Originally published at: https://boingboing.net/2020/05/15/cory-doctorow-wrote-a-good-exp.html
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Cory Doctorow explained modern monetary theory to me last year while we were my kitchen.
DMT’s a hell of a drug.
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I appreciate that even though Cory’s gone, he’s still around these parts.
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Is he gone? What happened?
Full story not entirely clear, but there was some sort of falling out, I guess? I vaguely recall that it might have something to do with certain positions taken on whistleblowers, WikiLeaks, and the like, but the details escape me.
(Also, probably off topic, mods feel free to split into another thread?)
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Huh. I did pick up on him being referred to quite oddly lately, but hadn’t connected the dots.
ETA: Looks like he dropped out at the end of Jan?
https://web.archive.org/web/20200129100904/https://boingboing.net/about
https://web.archive.org/web/20200130014211/https://boingboing.net/about
ETA2: yup Has Cory Doctorow left BoingBoing?
Well at least BB didn’t Violet Blue his posts.
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I think the reason people in general have a hard time with this, is that it’s so foreign to everything else they know.
You start with this:
- Our local town government cannot run deficits, it works just like my household, only a little bigger.
- Our state government cannot run deficits, it works just like the town, only bigger.
Then, end up with:
- Doesn’t national government work the same, only bigger?
Which is completely incorrect. Then, you look at something like a Greece or Venezuela, and say, see it’s just bigger. Which is also incorrect.
MMT and the ability to run a deficit is completely dependent on this part:
- national governments are money-issuers
- when you are in charge of creating it
Towns, states, members of the EU using the Euro, countries borrowing money in US Dollars instead of their own currency (or any “not their own” currency), and my house all fail that point.
There just aren’t that many institutions that qualify. And the words we use confuse things. The US national budget simply doesn’t function the way a household or state budget does.
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I think many people - at least, based on what they say publicly - skip those steps. They go straight from “my household works like x” to “therefore the federal government works like x.” It’s absolutely true that using the same words confuses things: payments are payments, debt is debt, as far as they’re concerned.
Even though I recognize the federal government doesn’t work anything at all like the kind of finances that exist on a level I’m familiar with, it’s still impossible for me to grasp how it does work. I guess I ought to read some books about it, but given that even economists have wildly different notions of how it all works, I’m not sure how much that would help me…
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It goes even deeper than that (all also spot-on, of course). We’re taught from a young age the basic narrative that “the government taxes the citizens and then spends that money on things that benefit them”. MMT turns that upside down.
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Because like all good things, the nuances and subtleties matter. That sentence is completely true for definitions of “government” that do not create their own money. And, there’s WAY WAY MORE of those than there are of “government” that can follow MMT rules. 
What’s the count of the number of countries that can execute based on MMT?
(Cause, clearly I’m too lazy to look. But, less then 10 ish?)
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It’s definitely a small number. There aren’t a lot of countries (or economic unions) that don’t have fiat currencies, but not all of those currencies stand on their own or have the stability and good central bank management needed to underpin a MMT approach.
Still, in the relatively few countries and unions that are capable of executing on it, the traditional narrative is still deeply ingrained (and, in the case of anti-statists, serves their ideology). Cory explains it well, but it’s going to be a push to get most people to grasp it.
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Well then perhaps a little bit of the precautionary principle is called for here. If MMT does not work, then we’re in 1920’s Germany. Tryin’ to recall how that ended up.
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I’m guessing the problem with Germany in the 1920s is that it violated a central tenet of MMT, which is that the government can’t compete with the market on goods, otherwise inflation balloons. I’m no historian of Post-WWI global economics, though, so I might be way off base.
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MMT and the ability to run a deficit is completely dependent on this part: national governments are money-issuers
Close. Cities have issued currency, and provided you can pay your taxes with it (keep a lid on counterfeiting and get the banks to do deposits in it) then you have a way of ensuring it doesn’t become inflationary.
It’s that last point that I see MMT enthusiasts get a little vague about.
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Do you have an example city? I’m genuinely curious about how it worked. A city, unless we’re talking about the old city states that were effectively countries, doesn’t seem large enough to make it work. Certainly, a city that’s part of a larger country that also issues currency doesn’t seem workable. The two would be to closely linked, with the country exerting much more influence.
There’s probably a study in how well it works with the United Kingdom vs the E.U. How well is the UK able to practice MMT independently from the rest of the E.U. since they didn’t adopt the Euro but are part of the E.U.
It’s not just the ability to pay your taxes that makes the currency work. The government issuing it must be able to purchase things with it.
The article covered the inflation controls. First, issuing government not spending the money in competition with others for the same items. Under the stay at home orders, there’s no demand for all kinds of service workers, so the government can simply pay them to stay home and it’s not competing with companies who want to pay them to work. Second, government has to control the total supply to keep others from competing with each other to much. They tax it out of existence. Both sides need to work, spend it into existence, tax it out of existence.
If you’re operating in an unsustainable way under extreme duress that still has one foot in the global gold standard, of course you’re going to get Weimar inflation. While you’re tryin’ to recall how that ended up, you might also spend some time recalling the specific historical circumstances under which it occurred.
When we discuss the modern countries and economic unions that can successfully execute on MMT as described above, none are paying crushing reparations (as distinct from sovereign dept), all exist in a world where Keynesian economics is something that exists and is generally accepted a a legitimate approach, and all have central banks that haven’t let their economies spiral into anything close to hyperinflation since the 1970s.
No-one’s talking about transforming these economies overnight. MMT is more about shifting public thinking about how wealthy and stable nations already run their economies in practise for the most part and where their priorities are (see, for example, the U.S. military-industrial complex).
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Ah, yes, the old, “It might not work, better not try it!” trope. Versus austerity, which we know doesn’t work. Better to fail by continuing to do what we know doesn’t work than to try something different, eh?
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Printing money which you don’t spend on creating productivity but instead give as reparations to foreign governments as which actually have no use for it (i.e., they aren’t going to buy german made goods and services) is a completely different thing to the policies that MMT suggests.
Also, MMT is not a specific policy, but a theory (hence the T) that provides a way to evaluate potential specific policies. It doesn’t not need to be 100% correct and complete to be useful, and doesn’t require you to do any particular apparently extreme policy on day 1.
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Do you have an example city? I’m genuinely curious about how it worked.
Until a few moments ago, I thought I did with Birmingham in the UK, but they seem to have stepped back from the scheme.
A classic alternate currency example is the Swiss WIR (CHW).
I suppose what I meant by “central tenet of MMT” is “central monetary policy that MMT theorizes would keep inflation in check”, but, you know, words.
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