ChatGPT explains the differences between MMT (Modern Monetary Theory) and MS (Monetary Sovereignty

If you use ChatGPT and ask it, “What is the difference between Modern Monetary Theory (MMT) and Monetary Sovereignty (MS),” you might be told something like this direct quote from the AI:

Modern Monetary Theory (MMT) Inflation Causes: MMT posits that inflation can be caused by excessive federal deficit spending, which increases aggregate demand beyond the productive capacity of the economy. When too much money chases too few goods, prices rise, leading to inflation.

Inflation Control: MMT advocates for using fiscal tools, such as taxation and government spending adjustments, to manage demand and control inflation. It also supports the use of monetary policy, including interest rate adjustments by the Federal Reserve, to help control inflation. By raising interest rates, the Fed can dampen borrowing and spending, reducing inflationary pressures. Mitchell’s Monetary Sovereignty Inflation Causes:

According to Mitchell’s concept of Monetary Sovereignty (MS), all inflations are caused by shortages of key goods and services, not merely by aggregate demand exceeding supply. This perspective emphasizes that inflation results from supply-side constraints, such as disruptions in production, supply chain issues, or shortages of essential commodities.

Inflation Control: Mitchell’s approach argues that federal spending should be directed at alleviating these shortages to control inflation. For example, investing in infrastructure, technology, and education can increase productive capacity and address supply constraints. It opposes the use of interest rate hikes to control inflation, arguing that increasing interest rates raises business costs (e.g., higher borrowing costs), which can exacerbate inflation rather than cure it.

Key Differences Source of Inflation: MMT: Focuses on demand-pull inflation due to excessive spending. Monetary Sovereignty: Emphasizes cost-push inflation due to supply shortages.

Policy Tools for Inflation:MMT: Uses both fiscal policy (taxation and spending adjustments) and monetary policy (interest rate changes) to manage inflation. Monetary Sovereignty: Advocates for targeted federal spending to address supply shortages and improve productive capacity, rejecting interest rate hikes as counterproductive.

Implications for Economic Policy Fiscal Policy: Both MMT and Monetary Sovereignty agree that the federal government, as a monetary sovereign, can use fiscal policy effectively to manage the economy. However, the focus differs: MMT: Balances between managing demand and supply. Monetary Sovereignty: Focuses more on addressing supply-side issues directly.

Monetary Policy: MMT: Supports the use of interest rate adjustments alongside fiscal measures. Monetary Sovereignty: Criticizes interest rate hikes, suggesting they increase costs for businesses and can worsen inflation, advocating instead for supply-side interventions.

Practical Examples Supply Shortages: During the COVID-19 pandemic, supply chain disruptions led to shortages of key goods, contributing to inflation. Mitchell’s approach would advocate for targeted investments to resolve these shortages, while MMT might consider both demand management and supply-side measures.

Interest Rate Policy: In periods of high inflation, MMT might support interest rate hikes to cool down demand, whereas Monetary Sovereignty would likely oppose such measures, focusing instead on increasing supply through strategic spending.

Conclusion Understanding the nuanced differences between MMT and Mitchell’s Monetary Sovereignty can lead to more informed and effective economic policies.

While MMT incorporates both demand and supply considerations and supports a combination of fiscal and monetary tools, Mitchell’s Monetary Sovereignty places greater emphasis on addressing supply-side constraints and rejects interest rate hikes as a tool for controlling inflation.

Both perspectives offer valuable insights into managing modern economies, highlighting the importance of context-specific approaches to economic policy.

What is your opinion? Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell; MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell; https://www.academia.edu/

……………………………………………………………………..

The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY

AARP accidentally admits the government doesn’t need FICA

Your benevolent friend.

The AARP is the self-anointed protector of the aged. Its website says:

“AARP represents the needs of the more than 100 million older Americans with lifestyles and political views as diverse as any group in the United States.

“We concentrate on the issues most important to those in the 50+ community as they age: economic security; health care; access to affordable, quality long-term care; creating and maintaining livable communities; consumer protections; caregiving; and ensuring that our democracy works better for all.”

Unfortunately, AARP has long published articles claiming that the Medicare and Social Security trust funds are running short of dollars and soon will need to cut benefits or increase taxes – specifically FICA – which supposedly supports those trust funds. It’s all wrong:

1. The so-called “trust funds” are not real trust funds. They are merely bookkeeping notations that track dollars coming and dollars going out.

The federal government can raise, lower, or erase those numbers whenever it wishes.

2. Those “trust funds” don’t pay for anything. The government pays for Social Security and Medicare benefits like it pays for everything else: the military, roads, dams, Congress, the Supreme Court, the White House, NASA, etc.

It signs legislation that approves the creation of dollars and then pays for things with those newly created dollars. It can do this endlessly.

Here is a sample — a direct quote, actually — of what AARP has been telling people:

The trust funds from which Social Security benefits are paid won’t run short of money until 2035 — a year later than was predicted in last year’s report.

And, the Medicare trust fund for part A, which helps pay for inpatient hospital visits will cover all its bills until 2036 — five years longer than forecast last year.

And here’s the key paragraph. It contains facts you seldom are told by any of the media:

Other Medicare programs, including Part B doctor’s services and outpatient care and Part D prescription drugs, will have enough money indefinitely because premiums and federal contributions are automatically adjusted each year to cover costs.

That is the phrase to remember: ” . . . federal contributions are automatically adjusted each year to cover costs.” It states very simply and clearly that the government pays whatever is needed to keep Part B viable forever. It is a tacit admission that at least some part of Medicare is not beholden to “trust funds” or to tax collections. This begs the obvious question: If the government pays for some of Part B, why doesn’t it pay for all of Part B and Part A? I asked the Copilot AI this question, and this is what it said: ”

“The reason Part A is not fully funded by the government is likely due to the historical structure of Medicare and the way it was initially designed.

“Part B is partially funded by monthly premiums paid by beneficiaries and general tax revenue. The rationale behind this split may be to ensure that beneficiaries contribute to the cost of outpatient services while still receiving essential coverage.”

Those monthly premiums come out of your Social Security benefits. You need the money; the federal government doesn’t. The inevitable conclusions are:

1. Since federal contributions are automatically adjusted each year, no calculation is made about whether the federal government can afford these contributions; affordability is assumed.

2. When Medicare and Social Security were created (1935 and 1965, respectively), the U.S. was still on a form of gold standard. Its money-creation ability was limited by its gold supplies. It was only partially Monetarily Sovereign.

This ended in 1971, when the government became fully Monetarily Sovereign. As Alan Greenspan said during a 1985 congressional hearing, “There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”

3. Thus, the federal government can pay for Social Security and Medicare without levying any taxes. Ben Bernanke said during an interview with Scott Pelley on March 12, 2009, when asked if the money the Federal Reserve (Fed) spends is tax money, “It’s not tax money… We simply use the computer to mark up the size of the account.”

4. From an affordability standpoint, the federal government could afford to fully fund a comprehensive, no-deductible Medicare and a far more generous Social Security—for all Americans of any age—without ever levying taxes.

This fact leaves doubters with two objections, both unmoored from fact:

Objection: Federal funding of Medicare and Social Security is Socialism.

Fact: Socialism is government ownership and control, not just spending. The above proposals would change nothing regarding ownership and control, so they would not move us any closer to Socialism.

Objection: Federal funding of Medicare and Social Security would cause inflation.

Fact: All inflations in history have been caused by shortages of crucial goods and services, not by federal spending. (See: If excessive federal deficit spending causes inflation, how do you explain this graph?)

The most recent inflation was caused by COVID-related shortages of oil, food, computer chips, lumber, metals, labor, and other necessities, not by low interest rates or excessive federal spending.

The shortages and inflation are being cured by additional federal spending to acquire and distribute the scarce goods.

Summary AARP acknowledges the easily and often proven fact that although state and local taxes fund state and local spending, federal taxes do not fund federal spending. The federal government easily could fund Medicare and Social Security for all and forever. The claims about the imminent need to limit benefits or raise taxes do not comport with reality, which is that the government should increase benefits and eliminate FICA forever. If you are tired of the dire warnings that serve only to widen the income/wealth/power Gap between you and the very rich, tell this to your Congressional representative. Do it today and every tomorrow, and tell your friends to do it too. As Galileo taught us, some truths take a while to be accepted. Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell; MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell; https://www.academia.edu/

……………………………………………………………………..

The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY