Simple Explanation of Modern Monetary Theory (MMT)

We dropped the Gold Standard some time ago and don’t have to round up gold to pay for things anymore. Hence the “Modern” in Modern Monetary Theory. MMT just explains how money works in a modern economy. Government “spends” money into the economy and taxes it back out. The amount not taxed back out (“deficit”) is the amount left circulating in the economy. The total over the years (“debt”) is a measure of the money in the economy. “Balancing” the budget means not putting new money into circulation. “Paying off the debt” means removing all the money from the economy.

Also, selling government bonds is a choice, not “borrowing.” There are good reasons to do it, but it is not “borrowing.” There are good reasons to tax – balance distribution, address inequality, fight the influence of accumulated fortunes, behavior incentives – but it is not “raising revenue.”

Application of MMT: Look at what the US govt did when Covid hit. It kept businesses from going under, kept the economy from the worst crash ever, dramatically cut child poverty, etc, followed by the fastest recovery ever. Compare that to what happened after the 2008 crash when Summers kept the “stimulus” low. It was almost 10 YEARS before things recovered completely – leading to Trump.

Simplest way to understand modern money: learn where banks get the money from to give out loans.

Unfortunately certain well-to-do influential interests benefit greatly from the old ways of understanding money and will do anything to keep it that way.

One More Thing

One more thing about MMT – it meets stiff ideological resistance from certain vested interests because the “gold standard” “kitchen table budgeting” thinking keeps the system working for the wealthy. If government could just spend money without “borrowing” from the wealthy to solve problems, then what do we need the wealthy for?

The conservative game since Reagan/Thatcher has been to cut taxes at the top in order to create deficits, and then demand budget cuts and privatization to get rid of the deficits they created. This is a strategy for gutting government – democracy – and moving wealth upwards. Get pesky government out of the way of the oligarchs and their corporations.

Remember the resistance to solving the 2023 debt ceiling “crisis” by “minting the coin”? Minting the coin was completely legal, and made the problem disappear. The problem was, if people could just mint a coin to pay off wealthy bondholders then why can’t government mint a coin to … you name it.

See Why Minting the Coin Is A Threat To The Established Order:

Minting platinum coins with a face value of $1 trillion and depositing them with the Federal

Reserve is Constitutional and solves the problem. But it brings up questions that shake the foundations of neoliberalism. If we can “mint coins” to pay bondholders, why can’t we mint coins to do things that people want and need? Instead of just relying on private capital (the rich) to make investment decisions and get things done in our economy?

So Biden can do the right thing and just … pay our bills. But then the neoliberal order breaks down. If We (through Congress) can decide to … you name it, then why are we depending on “the investor class” (capital) and “market solutions” etc to decide where to invest, allocate resources, do the planning and everything else?

This Is How Money Works (Video)

Watch this video. The “gold standard” ended a long time ago. Since then economies work in a more “modern” way. Hence “Modern Monetary Theory” – MMT.

Countries no longer round up gold to “pay for” things. They decide on priorities and issue currency – “spend” – as an exchange medium. They impose taxes to both soak up excess currency and rebalance the distribution of wealth.

The currency that is “spent” into the economy and not taxed back out is still unfortunately called a “deficit” and the total over the years is unfortunately called “debt.” This is the legacy of ancient times and the use of gold. (This should be called “National Money” instead of National Debt.)

If a country offers bonds (T-Bills in the US) that is a place for wealthy people to store excess cash. Countries can choose to pay interest on them. This is not “borrowing.”

What Biden And Dems Should Say About The Economy

Biden and Democrats should be explaining to the public that, “The economy is starting to turn around.”

Polling vs The Reality

Polling shows that people feel “the economy” is doing really poorly right now. Every poll. “Grim” numbers.

Lots of top Democrats are reacting to this by saying that all the “numbers” show that the economy is actually doing really, really well. It seems like these voices are declaring that the voters are wrong, which is politically a terrible approach.

What To Say?

Telling the voters they are wrong is a recipe for electoral disaster. What should Democrats be telling the public when the numbers are great but the public says they’re feeling terrible about the economy? Here is how this was successfully handled in the past.

When Obama was running for reelection people were in a sour mood and a “businessman” (Mitt Romney) was running against him. Republicans were telling the public that government should be “run like a business” (Strip the government and harvest the public for profit?) and this meant they should elect a businessman.

The “Explainer-in-Chief” Speaks

Along came Bill Clinton to speak at the 2012 Democratic Convention. Whatever you might think of his policies, Clinton had amazing spot-on political instincts. He said Obama feels the country’s pain. He said things have been bleak for a long time. He said we’ve taken hit after hit, faced problem after problem. But now we’re turning the corner. Everything is in place thanks to Obama and things are starting to get better. You will feel it, just give it a little more time.

He explained things so well he was labelled “Explainer-in-Chief.”

Here is more of what Clinton said in the 2012 speech that I think re-elected Obama

He inherited a deeply damaged economy. He put a floor under the crash. He began the long, hard road to recovery and laid the foundation for a modern, more well-balanced economy that will produce millions of good new jobs, vibrant new businesses and lots of new wealth for innovators. (Cheers, applause.)

Now, are we where we want to be today? No.

AUDIENCE MEMBERS: No!

PRESIDENT CLINTON: Is the president satisfied? Of course not.

AUDIENCE MEMBERS: No!

PRESIDENT CLINTON: But are we better off than we were when he took office? (Cheers, applause.)

And listen to this. Listen to this. Everybody — (inaudible) — when President Barack Obama took office, the economy was in free fall. It had just shrunk 9 full percent of GDP. We were losing 750,000 jobs a month.

Are we doing better than that today?

AUDIENCE MEMBERS: Yes! (Applause.)

PRESIDENT CLINTON: The answer is yes.

Now, look. Here’s the challenge he faces and the challenge all of you who support him face. I get it. I know it. I’ve been there. A lot of Americans are still angry and frustrated about this economy. If you look at the numbers, you know employment is growing, banks are beginning to lend again. And in a lot of places, housing prices are even beginning to pick up.

But too many people do not feel it yet.

Read the rest here. It’s actually a fun read.

My Point

Clinton single-handedly reelected Obama with that speech. My point is, Biden & Dems need to be saying, “We understand how hard it has been and we’ve been working on it. It is starting to turn around.” Not what they’ve been saying, “Shut up stupid voters, things are great, stop whining about the economy.”

I have spoken.

Civilian Casualties In Gaza

News report: At least 15 people were killed and 60 were wounded in an Israeli airstrike on an ambulance convoy near a hospital in Gaza.

Israel says the ambulances contained Hamas fighters.

I wouldn’t be surprised if the ambulances were carrying Hamas fighters. But look at the numbers of dead and injured! All those dead were not 15 Hamas fighters inside the ambulances and not 60 Hamas fighters injured. Many of those were civilians who happened to be there. And that is one more obvious violation of international law, ignored by our own government, inciting anger around the world.

THIS is what’s happening. The (US-supplied) Israeli war machine might be targeting Hamas (obviously not always – they are killing too many reporters, destroying too many residential buildings, removing too many civilians from their homes for that to really be the case…) but they are killing and injuring and deporting lots and lots and lots of civilians. Because we all know the Trump-allied Netanyahu government is all about ethnically cleansing the “other.”

This war is happening in the context of decades of right-wing Israeli government apartheid treating Palestinians as subhuman. The whole world sees this in that context. This is happening in the context of decades of the whole world seeing US planes and bombs falling on non-whites all around the globe.

This is NOT about “Israel” or “Jews” doing these terrible things any more than Hamas represents Palestinians or Muslims. There is a reason half of the Israeli people were out in the streets demanding the removal of this government for months before this war started. There is a reason Hamas (and Netanyahu, in cahoots with Hamas) wouldn’t allow Palestinians to vote for responsible leadership. The reason is the actual PEOPLE would have gotten rid of the fascist extremists who had taken charge on both sides.

Everything With Israel Is Too Little, Too Late

Decades of siding with Israel while the government of that country carried out its apartheid policies oppressing Palestinian civilians is now reaping consequences. It has made the United States and others accomplices in crimes against humanity.

I think the Israeli government’s announcement shutting off water, food and fuel to Gaza was an inflection point. It was a crime against humanity that everyone could see, and solidified people’s sympathies for the civilians mistreated by that government’s nasty, right-wing, racist apartheid policies. (I say Israel’s government here because the people in charge are right-wing Trumpers and I separate them from the people as much as I separate Hamas from the Palestinian people.)

That Trumpy government justified their long-term policies mistreating Palestinians with “self-defense” claims, saying it protected their own civilians from attack. That justification vanished when Hamas carried out that attack. Those apartheid policies are now recognized as just making things worse.

After the water, food & fuel announcement, supporters of that government (not supporters of Israel, Jews, etc, but that Trumper govt) became accomplices in a crime against humanity. Providing weapons, etc.

There is no excuse. It looks like President Biden has done a lot behind the scenes to stop Israel’s government — but anything short of demanding that govt step down is too little, too late.

PS To be clear I think the Hamas attack on civilians was an act of terror – a crime against humanity. All the people involved should be hunted down and locked in cages and kept there on display for 100 years, alive or dead.

Call It “National Money” Not “National Debt”

I propose renaming the “National Debt” as the “National Money.” Here is why.

Once upon a time, governments had to round up gold to “pay for” things. Kings would gather gold to finance armies and pay mercenaries for their wars. If they collected it from the population through taxes, fees etc it was called “revenue.” If they borrowed it, they would have to pay it back. That was actual debt. Later, nations used gold as a means of exchange and had to actually collect or borrow as much gold as they would spend.

But things have changed. Gold is out of the picture. (So are shells, gems and other historical means of exchange.) Governments allocate resources toward priorities and issue currency as a means of exchange. This is commonly called “spending.” They do not “collect revenue” nor do they “borrow.” They appropriate and issue currency. They tax the currency back to balance and regulate the amount of currency in circulation, and to address inequalities and raise or lower public priorities (like taxing cigarettes.)

Many of the terms used have not kept up with the changes. People still think governments “borrow” when they sell bonds. But bonds are for other purposes than raising money (rounding up gold.)

The budget “deficit” is the amount of currency spent into the economy but not taxed back. What today is generally called the National Debt is the accumulated yearly budget deficits minus any yearly surpluses. (Surpluses happened in the Clinton years.) It is a measure of the currency spent into the economy and not taxed back out.

The legacy use of the word “debt” misleads people into thinking it is “debt.” It is not. Governments that issue their own currencies have no need to collect gold or other “revenue” to “pay for” the goods and services the government decides to direct toward priorities. (Of course governments should not direct more resources than are available, this creates inflation.)

I propose renaming the “National Debt” as the “National Money.”

Or maybe “NashCash.”

#MMT

It’s All Right Ma, I Can Make It

Looking back trying to understand the way I am, I realize I was listening to things like this when I was 12. (And reading stuff like Howl.)

Please listen, study the lyrics, and read Howl.

Darkness at the break of noon

Shadows even the silver spoon

The handmade blade, the child’s balloon
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How Free Markets Work

“Neoliberalism” is the idea that markets are better at making decisions than democracy.

If it doesn’t show up click here.