MMT (Practical applications #1)

  By Mystic | February 14, 2011 - 08:34 | ,

Written by: Mystic on February 14, 2011.
Tagged , , , , . Bookmark the permalink.
  • Anonymous

    Dear Mr. Mystic:

    A very interesting dissertation on the subject. What I’m hearing in essence is “managed economy”.

    While I’m not a subscriber to the Darwinian based theory of origins, I do believe he observed, recognized, and described a mechanism in nature regarding selection and survival. As brutal and chaotic as the process is, it is effective at winnowing-out the “inefficient and ill-suited”.

    I’m not suggesting that this approach be adopted in terms of socially policy, but it does seem (to me) very desirable in terms of real world functioning of economic activities.

    While few of our institutions are “pure” in their purpose and function, it seems, for the sake of overall predictability and system wide stability, the institution of “money” would be one that we strive to keep as pure as possible. It is a key component of social interaction and exchange.

    The classic definition of “money” is well established. If history teaches us anything, it is that experimentation on “money”, via injections of politics and social policy, seldom lead to long-term “desirable mutations”. In fact, it seems most (all?) of the time, they ultimately lead to extinction of a particular “species of money”.

    Participants in a free market environment face an almost overwhelming number of variables on the way to “survival”. The smart and lucky achieve it. The dumb and unlucky are “absorbed into the soil”. My simple view of the matter holds that tossing another BIG variable into the equation (ever changing properties of “money”) will lead to the weakening of “all the animals of the forest”, save the ones that find their way to the “trough of the money-masters and planners”.

    Central planning holds-out the promise of “unity and progress”, but in reality does little to ensure broad survivability, particularly when the planners are incapable of comprehending the entire organism. A good example of this dilemma is the now defunct Soviet Union. Adam Cutis did a great job explaining the problem in his documentary “Pandora’s Box”. Chaos intuitively seems anachronistic when we speak of “progress”. Paradoxically, it may lie at it’s very core (through mechanisms analogous to those Darwin recognized).

    Can we implement (in an open and obvious fashion) something akin to MMT? Sure! And it will probably work for some period of time. Given enough “force”, even ill-conceived paradigms can take on the appearance of “sustainable life”. But if they are not “organic and self-reinforcing”, they will ultimate render themselves extinct.

    My belief is that we would all be well served if we aspired to maintain the properties of “money”, as constant as nature maintains the properties of water. It’s too important a core building block to tinker with.

    • http://overthepeak.com/wordpress/ Mystic

      What is happening now, is that `They` are carving up the world.

      Unless `We` get involved, They will carve us up.

      We either get involved with the politics, or we may as well make a nice sauce and pour it on our own heads.

    • http://overthepeak.com/wordpress/ Mystic

      What is happening now, is that `They` are carving up the world.

      Unless `We` get involved, They will carve us up.

      We either get involved with the politics, or we may as well make a nice sauce and pour it on our own heads.

  • Anonymous

    This is my layman’s, completely uninformed opinion of MMT.

    Although I can’t rebut what you have said about the mechanics of MMT, I think that one thing that is not discussed are the negative consequences of this system if a government aggressively and transparently pursues this policy.

    One thing that the governments have not had success in controlling is the value of their currency on the open foreign exchange markets. Extreme case: if the market knows that the government creates money without valuing the amount to its output, the value of the currency is worthless (in the long run). The income tax is a proxy of a country’s output.

    The consequences of a debauched currency are many including flight of capital for better returns, flight of skilled labor for better returns, reduced imports which will hit economic productivity (can’t import latest technology), and the private sector nearly overly dependent on the export of raw commodities as the resources required to add value to these commodities would be prohibited.

    I think there is a lot more latitude in what governments can do in than what is led to believe by its austerity rhetoric but at the same time the value of the currency is entirely influenced by the market. And as arbitrary as it is, if the market wants to see low deficits and higher private sector GDP the government must listen as the economy will suffer.

    • http://overthepeak.com/wordpress/ Mystic

      How can anyone believe anything when they clearly don’t understand the system they are using.

      How about this – The US says it is going to spend an extra 1 trillion dollars a year for the next 10 years, to put in place all the infrastructure necessary for the 21st. century. They are just going to print up the money to do this. Employ anyone who is not employed to work on various projects etc.
      Would you bet against them~?

      • http://maxwellsrepublic.tumblr.com/ maxwell

        anyone selling them oil to do so?

        • http://overthepeak.com/wordpress/ Mystic

          Same question to you then – If you were Saudi Arabia, would you say “Okay no more oil”~?

          • http://maxwellsrepublic.tumblr.com/ maxwell

            No, probably not. Great point.

          • http://pulse.yahoo.com/_DUXQXAJWCNN54B3KSB5KBMLY4A Carl

            Oil is sold on a market to the highest bidder. If the US decided to pump $10 trillion of new money into its economy the result would be a corresponding increase in the $ price of oil.

      • Sam

        Does the same apply to any sovereign nation, say Haiti? If not why not? What makes the US special?

        • http://overthepeak.com/wordpress/ Mystic

          It does apply to Haiti as well.
          But, it has to be understood that as the money is increased the productive capacity of the country must also be increased. (this is where the `would you bet against the US~?` came from)
          Haiti would have to use the money incredibly cleverly to increase their productive capacity enough. The chances of them doing so are very slim indeed (sorry Haiti).

      • http://pulse.yahoo.com/_DUXQXAJWCNN54B3KSB5KBMLY4A Carl

        Yes and No, I would not bet against the US relative to any other country, but if we could take your US with its 10 trillion of infrastructure spending and pit it against a US that didn’t spend that money, then I would bet on the (relatively) frugal US. How could anyone know what infrastructure will be required for the next 10, 20, 30, 40 years? and if they don’t know that, how can they possibly know the best way to spend the money? What if the US only needs $500bn in additional infrastructure now and $1 trillion more in 15 years time?
        In 10 years time the US will have an enormous number of people employed in building infrastructure, entire companies will have been founded just to take advantage of this spending, millions of man hours will have been spend just in teaching and training all those workers, an industry will have sprung up just to advise companies in how to bid for a slice of this spending, what do they all do now?

        Spending money to employ people sounds like a good idea at first, but it has hidden consequences. Paying people to do jobs that don’t need doing is worse than paying them to do nothing because the overheads and bureaucracy tends to create ever more useless jobs. If the money to pay the jobs is created money then it will be inflationary to the amount that they are paid more than the value they produce. If it’s not created money then they simply destroy wealth. Unemployed people have an incentive to try and acquire new skills to increase their employability, but people employed in non-jobs have no such incentives, in fact the risk averse will try and stay in safe government jobs.
        Employers don’t employ the unemployed because they are an unknown risk, if you want employers to take more risks, decrease the cost of those risks, eliminate the minimum wage, remove all taxes on employment (such as National Insurance) and stop paying people to not work.

        The unemployed graduate is a waste of resources, but not in the way you seem to think it is, the waist was in training someone for a job that didn’t exist, those resources are gone and can never be got back, creating new money and all the consequences that go with it just to employ him will only result in more wasted resources.

        • http://overthepeak.com/wordpress/ Mystic

          Nice to know what you think.

  • Stevo

    I know your pushing this hard Nick, but to me money is much more than just a number. In this video you start to introduce people into the equation, and immediately it gets very sticky. Particularly when you mention Argentina, a country that employed a host of import restrictions to protect their own markets. Argentina’s Peso has once again devalued greatly against foreign currencies. And as for wasted human resources. What are they doing sitting at home? There are jobs, it’s just they don’t want to do them because they either pay too little or are too arduous. A poor foreign worker would not turn a blind eye to any job available in the west.

    If I have time, and it’s very big if over the next 6 weeks, I might design a little web page that allows us to play with MMT theory in a tiny world of 10 virtual people.

    • Snedmeister1

      That would be an interesting site Stevo, top marks if you accomplish it…..
      How would you decide what each virtual person does, or how they behave???

    • http://overthepeak.com/wordpress/ Mystic

      No need Stevo.
      There is a slightly bigger experiment that one of the MMT profs runs at his University.
      You may get some fun from it -
      http://neweconomicperspectives.blogspot.com/2009/08/how-to-implement-true-full-employment.html

      • Stevo

        Phew1 Thank goodness for that. For a moment I thought I had created some work for myself.

        Mind you I might still do it if I can paste a Flattr button on it and make some money because nobody is printing it my way.

        • http://overthepeak.com/wordpress/ Mystic

          Ah~!…But do you do the funny hand-shake thing with the right sort of personage~?

  • James

    In relative terms, there should be a FIFO(first in first out) natural selection for the job. There is a validity with people without work experience, in order ‘to prove’ themselves. Short period internships may help to get things started, but these are already included in the graduate system, in one way or another, through projects on site etc..

    The vicious cycle of the high number of Gov employees linked to political “votes” and parties, crowding out the true potential of the private sector, should be dealt first. Once this is cleared, the private sector can breath better, and I believe the unemployed will be dealt in the most efficient way.

    We should think of ways, the money follows the trends efficiently and not the opposite, as in forcing a trend(we like) through pushing money. That is why, I can see an MMT form, following a GDP like statistic.

  • Anonymous

    You’re right of course…trillion points of light, untethered spending, poof money and all…
    but the thing is…
    Egos re-design systems. Egos game those systems.
    Egos re-design systems. Egos game those systems.
    You are (we are) never going to outsmart the ego, self, Nicko.
    …which is not to say that we can’t be evolutionarily better
    …but in the end
    you are looking for a hero.
    When of course, you are already the hero.

    Step 1 De jure Inner revolution
    Step 2 De facto Outer revolution

    But in the mean time, your evolutionary approach is, by far, better than most of the world’s mumbo jumbo.

  • CSArichardo

    ok Nick….I follow the MMT stuff but when you go down the path of socialism and using that as an excuse to publically employee people because employers like hiring employed not unemployed people…I have to think alot more …..so how is paying someone to do nothing any different from employing someone to do nothing ? You seem to make this jump to a concept that all government jobs are using people to the most of their skill set ? I think we should seprate MMT from this full employment stuff or maybe am I way off on that ?

    • Anonymous

      You bring up a good point, CS, in that yes, even Bill Mitchell, perhaps the most “liberal” of the bunch separates out the operational aspect of MMT – this is how this system works, even now – and the various political options that can stem from it.

      For example, he very strongly advocates a policy position of full employment (along with about 3 or 4 other top priorities), but he makes very clear that that is his political opinion about what to do once the way the system actually operates is acknowledged. But the system itself, as he says, is not left-wing or right-wing or any-wing at all; and it’s up to those responsible for govt. (including any of the public who might like to step forward and have their input) for what to actually do from a policy standpoint.

      That is one thing that’s written a lot about within MMT circles… the policy of full employment (so their thoughts on that are pretty thoroughly discussed in short and long form, if your interested in finding out more about their take on that) with the understanding that that is a step beyond a description of how MMT is at work on a strictly operational basis, which can be worked with in a number of ways.

      Linda

      • CSArichardo

        I agree that separating the politics from the operational is essential. Otherwise MMT will never fly because advocates will get trashed as being crazy communists. Well maybe just crazy as Nick found out from that video response he received a few days ago.

        • http://overthepeak.com/wordpress/ Mystic

          One day you may move on from writing stuff like – “Otherwise MMT will never fly”.

          (did you know that you can `drag and drop` from one comment to a reply~?)

          • Anonymous

            (chuckle)

            Seriously, it really is all about – what do we do with this system that we now have?

            (And because MMTers already accept MMT as an operational reality, they have indeed moved on in a big way… really thought a lot about what would *they* do with it… and because a lot of MMTers are more left leaning… they’ve had a lot more time, relatively speaking, to develop their ideas… but it could be the same with people of different political leanings… they just have to get on with it… I know, I know… the likelihood of that happening is… well, I’m not too confident about that part of it… and even with all that they’ve been thinking and modelling and studying about, with a big jump on others in that area… “getting on with it”… seems to be a non-starter, at least in this country, for all involved…)

            But who knows? Maybe continuing efforts like this, like Nick’s, will begin to spark something… to get a few people thinking about it… hey, there are more even here who are thinking about it than there were several months ago.

            My guess is that we’re running out of time… if that were no limit… if something like this had the luxury of time to “catch on” in people’s thinking… but by the way things are looking at this point… heck that could take a long, long time, if it could happen at all.

            But I guess there’s no harm in these efforts that Nick and others are making…

            Linda

    • http://overthepeak.com/wordpress/ Mystic

      “..so how is paying someone to do nothing any different from employing someone to do nothing ?”
      Do you expect me to take a question like that seriously~?

      • CSArichardo

        csa – Chief Smart Ass !

  • http://maxwellsrepublic.tumblr.com/ maxwell

    yep, i am with it on MMT… we have the means to push forward even if we won’t make it due to a total lack of energy inevitably… but who’s to say we couldn’t figure out a way if we invested more into figuring out a way… worth a try I suppose….

    However, in the us, our dollars are called, “federal reserve notes.” What are the mechanics of the US monetary system? Could we print up money without, by law, going through the fed???

    Okay, they have a way they do this and then lets assume they start doing it in the MMT way… Money goes out… and we put people to work on all sorts of stuff… what happens next? Hyperinflation? If commodity prices are up now, imagine if we increased demand without a way to control where the money lands… you’ve seen the news on how much Americans consume… there are hardly any fish left, or a tree standing… so do we control this too? I think this would add a level of complexity to society that this society just can’t handle… maybe, maybe not… But, its better than the other ideas I’ve heard , so I say why not try it… it would be a good few years at the very least.

    My guess is that we’ll go the austerity route for a while… we’d rather drag out the suffering and push off the inevitable as long as possible vs. make a real try for it at the risk of a faster collapse. Michael Ruppert says that we need to crash fast and not slow because otherwise we’ll have nothing left to build on once this system is finished… no infrastructure, no nothing… and he’s probably right… if we reduce spending and don’t try and fix anything, what will we have in 10 or 20 years? Well, they say you can’t teach an old dog new tricks… we’ll see the same old same old because the old dogs are the one’s with the power… and they don’t like change, even if it is better…

    • http://overthepeak.com/wordpress/ Mystic

      The idea would be that more people working, would be making more goods, that would be for sale (and so sop up the money).

      • http://maxwellsrepublic.tumblr.com/ maxwell

        yes, i like that idea too… and it would help make the unemployable, employable to the private sector as you mentioned. I don’t think they would necessarily have to make a good though in all cases… in some cases they would do things that would lessen consumption, like repairing these damn pot holes we deal with in DC and Northern VA. But yes, that would be good.

        I would argue its time to get some intercity green houses, hydroponics, etc. programs rolling… that would be a good idea to incorporate. Of course, in LA (CA) they destroyed an intercity farm that was feeding hundreds of poor and homeless people to build a warehouse… as if they needed one more of those with dozens empty near by. I don’t have much faith in our current leaders (the baby boomers) to ever do the right thing. Very few of them are like you.

  • CSArichardo

    Have you listened or read Warren Mosler ? Is handing out money to governments on some quota system, such as GDP …. is that MMT ?

    http://www.cnbc.com/id/15840232?video=1410610592&play=1

    http://moslereconomics.com/proposals/

    • http://overthepeak.com/wordpress/ Mystic

      What the US government is doing today is MMT (they just don’t realize it).

    • http://overthepeak.com/wordpress/ Mystic

      What the US government is doing today is MMT (they just don’t realize it).