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103 Responses

  1. Warren if your right, and I believe you are, it shows the fundamental mismanagement of the whole government show. Your “common sense” view is the way we need to manage all issues.

  2. As Steve said in the clip, a good start. Although the fact that a lot of your time was taken up but that other idiot kinda sucked. I hope they will let you on more to build on your case – and also to get more comfortable in the venue, as I could tell you were a bit tentative.

  3. Good start.

    I think your lead in should be that policy makers can’t possibly create optimal policy if they don’t understand how the monetary system works. They don’t. Here’s how it works, and why it’s important for policy formulation – then you GO – with the objective of not allowing for interruptions. Lock eyes with the main interviewer and just don’t allow him to interrupt. Forget the others. You conclude by suggesting that natural new policy options open up as a result – which opens up to a question or two or three. Practice doing that in about 4 minutes, because your alloted time isn’t going to change much until you get on Bill Moyer’s or something. It’s doable.

    1. D’accord. Those who are successful in the media communications are well-prepped, tenaciously aggressive and stay on message. Don’t mind “offending” anyone. TV loves this. The interviewers know this, too, and are aggressive in interrupting. Just blow past them. Never take time to answer the actual question if they interrupt. Just segue and pick up the riff where you left off.

    2. Agreed, I think being more aggressive will help.
      Ideas:
      1) Attack the president and his policy makers. Specifically
      the president said we are out of money. This is a myth.

      2) The inflationists / gold bugs etc have been proven wrong. Adding new reserves into the banking system has not lend to inflation,increases in demand or lending.

      3) Say that we could have been out of this mess in 3 months rather than 2 years had the decision makers understood modern money.

  4. EXCELLENT WARREN!

    Msg to Steve Leisman (hope you read this): Have Warrren on often, not just because his is the accurate view, BUT BECAUSE IT WOULD MAKE GREAT PROGRAMMING!

    Much of the programming on the CNBC is a “point/counter-point” type of format. For some reason they often like to present two sides to “go at it”, it must be good ratings. Today, in respect to the issues of debt and monetary policy, WARREN’S IS THE TRUE COUNTERPOINT. Who else in the world thinks we’re not “printing money” and “borrowing from the Chinese”. (present company excepted).
    Resp,

  5. I was just thinking – your proposal for a distribution from the ECB to the EU members could be likened to Hamilton’s assumption of state debts in the early federal period. Might be a sound bite that would allow you to make some headway (a lot of the fiscal conservative types love Hamilton…)

  6. Great! This is the first time that many people have even heard that money is numbers in a spreadsheet. Or that Bernanke shares your views – or any of a list of things.

    I concur with JHK. Starting with a hugely inflammatory statement on CNBC is expected, encouraged, and helps them get viewers. Don’t allow anyone to interrupt, and talk over them if they do interrupt until they stop. This is not a conversation – it is a sales pitch.

    Imagine you are the good twin to Larry Kudlow’s evil twin. He is a jackass, but he is relentless about getting his point across.

    I still have’t come up with an elevator pitch on MMT. It isn’t for lack of trying. It is just hard to talk about due to lack of familiarity with the ideas – it is like talking about the Earth going around the sun instead of the sun going around the earth.

    Caldini – Influence. Honest Signals. These are really important.

    1. “it is like talking about the Earth going around the sun instead of the sun going around the earth.”

      Nice analogy!

      1. Ha Ha .. Good one ! And while Warren is trying to say that the earth goes round the sun .. the other guy confuses it with earth’s rotation about its own axis!

      2. Exactly – the other guy had absolutely no context in which to place any part of Warren’s ideas.

        Can’t blame him – they are completely out of left field for most people

  7. I still have’t come up with an elevator pitch on MMT. It isn’t for lack of trying. It is just hard to talk about due to lack of familiarity with the ideas – it is like talking about the Earth going around the sun instead of the sun going around the earth.

    Yeah, Warren presented well, especially since his task was explaining to CNBC commentators in 6 minutes that everything they believe about macroeconomics is wrong. It’d probably be easier to explain it to an intelligent audience with less economic knowledge, kind of like how Marine drill instructors say that its easier to teach marksmanship to a recruit who’s never fired a gun before, that way they don’t have to waste any time correcting bad habits.

    When explaining MMT to ordinary audiences, say during a political campaign, I guess the trick is oversimplify by analogy– the perfect example being how FDR sold Lend-Lease to the public by likening it to loaning a garden hose to your neighbor when his house is on fire. You don’t want him to pay you for the hose, just that he returns it once the fire’s out. Not sure how to frame MMT in that way though.

    As for CNBC-style audience— what could an elevator speech include, gosh I guess we could make a list. :o)
    Depending on the audience’s politics, I’d bring up either Democrat FDR’s deficit spending during World War II or Republican Reagan’s deficit spending during the 80’s.

  8. Sample intro:

    When the government spends, it creates bank deposits. When it runs a deficit and issues bonds, people pay for those bonds with the bank deposits the government itself created by spending. Therefore, there is no issue with respect to the availability of money in the form of bank deposits in order to cover government expenditures and deficits.

    When the country spends on current account, it moves the ownership of bank deposits from the US to places like China. And when somebody like the government issues bonds, the Chinese pay for those bonds with the same deposits that were shifted to China by the current account deficit. The current account deficit creates the deposits that are required to buy the bonds.

    Putting the two together, there is no issue with respect to the availability of money either here or overseas to buy our bonds, or to fund our government budget deficit or our current account deficit. Government spending creates the deposits required to fund any budget deficit, and current account spending creates the deposits required to fund that deficit.

    Accordingly, it is irrational to fear either government or current account deficits because of concerns about “where the money will come from”. Deficits fund themselves because both the budget deficit and the current account deficit create the deposits required to fund the deficits.

    Therefore, concerns about deficits must be for entirely different reasons than the operational capability of the government or the country to run them.

    What are the legitimate concerns about deficits, and when should we be concerned about them?

    .. etc.

  9. Starting off with a “huge inflammatory statement” ala Kudlow might be good television but as soon as you stop talking your oppontents are going to pounce, quickly dismissing your views as out-dated “Keynesianism” or “inflationist” or even “socialist”.

    I think the better strategy is to first disarm your opponent by grounding your views in Functional Finance – what is the role of government in a democracy – “public purpose” – getting people back to work – all within the context of NOT igniting inflation.

    Once you have established your creditials as a non-inflationist, then you can go on the attack about the operational realities of the monetary system. And as you go into the details of these operations the audience will quickly realize that you are the expert, that you know more than anyone about how the system works and maybe your ideas are worth looking into.

    Knapp

    1. Maybe not the lede but a strong point is that government should be neither “small” or “big,” but be limited to the right size for accomplishing public purpose.

      “Efficiency is doing things right, and effectiveness is doing the right thing.” Peter F. Drucker

      To be efficient and effective, you have to understand how the system actually works. That means putting aside the myths.

      Also, sound bites are really important. They are what gets reported later, and also what people take away. What are the MMT “sound bites” that everyone should know? That’s the message that has to be repeated ad nauseam until folks get it.

    2. I tend to agree with Knapp on this. I’ll be doing a presentation to a group of economists on MMT in a couple of months and have been giving it some thought.
      Currently I think a description of the economy as being the quantity of goods and services we are capable of producing as a good place to start.
      Currently we have the ability to produce many things we need but aren’t. We need more intercity trains and in-city public transit system, we need more and better designed sickness prevention and sick care, etc. So why aren’t we doing it?
      We know we have the ability. We have plenty of unused resources available to us to produce the goods and services we need. Real physical constraints could prevent us – e.g. not enough train factories and workers to produce and run them – but we haven’t hit those constraints yet in most areas. So again why aren’t we doing what we need to do? Are are we allowing financial accounting numbers to stop us? It seems do. Lets take a hard look at them. Etc…
      Haven’t got any further yet…

      1. Pushed the button too soon. The last bit should have read: ”It seems so. Let’s take a hard look at them.”

  10. Excellent Warren! – who was the other guy creating inflation hysteria: LOL.

    Keep this post on top for a while, even as you continue posting more!

    1. I agree with Ramanan’s suggestion. Video is very powerful and needs to be featured.

      We were talking about this several days ago at Bill Mitchell’s place, and I was saying that Warren is an excellent presenter and 7 Deadly Innocent Frauds is a good list of MMT points (sound bites) that speak directly to audiences by exploding the widespread myths of the established narrative. I regularly cite this on blogs and to friends. Videos would be even better, I think. This stuff can easily go viral on YouTube, countering the conspiracy theory and hyperinflation nonsense that is prevalent.

      This is the way younger people, especially, are going to be reached, since this is the digital generation. Podcasts are also a good venue since it is widely used, relatively inexpensive to produce, and simple to distribute.

  11. What’s more interesting is that Steve Leisman seems to at least want to be convinced. Warren, what is his level of knowledge/understanding of MMT? It might be even better to have an advocate who’s on there every day than to have Warren on once a month…

    1. Steve Liesman isn’t all bad. There are a few people on CNBC, like him and Dylan, and Rick Santelli, who are at least willing to think.

      They may think the wrong things, but that comes down to the Innocent Deadly 7 more than unwillingness to use their minds.

  12. Yay Warren! I’m a little surprised by how amusing it was for me to witness such bewildered expressions!

    That was weird the way that other guy butted in “I think what Warren is trying to say..” with his misguided incentive theories.

    Way to go!

  13. Additionally, there is a need to come up with simple talking points on why Greece can default but the US cannot.

    This will not be easy to overcome

  14. I sent squawk box a comment suggesting they have Warren back to expand on his ideas. I said obviously mainstream economics is not working, maybe we should try this new approach.

  15. Warren,

    The message is dead on but you aren’t impolite or obnoxious enough for either television or politics. Have you considered counseling an up and coming politician to tell the story and you’d be an economic advisor? Have you considered a huge PR push? Also, I had a couple of questions that I posted under the Dallas speech. I’d appreciate it if you could get to them when you have a chance.

    Thanks,
    Slawek

      1. I have a fried in public radio – about 1/4 of their listeners are from a podcast.

        Also, my editors are pushing me to create an audio discussion of my reports all the time. People really like it.

  16. Have you considered counseling an up and coming politician to tell the story and you’d be an economic advisor? Have you considered a huge PR push?

    Up and coming politicians tend to stay in the herd, more likely its going to be an older if not retired politician that would jump on the bandwagon first. Perhaps a better way is showing interest groups how MMT policies could further their agenda– one example would be Medicare for All advocates ( Jane Hamsher of Firedoglake.com stands out as the sharpest of the bunch), they have a tough enough row to hoe politically even before you factor in the higher tax or regulatory burdens placed on the economy (whether its the 8.7% employer payroll tax that Bernie Sander’s single payer bill imposes or the employer mandate to buy into a “public option on steroids” in Pete Stark’s Americare bill). If Warren could show the Medicare for All folks how the government can fund medical care without raising taxes, they’d be his biggest fans.

    On the other side of the political equation are the folks who hate Hate HATE taxes. Foremost of these, of course is Grover Norquist’s Americans for Tax Reform (“The primary policy goal of Americans for Tax Reform is to reduce the percentage of the GDP consumed by the government.[9][10] ATR states that it “opposes all tax increases as a matter of principle.”). They’re the group that asks every political candidate to sign a “taxpayer protection pledge” promising to vote against every tax increase.
    http://en.wikipedia.org/wiki/Americans_for_Tax_Reform

    So Warren and Randy Wray could go to liberals (Hamsher?) and conservative (Norquist?) with a deal they could both support ). Their incentive to cooperate is if they don’t lock in their own particular agenda items, other interest groups (highway contractors and other infrastructure lobbies, say) might step in first to suggest MMT as their vehicle finance their own pet projects.:

    1. Explaining how the monetary system could be reformed in an ideologically neutral way.

    2. Providing an estimate of how much revenue the government can prudently spend into creation over the next decade (with benchmarks established– output gap, unemployment rate, etc. –to allow midcourse adjustments. The created money could be by a new Treasury issued currency, the Fed purchasing Trsy debt itself or, simplest of all, letting Trsy overdraft its Fed account (paying interest on reserves to set interest rates instead of bond sales). Even if the Fed wants to keep selling Treasuries, just paying for debt service by Trsy overdrafting would free up politically the $300 to 700 billion a year that’d otherwise be spent on federal debt service.

    3. Whatever the total sum, all government created money should be split equally between expanding Medicare for everyone and cutting taxes for everyone.

    4. Lay out the necessary legislative changes needed (a single filibuster-proof reconciliation bill reforming monetary, healthcare and tax policy in one fell swoop).

    5. Sweeten the deal for conservatives (after all its not just lower taxes they like, but lower spending), call it the Ronald Reagan Medicare and Tax Relief for Everyone Act. In every bill reference to Medicare, call it “the Reagan Medicare system”. That will drive liberals nuts, but its like Henry the IV said, “Paris is worth a mass”. :o)

    1. beowulf, imo great suggestions except for the part about who has been advocating for medicare for all. not really central to your point, or on topic for this thread though. so catch me at another site if you would like to pursue the question.

  17. Great start, how about the Colbert Report next?

    1) He ran for president so might have some pointers.
    2) He kinda looks like you.
    3) He has a young audience that hasn’t been brainwashed to worry about debt yet, so might be more receptive to new ideas.
    4) His audience (our grandkids) is the demographic that everyone is worried about having to pay back the debt. See if they are more worried about future debt or current jobs.

  18. Lots of good comments here.

    Warren, when I watched it on TV I thought you looked nervous (not that I wouldnt be) and that the hosts were not going to be persuaded. They already had decide you were a crank but were gonna “let” you present your “theory”.

    I hope it truly is a “start”. I hope you contact them again and maybe can appear every other week or so.

    One thing you might do is make a prediction based on your knowledge of the operational realities regarding one of the issues of the day (or show a prediction you have made in the past) and when you are shown to be right they can bring you on and present you as some type of sage. I know there are some things especially regarding the EU situation that you could make a prediction about (or maybe already have made) that would be regarded as against the stream. Once you can demonstrate the power of this paradigm in dealing with the real financial issues of our time youll be in.

  19. Warren, Mish is after you on the “printing money” meme in his post, Warren Mosler: The Obvious Answer To The Problem Is “Print Money”.

    You obviously clarify with your explanation of marking up spreadsheets, but the metaphor “printing money” is the sound bite that people pick up.

    I think you need to lose the phrase “print money.” It’s misleading in respect to MMT, and just adds ammo to the “anti-Keynesians.” OK, Mish is an Austrian and has his own bias, but “print money” has pretty much become a mantra of disrepute for the “fiscal responsibility” crowd and the public is negative influenced by it, since they totally misunderstand it and don’t get the sense in which you mean it.

    1. Warren, I think you need to contact Mish personally and set the record straight with him in a friendly way. His blog is one of the more well-read ones and he gets a lot of press. Right now his post about you is hitting all the link pages and going viral. This is a fire that needs putting out.

      Although Mish is an Austrian, he is into Steve Keen and understands circuitism from Steve’s angle. Steve’s perspective essentially overlooks the vertical-horizontal relationship of government and non-government. This is where I would hit Mish. He is a market guy and not so much an ideologue that he wouldn’t be open to anything that make him a better trader. Certainly, understanding the monetary/fiscal system operationally would do this. You can get to him, since that is your strong suite.

      I posted your bio in the comments on his post, which I know he reads. That should get his attention. Your market record and success dwarfs his. I’ve also cited your 7 Deadly Innocent Frauds there several times previously, but he doesn’t seem to be familiar with it. I think there may be fertile ground there, if he sees the light.

      1. Ordinarily I would say yes. But Warren’s bio trumps Mish’s big time. There is no contest there. Maybe there’s a reason? Mish, I think, is smart enough to figure that out.

      2. I concur. he does do good research though. I like to read his stuff for the data he collects, then skip his analysis.

    2. That’s unfortunate. That site generates poor quality analysis of the monetary system, but he has a following. Based on his understanding of Keen’s horizontal stuff, Keen should have unhitched his wagon. Doubly unfortunate that Keen himself isn’t familiar with vertical money.

      1. Well, saying that Steve is not familiar with verticality is being kind to him. He is certainly familiar with it, since he proposed a debate with Bill Mitchell and then barely participated. He clear just blew it off for whatever reason, maybe because it didn’t fit into his differential modeling the way he would like.

      2. I think Keen doesn’t even know the horizontal part well. I am 200% sure of that. He picked up “loans create deposits” the efflux part of it but messes up the reflux part i.e, loan repayment reduces deposits.

      3. Well, he thinks that due to the flow that money is created during the process, so that when loans are repaid there may be some left over money.

      4. JKH:
        “That site generates poor quality analysis of the monetary system”….Between that one and the Mark Thoma thing, your killing me here lately! LOL.

        I think this is perhaps where Mish received his latest lesson. I was especially moved by the part where the Granny wants to buy the big salmon but can only afford a small perch.

      5. Ignorance is the enemy. You don’t have to be a PHD economist to be ignorant of how the monetary system works. You can also be a salesman, operating in parallel with the Minkiw’s and Thoma’s of this world, in terms of that characteristic.

        Austrians sleep around. Some are in bed with monetarists like Scott Sumner; others are with Circuitists. It’s a rather weird and riotous orgy of mutual admiration and desperation.

        Chartalists/MMT’ers, to their credit, sometimes emphasize a patently non-ideological foundation for the facts and the truth of how the monetary system works. I think that’s the way to go. Truth always wins out.

      6. JHK,

        There is something to be said for volume – that is, lots of talk about the topic.

        At this point in the MMT meme cycle, it is impossible to talk too much about MMT, or to talk about MMT “incorrectly”.

        Also, we have to simply face it – at some point, different people are going to take the ideas and make them their own. I know you’ve done it already JHK, and Edward Harrison has begun to do the same. I’ve already done it, and winterspeak is doing it too. SRW is doing it. This is part of the process of getting an idea out.

        So with this in mind we might need to relax the meaning of “truth” a bit.

      1. I agree Mr E that term needs to go

        The other day on Naked Capitalism a commenter on Randal Wrays article finally came around and had an AHA moment. He said he thought he was stating to understand that what Randall was describing was much more like controlling the level of a lake.

        Here is his exact words;

        ” It’s less like managing a household budget and more like trying to maintain a lake at a constant level by controlling the rates of inflow and outflow, and in the presence of external factors such as droughts and rainstorms. There’s still an optimal balance and you can still be too high or too low, but perfect equilibrium is not always the right answer.
        If you take the view that we’re in a drought period and need to turn up the spigot a bit (inject money into the non-government economy) the trick would be to do it in a way that actually fosters economic growth and doesn’t end up finding its way into the same channels that landed us in this mess in the first place (i.e., the banking industry and the TBTFs)”

        So maybe we can talk about “filling the tank”. I think his lake level metaphor is very strong

      2. We are probably never going to get the hard-core ideologues, but the back and forth over the last couple of days has shown that people with at least semi-open minds can be gotten to. Maybe not convinced all at once, but inspired to investigate.

        The “printing” meme is contrasted with “pay-go” in a lot of people’s minds. For them, “printing” as a meme means “increasing the deficit and adding to the national debt.” “Pay-go” is code for “being fiscally responsible and disciplined” by offsetting all spending with tax increases or spending cuts in other areas of the budget.

        The Obama administration just instituted pay-go to show discipline and be responsible. This is means a fixed currency amount not unlike convertibility, as Mike Norman observes over at this place here. Barack Hoover Obama?

        This is a disaster under present conditions. What are his advisors thinking, or has the president just cut loose and decided to fashion his own economic policy for political reasons?

    3. From my cell. Home tonight from a very long weekend. Flight to ny wed was cxl’d so arrived Boston 6pm instead. Then drove to nyc through the blizzard arriving midnight. Then up early for the 5 30am pickup to cnbc nj. Did the show and continued to other meetings in ny and then Boston.

      Note I never used the words ‘printing money’ and infact unceremoniously cut down my host when he used it after which he quickly agreed and backed off. Nor do I every call myself a Keynesian or my proposals Keynesian.

      Will be addressing the issues head on on the other blogs when I get back.

      Keep fighting the good fight! Seems things are changing as per the number of bloggers I noticed coming down hard on the cnbc staff for not ‘getting it’

      1. Get a good rest. A job well done and well worth. Please don’t take any of the pointers being offered here as a suggestion that your appearance didn’t go down well. I consider it a landmark moment. Congratulations.

        Regarding “printing money.” I had watched the CNBC clip before I read Mish’s critiicism about “printing.” Even though I had listened carefully to what you had said, albeit only once, I didn’t question Mish’s use of “printing money” with reference to it. That’s how the mind works and how clever people undermine their opponents by defining them through labels that both hurt and stick.

        This is instructive about where the attacks will come from. Forewarned is forearmed. This is a meme that needs to be defused with a counter-meme, rather than a complicated explanation. That’s been the Democrats mistake, and a large reason for GOP success in the game of spin the story to create an established narrative framed in terms of one’s own memes that weave the narrative and create the frame. The Democrats are too wonky and disparate, while the GOP is united on message, with everyone repeating the same memes. May be simplistic but it works.

        Television is a battle of the memes (sound bites). MMT’ers need to fashion memes with suitable denotation and connotation also get their memes down in order to get the concepts across in a way that is felt and remembered. Then repeat them constantly until they sink in.

      2. You are right Tom, Warren never used term printing money but isnt adding digits to spread sheets the electronic equivalent OF printing money? I dont disagree that what Warren suggests is what needs to happen but the terminology , while perjorative, is not TOTALLY incorrect.

        One of the distinctions that needs to be made is that “printing money” in the face of rising prices IS hyperinflationary while doing such in the face of debt deflation simply eases the debt burden of the borrowers (which is exactly why the “elites” heap scorn on the idea).

        Maybe a little jiu jitsu is required. Say yes, this is printing money and her is why it IS a good thing.

        A commenter over at Mishs site caught onto this and actually ended up accusing Mish of backing the banksters and argued that Warren truly was looking to help the people.
        He (rightly) noted that Warrens idea would ease debt burdens while maintaining everyones RELATIVE buying power and that a rightful haircut would be taken by those who over-issued debt.

        I think the idea of relative buying power needs to be pushed.

      3. I realize that yesterday I agreed that we needed to lose the term “printing money” but that may be more difficult than showing why printing money is the right thing to do in certain circumstances.

      4. not only did i not use the term but shot down liesman for misusing it at the end.

        printing money is a term left over from the gold standard.

        when the gov printed more gold certs than they had gold that was printing money. in 1971 when we went off the gold standard the ratio of paper to gold was 4:1

        with non convertible currency and floating fx the term printing money is inapplicable, as i told liesman and he agreed.

      5. I agree – explaining the idea is the wrong approach.

        Like most modern things, if it needs to be explained it doesn’t work. If you have to read the manual, the product is poorly designed.

        “monetizing value”?

  20. Okay, I don’t buy what the MMT people are selling, but that’s only because I don’t understand everything yet. I won’t say MMT is stupid.

    But, somebody correct me if I’m wrong, don’t the Austrians want to go back to a gold standard?? That right there is the nuttiest idea in the universe. Mish can be in awe of the stupidity of those he calls Keynesians, but I’ll be in awe of the stupidity of the Austrians.

    1. My understanding of the austrian system is that they want a 100% reserve banking system with a fixed level of currency. That would be akin to giving up electricity.

      1. This is what austrians say they want. They also want strict maturity matching.

        What they actually really want is exogenous money system with no credit. But they do not understand well enough to actually articulate their desire in a way that makes sense. They think banks loan out reserves, which is why they make so much noise about “100% reserves”

      2. Their program also presupposes Schumpterian creative destruction aka liquidationism in downturns. Many of them were unfazed by Lehman gong belly up and would like to have seen the rest of them go the same way. They are totally laissez-faire, which is why most hard-core libertarians and Ayn Rand’ers are in the Austrian camp economically.

      3. when i ask them why they want all that they don’t ever seem to know

        nor do they know that with non conv currency/floating fx 100% reserves doesn’t matter.

        nor do they know why they want a gold standard.

        when i suggest they want the currency to be an investment rather than a policy tool they tend to agree.

        so then i suggest they just buy gold for an investment and let the currency function as the policy tool that it is.

        they don’t like that.

        the gatt group then claims the gov is artificially keeping the price of gold too low.

        i say they should like that because they can buy more of what they value for their money they don’t value.

        they say they don’t like govt doing that because it robs them of their rightful profits to be made by their gold going up in price.

        i say according to them that’s just inflation and the gold, according to them, is supposed to stay constant in any case.

        they don’t seem to get my points.

        they just know what they want, it’s their story, and they are sticking to it

      4. Warren, your response here is, I think,the exact line of attack that MMTers need to take.

        Redefine money into the modern version of it. It is NOT an investment it is how OTHER investments are priced. Gold standard didnt work for a good reason.

        This is a simple and effective story.

        If it is no longer an investment but a policy tool, showing how policy can be shaped with it is easier. The hard work is redefining money, but once that is done, its smooth sailing from there.

  21. Yes, it’s the vocabulary that gets people confused: two completely different takes on spending, deficits, etc.

    These terms relegate MMT to the domain of specialists. They make it easy for the media and financial “commentators” to reject and show them as being crazy or outlandish, because they are counter-intuitive and go against long-standing preconceptions and prejudices, like the perennial confusion between balancing the household budget and balancing the government budget. It’s like trying to use Newtonian terms for relativity or quantum physics–they don’t fit the realities at hand, and there is no point in trying to make them fit.

    Terms like “spending” are used, yet to explain the right theory, metaphors like points scored at football games are used. But clearly, if you to tell someone that the stadium is “spending” points into the game, so that the players will be able to keep score, this would hopelessly confuse them; or “spending” coupons into the kids’ hands so that they will work, etc. The terms simply don’t fit the realities very well. Part of the problem too, is that the references are very different, of course: credit/debt “money” is just not the same entity as a printed bill which I can exchange for gold. It also seems grossly unfair to the average person: why should I have to work to pay a bank interest on something they get handed to them by the government? Yes, they pay interest, but the onus really falls on the worker, since the workers cover that cost with their interest payments. It seems like a rigged system, where the individual belongs to the state; a kind of veiled peonage. I think these kinds of cultural and ideological considerations like at the heart of the resistance to these ideas. People don’t want to believe that is actually a non-idealogical and objectively accurate description of economic reality.

    1. Jorge, this is indeed the crux of the problem. Just went through the whole thing with a guy in comments on a thread over at Bill Mitchell’s place. Using the same term, having a well-known and commonly accepted meaning in ordinary language, for different entities in the monetary model is creating a lot of confusion and results in the perpetuation of myths such as those Warren debunks in 7 Deadly Innocent Frauds. Not only is there confusion regarding denotation. but also the connotation of the ordinary-language words and

      These distinctions need to be made clear through the use of terms that fit operationally.phrases enters the picture, coloring the model with emotionally charged terms like “debt,” “borrowing,” and “money.”

  22. The fine points of using certain words with specific definitions and then not using catch phrases which most of the semi-literate only partly understand may not be enough. A volley pointing out that specie era concepts don’t work in a context/era which operates using sovereign and fiat currencies. Walking through the actual steps which occur within current processes is also good, and it might be good to compare the process to what it was under the specie conventions. The side issue is that it is the private bankers creating debt both private and governmental, which are profiting from the illusion of government deficits that were converted into actual debt. The key is that we don’t need privatized central banking to put currency into circulation. The Austrian perspective is more of an antiquarian/reactionary clubhouse that presumes to have the last on fiscal policy. It presumes to provide a veneer of prudence, when it is little more than a retreat into monetary history, imo. A chart or two might distract a resistant audience by comparing the differences between specie era banking versus functional fiscal policies.

    1. Re: The fine points of using certain words with specific definitions and then not using catch phrases which most of the semi-literate only partly understand may not be enough.

      Yes, agreed. It will take more than terminological changes. It takes an entire intellectual volte face. Still people speak with words, and it is well to understand what the words actually mean. At any rate, it is not a question of changing the minds of the majority, since collectivities as such are passive, rather like a plastic substance. It is a question of changing the active minority: the intellectuals, whose ideas largely determine the world-picture of the majority, like it or not, and as Keynes famously noted. Unfortunately, this minority has in many cases been bought out–the U. of Missouri is a last bastion of economic sanity. Other good voices come from the private sector, and are relatively or altogether independent, according to case.

      Hear Bonnie Faulkner’s interview with Michael Hudson at “Guns and Butter”, and you’ll realize her confusion is due to operating with certain entrenched meanings of words, which Hudson has to empty and fill with a changed content.

      Regarding the cultural reluctance I mentioned, I read elsewhere on this blog, the following objection: “If money is an IOU, as I think it is, and there’s nothing to back that IOU, then money becomes nothing more than a fraudulent promissory note.”

  23. Questions:

    What is money? Is it not a unit IOU on energy expected to be spent for the purpose of trade? What happens to the value of money when there’s no longer that implicit reserve of energy to back its value?

    What happens to the $USD when Saudia and others decide to no longer give away oil (energy supply) for paper or digital $USD?

    1. Mika, this is the subject of <a href=”energy economics“>. The value of energy has real effects in the world and nominal effects reflected in the fx market to which all non-converitble floating fx currencies respond. If the demand for an energy form exceeds supply, this will be reflected in the market.

      Countries will be affected adversely to the degree that they are dependent on that form, and positively affected to the degree that they are self-sufficient in it. This is one thing that the energy kertuffle taking place now is all about.

      The Saudis could decide that petroleum sales will no longer be denominated in USD. That will affect the demand for dollars internationally, since other countries’ currency will also be accepted. The result of this will be reflected in the fx market, which also takes a lot of other things into account. For the foreseeable future, the US will benefit from its “safe haven” status, for example.

      1. Tom, thanks for the reply, but I don’t think it really answers my questions. If money is an IOU, as I think it is, and there’s nothing to back that IOU, then money becomes nothing more than a fraudulent promissory note. My feeling is that people will soon come to this realization, as gross energy supply starts to decline. By all estimations, we’re not that far off from that scenario. Saudi oil output is already on the decline.

      2. the dollar is an iou in the sense that it can be used to extinguish US tax liabilities.

        Like a ‘get out of jail free’ card in Monopoly.

        see my earlier post about turning litter into money.

      3. Warren

        Extinguishing tax liabilities from a captive population is one thing. Extinguishing international trade liabilities is quite another thing. I understand your argument. Money is a mechanism whereby a central gov is able to extract energy/work from a population captive under its gun. My argument is different. My argument is that populations and markets now captured by the $USD, are soon to dramatically decrease. People will simply refuse to use $USD to subsidize the US government, US corporatism, $USD imperialism, plunder and extraction. You’re already starting to see this even in the US, as grassroots movements clamor for secession. You will see the same thing internationally, as more and more countries refuse to redeem $USD.

        The central bank warfare model only works when people are ignorant to how it works. That era is coming to an end.

      4. Mika,

        But money – really a currency – isn’t an IOU in any sense other than that it can extinguish tax liabilities.

        The function that you describe – it is an IOU for energy consumption – is a secondary effect of a currency being accepted.

        We need to distinguish between money and a specific currency to get to the answer for this.

        Money is the general term for a currency. Money first and formost allows you to extinguish tax liabilities. Then it becomes a medium of exchange.

        Then if it is a medium of exchange, it becomes a medium of energy exchange, a short term store of value, and an easy way to judge relative prices. But these three functions happpen only because the money becomes accepted as a currency. money becomes accepted as a currency because it can extinguish tax liabilities.

        I am saying that your belief about it being an IOU is true, but it is not sufficient for something to be accepted as a currency.

        As long as people need to pay taxes in USD, there will significant demand for USD.

      5. if the rest of world decides not to net save dollar financial assets the evidence will be a 0 US trade gap, in which case we’ll be back to making more of our own stuff, and have a lower standard of living due to the reduction in net imports.

        And the President would declare success in ‘getting our house in order’

      6. Mr. E, your characterization of money might apply when the central gov has a monopoly on the creation of money. But I don’t believe this monopolistic condition has permanency, as I believe central governments are already largely discredited. True, resentment against the parasitic government mafia manifested as a political movement will take a while to percolate into substantive action, but I have little doubt that it will. Which brings me to Warren.

        Warren, a lower standard of living and a higher level of extraction (theft thru taxes/levies) is not going to square with the population. It is a recipe for revolution and/or secession.

      7. Mika.

        Yes, you would need a successful revolution/succession for Govt to lose its ability to tax. If that happened, they yes currency would lose value and you may hyperinflate, unless of course the new regime kept the old currency.

        But you identify the correct mechanism for hyperinflation. Collapse of state/repudiation of currency. Not “excess reserves”

      8. Mika,

        Please send me all of your discredited USD, EUR, or JPY. I will be happy to take this discredited currency off of your hands.

        😉

        I’ll use this to pay part of my taxes this year.

      9. Mr. E

        Pay taxes!? You sound like someone who also pays for his “copyright” propaganda subscriptions. 🙂

        The question I have to you is, why?

    2. MIka, as a radical I share your revulsion over what is happening in the world, as Noam Chomsky has documented. However, what you presume to be coming inevitably is not necessarily going to happen that way. There are other scenarios.

      Yes, there is a lot of grumbling about the dollar and its global reserves status, but I haven’t seen anyone who I think knows anything say that this status is soon to be replaced. There simply is no comparable financial replacement right now and the world is not going back to commodity money anytime soon.

      1. Tom

        Noam Chimpsky is a commie and a jihadist shill/tool. Replacing one statist tyranny for another, is something only an idiot specializing in linguistics and who likes to listen to himself talk would advocate.

        I disagree with you that there’s no alternative to the current system. There is. It’s called liberty, localism and decentralization. Corporatism/fascism is a relatively new system. People now starting to understand corporatism for what it really is, etatism. The debasement of human life and the environment with the elevation of corporations to super-personhood is trend due for a reversal. It is simply not sustainable.

      2. Typo corrections:
        ..People ^are now starting to understand..
        ..super-personhood is ^a trend..
        Sorry, was in a bit of a hurry.

      3. Mika

        All discussions of money seem to get to this point, especially with the Mish Shedlock readers. “This stuff is worthless paper” ” I feel like I’m stealing every time I buy something I get a real good for a worthless piece of paper”

        Well, my observation is that this “worthless” paper has brought us pretty far. There is quite a bit to admire in our “fiat currency” world. It serves us well if we understand it and know what it is for.

        So if this worthless fiat currency crashes, at some point it will be replaced by another fiat currency. Even if it is redeemable for gold, some “authority” will have to determine how much its exchangeable for. By definition that will make it a fixed exchange rate fiat currency instead of a floating exchange rate fiat currency. I think if you really researched it and listened to the arguments closely you’d find you like the floating exchange rate currency better. It is more flexible therefore provides more freedom for the currency issuer. Freedom always comes with a price and its not cheap. We need vigilance and understanding to get the most out of our current currency regime. Judging by the last 30 yrs we have not much of either but that doesnt mean we cant get it. If we switch currencies the same conditions will apply.

      4. Greg

        It’s not fiat currency that has brought us better standard of living, it is easily accessible energy (coal, oil, gas) that has brought us better standard of living. Don’t confuse the two. The US has wrestled an additional advantage, in that it has managed to get essentially free access to energy and commodities thru the use of the US military and $USD imperialism. But that era is coming to an end.

      5. If you notice, I did not endorse any of Chomsky’s solution. I simply cited his documented analysis of the current world situation.

        There will be many solutions on the table, from reactionary to radical. The dialectic of history will tell the tale of what happens as events unfold. But some solution that is on the table will likely be picked up; however this is not a given. Time will tell.

        May the Force be with you.

      6. Mika

        You maintained in an earlier post that a govt monopoly on currency issuance will not necessarily be sustained. Maybe not THIS govt but SOME govt will. Some authoritative body will determine what will be money otherwise its just a commodity masquerading as money.

        I agree with your assessment of the conditions that have brought us to our place at the top of the economic pecking order in the world. I also agree that a readjustment of our place in the world is necessary and inevitable. How we respond to it and how much we fight to resist it remains to be seen.

        This sequence of events would have happened under any currency regime, gold backed fixed exchange rate or whatever. The people in power sought the hegemony and made it happen.

        What I find interesting is that when Nixon closed the gold window as a way to prevent our foreign dollar holders from having a run on Fort Knox he opened avenues of freedom for our competitors like China and Japan. In many ways the asian monetary authorities have been smarter about their currency issuance than we have. Japan simply ignores the ratings agencies threats and issues more debt which is gobbled up by their own people and they have kept unemployment and social unrest rather low. China has gone double down with their stimulus (and might have a bit of the inflation bug) and has for the most part weathered this storm pretty well. Meanwhile we sit here and incoherently think we can have high savings, an improved export situation, strong dollar, a balanced budget, rising GDP and low unemployment because we have no clue how this monetary system functions.

      7. Tom, we would be much better served by completely ignoring Mr. Chimpsky. As I noted prior, Mr. Chimpsky is a commie and a jihadist tool. In my book that disqualifies Mr. Chimpsky as a normal human being, and places him in league with the criminal and the criminally insane.

        Greg, Japan and China are vessels of $USD imperialism. There’s nothing smart or clever as regards their trade and monetary policy, quite the opposite. Japan and China are very much analogous to the plantations of old.

  24. Yes, seems he afraid of inflation and currency depreciation, which would trigger rate hikes form the boe.

    especially with a nation with miserable weather, a massive trade deficit, very high costs of production, and a currency that depends on the desire of russian and mideast oil dudes and sheiks for london properties at any price and thereby keep purchasing power parity at impossible levels.

    a generic room at the airport is 300pounds a night. even at 1:1 with the dollar the UK is grossly over priced.

    so yes, charles is concerned about his homeland, as he should be!

    more seriously, he probably thinks the structural deficit will result in a massive increase in agg demand, perhaps because he doesn’t give sufficient weight to ‘savings desires’ created by their tax advantaged incentives to not spend income (pension and savings plans, corp reserves, etc). or perhaps he’s right and inflation will rip. time will tell.

    i would have preferred him to suggest a law limiting prices gov can pay to constrain the price level, but that’s probably considered too impractical over there to even suggest.

    🙂

  25. if the rest of world decides not to net save dollar financial assets the evidence will be a 0 US trade gap, in which case we’ll be back to making more of our own stuff, and have a lower standard of living due to the reduction in net imports.

    And the President would declare success in ‘getting our house in order’

    The only way back to people working and being productive!!

  26. Is everyone here on Google Wave? I would consider starting a project where we work on better talking points. Better talking points, short elevator pitches and short, easy to understand phrases are crucial to making this work.

    The good ideas do not always win, and to paraphrase Keynes, the truth can stay hidden longer than we can stay solvent.

    This public forum is not the proper place to work on this, nor are blogs a good form for collaboration.

  27. “if the rest of world decides not to net save dollar financial assets the evidence will be a 0 US trade gap, in which case we’ll be back to making more of our own stuff, and have a lower standard of living due to the reduction in net imports.”

    That assumes we are supply constrained and there is no excess capacity, right? If there is excess capacity, then a car sold to Brazil is not a car given up by an American, but an additional car made by an additionally employed American, who is also able to make another car for himself in the process. The additional income (from a decline in the trade deficit) can stimulate employment and boost total output, in exactly the same way that government spending adds to the NFA of the private sector; government consumption of output is not considered to lower the standard of living of the non-government sector when the economy is demand constrained, and yet foreign spending is?

    We need a new phrase for this bias — “not purchased here syndrome”?

    1. RSJ,
      In your example, if I make a car for the Brazilians and sell it to them, what currency do they pay me in? Hopefully it is USD as I have no desire to net save in Brazilian Real, so if the answer is Real, to me, it would be like I just gave them a free car, ie I did all of that work for nothing, I would have a lower standard of living due to my uncompensated labors. Resp,

    2. RSJ: No.

      Excess capacity is an aggregate demand problem, and is solvable at any level of trade deficit or surplus.

      Imports are always real benefit, export always real cost. It does not matter how many factories are idle anywhere.

      If you make a car and give to Brazil, Brazil can only pay you in Real. If you do not want Real, Brazil needs to find someone who will take Real for US$. Either way, if no one wants to accept your currency, then you cannot import.

      Since currency is free for nation to create, imports (where you swap marginal cost local currency for a real good) is always benefit and export (where you work your tail off to make something and exchange it for piece of paper) is always real cost.

  28. Matt,

    You would be paid by your employer, of course, and you do not net save, you gross save, just as you do not spend NFA, you spend your own FA. The Brazilian sales office would be paid in Real, and would convert that to dollars prior to sending to HQ. There are more than enough dollars floating in the world that this would not be a problem — wake me up when we are threatened with becoming Japan for exporting too much, and I will have more sympathies for concerns about inflation caused by enormous current account surpluses. That is an easy problem to solve, as long as we have high paying jobs.

    1. RSJ, I see your point there that some individual auto assembly worker could benefit if they exchanged the currency out…but I think Warrens point goes back to his “exports are a cost, imports a benefit” to the nation as a whole. In accordance with this, to the extent that imports are reduced, our “benefits” are reduced (ie lower living standard all else equal), unless someone here in the US would really want to save in Real instead of USD? Resp,

  29. Pity no one took up Mika’s rejoinder concerning local currencies. It’s the best solution to humans being eternally paying money via the all-powerful state. See solari.com for this. Also a list of resources at: http://www.smallisbeautiful.org/local_currencies.html. And finally, work by Thomas H. Greco, and Chris Cook’s blog at: http://nordicenterprisetrust.wordpress.com/blog/

    His remark that “it is easily accessible energy (coal, oil, gas) that has brought us better standard of living. Don’t confuse the two. The US has wrestled an additional advantage, in that it has managed to get essentially free access to energy and commodities thru the use of the US military and $USD imperialism. But that era is coming to an end” is right on the money. See Michael Hudson (also a chartalist economist): “Superimperialism. “As Mao Tse Tung said, “power comes from the barrel of a gun.” Infortunately, all too true.

  30. Towards an Economics of Common Sense

    As Professor Michael Hudson has brilliantly demonstrated, the combination of compound interest on debt, and private property in land, has for thousands of years concentrated wealth in the hands of the few to the exclusion of the many. We are in the process of learning once again that this combination is simply unsustainable, and the brilliance of Alan Greenspan’s recent tenure at the US Federal Reserve Bank has been to bring forward this collapse by perhaps ten years.
    ========================
    Debt-free or Date-free?

    There was an interesting piece of financial pornography in the Financial Times yesterday by Professor Michael Hudson, who was US Congressman Dennis Kucinich’s economic advisor during his brief Presidential candidacy last year. The until recently unprintable premise was that perhaps national debt, such as that of Iceland or Latvia, might perhaps no longer be sacrosanct.

    A pragmatic economic principle is at work: a debt that cannot be paid, will not be. What remains an open question is just how these debts will not be paid. Will many be written off? Or will Iceland, Latvia and other debtors be plunged into austerity in an attempt to squeeze out an economic surplus to avoid default?

    Clearly the pillars of global capitalism are crumbling, when such sedition may be found in the FT, but it does actually beg a few questions. In particular, why does a government have to repay debt at all, other than the fact that it is the convention?

    Well, actually it doesn’t.

    http://nordicenterprisetrust.wordpress.com/blog/

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