« The Legitimacy Crisis | Main | Problems and non-problems »

Down with the deficit terrorists

By Fred Bethune on Monday April 12, 2010 11:23 AM


Who is this ear-ringed Aussie? It's my second-favorite Billy Mitchell. Like my top favorite Billy Mitchell, shown below --

... this Billy Mitchell also lords it over an obscure subculture that has recently caught the attention of the mainstream.

A few months back I noticed that many of the better commenters had disappeared from my favorite economics blogs. Why did my stomping grounds suddenly feel like Studio 54 circa 1985?

As it turns out, everyone was on to the new new thing: Modern Monetary Theory, or MMT for short. MMT is a neo-chartalist economic theory promoted by Bill Mitchell and a few other eccentric characters. The main insight of MMT is that money is a creature of the state and under a fiat, floating exchange rate currency regime, a sovereign government has no nominal spending constraint.

What does this mean in English? Any country that prints its own currency and borrows in its own currency can never go bankrupt against its will. It can always print more currency to pay off its debts. A second key aspect of MMT is an emphasis on full employment as the appropriate goal for monetary and fiscal policy.

Who are its enemies? The deficit terrorists like Pete Peterson, the IMF, the EU leadership and the rest of the neo-liberal establishment.

Sounds good, right? As much as I am with Bill & co. in spirit, I do find his underlying economic arguments a bit off -- but that's a subject for another post. Nonetheless, I have to applaud the success he and his allies have had in popularizing a strong anti-austerity position, despite the prevailing deficit hysteria.

Just a few weeks ago I turned on BNN, my beloved closet-leftist Canadian business network, and saw one of his allies, Marshall Auerback, eloquently bashing the deficit hawks. Music to my ears!

The next step in the MMTers' publicity campaign is being organized by some of our friends over at Corrente: a teach-in and shadow conference taking place on April 28th in Mordor-on-Potomac. The idea is to provide a counter-narrative to Pete Peterson's deficit terrorist conference that is happening at the same time. I encourage everyone to do what they can to help out with this laudable initiative.

Not to prod, but in particular I think they could use a bit of high quality agitprop, *cough* Fluggenock *cough*.

Comments (35)


m baggers

A question asked from partial ignorance: how does this theory apply in some "lawless" region where modern economic conditions do not obtain?


"I propose that Firedog Lake, The Huffington Post, New Deal 2.0, and The American Prospect jointly sponsor and provide financial backing for this Conference"

snooze control

Save the Oocytes:

Econ-blog commenters... so fickle.


"how does this theory apply in some "lawless" region where modern economic conditions do not obtain"

what ya got in mind ???

"lawless"-ness in one country ???

"I do find his underlying economic arguments a bit off -- but that's a subject for another post"

why wait

the thesis:

"Any country that prints its own currency and borrows in its own currency can never go bankrupt against its will. It can always print more currency to pay off its debts"

look the hole in this gimmick is
the price level itself

it will run away from the monetizing process
till the currency de montizes itself

you have to put a price level control mechanism in place
a map
or you get zimbowanga

as to full employment as a target of macro policy
hardly a neo-charlalist brand monopoly

i strongly recomment laying off this hooch

it succeeds in vindicating the neolib terrorism

once the notion of a weimar run away surfaces
never to be put back into its bottle by rational argument alone

you have to offer a price level mangement solution first
and demo it on a runaway sector
like health costs

or a post deval import sunami

as to full employment
ala vickrey

hyper employment
ivory soap pure employment

its like the deval issue itself
lets get to the taboo line
the 4-5% un rate
the nairu high water line
and get there as fast as hell

once neo lib full employment
is reached
and rapid job growth is still in prospect
and success has put popular momentum
on the side of progress

then restructure the system

Owen, I don't speak/read your version of Poetic Interference.

Yes, an inferior soul in your very midst...

...so I guess I'm just asking how this theory explains exchanges between people in places where the infrastructure doesn't exist.


Jack, I think the short answer is no.

The contention of the MMTers is that deficit hawkery is largely an anachronistic left-over from the gold-standard/bretton woods era. They argue that the game changed when Nixon closed the gold window, but that economists are still arguing as if that never happened. According to the MMTers we are not taking advantage of the opportunities of a modern system where the government prints its own currency that is not backed by gold.



Hold your fire!

I put in that caveat because I knew that you would respond exactly as you did. Believe me, I shared all of your misgivings, but please trust me that there is actually a bit more here than meets the eye. Even Billy is aware of real constraints, but he is deliberately simplifying to make the simple points (that are available in some conventional economics) to the masses. If it takes the label MMT and a bit of simplification for people to understand these concepts, then I have no problem with that.

Don't cut down the popular front just yet, because I assure that there is stronger stuff for the vanguard. The New Classicals were never in so quick to attack the Austrians, eh?


I understand the stated conflict between hawks and the MMTs (and I read up on it first, following the Corrente discussion).

I'm really just trying to understand how the theory applies everywhere else, where massive superstructures don't exist.

Also, upon reflection, how does the theory work when used as a template to describe relations between nations which could pull it off (the US) and regions from which those nations pull their resources (say, Indonesia, or Nigeria)?


all of which

is NOT to say
education...slow-motion agit prop
needs to commense immediately

but not by means of chartalist perpetual motion machinary
though to bother attacking
its entirely innocent and well intended
true believers
is a folly
even if only viewed
as a waste of energy

like georgist ground rent folks
one can bloc
with these mitchell
limitless fiscality folks
spreading their gibber ourselves


as to fighting the deficit terrorists

the broadest front needs to be formed
and that is one that takes the fiscal horizon step by step
right now we need job recovery
and if it comes to it
we need to defeat SSI benefit mangling

that means joining forces
with the likes of
those sour tasting
hair balls
at amerikan prospect


Okay, Owen, that's your assignment.


"the broadest front needs to be formed
and that is one that takes the fiscal horizon step by step
right now we need job recovery"

uh, and your suggestion is???

Forgive me for being a bit skeptical of your preferred front-building strategy of bashing the commenters who stumble into Thoma's middle-brow pwog salon over the head with your brand of obscurantist econo-poetry.

The fact of the matter is that they have had more success with their strategy in about 4 months than you have had in 4 years. I really don't see where you get off on looking down your nose at them.

And again - there is more to this gang than limitless fiscality, although I admit that Billy in particular does play up that angle more than I would like.



the interesting part is just how closed must a national econo0my be to pull off a rapid rise in sovereign debt
before that debt flies to pieces
on the debt markets

we have legions of evidence here
the emerging economies can't pull this off without inducing de facto autarky

the collapse of the "local" currency forex
will lead to massive exportation unless
controls are placed on them

export controls ??

imagine how well they'll work
if you'd end up exporting
food commodities
then urban scarcity riots emerge

frankly i think body checking the word bankrupcy is sufficient here

and that indeed suggests one notice
the limitless dollar mine
but to go beyond that
to suggest the fed can fund anything uncle wants to pay for

at any rate
yes since uncle funds himself
with dollar bonds
bonds the fed can buy for free
and ....
so long as the economy is running in heavy slack mode like now

and import deficits are officially neglected
as they were thru the bush II dispensation

then appearances
might seem to support
the chartalist paradigm

the end of bretton woods was not
the end of credit rationing

despite the dollars liberation from gold

--and not only because real wage control
requires nominal wage control---

when operating near the capacity limit
corporate free range price increasing
-- on non trade-ables--
tends to accelerate
so they needs to be controled

think of it this way

you ration credit
so you don't have to ration
either prices or products

but if you had a mechanism that efficiently
rationed price increases ...
enter map and mark up cap and trade

since these "real" systemic solutions are fairly easy to grasp
i see no reason to teach this charalist bs
simply to in the future unteach it

just ignore it until some one asks you to comment on it
and when you do and u've demolished it
make sure you tell folks not to waste time trying to convert them to the true gospel

they are on our side and have no chartalist reason to part company with us
unless they oppose
forex and price setting


looking down my nose is impossible

it has a celtic ski jump snub to it

becare to not confuse
one souls personal methods
with methods even that soul
might find suitable to an organization

"front building " strateeeegery
is org work
and i am in particular suggesting a kindly
organizational indulgence toward chartalists
by any pwog organization
that recognizes the job market slump as priority one here

we need to double down on our fiscal deficit
uncle won't of course
and its not because the defict terorists core thinks we'll go bankrupt
but because ewe'd destabilize "the corporate " stablization of world markets

ignorance of ultimate consequences
obviously solves nothing
even if chartalist illusions
carry the fight forward right now
no one how knows better should encourage
anyone else to study their patent pending fiscal perpetual motion machine

crow has it right

we only need to look to the periphery
to see chartalism proven wrong

"more success with their strategy in about 4 months"

WTF are you talking about, FB?

Meanwhile, what does "can never go broke" mean? Going asymptotically almost-broke isn't excluded, is it?

The economy is imposed on and derives from ecological and human work. Money is a way of counting and allocating these real, physical things. The gold standard was just a wrapper roughly symbolizing this core fact.

Endlessly printing money cannot possibly be the answer to all our problems. Hell, if it were, don't you think our masters would have struck upon it by now?


"there is more to this gang than limitless fiscality"

what more ???

other progressive targets
what differetiates them is their "science"
and if the foundation of their "science"
is unsound

sharing our objects like hyper full employment
is incidental albeit a basis for solidarity


bashing with the old chin rest is perfectly splendid one on one technique

as a member of and organization

i'd put my chin rest back up under my chin
and leave it there till ordered
by the polit bureau
to use it on
the class enemy

OK, I looked at this guy. Turns out his argument is noble, but, as with all in the long line who imagine you can technocrat-talk your way past power, it amounts to the commonplace observation that democratic states not beholden to capitalists could do without borrowing to finance their deficits, provided they keep a realistic detailed respect for the availability of resources.

In other words, socialism could work, if done properly.

Ain't nobody going to get to try to prove that by refining monetary theory.

Economics follows the powers-that-be. Not vice versa.



Ok, I guess I should start working on that other post. It's time to bring op into the 'inner circle'.

"forex and price setting
reform "

Some of them actually developed almost exactly the same theories that you seem to regard as your own original insights (yellow-flag America, the forex tilts, the barely-averted surplus-induced crash of the early noughties etc.) long before you ever did, and did a much better job of it. Good enough for the chief economist at Goldman Sachs, in fact.

"Hell, if it were, don't you think our masters would have struck upon it by now?"

See the last sentence, above.


it's quite delightful to read about
the break down of monetary systems
where the realization of the states
"limitless money mine " ends up destroyiong the underlying credit system
that makes it possible



How many times do I have to repeat that these guys are aware of the concept of real constraints? I realize that Billy plays fast and loose with this stuff, and does seem to willfully ignore inflation issues (a charge that he has admitted IIRC), but they are not crude Zimbabwists


but by all means, continue to harp on about the need for vigilant fire-safety protocols in the midst of a biblical flood. That's obviously THE most important issue right now.



we aren't disagreeing here are we ??

i hardly expect u to defend these folks
nor condemn them
i don't have anything against em

as u point out
in a time of deflation like now
a theory that only has problems with inflation
are perfectly harmless
and if the embolden some folks to attack the deficit hawks head on

more power to em


Yes, that's why I said to trust me on this one.

Obviously I saw the same problems that you do. The thing is that it led me on a path to something a lot better (or at least it seems that way to me). MMT might provide a similar intro for many other people, like Rolling Stones as a intro to Muddy Waters or something like that.

I've got something stronger on the way that is in need of some exacting peer review. Unload on that one.


fire away fb

onward to
the inner circle


what is this all about ???

"the barely-averted surplus-induced crash
of the early noughties "


Sorry, that was incredibly badly worded.

All I'm referring to there is the idea that if it weren't for Greenspan and Bush opening the monetary and fiscal floodgates, we would have had the GFC in the early 2000s, and also that the Rubin policies led to that situation.

Reflecting on it a bit more calmly now, I'm not sure that you would really consider it to be one of your unique motifs. Sorry if I misrepresented you there in the heat of the moment.



gets to a higher point

what policy is compatible with the system
anything that isn't anything that leads out of the system
will be rejected
and don't think u can smuggle
a system busting "reform"
past the PTBs
u can't

btw fb

what exactly is it
about explaining
"the why"
of the present
de facto
yellow flag policy
which errr...they share with me
and i suspect many others
including ken rogoff and larry summers

oh ya
how could they have talked about it
years ago when its only two years old ???

show me the passages

they certainly must run an independent course
from their limitless dollar mine eureka

how they derive the forex tilt from
their liberated fiscal system theory
must be quite an inversion
unless it has an independent basis
in a theory of the MNCs
and how the MNCs dictate trade policy
and forex policy
over riding any chimerical "national interests"
with very concrete MNC interests

if they got em
show me their model work


It's coming - everything single thing you have asked for there, full models, on-the-record predictions going back to 1999, etc.. It may not be perfect, but it all exists. I got somewhere to be right now, but I will have a finished post sent to MJS tonight.


and yes, it is somewhat of an independent course. I think you will be pleasantly surprised. At the very least it will make a nice punching bag.

All theory aside, it seems to me that what the Fed Govt will do if any of its larger debts to other nations' creditors are called due is very consistent with this Pointy-Head Theory Not Approved by Certain Economists.

I'd bet the Fed Govt will say, "oh, we owe you X dollars? I'm sorry, but we now consider that debt irrelevant."

As a practical matter the Fed Govt regularly ignores deficits and prints new money.

Who cares whether theorists say it's not wise. It's done. And probably will keep being done.

Y'all sound like sports fans arguing over statistics in lieu of having real game to watch.



I would maybe word it a little differently, but you definitely have the right idea: foreign creditors have no leverage really, and the US is holding the trump card. I think that even your loathed Krugman has made the same point.

"Y'all sound like sports fans arguing over statistics in lieu of having real game to watch."

I'd use a slightly different sports analogy:
Me and OP as coaches of an inner city basketball team who can't win or even fill their bleachers. The school is about to cancel the whole program, and we are facing a prep school 5x champion team who have had their own personal trainers since age 8 and have hired Phil Jackson to coach.

Suddenly the Harlem Globetrotters show up and offer to join the team. I'm like "sweet! We could use the help, and I'll take anything I can get at this point; anything that fills the stands and gives us a chance"

Whereas OP is like "No way Jose. I've seen these guys play: double dribbling, traveling, sliding around on their knees, taking risky skyhooks, bounce passes off of the defenders heads etc. The fundamentals are not sound, at this would never fly in the NBA. No one will take us seriously"

Me: "Who gives a shit. That's all besides the point right now, and you know it"

FB: your sports analogy is more accurate for sure! I'm an ignoramus on economics; I only know what I witness, and not the theoretical whys and hows. It just makes sense to me that if currency is fiat-based, then it can be printed whenever the mood strikes, and the borrowing of such currency from abroad can be disregarded whenever the mood strikes.

This is what always has confused me about money. Isn't it good as a moderator of exchange only to the extent it's treated consistently?

It strikes me a bit like this: I have chickens on my farm. My neighbor the dentist says he will fix my gamey tooth for 3 dozen eggs. I drain the eggs of their contents and replace the contents with water, and give him 3 dozen apparent eggs that are little more than hardshell water balloons.

Have I really given him 3 dozen eggs?


The way that I would approach that example is to say that an egg farmer could always suck out a tiny bit of each egg's contents, replace it with water, cook himself a free breakfast everyday, and no one would be the wiser.

What I mean by "real constraints" (limits on watering down your eggs) and why Owen brings up inflation, is that if you do this too much people will start noticing that your eggs are 1/4 water, and start demanding 4 eggs to fix your tooth (inflation). If you take it to an extreme, like Zimbabwe did, you get eggs that are all water that nobody wants (hyperinflation).

My point is that right now we are in a disinflationary environment (there is a brutal shortage of eggs) and our eggs are only like 5% adulterated, so nobody is about to start complaining about a watery egg here and there if we up that to 10%.

This example is a little more like Bretton Woods than a fully fiat regime, but I think it gets the basic point across.


whoops, that should be "start demanding 4 dozen eggs to fix your tooth, instead of 3 dozen"

The way that I would approach that example is to say that an egg farmer could always suck out a tiny bit of each egg's contents, replace it with water, cook himself a free breakfast everyday, and no one would be the wiser.

Ahhh, that's excellent! I'm still laughing!

Post a comment

Note also that comments with three or more links may be held for "moderation" -- a strange term to apply to the ghost in this blog's machine. Seems to be a hard-coded limitation of the blog software, unfortunately.


This page contains a single entry from the blog posted on Monday April 12, 2010 11:23 AM.

The previous post in this blog was The Legitimacy Crisis.

The next post in this blog is Problems and non-problems.

Many more can be found on the main index page or by looking through the archives.

Creative Commons License

This weblog is licensed under a Creative Commons License.
Powered by
Movable Type 3.31