Originally published August 4, 2011 on the New Economic Perspectives blog.
Another good set of comments. Either my readers are getting a heck of a lot smarter, or I’m getting better at explaining MMT. As usual, let me group responses by topic.
- Why is gold accepted? Well, it is bright, it is shiny, and it is the “noble element” that never changes—easy to clean-up, can be smashed into impossibly thin sheets, and looks good in ears and on fingers and in teeth (at least to some people). It also benefits from an almost mystical quality—with several thousand years at the top of the totem pole of desirable prestige goods. Oh, and yes, many countries pegged their currencies to gold in not-so-recent years. Finally, its value is maintained by fairly robust manufacturing demand as well as propensity of governments to lock most of it up behind bars. Speculators bet that governments will not release the imprisoned gold, which would instantly wipe all them out. To hedge their bets, they help to put goldbugs in government. So far as I can tell, there are no rival plausible explanations for the fascination with gold.
- MMT explodes heads. Probably true. Not a criticism, however. Darwin exploded heads. Newton exploded heads. Why shouldn’t the occasional economist? One of my PhD students put it much better. On the last day of class he brought in a pair of those distorting glasses for each student (and professor!) and demanded each put them on. He said that this is what MMT had done for him—his whole world view had been shown to be distorted and wrong. Then we all took the glasses off, and could see the world as it exists. There you go. Downright Kuhnian.
- Is government benevolent, having the interests of the population in mind? Does that belief stand behind MMT? Emphatically “NO”. Have you been paying attention to the Obama administration? Have you ever heard of a maniac named Hitler? Do you really think that when Michelle Bachmann is elected to replace Obama she’s suddenly going to turn all nice and democratic? (No, I am not equating the three politicians—two of the three are irredeemably evil. The jury is still out on the third.) MMT “works” no matter how depraved or democratic the government is. That is an entirely separate question. MMT is for Austrians, too. So long as they have not been abducted and probed by aliens. Then all bets are off.
- Do governments have to “finance” their deficits. Well, that depends on what we mean by “finance”. Sorry, don’t mean to sound Clintonian here. Let us save that for next week.
- Is all money debt? YES, all money “things” are debt. Can issue of bonds affect interest rates? No, not necessarily. Depends on central bank policy—if central bank does not want interest rates to go up, it can always prevent that. Again, a topic for detailed treatment later. Is a “debt cloud constraint” good because it constrains government spending? Well, as Paul Samuelson says, it can work like that “old time religion”—it is a lie, but he claims lies are sometimes useful. I’m a professor. I cannot lie. I will not lie to you. I will tell you the truth and you can decide whether you prefer the lies. I do think government spending should be constrained. But I believe we can tell people the truth and let them choose to constrain government. I’m in a distinct minority on this issue, however. Almost all economists—including Beltway “progressives”–prefer to lie to you. You can choose what you prefer. There are plenty of beltway progressive “think tanks” that spout the lies.
- Some claim fiat money is accepted because it “stores value”. What value is there in a piece of paper that says “I promise to pay you 5 pounds”? Zero. Infinite regress argument—it has value only if some poor dupe thinks it does. Or, some claim fiat money is accepted because it is backed by oil. Really? How gullible can you be? Take a dollar bill down to Treasury and demand conversion to oil. Go ahead, we will wait for a report on Geithner’s response. Really. Go ahead. Report back next week.
- Can we drop the FICA tax and still have a viable Social Security program. Yes. Should we? Emphatic yes. Go here. There are also many posts here at NEP that make a similar argument. Tell your “progressive” friends: Don’t hang my Social Security on the hated, job killing, regressive payroll tax! My sovereign government can always make all promised payments as they come due. Period. Then hold your dim-witted Congress-people to that promise.
