MMT N00bs

Today just some speech bullet points for people who may find they’re the “MMT expert in the room” — meaning just an ordinary person who happens to know about MMT. These are the sorts of things you might want to have tattooed across your arms.

Caveats

In polite discourse I do not recommend using my language of “Welfare Dorks” and “UBI Dorks” so please substitute appropriate terminology. Ōhanga Pai has elements of an MMT activist manifesto, so I allow myself such playful and provocative language.

The Roche article I am referencing was from 2015. But he still attacks MMT today (c.2023) so little evidence he has found enlightenment since.

Background

In MMT discussion groups often topics of critiques of MMT are brought up. One recently was investment advisor dude Cullen Roche. He is a particularly annoying type who thinks (or seems to think) Keynes is the be-all and end-all of macroeconomics. Post-Keynesians of course are highly prone to mischaracterising and gaslighting MMT, straw-manning MT, and the like, because MMT grew out of PK economics forums, and went beyond PK. The father has some Freudian death-wish complex for the Son — sort of thing (I have no idea really, just seems that way sometimes, maybe it’s more a Vader–Luke complex thing?).

Job Guarantee

Cause of Unemployment

This is something Cullen Roche did not comprehend, he claimed Mosler was wrong. But Mosler is not wrong, in fact Mosler’s point follows logically from definitions.

Unemployment is defined as people seeking work in exchange for the state currency.

It follows logically that if the government does not issue the means to pay the tax liability then the evidence is unemployment. MMT point is government can always supply the means to pay the tax, if they do not the whole system is in default, which is a tragic policy mistake.

Not only is it a drag on the economy to put people in precarity, but there are massive social costs to unemployment. In the space of a decade or so these social costs and pathologies of unemployment are thought to dwarf the real costs of all wars in all human history. Moreover, unlike rebuilding a war-torn city, the lost output from unemployment can never be recovered — it is lost for good.

What is the source of the desire to work in exchange for the state currency? It is the imposition by the state of all liabilities that may only be settled by payment in the state currency. Mostly this is tax liability.

Private firms are not a source of unemployment. How can they be? “Oh, sorry, I can only employ one baker in my shop, should I have employed three because two other people also want the state currency??”

Bankers are not a source of unemployment. How can they be? “Oh, sorry, I should have issued more loans in exchange for promissory notes, but credit risk assessment meant I can only legally make a lone to Charlene, not Charlie. Should I loan to Charlie anyhow because he is seeking the state currency??”

Foreigners are not a source of unemployment. How can they be? “Oh, sorry, I did not buy a lot of your domestic surplus this year, I’ll try to do better next time by depreciating my own country’s exchange rate.”

The (wise, non-stupid) government only accepts their currency as tax redemption.

All bank credit extension is government spending. Why? Because banks are chartered by the state. Bank credit is state licenced state currency issuance. The state is (through the agent bank) purchasing the promissory note to repay. That is state spending. OK, this is a little subtle for monetarist goldbug heads to grok, but it is a simple fact-of-the-matter.

It is clear then that the means to pay the tax can only come from the government. Point of logic, not up for debate. (Unless the government is insanely stupid, granted that could be the case).

Basic JG

1. The government issued more tax liabilities relative to procurement needs for the state plus private sector desires to save. The evidence by definition is unemployment in dollars. Not unemployment in anything else.
2. This is a policy mistake. Unemployment is not caused by the private firms. Private firms seek to produce output for sale with as few workers as possible, preferably zero wage workers. (not that enlightened employers know it — which is a terrible tragic source of bullsh1t jobs. Tragic because such enlightened employers honestly want to help people.${}^\dagger$)
3. The government has only two ways to fix this policy mistake: (a) lower the tax liability, or (b) employ the people they caused ot be unemployed.
4. The problem with (a) is long term unemployed workers are (provably) undesirable to firms. Firms prefer to bid to hire already employed people, for obvious reasons. It’s not necessarily callousness: a firm has to make sales.
5. The state can always hire an unemployed worker, if a public service job is not clearly available, then a Job Guarantee scheme can be used. MMT calls this a fully employed labour buffer.
6. A JG is a superior price anchor compared to a UBI or unemployed labour buffer.

On fixed exchange rates or a gold standard the buffer is either gold or a foreign currency (or basket of currencies). On such regimes you have full employment of gold. You cannot guarantee full employment of labour. On a floating exchange rate the buffer stock is labour, and you can have full employment of labour, or use welfarism to unemploy the buffer. But why do that? It makes no sense, it is unnecessary and it is cynical and psychologically damaging to the working class.

The JG scheme does not need to make profit, but can produce useful output.

The JG scheme can be government funded, but locally administered, meaning it is democratic, not work-for-the-dole. The work can be envisaged and realised to be fulfilling and even joyful (why not?) Micro-efficiencies are unimportant. How many Harberger Triangles does it take to fill one Okun Gap? The answer is “a helluva
lot”. The economic damage of lost output due to unemployment is simply massive and horrific compared to all microeconomic efficiencies incurred from non-profit government employment guarantees.

The choice government policy-makers have is between an unemployed labour buffer, and a fully employed buffer. there is no good reason on Earth to choose an unemployed labour buffer. It’s dystopian, and creates welfare dependency, which only further psychologically damages otherwise possibly good decent workers.

${}^\dagger$It would be better for workers for enlightened employers to fully automate their production, so they do not need to employ workers. But we all know most useful firms cannot do so. So do not disingenuously attack the MMT point of logic here. If a firm can automate sustainably, they should.

The common attacks come from (1) UBI dorks, and (2) workfare dorks.

Workfare Dorks

The JG should as a matter of principle not be set-up as workfare. And why would you do that?

There are endless good things people could do for their community, provided a monetary profit motive is unnecessary. A JG makes the profit motive unnecessary.

A JG is not for Public Service Employment (PSE). If a skilled worker desires to work for the public sector, they ought to be recompensed with a skilled level wage + benefits. Not just as a matter of justice, but for stability too. A worker paid less than the wage needed to reasonably well live in society becomes a drain on other social services. For no good reason.

UBI Dorks

Bottom line: any good for society anyone can do if given a UBI is something they could instead be compensated for with a proper full living wage + benefits. So UBI is pointless. It is dystopian.

We wake up every day to a severe labour shortage.

(On the MMTMacroTrader livestream we mentioned the smartphone App “Be My Yes”. So why should Be My Eyes volunteers not be eligible for a JG wage? Answer is “for no good reason.”)

Further Counters to UBI-ism.

First a couple of points about government budgets, then a decent but not exhaustive list of reasons no one should want a UBI policy.

1. The budget is best thought of as a moral document, not a financial document. (Governments neither have a store of their tax credits, nor do not have them. And they cannot target a nominal fiscal outcome due to a huge amount of non- discretionary spending.) It’s a big hurdle to get the citizenry thinking in these terms (and more below) but that’s the job we face. It’s not as hard as moving mountains at least.
2. The focus has to be on real wealth, not nominal. Distributing currency is the means to claim real wealth and is a matter of grave justice considerations. A UBI is far too indiscriminate. It cheapens an outlook of justice.
3. I know all the UBI arguments. None work imho as you wish to think, except to use BI as a short term palliative. UBI does not guarantee creation of the real resources people need. (By design it cannot.)
4. 3.(a) A currency (units for credits and debts) is not just for spending. It is a reciprocal relation. Always has been, always will be. Who/what is your ubi a claim upon? The JG + PSE is superior, you know the claim, it is your claim on the state for your contribution.
5. 3.(b) At best a nation with a decent UBI is claiming on the output of labourers somewhere else, often in the global south. (This is the case wherever UBI is currently run, and people are ignorant of it, they don’t factor it).
6. 3.(c) So where exactly are you eliminating poverty? Only in your own land, if you are lucky to avoid a big inflationary impact eroding the gains to the poor.
7. As a matter of principled reciprocity, it is always better to compensate people fairly for a contribution to society, no matter how small “From each according to their capacity, to each according to their needs” - yes, but only if real output (not currency) is there to meet their needs.
8. 4.(b) There is no great bureaucracy with a Job Guarantee (unless you plan it to be that way!). It can be locally administered. Those local admin jobs a good useful jobs. They help determine fair distribution and needs. Don’t disparage them.
9. Taxing off the wealthy elites is harder than you can imagine, unless you are a wealthy elite. So there’s a huge problem there to solve before UBI can be regarded as fair. The JG avoids all that, since it injects currency by just compensation only at the base. Who other than a sociopath would not want and vote for that? So I think surveys also back this up, a JG polls well there is no democratic opposition to it (small “d”).
10. Limited BI to pump up demand could be ok for a while. But you always need to think about real output, which a JG does. (As does expanding skilled wage public service employment proper, which should be paid a fair wage, not a JG minimum.)
11. There’s already a channel for increasing BI - the existing welfare benefits and pensions. Easier to get votes to raise them than vote for “money for all”.
12. It is incredibly dystopian (imho) and grossly unfair to expect people to produce useful output on a UBI. If they are doing useful work pay them a decent living wage for heavens sake. No one opposes this that I know of who again is not a sociopath.
13. If a skilled worker is contributing useful output, employ them in the public sector proper at above JG wage. Because… why the heck not? There is no reason not to. Don’t leave them to flounder on an unearned basic income or the superior a JG wage floor.
14. You all know the superior counter-cyclical effects of a JG as opposed to an unemployed labour buffer, so JG makes ore sense macroeconomically. Why then vote for an inferior policy?
15. If we have a JG the JG wage can be higher if there is no UBI so I do not see them as complimentary at all. You have to extract those taxes off the wealthy but not only the wealthy (who only complain, and do not lose capacity to spend sufficiently) you’d have to tax the middle class too. There is no constituency for that. But to see this as a problem for a just and equitable UBI you have to be honest. Most UBI advocates outside MMT circles that I have heard are not fully informed, or I’d claim if they are then they’re dishonest about this (and possibly about some of the above points).
16. Is UBI truly easier to get passed into law? ok. Maybe. But that’s the only good argument for the ubi. But that’s a country I will never want to live in. (I might be dooming myself as a Kiwi citizen here, I will admit.)

Sectoral Balance Critics

Cullen Roche was not one of the JG critics I know about, although I guess he could be (that’d be because he doesn’t understand MMT). Roche’s critique, or one of them, was centred on the sectoral balance identity, and the possible abuse of the identity by MMT proponents.

Note 1. Roche does not disagree with the identity: $$ (G-T) = (S-I) + (M - X) $$

Note 2. I take the main critique to be that Roche thinks net government spending $(G-T)$ does not equate to net private savings.

Let’s score Roche on his rant against MMT.

Roche: “Private Sector Saving is Not Saving Net of Investment.”

That’s Roche’s headline. What does it mean, is it counter to MMT?

MMT Response: Saving flow is $S$, investment flows are $I$. So indeed, savings $S$ is not “savings net of investment”$=(S-I)$. So MMT agrees with Roche. What’s the beef then?

I can only think that Roche comes across troll MMT’ers, or even sincere MMT activists, who for legitimate sound bite purposes claim government deficits $(G-T)$ equate to non-government sector net savings. This is valid. We’re not all writing academic treatise. It is not misleading to use such sound-bites.

Post-Keynesians use a similar and related sound-bite: “Investment creates savings.” Is Roche going to also nit-pick that? For me, this is also a legitimate sound-bite.

“Net Saving” is shorthand for $(S-I)$ in the event of trade current account balance $M=X$. Do we have to use the jargon “savings net of investment” all the damn time? No. So Roche is being a prick.

Score: $\Delta = -1$. Roche is being a dork.

Roche: “…David Graeber had a popular video and op-ed in The Guardian the other day in which he appears to be using a line of thinking that is often commingled with Post-Keynesian Economics — Modern Monetary Theory (MMT).
Unfortunately, David made several errors in his video because he was using these MMT based misunderstandings (MMT responded to this, but made the same errors they always do).”

No doubt Graeber (not an MMT expert, in fact a dork of a UBI shiller) cocked things up. But was the MMT correction making the “same errors”?

MMT Response: First, irrespective of whether the MMT response cited by Roche was correct or not (they might have been simpleton MMT activists), we should judge the merit of Roche’s critique on merit.

Well, well, the MMT response “making the same error” was Bill Mitchell , a doyen of MMT if ever there was one, no simpleton, so this is going to be interesting.

No scoring yet, since no point of contention.

Roche: “.”

MMT Response:

Score: $\Delta = -1$.

Roche: He quotes David Graeber:

“If the government balances its books it makes it almost impossible for you to balance your books”— Graeber The Guardian op-Ed .

Roche comments: “This statement is wrong and misleading. And David’s error stems from something we see in MMT on a consistent basis where they depict the economy through a 2 or 3 sector lens. The cause of this error is the result of MMT’s alternative definition of “net saving”.”

Roche goes on to assert the OECD definition of Net Saving:

“Net saving is net disposable income less final consumption expenditure.”

He claims, “MMT consistently uses the term in a different manner…”

He then claims: “This is precisely what Graeber does in his video. And the conclusion is simple — private sector net saving (S-I) is a function of the size of the government’s deficit which leads one to think that the private sector cannot save unless the government is in deficit. Except that (S-I) is not “net saving” in any traditional economic perspective. (S-I) is saving net of investment. It’s extremely misleading to define private sector “net saving” as (S-I) because Saving cannot identically equal (S-I) unless I is equal to zero.
Given that investment is the most important piece of Keynesian economics and the economy, it’s preposterous to present the economy in this manner because investment adds to private sector saving.”

MMT Response: the term $(S-I)$ is a flow not a stock. At the end of the year whatever it amounts to becomes the stock of saving in the domestic private sector in nominal terms for that year. Why? Because we’ve multiplied by a time period, one year, to convert flow to stock.

This is a common parlance idea of nominal “Savings” and so MMT is correct, not misleading. Real savings is a different story, and I am not aware of any MMT proponents ever confusing the two (maybe a few activists do in sound bites, but that’s totally forgivable, Roche aught not be nit-picking the activist simplifications I feel, it’d be douchebag level finbro-ism).

Because one person’s spending is another’s income the net of investment $(S-I)$ here is a flow residual into domestic private sector pockets. Remember, Graeber and Roche are both assuming, for simplicity, the net exports are zero. So the MMT statement is a tautology, true by definition. So what on Earth is Roche getting at by being a pedantic nerd nerd here?

To the ordinary average person in the street, the number in their bank account plus wallet is what viscerally matters. And this results from that “net of investment” $(S-I)$. So there is nothing terribly wrong or misleading when MMT describes the $(S-I)$ terms as net savings. It is et savings. You can say “savings net of investment” too, but that’s jargon for the person in the street.

After investments are made, the pool of funds, so-to-speak, from which I have have to realise a bigger number in my bank account from is $(S-I)$, you might say, but that’s inaccurate, since $(S-I)$ is an accounting residual. There is no “pool of funds” here. Banks can create deposits regardless of $(G-T)$, remember.

So all that $(S-I)$ represents is some demand for bank loans for investment, or draw-down from past savings or retained profits for this year’s investments, and how much of that ends up staying in the domestic private sector.

It’s an aggregate, so I cannot say my personal savings are achieved this way. I might have been one of the thousands who sold real goods to the foreign sector, who in aggregate were balanced by thousands who bought gods form the foreign sector.

Roche finishes by agreeing with MMT and Keynes that savings are the accounting records of past investment. In the dominant endogenous money circuit this is true. But still, government net spending adds to this, and adds quite a considerable amount.

Rche writes: " Given that investment is the most important piece of Keynesian economics and the economy, it’s preposterous to present the economy in this [David Graber manner] manner because investment adds to private sector saving." — but who is preposterous here? MMT arose out of post-Keynesian analysis as a superset, so we’d agree with Roche.

What is preposterous is Roche thinks he is attacking MMT.

Yeah, like one attacks the All Blacks by punting the ball into mid-field every chance you get.

BTW, I could not find where Bill Mitchell says anything different to Roche in the blog he wrote on the Graeber piece in The Guardian.

Score: $\Delta = -1$. Roche was being a prick (privileged reactionary investment capitalist Keynesian).

Roche: “To be clear about this, the private sector’s saving (and savings) does not come primarily from the size of the government’s deficit. In fact, there is absolutely no need for the government to be in deficit if the private sector desires to net save.”

MMT Response: MMT agrees.

The government deficit is an ex post accounting residual, and cannot be targetted. It is not being used in any nation anywhere to boost private savings. Yet a positive government deficits will boost someone’s savings somewhere. regardless of the fact most household savings derive from private investments (firms often borrow form banks to short run finance the wage bill, before they can make sales for instance).

Graeber is naïve it should be said. “Government Austerity” is not to be found be peering at the government deficit. You need to look at the unemployment queue and poverty rates, and wages share of profit, not the deficit.

If there is involuntary unemployment the deficit was too low. But government cannot know this ahead of the budget. Their role is to use the budget as a moral document to ensure full employment, by in advance approving discretionary extra spending, not to worry about the deficit. With a full employment policy and firms and households thereby *(perhaps) selling a lot more to the foreign sector the governemtn deficit might even reverse and be a surplus for that year. All the while domestic bank balances in aggregate go up (net nominal savings were made).

Score: $\Delta = -1$. We subtract a point from Roche since he is straw-manning MMT here.

Roche: “.”

MMT Response:

Score: $\Delta = -1$.

Roche: “.”

MMT Response:

Score: $\Delta = -1$.

Roche: “In addition to assuming that a small budget deficit or surplus is necessarily bad, this ill-defined term leads to even larger errors.”

MMT Response: no one well-versed in MMT studies ever said a small government deficit is bad. The deficit is an accounting residual. If the foreign sector chooses to diss-save in your domestic currency households could be in surplus for the year while governments non-discretionarily in a surplus position.

It is true on Twitter and other click-bait forums an MMT activist might tout the “goodness” of a government deficit, but you need to take that in context and not be a jerk about it like Roche.

Score: $\Delta = -1$. Roche again gaslights MMT.

Roche: “… it becomes clear that Fed policy, interest rate changes and QE can have substantial impacts on the valuation of private sector net saving.”

(He is arguing MMT’ers are wrong in claiming monetary policy (interest rate maintenance) is ineffective.)

MMT Response: MMT does not claim monetary policy has no effect. The MMT argument is that in broad terms monetary policy is not effective at controlling inflation nor producing full employment. The MMT case has been made elsewhere, but in this topic you can also just use empirical evidence — which supports MMT, not monetarism.

The serious point at issue (not that Cullen knows it) is what policy is more effective and maintaining a stable productive economy. Clearly fiscal policy is dominant, not monetary.

Who cares about asset re-evaluations? If they are financial assets who cares? If they are real assets the re-valuations will be fairly marginal.

The more important concern by far is the existence of people who have no significant financial assets to care about the re-valuations of them. Re-value $\$0$ to $\$0\times 0.9$. Oh no, how terrible.

Score: $\Delta = -2$. Roche is acting here like a privileged prick.

Summary

It always irks me that post-Keynesians harp on about how private investment is so important.

Sure, but try to stop it!

What’s far more important, and Keynes would agree, is full employment, regardless of other investment. Unlike conventional investments you can stop full employment. Neoliberals have mastered this. Full employment policy is investment in people. There is no substitute for that.