Modern
Monetary Theory
Keynesianism Warmed Over
- K.C. Adams -
TML Weekly
is providing a critique of Modern Monetary Theory
(MMT) as put forward in
an article titled "Fiscal Deficit, Modern
Monetary Theory and Progressive Economic
Policy" by Andrew Jackson (July 14, 2020).
Andrew Jackson is the former Chief
Economist at the Canadian Labour Congress and is a
Senior Policy Advisor at the Broadbent
Institute.
MMT is in vogue today as arguments are found to
back up changes to fiscal policy to rescue
the rich from the crisis which results from the
tendency for the rate of profit to fall.
The critique provides selected excerpts from the
item by Jackson on "Modern Monetary
Theory" with comments in double
parentheses. The complete item is available here.
***
MMT is something of a misnomer. Far from being
"modern," it draws heavily on
monetary theories developed in the 1930s by John
Maynard Keynes, and since that time, by
left Keynesian economists rejecting orthodox
finance and the view that government budgets
should (almost) always be balanced, that deficits
crowd out private investment which should
be driving the economy, that monetary policy
(changes in interest rates) as opposed to fiscal
policies (changes in public spending) should be
the key policy tool for managing fluctuations
in the economy, and that private investment is
much more productive than government
spending.
The central proposition of MMT is that a state
controlling its own currency can readily
finance fiscal deficits (resulting from spending
increases or tax cuts) at low or no cost through
money creation and direct funding of government
spending by the central bank.
((The "central proposition" eliminates all but the
most powerful countries from consideration.
Even those without their own currency within a
common currency such as the Euro zone are
treated unequally. Compare the situation of Greece
with that of Germany or France. Greece
was unable to "readily finance fiscal deficits"
using the Euro and suffered terribly. Greece is
under the domination of the big European powers
and U.S. imperialism and does not have the
ability to act independently in its own interest.
Even a large and developed country such as
Argentina with its own currency is constantly
under attack because its huge public debt is in a
foreign currency (mainly the U.S. dollar but
also the Euro and Yen).
The "central proposition" ignores the real world
of U.S. dollar hegemony backed by the U.S.
military, which gives U.S. imperialism a powerful
weapon to bring others under its
control.)) Unlike households or businesses, governments
with their own currency and their own central
bank can never go broke because they can always
create money to fund deficits or to pay off
debts.
((This statement wanders into the world of
idealism bordering on mysticism. It conjures up
the idea that something which is not produced
can be consumed. Without workers producing
new value as goods and services, the country has
no new value to consume unless it steals
from others. The concept that a "central bank can
never go broke because they can always
create money to fund deficits or to pay off debts"
denies the reality that the human factor, the
working class, must be set in motion on means of
production if any good or service is to be
produced and consumed. How does a nation or people
organize that reality and with what aim
are crucial issues. Money can represent social product that has been
produced. It can represent potential
production but the potential must become actual or
the relationship collapses.] Assertions such as "can never go broke" are used
to divert people away from facing the
problems as they pose themselves.))
The only real constraint on public spending for
countries with monetary sovereignty is real
productive capacity. Too much additional deficit
financing of public spending or tax cuts in
an economy with full employment will push up
inflation.
((No imperialist economy has ever had "full
employment." The closest an imperialist country
comes to full employment is through full military
mobilization to fight a major war. In that
case, many from the working class are not engaged
in creating social product but destroying it
through warfare and many of those that are working
are producing war materiel.
According to the imperialists, full employment
would give too much power to the working
class to increase its claims on the new value it
produces. Full employment would destroy the
imperialist labour market or at least render it
powerless to control the working class.
As well, "monetary sovereignty" can only exist
within a sovereign country. No country,
including Canada, within the U.S.-controlled
imperialist system of states is independent or a
sovereign state. This lack of sovereignty includes
lack of control over its money supply or
currency.
These terms "full employment" and "monetary
sovereignty" are bandied about to dull the
mind and render it incapable of analyzing the
concrete conditions.))
Canada and many other
countries do have "fiat" money that can be created
by central banks
"at the stroke of a pen."
((Yes, Canada does have a fiat currency but that
fiat currency serves the ruling global
oligarchs in control. If it serves the oligarchs
to create money "at the stroke of a pen," they
will do it, as Trudeau has demonstrated with his
$350 billion plus deficit for this fiscal
year.))
Central banks can and
do expand the monetary base.
((The U.S. central bank, the U.S. Fed, is a
cartel of private banks doing their bidding.
Canada's central bank is an institution of the
state under the control of the oligarchs with the
leadership carefully chosen to serve their private
interests and pay the rich.))
[I]n normal times, the
great majority of new money is created by the
private banking system as
loans rather than directly by the central bank to
finance the government's operations.
((The recurring economic crises could also be
called "normal" as they normally occur with
regularity. During a crisis, the competing
oligarchs are at each other's throat with even
more
ferocity than usual, and "normal" lending and
borrowing become frozen. The central bank
intervenes with "liquidity" "at the stroke of a
pen" to rescue the situation for the oligarchs, at
least those best positioned to weather the storm
or even increase their strength and wealth
such as certain oligarchs have done during this
crisis, i.e. the dirty dozen -- the 12 uber rich
individuals in the U.S. who have increased their
personal wealth many times over during the
COVID pandemic.))
MMT rightly challenges
the orthodox idea that government budgets should
be balanced and
that deficits should be incurred only to fight
deep depressions when low interest rates no
longer work. As argued by Keynes in the 1930s,
deficits will not crowd out savings and
private investment if the economy is operating
below capacity.
((Why should a Canadian be concerned about
crowding out private investment even at the
best of times? What problem facing society has
private investment solved? Has it solved the
housing question including homelessness, poverty,
inequality etc? Has it solved the question
of war and peace? If problems are to be solved
then people have to have the control, power
and means to do so and under imperialism it means
claiming what belongs to the people by
right despite possibly crowding out savings and
private investment of the oligarchs.
For the working class it means solving the
problem of its unequal oppressive social relation
with those who buy its capacity to work, and
creating a new social relation among workers
themselves. It means striking out on a new
pro-social direction for the economy and
democratic renewal where members of the polity are
truly equal and can exercise control over
those economic, political and social affairs that
affect their lives.))
[P]ublic investments
financed through deficits and debt can create a
more robust economy and
infrastructure, leaving future generations with
greater wealth and opportunities.
((But under imperialist control the "robust
public economy and infrastructure" becomes a
prime target for privatization especially when
other private investment opportunities are few,
the rate of profit has shrunk with productivity
and pay-the-rich schemes using public funds
have become a "necessity" for any private
investment of any size.))
Keynes, unlike the
"bastard Keynesian" wing of mainstream economics,
looked forward to the
day when the economy would be driven by productive
public investment with no need for the
state to borrow from the rentiers living off
interest income.
((Obviously Keynesians disagree among themselves
whether Keynes ever looked forward to
such a day or maybe it was simply propaganda to
fool the gullible. An economy "driven by
productive public investment" would have to be
under the control of the actual producers and
capable of defending itself from imperialist
marauders or it would not last long. Many in
Latin America and the Caribbean dream of an
economy "driven by productive public
investment" but are faced with the harsh reality
of defending themselves against imperialist
aggression if their dream is to come true.
The other aspect of this is the fact that the
imperialist economy has long been recognized as
having fallen into parasitism and decay. The
economy is more characterized by unproductive
investments and war than anything else. The author
even acknowledges this when he speaks
of the extra cash coming the way of the
imperialists from tax cuts and other pay-the-rich
schemes being used unproductively in such things
as stock market buybacks and increased
dividends.
Some people refuse to see the world as it
presents itself because they do not want to face
the
necessity of a new direction and being part of
sorting out what that direction looks like or
should be, which means confronting the
imperialists and facing down their anger and
counter
attacks.))
[T]he key ideas of MMT
are not so much modern as a return to the radical
Keynes and the left
Keynesian tradition.
Both hold that
conventional policy results in economies running
well below capacity much of
the time, and both reject the mainstream view that
the macro-economy should be primarily
managed through monetary rather than fiscal
policy.
Today ... the Bank of
Canada is printing billions of dollars to buy
government bonds in order to
lower interest rates.
For the first time
they have moved beyond "quantitative easing" --
buying up government
bonds in the secondary market to lower interest
rates -- to direct purchases of government
bonds.
They are supporting
massive federal and provincial government deficit
spending. The Bank
may not loudly endorse MMT, per se, but they are
acting on that basis and demonstrating that
the state can indeed always pay for what must be
done.
[A]ll kinds of orthodox
economists and policy makers have temporarily
accepted that a massive
increase in public spending can and should be
undertaken without raising taxes and almost
irrespective of the deficit and debt.
[T]he key question is
how long this can go on.
((Why is this the key question? Should the key
question not be the issue of who controls the
economy, and in whose interest and with what aim?
The imperialists are desperate to save
their bacon and they are throwing tons of money at
doing just that. Already the imperialist
think tanks and media are full of dire predictions
of tax increases and a tightening of the belt
for the people.
Why not simply admit that the crisis has
increased the striving of each oligopoly working
as
part of a cartel and of coalitions to control
everything, beginning with state institutions of
each country and their governments? They will do
anything to protect their private
interests.
They are at each other's throats over how to
proceed, most decidedly or openly in the U.S.
and internationally with China and Russia. How do
the established imperialists and centres
deal with the upstarts and competitors that are
rising in Asia and to a lesser extent in Russia?
World war is a grave danger if people do not build
an anti-war government. Refusing to
recognize the dangers is not helpful to the people
organizing to defend the rights of all by
humanizing the natural and social environment and
making Canada a zone for peace.))
Stephanie Kelton [the
main U.S. economist/professor promoting MMT, or
rather being
promoted as such, was an advisor to Bernie Sanders
and is now with the Biden gang -- TML Ed. Note] calls
for much higher levels of public investment and
spending to deal with a wide range of social
ills, funded directly by the central bank, on a
continuing rather than one-time emergency
basis. This has understandably appealed to
progressives.
So long as we have low
inflation and a very depressed economy, the Bank
of Canada is
unlikely to change course and will backstop
massive government spending to deal with the
crisis.
They will give fiscal
policy the latitude to drive recovery in full
recognition of the fact that
even near-zero interest rates are not enough to
deal with the slump. But, as things stand, they
still basically control monetary policy.
MMT is rather silent
on this, just saying that governments can set the
interest rate. It begs the
question of who actually controls interest rates,
and in whose interests.
Dating back to at
least the 1970s, the Bank of Canada ... has generally
chosen to accept some
slack in the economy so as to discipline labour
and to maintain low and stable inflation.
((To say the Bank of Canada has generally chosen
to accept some slack in the economy is an
over generously benign way of describing
unemployment, insecurity, poverty, war, the
refusal
to address and resolve social problems and the
direct onslaught on workers' rights with the
anti-social offensive. The working class movement
has long been in retreat suffering attacks
on their rights, pensions and other social
programs, the deterioration of conditions of work
through contract work, part-time work and now the
gig sector, privatization, the expanding
pay-the-rich and war economy and destruction of
any semblance of independence of the
country through multiple free trade agreements and
imperialist globalization as well as the
integration of state bodies/structures and
regulations with those of the United States war
economy and Homeland Security.))
Conventional thinking
has emphasized setting low interest rates in an
economy operating
below capacity, as has been the case in the slow
recovery from the global financial crisis.
But this, as Kelton
argues, has starved public spending, while
fuelling the destructive and
unsustainable growth of household and corporate
debt, and fuelling the asset price inflation
that has greatly increased inequality of income
and wealth.
((Note: Imperialist economics describes asset
price inflation as a rise in the price of assets,
as
opposed to consumer goods and services. Typical
assets are financial instruments such as
bonds, shares, and their derivatives, as well as
real estate and means of production, especially
raw material or commodities as the imperialists
like to call them. All these assets are bought
and sold multiple times. This is the continuous
exchange of already-produced value and in
many instances such as commodity futures and the
stock market no production at all, which
could be termed fictitious value. The imperialist
economy does not attend to its overall health
but rather to the health of the individual
competitors within it who hold power. Economic
crises are regular occurrences because the human
factor/social consciousness and aim to meet
the needs of the people and society are blocked
from playing their decisive and necessary
role.))
[C]orporations have
borrowed at low rates to ramp up unproductive
activities such as share buy
backs and increases in dividends.
MMT rightly emphasizes
that priority should be given to fiscal policy
over monetary policy,
while taking no single position on what
governments should spend on.
Proponents such as
Stephanie Kelton generally support big increases
in public investment –
the green economy, education, infrastructure,
etc., as well as a federal job guarantee.
They also argue that
if and when inflation becomes a problem, it could
be tackled through
selective tax increases on households and
business, as opposed to an increase in interest
rates
which would limit government investment and drive
up the carrying costs of the public
debt.
((The public debt is to private investors and in
the case of the U.S. many foreign state
investors. U.S. public debt is unique in that it
can borrow to pay for whatever it has already
borrowed and more, such as its military because it
dominates the world. Countries and people
are hesitant to challenge U.S. authority because
the U.S. will destroy whatever it cannot
control.
Government borrowing
from itself exists in tandem with government
borrowing from private
interests. A moratorium on servicing the public
debt to private lenders and investigating its
legitimacy and prohibiting any future such
borrowing would be a positive reform but the
people must be organized and mobilized to
implement and defend such a reform.))
Kelton argues that
support for MMT should exist across the political
spectrum, but she
neglects the role of real interests.
The banks want to
retain their central role in money creation.
MMT also tends to
minimize real structural constraints on government
macro-economic policy
in the context of global capital flows.
(("Global capital flows!" -- A rather genteel way
of referring to imperialism and the brutal
private interests of the oligarchs who scour the
world in search of maximum profits and
places to pillage. The imperialists have no sense
of social responsibility because that would
interfere with their aim of maximum private
profit. Countries under the thumb of imperialism
do not have all-sided self-reliant economies
within nation-building projects. The country under
control has to offer the imperialists something
such as certain raw materials or cheap capacity
to work from their working class. As soon as
something negatively disturbs the return on
investment, the imperialists will pull the plug
and abandon the people or lash out at those it
may accuse of causing trouble.))
MMT says that
governments can control the interest rate through
the central bank. This is true
in the first instance but highly problematic in a
world of capital mobility if investors fear too
much inflation or currency devaluation.
The Bank of Canada can
maintain low interest rates, but they face the
possibility of capital
flight on the part of both domestic and foreign
capital, which would bring down the exchange
rate and fuel inflation.
((These comments mean that fiscal or even overall
government policies cannot prevent
"capital flight" if the imperialists feel their
interests are threatened. This means the central
issue is one of control. Who controls the economy
and in whose interests? To control the
economy, the working class has to control the
politics, as politics is the concentrated
expression of economics. Controlling capital
flight requires controlling the economy in the
public interest and the value that comes into and
out of the economy. It means building up the
independence and self-reliance of the economy
through extended reproduction. This requires
control over the new value and how new value is
distributed. This requires democratic
renewal and the working people gaining political
decision-making power for otherwise the
imperialists will continue to dominate.))
This point is
discounted by MMT proponents, who are mainly
talking about the U.S. which
controls the global reserve currency and is thus
in a unique situation.
Many foreign central
banks of surplus countries such as China and Japan
own huge reserves
of U.S. bonds that they would be reluctant to sell
quickly since this would raise their own
exchange rate, result in large paper asset losses,
and cause a major disruption to the global
financial system....
The ability of the
bond markets to punish smaller countries with high
levels of public debt
and incipient inflation cannot be dismissed.
((Argentina comes to mind. Much of its massive
public debt is in foreign currency (U.S.,
Euro and Yen) unlike Canada where only a small
percentage is in a foreign currency. But
Canada's public debt is held mostly by
"institutional investors" that are linked with
U.S.
imperialism. Canada is just as vulnerable to
"punishment" by the bond markets if the
government does anything to annoy the imperialists
and this cannot be discounted or
dismissed and must be taken into account
politically. The people have to be mobilized
politically and organized to fight to defend their
interests otherwise nothing will change and
the imperialists will carry on anti-consciously
leading us all to disaster.))
Keynes argued that
countries could only control interest rates if
currencies were managed and
if there were controls on international flows of
capital.
((Who controls these flows from where and to
where? International investment of accumulated
wealth is fundamental to imperialism, which is
associated with the thirst for cheap raw
materials, workers to exploit and places to
pillage and control. When the young Soviet Union
cut off one-fifth of the world from imperialist
investment and theft this seriously weakened
imperialism and was a key reason that imperialism
was determined to destroy the Soviet
Union through war and subversion.
Controls on international flows of capital are a
pipedream without a determined political battle
waged by an organized and politically conscious
people determined to direct the economy in a
new way that favours them and builds the nation
and the new.))
Dismantling of the
post-War Bretton Woods arrangements was intended
to set the stage for a
shift from nationally controlled economies to a
world of international capital flows that
constrain governments.
((Exactly, and this became U.S. global dollar
hegemony and its position as the imperialist
reserve currency that those in the U.S.
imperialist controlled system of states were
compelled
to buy and hold in reserve. Dollar hegemony is a
big factor favouring U.S.-controlled
globalization and control of the international
financial system allowing it to enforce sanctions
and blockades and punish anyone who dares to
resist U.S. control.))
MMT is right to argue
that so long as the economy is operating below
potential, we can and
should run large deficits to fill the gap and to
address public policy priorities such as the need
for affordable housing, expanded public healthcare
and building a green economy.
((The writer uses the expression "below
potential." What is the potential of the
imperialist
economy? The potential lies in the modern
socialized economy of industrial mass production
but imperialist control carves it up into
contending narrow private interests and their
cartels
and coalitions. Competing private individuals and
groups obsessed with the aim of maximum
profit for themselves are quite capable of tearing
each other apart and blowing up the whole
to serve their narrow private interests. The
potential cannot become actual without the
economy coming under the control of the actual
producers, the working class, with a new aim
to constitute the nation so that it serve the
people and society.))
These deficits will
have most impact in both social and economic terms
if used to finance
well-chosen public investments, as opposed to tax
cuts. Inflation is not likely to be a
problem.
((Why is inflation not likely to be a problem?
Because the working class has been beaten
down and its organizational strength decimated.
Price inflation is a weapon to defeat wage
increases and reduce the claims of workers on the
social product they produce. Prices are not
stable but under the control of the oligarchs and
serve their interests. You could say with
certainty that as the working class begins to
reorganize and pull itself up and claim what
belongs to it as it must, the imperialists will
fight back with price inflation and other means to
combat any widespread wage gains just as they did
in the 1970s.
Control of prices in the people's interest can be
achieved through public control of the
wholesale market and an imposition on the major
sectors and producers of a modern formula
to determine prices of production of goods and
services. A modern formula includes an
average rate of profit and enough reproduced-value
to meet the needs of the working people
and society. This is coupled with all large
businesses fully paying for the infrastructure
they
consume during the course of their activities
(mass transportation, roads, bridges, electricity,
water, sewer etc.))
We can run large
fiscal deficits now, but not indefinitely, without
major changes in fiscal and
monetary policy and in political direction. In the
longer run, we cannot have everything we
want just by printing money.
((We cannot have everything we want when we, the
working people, do not have control over
the economic, political and social affairs of the
country.))
If we want permanently
higher public spending, we also need to raise
taxes.
((What happened to the declaration of the
importance of public funds from public enterprise?
Public enterprise is the only sure source of
public income. This can be coupled with public
control of the wholesale sector and prices of
production governed with a modern formula that
guarantees a certain level of individual and
social reproduced-value (wages, benefits and
social programs serving the people). This requires
determined political control of the economy
by the working people. The imperialists always
revert back to attacks on the people through
taxes, in particular individual taxation, which
they sometimes even call progressive.))
If we want much more public investment, we will
also have to give less priority to private
consumption, especially the luxury consumption of
the rich.
((The issue is not private consumption but
private expropriation of new value (profit)
through
private control of the socialized economy. The
actual producers, the working class, have to
bring to the fore their aim for the economy to
serve the people and nation-building and
exercise control over the economy so their aim is
fulfilled.))
If we want greater
control of our economy, we must confront the power
of private financial
interests.
((How this is to be done is not addressed. It
requires building a political party which
organizes the workers movement to take up its own
nation-building based on democratic
renewal. By constituting the nation, the working
class must take practical measures to gain
control over the economy and country.))
MMT, based on the
theoretical legacy of left Keynesian economics,
offers us a way forward,
but it does not free us from the very real
constraints of capitalism.
((The way forward is to free ourselves from the
constraints of imperialism. Without freeing
ourselves from the constraints of imperialism
there is no way forward, only in this instance
the empty policy objectives and words of warmed
over Keynesian economics. Even when they
were given rise to, Keynesian economics were
designed to block the working class from
freeing itself from the constraints of imperialism
in organizing, thinking and theory. Today,
they are promoted as a so-called already
discredited "Third Way" to suggest that the "one
percent" can be made to share their wealth with
the "ninety-nine percent" so as to renew
capitalism to make it work. It is the miracle the
new Throne Speech and Finance Minister
pledge to achieve. It is nothing but pie in the
sky to hide the schemes to pay the rich and fool
the gullible. Their problem is that the only
gullible these days are the highest echelons of
business unions whose own narrow private interests
put them as out of touch with reality as
the government and its ministers with whom they
hope to align the working class.))
This article was published in
Volume 50 Number 34 - September 12,
2020
Article Link:
Modern
Monetary Theory: Keynesianism Warmed Over - K.C. Adams
Website: www.cpcml.ca
Email: editor@cpcml.ca
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