Friday, October 6, 2017

Clint Ballinger — MMT & Positive Money Are Converging. That’s a Good Thing

Perhaps the two greatest current macroeconomic problems are  
  1. a failure to optimally use resources (including people)
  2. the design and/or manipulation of the financial system to divert real resources from producers to a financial class
The logical approaches to these problems are functional finance in the first case and changes in and/or enforcement of regulation of the financial system in the second case.
Two groups that have gained visibility (academic, policy, and/or popular) on these issues are Modern Monetary Theory and Positive Money.
MMT scholars largely focused on the first problem, how functional finance can increase the public’s well being. Positive Money’s main worry has been the second and suggestions for changes that might make resource diversion more difficult.
However, the simple point I want to make is this: in recent years the two groups have moved towards each other’s positions and interests to a significant extent, probably much more than either group or the heterodox community recognizes....
Clint Ballinger
MMT & Positive Money Are Converging. That’s a Good Thing
Clint Ballinger

15 comments:

Neil Wilson said...

Serious wishful thinking.

PM have a cabal of unelected bureaucrats deciding how much pocket money an elected government gets. That's technocratic thinking right up there with the best the European Commission has to offer. That needs to go first and foremost.

MMT shows you can merge the central bank into the Treasury and make it a department of government like the one that sends out welfare cheques. And they would propose doing that to show where the power actually lies.

Beyond that the PM proposals have not changed at all. All of it relies upon monetarist-style thinking about the way interest rates affect lending. It's liability side. It has no control function whatsoever. The whole sovereign money fiasco is based around beliefs of what money is that are simply not true. Whatever the effect it has is the same as putting interest rates up and publishing a process by which insolvent banks will be resolved.

In fact you can translate one-to-one between an in-specie sovereign money system of the PM type and the insured system we currently have. The only difference is whether the accounting is on balance sheet or off balance sheet. It will not change anything about the way banks work - and bankers who know how banks work have confirmed that with me.

For me the only proposal of merit is to have the current account system run by the central bank, and perhaps allow commercial banks to put a marketing wash over it. Taking the payments system away from commercial banks makes sense, so that they cannot use it as leverage to demand a bail out. It also allows electronic payments to be made freely available to everybody like cash is today. Removing transaction fees and absorbing it into a public good means that more transactions get done.

PM have more in common with the Wren-lewis/Krugman type thinking than MMT. Both of those are technocrat believers as well.

Matt Franko said...

yes Neil those people (even Ralph here) often seem almost pure Monetarist ....

Matt Franko said...

Although even the MMT people retain "inflation" and retain "supply & demand" applied to currency systems... so maybe some commonality with the PM/monetarists there....

Bob Roddis said...

Positive money originally wanted to eliminate bank credit-money creation altogether. Crucially, however, they have modified their plan to allow for a tightly regulated system of credit money creation for individuals and businesses.

Always. Always. Always. Simpleton totalitarian “progressives” ALWAYS want to “tightly regulate” everything that average folks do. It’s called “The Fatal Conceit” and “The Road to Serfdom”.

You all think that it will be you barking the orders to someone else in recognition of your superior wisdom and benevolence. WRONG. Someone else will be barking the orders at you.

Clint Ballinger said...

Neil - you write ¨All of it relies upon monetarist-style thinking about the way interest rates affect lending¨

Can you point to a source on that?

Clint Ballinger said...

Neil ¨PM have a cabal of unelected bureaucrats deciding how much pocket money an elected government gets. That's technocratic thinking right up there with the best the European Commission has to offer. That needs to go first and foremost.¨

PM would use functional finance to spend to maximize production and employment with inflation the limit, just like MMT would.
No cabals any different than the FOMC now lol

Neil Wilson said...

"PM would use functional finance to spend to maximize production and employment with inflation the limit, just like MMT would. "

Not at all. Parliament would be subject to a debt ceiling set by an unelected bunch of wonks who have no more clue about what is happening than the rest of us. That's an imposition of a constitutional order on a sovereign parliament. We've just had an election to kick the last version of that out.

"No cabals any different than the FOMC now lol"

Precisely the problem. Another daft American constitutional idea that got exported - like allegedly 'independent central banks'. Next they'll want private health care and open carrying of weapons.

"Can you point to a source on that? "

There is no shift to asset side regulation on banks - which is what needs to happen when you have endogenous entities. PM continues on with the Krugman/Wren Lewis style Washington consensus view. Fiscal policy is still subservient to a dominant unelected elite and a belief that there is one interest rate to rule them all. And there is no justification or benefit from doing that - other than the middle class liberal elite stay in charge all the time.

Similarly there is no adjustment to the automatic stabilisers. What fiscal policy is promised is discretionary and gross in size - a little bit more roads here, a new hospital there. Classic Consensus view of what government is there for - to fiddle around at the edges of Capitalism, but definitely never get in the way of rich people making money out of the poor.

All of these idea are run through with the concept that middle class thinkers in universities should be the ones that set the rules of the game. By which they mean embed their view of politics permanently in the system with no possibility of change. That is de-democratisation of society and completely unacceptable.

Clint Ballinger said...

Neil, simply put - the decision on how much spending is appropriate is exactly the same under MMT proposals or PM proposals, with OMF basically being same for both, inflation the limit, and private loans restricted to productive uses

Neil Wilson said...

Let's put it this way.

Implement a Job Guarantee (which as an automatic stabiliser requires payment by the central bank on demand as more people drop onto the Job Guarantee) under a PM scenario where the Chancellor of the Exchequer disagreed with the Bank of England about what the impact of a recession on the economy's capacity to produce was.

Whose view prevails? Who gets to set the living wage? The elected minister answerable to the people, or the technocrat answerable to nobody in particular.

Who gets to say no and make it stick? That is the fundamental axiom underlying all these ideas.

Clint Ballinger said...

There is absolutely nothing that makes a Job Guarantee any more or less easy to implement under the changes PM proposes than under the current system

Clint Ballinger said...

Really MMT with Overt Monetary Financing and restricting private credit to productive uses is the same as Positive Money that allows limited credit creation for productive uses.
Hence my article.
Decisions on a Job Guarantee will ALWAYS be political, no way around that in any system

Neil Wilson said...

"There is absolutely nothing that makes a Job Guarantee any more or less easy to implement under the changes PM proposes than under the current system"

Yes we know. That's the problem.

And MMT provides the view of the alternative - that the dynamic currency system needs to respond to pull requests, not push. You just let the currency system float and strip away the artificial control points that actually control nothing. No overpaid idiots in ivory towers pretending they can say no. The Central Bank is there to clear the government's cheques - as authorised by parliament. That's it.

When PM gets around to that viewpoint, then we have something to talk about. Until then we can do whatever PM is promising by just putting interest rates up very high.

Neil Wilson said...

"s the same as Positive Money that allows limited credit creation for productive uses. "

There is no restriction in PM on what credit creation is used for. It disciplines on the liability side only. If you can pay the current value of money, you can borrow it from banks for whatever use the bank permits. Just like now.

PM then pretends that banks can't create credit any more by renaming a section of money. I can do that now - deposit accounts are no longer money. They are 'paid up shares'.

I've already dealt with the Sovereign money illusion. It has no systemic control value whatsoever.

Clint Ballinger said...

MMT using overt monetary financing does no more or no less “to let the currency system float and strip away the artificial control points that actually control nothing” than PM would. They really do amount to the same thing operationally; then either must sensibly use functional finance to spend into the economy.
Then they both have to get endogenous money right – enough credit for productive loans to be made in addition to government spending; I show how they have moved substantially towards each other regarding credit for productive loans.
MMT with Overt Monetary Financing and restricting private credit to productive uses is essentially the same as Positive Money that allows limited credit creation for productive uses, as long as either follows functional finance also.
Yes, there should be a job guarantee morally and as an automatic stabilizer. MMT and PM can do that, and it is always a political choice.

Clint Ballinger said...

(endogenous money creation)

Neil Wilson: “The correct approach, as highlighted by the MMT view, is to reduce bank lending by banning its use for anything that isn't constructive. Bill Mitchell regularly suggests that 97% of financial transactions should be illegal.” http://www.3spoken.co.uk/2014/11/the-sovereign-money-illusion.html

Positive Money: “The central bank would be willing to create additional money, on demand, in response to banks that are able to lend that money to non-FIRE sector businesses. This protects the level of lending to businesses.”

http://positivemoney.org/wp-content/uploads/2015/01/Would_A_Sovereign_Money_System_Be_Flexible_Enough_WEB20140113.pdf

Gee, no convergence at all