Teoria Monetario Moderno (edo DTM) barnean pentsatuz

Bill Michell-en Travelling all day today but here is something to watch and listen to1

I am travelling most of today and thus my usual blog will resume tomorrow. Yesterday, an interview that I did for RadioNZ (the public broadcaster) on Friday was aired on their popular Sunday Show.

You can access the interview overleaf. You can also access the video of my presentation on Friday (July 28, 2017) at the University of Victoria, Wellington. That should keep you all busy.

(1) Aurkezpena (diapositibekin)

Munduan zehar irakasten den makroekonomia ‘fake knowledge‘ da

Presentation at University of Victoria, Wellington, July 28, 2017

The video was captured of the desk in one of the lecture theatres at the Old Government Buildings at the University. The audio was recorded separately and had to be synchronised. The video quality is poor but you get the message.

The former Prime Minister who oversaw the vicious austerity program in the 1990s that has severely damaged New Zealand was in the audience and at private meetings after the presentation. He told RadioNZ some time ago that he now believed that neo-liberalism has failed.

New Zealand has around 1/3 of its children living in poverty. I think the former Prime Minister’s statement is an understatement.

The presentation video runs for 58 minutes including the little reggae introduction and closing.

Professor William Mitchell – Thinking in a Modern Monetary Theory Way

Bideoa: https://www.youtube.com/watch?v=MLKrBsTQntA

(2) Elkarrizketa irratian

Ez dago austeritate zintzorik!

RadioNZ Interview for the Sunday Show

The RadioNZ promotion for the segment was as below (8:38 being when they ran the segment, the mugshot taken in the entrance area to the studio in Wellington). The graphic is taken from program’s WWW site.

The interviewer was Wallace Chapman who hosts the Sunday Morning show, which is very popular in NZ.

Here is the full audio for the Interview (19:43 minutes):

Bill Michell-en There’s no such thing as fair austerity

Audioa: http://www.radionz.co.nz/audio/player?audio_id=201852897

An emerging school of economics, modern monetary theory, says surpluses can be a bad thing, and a country with a fiat currency can never run out of money.

Bill Mitchell, professor of economics at the University of Newcastle, New South Wales is a leading proponent of the theory which he says, although growing in influence, is still fringe.

He has said economists have been: “torturing the minds of our youth with lies and ideology made to look like eternal truths.”

Prof Mitchell says it’s perfectly possible for governments to release money into the economy and spend without this being inflationary – so long as the economy is able to absorb the demand created by that fiscal influx.

Any spending in the economy, whether it’s government or non-government, will cause inflation if it outstrips the capacity of the economy to respond in production.

If spending growth is commensurate and proportional with the capacity of economy to produce and uses resources productively there won’t be inflation.

He says government is the monopoly issuer of its own currency and so it has unlimited volumes of that currency.

That’s not the same thing as saying it should be spending unlimited amounts. Anything that is for sale in New Zealand dollars it can buy with its own currency,” Prof Mitchell says.

He believes New Zealand would benefit from such an approach.

When you’ve got a government that comes out and says, we’ve got to tolerate 8 or 9 percent unemployment or that one third of children in New Zealand live in poverty, when you’ve got a prime minister who then says ‘well, we can’t do anything about that now because we’ll run out of money’, that’s an insidious lie.

He says governments found money pretty quickly when the banks looked like falling over in 2008.

Billions of dollars of currency were instantly created to bail out those banks, governments didn’t even blink. When it suits the ideological agenda and the lobbies that fund and support the political parties there’s no shortage of money – but when you’ve got a third of your children in a so called advanced country living in poverty, they say we’ve run out of money.

I don’t think there’s a shortage of food in New Zealand, it’s just a highly unequal distribution of access to that food and it’s an insidious lie supporting that.”

What he and other economists are talking about is not quantitative easing, he says. Which was a flawed experiment.

He says it was thought economies were languishing in the post GFC period, because banks weren’t lending money to borrowers – so they needed a cash injection.

That’s what text books in economics of the mainstream variety indoctrinate their students to believethat’s fake knowledge.”

He says with the banks’ reserves bolstered by billions of dollars of public money it was assumed they would then go and lend.

That didn’t happen at all …adding more reserves didn’t change the lending behaviour of the banks because nobody wanted to borrow. Firms were scared of borrowing with no sales and people weren’t borrowing because they were fearing unemployment … the real constraint was pessimism.”

He says that pessimism even outweighs the cost of borrowing which is historically low.

We learned another lesson [from the post GFC era] people don’t necessarily borrow when the cost of borrowing is falling if their expectation of long term returns is pessimistic.”

He says modern monetary theory, or neo-chartalism, has a growing circle of adherents.

There’s millions of people starting to understand it, and see it as a genuine future for economic thinking and for policy making in the context of the almost total failure of mainstream economics to understand the way the system works and to introduce policies that advance the well-being of the majority rather than the few.

So what mainstream economic “lies” does he consider particularly egregious?

The idea that you’ve got to hold unemployment at 5 percent to hold down wage inflation is preposterous.

If the labour market gets too hot and you have employers fighting over scarce labour you start to get prices bidding up – but we haven’t come close to that for decades.”

He was also scathing of the Labour Party and Green Party’s joint statement on ‘budget responsibility’ rules where they commit to running surpluses, restricting Crown debt to 20 percent of GDP and limiting spending to 30 percent of GDP.

It’s the height of economic irresponsibility”, he says.

New Zealand has high unemployment and underemployment, high child poverty, record levels of household debt and an external sector draining spending through current account deficits, Prof Mitchell says.

In that environment to run a fiscal surplus is irresponsible in the extreme.”

He says to address entrenched poverty and unemployment governments should be running “more or less continual deficits.”

He says New Zealand’s progressive parties are much the same as their counterparts abroad.

The Greens are neo-liberals on bikes and the Labour Party are neoliberal lite. They say ‘I’ll do austerity but I’ll do it fairer’.

There’s no such thing as fair austerity when you’ve got a third of your children living in poverty.”

(Enjoy eta ikas!!!)

1 Ikus http://bilbo.economicoutlook.net/blog/?p=36553. Oharra: bilioi bat = mila milioi europar.

Iruzkinak (3)

  • joseba

    Zeelanda berria
    Bill Mitchell-en Reflections on a visit to New Zealand (http://bilbo.economicoutlook.net/blog/?p=36568)

    Irakurri beharreko lana jakiteko zer nolako kritikak egiten dituen Mitchell-ek hainban arlotan eta hainbat jenderi…

    Hona tanta batzuk:

    (i) Very little has changed within the mainstream narrative

    Lionel Shriver entitled The Mandibles: A Family, 2029-2047

    Read again: “This is not an unrealistic book it is not a science fiction book”.
    So you have the:
    1. ‘government will run out of money’ myth.
    2. ‘government deficits will leave a burden for the kids and the grandkids’ myth.
    3. ‘the nation will go broke’ myth.
    4. ‘the profligate state then turns on its people’ myth and as in ‘socialism, becomes oppressive’ myth.
    5. ‘healthcare and pensions are unaffordable’ myth.
    And all of that is “realistic” and non-fiction, by the author’s own words.

    (ii) Mahai biribila (… even after the GFC exposed the mainstream discipline in macroeoconomics as being bereft of any credibility, little has changed within my profession)

    The concept of Ricardian Equivalence (Essentially, the notion is nonsensical without any empirical foundation. It is really fake knowledge.)
    During a recession, people fear unemployment and firms realise their sales volumes are under threat. In those circumstances, government intervention in the form of a fiscal stimulus, provides a kickstart-type effect to the economy.

    Another participant at the Roundtable was obviously concerned at the way I had characterised my mainstream colleagues as myth propagators or liars.
    For example, two years ago I wrote this blog – Bank of England finally catches on – mainstream monetary theory is erroneous
    It discussed a paper from the Bank on May 29, 2015 – Banks are not intermediaries of loanable funds – and why this matters.
    The Bank concluded that:
    1. “The currently dominant intermediation of loanable funds (ILF) model views banks as barter institutions that intermediate deposits of pre-existing real loanable funds between depositors and borrowers. The problem with this view is that, in the real world, there are no pre-existing loanable funds, and ILF-type institutions do not exist.”
    In other words, the mainstream economic models that pervade textbooks and teaching programs in economics are fantasy – they analyse institutions that “do not exist”.
    2. “in the real world, there is no deposit multiplier mechanism that imposes quantitative constraints on banks’ ability to create money in this fashion. The main constraint is banks’ expectations concerning their profitability and solvency.”
    If you read any macroeconomic textbook written for mainstream (neo-liberal) courses you will find some account of the money (deposit) multiplier as it applies to ‘reserve-constrained’ commercial banks.
    But as the Bank of England now reliably informs the world, this sort of model is not “in the real world”. Banks are not reserve-constrained.
    It is in that sense that that I suggest my profession lies.
    Whether they know they are preaching fiction as if it is non-fiction, untruths as if they are truths, is not the point.
    Ignorance is not an excuse.

    (iii) At the Roundtable he rather empahtically rose from his seat announcing he had to go but had a question. It was rather pointed display and went along the lines that if I was correct there must be a grand conspiracy of the rest of the macroeconomists around the world who I said were teaching their students and giving policy advice that amounted to fiction.
    If these economists were so wrong how could such a grand conspiracy persist. And, with the obvious conclusion that I was the idiot and was wrong and there was no grand conspiracy to lie by the rest of zmy profession.
    He has never worked in the economic profession and the failure to understand how Groupthink forms and patterns behaviour within the academy was obvious from the way he set up his question (attack) (dismisal).

    (iv) Academic departments that develop Groupthink lose their perspective on reality. The conspiracy doesn’t have to be written down on paper or agreed in any explicit way.
    The cult worshippers maintain their hegemony in a number of ways, including control of teaching programmes in universities; control of hiring processes within the academy; control of key publication outlets; control of major research funding bodies; and dominating the linkages between the academy, business and government.
    Much of the control is implicit and accomplished through networks to get around external oversight such as anti-discrimination legislation.

    (v) In a Challenge article from 1982 – The Guilds of Academe – Jack Barbash discussed the way in which the economics profession protects its belief system from criticism and avoids, as far as possible, addressing real world problems. He notes that there is “no formally coercive apparatus” but “the equivalent of an ‘old-boy’ network” in operation (page 51).
    [Reference: Barbash, J. (1982) ‘The Guilds of Academe’, Challenge, 25(1), March-April, 50-54.]
    Advantages (publications, research grants, promotions, consulting opportunities, influence, etc.) accrue to those who conform to the rules.
    Socialisation begins in one’s student days where the masters of the paradigm control the curriculum; the grading systems; and who gets postgraduate scholarships to pursue doctoral studies.
    The indoctrination intensifies when one enters the postgraduate stages. In economics, the graduate student learns that “rigor is more important than substance” and “method is more important than result” (p.52).
    Graduate students are trained to follow, what former IMF Chief Economist Olivier Blanchard called ‘haiku-like’ rules, that govern an economics paper’s chance of publication success.
    Just before the GFC revealed its worst, Olivier Blanchard, reviewed the understanding that macroeconomists had of the real world in an NBER paper The State of Macro.
    He claimed that the “state of macro is good” (page 2). He asserted that a “largely common vision has emerged” (p.5) in macroeconomics, with a “convergence in methodology” (p.3) such that research articles in macroeconomics “look very similar to each other in structure, and very different from the way they did thirty years ago” (p.21).
    They now follow “strict, haiku-like, rules” (p.26).
    He also noted that the dominant ‘New Keynesian’ approach in macroeconomics had “become a workhorse for policy and welfare analysis” (p.8) because it is “simple, analytically convenient … [and] … reduces a complex reality to a few simple equations” (p.9).
    It didn’t seem to matter to these economists that in the “basic NK model … there is no unemployment” (p.12), such that all fluctuations in measured joblessness are characterised largely by workers choosing whether or not to work as part of a so-called optimal choice between work and leisure.
    [Reference: Blanchard, O. (2008) ‘The State of Macro’, NBER Working Paper No. 14259, National Bureau of Economic Research, August.]

    (vi) In my public presentation last Friday, I concluded that the knowledge quotient of these economic papers was zero. GIGO! ( Garbage-In, Garbage-out).
    So it is entirely possible, that a substantial portion of my profession, go to graduate school, receive the heavy indoctrination from their masters, are awarded their PhD degrees, access an academic teaching job, entertain visits from publishers who adorn them with the latest macro economics textbook and all the related teaching materials (slideshows, quizzes, et cetera), and then, essentially, go to sleep!
    They teach year in and year out from these textbooks. Some publish ‘haiku-type’ papers which provide no knowledge about the real world, but earned them plaudits from the Academy and, hence, promotion, higher salaries, more status, and a better retirement.
    But they learn early on not to question the main parameters of their discipline. The indoctrination in graduate programs is very effective and it is far more simpler to go to sleep and enjoy the rewards that a highly-paid and secure profession brings.
    But that doesn’t absolve these characters from the accusation that they are fiction-preachers! Otherwise known as liars.

    (vii) More insidious is that neo-liberal economics privileges the interests of capital and the financial elites.
    To understand why there is so much resistance to abandoning failed economic theories, we need to understand that the mainstream economics paradigm is much more than a set of theories that economics professors indoctrinate their students with.
    Mark Blyth wrote in his 2013 book (page 100) that these mainstream economic theories:
    … enshrine different distributions of wealth and power and are power resources for actors whose claims to authority and income depend upon their credibility …
    [Reference: Blyth, M. (2013) Austerity: The History of a Dangerous Idea, New York, Oxford University Press.]
    Which explains, in part, why there is such resistance to abandoning them, even though it is clear that they are bereft of any evidential standing.

    (viii) And if you are still wondering whether a conspiracy is possible across a discipline, think back to the Powell Manifesto or Powell Memorandum.
    I detailed that story in this blog – The right-wing counter attack – 1971.
    The Memo was the product of a very well-funded strategy by US capital interests to wrest control back from labour and the social democrats to allow it to capture more profits and better control production etc.
    Powell detailed a strategy that would allow a right-wing penetration of universities (to “address the campus origin of hostility”) and to vet appointments, promote the public recognition of known supporters of free enterprise, “evaluate” textbook use, and build influence in the “graduate schools of business” by demanding “specific courses in such schools” which will provide “essential training for the executives of the future”.
    He also wanted to establish “scholarly journals” explicitly to give access to publication of free market literature – parading as academic research.
    He wanted similar influence exerted in the secondary school system.
    In the public sphere he outlined a plan to use monitor “national television networks” and the “radio and press” harass the relevant organisation that dared to deviate from the free market message he sought to promote.
    He claimed that:
    The news stands — at airports, drugstores, and elsewhere — are filled with paperbacks and pamphlets advocating everything from revolution to erotic free love.
    He wanted an organised effort to produce material on “our side” to counter what he considered to be a socialist insurgency via the popular media.
    Finally, Powell also understood that the US courts influenced the terrain the the corporate sector had to operate within.
    In that context he said:
    Under our constitutional system, especially with an activist-minded Supreme Court, the judiciary may be the most important instrument for social, economic and political change.
    That sounds and looks like a conspiracy to me, which, as history tells us was put into action throughout the world in the 1970s and is on-going.

    (ix) Finally, remember back to 2011, when the IMF’s Independent Evaluation Office (IEO) released a scathing assessment of the institution’s performance in the lead up to the GFC.
    The Report – – identified neo-liberal ideological biases at the IMF and determined that the IMF failed to give adequate warning of the impending GFC because it was “hindered by a high degree of groupthink” (p.17), which, among other things suppressed “contrarian views” where an “insular culture also played a big role’ (p.17).
    The report said (p.17):
    Analytical weaknesses were at the core of some of the IMF’s most evident shortcomings in surveillance … [as a result of] … the tendency among homogeneous, cohesive groups to consider issues only within a certain paradigm and not challenge its basic premises.
    It said that (p.17):
    The prevailing view among IMF staff — a cohesive group of macroeconomists — was that market discipline and self-regulation would be sufficient to stave off serious problems in financial institutions. They also believed that crises were unlikely to happen in advanced economies, where ‘sophisticated’ financial markets could thrive safely with minimal regulation of a large and growing portion of the financial system.
    Groupthink establishes a mob rule. Your either in or your out. In gives advantages as above (promotion etc). Out means ignominy and unemployment. The years of study are ‘wasted’.
    Groupthink is about conspiracy.
    My visit to New Zealand was interesting. I hope it sparked some progressive interest in Modern Monetary Theory (MMT) as a real alternative to the moribund lying that parades as economics in that nation.
    But my interactions suggest there is a long way to go.
    The snippets I have provided in this blog support that belief, I think.

  • joseba

    Biil Mitchell-en When neo-liberal masquerades as anti-establishment
    At the outset of my public presentation in NZ – Thinking in a Modern Monetary Theory Way – and in subsequent meetings I emphasised that Modern Monetary Theory (MMT) is not a regime that you ‘apply’ or ‘switch to’ or ‘introduce’.
    Rather, MMT is 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.
    It is not a regime but a perspective on reality.
    It lifts the veil imposed by neo-liberal ideology and forces the real questions and choices out in the open.
    In that sense, MMT is neither right-wing nor left-wing. I meant by that, that while MMT provides a clear lens for viewing the system, to advance specific policy platforms, one has impose a value system (an ideology) onto that understanding.
    So, while I advocate the state resuming its historical responsibility under the Post World War 2 social democratic consensus for sustaining full employment, because my values tell me that the ability to have a job is a key element of a sophisticated society and a starting point for social inclusion and equity, others might consider mass unemployment to be of use.
    For example, they would mass unemployment as advancing the interests of capital by suppressing the capacity of workers to share in productivity growth and maintain real wages.
    But they would not be able to say the ‘state has run out money and cannot provide work for all’. They would be forced to justify the state not taking responsibility to eliminate mass unemployment via direct public sector job creation in terms of more venal motives.
    In that sense, the political debate would change dramatically.
    The NZ monetary system already operates according to the principles of MMT. Government policy already is conducted within a modern monetary environment.
    The New Zealand government uses a fiat currency, which it issues under monopoly conditions and floats it freely on international currency markets.
    So the statement that “we don’t think New Zealand is ready to apply it – yet” is nonsensical.
    MMT proponents clearly agree that there is “no free lunch”.
    But unlike the conventional economic framework that deploys the so-called ‘Government Budget Constraint’ framework, which invokes an a priori financial constraint on government deficits, MMT shows that the constraint on government spending is ultimately determined by the real resources that are available for purchase in the currency that the government issues.
    So, ultimately a nation’s standard of living is limited by the real resource base it commands.
    MMT is, of course, much more than a narrative about government surpluses and deficits. It provides a detailed understanding of the way in which banks, central banks, and treasuries interact, which is unavailable in the standard textbooks and teaching programs.
    It debunks the standard narratives from conventional economists about interest-rate effects arising from deficits (the so-called crowding out hypothesis).
    In fact, the immediate impact of fiscal deficits on the monetary system (by adding to bank reserves and creating excesses that the commercial banks seek to reduce) promotes downward pressure on short-term interest rates, contrary to the view espoused by conventional economists.
    It also debunks the view expressed by most conventional economists in their public statements and teaching programs that banks require reserves before they can make loans. In fact, loans create deposits and banks then worry about the reserve implications later. Why this matters is that the idea that governments compete for scarce funds in loanable funds markets and thus drive out private investors is false. Yet it remains a central part of conventional economics wisdom.
    There are many other contributions made by MMT, which are not presented in the conventional economics narrative, and, indeed, contradict the dominant view.
    I provided a three part series Modern Monetary Theory – what is new about it? last year:
    1. Part 1.
    2. Part 2.
    3. Part 3.
    There is a very detailed discussion of how mainstream economists are now trying to claim there is “nothing new” about MMT and that conventional economists “knew it all along”.
    Nothing could be further from the truth.
    MMT clearly states that while the government has no financial constraint on its spending capacity, it certainly has a real constraint on what it can spend its currency on.
    It can only bring into productive use real resources that are available for sale.
    It is also bound by the constraints posed by the natural environment.
    A core notion of MMT is that attempting to go beyond those real constraints results in inflation.
    So the idea that there are still limits to government interaction with the non-government sector in spending terms is 100% correct and 100% core MMT.
    This means that we concur on the understanding that the currency-issuing government always chooses the unemployment rate in the economy at any point in time, once the non-government sector has made and implemented its spending and saving decisions.
    Taken together these points of agreement mean that if there is mass unemployment, you know that the fiscal deficit is too small (or the surplus too large), and that the government has made a political choice to sustain the mass unemployment.
    No mainstream macroeconomics textbook says anything remotely like that.
    First, the contention “that the government can spend whatever it likes, there is no limit because it issues money” is 100% correct for currency-issuing nations such as New Zealand.
    Second, the empirical evidence would suggest that the shift to fiscal austerity has delivered sub-standard outcomes across most major economic aggregates.
    Third, it is 100% correct to say that if the government runs a fiscal surplus then it condemns the non-government sector to run a deficit (spending more than its income) as a matter of accounting, dollar for dollar.
    It is 100% correct then to say that this strategy means that the non-government sector will be increasingly adding to its indebtedness.
    In most situations, that process is finite and the need for balance sheet correction will force the government back into deficit through the operation of the automatic stabilisers and, in doing so, the nation would likely experience a financial and economic crisis.
    It is also 100% correct to say that if the non-government sector desires to save overall, then the government sector has to run continuous deficits to fund the non-government sector aspiration.
    If the government sector tries to run surpluses at a time the non-government sector is trying to save overall, then the result is recession.
    This is not a matter of opinion but the results derived from a correct understanding of the sectoral balances and the behavioural factors that drive the balances, which are derived from the national accounting framework.
    These insights are also not to be found in a mainstream macroeconomics textbook.
    … a currency-issuing government cannot run out of the currency it issues. That is 100% correct. It is not partly right.
    In that context, it is also 100% correct to say that a government can afford, in financial terms, anything that is for sale in its own currency.
    It is therefore 100% correct to say that there is no financial constraint on government spending, where that government issues its own currency.
    In that context, is 100% correct to say that all policy choices are political rather than reflect any intrinsic financial constraint.
    Clearly, as I explained in detail in the public presentation and the roundtable followed, these policy choices will reflect the value system preferences that the policymaker imposes on the choices available.
    MMT is a lens not a value system.
    A correct understanding of MMT would not suggest that the NZ government should introduce a generalised fiscal expansion where it competes with the non-government sector for real resources at market prices.
    Remember that currently there are around 13 per cent of available labour resources in NZ idle in some way or another and 1/3 of its children are living in poverty.
    Further, there is a state housing crisis (shortage) as a result of years of neo-liberal policies which asserted that the ‘market’ would take care of housing needs if prices were allowed to move without regulation.
    There is clearly scope for both spending and taxation changes in NZ to ensure that the idle resources in New Zealand are brought back into productive use but, that the government doesn’t contribute to creating resource shortages in areas where inflationary pressures are already high, for example, the property market.
    A state housing program would both improve the well-being of disadvantaged New Zealanders and take pressure off the demand in the private housing market.
    Further, counter-stabilisation policy should not rely on the monetary policy manipulation of interest rates to ensure spending is at levels sufficient to bring these idle resources into productive use.
    Governments have the capacity to ensure house prices are stable if they are prepared to take on the tax rorts such as “negative gearing”, which biases the housing market to price speculation and prevent overseas capital speculating on real estate.
    At present, there are many tax breaks that should be changed in NZ, which would put a brake on the housing market. Neo-liberal governments are reluctant to eliminate those breaks.
    The next NZ government should eliminate negative gearing, stop foreigners from buying existing homes and/or speculating on apartment towers, and tighten the capital gains tax rules that allow hot profits to be made on so-called quick sales of ‘rental properties’.
    The idle labour and poverty tells me that the fiscal deficit is too small relative to the non-government spending behaviour.
    The fact that there is one segment of the economy that is experiencing excess demand (housing, particular in Auckland) tells me the composition of fiscal policy is wrong.
    That all sounds like an application of MMT to me.
    MMT authors have written extensively about ageing societies, the intergenerational challenges due to rising dependency ratios, and the real resource challenges faced by governments in dealing with these issues.
    The essential insight, that is core MMT, is that there are no financial constraints on governments being able to fund pensions, health care and other services that may arise as the population ages and the workforce shrinks.
    The real challenges of a rising dependency ratio will be the real resources that the society can command in the future.
    Clearly, future generations will have to be more productive than past generations to support a broader group of citizens who are no longer working and require more intensive service support.
    In that context, it is imperative that we improve our public education and health systems and ensure that all our young people are engaged in skill development to prepare them for the future productive challenge that we will place on them
    In that context, fiscal austerity, which leaves a significant proportion of human resources idle, runs down public education capacity, delivers sub- standard health outcomes, is the opposite to what is required to prepare for the future.
    The question you have to always ask is how does “balancing the books”, now, provide any extra financial resources in the future to pay NZ pensions (superannuation)?
    A fiscal surplus today provides no more or no less financial capacity to a currency-issuing government tomorrow than running a fiscal deficit.
    What the NZ government is not able to guarantee is that the real resources available to pensioners, or to the prison authorities or to the health system will be sufficient in the future given increasing demand for them.
    That is not a ‘financial’ problem.
    What this implies is that real resources will have to be diverted from other uses in the future to satisfy the real resource demands in the areas noted.
    That is, once again a compositional shift in government spending and taxation. Pure MMT thinking.
    Yes, “(t)he real economy is real”. That is the point. Running fiscal surpluses doesn’t change that at all, except in one important way.
    If the fiscal surpluses create idle labour, run down the educational system, increase stress on disadvantaged communities, undermining the technical and vocational training systems, etc then they are likely to exacerbate the real resource conflicts in the future.
    There is ample research to show that fiscal austerity does exacerbate the future prosperity.
    Unemployment leads to poverty and increased crime rates and higher incidence of physical and mental illness.
    Cutting public spending in education and training undermines future productivity and makes a rising dependency ratio (ageing society) bite into real standards of living.
    Finally, it might be the case that NZ will not have sufficient real resources in the future to maintain the current real standard of living for all. But running fiscal surpluses or “balancing the books” will not improve that situation.
    The USA in the UK did not ‘print money’ in their quantitative easing exercises. Nor did the Bank of Japan before them during the 1990s.
    QE is just an asset swap. The central bank adds reserves in return for the banks surrendering other financial assets such as high-quality corporate debt and risk-free government bonds.
    MMT does not support QE as a counter stabilising macroeconomic policy strategy as is implied by the above statement.
    Clearly, the fiscal capacity of the government (which includes the consolidated central-bank and treasury functions), should be used to bring idle resources into productive use.
    How that occurs is another question.
    MMT considers the minimum intervention in this regard should be the introduction of a Job Guarantee program, which is an unconditional job offer at a socially inclusive minimum wage to anybody that desires to work.
    Banks create deposits out of thin air from loans they make to credit-worthy borrowers – which means there are no finite funds to loan out.
    Further, government spending stimulates national income, especially when it is bringing idle resources into productive use, which, in turn, stimulates more saving.
    Spending (government or non-government) brings forth its own savings. Basic macroeconomics.
    MMT does not advocate unfettered spending.
    MMT does not advocate wasteful spending.
    What MMT does say is that the only constraints are the available real resources and that as a first step the responsibility of the currency-issuing government is to make sure they are all being used productively.

  • joseba

    Fikziozko literaturaren rola eta mito ekonomiko neoliberalak (1)

    Bill Mitchell-en The role of literary fiction in perpetuating neo-liberal economic myths – Part 1

    A few weeks ago I wrote a blog – Reflections on a visit to New Zealand – which began by summarising some research I am working on which will be presented (with Dr Louisa Connors) at the upcoming MMT conference in Kansas City. This specific paper will be examining the role that fictional literature plays in framing false economic concepts and, thus, promoting neo-liberal biases among the readership, even when the plot of the narrative is ostensibly about something other than economics. We show that fiction is a powerful tool for spreading ideological propaganda, often in a very subliminal or subtle way. The lesson we draw from this work is that to further advance Modern Monetary Theory (MMT) ideas, authors, who introduce economic concepts into their writing, should construct their narratives consistent with the MMT principles. This will help to counter the misconceptions that arise in literary fiction when authors engage with flawed neo-liberal arguments about the monetary system.
    Our paper (to be presented in Kansas) will have five main parts (outside an introduction that will state the problem and scope of our study) and a conclusion that will draw the argument together):
    1. A discussion of the ways in which literature can reinforce flawed ideology.
    2. A brief introduction to the book’s plot.
    3. Why the Mandibles is pure fiction – application of Modern Monetary Theory (MMT) principles to the main monetary precepts presented by Shriver. That is, the book is a fantasy without application to the real world now or in the future.
    4. What might befall the Mandibles in a world where MMT is broadly understood – we rewrite the book – in a few short pages using a consistent MMT understanding. We will come up with a much different future for the family.
    5.Implications for progressive writers (non-economists) – we discuss how fictional authors with a progressive bent can help deepen the penetration of MMT understandings within the general population.
    In Modern Monetary Theory (MMT), this tax obligation gives relevance to an otherwise worthless currency. It requires governments to spend the currency into existence. And, logically, the capacity of the non-government sector to pay taxes must comes after the government spending, not before.
    For Iceland has categorically demonstrated that even with the opposition of some of the largest hedge funds in the world, a small, currency-issuing government can successfully impose capital controls and defend its currency.
    Please read my blog – Iceland proves the nation state is alive and well – for more discussion on this point.
    In other words, the average American household now has a much greater command over real goods and services in 2016 than they had in 1913. (…)
    To be continued …

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