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Modern Monetary Nonsense

Mar 4, 2019 Kenneth Rogoff

A number of leading progressive US politicians advocate using the Federal Reserve's balance sheet to fund expansive new government programs. Although their arguments have a grain of truth, they also rest on some fundamental misconceptions, and could have unpredictable and potentially serious consequences.

CAMBRIDGE – Just as the US Federal Reserve seems to have beaten back blistering tweets from President Donald Trump, the next battle for central-bank independence is already unfolding. And this one could potentially destabilize the entire global financial system.

A number of leading US progressives, who may well be in power after the 2020 elections, advocate using the Fed’s balance sheet as a cash cow to fund expansive new social programs, especially in view of current low inflation and interest rates. Prominent supporters of this idea, which is often referred to as “Modern Monetary Theory” (or MMT), include one of the Democratic Party’s brightest new stars, congresswoman Alexandria Ocasio-Cortez. Although their arguments have a grain of truth, they also rest on some fundamental misconceptions.

Fed Chair Jerome Powell could barely contain himself when asked to comment on this new progressive dogma. “The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong,” Powell insisted in US Senate testimony last month. He added that US debt is already very high relative to GDP and, worse still, is rising significantly faster than it should.

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Kenneth Rogoff

Writing for PS since 2002
223 Commentaries

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly (Princeton University Press, 2011) and author of The Curse of Cash (Princeton University Press, 2016).

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Jay Hickman Apr 25, 2020

While I have no doubt that what Professor Rogoff says about the federal government "owning" the Federal Reserve, this statement is anathema to the official explanation of the existing relationship between the Fed and the US government.
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Elizabeth Pula Jun 6, 2019

RE:"Although their arguments have a grain of truth, they also rest on some fundamental misconceptions, and could have unpredictable and potentially serious consequences."

Well now, amongst all kinds of misconceptions about all kinds of "stuff", how about the most basic misconception about the "use of the balance sheet". Just what in the world is the REAL balance sheet, these days especially?

What about a few missing funds on the ledger, to the tune of more than just 1,2, or even 3 TRILLION dollars?

What about:
the new rule from the Federal Accounting Standard Advisory Board (FASAB rule 56) that took government accounting dark. What about all those specifics that, Catherine Austin Fitts, Assistant Secretary of Housing and Federal Housing Commissioner at the United States Department of Housing and Urban Development in the first Bush Administration, just happens to shed some light on everything that is getting dumped into the that big cesspool, like the political cronies SWAMP?

Now, between those minor issues about the "use of the ledger", how about the next greatest Grand-Slam of really squashing basic freedom-of-speech rights? That Grand-Slam will be the final take-aways of all rights to publishing anything without having to first pay Amazon, or Facebook, or Microsoft, or, or, or to even be able to access anything on the internet for any purpose.

Then, of course the final wrap-up, is not of the great few Media/Platform Empires wouldn't be making any CENTS, let alone creating more NONSENSE, if they weren't all just stealing private individual's financial, medical, educational, physical, emotional, information and making money from that theft. Then, the business model is to demand, and sell, and sell, and sell it all back to CONSUMERS????, as demand notes, that are totally worthless, because only a few are really accumulating the real hard assets in the GRAND-SLAM to the flat-line.
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Mauricio Duran-Loriga May 30, 2019

TARP, QE, MMT et al, are but initials of a grand collection of fairy tales.

The mandatory welfare state spending increases 0,6% every year. Rain or shine.
Every dollar spent in welfare sate creates less than a 0,25 dollar in return.
That amounts to issuing IOUs and burning 75% of the proceeds in the fireplace.
Every dollar saved in the US is engulfed by welfare state spending. That is why productivity gains are crashing.

But if taxes do not rise, welfare state has to be financed by issuing IOUs.
Rising taxes is tantamount to Presidents losing re-elections.
So the FED finances the fiscal deficits.

We are at historic peak profits, historic low unemployment, nearly historic low interest rates, and yet the economy is unable to pay its bills.

Problem with printing is easy. If you are the only country in town printing, you become Weimar November 1923 very quickly. But when your peers are doing the same at the same time, it does not really matter, as no one rejects any currency and no country is infected with inflation.

In the very end, all fiat currencies tragically kick the bucket.

Are people's savings at risk in such an environment? Think about the US and Europe central banks, where do they park the bulk of their savings? About 75% is parked in physical gold. WOW! Not even in their own currencies. Or their peer's currencies. China is catching up with gold too.

So Central banks print (and get rid of) currency but hold mostly gold bars.

Japan has no gold. Yen currency and Yen denominated debt are held inside Japan to the tune of +90% of issuance. The central bank holds foreign countries currencies in the form of IOUs. Japan is first in line to meet Weimar 1923. In due course, China (not the US) will decide WHEN. It's musical chairs out there.
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jluisaldonado Mar 17, 2019

You just write simple idelogy and you don not offfer evidence so you article is non sense
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Kerry Pechter Mar 12, 2019

Don't ridicule a candle for not being the sun, especially if you're otherwise in the dark. MMT gained traction because many of us were trying to make sense of the financial crisis, and the existing doctrine didn't help. The founder of MMT, Randall Wray, was a student of Hyman Minsky, and MMT is linked to Minsky's common-sense theories of financial instability. MMT is important because without it, the statements and policies of misinformed people like John Boehner ('When people have to tighten their belts, so does gov't') and the balanced budget folks and Paul Ryan and George W. Bush ("The government is broke") would receive no sensible, organized response. Before MMT, there was no countervailing story to prevent the neo-classical economists from leading us over a cliff. That's why it's valuable. You are not evaluating it in its proper context. Without it, who would warn policy makers that a balanced budget amendment is a terrible deflationary idea? One final point: No one here has mentioned our giant trade deficit. The debt is partly an unavoidable function of the trade deficit. Many of the dollars we spend overseas return to the US as purchases of Treasury bonds. Whether the Chinese hold dollars or low-yield Treasuries doesn't matter much. We certainly don't want them buying up high-yield, strategic American assets with their dollars. I've been studying MMT, writing about it, and attending MMT conferences (most recently at Harvard Law School) for 10 years. I've talked to Stephanie Kelton, Warren Mosler and Randall Wray. You cannot dismiss these people. No one should mock them. They've given us an imperfect but necessary handle by which to grip economic reality.
- Len Charlap Mar 13, 2019
  
  Yeah, here is a paragraph from my reply to WMC MANTIS' comment on
  Mar 5, 2019:
  
  We can see how this fits into MMT claim that the flow of money between the three sectors, private, federal, and foreign, is an important economic factor by looking at the what happened in 2008. With the exception of a brief period in 2003, from about 1996 to 2008, more money flowed out of the private sector than in. This was because the federal deficit was less than the current account deficit. As in the previous 6 examples in which a federal surplus sucked money out of the private sector, private debt exploded. By 2007 the big banks had 27 or 28 times the amount in outstanding loans as they had in reserves. We would have had a real depression as in the previous 6 cases but for the FED which could now create as much money as it needed and poured TRILLIONS into the banks to use for reserves.
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- Lawrence Kramer Mar 12, 2019
  
  I agree with your comments, except the part about no one here mentioning the trade deficit. In 70+ comments and replies, and replies to replies, you never know what you might find. Here's an excerpt from my reply to John Ellis's reply to my post on 3/10:
  
  MMT is also wrapped up in Triffin's Dilemma. The USD is the world's reserve currency because we are who and what we are. We run a trade deficit because we can; only a country whose money is a world reserve can buy stuff without selling stuff. But if we want the dollar to remain a reserve currency, we must import more than we export, and if we don't want our trading partners to own all of our real and corporate assets, we must offer them Treasury securities. MMT explains why this is a stable arrangement unless, of course, we elect an unstable leader. (I attribute the GFC precisely to Clinton's reducing the deficit when the trade deficit was creating demand for AAA-rated USD securities. Wall Street financed a Potemkin Village with liars' loans to fill that void. CRA and liberal political pressure notwithstanding, if there had been more Treasuries to buy, so many bogus mortgages would never have been issued.)
  
  Just thought you'd like to know you're not alone...
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Alex Aslanidis Mar 11, 2019

Does anybody actually believe the bull that this hard-money fanatic spouts? Does he believe it himself? Of course monetary financing can be readily available. Of course a bad government can abuse the tool and end up with high inflation. However, a good government can make good use of the tool and end up with full employment (no, today the US is not at full employment) and higher output.

The elephant in the room is how the current system (Washington Consensus) has failed miserably and has promoted too high disparities. But Rogoff won't talk about that. Why should he? Who bites the hand that feeds him?
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Greg Hannsgen Mar 11, 2019

(1) It would appear the U.S. government can always service its debt, given that it is denominated in dollars. (It is perhaps also relevant that most is not inflation-indexed.) It would appear that that will remain true even if the interest rates on such debt rose and even if most debt is short-term.
(2) It is not clear why, if debt-holders suddenly sell debt, the federal funds rate will not still be set at the level desired by the Fed.
Nonsense?
Rogoff appears clearly to be talking about the U.S. case. Hence, I am puzzled at what "nonsense" Rogoff sees and where he sees it in MMT doctrine.
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Gabriele Serafini Mar 11, 2019

Dear Professor,
can you explaim this sentence?: “Even moving to a centrally planned economy (perhaps the goal for some MMT supporters) would not solve this problem.”
Regards
Gabriele Serafini
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Greg Cheverall Mar 10, 2019

How does issuing one week debt bring down longer dates debt term premium?
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ebipere ebipere Mar 10, 2019

Surely, one can trust the Government to spend unproductively and understand that MMT only describes the monetary mechanics of this fiscal misadventure accurately.

MMT/Chartalism has called the 30-year futility of QE in Japan perfectly. Let's give it some credit.

The progressive argument is that if the government can spend 'unproductively' in certain economic sectors - military/ defence & banking - and apparently not generate inflation (only profit for military/defence &finance companies); then -perhaps - there is little reason to argue how it can't spend 'unproductively' in other sectors - health/ welfare and not generate inflation (only perhaps profit for health companies and cash for the spendthrift 'underclasses' to expend on goods and services via "Helicoptered Money Drops").

Social welfare (votes) to replace corporate welfare (PACS and donations). My money is that it[MMT] will finally catch on.
- Len Charlap Mar 12, 2019
  
  Here is an answer. There is a difference. In the first case, the money spent has low velocity. Thus it neither raises prices nor helps the economy. In the second case, the money has high velocity which would raise prices except for the fact that it also facilitates production which tends to lower prices. Thus it helps the economy in 2 ways. It not only increases demand, but it improves healthcare, infrastructure, etc. so it is hardly "unproductive."
  
  PS Instead of helicopter drops, why not a federally guaranteed job program as MMT suggests? That would not only get more money into the economy, but could get stuff done that needs to be done. It also might make people feel better about themselves.
  - Lawrence Kramer Mar 12, 2019
    
    You don't have to guarantee jobs to get stuff done. You just have to do the stuff that needs doing, and the jobs will take care of themselves.
    - Len Charlap Mar 13, 2019
      
      Sure, but if you have a guaranteed job program, that would apply more pressure on the people who don't want to do the things that should be done.
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Enrique Woll Battistini Mar 10, 2019

In any and every case, one immediate reason why placing the economy exceedingly in the hands of Government would be unacceptable is that, contrary to the teachings of Neo-Classical Economics, and Modern Monetary Theory, it does matter how money is spent, and whether it goes to produce shoes or guns always make a difference, but in the case of increases in the money supply, especially the large ones that would likely result from application of the Trillion Dollar Platinum Coin, how it is spent greatly matters, especially in the first go-around of its endless circulation throughout the economy. The question would be then, who should be doing the first spending and the primary spending? The Government or The People? And lastly, obviously, Central Banks should continue to exist, and to exercise their traditional control over the money supply and inflation, until a superior type of institution can take their place.

https://www.academia.edu/37950503/FACEBOOK_-_My_Commentary_on_the_Article_What_Is_Modern_Monetary_Theory_-_2013031902
- Len Charlap Mar 11, 2019
  
  If would take the time to understand a tiny bit of MMT, you would see it, too, is concerned with HOW the money is spent since that determines how much can be created without inflation or high taxes.
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- Andrew (Andy) Crow Mar 11, 2019
  
  Of course it matters HOW money is spent.
  
  The last lot was spent entirely to the benefit of the banking and finance sector.
  
  We know it was effective government spending in that it rescued the banks. If MMT was the sort of fiction that Rogoff chooses to pretend, it couldn't have been done.
  
  Rogoff's arguments are political rather economic. He likes a status quo where the wealthy make all the rules and use MMT only for their own enrichment.
  
  So what is so frightening about using the same mechanism to rescue the real economy that affects the lives of the other 90% of the population. ???
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- ebipere ebipere Mar 10, 2019
  
  ...
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john mesrobian Mar 10, 2019

Alexandria Cortez - AOC - has little if any understanding on what she says and proposes.

Some of the people who have been behind her, such as MMT of GND people also have little if any creditability. I noted an interview by one of AOC resources/authors behind her program, from Cornell Univ. and many of their statements were incorrect or misleading, that person has not returned to the show, event though he was invited back.

GND is a non starter, even refer to one of the founders of Greenpeace comments on AOC's ideas. MMT's they live in another universe.

Many of the MMT's and GND's are associating with AOC, in order to get noticed.
- Andrew (Andy) Crow Mar 11, 2019
  
  "Alexandria Cortez - AOC - has little if any understanding on what she says and proposes. "
  
  Well she's in good company then, because you obviously don't either. I don't believe you even understand what she's saying let alone know whether it might be right or not.
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- John Doyle Mar 10, 2019
  
  AOC is not an MMT knowledgable. She just refers to it but doesn't understand it properly. Most of the negative comments here are not knowledge based, just opinions from half digested readings. However, she is right to refer to it though as it duds the mainstream [as represented by Rogoff and Krugman etc] economic agenda. They certainly see the danger to their mainstream fantasies and failed models and are now desperately trying to salvage their position. They just lose face instead. MMT is called a theory, as Gravity is a theory, not an hypothesis. It is rather a lens through which the real workings of the economy are revealed. The GND is not going to work. but that is another story.
  - Andrew (Andy) Crow Mar 11, 2019
    
    Spot on John.
    
    Rogoff, Krugman, Summers et al are the dinosaurs of economics. They are fighting a rearguard action to protect their reputations which are heading for the toilet because they have preached BS for their entire careers; possibly with the best of intentions....... but perhaps not.
    
    If you have watched war films you will know that the rearguard nearly always gets minced....it can't happen too quickly with this one.
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Barry Rosenfeld Mar 10, 2019

Standard basic macroeconomics indicates that the central bank can "accommodate" government deficits by buying bonds. Is there a limit? Who knows? However, as the US no longer is on the "Gold Standard", or any other fixed exchange rate standard, and can devalue relative to other countries, there is no clear upper limit to central bank accommodation - as there was no clear lower limit to price deflation when the exchange rate was fixed. A reduction in the exchange value of the US dollar also will do more to balance the trade deficit and create more US jobs that any amount of tariff manipulation.

Rogoff has made his political biases well known, e.g., "destabilize the entire global financial system" and "Powell is absolutely right about the deficit idea, which is just NUTS [my emphasis]." Apparently several years of huge central bank purchases of private sector junk bonds - quantitative easing - by both the FED and the ECB - were OK as long as it financed private sector "investment",i.e., financial and real estate speculation, but somehow it will be the harbinger of end times if it were used to finance public investments that benefit the large majority of Americans.

Perhaps if a few "grains of truth" were planted they would yield a harvest - if not smothered by tons of "fertilizer."
- Andrew (Andy) Crow Mar 11, 2019
  
  Standard basic macroeconomics ....is well wrong about a lot of things.
  
  It's taken a lot of people a very long time to realise that. The likes of Rogoff need to address what might be the real issues of MMT rather than just trying to discredit what is a reasonable description of the fiat money system.....or he could just shut-up I suppose(?)
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Tom W Mar 10, 2019

Dr. Rogoff will now be written off by the AOC "progressives" as an old man committed to the status quo.
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douglas ungredda Mar 10, 2019

Countries don't go bankrupt. Where did I read this from? Its the FDR New deal mantra with a paint job remake. Nothing new under the sun,really.
- Andrew (Andy) Crow Mar 11, 2019
  
  "Its the FDR New deal mantra with a paint job remake. Nothing new under the sun, really."
  
  I can't tell from your comment whether you think that dismisses the idea or whether, given that it was so successful you are agreed that it is obviously a good idea to revisit.
  
  A Green New Deal does have a different world to cope with. Copy and paste of FDR's scheme won't work in the same way.
  
  Floating fiat currency doesn't behave as it did when it was tied to gold, so there will need to be some thought applied to its implications. But the basic idea is still sound.
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- John Ellis Mar 10, 2019
  
  No that was not FDR's new deal mantra. He was actually in many ways an economic traditionalist and his monetary policy was fairly modest in hindsight. His attempt to push the budget back to balance in 1937/8 after GDP returned to pre crash levels in 1936 nudged the country back into recession. Conservative propagandist love to quote this as proving the New Deal failed ignoring the facts up til 1936.
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Lawrence Kramer Mar 10, 2019

There is a theme to every hatchet job on MMT. They all start with the smallest possible admission that the theory is sound. Maybe it's "some validity," (Summers) or "a grain of truth" (Rogoff), but it's always there, because MMT, as a description of sovereign finance, is completely accurate. The problem is that , as a tool of sovereign finance, it is like a book of matches, and there has probably never been, not may never be, a sovereign with the maturity to play with it.

MMT is dangerous because it relies on either a trailing indicator that signals too late (inflation) or a leading indicator that is impossible to measure (the output gap) as its bogey. We can point right now to the debt/GDP ratio. It's real, and its measurable. It may be a poor measure of what we can, but from a certain perspective, it's the only game in town. How could Profs. Rogoff and Reinhart have written "This Time is Different" if there were no measurable leading indicator to compare?

I agree completely that extending the maturity of government debt is a good idea, but that's because the further out maturity goes, the more like a tax the debt becomes, and taxes are a far more powerful tool for reducing spending than short-term debt. US debt is so liquid that its maturity only matters when rates rise. Then, the debt falls in value, i.e., its purchasing power is reduced, and the loan becomes a tax. In other words, fully within the notions of MMT, long-term debt is better than short-term debt because long-term debt is a form of contingent taxation. This is what happens if you water the "grain of truth" instead of pissing on it.
- Len Charlap Mar 11, 2019
  
  The public debt ratio was 109% in 1946 (it is about 77% today) and that was followed by 27 years of Great Prosperity. (If you want to raise the "Europe was Rubble Myth,". look at http://piketty.pse.ens.fr/files/capital21c/en/pdf/F1.1.pdf which shows that the out put of Europe was about the same as the US in the Great Prosperity 1946 - 1973).
  
  The debt ratio was 16% in October of 1929. AND THEN WHAT HAPPENED?
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- John Ellis Mar 10, 2019
  
  There is of course a gap between much economic theory and actual practice. What you call a hatchet job is simply explaining the nature of this gap which you obviously understand. Because MMT like Laffer's famous curve has some superficial validity but in reality is a dangerous oversimplification as you also clearly understand, pissing on it is probably a good idea when it comes to advancing the public good. Haha. And yes long term debt is notionally better than short term debt but that's a bit of an oversimplification as well.
  - Lawrence Kramer Mar 10, 2019
    
    Mr. Ellis - Would you say that putting MMT in the Overton window is a bad idea? Is it like race and intelligence? I don't. I believe that we need to get rid of the notion that supply is a constant, which is inherent in the current approach to government spending.
    
    Maybe we just need to put some assets on the national balance sheet so that financed projects can be seen to make us richer rather than poorer. But a "balanced budget" is what poor people and poor countries are forced to practice. And paying off debts is what mortal beings must do. Neither is an appropriate notion for the United States of America unless we want to admit now that we are done being a superpower.
    
    MMT is also wrapped up in Triffin's Dilemma. The USD is the world's reserve currency because we are who and what we are. We run a trade deficit because we can; only a country whose money is a world reserve can buy stuff without selling stuff. But if we want the dollar to remain a reserve currency, we must import more than we export, and if we don't want our trading partners to own all of our real and corporate assets, we must offer them Treasury securities. MMT explains why this is a stable arrangement unless, of course, we elect an unstable leader. (I attribute the GFC precisely to Clinton's reducing the deficit when the trade deficit was creating demand for AAA-rated USD securities. Wall Street financed a Potemkin Village with liars' loans to fill that void. CRA and liberal political pressure notwithstanding, if there had been more Treasuries to buy, so many bogus mortgages would never have been issued.)
    
    Politics is the art of the possible, and MMT is the theory under which the most is possible. I am not ready to say that our pols cannot come up with MMT by another name. Aren't we already practicing it while rejecting it? How else do we explain the effect of the recent tax cut on the deficit and inflation? The trade war has, so far, made our trade deficit larger, but the dollar is not weakening, probably because the world knows that if it wanted to spend its dollars, the US could easily ramp up production to absorb them. All of this is easily understood through the lens of MMT. Calling it "nonsense" leaves too much potential production unproduced.
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John Ellis Mar 10, 2019

Krugman provides a simple and more easy to understand primer on why MMT is bunk.

https://krugman.blogs.nytimes.com/2011/08/15/mmt-again/?
- Lawrence Kramer Mar 10, 2019
  
  Krugman's article is unpersuasive. He does a thought experiment that adopts as a premise that "for whatever reason" the sovereign's bonds won't sell on the market. What on earth is "for whatever reason"? Does he mean if pigs fly or Hell has frozen over? Does he mean that people won't buy Treasuries but will buy investment grade corporates and Munis?
  
  There is no "whatever reason." There is only one reason: loss of faith in the currency. And MMT does not support printing more of a currency in which the vending public has lost confidence. We might as well be talking about that town where the barber shaves all the men who don't shave themselves. There is no such barber, and there is no "whatever reason" consistent with a functioning economy.
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John Ellis Mar 10, 2019

Rogoff should have just done a demolition job on MMT which is complete nonsense. There is a limit to how much seigniorage you can extract and even the dollar would reach that limit at some point. If it was all that simple Venezuela would have no problems.
- Len Charlap Mar 10, 2019
  
  Venezuela's problems did not start with the creation of too much money. Since its economy was almost entirely dependent on oil, it currency was essentially a coupon on the price of oil. When the price of oil fell, what was it 60%, the bolivar's value fell correspondingly. Thus instant hyperinflation. This all fits into the MMT framework.
  - John Ellis Mar 10, 2019
    
    So why haven't they experienced hyperinflation in Saudi Arabia or Norway?
    
    http://www.fao.org/3/Y4325E/y4325e0a.htm
    - Len Charlap Mar 10, 2019
      
      Norway produces other products mainly associated with fishing. Also the country was clearly better run and prepared. I have no idea about the SA economy.
      
      The idea the the fall in the price of oil started the Venezuela inflation is not mine. It seems to be generally accepted. For example:
      
      "Then the global price of oil dropped. Foreign demand for the bolívar to buy Venezuelan oil crashed. As the currency’s value fell, the cost of imported goods rose. The Venezuelan economy went into crisis."
      
      http://theconversation.com/what-caused-hyperinflation-in-venezuela-a-rare-blend-of-public-ineptitude-and-private-enterprise-102483
      
      "Owing to high oil reserves, lack of policies on private property and low remittances, by 2012, of every 100 dollars, more than 90 came from oil and its derivatives. With the fall in oil prices in early 2015 the country faced a drastic fall in revenues of the US currency along with commodities"
      
      Wikipedia
      
      "The most recent plunge in oil prices—falling from more than $100 per barrel in 2014 to a low of under $30 per barrel in early 2016—has sucked Venezuela into an economic and political spiral, from which it could take decades to recover.
      
      A number of grim indicators tell the story.
      
      Oil dependence. Oil sales account for 98 percent of export earnings and as much as 50 percent of gross domestic product (GDP).
      
      Falling production. Oil output has declined for decades, reaching a new low in 2018.
      
      Spiraling economy. In 2018, GDP shrunk by double digits for a third consecutive year.
      
      https://www.cfr.org/backgrounder/venezuela-crisis
      
      The last fact is the most telling since prices are inversely proportional to the value of production.
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  - John Ellis Mar 10, 2019
    
    No they didn't but money printing was seen as a way out their problems. And there are many other countries whose main export is energy who didn't fall into the same trap. The Bolivar was not purely a coupon for the price of oil. MMT is a facile framework a bit like your analysis really.
    - Len Charlap Mar 10, 2019
      
      On second thought, Norway and SA are irrelevant as the question is whether the excess printing of money which could cause hyperinflation has ever done so at least since WWI. Whether the actual cause of inflation in country A would cause it in country B is not germane to this question.
      
      I agree that when inflation has started in a country for a reason other that the excess printing of money, the excess printing of money can severely exacerbate the problem, but it seems difficult to start hyperinflation by it.
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Oeufs Bruns Mar 10, 2019

As with every alleged critique of MMT, we must start with misrepresentation (in this case a gross misrepresentation) of what MMT actually is because it merely describes how a monetarily sovereign economy actually functions, not how it used to function or we wish it would function but how it actually functions. This is terribly disconcerting to those with lucrative academic careers based on the used to and wish it would models. But I must ask, how does Mr. Magic Spreadsheet get taken even remotely seriously any more? Telling the Masters of the Universe what they want to hear might pay well but shouldn't be a path to academic legitimacy.
- douglas ungredda Mar 10, 2019
  
  Not so., USA has responsibility not just upon its citizens but also to the world as anything it does carries spillover effects to the world markets and also to global financial stability. So they are not immune to the consequences of folly as their actions backfire. Too strong a dollar hurts the American economy. So does a weak one
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- John Ellis Mar 10, 2019
  
  One problem with your little bit of nonsense is that the MMT is as a practical matter constantly advanced as a means of funding unlimited government spending as in the particular case Rogoff is addressing. But thanks for the bit of grand philosophizing.
  - Len Charlap Mar 10, 2019
    
    If you would learn even a small bit about MMT you see that the statement "MMT is as a practical matter constantly advanced as a means of funding unlimited government spending," is just a statement that politicians do not understand MMT either.
    
    Perhaps the most important part of MMT is the effect government spending (more precisely money creation) has on prices.
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Andy Frew Mar 10, 2019

But if the Green New Deal involves paying wages to middle class earners who actually pay their taxes and whose expenditures are taxed, and saves imported energy or promotes gas exports, the effects on the US fiscal position and teetering US balance of payments are both positive and badly needed. And with so much of the US economy now in services, likely to be reflationary.
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B Wilds Mar 9, 2019

It is only massive and unsustainable deficit spending that continues driving our economy forward. The bottom-line is that we are in the midst of a "false economy" and it is only by the grace of this huge deficit spending that we are not languishing at the bottom of a deep economic pit.

Today late cycle indicators are on the rise, moderating growth, tightening credit, declining earnings, the peak of consumer confidence, rising inflation and more. Deficit spending is not a silver bullet without consequences and with each step forward we get closer to the end of the road.

This is why investors would be wise not to accept America's recent GDP as verification the economy is hitting on all cylinders. The article below argues government spending is a poor substitute for the free market in allocating capital to where it is most effective and it is not economic growth but simply a method of borrowing from the future.

https://brucewilds.blogspot.com/2019/02/deficit-spending-main-driver-of.html
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Egmont Kakarot-Handtke Mar 6, 2019

Too much ado about deficit spending
Comment on Kenneth Rogoff on ‘Modern Monetary Nonsense’

For some time now, MMTers are shouting from the rooftops that deficit-spending/money-creation is the solution to almost all economic/social/environmental problems or, in the words of Kenneth Rogoff, to use “the Fed’s balance sheet as a cash cow to fund expansive new social programs, especially in view of current low inflation and interest rates.”

This is indeed stupid for several reasons:

• The government, needless to emphasize, is well aware of the advantages of deficit-spending/money-creation but plans to exploit them for other purposes. What naive MMTers do not know is that the free fiscal space is not free at all but has already been allocated “to fight a financial crisis, respond to a large-scale natural disaster or pandemic, or mobilize for a physical conflict or cyberwar.”

• “The US is lucky that it can issue debt in dollars, …” There is no use to awaken foreign suckers to the fact that they are taken for a ride. “If investors become more reluctant to hold a country’s debt, they probably will not be too thrilled about holding its currency, either.”

• Don’t rock the Fake-America-Great-Again boat: “For the moment, the world is quite content to absorb more dollar debt at remarkably low interest rates. How to exploit this increased US borrowing capacity is ultimately a political decision.” Not waiting for MMT-twits, this decision has already been taken for the benefit of the one-percenters.

• In addition: “The right approach … is for the government to extend the maturity structure of its debt, borrowing long-term instead of short-term.” Because the longer the maturity, the higher the interest rate for the bondholders, i.e. the one-percenters.

• In addition: “And if things get really difficult, it is far easier to inflate down the value of captive long-term debt … than it is to inflate away short-term debt, …” No need for MMTers to shout around that it is NOT the government that goes broke and that public debt will never be repaid.#1

• Finally: “Misguided ideas may yet drag the issue of US central-bank independence to center stage, …” Even naive MMTers must understand that the last thing anyone wants is a discussion about who runs and should run the central bank.

So, MMTers get it, although your ideas “have a grain of truth” it is “just nuts” to make so much fuss about it.#2 A public debt of $22 trillion should tell you that FED/TREASURY know already for a long time how to max out the no-limit public credit card without domestic/foreign bondholders and the general public getting too nervous.#3 After all, because of Public Deficit = Private Profit, the so-called free market economy hangs on the life-support of the State, i.e. on a smoothly growing public debt.

MMTers stand for aggressive deficit-spending, Rogoff stands for moderate deficit-spending. In the final analysis, all are in the same camp. And it is NOT the camp of WeThePeople.

Egmont Kakarot-Handtke

#1 Some nasty MMT surprises behind the time horizon
https://axecorg.blogspot.com/2019/02/some-nasty-mmt-surprises-behind-time.html

#2 MMT: The art of shooting oneself in the head
https://axecorg.blogspot.com/2019/01/mmt-art-of-shooting-oneself-in-head.html

#3 MMT, money printing, stealth taxation, and redistribution
http://axecorg.blogspot.com/2017/11/mmt-money-printing-stealth-taxation-and.html
- Len Charlap Mar 10, 2019
  
  While I disagree with practically everything you say, I have written below of historical examples which suggest MMT is correct. I would here just like to complain about your use of the figure of $22 trillion for the "public debt". I agree that the term "public debt" is sometimes used for what I prefer to call the gross debt which includes the money owed to the FED, the SSA, etc., i.e. other parts of the federal government. I prefer to use "public debt" for the debt owed to the public, i.e. outside the federal government.
  
  But even more importantly, when one quotes the size of the debt presumably to impress us with its size as compared with other times and countries, it is entirely the wrong statistic. The debt in dollars is important especially as it changes, but for comparison the debt ratio (debt/GDP) is more appropriate.
  
  The public (outside the government) debt ratio is today about 77%. It was 109% in 1946 which was followed by 27 years of Great Prosperity. It was 16% in October of 1929 which was followed by some of the worst economy the country has ever seen.
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Galen Linder Mar 6, 2019

On the one hand MMT argues that a sovereign can create and spend money into circulation. This is true, although the US has not done this since it ended issuance of United States Notes in 1971. https://en.wikipedia.org/wiki/United_States_Note

On the other hand, MMT argues that deficits don't matter. Deficits, however are created by borrowing, so government created money should create no deficit.
- Len Charlap Mar 10, 2019
  
  Yes, there is confusion about the term deficit. If it means how much we borrow, then you second paragraph follows from your first since borrowing would be unnecessary. But if it means the difference between federal spending which would equal the amount of money created and taxes which would be the amount of money destroyed, then MMT says that figure is practically the whole ball game since that is what figures in the determination of prices.
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Alan Luchetti Mar 5, 2019

Mr Rogoff misrepresents MMT. Cartoonishly. But worse, he misrepresents bond volume as debt.

Debt is what is borrowed. Borrowing is exchange of a financial liability for a financial asset. But bond issuance is not borrowing. It is the exchange of a financial liability for a financial liability.

Bond issuance is not borrowing and bond volume is not debt. For too long these misnomers have been colouring the thinking of too many people. “Budget” balance should be between inflation and slack, not between currency issuance and currency destruction as if the destruction funded the issuance.

It is ironic in the extreme that when MMT says that inflation concern, not budget balance, should inform the fiscal stance, we read all this commentary about MMT’s lack of concern for budget balance, and how it will be inflationary. No wonder central banks are barely been hitting the lower bound of their desired inflation ranges and labor underutilisation had been chronic.
- Paul Friesen Mar 6, 2019
  
  How on earth do you figure that bond issuance is not borrowing? If the government issues bonds, it gets money now that it has to repay later. What definition of "borrowing" does that not fit?
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Martin Screeton Mar 5, 2019

What's had 'serious consequences' is 'supply-side economics' being practiced for 40 years now in this country... that has given away the treasury to mostly the rich while impoverishing roughly 60-70% of our population... and they continue to decline, to this day, in this dying society. What was the 6 trillion dollars given to the banking sector? what was the Two trillion dollars given to the rich by mr. trump in 2017? We sorely need to change back to a "Consumer-Centered Economics" which does a hell of a lot more to get the masses educated and contributing to our society. That means not only free college, but paying people to go to college (via monthly stipend), immediate debt relief to the millions upon millions that have been ripped off by For-Profit-everything mentalities...this will crash on it's own, but it's better to offer at least bankruptcy again. We need only to look at the past to know what to do... after WW2... they had all this plus housing, union jobs, stiff labor laws and more... What we have now is the Roman Empire in its final days.
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Paul Friesen Mar 5, 2019

There are times and places where deficit spending is fully justified. That is when there is a shortage of demand and extra government spending is needed to return to full employment. But deficit spending under other circumstances is just a way for governments to spend more without raising taxes. Good for short-term popularity, bad for the long term.

Ideally, we should do for fiscal policy what most rich countries have already done for monetary policy - get it out of the hands of the politicians. Just as we have independent central banks with managements structured to avoid pressure from politicians to lower the interest rate ahead of an election, so we should have an independent body to determine the appropriate level of fiscal stimulus. Such a body could control a key tax rate, for example a sales tax. Politicians would control other taxes, but if they failed to set an appropriate tax rate for their level of spending and the economic circumstances, the independent authority would just raise the rate it controls.

This would also have the advantage that the independent authority would be able to act quickly in a recession.
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WmC Mantis Mar 5, 2019

I'm not an economist, but I have been following the MMT dispute for at least a decade. The main premise of MMT seems to be that fiscal policy should be predicated almost exclusively on its expected impact inflation. If MMTers are profoundly wrong on this point, it should be very easy to prove in a short, 2000-word essay, devoid of esoteric concepts and devoid of ad hominem attacks. Why hasn't the economics "establishment" been able to provide us with such an essay?
- Len Charlap Mar 10, 2019
  
  I agree. You notice that the critics of MMT rarely invoke historical examples to prove their point or have anything to say about the economic history that supports MMT. Here are some examples:
  
  Keynes famously wrote, “The boom, not the slump, is the right time for austerity at the Treasury.” This is usually taken to mean that we should run federal deficits & thus increase the debt when times are bad, but when times are good we should run federal surpluses & pay the debt down.
  
  But during the Great Prosperity of 1946 to 1973, not only did we not pay down the debt, but we increased it 75%. (f you want to raise "The Europe was Rubble" myth, look at ttp://piketty.pse.ens.fr/files/capital21c/en/pdf/F1.1.pdf which shows that the out of Europe was about the same as the output of the US during the Great Prosperity.
  
  Then there is the even more compelling fact that when we did follow Keynes' advice, the economy fell off a cliff:
  
  The federal government has balanced the budget, eliminated deficits for more than three years, and paid down the debt more than 10% in just six periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid down 29%. 100%, 59%, 27%, 57%, and 38% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.
  
  We can see how this fits into MMT claim that the flow of money between the three sectors, private, federal, and foreign, is an important economic factor by looking at the what happened in 2008. With the exception of a brief period in 2003, from about 1996 to 2008, more money flowed out of the private sector than in. This was because the federal deficit was less than the current account deficit. As in the previous 6 examples in which a federal surplus sucked money out of the private sector, private debt exploded. By 2007 the big banks had 27 or 28 times the amount in outstanding loans as they had in reserves. We would have had a real depression as in the previous 6 cases but for the FED which could now create as much money as it needed and poured TRILLIONS into the banks to use for reserves.
  
  I ask those deficit hawks like Prof Rogoff to point out a period in US economic during which a too high federal debt has ever negatively affected the US economy. Just remember that the federal debt ratio was 16% in October of 1929.
  
  Furthermore if one looks at the cases of excessive inflation since WWI at least one see that as MMT maintains these were all by a decrease in production or a constrained economy. Here are some examples:
  
  In 1972, the anchovy harvest off the coast of Peru failed. Since anchovies form one of the principal component of livestock feed, ranchers had to buy other food like corn & wheat to feed their valuable stock. This shortage raised the price of food worldwide. Then we had the oil embargo which not only raised the price of all products made from oil, but more generally of all products that had to be transported.
  
  During and right after WWI over 1,000,000 Germans died from starvation. Germany simply did not have enough arable land to feed its people and the allied sea blockade prevented it buying it elsewhere. Food prices went through the roof. Then there were reparations in kind which required Germany to send steel and cattle to France. But these were the only things that Germany was producing in any quantity. When Germany failed to send the steel, in 1923, France invaded the Ruhr and seized the steel mills. They forced the workers to work without pay and took the steel back to France. The economy was drastically constrained. But people were starving. So the Weimar government began to print money. Of course, this raised prices further and we got 1,000,000,000 mark stamps. But it is important to note that inflation caused the printing of money. Then the printing of money caused more inflation.
  
  In Venezuela, oil was practically their only product. When the price of oil fell 60%, they got instant hyperinflation which they exacerbated by printing more money.
  
  In Zimbabwe, the farms were taken from those who knew how to run them and given to those who didn't. Production fell, and printing more money could not increase it.
  
  Someone from Boston who uses the nym max once wrote the following pithy comment in the NT Times:
  
  "So much of our economic issues could be solved if people understood that the US cannot run out of money, and how hard it is to cause hyper-inflation from government spending alone."
  
  Len Charlap
  Princeton, NJ
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Ralph Musgrave Mar 5, 2019

Given that Kenneth Rogoff was pushing for a limit to stimulus in the middle of the recent recession, I am not clearly on why anyone needs to attach much importance to his views. His campaign to limit stimulus will have resulted in very large numbers of people remaining unemployed for much longer than they need have.
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Petey Bee Mar 5, 2019

Tax breaks for asset-holders, bank bailouts, and death-star levels of military expenditure get funded with deficit spending. While there is token protest in congress on behalf of future taxpayers, most legislators are willing bump up the dollar amounts each time around.

But heaven help anyone who might suggest doing the same for social services, or to avert climate change.

This isn't really a question of economics.
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Hans Rijsdijk Mar 5, 2019

It is a pity that this sort of discussions usually focus on one side of an argument in stead of looking at all the aspects.
First a general comment. Most Americans have not the faintest idea what social democracy is, let alone socialism. Socialism is forever equated with communism, suppression of free enterprise, etc. This is plain nonsense of course.
The author focuses only on the ability of the central bank to issue money. And indeed just issuing money to start projects without consideration of where the money should/could come from creates huge budget deficits. Just look at the US today.
If you want to have a just society where the most vulnerable are protected by the state (crude capitalism doesn't do this) you need to raise enough revenue to pay for this. This is done by raising tax. There is nothing wrong with raising tax and the better off should pay more tax than the rest. If you want to raise the general health and well-being of your population you must spread your wealth and establish basic health systems and other social programs.
When you don't do this you get countries like the US today where huge proportions of its people are below the poverty line and the average life span is slowly declining. General education is quite poor. (I saw once in Vienna a shop that sold t-shirts that said: "There are no kangaroos in Austria". After asking why they sold these the answer was: for the benefit of Americans, many of them who have no idea of the difference between Austria and Australia). America today is a country for the rich and the myopic, while it could be really great again by spreading its wealth a little better.
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Robert Bostick Mar 5, 2019

It's not surprising that Rogoff omits a critical part of the Fed Chair's remarks, namely, "Powell conceded that he has not read up on the theory but said he has heard some “pretty extreme claims” about how it might be implemented. (https://goo.gl/vv2Hb4)

Like the ancient voodoo priests, Rogoff and Powell know their words will be received as wisdom and their congregants will act accordingly. Even when neither really understands MMT. Powell knows he will not tolerate a competing and more democratic theology. So he and Rogoff, out of ignorance, demean the new knowledge for fear they'll lose congregants. They're not concerned with credibility.

Neither of these dissemblers displays an understanding of fiat currency systems, the result of Nixon abandoning the gold standard in 1971. Thus, ushering in monetary sovereignty for the U.S. and eventually, most nations that had not already abandoned the gold standard to issue their own fiat currency.

Rogoff fails to understand the differences between monetarily sovereign and non-monetarily sovereign regimes. Of the people who spread disinformation in the face of contrary fact, some do it out of ignorance and some are paid to do it.

I do not know in which camp either of these men resides.
- Arun Motianey Mar 5, 2019
  
  Well said!
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- Karl Michael Rom Mar 5, 2019
  
  Robert Bostick, I wanna thank you for your oh so needed and 100% TRUE comment, I'd sign immediately .... "Learning from History" is not wanted since "Jekyll Island Club" and in circles of Volcker/Greenspan/Bernanke/Yellen/Powell it's simply irrelevant. Mr. Rogoff waiting for D.J.Trump's call to "lead" the FED ?
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Sidney Wolfe Mar 4, 2019

I hope Ken isn't shorting Japanese bonds. It would be so sad to see him sleeping on the streets. Then again maybe the MMT crowd would buy him a coffee.
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Elizabeth Pula Mar 4, 2019

You may want to look at the significant DROP in labor participation rate to get a clear picture of the employment picture- like the significant increase in unemployed 25-54
of age males in the US, etc. etc.

And, is there any kind of "real infrastructure IMPROVEMENTS" during this present administration anywhere in the US? It's nice to see the developments in Belarus, quoted in US dollars even.....

https://www.ebrd.com/news/2019/ebrd-supports-modus-group-expansion-in-belarus.html

Sure, things are exciting anywhere, and everywhere, BUT the US.

Take a good look at the following link to get away from NONSENSE, and that includes some of the context of this article on PS.

https://ycharts.com/indicators/sources/bea
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Marc Laventurier Mar 4, 2019

Gee, I always thought of Ken as the Simon Legree of financial repression; here it seems that he and Brad are the Abbot and Costello of auto-inflatio, where the baseball diamond and its' rules are the ideal of a market and it doesn't matter who's on first, including Laffer, MMT, whatever. The US will default on its' debt - that's showbiz, the game is fixed, and the name of the game is money for its' own sake.
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