Bondage and Discipline

I’ve written a few basic books on MMT questions and nuances, for the average reader, they’re not technical. But in this article I wanted to mention some things outside my area of expertise.

These can be important in some MMT activist activities, mainly when you run across some experts who know more than you. The trouble occurs when they do not know much about MMT, and have formed half-baked ideas about MMT.

This is a dangerous brew, so one option is to not engage. You might of course be wrong in the expert area of this other character, so even if you are right about MMT, this can cause you pain. We’re talking about the infamous Ramanan types (a blogger who scribbled on Randall L. Wrays’ old new economics perspectives articles comments section).

The other possibility is this other character, let’s give her a name, say Kathleen Pinetos, or just Kathy for short, seems like a decent person not out to cause you pain. Then a nice thing for your own edification might be to engage, and suffer any bondage and discipline that results. Should make you a stronger MMT activist.

I cannot cover all such eventualities, but I’ve a got a short list for you. If you’d like to add a section let me know, and even better, tell me about your war stories.

Big Picture

The aim, if I were to engage a potentially monster anti-MMT attack dog, is to learn and grow. It is ok to be called “asinine” or “ignorant” and such like, since we are after all coming from an entirely off mainstream paradigm. So that’s the first tip:

Expect pain, but don’t let it knock you out, welcome it.

It is a truly heinous drag to battle with a mainstream expert who probably agrees 90% with you on most things, and yet you fail to see this space of conciliation. I’ve gone against this advice on several occasions, once with a bitcoin enthusiast, once with an Austrian School or libertarian random bloke: “Maybe don’t poison the well,” was their parting gift. They were right, I had made engagement impossible by referring to an entire school of thought as idiots. I was probably correct, but it served no useful purpose to let them know what I thought if my real purpose was to get across a few more MMT points in a congenial manner. Second tip:

Tip 2. Find points of unity.

Another frustrating thing you might not see as a thing, is when this Kathy makes a valid argument or derivation. You might not know the assumption that is false in her premises. You’ll then be inclined to argumentation, if her conclusion violates MMT thought (supposing your MMT analysis is not flawed here, be humble and admit it could be flawed). It is never a good idea in my experience to not accept a valid argument. But it is painful to be patient enough to trace a bad conclusion back to a faulty premise.

Tip 3: be prepared to be patient and trace back an argument you think has a terrible conclusion back to a false premise. Point out the premise is wrong or disputable, not the form of the derivation of the argument (The logic is correct, one assumption is wrong).

I do not want to write a long boring Logic-101 listicle thing, so I’ll leave further common-sense big picture stuff for you to fill in yourself. For my own insecurity I just need to write such obvious stuff to mind myself I’m not completely clueless when it comes to human social interaction.

We need some juicy examples now.

MMT ⇒ Non-convertible currency

A non-convertible fiat currency is merely an MMT base case for analysis.

But do not let Kathy tell you this is a goofy assumption. It’s just a base case, and can be the case. If it is not the case then the government fiscal policy space is smaller. The MMT point is why the heck is your government offering convertibility?

An MMT meme

Sometimes the meme’s are great. When Kiwis import from China, someone gets NZD. If that is a Chinese firm, say, and they are happy to hold NZD, then someone in China will probably be swapping those NZDs for NZ Treasury bonds.

What do we now owe China? We owe China a bank statement.

Why convertible?

An actual real world answer is that your government is signed up to the International Monetary Fund (IMF) Treaty, which has an Article VIII, Section 4., requiring your government to buy it’s own currency back in return for Special Drawing Rights (SDRs or the other nation’s currency (should your government hold the records or bonds in the other nation’s currency).

((It kinda’ makes some dopey sense for monetarists. Maybe the other guy just doesn’t like holding on to your government’s IOU. But there is also the political shenanigan reason: MMT’er: “it’s not like you can be forced to default.” Kathy: “but states have defaulted for political reasons.”))

The MMT reply is that this has very little practical consequence. Currency swapped for currency is not something that fiscally constrains your government, so it is just a giant ball of nothing.

If the currency is on a float, then any minor economic consequences of such a convertibility obligation can always be adjusted with appropriate fiscal policy. The main point is that full employment is not under any threat.

“Ah,” but Kathy the expert says, “what about the terrible political consequences?”

The response to this is covered by Tip 4 above.

Oh, dash it, I stopped writing tips. Here it is then:

Tip 4. The MMT base case presumes government understands MMT. If they do not then bad political decisions can get made, with severe economic consequences. This is not a fault of MMT operations that are in effect.

It comes under the category of, “Guns don’t kill people.” But you do not want to put it that way, since MMT monetary operations are not the analogue of the gun here! Careful which metaphors you choose! How about, “I did not tell you to put your shoes on first before your socks, did I?”

MMT is — we’ve got shoes and socks so we don’t mangle our feet on long walks.

Kathy is — but people might put their socks over their ears, and stick their shoes on their hands.

Semantic Squabbles

Boy do we get a lot of these.

Savings is Not Savings

You might find a lot of econ Bro’s complaining at MMT acolytes that the meme, “Government deficits equate to non-government sector net savings” is “dumb” or “goofy” or “just wrong.”

Do not let them gaslight you.

Someone can save in fluffy bunnies, bottled water, or bitcoins, or gold, or anything reasonably non-perishable (some even consider their house to be a form of savings).

But this does not alter the fact there is a strong anxiety and thus psychological need to save in NZD (or USD for USA citizens, and so forth). Why? Because of the pervasive pressure of the ongoing tax liabilities.

If the tax liabilities, or the means to enforce them, go away, then MMT’ers imagine (for good reason) pretty soon after not many people will be saving in the state currency units.

This dynamic is contestable, perhaps enough inertia has gathered that banks will still issue NZD. But this’d be an interesting natural experiment to see play out. Until such a natural experiment occurs one has to theorise, “What the heck caused the loss of taxation?” It’d have to be pretty dire! So are state chartered banks even still a thing?

We have empirical evidence from recent history (just in the last 4000 years)
that states which lose tax authority have a currency that rapidly falls to zero exchange value. Causal analysis anyone?