G20 Says Expansionary Fiscal Policy Not Sustainable

The G20 has dropped its support for fiscal expansion. The deficit hawks are prevailing. But why is that? We all either know or should know that operationally Federal spending is not constrained by revenues, as Chairman Bernanke stated last year, when asked on ’60 Minutes’ by Scott Pelley where the funds given to the banks came from :

“…we simply use the computer to mark up the size of the account that they have with the Fed.”

We know that when the Fed spends on behalf of the Treasury it simply credits a member bank or foreign government’s reserve account at the Fed.

We know that a US Treasury security is a credit balance in a securities account, also at the Fed.

We know that buying a Treasury security means US dollars (numbers on the Fed’s spreadsheet) shift from a Fed reserve account to a Fed securities account, which adds to the ‘national debt.’

We know that government deficits = ‘non government’ saving (net dollar financial assets) to the penny, as a matter of national income accounting.

And we know paying off the Treasury securities happens continuously when Treasury securities mature and the Fed simply shifts those US dollars from the securities account back to a Fed reserve account (including the interest).

So why should we care if US dollars are in a Fed reserve account or a Fed securities account?

We should not, yet most still do.

There are two featured sides to the argument, pro and con, deficit hawks and deficit doves. The deficit hawks aren’t the problem. They have no argument that makes any sense as a point of simple monetary operations. There is no such thing as the Federal Government running out of money, being dependent on foreigners or anyone else for funding to be able to spend, and the US is not the next Greece.

The problem is the deficit doves featured by the media don’t understand actual monetary operations and reserve accounting, and so they take the same ‘fundamentally wrong’ positions as the deficit hawks. The difference is nothing more than timing and degree. In effect, the media is showing only one side of the argument.

To be a credible media deficit dove, you agree deficits are ‘bad’ but in the long term, arguing that in the short term we need tax cuts or spending increases now, and deficit reduction later. You agree that deficits can be too high, but argue they have been higher, particularly in World War II, so current levels should be easily manageable, further agreeing there is a level that could not be manageable. You agree markets could be ‘unfriendly’ and a lack of confidence could translate into far higher interest rates, but argue that the current low rates for Treasury securities are the markets telling us that currently they do have confidence in the US and they are eager to fund current deficits. You agree that ‘bang for the buck’ matters and support tax cuts and spending increases based on higher ‘multipliers.’

The two ‘sides of the story’ are in fact on the same side, just with differing degrees. The media does not feature the true deficit dove story. Nor do any of the true doves have even a small piece of the administration’s ear, or the ear of anyone in Congress willing to speak out. There are maybe a hundred of them, including many senior economics professors. The nagging question is why this professional, highly educated, highly experienced collection of true doves, who happen to be correct and could get us back to full employment and prosperity in reasonably short order, does not get a fair hearing.

The answer may be credentials. My BA in Economics from the University of Connecticut in 1971 doesn’t cut it, nor the fact that the very large fund I managed was the highest rated firm for the time I ran it. And my net worth never getting anywhere near a billion hasn’t helped either. Seems billionaires get celebrity status and airtime for just about anything they want to say.

The same is true of the Economics professors who’ve got it right. Without being from and at the usual ‘top tier’ schools none can even get published in main stream economics journals, where submissions featuring obvious accounting realities are routinely rejected. In fact, any economist who states accounting identities and operational realities such as ‘deficits = savings’ or ‘loans create deposits’ or ‘Federal spending is not constrained by revenues’ is immediately labeled ‘heterodox’ and unworthy of serious mainstream consideration. Even the late Wynne Godley, who did have reasonable credentials as head of Cambridge Economics, and was the number one UK economics forecaster, was labeled ‘unorthodox’ because his mathematical models featured the deficits = savings accounting identity.

The breakthrough could happen at any time, in addition to economists at the ‘right schools’ or right financial sector firms, there are government officials with sufficient credentials to lead the breakthrough, including the head of the CBO and OMB, the Treasury Secretary and Fed Chairman, as well as former Fed officials, particularly from monetary operations.

Unfortunately Treasury Secretary Geithner, a potential hero due to the celebrity of his office, and the rest of the G20 are acting out the deficit hawk position, acting as if they do indeed believe the US has run out of money, is dependent on its creditors, and could be the next Greece. They speak as if they have no idea that the euro nations operate within a unique institutional structure that puts them in a ‘revenue constrained’ financial position similar to the US States, but with nothing equivalent to the US Treasury to run the countercyclical deficits for them. They speak as if they have no idea that the US, UK, Japan, and others with ‘normal’ central governments taxes function to regulate aggregate demand, and not to raise revenue per se. They act as if they don’t realize they can immediately make the fiscal adjustments- cut taxes and/or increase government spending- that will restore aggregate demand, employment, and output. In short, they act as if they were all still on the gold standard, an institutional arrangement where indeed government spending was constrained by revenues, and, as a consequence, the world witnessed repetitive, devastating deflationary depressions, far worse than what we’ve seen so far in this cycle.

The results of unnecessarily allowing a universal lack of aggregate demand to persist are already tragic, and if policy continues along the line of this weekend’s G20 results no relief is in sight, and it could all get a whole lot worse.

60 Responses

  1. Chairman Bernanke stated last year, when asked on ’60 Minutes’ by Scott Pelley where the funds given to the banks came from :

    “…we simply use the computer to mark up the size of the account that they have with the Fed.”
    ——————————————–

    He was talking about the Fed’s lending; not about deficit spending through the treasury’s fed account.

    Here’s the actual quote. Asked if it’s tax money the Fed is spending, Bernanke said,

    “It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. It’s much more akin to printing money than it is to borrowing.”

    1. it’s true for all lending/spending done by the fed for its own account or the accounts of others

  2. “The nagging question is why this professional, highly educated, highly experienced collection of true doves, who happen to be correct and could get us back to full employment and prosperity in reasonably short order, does not get a fair hearing…The answer may be credentials.”

    Maybe.

    But I think its really because your thesis implicitly rejects the value or necessity of financial planning and risk management. Essentially, your approach to fiscal response (e.g. higher taxes when it becomes necessary down the road) denies the existence of any concept of fiscal risk. People just aren’t comfortable with that.

    You might try framing MMT in the context of risk management and hit that issue head on. As it is, you have no concept of risk management.

      1. When deficit hawks and misguided deficit doves make their arguments about the size of the deficit, they’re really attempting to engage in financial planning and risk management, however misguided their methodologies might be due to lack of understanding about how the monetary system works. I see the MMT response to that as being essentially that we don’t require financial planning and risk management because operations allows anything, and fiscal policy can respond effectively when it needs to.

        I see MMT prescribing the correct operational understanding and that fiscal policy can respond when it needs to respond, without much advance planning as to how it will respond. This suggests financial planning and risk management are not required, which may be true according to MMT.

        In other words, MMT leaves resolution of future problems mostly to the future, whereas hawks and misguided doves try and discount perceived future problems back to the present – i.e. an attempt at financial planning and risk management, notwithstanding their lack of operational understanding. So the gap between MMT and both these groups is not only the operational understanding, but the way in which they perceive how future problems and risks should be handled and when they should be addressed – now or later.

      2. “I see the MMT response to that as being essentially that we don’t require financial planning and risk management…MMT leaves resolution of future problems mostly to the future”

        Bury your head in the sand and all will be fine. Are you sure this is how you want to sell MMT to the world?

        What’s going on with MMT, here? It’s not going to stay ahead of the curve with the self congratulatory attitude that has been on display recently.

      3. I see a danger in that MMT, in and of itself, externalises many problems that in mainstream discourse are conflated with financial arguments. Only by attaching an ideological framework, can MMT fully fill the void that no longer discussing state monetary affairs along the household analogy leaves. The closed ‘gold standard’ system is used as a proxy for real distributional issues that are at the core of every political discourse. Proving that credit money cannot be argued along these lines does nothing to address these issues. It can only help clear the way for more rational and focussed discussions without money as a proxy.

        But it isn’t true IMO that MMT doesn’t provide answers as to how best to react to future financial problems. It just doesn’t make implicit policy recommendations as other models do.

      4. I’ll try and say it another way.

        Financial planning and risk management are very embedded in the management technique and ethos for corporations and governments (and maybe some households).

        The foundation for the MMT approach is correct operational understanding, which allows considerable more flexibility in dealing with risk. But I think you have to recognize that financial planning and risk management is an ingrained way of thinking and an ingrained approach to problem solving for these institutions. MMT “seems” to assume that technique away. Institutions aren’t comfortable with that approach – quite apart from understanding or not understanding monetary operations.

      5. MMT has defined inflation as a risk with higher taxation/lower spending as the “governor.” Also, MMT says that the federal government as a monopolistic issuer of currency is a price setter and thus can combat inflationary risks by setting price appropriately.

      1. Liquidity risk, interest rate risk, credit risk, foreign exchange risk … the whole gamut… all of the risks a financial institution has to deal with.

        (MMT basically combines the government treasury with the central bank; government essentially becomes a financial institution.)

  3. “The deficit hawks aren’t the problem. They have no argument that makes any sense as a point of simple monetary operations. There is no such thing as the Federal Government running out of money, being dependent on foreigners or anyone else for funding to be able to spend, and the US is not the next Greece.”

    The deficit hawks may have no argument, but they still get air time, and are still portrayed as having a valid alternative view.

    “The answer may be credentials.”

    Suppose that we think of this as a jury trial, where the jury is the electorate (or maybe members of Congress). Credentials matter, but the key is to get a hearing. Then the deficit hawks are our friends, because they are so extreme, and so vulnerable. A concerted assault on their position by people who can get a hearing as experts can sway a lot of people.

    1. agreed!

      the media always tries to line up ‘two sides to the argument’ so there will be deficit hawks until there is no argument.

      the problem is the doves they line up gainst the hawks, and in fact those doves share the same faulty assumptions with the hawks that are the problem in the first place.

  4. Bx12,

    I am really not sure why you seem so upset. Whats the issue ?

    I don’t remember you commenting before recently. Have some patience. These things are not straightforward.

    1. Ramanan,

      I am not upset. It is Anon that seems upset at my criticism. By way of apology, I’ll explain why I find his statements disquieting:

      Financial and oil corporations, for example, have demonstrated beyond one’s worst nightmare that they have no consideration for risk management or future planning. They only put on a travesty thereof. Capitalism, as a whole, is plagued by a focus on short sightedness.

      Anyone reading the news in the past three years and glancing over some of his statements would be thrown for a loop at the suggestion that MMT leaves future problems to the future.

      I guess he probably meant something along the lines of shifting the focus from balanced budgets to attaining full capacity.

      1. I get your point now.

        I didn’t say the private sector has done a great job of risk management. But you’re wrong to say they give it no consideration. Wall Street firms had armies of people looking at risk management. They just had bad models – arguably stupid. But they definitely had big infrastructure dedicated to risk. I don’t know about oil companies, but however incompetent BP has been, I guarantee you they have armies as well – just doing the wrong thing apparently.

        It’s understandable that you be contemptuous of private sector risk management, but it’s a poor argument to say that because the private sector has done a bad job of risk management (which isn’t true in all cases), MMT should avoid the issue in positioning its own case for government. Just look at the regulatory response now in tow for the financial sector – that’s all about risk management. The same focus should be applied to government itself, particularly when MMT is advocating such dramatic changes to the interpretation of future deficits.

        “Anyone reading the news in the past three years and glancing over some of his statements would be thrown for a loop at the suggestion that MMT leaves future problems to the future.”

        More to the point, care to clarify how my “suggestion” regarding MMT is wrong?

      2. “They just had bad models – arguably stupid. But they definitely had big infrastructure dedicated to risk.”

        An infrastructure without due diligence at the top is a sham. It all began apparent with Enron, and it took its paroxysmal form with the rating agencies. Here’s also a telling example:

        http://en.wikipedia.org/wiki/Paul_Moore_%28banking_manager%29

        “More to the point, care to clarify how my “suggestion” regarding MMT is wrong?”

        I browsed over your other comments and I see the broad underpinnings, but since it is topical to talk about MMT being perceived as irresponsible, I maintain that it’s better never to have MMT and doing away with risk management
        or leaving resolution to the future in the same sentence. In fact, I recall clearly Bill once mentioning that PK economics is very much interested in uncertainty management.

        By the way, in my view MMT has done a poor job of explaining why the government is not revenue constrained : I still don’t see it. It doesn’t follow from the operational description of the monetary system. Besides, you don’t need such
        claims to argue in favor of deficit spending in deflationary period : the deficits pay for themselves in the long run.

  5. Frankly, I think you need to summarize the main benefits of understanding MMT and repeat them often. Something like: “Yes, we can bring the economy back without inflation is as little as 90 days.”

  6. Perfect, Warren. Hopefully, this will be a wake up call.

    Anon et al, I think that one has to consider what Warren is attempting to do in this post. As a wake up call, t is largely rhetorical . It’s not meant as a synopsis of the MMT relative to policy-making. As such, I believe it packs a string punch in a few words, which are essentially correct.

    Actually, if you were to criticize the deficit hawks on their points in the same fashion, they would respond that they trimmed them down because while the situation is admittedly more complex, ordinary folks can’t really understand the finer points, so they need to be boiled down for effect.

    Or confront one of the authors of the popular Econ 101 texts, and they will say essentially the same thing — of course, economists know that the situation is far more complex and Econ 101 is an oversimplification, but, hey, you have to start somewhere….

    At the same time, I do think it is constructive to argue the fine points here in order to hone the message as finely as possible, so that it both correct and compelling. There is always room for improvement.

    I would like to see specific suggestions for changes in the wording, for instance.

    1. i think it’s an excellent post. I particularly like the analysis differentiating deficit hawks, wrong thinking doves, and right thinking doves

  7. I think to the average person, the statements made by the MMT gang look insane. They look like this: “You can create as much money as you want out of thin air and spend it on whatever you like.” Now regardless of how that characterizes or mis-characterizes MMT, I think it accurately characterizes the basic perception or reaction to MMT by an average person who has zero economic background, i.e. most voters.

    What Anon is getting at, and he/she can correct me if I’m wrong, is that MMT appears irresponsible. The point is not to argue that this isn’t true. The point is to SELL MMT somehow as a responsible approach. Selling is not arguing, btw – ask any salesman.

    Selling the concept is selling something that people don’t need to digest intellectually for a few days and maybe say “yes” to. Selling is describing MMT in a way that evokes a sympathetic gut reaction that overpowers the current gut reaction, one which is entirely shaped by the DT’s (deficit terrorists). They own the public space on deficits, money, fiscal and monetary policy, etc. You cannot take that space from them with arcane logical constructs on a blog.

    Since the deficit terrorists are mistaken by definition in the MMT world, MMT needs to come up with a pitch that is easily digestible by the guts of the average voter, get it? It needs to define how it is a responsible approach, not a happy money-making machine for, e.g., politicians to play with.

    I think it is a hard sell at this point because academic types are really not likely to develop a good pitch, ever. Billyblog is a perpetual angry rant about what’s wrong with everything. Mosler here is a little more sanguine at times but again, taking this stuff to the streets is a whole different ballgame.

    1. Good comment and I think largely true. The appearance of irresponsibility is one type of reaction.

      The sales problem is nuanced, IMO. I believe the actual problem is one of too much “dumbing down” of the sales message. People who aren’t necessarily one of the chosen few to understand MMT fully at the intellectual level do know when they’re being talked down to.

      I’ve noted recently what I believe to be MMT’s self-imposed challenges at the intellectual level:

      a) Conflation of factual and counterfactual monetary structure
      b) And now – the curious absence of a risk management approach

      The huge problem with b) is that ordinary folks see through the hubris of certitude. Again, they don’t have to be risk management experts to be unsure about other people who downplay risk.

    2. I agree with your assessment of the average person’s reaction to MMT. I think MMT’ers (and I’m one of them) don’t emphasize the inflation point enough in material aimed at the average person. We didn’t used to emphasize it at all, now it’s kind of an add-on. But I think, as you note, it should be front and center. Here’s how I responded to someone on Pragmatic Capitalist blog in this regard, and I would welcome suggestions on how to say this in a more compact way for the general audience, or improve upon it:

      “Central to the MMT view is that the true “cost” of govt deficits is inflation. Therefore, the point is that the focus should be taken off of “affordability” in terms of “funding” and instead turned toward “affordability” in terms of the inflation impacts. That is, CBO would turn its attention to modeling the long-term inflation impact rather than the long-term budgetary impact. And note that CBO currently does EXACTLY the opposite . . . they estimate long-term deficits that arise from current spending law or proposed changes while assuming inflation will be at 2-3%. (Also, I misspoke a bit, as CBO would still have to estimate long-term deficits, but it would be the consequences of those deficits that would matter for the analysis and for policymakers, not the deficits themselves.) So, in my view, anyone suggesting that MMT’s approach would necessarily lead to inflation has really missed the core of MMT, and as such you would still have to make politically tough decisions with policy driven by MMT views, but this time your eyes would be trained on the appropriate constraint.”

      1. i don’t have a suggestion for how to say it better, but I think its moving in the right direction

        it’s not much of a move from there to construct the message to say that MMT has a better paradigm for managing inflation risk – pointing out the errors and inefficiencies in how its managed now – and then supporting the argument with an understanding of how the monetary system works, etc.

        no doubt some MMT’ers think they do a good job of that now

      2. My take is that emphasizing risk management/inflationary expectations is the wrong take, because it places emphasis on a negative aspect. I am NOT saying that risk management should be ignored. I just don’t think it is a good lede.

        The inflation objection needs to met, to be sure, but I think that this is best accomplished obliquely by addressing price stability, which is standard MMT fare already and is related to other chief MMT goals.

        My proposal for a lede would be featuring that MMT provides for achieving sustainable growth (real capacity expansion/resource use proportionate to population growth), full employment, and price stability through properly designed and managed fiscal policy under the current monetary system. I would also show how this can be done under current operational rules, and how it can be done more effectively and efficiently under different rules, which Congress could easily enact for the purpose if it had the necessary financial/economic understanding and political will.

        I would also attack central bank political independence as anti-democratic, as well as ineffective and inefficient, proposing MMT-based options for monetary policy, such as no bonds.

        Finally, I would point out that most economists are ill-equpped to comment on this professionally since they do not understand finance, especially government finance and monetary systems — as amply demonstrated by their erroneous pronouncements.

        An outline needs to be prepared that is concise, precise, and logically/factually compelling, i.e., correct and persuasive. Tall order for a blog format, but it’s a goal to shoot for.

      3. btw,

        “price stability” as in “price stability and full employment” does not have the ring of a particularly flashy or catchy or powerful marketing message – yet effective management of inflation risk should be part of such a message somehow

      4. I disagree Anon. I am not an economist or finance type, and I find that price stability and full employment works very well in explaining MMT when one includes deflation in the mix along with inflation. People are too fixed on inflation, even when deflation is the overwhelming threat — like now. I find that this is pretty easy to get across to people in this environment. In fact, when they get it, it’s an aha experience of the OMG sort. People are much, much more fearful of depression than inflation, and the possibility of GD II mounts daily, with all that implies for political instability.

        Marshall Auerback and Rob Parenteau: G20 Votes For Global Depression

      5. Thanks for the link, Tom. Marshall and Rob do a nice job on the inflation issue, I think, in that piece, particularly related to their critique of Cameron’s ridiculous statement. I think there’s an interesting point there that can be used more generally . .. when should the govt run a bigger deficit? When things are going great already for the private sector? Or, when the private sector is reducing its spending, employment, etc.? I think integrating this point more fully makes it clear that MMT’ers are quite aware of inflation and are obviously not in favor of “spending without limit.”

      6. I think commenters are critical about price rise. I think more emphasis should be given to the Kaleckian thesis that as demand increases, quantity adjustment is more natural than price adjustment. That is the case because, neither employment is at full potential nor capacity utilization is at peak.

      7. Last week I was at a small business forum where a US Congressman from Texas was speaking to a small group of about 20 to 30 business executives. You could tell this republican congressman was honing his talking points for the upcoming election season. “Borrowing money from China, leaving huge debt to our children, bankrupting critical Medicare and social security programs etc…” This is goes to show what the republican platform is going to be like in November, the whole electorate thinks we are going to be broke in a matter of months! Really sad!

        The democrats certainly are not going to say give us a tax break and they have already spent their political capital with last year’s stimulus plan so they are out of bullets at this point. I foresee a stalemate coming next year and the year beyond. The republicans will get enough seats to slow down the Obama express, i.e. reduced government spending, however the republicans will not have enough seats to pass any meaningful tax breaks to restore demand. Ironically this will be because both sides don’t understand MMT!

        Best case would be a tax cut significant to restore demand by “buying” the necessary democratic votes by putting some pork in it for them, ala Reagan in the 80’s. Neither side can’t seem to grasp the reality that government spending isn’t about where the government gets the money from as it is about who in society “deserves” the money.

      8. Warren himself said something on this blog recently to the extent of: ‘inflation per se isn’t so much of a problem, it’s that people don’t like inflation’. Not a very comforting statement for someone who has been taught that saving is a good thing and that inflation eats savings, i.e. the honest people who keep the economy afloat.

        It might help to stick to a tangible number just like defining 2% unemployment as full employment.

        It is also important imo to convey the benefits to the individual of the whole economy running at full capacity / full employment. Arguments of aggregate wealth are hard to convey because people intuitively extrapolate from the individual upwards, not the other way round. There may not be a homo oeconomicus, but there certainly is a homo ego primo in every one of us.

      9. “‘inflation per se isn’t so much of a problem, it’s that people don’t like inflation’.”

        Inflation at a high but predictable rate, say 10%, would be manageable. Bonds would have to yield say 10.1%. Salary raises likewise etc.

        The problem is, high also comes with volatile. Boom and bust, does that ring a bell? There are huge information costs associated with it. Investments returns become uncertain. People shy away from monetary stores of values to real ones or alternative currencies. These portfolio reallocations are also costly.

        Bottom line : blaming the people (whoever said it or not, I don’t know) is misleading.

      10. Here is an attempt to re-word the basic point to something more digestible for the average person. I think it needs to be shortened down, but it includes a new sort of “points” analogy.

        “MMT says that what we should be concerned about with government deficits are the real life actual effects of deficits. Even non-MMT economists agree that the only real life negative effects of deficits can be inflation – they say that it is only bad to “print money” or “monetize the debt” because that creates inflation – the “inflation tax.”

        If I am watching a football game, I don’t really care whether my team has scored 52 points. Sure, that’s a lot of points, but what I care about is the real life actual effect of those points. The real life actual effect of the points – the whole reason why points are used in a football game – is to determine whether or not my team is winning. If at the end of the 4th quarter the other team has 56 points, I am not going to be too happy just because my team has scored 52 points.

        In the same way, we should not be concerned about the raw number that is assigned to the deficit. By itself, that’s just a number. We should be concerned about the real life effect of the deficit – whether or not the economy is winning. If there is low inflation or deflation, high unemployment, and the economy is doing poorly – as is the case now – then we need a large budget deficit to win the economic game. Whenever inflation gets too high, by contrast, that is when the Federal Government needs to “tighten its belt” and either raise taxes or cut spending in order to cool down the economy.

      11. Hi Scott, I think this is good, but could be improved by tying it to fiscal responsibility. If we can make the case that the deficit hawk case is actually fiscally irresponsible, while the MMT approach is fiscally responsible, I think we can begin to go at “the gut” of people.

      12. David Colander once wrote something worth considering, The lesson most economists learned from World War II was that Keynesian aggregate demand policy worked. The fact that the expansion of aggregate demand had been accompanied by major controls over wages and price … was lost on the majority of the profession.
        http://www.franciscovergara.com/PriceControls.doc

        As an old boss used to say, don’t come to me with problems, come to me with solutions… and to his credit, Colander delivers in a way that any Functional Finance supporter has to admire–
        It is here that my free-market solution to inflation, later reworked, further developed and, renamed the market anti-inflation plan (MAP) by Abba Lerner and me, came in. Vickrey saw MAP as the institutional change needed to guarantee that a true full employment – roughly 2 to 3 percent unemployment – could be reached in a way that was institutionally compatible with a non-inflationary economy. And it could do so in a way that was fully consistent with existing institutions.
        http://findarticles.com/p/articles/mi_m1093/is_n5_v41/ai_21118357/pg_6/

    3. Wow, your comment is one of the most astute marketing-wise I’ve read in relation to MMT. Your characterization of how the average person interprets the statements of MMT apologists is spot on. Same with the point about selling, not arguing.

      “I think it is a hard sell at this point because academic types are really not likely to develop a good pitch, ever. Billyblog is a perpetual angry rant about what’s wrong with everything. Mosler here is a little more sanguine at times but again, taking this stuff to the streets is a whole different ballgame.” <– Emphatic yes on all counts.

      Note that in the world of sales and politics, the terms you use make a big difference. "Price stability" is not on the mind of most people (not that they don't care about it, but that those words are not the words they would use). You are better off using a term like "without inflation." Same with "full employment"; the phrase "more jobs" would be better. And "more money to pay your bills and mortgage" would work much better instead of "deficits" now, particularly with the negative connotation the word deficits has — even though a national deficit really is not the same thing as a household deficit.

      Unfortunately, academics, in my experience, seem to think it is beneath them to think like marketers. Instead, they would rather rant to each other. It is really unfortunate because they could be doing a lot more good with just a bit of work to refine the messaging.

  8. I always thought MMT followers should target popular econ blogs one at a time. Pick one like econbrowser. Those with economic credentials (Warren, Bill, Scott, etc.) point out using MMT where the blog host is wrong and the rest of us jump in and agree.

  9. Phil: “Unfortunately, academics, in my experience, seem to think it is beneath them to think like marketers. Instead, they would rather rant to each other. It is really unfortunate because they could be doing a lot more good with just a bit of work to refine the messaging.”

    I don’t think that this is the problem, really. Professionals like to be, well, professional and that involves precision and precision requires the use of some technicality.

    Academics are not experts at political communication and are not supposed to be. They should feed the experts that craft the messaging. The right wing is actually short on real financial and economic experts and long on political operatives. Their messaging is effective, and they back it up with credentials. But most of this stuff comes out of well-funded “think tanks” that employ communications experts for the messaging.

    At this stage, it is pointless to compare MMT messaging to a well-honed propaganda machine that has been at this for decades, is well-funded and well-connected, and enjoys both media access and adulation. This is a daunting adversary, for sure.

    On the other hand, there is an ancient Sanskrit saying: Satyameva vijayate, meaning that truth is victorious in the end, or as Shakespeare put it, “Truth will out” (The Merchant of Venice). So let’s keep on truckin’. Working together, we can come up with a good story as well as a true one.

    1. Generally agree, Tom. We academics are trained to look through the marketing and focus on the substance. You can’t finish a dissertation if you can’t do substance. And at conferences, a flashy presentation is worthless to us. We prefer a boring presentation with a lot of substance. So, it’s not that marketing is “beneath us,” it’s that we’re trained to not find that sort of thing persuasive within our areas of expertise.

      As you suggest, we’re not experts at marketing/communications/political rhetoric (some are, but most aren’t), and that’s not what we’re trained to be.

      At the same time, of course, that puts us at a handicap getting the message across to the average person.

    2. “The right wing[‘s]… messaging is effective, and they back it up with credentials.”

      What’s funny is that the “right wing” bemoans the same thing about the “left wing.” The left think the battle is against right-wing operatives such as the Heritage Foundation, the CATO institute, Fox News, etc. The right thinks the problem is with left-wing operatives like the Huffington Post, the Daily Kos, MSNBC/ABC/CBS/NBC/CNN, NPR, etc.

      Personally, I think the bickering and ranting of left vs. right is annoying.

      Seriously, one thing that MMT apologists need to do is drop the political ranting and focus on real problems that people are looking for answers to. I know it’s logical to target politicians and lawmakers, particularly because MMT advocates fiscal policy. But politicians, generally speaking, are not interested in doing the right things — they just care about the next election or job opportunity. I think that grassroots movements focused on real problems are the better bang-for-the-buck. (And movements like the Free State Project are very interesting models to emulate.)

      It’s also interesting that one of the only departments at a typical university that is likely to influence students to become “right wing” is the economics department. I would wager that many of those economics departments — like the rest of most university staff — are also disproportionally represented by left wing political party members.

      “I don’t think that this is the problem, really. Professionals like to be, well, professional and that involves precision and precision requires the use of some technicality.”

      I couldn’t disagree more. Professionals *think* that they will be perceived as unprofessional if they fail to use technical language in any context. (In my experience, this is true of nearly all highly educated persons, not just economists.) So, in an effort to preserve the respect of their peers, they tend to come off as snobby to the average person.

      It is the hallmark of true intellectual prowess to be able to understand and communicate concepts accurately with laymen in terms and analogies that they will readily understand. Unfortunately, it also requires strength of character to not worry about what one’s peers might think.

  10. Fed Study: Studying Economics In College Can Influence Your Political Affiliation in favor becoming a Republican. University economics education seems to be neo-liberal propaganda. Surprise, surprise!

    The number of economics courses completed by the graduates of these… schools significantly decreases the likelihood that a person does not join a political party and the likelihood of joining the Democratic party, while the number of economics courses is positively related to the likelihood of joining the Republican party. For example, taking five economics courses is associated with an eight percent decrease in the likelihood of joining the Democratic party and more than a 10 percent higher chance of joining the Republican party.

    ***

    Those who completed more economics courses were more likely to agree that tariffs reduce economic welfare and less likely to think that trade deficits adversely affect the economy. The more economics courses taken the less likely respondents were to believe that government should regulate oil prices, and the more likely they were to believe that the minimum wage increases unemployment. Finally, the more economics courses taken the less likely respondents were to believe that government that the distribution of income should be more equal.

    1. Actually the study only finds a (small) positive correlation between studying economics in college and leaning Republcan on economic issues. It does not claim there is a causal relationship, so the title of the Puff Host article is misleading.

      That being said, my personal experience is that the more economics a person knows, the less likely he is to see Republicans as greedy, heartless robber barons who hate poor people and minorities.

      1. “That being said, my personal experience is that the more economics a person knows, the less likely he is to see Republicans as greedy, heartless robber barons who hate poor people and minorities.”

        Have you ever attended the national economics meetings? I have, probably 10 times, and there’s usually 5000-10000 academic economists there. I’ve had a much different experience than you have. Not judging one way or the other, I’ve just had a different experience.

      2. Oops. Ignore that. For some reason I read your sentence as saying “the more likely.” So, I actually meant to say the EXACT OPPOSITE of what I did say. SORRY.

  11. Well, when Art Laffer and Jude Wanniski sold politicians on supply side economics in the 70’s, they didn’t have establishment economists in their corner either. I’d suggest that instead making the angle of attack that the public debt is not a problem (just by disputing the argument, you’re required to repeat it), focus on Thomas Edison’s point:

    “It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency. Both are promises to pay; but one promise fattens the usurer, and the other helps the people. If the currency issued by the Government were no good, then the bonds issued would be no good either. It is a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charge…
    http://moslereconomics.com/2010/02/26/connecticut-senate-race/#comment-16802

    You don’t have to be Robert Mckee to recognize that this story needs a villain, and there are plenty choose from.
    http://en.wikipedia.org/wiki/Robert_McKee

    So make the argument that Congress is a bunch of rubes for giving away their constitutional power to create money and Wall Street is a bunch of knaves for charging interest to lend it back to its rightful owners. Its as bad as Congress mandating every husband pay Wall Street a tax before he can kiss his own wife, and if anyone is OK with that, there’s something very wrong with them.

    Every time someone brings up the growing debt levels and deficits– tell them to stop changing the subject, just because the Wall Street banks like requiring the US Government to pay interest on its own money is not a good reason to order the taxpayers to pay out billions in interest payments that should stay in their own pockets (wildly out of paradigm true, but in politics, sometimes you just have to play the hand you’re dealt). Or words to that effect :o)

    1. Also, bring up Ben Franklin’s support for paper money – it never hurts getting a founding father on your side…

  12. I believe that Warren makes an error in his analyses when he makes ‘operational’ arguments without placing those realities within a contextual framework. Contextually, these monetary operation exist within a super-structure that exploits the fringes (the fringes of society, of empire, whatever) to further enrich the center. Even under the guidance of Warrens proposals, systemic abuse vis-a-vis the vulturine nature of human economic behavior would translate into a further transfer of relative wealth from the periphery to the center. THERE IS NO SKIN IN THE GAME FOR THE RICH! The chief executive of BP can wring his hands and cry tears for the poor folks on the Gulf Coast, but the system is such that HIS individual wealth is never at risk or in question. Such is how things work in our world. Trillions of additional dollars in QE would, in the end, only create trillionaires out of billionaires—but the majority of the world’s citizens would remain, over the long haul, untouched. There are an increasing number of people ‘out there’ who are willing to suffer in the short term if it means REAL, substantive and systemic change in the long term.

  13. Ok, a more aggressive deficit financing directly through money supply growth is what you are proposing. How would interest rates respond? How would the dollar respond?

  14. The problem I see with government deficit = private savings is that it is just an identity and not much use. It certainly isn’t a model. It references a closed economy. All you have done is extrapolate the way the FED/Treasury operates to how the economy operates which includes the government sector but the two are not linked in the way you are presenting it. I like IS/LM models better.

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