Guztiok DTM-koak ote gara?

Bill Mitchell-en The Bandwagon effect – caution not credit is needed


(i) Sarrera gisa: We are all Modern Monetarists now

We all know what the – Bandwagon effect – is. (…) people who believe one thing one minute, suddenly ditch that belief system and appear to be proponents of a new belief system, often, in total contradiction to their previous views. The effect is related but distinct from the Groupthink phenomenon which I have written about extensively in relation to the way mainstream economics has maintained a hold on the public debate despite being unable to explain anything useful. (…) ‘Bandwagon effect’ is rampant at the moment among economists. It appears that everyone has become an expert on Modern Monetary Theory (MMT) and want to drop the term into their Op Eds, media articles etc despite, in many cases, writing in the not to distant past, ridiculous mainstream articles that are the anathema of MMT. I give those who are jumping on the bandwagon no credit at all. The reason is that these sort of shifts are dangerous. They typically misrepresent our work and attempt to interpret it within the old paradigm, which just leads to the general public, especially where the commentator has a high public profile, being mislead … as usual. Everyone, apparently is an MMTer now. But from what they say we know that is not the case. And just as this cohort swing to save face in what is a glaringly obvious empirical rejection of all the mainstream predictions and theoretical constructs, they will swing again and start talking about ‘budget repair’ and ‘inflation’ and ‘debt burdens on our grandchildren’ when the dust settles and the elites push to regain their dominant position. We should not be lulled into creating liaisons that are not sustainable or based on a true shift in view.

The ‘Bandwagon effect’ is everywhere at present – such that mainstream business media has declared that “We are all Modern Monetarists now” – referring tot he way in which the conduct of governments around the world are rejecting all the mainstream economics stipulates about fiscal and monetary policy.

(ii) Milton Friedman: We are all Keynesians now

That reference is a play on Milton Friedman’s 1965 declaration that “We are all Keynesians now” although most people do not know the full story behind that quote – it is not as it seems.

In Volume 86, Issue 27 of the Time Magazine (December 31, 1965, pages 64-67), a feature article talked about how the ideas of John Maynard Keynes, which were initially thought of as being “bizarre or slightly subversive” had become the orthodoxy in the Post War period and delivered a policy framework that could not only:

avoid the violent cycles of prewar days but to produce a phenomenal economic growth and to achieve remarkably stable prices. In 1965 they skillfully applied Keynes’s ideas—together with a number of their own invention—to lift the nation through the fifth, and best, consecutive year of the most sizable, prolonged and widely distributed prosperity in history.

In that article, they quoted Milton Friedman, who they referred to as “the nation’s leading conservative economist” as saying “We are all Keynesians Now”.

Friedman objected to this association and wrote a letter to the Time Magazine which was published in the next issue (87(5) February 4, 1966).

Friedman wrote:

Sir: You quote me [Dec. 31] as saying: “We are all Keynesians now.” The quotation is correct, but taken out of context. As best I can recall it, the context was: “In one sense, we are all Keynesians now; in another, nobody is any longer a Keynesian.” The second half is at least as important as the first.

If you read Friedman’s 1998 autobiography (written with his wife Rose) – Two Lucky People – you will see that he admits that when he worked in the US Treasury Department in the early 1940s, he was using the ‘Keynesian’ arguments that were spreading as a result of the publication of Keynes’ – General Theory – in 1936.

But you also read that he was apparently “cured” of these leanings in the late 1940s.

In his contribution to Robert J. Gordon’s 1974 book – Milton Friedman’s Monetary Framework – Friedman (‘Comments on the Critics’) wrote that he was opposed to Keynesian interventions in the free market.

He further elaborated on the meaning of his letter to the Time Magazine in February 1966 in his 1968 book – Dollars and deficits : living with America’s economic problems.

He said that he was referring to the fact that:

We all use the Keynesian language and apparatus; none of us any longer accepts the initial Keynesian conclusions.

Of course, Friedman’s work laid the foundations of Monetarism, which in lay terms has morphed into neoliberalism in economics and created the macroeconomic policy myths that are presently being dismantled by the COVID-19 crisis (if not the GFC).

(iii) Defiziten aurka egotetik DTM-koa izatera. Kazetariak tartean

But just as Friedman was playing cute with the Time Magazine, it is important to be cautious about sudden reversals among financial market commentators and economists now, who for years have been pushing the standard mainstream line against deficits, but, who are all “MMTers now”.

On the one hand, it is a good thing that our work has now reached mainstream status and more people are realising that the main insights are undeniable, despite years of denial from those opposed.

But, as I have cautioned before, when there is a paradigm shift going on in any academic discipline, the resistance from the dominant but degenerative paradigm takes many forms.

The smarter members, who see the writing on the wall, try to capture the emerging paradigm and re-express it in their own language and concepts – just as the Hicksian IS-LM framework stole Keynes’ work not long after it was published.

Those on the periphery of the dominant paradigm, the media and commentators who continually reinforce the dominant paradigm through their journalism get stuck betwixt.

For years they have been passing on the mainstream message that deficits are bad/surpluses are good, that deficits drive up interest rates and cause inflationary spirals, that nations who spend ‘too much’ will be punished by the bond markets and eventually will find themselves insolvent. And more.

Then as the shift starts – and the COVID-19 disaster is driving that shift faster than I ever imagined, the journalists have a problem.

Many mainstream economists have gone quiet.

After all, what have they to offer? All their analysis and predictive activity has been rendered irrelevant.

But there are vestiges that hang on like grim death, and, they are slowly resurfacing – worrying about ‘how will we pay for it’ stuff – not realising that the government pays for it every time they click a keyboard to authorise some spending. It is gone – paid for. End of story.

The journalists, trying to stay relevant, as if they are part of the knowledge-making set, have to make sense of what is going on.

And so we get this strange lacunae – lots of writing about MMT without any of it really capturing what MMT is.

That is because the mainstream language and concepts are ill-suited to developing an effective and meaningful MMT narrative.

That is the problem of the ‘Bandwagon effect’. We get attention but also run the danger of losing the narrative to those who have a voice in the debate but haven’t the background to be able to use that voice appropriately.

So, on the other hand, the danger is that the public get assailed with a potted version of MMT, which degrades the richness of the emerging paradigm and its overwhelming superiority in explaining and predicting what is going on.

MMT is both a theoretical and descriptive framework but also a style of language and conceptualisation.

Most of those trying to scramble onto the MMT bandwagon miss out on most of this complexity and appear to be content to distill our work down to “printing money”.

While I am happy that more people are realising that for some years there has been a serious contest of ideas going on in macroeconomics and that the explanations and predictions of the mainstream have been hopelessly wrong for decades.

All the major events have been misinterpreted and misdiagnosed by the mainstream despite their revisionist attempts after the fact to save face.

That process is going ballistic right now and MMT is being caught up in it unfortunately.

(iv) Lehen eredua: faltsukeriak eta errealitatea

Take today’s commentary (April 9, 2020), from the economics writer for the Australia’s national broadcaster (ABC) – Coronavirus chaos has hit the economy and the RBA’s approach to money printing is supposed to save it.

No-one who really knew what MMT was about would conclude from reading that title that the article would be about MMT.

Language is very important.

The journalist talks about the RBA “printing money” in reference to its recent policy shift towards buying government bonds in the secondary bond markets.

The reality is that it is not ‘printing’ anything.

The terminology is core mainstream talk and invokes all the taboos about central banks coordinating monetary and fiscal policy without the government issuing debt to the non-government sector.

The term ‘printing’ has no knowledge quotient – it is an emotional play to reinforce the ideology of the mainstream and ensure that the government continues to hand out ‘corporate welfare’ to the financial markets in the form of risk-free debt while at the same time leaving itself exposed to irrational political attacks about debt levels and insolvency.

At least the journalist had progressed to understanding that:

Australia’s central bank is now plugging in extra digits on its computer trading screens to artificially pump up how much cash it has on its balance sheet.

It’s creating money out of thin air. It doesn’t need to print the money via the Mint.

There is nothing “artificial” about it.

It is a simple asset swap credit bank reserves, debit non-government debt accounts.

The article holds onto the household ‘budget’ analogy – “If you earn money, you have the capacity to borrow money and pay it back at some point, with interest” – to explain how the government will “pay for” the debt increase.

Which is a false statement when applied to a currency-issuing government such as Australia’s.

The article then tackles the “doesn’t money printing lead to hyperinflation?” question and tells the readers that:

it’s unlikely to happen this time around, in Australia, because inflation was already very low to begin with.

Which is not the reason that the QE will not generate inflationary pressures.

Hyperinflation typically happens when there is a supply shock – a sudden contraction in supply relative to demand.

And, if any period was susceptible to an inflationary shock from the increased government spending, it is now, given the disruption in supply chains.

But then the fiscal injections are really just partially compensating for lost private spending.

And we also get the claim that is being repeated often these days that QE is not dangerous because:

The government issues bonds, banks buy those bond and the Reserve Bank then buys those same bonds off the bank. So, for practical purposes, the RBA now owns those bonds and will receive coupon payments from the government … and you could draw a line from the RBA to the government in terms of money flows …

However, by putting the private sector between the government and the Reserve Bank, you create a crucial buffer.

It means the Reserve Bank can’t simply write off the debt (which would compromise the integrity of the entire monetary system). It’s not even tempted to do that.

There is no crucial buffer achieved through this smokescreen.

The reality is that the private bond dealers now know that they can bid for the primary issue debt at the standard auctions (and the debt volumes will increase significantly as a result of the size of the intervention) – and then they be able to sell the bonds to the RBA next ‘day’ for a capital gain as the RBA credits the bank reserves.

So, the corporate welfare circuit is complete – the bond dealers swap reserves for the bonds and then make a nice profit from the RBA.

Moreover, the RBA can easily write the debt off with the same keystroke that allowed them to buy the debt.

Nothing would happen if they did that. Numbers would disappear from accounts.

And the RBA could operate with negative capital if it wanted with no consequence.

I don’t think the RBA will write-off the debt but as I have said before what we really have is the right pocket of government interacting with the left pocket – end of story.

So there is massive misinformation circulating from those who have a major voice in the debate.

(v) Bigarren eredua, DTM-z, DTM-ri buruz ezer jakin gabe

Then it was the turn of the ABC youth station (Triple J) to enter the fray and here MMT gets introduced.

Yesterday (April 8, 2020), it ran a story – How come Australia suddenly has billions of dollars to pay for welfare? – and claimed that the $A200 billion stimulus package “had huge implications” in terms of the debt that would be issued.

They attempt to address the ‘burden on the grandchildren’ argument by explaining how QE works.

1. “the RBA are special kinds of public institutions tasked with managing the supply of money in an economy” – which is incorrect. The central bank cannot manage the ‘money supply’. The money supply is driven by the non-government sector’s demand for loans. The RBA has to accomodate the reserve implications of those demands.

2. “where does the RBA get its money?”

3. Well it can “print money”.

4. It correctly notes that it issues currency “out of nothing” and that capacity is “unlimited”.

5. It thinks the US Federal Reserve is the first central bank to go “nuclear” – by “buying unlimited amounts of government bonds” – well, the Bank of Japan has been doing that for much longer and the ECB has intervened in that way much more significantly than the Federal Reserve.

6. Because “the interest rate is so low right now, this money is essentially free” – which misleads. It wouldn’t matter if yields were higher. The repayment of the debt liability upon maturity is just another keystroke on a computer.

In accounting terms, the RBA would accept an instruction from the Treasury to shift numbers from the ‘outstanding debt account’ into the ‘reserve accounts’ – repayment done. Costless electronic transaction.

7. Then we get to MMT after Paul Krugman gets credit for exposing the myths of public debt being a problem. Whew!

And MMT is represented as advocating governments “just printing more money” to pay off the debt it issues to pay for the stimulus.

Yes, convoluted nonsense.

They write:

That may sound absurd — like shifting $5 from your left pocket to your right and claiming you’re $5 richer — but it’s an idea that’s suddenly shot to prominence as governments have taken on huge amounts of COVID debt.

Broadly, this is known as Modern Monetary Theory (MMT).

It is not recognisable as my own work at all nor that of any of my MMT colleagues.

The rest of the article mixes these sorts of misrepresentions with fundamental facts:

1. “MMT is based on a simple idea — countries are not like households” – well some countries are like households because they have surrendered their currencies.

2. “Australian (sic) can’t default on a debt that’s in Australian dollars, MMT supporters would say” – true.

And to “break this down”, the youth station sought advice from a non-MMT economist in the private think tank business.

Apparently, to explain MMT we get this:

As long as we keep producing goods and services and money keeps flowing through the economy, the national debt never has to be repaid.

That is nothing to do with MMT.

The risk free status of the Australian government’s debt arises because it is denominated in the currency that the government issues under monopoly status conditions.

It doesn’t matter what GDP growth is in that regard.


MMT advocates say, governments shouldn’t spend freely during periods of high employment, as the economy can’t increase production to meet the extra demand and would therefore be at risk of inflation.

Which is not what we say.

We say that when the economy is at full employment, the constraints on government spending more are ‘real resource availability’. They can still spend more but have to reduce the capacity of the existing users of those resources to use them.

That is the MMT statement.

Overall, the article was very supportive and finished with:

There are many who say MMT is ‘voodoo economics’ … However, in the last few weeks the criticism has died down and MMT has suddenly become a respectable economic idea …

MMT may offer a way out of what may be needless economic misery.

So I was happy with the intent of the article but the concern remains that in representing MMT as ‘money printing’ the same frames that the neoliberals use are being invoked.

You cannot shift a paradigm using the frames that consolidate the paradigm you want to abandon.

(vi) Azken eredua, aurrekontuz eta defizitez

Then, we had the Sydney Morning Herald article from its ‘senior economics writer’ today (April 9, 2020)- Don’t add government debt to your list of things to worry about – talking about how the massive stimulus package that the Australian government has now legislated for will “be funded”.

Some debt figures – escalations – were quoted.

But the readers were told not to worry because with the RBA now buying huge volumes of government debt in the secondary bond markets, the answer to the “where does the money come from?” question is easy – “it will come from the Reserve Bank”.


Does that mean that one arm of government … is now lending to another arm of government? …

The answer is: well, yes.

We then see MMT being mentioned and represented as preferring “government simply print the money, rather than borrow it from the private sector.

And then:

Our current scenario, with the central bank buying government bonds — albeit only once they’ve been bought by the private sector — is getting closer to a MMT world.

And while “We may one day have cause to worry about governments getting out the printing press and driving hyper-inflation”, apparently that day is not now because we have a health crisis.

We are also not “getting closer to a MMT world”. We have been living in that world since the fiat currency period began in the early 1970s (although Australia only floated on December 12, 1983).

For years, governments have been misusing their fiscal capacity by trying to run surpluses without reference to the state of the real economy. Now, faced with a health emergency, they are finding that capacity can be used in better ways.

No shift to an MMT world is going on. That is a fundamental misunderstanding of what MMT is and it should warn the readers that what else is being said is likely to be spurious.

But Irvine is clearly working hard to stay relevant with her readership. The ‘Bandwagon effect’.

But so hopelessly lost.

Earlier in the article we were told that the other option to “printing money” is that the traditional approach is that:

it’s best if taxpayer dollars are spent under the watchful eye and approval of private financial markets.

That apparently avoids “handing a blank cheque to print money” to politicians.


the way we are funding the response to this crisis, with the government borrowing money from the private sector and only having the central bank step in to buy bonds in the secondary market, can be expected to keep some discipline on government spending.

Which seriously misunderstands how the bond markets actually work, how yields are set and the spurious difference between a primary issue of bonds on one day, in the knowledge that next day, the RBA will buy all the bonds in the secondary market, and the holders will pocket a tidy capital gains while yields can be as low as the RBA wants.

There is no constraint on government spending as a result.

We should not give credit to this sort of garbled argument at all.

A bandwagoner no less. But one that is stuck in the mainstream paradigm, that is unclear about what is going on, and running with the herd to avoid being seen as out of touch.

And one that so misrepresents MMT that her readership will be excused for getting on Twitter and talking about ‘printing money’ and ‘regime shift’ and all the rest of the nonsensical representations that retard progress in achieving the sort of gestalt shift in knowledge that will take us out of this lunacy of neoliberalism.

To see what she really thinks, you don’t have to go back very far.

When the last fiscal statement (aka ‘the budget’) was released in April 2019, she was saying something quite different.

Go back to April 1, 2016 (April Fool’s Day) and her article – Why we should worry about fixing the budget – where the readers were assailed with this:

There has been no official recession in Australia for a quarter of a century, but the federal budget has been in deficit for eight years in a row.

Does that bother you? It should.

What it means is that in every year since the onset of the global financial crisis, the federal government has been raising insufficient money to cover the cost of outgoing expenses, like welfare, schools and health funding.

And there is no end in sight. On the latest estimates, the budget will remain in deficit until at least 2020-21, meaning a dirty dozen of deficits.

And it got worse:

Of course, every year that the government raises less than it spends, it must borrow to fund the difference.

It does this by issuing government bonds, calling on investors to stump up cash in return for a promise to repay at a certain future date, plus interest.

Every year we remain in deficit, the government has to keep issuing new bonds to cover its annual funding shortfall, adding to the stock of outstanding debt …

there is a cost to all this debt.

Annual interest paid on government debt is about $11 billion a year, rising to nearly $18 billion by the end of the budget’s forward estimates.

That’s about as much as the federal government spends on private and public schools currently. Money spent servicing debt could otherwise be spent on other worthy social investments.


our budget should be in balance, or slightly surplus, on average over the economic cycle.

. it’s unfair to future generations to leave them with the tab for the current population’s day-to-day bills.

allowing the budget to remain in deficit even when the economy has recovered leaves us vulnerable to future downturns.

If another GFC came along, the federal government would currently have little buffer to spend to stimulate demand. The public may well be less willing to support a stimulus package if the budget was already in the red.

Plenty of reasons to get our fiscal house in order, and soon.

All the usual myths, lies, whatever coating you want to put on it.

The fiscal position is contextual. There is no “should be in balance” case without that context.

If, for example, as in the case of Australia, our external balance is in deficit continually (around 3.5 per cent of GDP historically), then a balanced fiscal position over an economic cycle will mean that the private domestic sector is recording a deficit of the same proportion of GDP as the external deficit.

That means ever increasing private debt holdings.

Is that desirable?

Is that sustainable? Probably not.

And what happens if that position is associated with 13.7 per cent labour underutilisation and stagnant growth? Is that the aim of fiscal policy?

It couldn’t possibly be if we cared about well-being and stability.

And the “ammunition” argument is plainly false as we are seeing now.

The Australian government can spend however much it likes, whenever it likes, irrespective of its current or past fiscal position. The capacity of the government to run deficits is conditioned by the state of the economy and the available real productive resources that are idle.

There is no concept that the government has to have financial stores before it can spend.

Everyday, it is creating liquidity in its currency in the economy. There are no ‘printing presses’ running. Typing numbers into accounts is the way most government spending is executed every day.

At the moment there are zeros being added to those numbers. They didn’t need any prior ‘surplus’ (like a squirrel in winter) to add those zeros.

I could point to many more articles – a continual flow of them all preaching from the same mainstream macroeconomics book.

And then on April 19, 2019, in the article – Tax stoush no substitute for real reform – we read:

Tax is literally the price we pay to sustain our democratic system of government and all that goes with it, such as schools, hospitals and roads.

And later (November 20, 2019) – Morrison is right about one thing – we’re sick of the drama – we read:

Today, our problems of slow growth and moribund wages are far more structural than cyclical. In light of that, Morrison is right – for now at least – to reject calls to sacrifice a return to budget surplus for emergency pre-Christmas tax cuts.

And so it goes.


1. The ‘Bandwagon effect’ is a turning point in the paradigm shift.

2. But those in the emerging paradigm need to remain vigilent and ensure that the homilies presented by those jumping aboard break cleanly with the framing and language of the mainstream.

Otherwise, we get nowhere.

3. And, here, I am thinking of what happens when the medical crisis is solved (if it ever will be). The mainstream fear mongerers will be out in force again – if they maintain a shred of presence in the debate – and the ‘Bandwagon effect’ journalists will jump the MMT ship just as quickly as they are now grasping to get a hold on it.

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