Search This Blog

Saturday, November 5, 2011

Neo-Chartalism Reconsidered

I was forwarded a link to recent paper by post-Keynesian Marc Lavoie. I was forwarded it in part because my blog is cited in the paper as an outside observer (totally true) - which is pretty cool.

I must admit, it has me taking a second glance at MMT theory, frankly, because his paper is the first to calmly explain (at least one piece of) MMT in a way that doesn't alienate, and in a way that bridges some of the language gaps and misleading or just factually wrong (given common usage of terms) statements by MMTers. Ahh the power of words....

Some 'aha!' passages:
Another problematic statement is that the government has to run deficits, at least over the long run, for the public to get access to larger cash balances (high powered money). As Wray (1998, p. 123) puts it, “persistent deficits are the expected norm”, that is, “normally, taxes in the aggregate will have to be less than total government spending due to preferences of the public to hold some reserves of fiat money” (Wray 1998, p. 81). If the government was running persistent surpluses, the public would “run out of net money hoards” (Wray 1998, p. 79). While I would certainly agree that government deficits in a growing environment are appropriate, as it provides the private sector with safe assets, which can grow in line with private, presumably less safe, assets, it is an entirely different matter that government deficits are needed because there is a need for cash.

Even if the government keeps running balanced budgets, central bank money can be provided whenever the central bank makes advances to the private sector. Wray (1998, p. 79-80) himself recognizes this, as he later adds that “a surplus on the Treasury’s account is possible as long as the central bank injects reserves through purchases of assets or through loans of reserves”. Presumably, what he has in mind, as we will see soon, is that total government expenditures include “spending” by the central bank, when the central bank purchases private assets or claims on the private sector and adds them to the asset side of its balance sheet. But this is an odd way to define government spending.While this terminology problem is easy to solve, things may not be so simple with the oft-made statement that “government spends first”, a statement that, of course, has some relationship with the causal sequence mentioned when discussing the links of neo-chartalism with circuit theory. This expression comes back like a leitmotiv on many of the blogs devoted to modern monetary theory, but it can also be found in academic writings: “Government spends simply by crediting a private sector bank account at the central bank. Operationally, this process is independent of any prior revenue, including taxing or borrowing” (Mitchell and Muysken 2008, p. 209); “The government spends simply by writing Treasury cheques or by crediting private bank accounts” (Tcherneva 2006, p. 78). These statements are at best misleading. They skip one fundamental step that makes incomprehensible the leitmotiv sentence that “government spends first”. Any agent must have funds in a banking account. Before being able to spend, the Treasury must somehow replenish its deposit account at the central bank (or at private banks).

This step is often skipped because neo-chartalists prefer to consolidate the central bank and the federal government into one entity, the State. Now, in itself, such a consolidation is not illogical. Other authors, such as Godley (1999B), have on occasion consolidated the central bank with the government. But such an integration may not be appropriate for the purpose….

The purpose of this whole exercise is to show that there is no point in making the counter-intuitive claim that securities and taxes do not finance the expenditures of central governments with a sovereign currency. Even in the case of the US federal government, securities need to be issued when the government deficit-spends, and these securities initially need to be purchased by the private financial sector….

...neo-chartalism carries some excess baggage, which must be gotten rid of. In trying to convince economists and the public that there are no financial constraints to expansionary fiscal policies, besides artificial constraints erected by politicians or bureaucrats that believe in mainstream theories and in the principles of sound finance, neochartalists end up using arguments that become counter-productive. There is nothing or very little to be gained in arguing that government can spend by simply crediting a bank account; tha tgovernment expenditures must precede tax collection; that the creation of high powered money requires government deficits in the long run; that central bank advances can be assimilated to a government expenditure; or that taxes and issues of securities do not finance government expenditures. All these counter-intuitive claims are mostly based on a logic that relies on the consolidation of the financial activities of the government with the operations of the central bank, thus modifying standard terminology. I believe that such a consolidation leads to the avoidance of crucial steps in the analysis of the nexus between the government activities and the clearing and settlement system to which the central bank partakes, and hence leads to confusion and misunderstandings. And so do references to a leveraged vertical component of the money supply.

It's important to note that Lavoie's paper focuses only on the fiscal/monetary settlements relationship with MMT. Some of the other ideas of MMTers (like a government-mandated and set fully employed workforce - employment targeting) are still quite a bit harder to swallow, but I'll continue to keep an open mind.

Finally, Lavoie's paper is an exercise in positive economics, not normative economics. For me, it is still an altogether different (and potentially more important) question whether we should be using strong fiscal policy tools to guide an economy, regardless of whether or not there are any direct financial constraints, as there most certainly are other constraints that need be considered, not the least of which are logistical (politics) and the reality that fiscal policy has been shown to be very messy in practice, and one need to be very careful about discussing fiscal policy in the vacuum of a research paper. That is, at the end of the day we will likely still have the debate about the merits of functional finance.

79 comments:

Nathan Tankus said...

I'm glad to see you're giving chartalism another chance. Frankly though, i think that if you read the academic literature after reading some of the blogs (or even the comments from non-academic chartalists) you're concerns would have been partially alleviated.

as I've argued elsewhere, I think you're criticisms of the job guarantee is from willful misinterpretations or ignoring the historical evidence.

Tschäff said...

The unfortunately named Job Guarantee (JG) or Employer of Last Resort (ELR) is a MMT policy proposal, it's different from descriptive MMT which aims at describing the details of our actual monetary system.

First of all, the JG should be renamed to public works. Unemployment offices should be renamed to employment offices, where anyone able and willing to work can get a job doing community service. There are numerous social benefits both to the worker and the community they serve, but it is also an anti-corruption tool. Given politician's proven love for rewarding campaign donors every chance they get, this will take away their justification they call it(fiscal stimulus) which in large part doesn't go to the things with the highest spending multiplier (direct job creation for the unemployed) and is gimmicky- not the right size, not the right duration.

Most economists use the NAIRU as their definition of full employment because they haven't figured out how to solve the unemployment problem without causing inflation. But MMTers have. See Pavlina Tcherneva's 'Keynes's Approach to Full Employment' to see how this can be done. The TINA myth must die!

MMT is a a fundamental rethinking and reform of the conventional fiscal policy levers to bring involuntary unemployment down to zero without causing inflation. I shared it with you, hoping you'd share my love for great ideas. I'm glad for your open mindedness.

Garth said...

I'm not discounting the basic "descriptive" nature for MMT, but its usefulness will be proven not in just in its ability to explain relationships in the real economy, but it's prescriptions as well.

I personally don't think MMT has 'solved' the inflation problem, precisely because their prescription relies on politicians or political institutions to know how much is too much - though I agree inflation is not the real big problem here.

Inflation to me is really a minor problem compared to the bigger problem of how such a program would be run dynamically efficiently and with minimal moral hazard, perversion of incentives, and corruption of the system.... that hasn't been answered in what I've read very well.

Tschäff said...
This comment has been removed by the author.
Garth said...

I don't disagree with 90% with what you've said. Though I would add that it wasn't just the MMTers that were sounding alarms...it was a good chunk of heterodox economists in general. Hence why I'm contributing to the new 'anti-Mankiw' movement. MMT is but a piece of the larger understanding to how the economy may truly work as opposed to how mainstream econ has distorted reality.

Tschäff said...

I'm not discounting the basic "descriptive" nature for MMT, but its usefulness will be proven not in just in its ability to explain relationships in the real economy, but it's prescriptions as well.

I think you'd agree an essential first step before you can make coherent policy is to first make sense of the existing system. The
MMTers were sounding the alarms when the details of the euro were still wet ink, they were marginalized but now you can see they were right for the right reasons. They were sounding the alarms about the housing bubble and subsequent financial crisis. They were also predicting in real time the stimulus is too small and too poorly targeted. That QE and QEII are not going to get the economy moving and not be inflationary except for the rush of money into commodity markets driven by people fearing inflation (the cosmic joke). They knew that high interest rates on tsys weren't a risk from all this deficit spending. These are just some off the top of my head.

I personally don't think MMT has 'solved' the inflation problem, precisely because their prescription relies on politicians or political institutions to know how much is too much


Not the inflation problem, but the problem of intentionally keeping people unemployed to control inflation. That's what politicians are giving us now with NAIRU! MMTers aren't naïve about political incompetence or corruption, hell they've been writing about it every day and are the only group of economists I know of who incorporate control fraud into their analyses! They aren't naïve about labor markets either. They begin with the stylized view that there is no reason to think that the economy driven by private actors using profit motive alone will EVER gravitate towards full employment. To the contrary there are many reasons to think full employment is the exception, not the norm. It is BECAUSE they are aware of all of this that they say we need a bottom up, decentralized, solution to involuntary unemployment.

Tschäff said...

MMT is but a piece of the larger understanding to how the economy may truly work as opposed to how mainstream econ has distorted reality.

MMT is unique from other schools of thought in that it takes good ideas wherever they come from in their efforts to make sense of reality, they've got a delightfully interdisciplinary approach that incorporate criminologists, bankers, central bankers, fund managers, anthropologists, and draw from thinkers from numerous schools of economic thought.

What I dislike about just about every other "economic school" is their unwillingness to leave model land and TRY to understand reality. I know you share some of these concerns, hence your blogs name. MMT strives to include every relevant insight in order to come up with the best policy, really that's the best anyone can do isn't it?

Vincent Cate said...

I think MMT is interesting but has a big flaw. I have written up an introduction to MMT that I think makes it much easier to understand. I also explain the flaw they have. Basically they think monetizing 30 year bonds with fresh new money does not matter. However, history shows us this is inflationary.
http://pair.offshore.ai/38yearcycle/#chartalism

Tschäff said...
This comment has been removed by the author.
Anonymous said...

uyknest [url=http://www.bottlegourduk.info/article.php?id=1885]diete de slabit eficiente[/url] mylokhnr[url=http://www.quiromasajistas.org/groups/never-carb-diet-what-you-eat-list/]cure de slabire rapide[/url] d
yaoolim [url=http://fiestabrochure.com/node/21899]diete de slabit rapid[/url] b lkgahop[url=http://www.dcarticldirectory.com/article.php?id=136960]regim de slabit rapid[/url] s
wsjvccj [url=http://www.roastemortoastem.com/groups/food-intake-plans-how-which-will-do-it-most-of-the-right-way/]dieta de slabit rapid[/url] u wrpynkt[url=http://www.bhs.cc/think/tiki-index.php?page=UserPageshelleyjdw]dieta[/url] j
tzthuap [url=http://priory.mrooms.net/user/view.php?id=7671&course=1]cure de slabit[/url] h rczdoyl[url=http://devartwalk.scrammagazine.com/node/37160]slabire rapida si mentinerea greutatii[/url] a
ohqxxuy [url=http://www.jugaadu.com/node/12425/]supa de varza pt slabit[/url] k kiznpjt[url=http://www.bookblood.com/?q=node/2438]supa de varza pt slabit[/url] y
xxtzosj [url=http://onthank.info/FamilyTree/tiki-index.php?page=UserPagegarrymacon]diete pentru slabit[/url] c ujhlyyd[url=http://nativecherokeepottery.com/?q=node/18124/]cura de slabire[/url] k
uwsoomt [url=http://www.gruks.info/article.php?id=21147]cura de slabire[/url] j uncwffc[url=http://www.turkmenhh.org/agza/groups/a-great-healthy-type-b-diabetes-diet-food-chart/]diete rapide de slabit[/url] s
ctzgojo [url=http://www.eb5one.com/groups/read-more-about-kinovelax-food-intake-plan/]dieta pentru slabit[/url] w ezurquk[url=http://hintermueller.at/wiki/tiki-index.php?page=UserPageshanafjx]cura de slabire rapida[/url] u
dgukzzu [url=http://www.shopniagara.ca/blog/groups/2000-calorie-diet-food/]diete pentru slabit[/url] o ajkltcl[url=http://demo1.myworkdemos.com/bp1/groups/mediterranean-and-beyond-diet-food-list/]cure slabit[/url] u

Anonymous said...

xanax online xanax recreational use grasscity - xanax side effects day after

Anonymous said...

buy tramadol online buy tramadol online mastercard - tramadol for dogs bone cancer

Anonymous said...

Ѕo іf уou truly need to haѵe a very good ab bеlt, hеre
aгe some solutiоns which you сan think
about.

Hаve a look at mу site; original site
Also see my site: Earthssports.com

Anonymous said...

generic xanax round white generic xanax - what is a generic xanax

Anonymous said...

buy tramadol online cod tramadol renal dosing - tramadol addiction during pregnancy

Anonymous said...

buy tramadol online tramadol hcl how to take it - tramadol withdrawal hot flashes

Anonymous said...

order alprazolam can you buy xanax vietnam - xanax side effects in elderly

Anonymous said...

buy tramadol online tramadol rx purchase - chewing 100mg tramadol

Anonymous said...

xanax pills xanax zanny - xanax withdrawal relief

Anonymous said...

cheap tramadol tramadol buy forum - tramadol used no prescription

Anonymous said...

generic xanax 6 bars xanax - xanax street value 2mg

Anonymous said...

carisoprodol 350 mg what is soma carisoprodol - carisoprodol 700

Anonymous said...

buy tramadol online buy tramadol overnight - ez tramadol order status

Anonymous said...

best place to buy xanax online alprazolam 0.5mg to get high - taking 2mg of xanax

Anonymous said...

xanax price xanax 5 - xanax kratom

Anonymous said...

generic xanax urine drug test detection times xanax - xanax look like

Anonymous said...

xanax online generic xanax 2mg pills - xanax online generic

Anonymous said...

xanax online xanax to buy online no prescription - xanax 2 mg extended release

Anonymous said...

buy carisoprodol carisoprodol long term effects - carisoprodol 350 mg blood pressure

Anonymous said...

generic carisoprodol buy cheap carisoprodol - carisoprodol buy online no prescription

Anonymous said...

buy tramadol online tramadol online cheap - do you withdrawal tramadol

Anonymous said...

alprazolam without prescription xanax is the best drug ever - xanax how long is it in your system

Anonymous said...

buy cialis online legal order cialis online - online pharmacy for generic cialis

Anonymous said...

buy tramadol online buy tramadol free shipping - buy generic tramadol online

Anonymous said...

cialis online generic cialis non-prescription - cialis kidney stones

Anonymous said...

cialis online cialis for cheap price - cheap cialis nz

Anonymous said...

xanax online generic xanax orange pill - xanax bars coke

Anonymous said...

cialis online order cialis online prescription - cialis online pharmacy

Anonymous said...

xanax online xanax dosage 1mg - xanax for anxiety side effects

Anonymous said...

buy cialis online usa cialis daily kaufen - generic cialis in us

Anonymous said...

generic xanax online order xanax online canada no prescription - xanax drug screen long

Anonymous said...

buy xanax xanax generic difference - buy xanax online us pharmacy

Anonymous said...

cialis online cialis price pakistan - cheap cialis melbourne

Anonymous said...

buy tramadol online tramadol 50mg weight loss - tramadol ultram experience

Anonymous said...

buy tramadol tramadol hcl mg - tramadol 150 mg dose

Anonymous said...

learn how to buy tramdadol tramadol dosage erowid - cheap tramadol dogs

Anonymous said...

http://landvoicelearning.com/#38471 cheap tramadol sale - clorhidrato de tramadol 100mg

Anonymous said...

tramadol 100 mg buy tramadol powder - tramadol overdose naloxone

Anonymous said...

tramadol buy tramadol legal to order online - order tramadol no prescription cheap

Anonymous said...

order tramadol no prescription tramadol sr 100 mg side effects - tramadol withdrawal 2012

Anonymous said...

http://landvoicelearning.com/#51602 tramadol hcl like - tramadol canadian pharmacy no prescription

Anonymous said...

order tramadol online mastercard buy tramadol online no prescription next day delivery - tramadol withdrawal flu

Anonymous said...

buy tramadol tramadol online prescription - tramadol online overnight

Anonymous said...

buy tramadol online cod tramadol high duration - buy tramadol online cod no prescription

Anonymous said...

buy tramadol online cheap tramadol good opiate withdrawal - buy tramadol ultram ultracet online

Anonymous said...

buy ativan online lorazepam 1mg vs clonazepam - ativan overdose do

Anonymous said...

http://blog.dawn.com/dblog/buy/#side-effects tramadol not addictive - tramadol overnight no prescription

Anonymous said...

learn how to buy tramdadol tramadol 50mg pain killer - overdose symptoms for tramadol

Anonymous said...

http://reidmoody.com/#92465 ativan withdrawal valerian - ativan to get high

Anonymous said...

buy tramadol tramadol dosage 37.5 - tramadol online overnight mastercard

Anonymous said...

buy ativan online ativan 7 mg - ativan ld50

Anonymous said...

generic ativan ativan strengths - lorazepam online purchase

Anonymous said...

buy tramadol online tramadol 50/ 100 mg - tramadol dosage recommendations

Anonymous said...

http://staam.org/#90723 tramadol for dogs 50mg dosage - tramadol dosage iv

Anonymous said...

oZzy moved away some time ago, I miss his cock, and i am always hungry for intercourse.


FUCK MY PUSSY!

My webpage :: hcg injections
Also see my website > hcg injections

Anonymous said...

where to buy xanax online no prescription xanax effects early pregnancy - xanax and high blood pressure

Anonymous said...

buy tramadol online tramadol 50 mg snorting - buy tramadol 100mg online

Anonymous said...

http://ranchodelastortugas.com/#64581 xanax 90 - xanax 1 mg xr

Anonymous said...

buy xanax online 2mg xanax 1 beer - xanax withdrawal anxiety

Anonymous said...

where can i buy xanax online legally where can i order xanax in u.s. - best place buy alprazolam online

Anonymous said...

buying xanax online no prescription can take 2mg xanax once - generic xanax 0.25mg

Anonymous said...

tramadol online overnight трамадол цена - order tramadol online to florida

Anonymous said...

buy tramadolno prescription generic tramadol online - buy tramadol without rx

Anonymous said...

can i buy misoprostol online - how to buy misoprostol online - online misoprostol in canada without prescriptions

oakleyses said...

tiffany and co, christian louboutin shoes, polo ralph lauren outlet, coach purses, nike free, longchamp handbags, coach factory outlet, louis vuitton outlet, tiffany and co, louis vuitton, gucci outlet, kate spade handbags, louis vuitton outlet, true religion jeans, tory burch outlet, kate spade outlet, prada handbags, air max, michael kors outlet, chanel handbags, burberry outlet, ray ban sunglasses, oakley sunglasses, burberry outlet, prada outlet, nike shoes, michael kors outlet, longchamp outlet, louis vuitton handbags, ray ban sunglasses, coach outlet, jordan shoes, michael kors outlet, louboutin outlet, michael kors outlet, polo ralph lauren outlet, air max, michael kors outlet, michael kors outlet, coach outlet store online, louis vuitton outlet stores, oakley sunglasses cheap, oakley sunglasses, true religion jeans, louboutin, longchamp handbags, louboutin

oakleyses said...

hollister, louis vuitton uk, michael kors, sac burberry, true religion outlet, nike tn, vans pas cher, abercrombie and fitch, nike roshe run, nike air max, michael kors, louboutin, oakley pas cher, timberland, nike free pas cher, north face, nike trainers, polo ralph lauren, mulberry, ray ban pas cher, michael kors pas cher, new balance pas cher, ray ban sunglasses, air max, air force, barbour, sac longchamp, sac louis vuitton, vanessa bruno, lululemon, sac guess, sac louis vuitton, air jordan, sac hermes, louis vuitton, true religion outlet, nike free, air max, longchamp, hogan outlet, nike roshe, hollister, ralph lauren, north face, polo lacoste, air max pas cher, converse pas cher, nike blazer

oakleyses said...

hollister, herve leger, canada goose, insanity workout, nfl jerseys, canada goose, soccer jerseys, north face outlet, p90x, ugg, uggs outlet, canada goose, marc jacobs, new balance shoes, ugg pas cher, canada goose outlet, ferragamo shoes, canada goose uk, celine handbags, jimmy choo outlet, abercrombie and fitch, reebok outlet, mac cosmetics, longchamp, wedding dresses, ugg boots, beats by dre, mcm handbags, asics running shoes, ghd, giuseppe zanotti, babyliss pro, soccer shoes, canada goose jackets, ugg boots, ugg australia, lululemon outlet, birkin bag, mont blanc, north face jackets, nike huarache, nike roshe run, bottega veneta, chi flat iron, rolex watches, instyler, vans shoes, valentino shoes

oakleyses said...

montre homme, iphone 6 cases, thomas sabo, swarovski crystal, hollister clothing store, swarovski, lancel, rolex watches, moncler, ray ban, wedding dresses, air max, hollister, ugg, ralph lauren, coach outlet store online, pandora jewelry, converse, baseball bats, oakley, louboutin, juicy couture outlet, moncler, gucci, air max, pandora charms, hollister, moncler outlet, timberland boots, louis vuitton, toms shoes, juicy couture outlet, canada goose, vans, parajumpers, moncler, ugg, pandora charms, canada goose, moncler, moncler, links of london, converse shoes, moncler, supra shoes, karen millen

raditiya13 said...

nyirami apen huhbuhuhh
hargamesinterbaru.com
juraganponsel.com
seribuinfounik
infosekarang
usahasekarang
fullsharing
gudangartikel
shareartikel
sharingituindah
kumpulanartikel
beritanasional
pemulablog