Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity breeds austerity and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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A word may mean one thing to scientists and something completely different to lay people. Consider “theory.” In everyday usage, “theory” means speculation, as in, “That’s just a theory.” But a scientific “theory” is a whole body of facts that leads up to a scientifically acceptable belief. For an idea to be labeled a theory, it must have been researched and tested by many scientists, and based on undeniable facts.
What the layman thinks of as a “theory,” actually is a hypothesis, which is a suggested solution based on limited facts: An educated guess. So for instance when the scientifically ignorant deride Evolution as “just a theory,” they misuse the word, perhaps intentionally.
In economics, “debt” and “deficit” have different meanings and different implications, depending on whether the subject is a Monetarily Sovereign government or a monetarily non-sovereign entity. Among my quibbles with MMT (Modern Monetary Theory) is its name. It’s not a theory. It’s a statement of facts about how our Monetarily Sovereign government works, the same facts Monetary Sovereignty uses — the same facts politicians, media and economists deny or ignore. A few of these facts are:
1. The federal government creates dollars by paying its bills
2. Without federal deficits there would be no dollars; surpluses reduce the money supply
3. Taxes destroy dollars
4. Neither taxes nor borrowing help the federal government pay for its spending.
5. Today’s and future taxpayers will not pay for today’s federal spending.
6. A Monetarily Sovereign nation can pay any bill of any size at any time, and cannot be forced into bankruptcy.
7. No agency of a Monetarily Sovereign can be forced into bankruptcy without the consent of the government
8. Bank lending creates bank reserves that form the basis for further bank lending.
9. The federal debt is the total of outstanding T-securities and not functionally the total of federal deficits.
10. State, county and city governments finances are unlike federal finances.
11. Greece’s and Italy’s finances are unlike U.S. finances in that they can be forced into bankruptcy.
12. The debt/GDP ratio does not measure the federal government’s ability to service its debts.
None of these are theories or even hypotheses. They are undeniable statements of fact, which somehow have been unable to penetrate the mainstream. In this vein, I want to call your attention to a marvelous article in the October 29th edition of NewScientist magazine, titled, “Don’t tell it so straight,” by Peter Alhous.
Today’s post cannot begin to do justice to this excellent article, so I’ll merely quote a few lines, and urge you to buy a copy or read the article at http://www.newscientist.com/article/mg21228361.600-science-in-america-selling-the-truth.html.
. . . a classic example of the “deficit model” of science communication . . . assumes that mistrust of unwelcome scientific findings stems from a lack of knowledge. Ergo, if you provide more facts, scepticism should melt away. This approach appeals to people trained to treat evidence as the ultimate arbiter of truth. The problem is that in many cases, it just doesn’t work.
True. It has not worked for MMT or for Monetary Sovereignty
People aren’t empty vessels waiting to receive information. Instead, we all filter and interpret knowledge through our cultural perspectives, and these perspectives are often more powerful than the facts.
One of the most powerful cultural perspectives is personal experience, which is misleading when applied to federal financing. Another cultural perspective comes from “expert” opinion.
Dan Kahan of Yale University . . .(explained that) we have a strong interest in mirroring the views of our own cultural group. . . In one experiment, . . when presented with balanced arguments for and against giving the HPV vaccine to schoolgirls, 70 per cent of (liberals), and 56 per cent of conservatives, thought it was safe to do so.
Kahan then attributed the arguments to fictional experts described so as to make them appear (appropriately) either liberal or conservative. (This) drove the two camps a little further apart. But, crucially, swapping the messengers around had a dramatic effect: 58 per cent of liberals and 61 per cent of conservatives rated the vaccine as safe.
These findings suggest that one way to change people’s minds is to find someone they identify with to argue the case. Climate scientists have almost certainly been badly served by allowing former Democratic vice-president Al Gore to become the dominant voice on the issue. His advocacy will have convinced liberals, but is bound to have contributed to the rejection of mainstream climate science by many conservatives.
MMT and MS need someone of high stature to present the facts, which alone cannot penetrate. And this may be particularly true with someone from “the other side.” President Nixon was able to open trade with China, because he was known as a hard liner. A “soft” Democrat probably couldn’t have done it.
How a message is framed in relation to the cultural biases of the intended recipients is crucial to its persuasiveness. Opponents of evolution have learned this lesson well. After failing to get biblical creationism taught in science classes, they came back with the “scientific” concept of intelligent design, and two key talking points: “evolution is just a theory” and “teach the controversy”.
Not only were these frames attractive to the religious right, they were also difficult for scientists to counter without seeming to endorse censorship.
For MMT and MS the framing might be love of country and/or love of our children. The nation and our children would have a brighter future if our leaders understood these factual descriptions of economics.
Two different ways of presenting the same information about temperature records (were tested on ) people who identified themselves as “strong Republicans” sceptical about human-caused climate change. One was in the form of a line graph, the other plain text.
The text had little effect, but the graph made the strong Republicans more likely to acknowledge that global warming is both real and a consequence of human activities.
Taken together, studies of communication provide a recipe to allow science to better inform US political debate: find frames that work with broad sections of the population and stick closely to those narratives; seek allies from across the political spectrum who can reach out to diverse audiences; and remember that a graph can be worth a thousand words
MMT and MS should find frames (patriotism and/or love of children??), allies (especially someone who heretofore has been known to be strongly anti-debt) and simple graphs to illustrate facts.
I welcome your suggestions.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings
MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
Roger, you are on a good track here. I am confused though about “taxes destroy dollars.” It appears to me that taxes are collected and promptly sent back into the economy by spending and transfer payments. Are they really destroyed?
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Yes, if you send in paper currency the Treasury shreds and burns it, literally. They don’t carry it to the bank and deposit it, to cover the next check they write. (If you send them a check, they process it just like the grocery store would, though, so as to make sure it comes out of your account in your bank.)
That’s sort of irrelevant, though. The point is about vertical money creation. When the government spends, it adds money to the economy. When it taxes, it takes it out. In economic terms, money is created by spending and destroyed by taxing, just as if it were shredded and burned, and new currency printed. Except, mostly, it’s just bits in a computer, not physical currency anymore.
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Yes, they really are destroyed or cancelled. The best way to understand this is to understand what money is. A dollar bill or an entry in a bank computer is not a dollar. It merely represents, signifies a dollar. A dollar is not a thing like the physical bill or electron, but a credit-debt relationship between the dollar holder, the creditor, and the issuer, the debtor, the US government here. A tax bill is the reverse – it is a debt of an individual to the government. If the individual pays the government a dollar for his tax bill, the credit/debts going the opposite ways cancel each other out.
If Tweedledum owes Tweedledee one rattle, and Tweedledee owes Tweedledum one rattle, they need not have a battle. They could note that neither owes the other anything, that their rattle-debts have cancelled each other. Both their rattle-debts are dead & gone, just like a tax bill & a dollar bill used to pay it.
You could, if you really wanted to, if there were some real reason to, think about things otherwise, think about some kind of government spending as “coming from” government receipts. Maybe if you wanted to compare the economics of government owned hot-dog stands vs privately owned ones. But you have to be very careful, and know what you are doing, and realize that this is completely crazy when you are talking at the most micro-fundamental level of what is happening with each individual payment and also at the macro level of the economy & government as a whole.
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John,
Yes, they are destroyed.
If taxes were $0, this would not affect by even $1 the federal government’s ability to pay its bills. It still would pay all debts merely by crediting the bank accounts of those to whom it owes money. Taxes are not involved in this process.
Unlike you and me, the federal government does not have a place where it stores money. If you sent a legitimate $100 trillion invoice to the federal government, it would pay you by increasing the numbers in your checking account — by $100 trillion.
That being the case, where do your tax dollars go? Think about it. Your checking account is debited, and for accounting purposes, a federal account is credited. But this account is not related in any way, to federal spending. It’s just a balance account. Your tax dollars simply cease to exist.
Rodger Malcolm Mitchell
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Good, good, good. But, you still have to have the facts straight.
“reducing deficits reduces the money supply” is incorrect. Any deficit increases the money supply. Large deficits increase it more, but small, or smaller than last year, also increase the money supply, just not as much. Surpluses reduce the money supply.
And I’m not sure about this one:
“Bank lending creates bank reserves that form the basis for further bank lending.”
Loans create deposits, but do they change the level of reserves? I thought the Fed controlled the level of reserves, although it is not a discretionary control. The Fed buying treasury debt from banks is (Central) bank lending, I suppose, and does create reserves, but your statement is a confusing and misleading way to say so, if that’s what you meant by it.
The main obstacle to overcome is the idea that a currency issuer must manage its finances the way currency users must do. No matter what the appeal strategy is, that idea must penetrate before any of the rest can, and especially now that the debt is reaching levels that would bankrupt a currency user.
I guess the start is to explain that there are two types of economic entities in the world, currency issuers and currency users, and that they have different constraints and capabilities. That is a simple concept that people can grasp: this one is different from that one. The US is not Greece, because the US can create all the dollars it needs, whereas Greece cannot create even a single Euro, and yet they are required to have Euro in order to pay their bills. Greece is like Jefferson County, not like the US.
What scares people about MMT when they first hear a little bit about it is inflation. Some of the statements intended to convey the absence of certain constraints arouse in people’s minds the idea of unlimited money printing, and that is scary to them. More emphasis needs to be placed on your equal wariness of and distaste for inflation. If you don’t have any, then get some.
I’m a computer geek, but I’ve been to marketing school. In marketing school they don’t teach you about the features and benefits of the product you’re going to sell. They teach you how to relate to people, how to understand their concerns and attitudes, and what sorts of things to say to “connect” with them. At first I thought “you’re just trying to teach us to manipulate people, to find and push their buttons, so as to control them”. But that’s not it. If you want to persuade someone you must first understand them, know what they will relate to and respond to. Much of the lifelong attitudes people have are formed during childhood, and by their parents. Children of the ’50’s have a much different view of life and the world than children of the Depression. The same can be said of any generation, and large numbers of people from a generation can be moved by things that appeal to their common experiences.
Now, in particular, those you need to convince grew up in the 1970’s. They fear high inflation and 21% interest rates more than they fear unemployment. They are not Depression babies. They have had some unemployment all their lives, but not like the Depression, so they are not afraid of unemployment like they are afraid of inflation.
What a good salesman knows that the smartest scientist probably doesn’t know is that people don’t care how much you know until they know how much you care.
“For the children” is a tried and true approach, but it’s been used by charlatans for so long now that it might not work so well any more. I’m biased, though. When I hear that approach it activates my fraud alert radar. It could still be good for some. I would make it as factual and unemotional as possible, but maybe that’s just me. It’s probably a good approach. Patriotism, too, but don’t overdo it.
Don’t overdo either of them. People who express other views are not unpatriotic or anti-children. They have opinions that are founded in their experience and training and are held in good faith. They are not villains, or dunces.
Speaking of which, how many commercials do you see on TV that award dunce caps to people who don’t buy the product? The opposite approach is much more successful. The guy who stayed at Holiday Inn Express is really smart. Maybe if you would award little “Rodger” statuettes to people who say something you like, instead of dunce caps to people who say something you don’t like, the reaction would be more favorable. The point is the same, you can have a “Rodger” deficit every year and never run out of them.
My local free twice-a-week newspaper prints every letter to the editor they receive, unedited. The limit is 300 words. I’m working on a series of 290-word submissions each explaining a facet of MMT. If anyone would like to help, they are at http://www.westvalleyview.com, email to editor@westvalleyview.com
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Re. your first paragraph: Good catch. Thanks. I’ve changed the post.
Re. your 2nd paragraph: Deposits are reserves. The point may be moot however, in that reserves are freely available to banks, so they really don’t limit or facilitate lending.
The Fed doesn’t exactly control reserves, though it does drain what it considers to be “excess reserves” from the system. I have serious questions about the effect of that drain.
I’d thought about the reward approach with “Rodgers” that you suggest, but abandoned it. First, even I don’t have that much hubris (though I suppose I could use stars or something similar), but more importantly, I would be awarding so few people — MMTers mostly — it would become useless. How many “Rodgers” could I keep giving to Warren Mosler, Randy Wray, Marshall Auerback and Bill Mitchell?
Look at the newspapers. How many article authors understand Monetary Sovereignty?
By the way, I don’t award dunce caps to lay people, who merely have been given bad information. I award dunce caps to smug, ignorant, so-called experts — politicians, economists, media types, bloggers — to whom the populace looks for leadership. I do not accept that their opinions “are founded in their experience and training and are held in good faith.” I happen to think they are lazy cowards, who have neither the energy nor the courage to look at the facts, and would rather parrot the popular wisdom than risk bucking the tide.
That said, if you succeed in getting your submissions printed, I may make up a special “Nathan Hale patriot award,” just for you.
Rodger Malcolm Mitchell
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I’m flattered, but there is no question of it being published. They publish everything.
I think you could give Krugman one Rodger. He doesn’t understand why, but he has said the deficit is too small. And it would be really fun to see his reaction !!
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Exactly, I mentioned it before: MMT needs to rename itself to Modern Monetary Economics instead of including Theory.
The Austrians knew it & called themselves Austrian Economics instead of Austrian Econoic Theory.
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Yes, that would help.
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Rodger,
I like your idea of selling through a spokesman/example.
I think one of the best salesman for MMT is Ronald Reagan.
When he was faced with high unemployment, he cut taxes and increased the deficit.
When I was growing up, the Democrats were the party of tax and spend, the Republicans were the party of borrow and spend (MMT), and the Libertarians were the party of no taxes, no borrowing and no spending.
The Libertarians finally figured out that they could not win as a third party, so they took over the Republican party. For example, look at Ron Paul. He first ran for president as a Libertarian and now he is running as a Republican. The Libertarians called themselves the Tea Party and got more people to join them.
What we need to do is show the Republicans that Reagan borrowed and spent, and they need to get back to their Reagan roots.
Even Dick Cheney said, “Reagan proved that deficits don’t matter.”
We should call in to Rush Limbaugh and Sean Hannity and remind them of what Reagan did whenever we can.
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rush and hannity are both evil and couldnt care less about the down-trodden. the only reason they want tax cuts is because they are both selfish, not because it would help the economy.
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One slight correction. Neither MMT nor Monetary Sovereignty subscribe to “borrow and spend.” Borrowing is unnecessary for our federal government. We propose spending.
Rodger Malcolm Mitchell
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One step at a time.
Once you have gained agreement on the need for deficits, then it will be easier to explain that borrowing is no longer necessary, but is just a relic from the olden days. At that point, it will relieve some fears rather than stoking them.
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Rodger,
I like the article. In my humble opinion, it’s the best you’ve done in a while. You’re (finally, I think) on the right track with it and this comment I’m replying to.
(If I may go further, I’d say don’t be for “spending,” be for “investment.” It’s amazing what a little change in wording will produce.)
Quite frankly, I think naming the “theory” or “economic school” at all is the wrong way to go. In economics, the second you name something, you pigeon-hole it. Whether we’re talking about the layman who is starting to read economics or the policy wonk, the second you say “Keynesian” you think liberal, the second you say “Monetarist” you think conservative, and the second you say “Austrian” or “supply-sider” you think libertarian (nut).
As far as a good spokesman, in order to fulfill what it states in your article, we’d have to pick a Republican. The only active, well-known politician i think fits the bill is Huntsman, but maybe getting someone out of political retirement might be the answer. I’d have to think about it more.
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“Investment” has already been hijacked. It means a loan for Solyndra, or any spending that is “for the children”, like when the teachers’ union wants a raise.
Being for “lower taxes” rather than “”more spending” or “higher deficits” at least has some appeal in some quarters, and may attract deficit hawks to at least listen. It worked for me. I think the conversion of one prominent deficit hawk would really get the movement jump-started.
“Taxes are too high for the size government we have” is a statement that invites intelligent debate, or at least inquiry.
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Maybe, but “spending” is an even worse word with more negative connotations for the US public. Whether it’s true or not, “spending” implies that no thought was given to the future (we know that’s not true, but that doesn’t matter…this is marketing, not policy formulation).
I thought about “stimulus,” but the GOP has already been countering that one lately by saying “the first stimulus didn’t work.” The reason I picked “investment” is because it implies a return. I think the Democrats can get on message, even with the Solyndra mess. Plus, there’s still a lot unknown about Solyndra, so I think they can still get away with using the word “investment.”
The loans to the autos were good “investments.” Many of the loans to bailout the banks “made a profit.” Some investments don’t work out, that’s just the way it goes but, “on a whole, the government is making better investment decisions right now than the banks have been making for a long time.” “We need to invest in our future.” “We need to invest in our children.” (A good pull at the heart strings with the last one…the GOP has been trying to give people heart attacks with the “don’t spend away our children’s future” line.)
I think all or most of the above paragraph could be the messaging content. It should be the messaging for MMT/MS advocates, too.
Right now (or at least lately), it seems like the Democrats’ only response to the “cuts” argument from the GOP is to call them “draconian.” From a marketing perspective, whoever came up with that talking point needs to be fired. What segment of the US population will actually respond to that word in the way the Democrats want? Not many, I’m willing to bet. I think many, if not most, will just be confused.
I’m with you on the taxes argument. It’s more politically doable at the moment. If I was in Obama’s position and I had the MMT/MS knowledge I have, I’d offer it as a gambit to the GOP in return for reciprocation in the future.
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