Thanks, Rachel - this has been a topic I have been on the edges of for a while so it was interesting to get a more in depth explanation. It does seem to be a theory that produces at lot of heat in the world of the economists, predictably - but not exclusively - by Neo classical adherents. Reading the comments here and on Youtube it's clear (if that's the right word!) that this is very complex area as layer upon layer of economic devices and practices have built up over the centuries to create an entity that seems to have a life of it's own. It's a sort of economic beast that is poked and coaxed by various actors to induce it to disgorge wealth which it does sometimes and at other times gobbles it up. Economists, it seems, are the equivalent of lion tamers in a circus ring claiming to be able to bend this beast to their will.
I did a little thought experiment which was what if there were no money and we acted in a communal way. We would just be restricted by resources. Within the commune, provided there were sufficient resources there would be no need for money, just perhaps a way of ensuring those resources were not hoarded by any individual for personal gain. If the commune got bigger it might need a way of ensuring that everyone got their fair share so you might issue a token that could be exchanged for those resources. Do you see where I'm going with this! MMT seems at least to have some validity if, as Steven says, it uses resources as its anchor point.
I've spent time considering similar ideas. At a family or small community level the free exchange of labour and resources works easily, everyone does their bit and the world is good :)
Introducing a token seems to be where the problems start. It doesn't have to be problematic, a dynamic system of rules that prevent accumulation and inequity would help. It hasn't worked in the past, but with a little effort, attention and diligence it could, maybe?
There are of course several alternative economic schemes that have been in operation for decades such as the Totnes pound, the Letts scheme, and the universal free exchange you mentioned. While some of these are token based they at least bear a relationship to work done or locally agreed value of common items. Should the economy collapse it would be useful to have such schemes in place and trusted - as well as having local access to the basics for life. I’m part of a group of parishes and organisations in Suffolk who are developing a model of resilient communities based on sound ecological principles. Early days - just need the economy to stagger on a bit longer!
Local support schemes can have benefits but won’t provide major services like the NHS or schools. Local schemes also tend by their nature to be protectionist, their communality being tightly geographically limited. You’d better hope the wider economy does keep going!
Such schemes might be needed if the economy collapsed but in reality they seem more a way of protesting against the imposed economic model. Local autonomy is, though, something I feel strongly about as part of a meaningful devolution of power which properly assigns responsibility to the different levels of local, regional and national government.
I’m glad some people find this basic information, but I’m on my third listen and I’m still absorbing details! I tend to focus on climate science and social change and avoid economics as I find it abstract and unhelpful to our predicament. But this was good at explaining the unnecessary restrictions that governments place on green investment. I was reminded of Theresa May’s “There’s no magic money tree”, which of course there is as was shown during Covid pandemic.
It would be useful to have a follow up to cover what the stages may be economically towards a society that is ecologically aware, with public luxury and private sufficiency, a protection of universal basic income, and politics that respects all humans and life on earth. 50 mins should be fine ;-)
Margaret Thatcher seeded a huge number of neoliberal myths about money and economics into the UK and global psyche/zeitgeist. It's a shame she was dead wrong in all of them! That won't prevent present Tory and Labour leaders repeating them _ad nauseam_, of course
Thank you, Steven. QE is just an asset swap, so it impacts long term interest rates, but beyond that is not in itself inflationary. It is not free money for anyone. I think you are aware both why China built up reserves and why the USD dominates the global foreign exchange market to this day.
Whenever I hear an explanation about economics, I’m always left with more questions than answers, and this was no exception. I really struggled with the concept of tax money just disappearing into a bin. Surely It must end up on a balance sheet somewhere? Also, I’ve heard in other conversations that most of the money that comes into existence is created by commercial banks, whereas Steven Hail seems to focus more on money created by governments. This needs more studying on my part obviously.
Federal taxes end up as a liability of the central bank, an asset of the federal government, and net out across the broad government sector which includes both. Basically, when federal taxes are paid, the government sector retires an IOU. The currency itself, including in electronic form, is a liability of the broadly defined government sector. When we use it to meet our tax liabilities to the federal government, private and public liabilities to each other cancel out.
I certainly hit a few of those "Wait, what?" moments, I might give it another listen.
Regarding commercial banks versus governments creating money, another one of those moments. As a non-economist, my vague understanding is that banks effectively bring money into existence BUT under the regulation of government (you can imagine the state of the world if banks could create money as they pleased)
I assumed that there was a financial mechanism that exists between a countries' central/reserve bank and commercial banks that acts like a tap to control the amount of sovereign currency available to the market. Something like bonds, maybe? I'm not sure. And of course, different nations would have different ways of generating currency.
I am well versed in MMT, so I didn't need another introduction. Did he mention the $9 triillion that the FED is holding through its QE program. None of this is counted in the deficit, but it sure has an impact on inflation..
Also, what is the explanation for China to hold so much USA government debt, when it has hardly any need to pay taxes to the USA?
Thanks for getting Steven Hail on. I'm not sure if I ever got around to emailing you Rachel requesting you get Steven on, or it came to you some other way. But thanks for embracing a discussion of MMT and ecological economics, and Stevens attempt to brig these two schools of thought closer to each other.
While it's good to see what people who support MMT think, don't get too drunk on the kool-aid. While it's great that Steven Hail mentioned the Austrian economist Hayek, he overlooks the Austrian School critique of MMT.
Wow this was very interesting.
Thanks, Rachel - this has been a topic I have been on the edges of for a while so it was interesting to get a more in depth explanation. It does seem to be a theory that produces at lot of heat in the world of the economists, predictably - but not exclusively - by Neo classical adherents. Reading the comments here and on Youtube it's clear (if that's the right word!) that this is very complex area as layer upon layer of economic devices and practices have built up over the centuries to create an entity that seems to have a life of it's own. It's a sort of economic beast that is poked and coaxed by various actors to induce it to disgorge wealth which it does sometimes and at other times gobbles it up. Economists, it seems, are the equivalent of lion tamers in a circus ring claiming to be able to bend this beast to their will.
I did a little thought experiment which was what if there were no money and we acted in a communal way. We would just be restricted by resources. Within the commune, provided there were sufficient resources there would be no need for money, just perhaps a way of ensuring those resources were not hoarded by any individual for personal gain. If the commune got bigger it might need a way of ensuring that everyone got their fair share so you might issue a token that could be exchanged for those resources. Do you see where I'm going with this! MMT seems at least to have some validity if, as Steven says, it uses resources as its anchor point.
Well said.
I've spent time considering similar ideas. At a family or small community level the free exchange of labour and resources works easily, everyone does their bit and the world is good :)
Introducing a token seems to be where the problems start. It doesn't have to be problematic, a dynamic system of rules that prevent accumulation and inequity would help. It hasn't worked in the past, but with a little effort, attention and diligence it could, maybe?
There are of course several alternative economic schemes that have been in operation for decades such as the Totnes pound, the Letts scheme, and the universal free exchange you mentioned. While some of these are token based they at least bear a relationship to work done or locally agreed value of common items. Should the economy collapse it would be useful to have such schemes in place and trusted - as well as having local access to the basics for life. I’m part of a group of parishes and organisations in Suffolk who are developing a model of resilient communities based on sound ecological principles. Early days - just need the economy to stagger on a bit longer!
Local support schemes can have benefits but won’t provide major services like the NHS or schools. Local schemes also tend by their nature to be protectionist, their communality being tightly geographically limited. You’d better hope the wider economy does keep going!
Such schemes might be needed if the economy collapsed but in reality they seem more a way of protesting against the imposed economic model. Local autonomy is, though, something I feel strongly about as part of a meaningful devolution of power which properly assigns responsibility to the different levels of local, regional and national government.
That’s really interesting Rachel, thank you.
I’m glad some people find this basic information, but I’m on my third listen and I’m still absorbing details! I tend to focus on climate science and social change and avoid economics as I find it abstract and unhelpful to our predicament. But this was good at explaining the unnecessary restrictions that governments place on green investment. I was reminded of Theresa May’s “There’s no magic money tree”, which of course there is as was shown during Covid pandemic.
It would be useful to have a follow up to cover what the stages may be economically towards a society that is ecologically aware, with public luxury and private sufficiency, a protection of universal basic income, and politics that respects all humans and life on earth. 50 mins should be fine ;-)
Margaret Thatcher seeded a huge number of neoliberal myths about money and economics into the UK and global psyche/zeitgeist. It's a shame she was dead wrong in all of them! That won't prevent present Tory and Labour leaders repeating them _ad nauseam_, of course
Very interesting Rachel, thanks !
Thank you, Steven. QE is just an asset swap, so it impacts long term interest rates, but beyond that is not in itself inflationary. It is not free money for anyone. I think you are aware both why China built up reserves and why the USD dominates the global foreign exchange market to this day.
Whenever I hear an explanation about economics, I’m always left with more questions than answers, and this was no exception. I really struggled with the concept of tax money just disappearing into a bin. Surely It must end up on a balance sheet somewhere? Also, I’ve heard in other conversations that most of the money that comes into existence is created by commercial banks, whereas Steven Hail seems to focus more on money created by governments. This needs more studying on my part obviously.
Federal taxes end up as a liability of the central bank, an asset of the federal government, and net out across the broad government sector which includes both. Basically, when federal taxes are paid, the government sector retires an IOU. The currency itself, including in electronic form, is a liability of the broadly defined government sector. When we use it to meet our tax liabilities to the federal government, private and public liabilities to each other cancel out.
Hi Tim,
I certainly hit a few of those "Wait, what?" moments, I might give it another listen.
Regarding commercial banks versus governments creating money, another one of those moments. As a non-economist, my vague understanding is that banks effectively bring money into existence BUT under the regulation of government (you can imagine the state of the world if banks could create money as they pleased)
I assumed that there was a financial mechanism that exists between a countries' central/reserve bank and commercial banks that acts like a tap to control the amount of sovereign currency available to the market. Something like bonds, maybe? I'm not sure. And of course, different nations would have different ways of generating currency.
I am well versed in MMT, so I didn't need another introduction. Did he mention the $9 triillion that the FED is holding through its QE program. None of this is counted in the deficit, but it sure has an impact on inflation..
Also, what is the explanation for China to hold so much USA government debt, when it has hardly any need to pay taxes to the USA?
Thanks for getting Steven Hail on. I'm not sure if I ever got around to emailing you Rachel requesting you get Steven on, or it came to you some other way. But thanks for embracing a discussion of MMT and ecological economics, and Stevens attempt to brig these two schools of thought closer to each other.
While it's good to see what people who support MMT think, don't get too drunk on the kool-aid. While it's great that Steven Hail mentioned the Austrian economist Hayek, he overlooks the Austrian School critique of MMT.
https://link.springer.com/article/10.1007/s11293-020-09653-7
Exactly where can I find the show notes for your podcasts?
The post above.