In part 1
I discussed some of the core lies of neoliberalism: That money creation is based on deposits; that we need the banks in order to create money; that money creation without risking runaway inflation is constrained by anything other than the capacity utilization of the economy; that under today’s Depression circumstances America faces any “deficit problem” at all other than the political one created by the criminals who are looking for a pretext to steal yet more trillions under the rubric of “austerity”
Modern Monetary Theory (MMT), the latest incarnation of a much older idea once called producerism, greenbackerism, chartalism, and other names, teaches these truths. So in these senses MMT is objectively subversive of the particular status quo which afflicts us today. It means the banks have no legitimacy and shouldn’t exist at all.
Money creation is a sovereign power of the people, and a core responsibility of government if we’re to have a government at all. Whether done directly by the government or through the middleman of the banks, money creation is done out of thin air, simply by crediting the account of a loan or payment recipient. The right way to create money is to gauge the money supply to the productive capacity of the real economy. If there’s capacity underutilization, the government should engage in deficit spending to fill the gap, until it has done enough to stimulate the full productive capacity and full employment. This is MMT’s prescription, according to many
of the MMTers
The most direct, efficient, rational, and productive way to do this is for government to directly issue money, directly credit accounts.
Contrary to popular propaganda, the banks don’t create money as a multiple of deposits, but simply create it out of thin air. They do this not for the sake of economic health, but for their privatized rent-seeking. They want nothing but control of money in order to steal as much of every transaction as possible. The banks tax economic activity at least as much as the government does, but bank taxation is far more destructive in principle. Government taxation, although usually excessive and tyrannical in practice*, can in principle be measured and used for the sake of rearranging wealth so that economic well-being and productivity is maximized. But bank taxation is never anything other than purely greedy, purely destructive, and never has any measure other than how much they can get away with stealing. That’s what the financialization of the economy is, the attachment of a permanent financial parasite to the real productive activity of a people. This parasite does nothing but suck ever larger amounts of our life blood, steadily weakening us and even achieving motor control over our actions.
[*Today we have terminal kleptocracy, and this government, itself a creature of the banks, will never tax for any purpose other than to help the banks and corporations steal. So I'm certainly not calling for this particular government to tax more. On the contrary I say we must reject and resist all new or extended taxes on the non-rich
In this discussion I only want to establish the principle that, as a matter of reformist philosophy, for the government to resume the full money creation and taxation power from the banks would be a progressive step.
But in the end we must get rid of centralized government as well.]
Once the banks have financialized the economy, they believe in and demand rampant deficit spending, but they want it detached from all real production. Under financialization, the currency becomes mere funny money for bankster gambling and speculation, while all losses and destructive effects are socialized on the productive people.
Toward this end, the bankster-bought government has alienated its sovereign currency and its sovereign power. Thanks to the government’s corruption and abdication, the banks create money, not for socially and economically productive ends, but for destructive profiteering.
But the government could just as easily reclaim its money sovereignty and directly issue the money, and do so toward the goal of a healthy, productive real economy. We wouldn’t need the big banks to exist at all, and could be rid of them. There would be no threat of destructive inflation from this money issuance so long as there’s major capacity overhang and unemployment in the economy, as there is today.
Meanwhile the banks encourage unhealthy corporatist deficit spending (A2 = C, in my terminology from part 1, instead of the healthy A1 = B), and neo-austerity-mongers like Krugman embark upon their own bait and switch
, wanting to surreptitiously switch in A2 for the A1 they previously advocated, and the C for the B. But they face two prospects of change: The possibility of having to capitulate to deflation at some point; and the possibility that the old greenbacker idea, in today’s MMT form, will get more and more traction.
In the long run, any metal standard is always used to artificially constrict the money supply among participants in the real economy, in order to force them into debt. Whether it’s a time of real inflation or real deflation, the gold standard is used the same way, as a depressant and control over the non-finance sectors, and especially the non-rich. In our circumstance, as deflation definitively sets in, a gold standard would be used by the banksters to accelerate it beyond its natural pace, in order to more effectively impose debt indenture and strangulation. A gold standard would simply be austerity by other means.
So there’s more evidence that the true reform solution, if we’re to continue with a centralized economy at all, is that:
1. The government should directly issue greenbacks;
2. toward economically productive goals.
No “finance sector” necessary.
So the reformist MMT idea is an attempted end run around the criminal hoarding of social wealth on the part of the banks and corporations. The call for direct government issuance, including deficit spending when the economy is depressed, would be an attempt to bring the circulating supply of money in line with the economy’s productive capacity and counteract the intentional withholding of money from the economy by rent-seeking criminals who hoard that money (all stolen), and who do so in order to prop up those same rents.
There are various proposals which mean in effect crediting the accounts of the unemployed. Right there we can already see a structural weakness in the concept, since it seems to assume the continuance of bank accounts. Well, maybe it could refer only to local banks, credit unions, state banks. (I’m going to expand on a few of these ideas in an upcoming post on state banking.) The proposals could be called partial refunds of our money the banks stole through the Bailout.
While I’m not calling for such a program myself, let me stress that Washington already does “credit the bank accounts” of the unemployed. It’s just that these particular unemployed are the parasites of the FIRE sector, Pentagon sector, Big Ag, and all the rest of the corporate welfare recipients who do no work at all, who only destroy. Meanwhile to give money directly to the nominal unemployed would in fact be giving the money to productive workers who are unemployed only because those same banks intentionally destroyed their jobs.
What we desperately need to do is to increase our deficit by several percentage points of GDP and offer public sector jobs to all those who want one. Government as Employer of Last Resort is one idea I have been pushing (along with Randy Wray, Bill Mitchell and a host of other people). As I said in an earlier post,
The U.S. Government can proceed directly to zero unemployment by hiring all of the labor that cannot find private sector employment. Furthermore, by fixing the wage paid under this ELR program at a level that does not disrupt existing labor markets, i.e., a wage level close to the existing minimum wage, substantive price stability can be expected. Other benefits could be provided, including vacation and sick leave, and contributions to Social Security and, most importantly, health care benefits, providing scope for a bottom up reform of the current patchwork health care system……
At any rate, what we desperately need to do is to increase our deficit by several percentage points of GDP and offer public sector jobs to all those who want one. We thus have to aim to ensure public spending fills the gap left by non-government saving (a consolidated position combining the private domestic and foreign sectors) and keeps aggregate demand growing at such a rate that it provides scope for the private savings desires to be realised without compromising our public purpose goal to ensure there is sustained full employment and inclusive income distribution outcomes.
But by far the majority of the unemployed workers could be offered a minimum wage job to work on community and environmental care projects for as long as they desired. I would suggest we also raise the minimum wage so that everyone has access to decent housing and health care etc. But the ELR scheme would only be offering a wage to workers who have no market bid for their services by definition. It will give them a job, some income security, will add to aggregate demand and help stimulate a broader recovery and, in itself, will not be inflationary.
As Auerback says, many of his colleagues support similar ideas. While I reject the specifics*, it’s good that the basic idea is spreading. It’s a cognitive rebellion against the structural bank paradigm itself, and against the deficit terrorist “austerity” propaganda and policy demands.
[*What's wrong with specific MMT-related job creation programs:
1. They still want this job creation within the capitalist framework, and explicitly don't want to create living wage jobs. (Edit: Cf. comments below for more on this. My critique here may not apply to every proposal.)
2. Nor are the jobs supposed to compete with the inefficient, uncompetitive private sector. So these proposals want the worst of capitalism in every aspect, the structural inefficiency and incompetence as well as the exploitation of the worker.
3. No doubt in practice the disbursement and administration would be corporatized. We saw how Obama's idea of "job creation" is employer tax credits, i.e. another useless, expensive corporate toll booth. No other job creation program under corporate circumstances is likely to be executed any differently.
4. What these proposals really want to do is deliver a modest direct payment, but because they think it would be more politically palatable, they want to launder it through degrading makework. But I don't think even the politics would work out that way. Nobody seems willing to learn, you can't appease neoliberalism. Anything you try to do, good or meager, will be equally demonized. So why not demand the good, instead of a program which looks like real-life version of a caricature from a conservative polemic?
If you want a job creation program, go for the jugular, and do it with pride. Let it be real work at a real wage. Compete directly with the inefficient private sector, and proclaim that competition as a selling point, not a matter for fear and shame the way these guys seem to think it is. One can never win politically through timidity and appeasement. The best chance is always to seek to compel respect through an honest, frontal assault.]
In the end this is will all still be academic if it takes the current political parameters as given. For there to be effective fiscal policy change presupposes a general, radical political transformation. I think MMT can be part of the mix of transformative ideas, but is doomed to be relegated to arcana if its advocates see themselves as mere “reformers within the system”, and maybe not even that.
Here’s how I see things. My moral derivation from MMT (which I’m not claiming is part of MMT, but which I do claim morally and rationally follows from it) is that since money in itself has value only on account of government fiat (because government will accept it for tax purposes), therefore it follows that money can never legitimately serve as a “store of value”.
It can count as “property” only where it’s actually circulating or fermenting as a truly productive investment. Only then is it participating in the public life of the society which gives it life in the first place.
Money being hoarded, antisocial money, money as a store of value, in effect has no right to exist at all, and should be restituted to its proper owner to be put to its proper use. “Store of value” represents unproductive, parasitic hoarding of the public resource. Resources must be used productively in order to confer legitimacy of possession upon the possessor. One is a participant in the economy to the extent he is an agent of the velocity of useful, constructive activity (not mere “velocity of money”). One who’s not such a participant has no valid claim on society’s resources. That includes all rentier parasites. Hoarded “property” is nothing but stagnation, rot.
Hoarded wealth is both useless and pathological. Since all wealth is produced by people working together, even if we agreed to channel more of it through some hands than others, this could be fair and efficient only if the intent were to give them greater opportunity to enjoy the wealth only through the act of recirculating it, spending it in the real economy.
But for someone so blessed to instead hoard and financialize is a double-cross. It’s breaking the deal which distributed that wealth in the first place. (As for the “investment” justification, history has empirically proven that beyond a modicum, concentrated wealth is not productively invested but is used for unproductive, destructive speculation and gambling. In the same vein, corporations which aren’t producing but merely hoarding, as so many are today, have no right to be “taking profits” at all. By definition any such extractions are just looting. Under today’s post-capitalist conditions, the forms of capitalism are no longer valid. They’re worthless and worse than worthless. Pernicious.)
This is the basic critique of idle, useless “property”: Since all value is a cooperative endeavor, and the only rationale for allowing property rights would be to increase the cooperative value and happiness, therefore as individuals and groups we have a legitimate right to useful possession, but none to stagnant hoarded “property”. We should apply this to money, purging the “store of value” concept.
So that’s why I say sitting on wealth, relegating it to unproductivity, is useless in any practical sense, and has no moral validity because it abrogates the social contract under which it was unequally distributed in the first place. Only constructive velocity can justify inequality of distribution. (Again, wealth is cooperatively generated in the first place. Even the greatest thinker still stands on the shoulders of his predecessors, and on the education society provided him. And he then depends upon the resources of nature and the work of many others to bring his ideas to fruition.)
In all this I’m referring to large wealth concentrations. I’m not referring to attempts at saving on the part of the non-rich under this system, where people are forced by circumstances to try to save for the hardships of the future, since we have no adequate social support system or safety net. The neoliberal barbarians of today want to do away with civilization itself.
But in a human community there would never be any need or justification for unproductive hoarding. Useful possession is the measure of legitimate possession. MMT supports this with its proposition that since money is created only by the government, and only as an economic lubricant of the productivity of the people, money as a “store of value”, that is the hoarding of it, has no rational or moral legitimacy.
So getting back to MMT’s accounting identity, here’s the course of action to render things morally and rationally valid: The government can run a deficit in order to stimulate the depressed real economy (this depression being accounted for by the “surplus” hoarded by the banks and corporations), so its production recovers from the vandalism inflicted upon it by the banks, and counteracts their depressive criminal assaults which destroy jobs and relegate resources to uselessness. The government could even redeem its sovereignty and smash the criminals, restituting this stolen “private surplus” and restoring it to the productive people who are its true owners. In all this, there would be no practical reason nor moral right for the big banks to exist.
In the course of this restitution the economy’s productive potential could be focused on the transformation from the fossil fuel based “growth” economy to the post-oil steady-state economy.
Once this was done, there would no longer be a need for a government deficit, or for a centralized government at all. This could be retired as the now fully employed, fully productive steady state economy rationally and prosperously proceeds.
These ideas will become more and more apparent as the criminal disease metastasizes. For now the point here is to be aware of these facts:
1. Government will spend on anything it wants. (And so long as the economy is depressed, it can spend as much as it wants without fear of triggering inflation.) The elites, whether aware of the real nature of money or not, all implicitly agree that deficits don’t matter. Their actions prove this.
2. But the elites tell the lie that spending is constrained in order to justify cutting public interest spending and raising taxes on the non-rich.
This conjunction of 1. and 2. explains the obvious, grotesque contradiction of a government hemorrhaging borrowed money and deficit spending on bailouts, wars, and corporate welfare at the same time it calls for “austerity”. (This juxtaposition is so patently idiotic and obscene that I don’t understand why just by itself it doesn’t trigger a revolution. Is it really possible to be so dense and/or compliant that one can’t see the manifest bad faith, indeed total criminality, of such a government?)
3. For now we can’t do much about 1., but we can expose the lie upon which 2. is based. That’s the mission of MMT.