with an aging population is whether the active people that are left can meet the needs of all. Austerity reduces that ability.

Fraud 5: Trade deficit takes away jobs and output.

• Fact: Imports are real benefits, exports are real costs. Trade deficits increase our standard of living.

Fraud 6: We need to save before we can invest.

• Fact: Investment creates savings. This fraud is draining huge amounts from the REAL economy to the parasitic financial sector.

Fraud 7: Higher deficits today mean higher taxes tomorrow - and that's bad.

• Fact: It's a fact, but it's not bad! Higher deficits today boosts the economy, taxation may be needed tomorrow only if the economy is over-heating.

Convergences and Divergences with Positive Money

Both campaigns see the need to restrain the creation of debt-based money by banks, which causes unprecedented levels of private debt. However, MMT diverges from Positive Money in some respects. MMT maintains that -

• restraining the banks can be done through regulation and/or nationalisation of the banks
• the way to reduce private debt is to increase public spending
• banks are not the issuers of money as Positive Money claim
• net money is created through public spending, Positive Money do not agree this is the case
• the money supply should not be finite.

Discussion

Unfortunately, there was little time left for any discussion. Below are some of the questions/comments from the audience.

• The statement that the Govt creates money through public spending was disputed. This could be true under a sovereign money system, but not under the present system in which the Bank of England creates "base" money and is not permitted to lend directly to the Government..
• There is anger that so few people really understand (or care) what's going on. There is widespread ignorance, especially among most politicians. "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning" (Henry Ford)
• There was brief discussion on the "convergences/divergences" part of the talk. For instance, PM does not argue that the money supply should be "finite", but that it should be controlled so that there is sufficient for the economy to work.

Further reading

Books:

• The Seven Deadly Inoocent Frauds of Economic Policy by Warren Mosler

Available to download from: http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/

• The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry by William K. Black
• Soft Currency Economics II (MMT - Modern Monetary Theory) by Warren Mosler.
• Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems by L. Randall Wray
• Understanding Modern Money:The Key to Full Employment and Price Stability by L. Randall Wray.
• Full Employment Abandoned - Shifting Sands and Policy Failures by William Mitchell.

Blogs:

• USA: http://neweconomicperspectives.org/
• USA: http://moslereconomics.com/ (Warren Mosler’s blog)
• UK: http://www.3spoken.co.uk/
• UK: https://plus.google.com/communities/115648015225495790417 (Neil Wilson’s blog)
• Australia: http://bilbo.economicoutlook.net/blog/ ( Bill Mitchell’s blog)
• Australia: http://e1.newcastle.edu.au/coffee/
• Italy: http://memmt.info
• Italy: http://economiapericittadini.it/