Saturday, August 13, 2011

MMT Hits Canada

From The Progressive Economics Forum (PEF)


wh10 said...


Is Lavoie an MMTer? Is there also that Mario guy? Seems MMT has some great (and quant) stuff coming out of Canada.

Tom Hickey said...

They are both classified as Circuitists, I believe. They are basically in agreement with MMT.

Laura said...

Debt and deficits aren't as pressing an issue in Canada. Perception is that we are in better shape economically, with more room to run a deficit 'responsibly'.
Conservatives last budget was just treading water.

Future of MMT rests in American hands, where the stakes have been raised much higher.

Shaun Hingston said...

What is the opinion of Steve Keen amongst MMTers?

I think his explanation of privately created money is true. Although it only partially explains the creation of fiat. The fiat used to pay for debt must come from the deficit.

Maybe we are heading towards negative interest rates?

Detroit Dan said...

Good stuff indeed! Thanks

Shaun Hingston said...

Negative Interest rates will lead to growth

Would not negative interest rates increase aggregate demand? The only issue would be the types of assets that could be accepted.

Tom Hickey said...

"Would not negative interest rates increase aggregate demand? The only issue would be the types of assets that could be accepted."

That is the theory, but it is not the fact in a deflationary environment, when many people prefer liquidity and safety. They won't spend even though it is costing them to save.

Tom Hickey said...

"What is the opinion of Steve Keen amongst MMTers?"

Unlike other Circuitists, Steve doesn't play by the standard rules of accounting, which is a big deal with MMT economists since MMT is based on monetary operations.

Shaun Hingston said...

I meant the central bank would pay for debt. So someone would purchase an asset, the central bank would provide the loan. Instead of charging interest, the central bank would be 'paying' interest.

I'm assuming this would work, because the central bank is the lender of last resort.

Shaun Hingston said...

At the same time as having negative interest rates, the minimum deposit could be raised.

This could keep house prices stable, while raising the deposit percentage.

Overall the private debt burden would decrease without a dramatic change in prices.

Tom Hickey said...

A lot of people see the financial system as set up to favor financial institutions over the public. There are proposals to eliminate private banking altogether.

There are pros and cons to allowing the government (central bank) to make loans to non-financial institutions. Obviously, the plan would lead to a lot more control over the economy by the government.

Some think that is good because it would reduce rent-seeking and put workers on a more equal footing with capital. Others object that it would give government too much power, seed political corruption, and lead to inefficiency and malinvestment since government is not as capable of risk assessment as the private sector and really has no contraint of its capital either to enforce disciline.

So, yes, such plans as you suggest could work, but they are unlikely to be adopted in the current political climate where the financial sector has captured government and maintains a lock on the political process.

Incidentally, Randy Wray has pointed out that is is essentially the way that China net spends through the PBoC and other financial institutions rather than through budget deficits. Part of what add to the fiscal deficit in the US, for example, is converted to non-performing loans that get written down and absorbed by the state.

Shaun Hingston said...

What are these proposals to remove private banking?

Interesting stuff about China.

Tom Hickey said...

What are these proposals to remove private banking?

American Monetary Institute

Clonal said...

Another thing that is pushed by the AMI is interest free money.

Interest is a big problem, and likely the main cause of periodic collapses. There are two major issues with "the time value of money" at a systemic level. First is the requirement of growth equal to or greater than the interest rate. This is a problem because of the issues outlined by Al Bartlett and Bernd Senf. This problem can be partly taken care of by the government running continuous deficits.

However, since the government is limited in what it can deficit spend on (Social Security and Medicare are not one of them, as they are paid for by taxes, and these programs are actually in surplus) The deficit spending occurs in spending on war, prisons, homeland security and other fear based programs.

Further, even if the spending was prioritized differently, payment for interest occurs to the wealthy, and thus, and exponential transfer of wealth occurs to the already wealthy via interest payments, leading to extreme income and wealth disparities.

As, the planet Earth is stripped of its mineral resources, this problem will come to a head, and the living standards of the bottom 90% will decline.

These issues can be addressed by taxing away financial rent and generational wealth accumulation. But these are issues that MMT advocates tip toe around. May be there is good reason to do so, given the current political environment. But this lack of discussion leads to a poorly educated populace, that can then be manipulated to act against its own interest by using moralistic arguments.

Shaun Hingston said...


How would the interest free loans be structured?

Shaun Hingston said...


Are there not two sources of inflation? The general inflation caused by an expanding money supply, and inflation due to falling supply of essential resources.

Clonal said...


How will interest free loans be made

Loans are not interest free. However, systemically, it can be made to operate so that the interest does not accumulate, and wealth disparity is limited.

First we make banking a public utility, and interest is then treated as state revenue, and no different than a tax. Interest on savings can still be provided as a service to savers, and to encourage savings (which is still a good thing) However excessive accumulation of income can be readily taxed away, with high income taxes as in the 1950's and 60's, as well as high estate taxes.

Shaun Hingston said...

I'm unconvinced that removing private banking will result in a 'better' society. Given the current state of the democratic process, I fail to understand why it would be good to centralize so much power in a broken system.

Rather AMI should also propose organizations that will create loans in a democratic fashion. If participants are given equal say in how their financial assets are allocated, then there will be a corresponding increase in economic output.

Clonal said...

A publicly owned banking system works no differently than a privately owned banking system. Both are run by professional management. Shareholders in one case are individuals, in the other case, it is the government. India nationalized major banks. It also has private banks. The profitability of the public and the private banks is identical. There is no difference in performance. Banking by definition has to be highly regulated.

The major cause of the current financial crisis was the deregulation of the banking sector, which led to excessive risk taking, and control fraud. See Bill Black's articles, and also Akerlof's "market for lemons"

Shaun Hingston said...

How does MMT handle stagflation ?

This seems like a "fundamental problem of economics".

Tom Hickey said...

Clonal, Exactly. The big problem going forward is that growth will not be sufficient to pay the accumulating interest, or if exponential growth continues, population shrinks markedly through pruning.

Shaun: How does MMT handle stagflation ?

Stagflation occurs due to supply side inflation, resource shortage followed by wage and price rise. Since this is not monetary in origin, there's not much MMT can offer from the side of fiscal policy other than to say that the problem is real rather than monetary and treating supply side inflation as demand side won't increase supply.

The problem has to be dealt with from the side of real resources — increased availability, substitution, conservation, rationing, etc. Resource availability, especially clean energy, is going to be a primary economic concern in the near future.

The MMT solution would be to invest now in innovation through governments, since the kind of program required, e.g., development of fusion, is too capital intensive for the private sector to develop and scale up in a timely way relying on private investment.

Calgacus said...

How does MMT handle stagflation ? Well, the first thing is to remember to handle the "stag", largely with the JG of course. No mass unemployment, but lots of people shifting to lower paid government jobs (handling some "flation" there). Production not as decreased by unemployment as with a laissez-faire stagflation, so some "flation" handled there too - unemployment can be inflationary by reducing supply.

Galbraith noted in the 70s that the problem with the oil crisis was that OPEC couldn't spend its new dollars fast enough in the USA. There was serious trade-deficit deflation causing the "stag". Good old FF/MMT deficit offsetting was necessary but not applied sufficiently. The lack of a JG, even with a much more full-employment culture & much saner & scientific economics profession, really showed.

Anonymous said...


Yes I think the JG will need to be apart of any solution to Stagflation.

Stagflation confuses me a bit. By printing more money to allow agents to purchase the constrained resource, then why would firms fail? I guess the explanation is bacause printing more money is an implicit tax upon everyone, even those who do not have loans outstanding.

So everyone is punished, and this ends up supporting economic agents that need to fail. Where as increasing interest rates will punish only those agents that have loans.

Economic agents that have loans and also need the constraint resource, will fail first. This will reduce the demand for the constraint resource, and consequently reduce inflation.

It becomes tricky, because the increased interest rate causes the monetary supply to shrink, which is deflationary, without a corresponding reduction in real supply.

However given that economic agents will fail, then this will also lead to a reduction in real supply which will offset the deflationary effect of reducing the money supply. However, if the reduction in real supply more than offsets the reduction in money supply then the situation will become inflationary.

So now the problem has shifted from reducing demand for the constraint resource to returning supply and employment to former levels.

The JG would increase demand for essential human resources. This example assumes that the constrained resource is a non-essential human resource. Therefore economic agents would respond accordingly, and meet the additional demand with supply. The initial effect would be supply-side inflationary, but as economic agents realign their allocation preferencesnsen

Shaun Hingston said...

woops!!! was meant to 'preview' rather than 'publish'.

........Then there would be a corresponding improvement in the production of essential human resources. Once equilibrium for the constraint resource is reached, then the money supply will need to be increased to accommodate the increase in real supply.

The effectiveness of this strategy is the ratio between the failure of economic agents that strongly rely upon the constraint resource, compared to the failure of economic agents that are non-reliant upon the constraint resource.

This strategy is useless when dealing with constraints upon essential human resources.

Tom Hickey said...

The problem is that developing shortages are not in the discretionary area. They are necessities water, food, and clean energy. As climate change bites, this will be the dominant issue. We are already starting to see effects manifest.