#2:27~8 ビル・ミッチェル教授 MMTに被害妄想な日本の財 務大臣 Japan Finance Minister getting paranoid about MMT

ビル・ミッチェル教授 MMTに被害妄想な日本の財務大臣

https://nam-students.blogspot.com/2019/08/mmtpersecutory-delusion.html@

http://bilbo.economicoutlook.net/blog/?p=42385

Japan Finance Minister getting paranoid about MMT

billTuesday, May 21, 2019

★

われわれの新しいMMT教科書 - マクロ経済学 - （Macmillan発行、2019年3月）のタイトルは「マクロ経済学をどのように考え、実行するか」、だが、その第2章は、「マクロ経済学理論が説明すべきものは何か」とした。その中で我々は「日本の持続的財政赤字：明らかに事実に反するケース」を議論している。

われわれはこう書いた。[#2:27~8]

他のほとんどのマクロ経済学の教科書では、何らかの形で以下の命題が否定できない事実として記載されていることがわかる。 

1.持続的な財政赤字は短期金利を押し上げる。高まる財政赤字をファイナンスするニーズから、供給に対して乏しくなる貯蓄の需要が高まるからだ 

2. この金利の上昇が民間投資支出を弱める（いわゆる「クラウドアウト」仮説）。

3. 持続的な財政赤字は債券市場に国債利回りの上昇圧力をもたらす 

4. 持続的な財政赤字に伴う公的債務対GDP比の上昇により、いつか債券市場は政府への貸付を減らし、政府の資金繰りを苦しくする 

5. 持続的な財政赤字はインフレを加速し、潜在的にハイパーインフレの可能性を高める。これはマクロ経済にとって非常に有害なものだ。

「（MMTの主張は）全部知っていた」という連中、「MMTはクレイジー」という連中は、これら五つの主流命題がすべて日本が提供する現実によって反証されているという事実に向き合わねばならないだろう。

http://bilbo.economicoutlook.net/blog/?p=42385

In Chapter 2 of our new MMT textbook – Macroeconomics – (published by Macmillan, March 2019), which is titled “How to Think and Do Macroeconomics”, we have a section “What Should a Macroeconomic Theory be Able to Explain?” and in that discussion we discuss “Japan’s persistent fiscal deficits: the glaring counterfactual case”.

We state:

Consult almost any other macroeconomics textbook and you will find the following propositions stated, in some form or another, as inalienable fact:

1. Persistent fiscal deficits push up short-term interest rates because the alleged need to finance higher deficits increases the demand for scarce savings relative to its supply.

2. These higher interest rates undermine private investment spending (the so-called ‘crowding out’ hypothesis).

3. Persistent fiscal deficits lead to bond markets demanding increasing yields on government debt.

4. The rising public debt-to-GDP ratio associated with the persistent fiscal deficits will eventually lead bond markets to withdraw their lending to the government and the government will run out of money.

5. Persistent fiscal deficits lead to accelerating inflation and potentially hyperinflation, which is highly detrimental to the macroeconomy.

To the ‘we knew it all along’ crew or the ‘MMT is crazy’ crew or derivations, they have to confront the fact that the 5 mainstream propositions are all disproven by the realities that Japan provides.

http://erickqchan.blog.shinobi.jp/theanswer/48

ビル・ミッチェル教授　MMTに被害妄想な日本の財務大臣

さりげなく国債廃止もちゃんと言っているミッチェル先生
(下訳　5/21あたりのエントリ)

---

MMTについての議論が広がっている。妙な議論も日々湧いてくる。昨日読んだのは、MMTはマルクス主義が偽装しているもので、起業家精神を打倒しようとしているものなのだとするものだった。 社会主義者の社会であろうが貨幣システムは残る！ また、ほとんどの批評はこんな感じだ - MMTは輪転機を回し通貨の価値を毀損する！ まあ、これは我々の25年間の仕事をうまくまとめてはいる。しかし、それ以外の重要なこともたくさんある！ 数週間前のこと、日本の国会の衆議院委員会では10月の消費税増税を実行するべきかどうかを検討する公聴会が開かれ、長時間の議論がなされた。麻生太郎財務相は、現代貨幣理論（MMT）は抽象理論だからという理由でそれを否定するのは無意味だ、なぜなら日本はすでにそれを「やっている」からだという委員会メンバーの質問に答えた。大臣は、MMTは危険なもので、そんなことを言おうものなら金融市場が混乱すると述べた。興味深い議論だ。ここではMMTのいくつかの重要な特徴がクローズアップされている。それはまた、私たちが暮らすところの通貨システムがどのように機能しているのかを、人々にもっとよく理解してもらうための教育プロセスに大きな進歩があったことを示している。

ほんとうの目的 

ロイター通信（2019年5月17日） - ブレイナード：MMTはFRBの権限を縮小するリスクをもたらすと発言 - たった三段落だけだが、中央銀行の独立に関する神話を背景にした真の課題について多くのことを語られている。 

この記事は、米国連邦準備理事会のラエル・ブレイナードによる現代貨幣理論（MMT）に関する発言だ。 

それによれば 

MMTとして知られている一連の考えは、経済に関する権威を連邦準備制度から議会やその他の政府機関といった政治に密着した別機関に移してしまう危険がある。

彼女の発言が引用されている。 

この責任を、監視を受け独立性を欠くような機関に置くことにも利点がある。ただ、しくみを変えるという点でリスクがあるかもしれない。

リスク？　国民の声が選挙で選ばれた代表を通じて政策のためのしくみを定め、政治家はその責任を負う。中央銀行委員会のような国民に選ばれたわけではない無責任な陰謀団によってではなくなるわけだが。 

新自由主義のやり方は、経済政策を政治から遠ざけることにある。 

それが民主主義を危うくする早道だ。 


日本のMMT実験

日本の国会（議会）では2019年10月1日に予定されている消費税率の引き上げを実行すべきかどうかが議論されている。 

私もこれまで何度も日本の消費税増税について書いてきた。 
1. Japan is different, right? Wrong! Fiscal policy works (August 15, 2017). 
2. Japan returns to 1997 – idiocy rules! (November 18, 2014). 
3. Japan’s growth slows under tax hikes but the OECD want more (September 16, 2014). 
4. Japan – signs of growth but grey clouds remain (May 21, 2015). 
5. Japan thinks it is Greece but cannot remember 1997 (August 13, 2012). 

彼らが消費税を引き上げるたびに、悲惨な結果になった - 支出が急落、経済活動が急停止した。 

1997年に、そして2014年に。 

2014年の４月、安倍政権は消費税率を5%から8%引き上げた。 この増税の後、政策転換の直接の結果として個人消費支出が急激に減少した。 当時私は、彼らが方針を変えなければ悪いことになると予言していた。 

そして現実に悪くなった。 消費者が支出をやめ、消費支出の低迷の影響を受け遅れて事業投資に悪影響をもたらした。 

図は1994年3月から2015年3月四半期までの実質GDP成長率（年率換算）だ。赤い部分は消費税による景気後退を表している。 

どちらの時も、景気後退に続いて新しい財政刺激策が打たれた（金融政策は終始「緩和的」だった）。 

どちらの時も、財政の後押しの結果として持続的成長への急速な回復があった。 

これ以上に明白なことが何かあるだろうか。 



そしてこの議論が再び、議会のテーブルに戻ってきた。 

ただ今回の議論は、MMTの理解が紹介されたことで興味深いものになっており、また、われわれの仕事の本当に重要な側面のいくつかがよく表れている。 

この議論についてウォールストリートジャーナル（2019年5月15日）は記事 - 「私達は既にそれをしている」：日本は非正統派経済学の教義をテスト中 - はこう書くことになった： 

しかし日本では、MMTは政策闘争の中心にある。財政赤字を削減するために計画された10月1日の消費税増税を実行するかどうか。

日本政府は、消費税を8％から10％に引き上げる予定だ。政府が前面に押し出しているのはこれを正当化する、財政赤字は悪いものだとする主流マクロ経済学の一連の議論だ。

第198回国会における麻生財務大臣の財政演説（2019年1月28日）で、財務大臣は次のよう述べている。 

.…経済の活性化と財政再建を達成するための着実な努力…今年10月に消費税率を引き上げることによって安定財源を確保する。

こうした発言の背景にあるのが、「少子高齢化」と「全世代を対象とした社会保障制度の確立とその持続可能性の確保」だ。 

それで、こういうことにされる。社会が高齢化するにつれ政府には年金を払う余裕がなくなっていき、年金に資金を提供する能力を増やすために赤字を削減する必要があるのだ、と。 

WSJの記事では財務相（麻生太郎）の、次の発言が引用されていた： 

それは財政規律を緩め、非常に危険な事態になり得る。

彼はまた、「日本を海外の経済理論の「実験場」にすることは望んでいない」と主張している。 

私が、日本はMMTの基本的な原則を示す格好の「実験場」だと数十年言い続けきたので申し訳なかったが、日本はまさに我々が財政政策と金融政策の「極値」と見做すものを本当に探求してきたトップ国であり続けていた。 

大きく持続的な財政赤字。 

高い公債残高/GDP比。 

ゼロ金利。

10年物の国債利回りがマイナス。 

低インフレからデフレへ。 

われわれの新しいMMT教科書 - マクロ経済学 - （Macmillan発行、2019年3月）のタイトルは「マクロ経済学をどのように考え、実行するか」、だが、その第2章は、「マクロ経済学理論が説明すべきものは何か」とした。その中で我々は「日本の持続的財政赤字：明らかに事実に反するケース」を議論している。

われわれはこう書いた。

他のほとんどのマクロ経済学の教科書では、何らかの形で以下の命題が否定できない事実として記載されていることがわかる。 

1.持続的な財政赤字は短期金利を押し上げる。高まる財政赤字をファイナンスするニーズから、供給に対して乏しくなる貯蓄の需要が高まるからだ 

2. この金利の上昇が民間投資支出を弱める（いわゆる「クラウドアウト」仮説）。

3. 持続的な財政赤字は債券市場に国債利回りの上昇圧力をもたらす 

4. 持続的な財政赤字に伴う公的債務対GDP比の上昇により、いつか債券市場は政府への貸付を減らし、政府の資金繰りを苦しくする 

5. 持続的な財政赤字はインフレを加速し、潜在的にハイパーインフレの可能性を高める。これはマクロ経済にとって非常に有害なものだ。

「（MMTの主張は）全部知っていた」という連中、「MMTはクレイジー」という連中は、これら五つの主流命題がすべて日本が提供する現実によって反証されているという事実に向き合わねばならないだろう。

1992年以来、日本は継続的な財政赤字状態を続けている。不動産ブームに伴う民間債務大拡大した1987年から1991年までの5年間の財政は黒字だった。そのブームは1991年に大崩壊し、その後低成長に陥り、大きな財政赤字が必要になった。日本の政府は慣習として、非政府部門、主に国内の民間部門に対し財政赤字とぴったり同額の債権を発行している。

財政赤字に対し、同額の債務を民間債券市場に発行する制度的慣行があるならば、当然のことだが、政府が低失業率を維持し経済成長を支えるため継続的な財政赤字運営をする以上、債務比率は必ず上昇する。 

もしも、上に要約したような主流マクロ経済学の命題が現実世界の運営ぶりを正しく捉えているなら、持続的な財政赤字をしていた日本の金利は上昇し、債券利回りは上昇し、インフレが加速していたはずだった。 

日本の持続的な財政赤字は金利と国債の利回りを押し上げたのか？ 答えははっきりノーだった！ 

日本銀行が管理する翌日物金利は非常に低いままで、持続的な財政赤字に反応して上がってなどしていない。

政府債務の長期（10年）債券利回り（金利）も非常に低いままで、やはり持続的な財政赤字に反応して上がってはいない。 投資家が政府債務の購入リスクが高まっていると考えたならば、そのリスクを補うために利回りの上昇を余儀なくされていたはずだ。 債券市場の投資家が日本の国債を警戒するようになったという兆候は全くない。 

ここから推し量れるのは、投資家が政府債務を購入することの警戒感を全く示していないということだ。 債券に対する需要は依然として高く、利回りは低いままだ。 

たとえば、最新の10年債券オークションは2019年5月3日に発行され（Issue No. 353）、0.1％の名目クーポンレート（利回り）を持っていました。 2兆2,000億円の売り出しがあり、財務省は7兆6,095億ドルの競争入札を実施した。 「最低許容価格」での利回りは0.00だった。 

すべてのデータはここで見ることができる。 

インフレはと言えば、不動産ブームが崩壊し日本政府が持続的に財政赤字を、時には非常に大きなそれを続けてきて以降もインフレ率は低いままで、しばしばマイナスですらあった。 主流の経済理論によれば持続的なインフレバイアスがあったはずなのだが、現代の日本経済には明らかにそんなものはない。 

結論は明白だ。 

第一に、持続的な赤字と公的債務対GDP比の上昇にもかかわらず、また、同時に2015年4月のフィッチなどの国際格付機関による格付の引き下げにもかかわらず、国際債券市場が金利の上昇で日本政府を「罰」することもなければ、中央銀行が翌日物金利の管理を喪失することもなかった。 

第二に、持続的な赤字が国内の高インフレ率につながることもなかった。 

主流のマクロ経済学の説明では、日本の財政赤字、金利、債券利回りおよびインフレ率の間の関係についての実際のダイナミクスを捉えることがまったくできない。このことは明らかだ。 

こうした決定的に間違った説明は、主流の理論が深刻なまでに不十分であることを示唆している。 

われわれの教科書の後半の章では、これらの実証結果に関するMMTの説明を詳細に提供している。 

重要なことは、われわれがいまMMTと呼んでいる仕事には、申し分のないデータとして日本の金融システムのダイナミクスを捉えた記録が存在しており、そのデータの動きについて理にかなった説明が提供されていることだ。 

だから麻生さん - 日本はすでにMMTを「テスト」してくれている。どうもありがとう。 


国会議事録

定期的に日本の国会での議論をチェックしている人ならば、消費税の議論を巡って先月興味深い議論があったことをもう知っているだろう。

2019年4月17日水曜日、第198回国会で財政金融委員会が開催され、麻生太郎氏や財務省関係者も多数出席していた。

議事録はこれ - 第198回国会財務金融委員会第12号（平成31年4月17日（水曜日）） - WSJレポートの原文はここからのようだ（2週間後とはいえ）


財務大臣は委員会メンバーからの質問を受けた。

ちょうど最近では、アメリカでＭＭＴという議論が盛んに行われていますね。これは現代貨幣理論というそうですけれども、これを提唱している人は、ＭＭＴというのは、今の日本がやっているように、日銀が低金利に抑えた上で財政出動をたくさんやって景気を盛り上げる、こういうことを、ＭＭＴを実践している日本がいいお手本だみたいなことを言っていますよ。 

そういう認識は、大臣も一致しますか。

大臣、答える。

マネー・マネタリー・セオリーでしたっけね、たしか。そういうことを略してＭＭＴという言葉を、最近、御党の方々、いろいろ言われる方もいらっしゃいます… 

私どもとして、この話は、今理論をここで説明する必要もないと思いますけれども、こういった理論というものに関して、多くの、アメリカで推進しているのもいられると思いますが、歴代アメリカのコリン、サマーズを始め多くの財務長官、いずれも反対…それを日本でやって、一体マーケットがどんな反応をするのかと考えて、それの実験場に日本をするつもりはありません。

対して、委員。

ちなみに、ＭＭＴはモダン・マネタリー・セオリーの略ですので、お間違いのないようにお願いします。 
それで、提唱者は、先ほど言ったように、日本政府と日銀はＭＭＴを長年実証してきたと言い切っておられますね。では、これは間違いだというのが大臣の認識ですか。

大臣、答える。

我々は、基本として、今申し上げましたように、モダン・マネタリー・セオリーというものを考えて、私どもがこれを実験をしているというわけでは全くありません。

委員、尋ねる。

その評価に対しては、不本意なのか、それとも、それはそのとおりだと思われるのか。肯定的な印象を抱いているのか、否定的な印象を抱いているのか、お答えください。

麻生、うなずく。 委員が言う。

私は、このＭＭＴという理論は、財政再建をほっぽっておくための口実だと思っておりまして、とんでもない議論だと思いますよ。財務大臣であれば、もうちょっと毅然とした態度を示してほしいと思うんですが、へえという感じで、そんな程度でいいんですか。日本の財政への信認が揺らぐと思いますよ、いいんですか。

麻生、答える。

日本の財政が揺らいでいない理由として、金利が上がらないという現状を見ていただいてもわかると思いますが、私どもは、基本として、財政というものはきちんとして、中長期的には、いわゆるプライマリーバランス等々を始め、きちんとやっていかねばならぬという姿勢を示して、少なくとも第二次安倍内閣になってこの方、新規国債発行というものは十数兆円減少させてきておりますし。 

私どもはきちんとした対応をずっと示しているというのがマーケットにちゃんと伝わっているから、マーケットが急に、国債が暴落するとか、金利が急騰するということもないのであって… 

我々はこの方向に継続しなければならない、それが我々が消費税を引き上げなければならない理由である…そのために消費税というものもやらねばならぬと思っております…

委員。

マーケットの評価と言いましたけれども、そのマーケットをコントロールして、人為的に金利を低水準にして、それで国がどんどん借金をしやすい環境にして財政出動をして、そして財政再建は先送りしている、これがＭＭＴの本質ですよね… 

つまり、財政再建は日本政府は先送りあるいはどうでもいいという考えを持っているというふうにこの提唱者の人は言っています…

麻生、うなずく
委員

財務大臣としては、ＭＭＴの理論は正しいと思っていますか、間違っていると思いますか。最後にその点だけお答えください。

麻生

.…そういった危なっかしい話にはとてもついていけぬなと思っていますよ。

こんな調子だ。

委員会の議事録について報告したニュースブリーフ - [PDF]衆議院財務金融委員会ニュース（ 2019年4月17日） - では、「日本の財政への信認が揺らがないように大臣がＭＭＴに毅然とした態度を示す必要性」が強調されていた。 

人々がMMTに従うようになれば、財政再建のための環境は好都合ではないだろうとも強調された。

このやりとりは実におもしろい。政治家が財政政策を手に入れれば、彼らはもっと「広範な社会プログラム」を追求するかもしれないというラエル・ブレイナードの恐れとの関係を考えてほしい。 

日本の議論についての驚くべきなのは、MMTが彼らの金融システムの力学について優れた理解を提供していることだ。 

MMTを採用するかという問題ではない。 MMTは、「適用」したり、「切り替え」たり、「導入」するような体制と見なせるものではない。 

私がしょっちゅう述べてきたように、MMTは不換通貨制度の実際の（本質的な）働きを見えるようにするレンズだ。 

MMTはまた、通貨を発行する政府に可能な選択肢、および、通貨発行能力を放棄することの帰結（ユーロ圏のように）のよりよい理解をもたらす。 

それはまた、新自由主義のイデオロギーが被せたベールを剥ぎ、真の問題と政治的な選択肢を明瞭なものにする。

MMTを理解するとは、「政府のお金が尽きるから良いサービスを提供することができない」というような言明が誤りであると瞬時に理解することだ。 

そのような理解は私達が政治家に尋ねるときの質問を変え、彼らの回答のうちどういったものを受け入れるかの範囲をも変えるだろう。 この意味で、MMTの理解はわれわれの民主主義の質を高める。 

例えばMMTは、財政政策と銀行の準備預金との関連性を詳細に分析することにより、日本の財政赤字が数十年間にわたりかなり大きかったにもかかわらず、金利と債券利回りは一貫して非常に低い水準に維持されていた理由を理解するのに役立つ 。 

主流のマクロ経済学の教科書からはこの理解を得ることはできない。その予測は完全に誤りだ。なぜなら基本的に主流のマクロ経済学における通貨の枠組みは、そういうものである限りはひどい欠陥がある。基本的に架空の世界を明瞭に述べようとするものだからだ。 

MMTについて主流の経済学者たちは「新しいことは何もない」と言ったり、「ずっと知られていたことだ」と言うが、それは単に嘘か、通貨制度の運用に完全に疎いことを隠そうとしているだけだ。 

自分は常々、主流の教科書で準備預金のオペレーションや財政赤字についての深い洞察を提供し、日本の状況を説明できるものがあるのか、できるのか？と問いかけている。

だからかわいそうな麻生氏 - 氏は自分がすべてを認めてしまったら、金融市場が大混乱すると考えている。 しかし、金融市場はもうすべてを知っている。彼らは実際にMMTで取引をしているとは言わないかもしれないが、事実はそうだ。 

過去数十年の間、市場は怖がってこなかったし、誰かがそれは明白なことだと認めたら怖がるということもないだろう。 MMTは私たちの周囲にある。 慣れることだ。 

日本政府の議論では、国債の「増加分」を日本銀行が買い入れていることもクローズアップされた。これは、つまり国債を市場オークションに出す必要がないことを意味している。このこともまたMMTの中心的な提案だ。 

つまり麻生氏に政府メンバーはこういえば良いということになる。「全然違います。我々はMMTをやっているんです」 

最後に、この議論のもう一つの特徴は、下院でのMMTの支持者がイデオロギーの範囲に及んだということでした。 

消費税の増税に反対し、MMTを呼びかけたグループが二つある。

1.「与党保守派」 

2.共産党員 - ある議員がこう言った。「欧米でMMTの人気が高まっている…これは緊縮政策に対する反発であり、蓄積した不満がついに爆発した。日本も同様だ。」 

重要なことだが、インフレを制御するために失業者をバッファにしたいのか、をれとも雇用のバッファにしたいのか、そのどちらを望むかどうかはMMTからはわからない。 

概して「MMTタイプの処方」とか「MMTソリューション」などと言っても意味はない。 

MMTの理解を政策の文脈で運用可能にするためには、何らかの価値体系かイデオロギーが導入されなければならない。 

MMTは本質的に「左寄り」なのではない。 

右寄りの人と左寄りの人は、たとえ双方が通貨システムの機能ぶりについて理解を共有したとしても、全く異なった処方箋を主張することになるだろう。 

これは日本の国会の議論が浮き彫りにした事柄だ。財政赤字の削減を目的とした消費税の 増税に対し、保守の政治家と共産党の議員がそれぞれMMTの理解を呼びかけたのだ。


結論

前進している。

今やMMTは議会での議論に入っており、非難やもろもろの対象になっている。

いい方向に動いている。

そして、麻生氏がよく眠れれうようになることを願っている。MMTは彼のそばにあるし空が落ちてくることもないと気づきさえすれば。

今日はこれまで！

参考：

http://bilbo.economicoutlook.net/blog/?p=40224

Fiscal space has nothing to do with public debt ratios or the size of deficits

billThursday, August 30, 2018

The Project Syndicate is held out as an independent, quality source of Op Ed discussion. When you scan through the economists that contribute you see quite a pattern and it is the anathema of ‘independent’. There is really no commentary that is independent, if you consider the term relates to schools of thought that an economist might work within. We are all bound by the ideologies and language of those millieu. So I assess the input from an institution (like Project Syndicate) in terms of the heterodoxy of its offerings. A stream of economic contributions that are effectively drawn from the same side of macroeconomics is not what I call ‘independent’. And you see that in the recurring arguments that get published. In this blog post, I discuss Jeffrey Frankel’s latest UK Guardian article (August 29, 2018) – US will lack fiscal space to respond when next recession comes – which was syndicated from Project Syndicate. Frankel thinks that the US is about to experience a major recession and that its government has run out of fiscal space because it is not running surpluses. We could summarise my conclusion in one word – nonsense. But a more civilised response follows.

In 1987, American economists John Y. Campbell and Robert Schiller introduced the – Cyclically adjusted price-to-earnings ratio (CAPE) as a guide to assessing whether the US equities market is overpriced or not (the long-term average of 16 is considered the threshold).

Their research found that “the lower the CAPE, the higher the investors’ likely return from equities over the following 20 years.”

Schiller refined the measure and it became known Schiller P/E (aka CAPE).

By construction, the CAPE allows a comparison between the current market price and itsinflation-adjusted, average performance over a ten-year period.

Schiller’s rule of thumb is that when the ratio exceeds 25, a “major market drop” follows – Schiller’s 2000 book Irrational exuberance was a reflection of this observation.

The provenance of the CAPE goes back to the work of Benjamin Graham and David Dodd published in their 1934 book – Security Analysis.

As an aside, I drew on the work of Benjamin Graham in my early development of the buffer stock employment idea (now called the Job Guarantee).

His 1937 book Storage and Stability: A Modern Ever-normal Granary, New York: McGraw Hill provided some great insights into buffer stocks schemes and price stability – in his case, for agricultural products.

The CAPE is considered a flawed measure though because of the way it defines earnings (for example, accounting changes to definitions, the exclusion of retained earnings), which tends to inflate the ratio.

But the technicalities of that debate are not what this blog post is about.

The following graph shows the CAPE ratio calculated by Robert Schiller from January 1880 to August 2018. The long-term average (17.48) is the red line and the gray bars are the NBER recession periods (peak to trough).

As you can see the P/E ratio, which in August 2018 was 32.29, is now well above its long-term average and has been since August 2009.

It hasn’t reached the December 1999 peak (of 44.20) – the ‘Dot.com bubble’ – but it is certainly well above the pre-GFC levels.

What does this mean?

Well according the Harvard economist Jeffrey Frankel in his latest UK Guardian article (August 29, 2018) – US will lack fiscal space to respond when next recession comes – the level of the CAPE is “one possible trigger for a downturn in the coming years is a negative shock that could send securities tumbling”.

Which means? Share prices will fall.

Is the relatively high CAPE ratio a sign of ‘irrational exuberance’ which Alan Greenspan considered marked the Dot.com boom and bust? That looks doubtful to me.

There is no frenzied share buying going on. If you were an investor in that market then you realise the shares are over-priced, which is a relative term, and just means for anyone who knows what they are doing that their expected returns will be lower than if the CAPE ratio was lower.

But that is relative too – the returns on other financial assets (government bonds, etc) are equally low.

So the combination of the technical flaws in the CAPE ratio (overstating the true P/E ratio) and the overall state of the investment markets indicates to me that there is no major collapse coming from that quarter.

The graph tells us that the CAPE ratio falls during recession, which is unsurprising but there is no consistent eveidence that it leads a recession (that is, could cause it).

It is possible that investors are heavily leveraged and if the PE falls they cannot pay up and the banks enter crisis. But I think the GFC taught us that treasury departments and central banks have all the capacity they need to prevent that sort of financial kerfuffle spreading more broadly.

Which brings me to the next and substantive point.

Jeffrey Frankel believes that one source of shock or another (share market collapse, trade war, Turkey spreading, Italy, China, etc) will trigger a new crisis in the US economy.

He concluded:

Whatever the immediate trigger, the consequences for the US are likely to be severe, for a simple reason: the US government continues to pursue procyclical fiscal, macroprudential, and even monetary policies. While it is hard to get countercyclical timing exactly right, that is no excuse for procyclical policy; an approach that puts the US in a weak position to manage the next inevitable shock.

There are several recurring themes in that paragraph:

1. What is a pro-cyclical policy? Does counter-cyclical policy require fiscal deficits/low interest rate in a downturn and fiscal surpluses/high interest rates in an upturn?

2. How can the US policy institutions – Treasury Department and Federal Reserve Bank – be in a “weak position to manage the next inevitable shock”? Is there any meaning to the term “weak”? If so, what is a ‘strong’ position?

The title of Frankel’s article should tell you where he stands.

He is one of those mainstream macroeoconomists (supervised by Rudiger Dornsbusch) that believes there is a time for fiscal stimulus, when monetary policy hits the zero-bound (yes, that!) but that essentially at other times, monetary policy should be firmly in charge of counter-stabilisation duties.

In that context, he defended President Obama’s fiscal stimulus in 2009 but now thinks that the fiscal party has gone on for too long and that Trump is setting the US economy up to fail.

He has been an advisor the Clinton Administration, which also should tell you something.

He has long claimed that policy makers pursuing ‘Keynesian’ fiscal positions fell into disrepute because (Source):

… politicians often failed to time countercyclical fiscal policy – “fine tuning” – properly. Sometimes fiscal stimulus would kick in after the recession was already over. But that is no reason to follow a destabilizing pro-cyclical fiscal policy, which piles spending increases and tax cuts on top of booms, and cuts spending and raises taxes in response to downturns.

Pro-cyclical fiscal policy worsens the dangers of overheating, inflation, and asset bubbles during booms, and exacerbates output and employment losses during recessions, thereby magnifying the swings of the business cycle.

He also wrote in a 2013 Symposium published in the Spring issue of The International Economy – his response to the question “Does Debt Matter?” – is HERE.

He wrote on public debt in the context of the Rogoff-Reinhart 90 per cent threshold that was prominent during the crisis, until their Excel incompetence (at least) was exposed, that:

Yes, debt matters. I don’t think I know of anyone who believes that a high level of debt is without adverse consequences for a country. There is no magic threshold in the ratio of debt to GDP, 90% or otherwise, above which the economy falls off a cliff. But if the debt/GDP ratio is high, and especially if the country’s interest rate is also high relative to its expected future growth rate, then the economy is at risk. One risk is that if interest rates rise or growth falls, the economy will slip onto an explosive debt path, where the debt/GDP ratio rises without limit. In the event of such a debt trap, the government may have no choice but to undertake a painful fiscal contraction, even though that will worsen the recession. (The resulting fall in output can even cause a further jump in the debt/output ratio, as it has in the periphery members of the eurozone over the last few years.)

So before I consider those two themes above, you can see the problem he has.

The previous paragraph comes down to this:

1. Debt matters.

2. Why? Because in a recession debt will rise as governments (under current arrangements match their deficit spending with debt-issuance).

3. Why is that a problem?

4. Debt matters.

Of course, the Modern Monetary Theory (MMT) response (the purist one) is that currency-issuing governments such as the USA do not have to issue any debt when they are running fiscal deficits.

But that ignores the institutional realities.

Taking reality into account, however, doesn’t alter the conclusion.

Central banks can effectively buy whatever volume of public debt they choose and keep interest rates around zero for as long as they like no matter the quantity of public debt (in absolute or relative terms (to GDP)).

The private bond markets have no traction in those cases.

I last considered that sort of situation in this blog post – The bond vigilantes saddle up their Shetland ponies – apparently (February 12, 2018).

I concluded:

1. The private bond markets have no power to stop a currency-issuing government spending.

2. The private bond markets have no power to stop a currency-issuing government running deficits.

3. The private bond markets have no power to set interest rates (yields) if the central bank chooses otherwise.

4. AAA credit ratings are meaningless for a sovereign government – they can never run out of money and can set whatever terms they want if they choose to issue bonds.

5. Sovereign governments always rule over bond markets – full stop.

I also updated my analysis of central bank holdings of US governemtn debt in this blog post – Central banks still funding government deficits and the sky remains firmly above (August 23, 2017).

Here is the latest update.

First, cast your mind back to March-quarter 2011.

The following pie-chart shows the proportions of total US Public Debt held by various categories as at the March-quarter 2011. 

The government sector held about 42 per cent of its own debt. These holdings were either in the intergovernmental agencies or the US Federal Reserve Bank.

The US Federal Reserve held 8.9 per cent of total US public debt. Its total holdings were around $US 1,274.3 billion.

The three largest foreign US debt holders at the March-quarter 2011 were China (8 per cent), Japan (6.4 per cent) and Britain (2.3 per cent). The total foreign held share was equal to 31.4 per cent.

Now, to the most recent data – March-quarter 2018 – some 7 years later. Some of the data, by the way, is available for the June-quarter 2018, but only the complete set required for this analysis is available for the March-quarter.

As at the end of March 2018, there were $US21,089.9 billion Federal Securities outstanding.

These were broken down into:

1. Privately held – $US12,360.60 billion (60.3 per cent of total).

2. Federal Reserve and Intragovernmental holdings (SOMA and Intragovernmental Holdings) – $US8,132.10 billion (39.7 per cent of total). 

3. Foreign and international – $US6216.60 billion (29.5 per cent of total) – of which $US4049.1 billion held by Foreign Official institutions (central banks etc).

A comparison of movements over the last 7 or so years in the composition of US Treasury debt holdings is provided by the two pie charts

1. The government sector overall held about 39.6 per cent of its own debt in the March-quarter 2018. This is slightly down on the proportions held in the March-quarter 2011 (40.3 per cent).

2. These holdings were either in the intergovernmental agencies (27.8 per cent) or the US Federal Reserve Bank (11.8 per cent). The central bank has increased its holdings over the period in question (though proportionally now holds less).

3. The Chinese holdings were around 5.8 per cent of the total and hardly consistent with the rhetoric that China was bailing the US government out of bankruptcy. These holdings have fallen in recent years.

4. The three largest foreign US debt holders at the March-quarter 2018, were China (5.8 per cent); Japan (5.2 per cent) and Ireland (5.1 per cent).

The recent history provides a very important lesson. The US central bank can initiate very dramatic shifts in the mix of debt holders whenever it chooses.

This means that the central bank can always purchase any debt that the private sector chooses not to purchase via the primary auctions.

There is never a reason for US government bond yields to rise above a level that the government considers to be accpetable.

Lets move on.

In this blog post – The full employment fiscal deficit condition (April 13, 2011) – which I consider to be core MMT, I showed the conditions that determine the fiscal deficit, once the government assumes its responsibility to achieve and sustain full employment.

The lessons, in summary are:

1. A macroeconomy is in a steady-state (that is, at rest or in equilibrium) when the sum of the injections equals the sum of the leakages. The point is that whenever this relationship is disturbed (by a change in the level of injections, however sourced), national income adjusts and brings the income-sensitive spending drains into line with the new level of injections. At that point the system is at rest.

2. The injections come from export spending, investment spending (capital formation) and government spending.

3. The leakages are household saving, taxation and import spending.

4. An economy at rest is not necessarily one that coincides with full employment.

5. When an economy is ‘at rest’ and there is high unemployment, there must be a spending gap given that mass unemployment is the result of deficient demand (in relation to the spending required to provide enough jobs overall).

6. If there is no dynamic which would lead to an increase in private (or non-government) spending then the only way the economy will increase its level of activity is if there is increased net government spending – this means that the injection via increasing government spending (G) has to more than offset the increased drain (leakage) coming from taxation revenue (T).

So in sectoral balance parlance, the following rule hold.

To sustain full employment the condition for stable national income defines what I named the Full-employment fiscal deficit condition:

(G – T) = S(Yf) + M(Yf) – I(Yf) – X

The sum of the terms S(Yf) and M(Yf) represent drains on aggregate demand when the economy is at full employment and the sum of the terms I(Yf) and X represents spending injections at full employment.

If the drains outweigh the injections then for national income to remain stable, there has to be a fiscal deficit (G – T) sufficient to offset that gap in aggregate demand.

If the fiscal deficit is not sufficient, then national income will fall and full employment will be lost. If the government tries to expand the fiscal deficit beyond the full employment limit (G – T)(Yf) then nominal spending will outstrip the capacity of the economy to respond by increasing real output and while income will rise it will be all due to price effects (that is, inflation would occur).

What that means in relation to the issues I identified above is that there is a difficulty in defining pro-cyclicality in terms of a given fiscal balance.

It is nonsensical to say a fiscal surplus is always pro-cyclical and a deficit is always counter-cyclical. It all depends on the spending and saving patterns of the non-government sector.

We can only really appraise the impact of the fiscal balance in terms of changes at specific points in the cycle.

So if an economy was at full employment and the fiscal deficit was, say 2 per cent of GDP and that satisfied the condition specified above.

That is not a pro-cyclical position even if the economy is growing – it is maintaining a steady-state growth path.

Should the government, with no other changes evident, increase its net spending to say 3 per cent of GDP, under those circumstances, we might consider that a pro-cyclical policy change because it is pushing the cycle beyond its full employment steady-state growth path.

So the fact there is a fiscal deficit coinciding with strong GDP growth should not be taken as a case of irresponsible and dangerous policy.

What about running surpluses when recovery is apparent?

The same logic holds. It might be that the non-government spending and saving decisions drive overall spending so fast that total spending then starts to outstrip capacity.

Then, to restore the full employment steady-state (and this also requires stable inflation), the fiscal stance has to contractionary – which might require a fiscal surplus.

For example, nations such as Norway will typically solve the Full-employment fiscal deficit condition with a fiscal surplus given how strong their external sector is (energy resources).

The second issue relates to Jeffrey Frankel’s notion of ‘fiscal space’.

I considered that issue in these blog posts:

1. Fiscal sustainability 101 – Part 1 (June 15, 2009).

2. Fiscal sustainability 101 – Part 2 (June 16, 2009).

3. Fiscal sustainability 101 – Part 3 (June 17, 2009).

Frankel claims that the:

The US deficit is being blown up on both the revenue and expenditure sides … As a result, when the next recession comes, the US will lack fiscal space to respond.

The next recession, when it comes, will coincide with millions of workers in need of jobs, capital equipment lying idle, and other productive resources looking for a buyer (user).

That is what fiscal space relates to in a modern monetary economy.

It has nothing to do with what the current fiscal balance is or has been and what the current public debt ratio is or has been.

A sovereign government can purchase any idle resources that are for sale in its own currency, including all idle labour.

That is the fiscal space the US will have.

And, it can never run out of funds to do that.

So a past deficit poses no particular constraints on what the US government can do in the future, except to say that if the deficit has been properly calibrated to satisfy the Full-employment fiscal deficit condition then there will be less to do should the private sector contract.

The rest of Frankel’s article is irrelevant to this discussion.

The questions that the US policy makers have to answer are:

1. How close the economy is to being at full capacity – labour, capital and other productive resources.

2. If, it is, is the current net public spending position driving total spending beyond the Full-employment fiscal deficit condition.

My assessment of Question 1 is that there is still some idle capacity in the US economy. Just look at wages growth and the broader indicators like participation rates.

There is a massive public infrastructure shortfall – in terms of quality and scope.

Inflation is benign as is wages growth.

Conclusion

Frankel’s argument is like a cracked record. It just keeps being recycled by mainstream economists as if it is common sense.

The facts are:

1. We can never conclude that the coexistence of a fiscal deficit and strong growth requires the government push back into surplus. Sometimes yes, usually no.

2. Fiscal space has nothing to do with what the current fiscal balance is or has been and what the current public debt ratio is or has been.

That is enough for today!

(c) Copyright 2018 William Mitchell. All Rights Reserved.

★

原文：

http://bilbo.economicoutlook.net/blog/?p=42385

Japan Finance Minister getting paranoid about MMT

billTuesday, May 21, 2019

The debates about MMT are expanding. There are weird offerings springing up each day. I read something yesterday about how MMT is really just Marxism in disguise and therefore a plot to overthrow entrepreneurship. Well in a socialist society there will still be a monetary system! Most of the critiques just get to their point quickly – MMT is about wild printing presses undermining the value of the currency! That should summarise 25 years of our work nicely. But there are also other developments on a global scale. A few weeks ago there was a lengthy debate in the Japanese parliament during a House of Representatives Committee hearing considering whether the October sales tax hikes should continue. The Finance Minister, Taro Aso was confronted by Committee members who indicated that it was useless denying that Modern Monetary Theory (MMT) was some abstract theory that was wrong because the Japanese are already “doing it”. The Minister told the hearing that MMT was dangerous and would undermine financial markets if anyone said otherwise. An interesting discussion took place. It highlighted some key features of MMT. It also indicates that progress is being made in the process of education aimed at giving people a better understanding of how the monetary system that we live within operates.

The true agenda

The Reuters Report (May 17, 2019) – Brainard: Modern monetary theory would pose risks in diminishing Fed’s authority – is only three paragraphs long but tells us a lot about the true agenda behind the myth of central bank independence.

The article was reporting on comments made by US Federal Reserve Governor Lael Brainard about Modern Monetary Theory (MMT).

It said that:

The set of ideas known as Modern Monetary Theory could poses risks in shifting authority over the economy from the Federal Reserve to Congress or other institutions more tied to political considerations.

She was quoted as saying:

Putting those responsibilities in an institution that has a lot of oversight but a little bit of independence – there are some virtues to that. And to the extent that moves to a different setting there may be risks.

The risk? That the voice of the people, exercised through their elected representatives might actually determine policy settings and those politicians will have to take responsibility for their actions and not be able to deflect such to unelected and largely unaccountable cabals like central bank committees.

The neoliberal way is to depoliticise economic policy.

That is shorthand for compromising democracy.

The Japanese MMT Laboratory

The Japanese Diet (Parliament) has been debating whether the planned sales tax rise on October 1, 2019 should go ahead or not.

I have written about the Japanese experience with sales tax rises before:

1. Japan is different, right? Wrong! Fiscal policy works (August 15, 2017).

2. Japan returns to 1997 – idiocy rules! (November 18, 2014).

3. Japan’s growth slows under tax hikes but the OECD want more (September 16, 2014).

4. Japan – signs of growth but grey clouds remain (May 21, 2015).

5. Japan thinks it is Greece but cannot remember 1997 (August 13, 2012).

Everytime they hike sales taxes, it ends in misery – spending falls and economic activity comes to a crashing halt.

They saw that in 1997. And again in 2014.

In April 2014, the Abe government raised the sales tax from 5 per cent to 8 per cent.

After the sales tax hike, there was a sharp drop in private consumption spending as a direct result of the policy shift. At the time, I predicted it would get worse unless they changed tack.

It certainly did get worse. Consumers stopped spending and the impact of static consumption expenditure was that business investment then lags.

Here is the history of real GDP growth (annualised) since the March-quarter 1994 to the March-quarter 2015. The red areas denote sales tax driven recessions.

In both episodes, these recessions were followed by a renewed bout of fiscal stimulus (monetary policy was ‘loose’ throughout). 

In both episodes, there was a rapid return to sustained growth as a result of the fiscal boost.

Nothing could be clearer.

And the debate is back on the table in the Parliament.

However, this time, the debate has introduced MMT understandings which make it more interesting and bring out some really important aspects of our work.

The debates prompted the Wall Street Journal (May 15, 2019) article – ‘We’re Already Doing It’: Japan Tests Unorthodox Economic Doctrine (behind paywall) – to write:

But in Japan, MMT is at the center of a policy battle with imminent consequences: whether to proceed with an Oct. 1 sales-tax hike designed to trim the deficit.

The government plans to increase the sales tax from 8 to 10 per cent and has wheeled out an array of mainstream macroeconomic arguments about the evils of fiscal deficits to justify the decision.

In his annual – Speech on Fiscal Policy by Minister of Finance Aso at the 198th Session of the National Diet (January 28, 2019) – the Finance Minister said that the Government was making:

… steady efforts to achieve economic revitalization and fiscal consolidation … secure a stable source of funds by raising the consumption tax rate in October this year.

The context of these remarks was the “the declining birthrate and aging population” and the need “to establish a social security system oriented to all generations and secure its sustainability”.

So the usual suspects – government cannot afford to pay pensions as the society ages and thus needs to cut deficits to increase its capacity to fund said pensions.

The Finance Minister (Taro Aso) was quoted in the WSJ article as saying that:

It could loosen our fiscal discipline and be extremely dangerous.

He also claimed that “he didn’t want Japan to turn into a ‘test site’ for foreign economic theories.

Well I am sorry to say that Japan has been a great ‘laboratory’ for demonstrating the underlying principles of MMT for decades now, given that it has been the first nation to really explore what we might think of as the ‘extremes’ of fiscal and monetary policy.

Relatively high and sustained fiscal deficits.

Relatively high gross public debt to GDP ratios.

Zero interest rates.

Negative 10-year Japanese government bond yields.

Low inflation to deflation.

In Chapter 2 of our new MMT textbook – Macroeconomics – (published by Macmillan, March 2019), which is titled “How to Think and Do Macroeconomics”, we have a section “What Should a Macroeconomic Theory be Able to Explain?” and in that discussion we discuss “Japan’s persistent fiscal deficits: the glaring counterfactual case”.

We state:

Consult almost any other macroeconomics textbook and you will find the following propositions stated, in some form or another, as inalienable fact:

1. Persistent fiscal deficits push up short-term interest rates because the alleged need to finance higher deficits increases the demand for scarce savings relative to its supply.

2. These higher interest rates undermine private investment spending (the so-called ‘crowding out’ hypothesis).

3. Persistent fiscal deficits lead to bond markets demanding increasing yields on government debt.

4. The rising public debt-to-GDP ratio associated with the persistent fiscal deficits will eventually lead bond markets to withdraw their lending to the government and the government will run out of money.

5. Persistent fiscal deficits lead to accelerating inflation and potentially hyperinflation, which is highly detrimental to the macroeconomy.

To the ‘we knew it all along’ crew or the ‘MMT is crazy’ crew or derivations, they have to confront the fact that the 5 mainstream propositions are all disproven by the realities that Japan provides.

Japan has run a persistent deficit since 1992. A massive build-up of private indebtedness associated with a real estate boom, accompanied the five years of fiscal surpluses from 1987 to 1991. The boom crashed spectacularly in 1991 and was followed by a period of lower growth and the need for higher deficits. The convention in Japan is that the national government matches its fiscal deficit with the issuance of bonds to the non-government sector, principally the private domestic sector.

Unsurprisingly, given the institutional practice of issuing debt to the private bond markets to match the fiscal deficits, the debt ratio has risen over time as a reflection of the ongoing deficits that the Japanese government has been running to support growth in the economy and maintain relatively low unemployment rates 

If the mainstream macroeconomic propositions summarised above correctly captured the way the real world operates, then we should have expected to see rising interest rates, increasing bond yields, and accelerating inflation in Japan, given the persistent fiscal deficits.

Did the persistent fiscal deficits in Japan drive up interest rates and government bond yields? The answer is clearly no! 

The overnight interest rate in Japan, which is administered by the central bank, the Bank of Japan has stayed exceedingly low and has not responded adversely to the persistent fiscal deficits.

Long-term (10 year) bond yields (interest rates) on government debt have also stayed very low and not responded adversely to the persistent fiscal deficits. If investors considered the government debt had become increasingly risky to purchase, they would have demanded increasing yields to compensate for that risk. There is no such suggestion – that bond market investors have become wary of Japanese government bonds – to be found here. 

The corollary is that the investors have also not signalled any unwillingness to purchase the debt; demand for the bonds remains high and yields remain low.

For example, the most recent 10-year bond auction was on May 3, 2019 (Issue No. 353) carried a nominal coupon rate (yield) of 0.1 per cent. There was 2,200 billion yen on offer and the Ministry of Finance recorded 7,609.5 billion competitive bids for the debt. The yield at the “lowest accepted price” was 0.00.

You can access all data – Auction Results for JGBs.

In terms of inflation, after the property boom crashed and the Japanese government began to run persistent and at times, large, fiscal deficits, the inflation rate has been low and often negative. There is clearly no inflationary bias in the modern Japanese economy, as persistently predicted by the mainstream economic theories.

The conclusion is obvious.

First, despite persistent deficits and a rising public debt-to-GDP ratio, along with a downgrade of Japan’s credit rating by international ratings agencies, including Fitch in April 2015, international bond markets have not ‘punished’ the Japanese government with high ten year interest rates on public debt nor has the central bank lost control of the overnight interest rate.

Second, the persistent deficits have not led to high rates of domestic inflation.

It is clear that the mainstream macroeconomic explanation of the relationships between fiscal deficits, interest rates, bond yields and inflation rates is unable to adequately capture the real world dynamics in Japan.

Such a categorical failure to provide an explanation suggests that the mainstream theory is seriously deficient.

In later chapters of the textbook we provide a detailed MMT explanation of these empirical outcomes.

The point is that the body of work we now call MMT has an impeccable record of capturing the dynamics of the Japanese monetary system and provided sound explanations for the data movements.

So Mr Aso – Japan is already ‘testing’ MMT. Thank you.

The Diet Records

If you go keep tabs on the discussions in the Japanese House of Representatives (the Diet) you will have come across some interesting discussions last month surrounding the sales tax debate.

The 198th National Assembly Finance and Finance Committee 12th met on Wednesday, April 17, 2019. Taro Aso was in attendance as were a host of Finance Ministry officials.

The Transcript of Proceedings – 第198回国会 財務金融委員会 第12号(平成31年4月17日(水曜日)) – makes interesting reading and is where the WSJ report comes from (even though the report was 2 weeks after the hearing.

The Finance Minister was asked by a Committee member:

There has been a lot of debate about MMT in the United States … Those who are proposing it say that Japan is ‘doing’ MMT currently – the Bank of Japan is carrying out a lot of fiscal actions and keeping interest rates low. They say that Japan is a good example of the principles of MMT. Do the Ministers agree with that?”

He replied:

Money, Monetary Theory … MMT for short … this is often spoken about now by politicians, various people … 

I don’t think we need to explain the theory here … there are many people in the US – many officials including Larry Summers who are against it … But to do it in Japan … and think about that kind of reaction the market would have … I do not intend to make Japan an experimental site for it.

To which a Committee member responded:

By the way, MMT stands for Modern Monetary Theory, so please do not continue to make a mistake …

But it remains that MMT proponents are saying that the Japanese government and the Bank of Japan have been demonstrating the principles of MMT for many years. Does the Minister think that they are mistaken?

Aso replied:

As I said before … we are not experimenting with Modern Monetary Theory.

Committee question:

But do you think it is a sound theory … please tell us whether you have a positive or negative impression.

Aso wavered.

A Committee member then said:

I think MMT is just an excuse to delay fiscal consolidation and I think it is an outrageous argument. As Finance minister I think you should be more resolute in your rejection. It seems like you are vague about it. If so, I think that confidence in Japanese finances will fluctuate. Do you think that is okay?

Aso:

Japanese public finances are not shaky. Interest rates are not rising in the current situation and our finances are fine in the medium- to long-term. We are reducing bond issuance by more than 10 trillion trillion yen.

We have transmitted to the market our intent to consolidate and there has been no adverse market response – no sudden fall in government bond tenders and no rise in interest rates …

We must continue in this direction which is why we have to increase the consumption tax …

Committee Member:

The point is that the government has controlled the market and has kept interest rates low so that the government could make the debt environment easier and fiscal consolidation has been delayed … This is the essence of MMT and it says that Japan demonstrates best practice.

In other words, MMT proponents say that the Japanese government should postpone fiscal consolidation …

Aso wavered.

Committee Member:

We repeat the same point … as a finance minister, do you think that MMT is correct or do you think it is wrong? Please answer only that point.

Aso:

… I think I cannot follow such a dangerous story.

And so it went.

In the news brief – [PDF] 衆議院財務金融委員会ニュース (April 17, 2019) – which reported on the Committee proceedings it was stressed that it was necessary for the Minister to show a resolute attitude in rejecting MMT so that the market confidence in Japanese government finances was not undermined.

It was also stressed that if people started to follow MMT then the environment for fiscal consolidation would not be favourable.

I found this exchange really interesting. Think about it in relation to Lael Brainard’s fear that if politicians get hold of fiscal policy then they might pursue more “expansive social programs”.

The amazing thing about the Japanese discussion is that MMT provides a superior understanding of the dynamics of their monetary system.

It is not a matter of adopting MMT.

MMT should not been seen as a regime that you ‘apply’ or ‘switch to’ or ‘introduce’.

As I have noted regularly, MMT is rather a lens which allows us to see the true (intrinsic) workings of the fiat monetary system.

It helps us better understand the choices available to a currency-issuing government and the consequences of surrendering that currency-issuing capacity (as in the Eurozone).

It lifts the veil imposed by neoliberal ideology and forces the real questions and political choices out in the open.

An MMT understanding means that statements such as the ‘government cannot provide better services because it will run out of money’ are immediately known to be false.

Such an understanding will change the questions we ask of our politicians and the range of acceptable answers that they will be able to give. In this sense, an MMT understanding enhances the quality of our democracies.

By providing a detailed analysis of the link between fiscal policy and bank reserves, for example, MMT clearly helps us understand why the Japanese interest rates and bond yields have been maintained at very low levels indefinitely even though the fiscal deficits have been relative large for decades.

You do not get that understanding from reading a mainstream macroeconomics text book. Their predictions were completely wrong because their monetary framework, inasmuch as there is one, is deeply flawed – basically articulating a fictional world.

When mainstream economists say there is ‘nothing new’ about MMT or ‘we knew it all along’ they are simply lying and trying to cover their deep ignorance of the operations of the monetary system.

I challenge anyone to produce a mainstream textbook current or past that provides the deep insights about reserve operations, fiscal deficits and can explain the Japanese situation.

So poor Mr Aso – he thinks if he admits all that then the financial markets will go crazy. Yet, the financial markets already know all this stuff. While they may not call the reality they trade in MMT, the fact is that it is.

They haven’t been scared off in the last several decades and will not be if anyone dares to admit the obvious. MMT is all around us. Get used to it.

During the Japanese government discussions it was also highlighted that the Bank of Japan has been buying up an “increasing proportion” of government bonds which means that there is no real need for the bond market auctions anyway … another central MMT proposition.

This prompted a government member to tell Mr Aso that “You’re totally wrong. We’re already doing it”.

Finally, the other feature of the Committee discussions was in that the proponents of MMT in the House of Representatives spanned the ideological range.

There are two groups who are opposed to the sales tax rise and have invoked MMT as a defense:

1. “Ruling party conservatives”.

2. Communist Party members – one MP said that “MMT is gaining popularity in the US and Europe … it was a public backlash against austerity policies and the accumulated dissatisfaction has finally exploded. The same applies to Japan”.

The point is that MMT is agnostic about policy bar its preference for an employment buffer rather than an unemployment buffer to discipline inflation.

In general, it makes no sense to talk about an “MMT-type prescription” or an “MMT solution”.

To make that MMT understanding operational in a policy context, a value system or ideology must be introduced.

MMT is not intrinsically ‘Left-leaning’.

A Right-leaning person would advocate quite different policy prescriptions to a Left-leaning person even though they both shared the understanding of how the monetary system operates.

That is highlighted by these recent debates in the Japanese Parliament where conservative politicians and Communist party members have invoked MMT understandings to argue against sales tax hikes designed to reduce the fiscal deficit.

Conclusion

Progress is being made.

Now MMT is entering parliamentary debates and is the subject of condemnation motions and all the rest of it.

Things are moving along nicely.

And I hope Mr Aso can sleep well once he works out that MMT is all around him and the sky remains well above his head.

That is enough for today!

(c) Copyright 2019 William Mitchell. All Rights Reserved.