SocMed Peer Reviews

Today’s blog title is a play on social science academia. What I’m really going to do is indulge in some reviews of a bit of Twitter banter. Unfortunately for the sake of time and limited resources (MMT joke, but serious) I’ll probably have to stick to giving some hot takes, but here at least I get to write more at length than in a tweet.

I do have a serious purpose though. If you ever get into a public or private discourse where someone seems genuinely engaged but just seems to fail to grok MMT, and might be starting to get hostile, I hope to be able to give you some tips on how to both diffuse hostility and educate.

I offer no guarantees. My pedagogy credentials are pretty middle-of-the-road. But I hope you find this post useful. If you have better ideas please let me know.

A key principle of good education is that it has to be two-way.

1. So don’t teach MMT at people. Try learning with them.
2. It is superior for learning to first understand where the other person is at,and accept you might be wrong. (How many times have my mathematics students said something correct that I miss-heard and then started going off in the wrong problem solving direction myself! Too many times to count on my fingers!)

I realize TwiXxer is by design not much good for learning with people.

Background

MMT gets a lot of friendly fire. But these are often the hardest bullets to handle. It’s the friends you don’t need who often cause more heartache than the enemies you might desire. Here are some threads of both frenemy and enemy fire I might try to address.

Forgive me for naming names, it’s unavoidable for finding these conversations (if that’s what we can call them) on Twixxer.

1. Mob Burphy — Austrian School christian economist who purports to genuinely want to understand MMT — in order to destroy MMT. We will find maybe he is one of our best allies! If we take Bob to heart as a respectable Christian, I think we can go a long way. MMT, to my mind, is very “Catholic”${}^\ast$.
2. Rullen Coche — an investor who purports to understand MMT, but quite often attacks MMT, and when he attacks he seems to be straw-manning. Less an ally, because when you straw-man a position you are attacking it is really toxic and destructive to healthy debate and learning. I say this knowing I might not be capable of representing Roche correctly, so I will set up a straw-man “Rullen Coche” and attack that entity. That’s the honest way to straw-man. Consider the argument, not the person. So I cannot say I am criticising Mr Roche.
3. Michard Rurphy* — a tax accounting expert in the UK. Very friendly with MMT. But he is so obsessed with tax justice he at times misses the point. Still an ally because I think for now the banter between Tax Justice UK and MMT’ers is still friendly, and seeking unity.

${}^\ast$ Catholic means: “Of broad or liberal scope; comprehensive.” But of course I’m using a double-meaning! To me MMT is also a source of The Good. Not “of all good” of course, are you crazy. But whatever is a source of good is true religion. (Ok, so there is a lot of false religion around! Most religion is false, in the precise case it is not a source of Good (Aristotelian meaning).) In this case the Good is the spiritual aspect of knowledge and wisdom: MMT is that in macroeconomics.

To avoid persons, I would characterize each of these three frenemies in ideological terms as:

1. Austrian School Objections to MMT — these often boil down to, “ok, MMT is correct, but we do not like the system.” This is probably a stretch! But I’m going to take it. Bob Murphy gets close to this at times, then seems to go astray.
2. Post-Keynesian Critique — MMT was born from post-Keynesian study, so absorbed all of PK economics. The PK’ers however seem to like to think they are still special. So they often object to MMT, but fail to appreciate MMT agrees with most things post-Keynesians would argue, in the case of currency pegs or fixed exchange rate regimes. Rullen Coche seems to however have a more distorted view, which we will take a look at.
3. Tax Justice Objections to MMT — might be an over-simplification, but I’m going to go with these folks accept MMT, but they just hate & loath Warren Mosler’s framing that taxation is a coercive force that drives the currency.

With this all now in mind as background, I’ll repeat I’m an amateur in educational psychology, but have a lot of practical experience (if I were a great teacher I’d say I was more than an amateur) and a journeyman in pedagogy expertise. So take my advice with a grain of salt, and definitely drop me a message if you have anything to improve upon or add, that’d be nice of you.

I will just say, please respect my naïve optimism about human beings. I know it is naïve, but I still think I am correct. To get my highly non-naïve background you’d have to talk to me for a lot longer. It’s only apparent naïveté because I don’t permit myself the time to expound at greater length.

The Austrian Catholics

MMT is Too Much Government

There are so many layers to this one, I really wish I had a libertarian friend to put my axe to the grindstone on this one.

Here are some discussion points:

• MMT is a recognition the currency is a simple public monopoly. This allows us to, as a democracy, choose the size of government we want. Abstracting the population and citizenry like this is a highly macro move, so beware of the nuance (democracy is tyranny of the majority, and so forth, which have obvious defeater counterarguments— what’s the better alternative?)
• We do not in fact have democratic governance anywhere in the world in any major nation. Voting, alone, is not democracy. So the “right size of government” for a given culture is a complex thing that probably no country can perfect. But with the MMT lens we at least get a chance to understand the proper real constraints on the bit of democracy we actually have.
• MMT also empowers a citizenry to better fight for the democracy we want. You have to know your demands, and know they are realizable, not utopian. MMT gives you this in spades. Real resource limits.

Money from Mars

A weird attack on MMT I confess to not fully understanding (because it is so lame I’ve never bothered to interrogate the folks making these arguments fully) is based on the (false) idea we need some real commodity to settle debt obligations

So — the Austrian argument seems to go — governments cannot just settle accounts in their IOU, because that is immoral somehow. They’d better promise to deliver the gold, the “real stuff”.

This is utterly lame. It misses the whole point of MMT that the currency is an IOU, has always been an IOU, and never is anything else, not in all 6000 years of recorded monetary history.

A government can peg to gold, or to pizza or chicken wings or potato crisps, but… why?

There is no good reason on Earth to peg a tax credit to any commodity. The “hard money” thinkers simply have never grasped what MMT is saying here.

Their ultimate retort is just “Well… it is immoral!”

That’s a subjective judgement, not a critique of MMT.

The MMT Response — it is certainly not immoral for an authority to impose tax liabilities, provided it also issues the means to fully pay the tax liabilities without causing residual unemployment. (Also, one might hope, without using bullsh1t or soul-destroying jobs to offer as ways to earn a tax credit. There is zero need to use bullsh1t jobs! So it’d be another horrific policy mistake.)

It is not a legitimate attack on MMT to point out there is unemployment. The MMT response in this case is simple: unemployment (people seeking to exchange their labour for tax credits) is a policy mistake. A job guarantee is one way to amend this horrific mistake.

If society at large democratically does not wish a big government footprint, they can lower the tax liabilities.

However, as Warren Mosler rightly points out, there is hysteresis. If government has in the past caused needless unemployment, this damages people spiritually, physically, psychologically, and private firms regrettably (but understandably) do not like hiring the long term unemployed. So it is a moral responsibility of government to hire all the unemployed their tax liability generated. Either with expanded public sector employment, or a local community run job guarantee (government does not get to dictate the JG work).

The Post-Keynesians

“MMT is the Job Guarantee — nothing more”?

This is merely a subjective opinion. The school of thought now known as MMT has blossomed beyond Warren Mosler and Bill Mitchell’s original insights. But even the OG’s were not just doing “a JG and nothing more.”

• No other economics school of thought begins with the currency being a simple public monopoly.
• MMT favours ZIRP — few other economics schools are proposing ZIRP, and fewer recognizer zero interest rate policy tends to be disinflationary. But whether this is “new to MMT” is debateable. But why debate? MMT activists should not be out to win a sports contest here. If other economists agree with ZIRP, then great. MMT is not alone!
• Same with a JG. Keynes inherently recognized the superiority of full employment over price stability. But did not explicitly mention the buffer mechanism.
• Also considered unique to MMT is the important point that central banks are not, and cannot (operationally) be separate nor independent from government. If nothing else, if only the CB has a mandate to control interest rates, they must coordinate with the Treasury. One critical MMT insight was that the sale of Central Bank bonds is the same as Treasury bonds — neither are funding operations, both are interest rate maintenance operations. No other school of economics acknowledges this, and yet it is critical for well-informed policy decisions.

It is funny that characters like Rullen Coche try to assert MMT is nothing new, or not a big deal, because it just re-packages existing knowledge. But let’s consider all the above. I think you will find the school of thought now known as MMT is so drastically distinct from any other mainstream and heterodox economics, that to accuse MMT of being nothing significant is highly disingenuous, or ignorant.

Also, if other economists are happy to accept the MMT positions, and call it their own, I’m not going to complain. As Richard Feynman often pointed out in the context of science: the names and labels of things are not what truly matter.

MMT is objectively a superset of post-Keynesian economics, so if a post-Keynesian comes along claiming MMT adds nothing new to their analysis why are they attacking MMT? Is that not some sort of mental autoimmune deficiency response disorder? If they’re just saying MMT is PK, then fine, but then we’re pointlessly quibbling over labels, which I want no part of, let them have the MMT insights.

Yet high profile post-Keynesians (which I assume we can take to be a not unfair representation of PK thought) have written full blown articles attacking MMT proper, so I find the post-Keynesian absorption of MMT to be simply false, objectively.

A currency monopoly

I should not need to expand on this too much. Legally and institutionally this is not a debate point.

The critique of MMT might be that nations do not act as if the currency is a monopoly. But that’s no fault of MMT! It’s the opposite. MMT is trying to tell people what the case is, and if policy is not crafted with the legal reality in mind then needlessly awful boneheaded policy may result. (Foremost being needless austerity.)

ZIRP

Advocating ZIRP is not a unique MMT position, but understanding why it works is (I beleive)!

On a floating exchange rate, with a non-convertible currency, the natural rate of interest is zero.

Not so on a fixed exchange rate, gold peg, or other arrangement. While MMT’ers would love other economists to acknowledge this, they do not, so this is a clear difference, and could be considered another distinguishing aspect of MMT analysis.

The JG: It’s also about De-commodifying Labour

A good response to more Marxist leaning economists, is to point out that not only is a JG a superior macroeconomic stabiliser (they might not give a fig) it also is crucial for de-commodifying labour in any monetary economy (which includes capitalism, socialism or any hybrid mixed system of political economy where a state monetary system is in use.)

I think it is simply a no-brainer. Human beings are spiritual beings, living in a material condition. Any moral economy should not commodify the workers.

The only political economies with any inherent justice elevate the workers to the most precious resources. But if the economy is monetary this needs to be recognized. A job guarantee does this in part. Expanding skilled public sector work “for anyone who wants it” is another complimentary part, separate to a JG.

The JG is a provisioning for people who cannot find private sector employment, but desire private sector employment.

The JG is also a buffer mechanism for price stability — an important function for purely psychological reasons: because for whatever dumb reason, most normies (and even marxists) seem to hate inflation more than unemployment, which is stupid, but it is what is is.

“…and the JG cannot work in most countries”?

This one is just false. Even a vastly scaled-down JG-lite has worked in two of the most corrupt nations around, Argentina and India.

In my mind the JG works because it is,

(a) Locally administered. It’s not a top-down approach to full employment.
(b) The local nature of a well-designed JG program leverages human decency. It uses the correct approach to moral economics — which is roughly that outlined by Samuel Bowles, among others (the gist of which is that Adam Smith was only half- right. Moral economy is paramount, but governments cannot enforce morality or motivate moral behaviour by taking the moral decision off people. It never works well that way.).

Another way of putting it (simplistically) might be that the Law, the justice system, is for enforcing social norms. Not for legislating morals.

Rullen Coche has seemingly a technical economic objection to how a JG can work. He is wrong. But the best way (not the only way) to see that is through the moral economy lens.

Unemployment is a far more severe economic problem than inflation.

Besides: the JG acts counter-cyclically, and so it appears Rullen Coche does not quite understand this. It’s hard to say without interrogating Mr Coche directly. but since he is a straw-man I’m going to say that is the source of his misconception.

Central Bank Operations

In the USA the CB/TSY operations are a little peculiar. By Law (so an MMT point conceded!) the TSY is not permitted to put scorepoints in USD onto their balance sheet at the FED banks, in particular the TGA account from which government makes the mark-ups and mark-downs to spend, and receipt tax returns, respectively. This shenanigans regrettably promotes the myth of FED independence, which is a sham. That is probably by design, though the fiendishness of it is hard to pin-point, to be generous let’s call it an ignorant fraud)

The TSY skirts around this congressionally self-imposed constraint on the consolidated government by auctioning Treasuries. Primary dealers bid. Treasury swaps the bonds for reserves, and fills up the TGA account, then can “spend” the “borrowed” money, only is cannot have been borrowed. Where did the primary dealers get USD ultimately from in the first place? They can only come from past government issue, or credit from another bank. (Banks cannot lend to themselves, it is illegal.)

To avoid the overnight cash rate tending to zero the TSY must thus first supply the reserves for the primary dealers to purchase the bonds with in the auction. They accomplish this with the reverse repo facility (RRP). That is: Primary dealers contract to purchase the bonds in the future (the next day often) in exchange for the bank reserves. The TSY in effect has purchased this promissory note.

If instead the FED issues TSY bonds (reserve drain), or buys them (reserve add), the economic effect is exactly the same. Since in the RRP arrangement TSY can guarantee the TGA account is in positive balance (as technically required before government spending can legally take place) the issue of bonds is not the funding operation it is thought to be. It is rather precisely the same as the effect of the FED issuing bonds — which is that it drains reserves. When government spends there is an offsetting reserve add. Which means there is no pressure on the interbank interest rate.

Thus we see the purpose is to maintain a desired interest rate floor.

This could also simply be set to zero, in which case there is no need at all to have the RRP facility and no need for either agency of government to issue interest earning instruments, aka. TSY bonds.

ZIRP means the Debt Ceiling Fear politics can Go Away

The fear and dread over the “government debt” is about the promise to pay interest on the bonds and redeem the coupon. MMT will tell you this is never a problem operationally, because it is just whipping out a computer keyboard and marking up bank accounts, and debiting TSY accounts, no grandkids or Chinese financiers involved, no tax payers involved.

Although MMT tells you this, the superior thing to note is that there is not need for the government on a floating exchange rate to issue bonds in the first place.

So adopting a ZIRP policy makes the “national debt” disappear. Without debiting bank reserves or deposits.

In fact from starting point today, retiring all the TSY debt and going to ZIRP policy, will eventually add to reserves, and after the maturation of all outstanding bonds that’ll be it — no more basic income from then on that was only for people who already have money in proportion to how much money they have.

Caveat: in true MMT style, I count all outstanding cash, coins and bank deposits as “government debt,” because government makes the promise to redeem all those currency forms for payment of tax liabilities. The promise to redeem is technically a debt obligation. Of course it is trivial for a government to accept back its own currency. So it is not a “debt burden.” But linguistically, semantically, it still counts as a debt obligation.

Negative TGA Balances

There is a final nuance here that I was not aware of until recently, which is that the TSY TGA account in fact does not have to be positive. Government can still credit accounts to purchase and hire. The rules require a positive TGA account balance. However, there is policy or operational guidance for Treasury and FED officials in the event the spending is immediately needed when the TGA account is zero. The instruction is to, “enter a negative number in the TGA account.”

Which is the MMT point! The currency is not a commodity, it is an IOU. A negative account balance is precisely mere scorekeeping — albeit with economic consequences and severe penalties for fraud, which is why a clerk cannot just arbitrarily enter negative numbers in the TGA when marking up private back accounts. They need votes from Congress for the spending.

Endogenous Money

Rullen Coche seems to believe (faith based reasoning?) the governments are using bank money, all the time.

I think he falls for the PK mirage here.

Randall Wray goes through the endogenous money and circuitist theories in his AULA lectures . If you pay attention to them you cannot come away believing in MCT or endogenous money. Those theories fail.

There is an exogenous monopoly net currency supplier, and their currency is the tax credit.

Once you conceive of state currency as a tax credit (which has other emergent functions in the markets too) then you cannot take pure endogenous currency theory separately.

Why not?

It is because the final settlement of obligations has to involve a trusted third party IOU. A bank cannot use its own IOU to settle its own debt.

In all nations on Earth today (every nation, I don’t know, maybe one exception somewhere?) the trusted final means of settlement is the central bank. In the case of Ecuador who employ the USD, their final means of settlement is the US FED! Their central bank. Go figure. Crazy Ecuadorian officialdom.

The central bank is in all nations today a branch of the government, it is not an independent beast. Libertarians never tire of arguing against MMT on this score, but let’s say they are merely wanting to be right, but deep down know they are wrong?

Why is MMT right about the myth of central bank independence being a false myth?

It is because the IOU of the banks are denominated in the state currency units.

Any physicist who knows about measurement standards (the field of metrology) knows what I mean by this. The authority tells you what the unit is, you may use your own IOU units, but all banks everywhere today use the state currency units, not their own units.

Good examples to illustrate the counterpoint are systems of money where they do not use the state currency unit. We have a few of these running successfully in real life::

• The Franklin Frank — crypto done right! (It’s fiat my dudes).
• The Denison Volunteer Dollars (DVD).
• The UMKC Buckeroo — the GOAT of MMT systems?

In these three MMT monetary systems the authority is the currency monopolist, they define the unit of account. All banks in these systems using the authority money of account are acting as agents of the authority to settle their debts.

The Tax Justice Angle

I’ve yet to read the latest from the Warren Mosler–Richard Murphy discourse. Apparently the two of them were supposed to be hashing things out.

I myself had some banter with a Welsh guy in Steve Keen’s online skool.com course. Since it involves similar issues I’ll take it as a launching point.

I am not 100% sure, but the whole issue might just be a semantic objection to the harsh way Warren talks about taxation as a “coercive force” driving demand for the otherwise worthless currency.

Tax is Coercive

In my mind Mosler is correct. But the word “coercion” can be nuanced and defanged.

• It is coercive because empirically the vast majority of people do not voluntarily pay taxes.
• Aren’t the Tax Justice people being a little unrealistic in thinking people are happy to pay taxes if the tax is fair? I don’t think it works that way. Maybe in a far future advanced spiritually minded society it can (I actually believe this. Tax could be voluntary, but not today.)
• Warren Buffet, for one, is more than happy to pay more taxes! But that’s not an argument. The dude can afford to! By sectoral balance accounting identity most people cannot afford to say they are happy to pay more tax — it’d impoverish their family and cause mass unemployment.

But is that all this banter is about?

No. There is at least one other issue…

Is Tax Revenue Funding Spending?

Rullen Coche seems to have this critique, and sometimes it reads as though Michard Rurphy does too, as does Mob Burphy. So all three typical attacks on MMT by otherwise “friendlies” get this wrong. (I know Mob Burphy is an avowed enemy of MMT, but he just doesn’t realise he is one of the biggest allies of MMT, he has done more than most people to educate virgin MMT advocates. So to my mind he is a weird friendly.)

Rullen Coche is the more interesting one perhaps.

The idea is that taxation pulls real resources out of the private sector into the government sector. True. But here we are talking about real resources, not currency.

Let’s take it in steps:

1. First government imposes tax liabilities.
2. Then people are unemployed, they need to exchange their labour or goods to get the tax credit (otherwise they’ll be going in debt to a bank, or stealing, or counterfeiting).
3. Government can hire the labour or purchase the goods, because now people need the tax credit, so they will take it.
4. That has moved real resources from the private sector into the public sector. It has also “moved” currency from the government into the private sector. (There is no motion of the currency, it is just credits and debits.)
5. Taxes are then paid, “moving” currency back to the government (a redemption operation, not a funding operation — the real funding in real resources has already been accomplished).
6. The currency not yet used to pay taxes remains in the economy as net financial savings of the private sector (in nominal terms, not real savings).

Can it be so simple that the post-Keynesians simply have not got the sequence right? I think so. It is a simple mistake. They need to correct their thinking.

“Tax is Coercive is Note Even Wrong”?

This is the last issue the Tax Justice people like to pull out.

Some of them will say it is not about the semantics of the word “coerce” but in fact that tax is simply not coercive. I think their reasoning is that you get to choose what society to live in. But that’s baloney. I never had much of a choice, and if I immigrate somewhere it’ll still be in a nation using a tax driven currency.

Christine Desan writes some interesting stuff on the legal aspects of the design of tax systems, implying there is room for nuance in the wording, and to say, “tax coercively drives demand for the otherwise worthless currency,” is perhaps too harsh. However, it is still as accurate as can be for a short one-sentence sort of length account of state currency.

I addressed the semantics earlier. It boils down to what you mean by “coercive”. If people are not happy about paying a tax, then a tax driven currency is coercive. If people are happy to pay taxes, and government issues the tax credit so they can pay, then you do not need to call this coercive. But it is still the case that tax drives demand for the otherwise worthless currency.

Which means the currency token itself never needs to be intrinsically valuable. Which is a massive costs savings to the real economy. It just needs to be hard to reasonably forge or counterfeit, which human civilization has managed to accomplish again at minimal real cost.

If there are any residual tax justice people making objections at this stage, they’re Austrian School retards, probably, who think it is somehow spiritually immoral to use a currency that has no intrinsic value. They’ve completely missed the whole point of desiring small footprint government!

If your stupid democracy forces your government onto a gold standard, well… you’ve just created a huge needless government footprint, you retards!

Big Picture

I sometimes have these moments of profound “staring into the abyss” feelings.

I really do at those times think the MMT activist project is going to have to last a long time, and that something like climate global boiling will be the impact needed to force governments en masse to wake-up. Part of that waking up will be recognizing MMT reality, whether they admit it explicitly or not.

Future politician: “We’ve changed our thinking about government debt, it is no longer the important thing, it’s an account record, and we actually need full useful employment, to share the burden of the real work to be done.
      “And , urrr, what is MMT? Is that a new video game?”