Got it, thank you. So, if I am understanding your arguments from previous posts, you believe that there should be more political control of interest rate policy. I also understand from listening to your arguments that you are starting to flesh out an argument for creating a government job guarantee. I hope I am on the correct wavelength here. Reversing Gordon Brown's decision to put the MPC in charge of setting interest rates and handing that control back to government is a significant policy change. One that would have to be handled with great care. I remember hearing stories from my Mum (85) when interest rates were jacked up significantly when we exited the Exchange Rate Mechanism. How would you propose that government takes back control of setting interest rates? I don't think I would be happy with recent Chancellors having complete control of this task, especially going into elections. Hearing more about your views on a government job guarantee would at some point also be very interesting.
Whether we like it or not we have a fiat currency so we might as well use it wisely And for the betterment of society. MMT is just an understanding of how fiat currency works. Unfortunately there are people like our politicians that don’t want to address MMT because they would have to admit that they don’t use our fiat currency wisely. MMT doesn’t harm people, politicians do!
Not even the USA has a truly fiat currency, because countries trade with one another and the USA imports goods and services largely in the exporters' currencies. There's also the matter of inflation which MMT advocates don't like discussing.
I still feel like the problem is that nobody believes that this is how it works (rating agencies, politicians etc) and is still seen as fringe so it ends up not being this way.
Stephanie Kelton said (in an interview earlier in the year with James Weir) that, in conversations with “hundreds” of members of Congress, she _did_ think that many of them were beginning to understand how a modern fiat currency works. (I'm not so sure that applies to MPs but they might not be that far behind., if at all.)
There are many politicians that understand MMT and how it works (but, yes, most don't). The reason the ones who do understand it don't admit it is that they are in the business of playing political games. As long as their voting constituents don't understand MMT, thinking the government budget is run like a household, then the politicians will use the "how are we going to pay for it" against the other party legislators only for ideology or "tribe loyalty" reasons, or for other strategies to get their own agenda on the Bills. For example, Senator Bernie Sanders wants to reduce income inequality as a goal, so when proposes spending on healthcare, rather than asking if we have enough resources, he goes back to the "pay for" by taxing the rich. Bernie of all folks, knows very well about MMT, but since his voters don't, then he continues to play the game. Most all journalists these days are just lazy or untrained on how to be a journalists. They no longer do investigative work and just echo the politicians and pundits.
@@physiocrat7143True. And with politicians afraid of their perceived reaction of nebulous "markets" we have the reverse: the lack of investment in state services and infrastructure
@@davidmcculloch8490 The lack of investment. Where are the trillions the workers have paid the socialist welfare state for their old age? Austerity. Why is the state running at a 30% gross profit margin.
Well, what I always understood from many reknown MMTers (the core members and many speaking at "The MMT podcast") about the job guaranty is that they are aware that job guaranty might be the only policy that can be derived from MMT and might be important to implement, but not because it's neccessary for MMT to work but for an optimal outcome and utilization of MMT tools. They do often link MMT and job guarsnty policy together, but they know it's only a policy to be chosen, even if obviously inevitable for the best outcome
@@adenwellsmith6908 Nope. MMT does't say that. Consider listening to Richard again. If the government spends on something were there are not enough resources to deliver that something (not enough workers, materials, and other productive capacity needs) then yes, the money is fighting for too few resources so the resource deliverers can raise prices until they can get more capacity in line. Let's say there are millions of unemployed construction workers and plenty of lumber, cement, and other building materials sitting idle, the government could spend on scale to provide housing without causing inflation. The simple act of "printing" extra USD does not necessarily mean it becomes less valuable like a commodity. The USD is not a commodity, it's an I.O.U.
@@pauldandurandboots Equation of exchange. If you double the money supply, you double prices. Pure and simple. The velocity of money won't change, and printing money doesn't increase economic activity.
Government is able to collect taxes. Government policy enables the private sector, the private sector/complex enables government. Great economy. When will the wars stop and when will all be able to afford food and roof over our heads. When will MMT make the normal 'citizen' feel safe.
Debt based economies need to find ever more businesses and people willing to take on ever more debt. This drives empire and war as newly acquired assets allow business, and the military, to expand. The businesses, and military, need funds to expand so take on debt with the banks/lenders. So, the banks/lenders endlessly encourage/fund war. This has been the way of the west. We are also seeing the wealth of the middle class siphoned to government, and probably it's destruction (for now). This is ideal for government that wants more control and socialism. Fiat currencies have always failed eventually because they have few restraints and allows easy abuse by weak, maybe corrupt, politicians - IMO.
Richard's great summary explains the consolidated government structure, such as looking at the Treasury and the Fed as a central whole. When we look at these two in a coordinated view, which is how it's technically done in the US, then it's just a matter of understanding the accounting rules Congress established decades ago. This coordinated approach uses an accounting balance sheet to factor in taxes and issuing of bonds after Congress approves spending and orders the Treasury to pay. The government spends first, then the Treasury and the Fed figures out what they need to do with bank reserves, tax receipt numbers, and bond creation needs in order to balance the accounting Daily Treasury Statement at the end of each day. I think too many people working at the Fed get caught up with the post spending actions by Congress, thinking that taxes play a role in whether or not new bonds need to be created. Because of this narrow view, they think taxes comes first. But, both consolidated and coordinated system views do indeed show that it's the other way around where government spends first before it taxes. It has too if the government is the currency issuer. Folks in the Austrian school would be able to see this if they let go of the notion that the origin of money was a natural evolution out of bartering. Historians and anthropologists clearly explain that's not the case. Money was developed as an I.O.U. (establishing technology to manage debt, such as clay tablets and the tally stick). For anyone looking to learn about the origins of money, "Finding the Money" documentary does a decent job explaining the history along with a great overview of MMT.
I first became aware of MMT by reading Reclaiming the State by Mitchell and Fazi. Using the economy for the benefit of society is a novel idea and far removed from neoliberalism. If only...
In a perfect world, with intelligent and selfless government that can't be swayed by the banks and big business, a fiat currency could work. A primary function of money is to be a store of wealth, that's the very reason money of any form was ever used, so we can defer one side of a trade - without losing the value of the trade. Unfortunately our fiat currency fails this need and history shows all fiat has always trended to zero value eventually. I'm really interested as to whether people believe the future of our fiat currencies will be any different, and what happens if/when the population realise the currency is toilet paper.
We can all issue currency when you think about it. If I promise to pay a bank £10k in the future in order to secure £10k now. I am essentially issuing my own currency, their account with me has £10k equivalent of my own currency in credit and I am stating to them that they should trust my currency can be swapped for british pounds at a future date. Debt is money.
Think I'm beginning to understand. The Gov can print money to buy unused production. To stop inflation it taxes to reduce the amount of money in circulation. It can also use taxes to increase the amount of unused production, allowing it to spend more. Sort of a zero sum balancing act? So the money it prints is a liability in the Gov's books and an asset on everyone else's. Now the 'Accounting Practice' makes sense. Question though - how does MMT view things like 'The Labour Theory of Value'.
@@adenwellsmith6908 not sure about that. There are always consequences, usually unforeseen. This feels like it will hit those who can't pass the the tax on to the next person. e.g. the consumer.
@@txm9441 It's perfectly foreseable. The UK has GDP. Effectively its house hold income. It has a value. When people demand more state spending, they are demanding more goods from the state. The state gets a bigger slice of the pie. You can only get a bigger slice by taxation from the productive in society. It's a transfer from A to B. From one group to another. That's limited by the size of the pie, and its limitted by the ability and willingness of the people who lose to accept it. The number of zeros on the banknote is irrelevant.
Well, the govt taxes to free up the resources it wants to use. When the resources are available to it, it buys them by issuing £s into existence. The labour theory part is covered by the Job Guarantee.
@@adenwellsmith6908I think you have fundamentally misunderstood the role of taxation in a fiat economy. A primary function of taxation is to free up the resources govt wants to use; taxation isn't a funding mechanism.
Very good explanation. The problems are governments' propensity to waste money, and the damaging effect of the tax systems that give the currency its value. The only effective model for a fiat currency has been the German Rentenmark, which ended the Weimar inflation.
People who have the ability to work are able to get loans because they can pay them back, a govt is able to say we will take a percentage of our constituents life's efforts in taxes so any money printed by the central bank, debt, is able to be given back. Because all new loans/debt is new money, that money needs to leave again or it builds up as taxes make money not exist anymore. Money is not like gold in that it does not build up, it is debt and therefore works on a basis of negative zero, they are always trying to get the loan back to zero, the debt as soon as it leaves the bank and hits an account, that is what we call money, we spend our lives around it and do all the things we do because of it, imagine we are fish in a pond that has water always pouring into it, the water must leave again or it floods while we fish carry on with our lives.
In what you’re saying, Richard, why does governments are you the British government conservatives and labour have the right advisors because in your earlier videos saying they don’t understand it between tax-and-spend or how it works and inflation works. All they know is to the general public we are we can’t do this because we don’t have this money we got a black hole so we can’t do that, in my opinion, I see it as a coercive control system. Keep the general public generally frighten frighten about their mortgage, frightened about the price of goods that they go by at the weekend for the shopping. The petrol price keep them occupied on everything else, except what they are really doing like in the 70s I’m probably totally wrong, you were allowed to have your television in the car. Your house go on holiday. They were the occupiers of the 70s kept the general public centred on that today. I have to be a bit more Wiley if I’m wrong I’m wrong
The BoE is publicly owned. It's owned by the Government Legal Department on behalf of the Treasury. It does charge interest but as the government is the owner, it is effectively cancelled out.
But, but, but. Understanding MMT is all well and good, understanding ‘spend and tax’ vs ‘tax and spend’ is all very well. However, what is not apparently understood by a lot of people is that consistently allowing spend to be greater than tax means that the value of money is continually being degraded and devalued. It’s why something that cost £5 10 years ago now costs £10. The thing itself hasn’t become more expensive to buy, it’s that the value of the currency that is used to purchase it is worth less.
What is the problem with that? First, who cares if alles or care nominally costs more than 50 years before if wages rose accordingly? The price tag is only important in relation income, not in itself. And some small controlled inflation every year is important for revenue expectations of companies. Our societies didn't collapse because of continuous price increase
It's a proven theory, with solid maths and facts behind it. It's also nothing new, it's pretty old already too. But the propaganda from the real mad there - neoliberal economics and it's proven lie 'trickle down' economics - is overwhelming and seems to have addled your brain too.
No it isn't like spending more when you're at your credit limit because governments with fiat currencies don't have anything analogous to a credit limit as you might find with a personal credit card. The limit is the people and resources available to the country and in the UK certainly, they are underutilised. The government spends far less than the country can support which throttles the economy and makes it weaker over time. Over five years, there's no reason they couldn't double their annual expenditure at a rate of a 20% increase per year for the next five years, so long as it's not wasted on their shady mates.
![ILLSLICK - WINTER IS COMING [Official Video]](http://i.ytimg.com/vi/dwTMeM1zIhQ/mqdefault.jpg)
Thank you Richard. I love the fact that you help my understanding of MMT increase. It’s all so clear to me now. ❤
I love the ways you always find to explain things so clearly and intuitively, a benefit to us even if not new to the topic (of MMT e.g.)
Got it, thank you. So, if I am understanding your arguments from previous posts, you believe that there should be more political control of interest rate policy. I also understand from listening to your arguments that you are starting to flesh out an argument for creating a government job guarantee. I hope I am on the correct wavelength here. Reversing Gordon Brown's decision to put the MPC in charge of setting interest rates and handing that control back to government is a significant policy change. One that would have to be handled with great care. I remember hearing stories from my Mum (85) when interest rates were jacked up significantly when we exited the Exchange Rate Mechanism. How would you propose that government takes back control of setting interest rates? I don't think I would be happy with recent Chancellors having complete control of this task, especially going into elections. Hearing more about your views on a government job guarantee would at some point also be very interesting.
Whether we like it or not we have a fiat currency so we might as well use it wisely
And for the betterment of society. MMT is just an understanding of how fiat currency works.
Unfortunately there are people like our politicians that don’t want to address MMT because they would have to admit that they don’t use our fiat currency wisely. MMT doesn’t harm people, politicians do!
We don't have taxes that can remove money from circulation without bringing the economy to its knees
Exactly. They have impoverished people with their pension ponzi.
@@physiocrat7143 Why would you tax extra if it would hurt the economy?
Not even the USA has a truly fiat currency, because countries trade with one another and the USA imports goods and services largely in the exporters' currencies. There's also the matter of inflation which MMT advocates don't like discussing.
@@RebeccaTurner-ny1xx The problem with Richard is that he doesn't distiquish between money and resources [value]. He does that when it suits him.
I still feel like the problem is that nobody believes that this is how it works (rating agencies, politicians etc) and is still seen as fringe so it ends up not being this way.
Stephanie Kelton said (in an interview earlier in the year with James Weir) that, in conversations with “hundreds” of members of Congress, she _did_ think that many of them were beginning to understand how a modern fiat currency works. (I'm not so sure that applies to MPs but they might not be that far behind., if at all.)
There are many politicians that understand MMT and how it works (but, yes, most don't). The reason the ones who do understand it don't admit it is that they are in the business of playing political games. As long as their voting constituents don't understand MMT, thinking the government budget is run like a household, then the politicians will use the "how are we going to pay for it" against the other party legislators only for ideology or "tribe loyalty" reasons, or for other strategies to get their own agenda on the Bills. For example, Senator Bernie Sanders wants to reduce income inequality as a goal, so when proposes spending on healthcare, rather than asking if we have enough resources, he goes back to the "pay for" by taxing the rich. Bernie of all folks, knows very well about MMT, but since his voters don't, then he continues to play the game. Most all journalists these days are just lazy or untrained on how to be a journalists. They no longer do investigative work and just echo the politicians and pundits.
@@pauldandurandboots Yes, that's true about “political games” and, in particular, Bernie Sanders.
MMT is the state of reality.
Indeed but the implications need to be faced. Without a sound tax system and prudent politicians we are on the high road to ruin.
I’ve heard it said that people sometimes struggle with accepting reality
@@physiocrat7143True. And with politicians afraid of their perceived reaction of nebulous "markets" we have the reverse: the lack of investment in state services and infrastructure
@@davidmcculloch8490 The lack of investment. Where are the trillions the workers have paid the socialist welfare state for their old age?
Austerity. Why is the state running at a 30% gross profit margin.
Well, what I always understood from many reknown MMTers (the core members and many speaking at "The MMT podcast") about the job guaranty is that they are aware that job guaranty might be the only policy that can be derived from MMT and might be important to implement, but not because it's neccessary for MMT to work but for an optimal outcome and utilization of MMT tools.
They do often link MMT and job guarsnty policy together, but they know it's only a policy to be chosen, even if obviously inevitable for the best outcome
No its not. MMT just says if you print to pay on scale you get inflation.
@@adenwellsmith6908 Nope. MMT does't say that. Consider listening to Richard again. If the government spends on something were there are not enough resources to deliver that something (not enough workers, materials, and other productive capacity needs) then yes, the money is fighting for too few resources so the resource deliverers can raise prices until they can get more capacity in line. Let's say there are millions of unemployed construction workers and plenty of lumber, cement, and other building materials sitting idle, the government could spend on scale to provide housing without causing inflation. The simple act of "printing" extra USD does not necessarily mean it becomes less valuable like a commodity. The USD is not a commodity, it's an I.O.U.
@@pauldandurandboots Equation of exchange. If you double the money supply, you double prices. Pure and simple. The velocity of money won't change, and printing money doesn't increase economic activity.
Thank you
Government is able to collect taxes. Government policy enables the private sector, the private sector/complex enables government. Great economy. When will the wars stop and when will all be able to afford food and roof over our heads. When will MMT make the normal 'citizen' feel safe.
Most of the taxes we have are toxic for the economy. That's the real issue.
A fairy story. There's a 16 trillion pound pension debt.
Debt based economies need to find ever more businesses and people willing to take on ever more debt. This drives empire and war as newly acquired assets allow business, and the military, to expand. The businesses, and military, need funds to expand so take on debt with the banks/lenders. So, the banks/lenders endlessly encourage/fund war. This has been the way of the west. We are also seeing the wealth of the middle class siphoned to government, and probably it's destruction (for now). This is ideal for government that wants more control and socialism. Fiat currencies have always failed eventually because they have few restraints and allows easy abuse by weak, maybe corrupt, politicians - IMO.
Richard's great summary explains the consolidated government structure, such as looking at the Treasury and the Fed as a central whole. When we look at these two in a coordinated view, which is how it's technically done in the US, then it's just a matter of understanding the accounting rules Congress established decades ago. This coordinated approach uses an accounting balance sheet to factor in taxes and issuing of bonds after Congress approves spending and orders the Treasury to pay. The government spends first, then the Treasury and the Fed figures out what they need to do with bank reserves, tax receipt numbers, and bond creation needs in order to balance the accounting Daily Treasury Statement at the end of each day. I think too many people working at the Fed get caught up with the post spending actions by Congress, thinking that taxes play a role in whether or not new bonds need to be created. Because of this narrow view, they think taxes comes first. But, both consolidated and coordinated system views do indeed show that it's the other way around where government spends first before it taxes. It has too if the government is the currency issuer. Folks in the Austrian school would be able to see this if they let go of the notion that the origin of money was a natural evolution out of bartering. Historians and anthropologists clearly explain that's not the case. Money was developed as an I.O.U. (establishing technology to manage debt, such as clay tablets and the tally stick). For anyone looking to learn about the origins of money, "Finding the Money" documentary does a decent job explaining the history along with a great overview of MMT.
I first became aware of MMT by reading Reclaiming the State by Mitchell and Fazi. Using the economy for the benefit of society is a novel idea and far removed from neoliberalism. If only...
Modern monetary theory is not a theory - its a conjecture.
The Job Guarantee is necessary because of its role as an inflation anchor.
Alternatively flood the country with hundreds of thousands of migrants to depress all wages.
In a perfect world, with intelligent and selfless government that can't be swayed by the banks and big business, a fiat currency could work. A primary function of money is to be a store of wealth, that's the very reason money of any form was ever used, so we can defer one side of a trade - without losing the value of the trade. Unfortunately our fiat currency fails this need and history shows all fiat has always trended to zero value eventually. I'm really interested as to whether people believe the future of our fiat currencies will be any different, and what happens if/when the population realise the currency is toilet paper.
Somehow I just can't see this one being a favoured topic for lively exchanges of ideas in the subsidised bars and tea rooms of the House of Commons.
We can all issue currency when you think about it. If I promise to pay a bank £10k in the future in order to secure £10k now. I am essentially issuing my own currency, their account with me has £10k equivalent of my own currency in credit and I am stating to them that they should trust my currency can be swapped for british pounds at a future date. Debt is money.
❤
Think I'm beginning to understand. The Gov can print money to buy unused production. To stop inflation it taxes to reduce the amount of money in circulation. It can also use taxes to increase the amount of unused production, allowing it to spend more. Sort of a zero sum balancing act? So the money it prints is a liability in the Gov's books and an asset on everyone else's. Now the 'Accounting Practice' makes sense. Question though - how does MMT view things like 'The Labour Theory of Value'.
Taxes with no services. i.e. Inflation in the price of the state.
If it taxes and spends, you get zero effect from the tax .
@@adenwellsmith6908 not sure about that. There are always consequences, usually unforeseen. This feels like it will hit those who can't pass the the tax on to the next person. e.g. the consumer.
@@txm9441 It's perfectly foreseable.
The UK has GDP. Effectively its house hold income. It has a value.
When people demand more state spending, they are demanding more goods from the state. The state gets a bigger slice of the pie.
You can only get a bigger slice by taxation from the productive in society. It's a transfer from A to B. From one group to another.
That's limited by the size of the pie, and its limitted by the ability and willingness of the people who lose to accept it.
The number of zeros on the banknote is irrelevant.
Well, the govt taxes to free up the resources it wants to use. When the resources are available to it, it buys them by issuing £s into existence.
The labour theory part is covered by the Job Guarantee.
@@adenwellsmith6908I think you have fundamentally misunderstood the role of taxation in a fiat economy.
A primary function of taxation is to free up the resources govt wants to use; taxation isn't a funding mechanism.
Very good explanation. The problems are governments' propensity to waste money, and the damaging effect of the tax systems that give the currency its value. The only effective model for a fiat currency has been the German Rentenmark, which ended the Weimar inflation.
I wish I understood it
People who have the ability to work are able to get loans because they can pay them back, a govt is able to say we will take a percentage of our constituents life's efforts in taxes so any money printed by the central bank, debt, is able to be given back. Because all new loans/debt is new money, that money needs to leave again or it builds up as taxes make money not exist anymore. Money is not like gold in that it does not build up, it is debt and therefore works on a basis of negative zero, they are always trying to get the loan back to zero, the debt as soon as it leaves the bank and hits an account, that is what we call money, we spend our lives around it and do all the things we do because of it, imagine we are fish in a pond that has water always pouring into it, the water must leave again or it floods while we fish carry on with our lives.
For a general introduction, watch “Stephanie Kelton: The Public Purse” (a little less than an hour and a half). It's a very clear overview of MMT.
Another point, you say we do, we do people do not MMT we don’t have the choice, the people they are made by who we have elected
In what you’re saying, Richard, why does governments are you the British government conservatives and labour have the right advisors because in your earlier videos saying they don’t understand it between tax-and-spend or how it works and inflation works. All they know is to the general public we are we can’t do this because we don’t have this money we got a black hole so we can’t do that, in my opinion, I see it as a coercive control system. Keep the general public generally frighten frighten about their mortgage, frightened about the price of goods that they go by at the weekend for the shopping. The petrol price keep them occupied on everything else, except what they are really doing like in the 70s I’m probably totally wrong, you were allowed to have your television in the car. Your house go on holiday. They were the occupiers of the 70s kept the general public centred on that today. I have to be a bit more Wiley if I’m wrong I’m wrong
I still don't fully understand MMT. Is the Bank of England a public institution or private? Does the BOE charge interest on government debt?
The BoE is publicly owned. It's owned by the Government Legal Department on behalf of the Treasury. It does charge interest but as the government is the owner, it is effectively cancelled out.
@@clementattlee6984 Many thanks for confirming.
The DMO [Debt Management Office] does government debt,.
@@adenwellsmith6908 The DMO refinances any govt debt and converts it into a tradeable commodity.
But, but, but. Understanding MMT is all well and good, understanding ‘spend and tax’ vs ‘tax and spend’ is all very well. However, what is not apparently understood by a lot of people is that consistently allowing spend to be greater than tax means that the value of money is continually being degraded and devalued. It’s why something that cost £5 10 years ago now costs £10. The thing itself hasn’t become more expensive to buy, it’s that the value of the currency that is used to purchase it is worth less.
Well that's not true
This has upsides - if money loses value, you don't want to stockpile it - you have to use it and keep it active. It discourages Smaug piles
@@markwelch3564 Exactly. The other thing it does is diminishes debt over time. This in itself is why MMT absolutely IS government policy.
@@markwelch3564 Actually, within a MMT based economy, gold is probably the best stockpile. 😉
What is the problem with that?
First, who cares if alles or care nominally costs more than 50 years before if wages rose accordingly? The price tag is only important in relation income, not in itself.
And some small controlled inflation every year is important for revenue expectations of companies.
Our societies didn't collapse because of continuous price increase
MMT states you cannot use printing as a means of funding government because you get inflation. That doesn't cure the inflation linked debts.
Yes, that'll happen when Scotland goes indendent, like EVERY small independent country in the world.
dept based economics. 🤮
It's a mad theory. It's like spending more when you're at your credit limit. Gravity, like creditworthiness, does exist.
Oh dear!….
It's a proven theory, with solid maths and facts behind it. It's also nothing new, it's pretty old already too. But the propaganda from the real mad there - neoliberal economics and it's proven lie 'trickle down' economics - is overwhelming and seems to have addled your brain too.
No it isn't like spending more when you're at your credit limit because governments with fiat currencies don't have anything analogous to a credit limit as you might find with a personal credit card.
The limit is the people and resources available to the country and in the UK certainly, they are underutilised. The government spends far less than the country can support which throttles the economy and makes it weaker over time. Over five years, there's no reason they couldn't double their annual expenditure at a rate of a 20% increase per year for the next five years, so long as it's not wasted on their shady mates.
It isn't a theory - it simply describes the process. The problem is that governments waste money and the tax system is wrecking the economy.
Except the government's 'credit card' is unlimited because it issued it, and credit rating agencies have no bearing on a currency-issuing government.
MMT is insanity
No its not. What's madness is people like Richard abusing the consequences.
@@adenwellsmith6908 "Money for nothing, and your chicks for free"
The temptation is too great.
@@marcopolotimetraveller Sound like Starmer