Everything You Need to Know About Modern Monetary Theory
These are the central claims of modern monetary theory, a vision of political economy that is now having a moment, particularly within the left flank of the Democratic Party. The MMT perspective has heavily influenced both the Green New Deal and recent proposals for the federal government to offer full-time jobs to anyone who wants them. Five Republican senators have responded by introducing a resolution condemning MMT on the grounds that it “jeopardizes the United States’ economic security.”
Those senators were responding to the common caricature of MMT that every problem can be solved by printing money. Many others who ought to know better have made the same mistake. Bill Dudley, the former president of the Federal Reserve Bank of New York, blamed MMT-like policies for hyperinflation in Weimar Germany, Zimbabwe, and Venezuela. Larry Summers, the former U.S. Treasury secretary, called MMT “ludicrous,” “fallacious at multiple levels,” and a “recipe for disaster.”
These criticisms miss the mark. MMT is actually grounded in old and uncontroversial economic ideas, and its appeal is neither ideological nor partisan. In May, Sen. Marco Rubio (R., Fla.) released a detailed paper on the state of the U.S. economy that repeatedly cited papers and books associated with MMT. Despite his diatribes, Summers has made many of the same policy prescriptions as the MMT thinkers in recent years—and for largely the same reasons.
The best way to understand MMT is to think of it as the peacetime version of wartime economic management: Governments can do whatever is necessary to satisfy the “public purpose” as long as they maintain their authority over the populace. The U.S. government was able to run budget deficits worth more than 20% of gross domestic product during World War II without risking either inflation or its own creditworthiness—but it needed to use rationing, wage and price controls, and financial repression to do so.
As Bill Mitchell, a professor at Australia’s University of Newcastle and a co-author of a new MMT textbook on macroeconomics, puts it, sovereign governments face no “so-called financial constraints,” only “political constraints.”
China illustrates the potential of this approach—for good and for ill. Mitchell has written that the country “provides an economic example” in its management of the business cycle, but the measures it has employed to achieve those short-term objectives have burdened it with severe long-term problems.
What Moves the Federal Budget?
Net saving by sector as a share of gross domestic product.
Private Sector retrenches
Housing
bubble and
peak trade
Sources: Bureau of Economic Analysis; Barron’s calculations
Fortunately, investors and policy makers can benefit from the core economic insights underpinning MMT even if they do not want to adopt the Chinese economic model.
The first of these insights is that “money is a creature of law,” as the German legal historian Georg Friedrich Knapp put it in his 1905 book The State Theory of Money. Governments invented money to buy goods and services from the private sector without offering anything of equivalent value in return. People accept this because they are forced to use government-approved money to pay their taxes. Government spending therefore creates money, while taxation destroys it. Sovereign governments cannot run out of money, although their spending is limited by their ability to compel the private sector to provide goods and services.
The second foundational insight is that most money is created by the private sector, not the government. Banks create money whenever they lend, and destroy money when their balance sheets contract. The choices of for-profit financial firms drive the swings of the business cycle.
Central banks try to influence this process by raising and lowering banks’ short-term funding costs, which can affect the profitability of new loans, but the link between “monetary policy” and money is often weak. Fiscal policy—that is, changes in taxes and spending—is often necessary to offset changes in private behavior and keep the economy on an even keel.
The third basic insight is that investors cannot own financial assets unless issuers are willing to create them. Creditors cannot save unless debtors borrow. It is therefore impossible for everyone in the world to save by accumulating financial assets at the same time.
This means that corporate profits rise as companies invest, and fall as households, foreigners, and the government save, as the American business forecaster Jerome Levy realized back in 1914. Wynne Godley, a British economist, extended this to conclude that governments cannot cut their own debts without forcing others to save less or borrow more. Similarly, trade deficits are harmful to the extent they force households and business to increase their indebtedness.
Is Inflation a Monetary Phenomenon?
Cumulative increase in personal consumption expenditure price index, by category
Financial services furnished without payment
Sources: Bureau of Economic Analysis; Barron’s calculations
The sharpest macro investors use these insights on a regular basis. Bridgewater Associates, by some measures the most successful hedge fund of all time, teaches them to its new recruits almost as soon as they walk in the door. Jan Hatzius, chief economist of Goldman Sachs, has been citing Godley’s work for nearly 20 years. As Hatzius wrote in a recent client note, MMT “proponents make a couple of points that are both correct and important,” particularly the claim that “private sector deficits are generally more worrisome than public sector deficits.”
Investors armed with these insights knew the British pound would have to leave the European Exchange Rate Mechanism in 1992 and were among those who predicted the euro crisis that began in 2008. They avoided the infamous “widow maker” trade of betting against Japanese government bonds in the 1990s. Bridgewater and Goldman were among the few to realize the danger of rising U.S. household indebtedness during the 2000s, while remaining relatively sanguine about the federal budget deficit.
Many others came to the opposite conclusion. In 2003, for example, Paul Krugman wrote in the New York Times that “skyrocketing budget deficits” would force up interest rates. His preferred response to the tech bust was to have the Fed “create a housing bubble to replace the Nasdaq bubble” so that “soaring household spending [would] offset moribund business investment.”
When the financial crisis hit, the insights underpinning MMT made it clear the results would be deflation and falling interest rates. To his credit, Krugman got that right, but many in finance and academia did not, with scaremongers warning that “trillion-dollar deficits” and the Fed’s expanding balance sheet would lead to hyperinflation.
While the federal budget deficit ballooned, it wasn’t nearly enough to accommodate the massive shift in Americans’ desire to save, which is why interest rates fell and the economy shrank.
Similarly, the supply of bank reserves grew about 100 times from August 2008 to October 2009, yet that was insufficient to prevent the private money supply from shrinking nearly 6% over the same period or prevent total U.S. spending from dropping by 3%.
This analytical framework has major implications for policy makers. By the 1940s, a wide range of economists—including a young Milton Friedman—realized that the tools developed during the wars could be adapted for peacetime. In 1948, he recommended having the government print money to fund deficits as large as necessary to accommodate the needs of the private sector. Friedman, however, admitted that his plan would never be enough to ensure full employment “without additional institutional modifications.”
For the past few decades, MMT thinkers have been focused on those “additional institutional modifications.” In their view, the most straightforward solution is to have the government offer jobs directly to anyone who wants one. Anyone who failed to get a job in the private sector would be paid by the government to plant trees, clean streets, or perform other tasks for which there are few prerequisites. By definition, unemployment would disappear.
This “job guarantee” would not be as generous as it might seem because it would also be used to help keep inflation under control. Mitchell has explained the new jobs would pay only enough to guarantee a “minimum acceptable living standard” at a fixed pay rate. If prices rise, real incomes will fall. The threat of being forced to take a “low-wage and possibly stigmatized” government job is supposed to “discipline the distributional struggle” and prevent overall wages from rising too rapidly, he notes.
What Is Modern Monetary Theory?
Most people think government borrowing is a problem. But according to Modern Monetary Theory, it creates income for households and businesses. Whether this is good or bad depends on the state of the economy and how the money is used. Barron's Senior Reporter Mary Childs explains.
The least appreciated—but most important—aspect of the political economy of MMT is its treatment of inflation. The standard view embraced by the world’s central banks is that prices rise when “aggregate demand” for goods and services exceeds an economy’s productive capacity. MMT economists reject this approach. They argue that most inflation is caused by “bottlenecks” in specific sectors. As Stephanie Kelton of Stony Brook University put it in a recent interview with CNBC, policy makers have to “understand what the source of the inflationary pressure is” and then craft a “policy tool that you think is going to help you get at that inflation.”
The evidence supports Kelton. Almost all of the inflation in the U.S. since 1990 has come from a handful of sectors that account for only a third of the total price index: health care (including prescription drugs and insurance), housing, education (including textbooks), and “financial services furnished without payment,” such as bank accounts. These sectors have several features in common: They are uncompetitive, their pricing is opaque, they are heavily subsidized, and their supply is tightly constrained by regulations.
In general, however, the MMT solution to inflation is to increase government control of economic activity. As MMT theorists Scott Fullwiler, Rohan Grey, and Nathan Tankus put it, “the more actively we regulate big business for public purpose, the tighter the full employment we can achieve.” They also advocate limiting consumers’ ability to borrow to buy specific goods and services if their prices are rising too quickly. Pavlina Tcherneva of Bard College adds that “incomes policies” and “wage rules” could also hold down inflation if needed.
This explains why MMT proponents believe they do not need to raise taxes to keep prices stable even as they massively increase government spending on projects such as the Green New Deal. They expect that tighter environmental regulations “would disemploy people and resources in [polluting] industries.” That would need to be offset by higher spending elsewhere, such as in alternative-energy infrastructure.
L. Randall Wray of Bard College argues that this should not generate any sustained inflation because total spending in the economy would not rise. Instead, the government would be “moving resources” from one sector to another. Tax cuts could potentially be required if millions of workers are losing well-paying jobs and getting new ones from the government at lower wages.
There is no country today that perfectly follows the MMT model of political economy. The one that comes closest is China. Mitchell has praised China for demonstrating “the opportunities that they have as a monopoly supplier of their currency,” which allows it to “deficit spend to further their sense of public purpose.” Ever since the pro-democracy protests of 1989, the Communist Party has consistently maintained full employment by ordering state-run banks to lend and by ordering local governments and state-owned enterprises to spend. At the same time, the government has suppressed inflation with credit controls, land seizures, and what the Chinese intellectual Qin Hui has called the “comparative advantage of low human rights.”
The long-term consequence of this policy mix has been the promotion of investment at the expense of consumption. The results include ghost cities, industrial overcapacity, and extreme pollution in the midst of widespread poverty. Finding things for people to do is easy, but finding worthwhile things for people to do is much harder. Forcing uneconomic enterprises to close might have raised Chinese joblessness in the short run, which would have been wasteful, but would probably have prevented greater wastefulness over time.
Markets are supposed to help allocate resources by rewarding people for investing in and working at businesses that satisfy material needs, and punishing others with bankruptcy and job loss. Tellingly, MMT thinkers are sometimes dismissive of these mechanisms. Wray argues that “the natural market force is always destructive” and prefers a “caring, nurturing social system.” “Efficiency,” to him, is overrated. Better to have people “producing something” than nothing.
The question is whether it is possible to avoid the costs of letting workers and machines lay idle without losing the valuable discipline provided by hard budget constraints.
2 Comments:
>【バロンズ】MMTで投資家が知るべきこと
>2019.6.12 The Wall Street Journal／Matthew C. Klein
重要なのは以下だ
>https://diamond.jp/articles/-/205353?page=3
>ゴールドマン・サックスのチーフエコノミスト、ヤン・ハチウス氏は、ゴドリーの著作を
>約20年にわたって引用している。同氏は最近の顧客向けレポートで、「MMT支持者は幾
>つかの点で正確かつ重要な指摘をしている」と述べ、特に
>「民間セクターの赤字は、一般的に公的セクターの赤字よりも大きな懸念になる」
>という主張を挙げている。
…
https://www.barrons.com/articles/modern-monetary-theory-51559956914
Everything You Need to Know About Modern Monetary Theory
Matthew C. KleinJune 7, 2019
… Jan Hatzius, chief economist of Goldman Sachs, has been citing Godley’s work for
nearly 20 years. As Hatzius wrote in a recent client note, MMT “proponents make a
couple of points that are both correct and important,” particularly the claim that
“private sector deficits are generally more worrisome than public sector deficits.”
…
主流派はこれを見ない。だから間違える。
>>435
この記事ですかね？
https://diamond.jp/articles/-/205353?page=4
【バロンズ】MMTで投資家が知るべきこと
2019.6.12
…
こうした主張を裏付ける証拠も存在する。1990年以降の米国におけるほぼ全てのインフレは、
物価指数全体の3分の1を占めるにすぎない少数のセクターから生じている。そのセクターとは、
ヘルスケア（処方薬と保険を含む）、住宅、教育（教科書を含む）、「支払いを伴わない金融
サービス」（銀行口座など）である。これらのセクターには、競争が乏しい、価格設定が不透明で
ある、多額の補助金を受けている、規制によって供給が厳しく制限されている、といった複数の
共通点が存在する。ジェネリック薬の販売を容易にする、病院間の競争を促進する、住宅建設の
促進のために都市計画法の規制を緩和する、銀行の預金金利引き上げを後押しする、といった
政策は、全てインフレに大きな影響を与え得るとともに、国内産の商品やサービスの需要を
押し上げる歳出増や減税の影響を十二分に相殺する可能性がある。
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