MMT is simple

MMT is pretty simple. That’s why this series of videos goes for so long (02:39:24) & no that wasn’t sarcasm. Stay tuned for the Video Series in February that makes things even simpler.

Let us know in the comments whether you prefer the video at the top or the bottom of the posts. Have an MMT Day!

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9 responses to “MMT is simple

  1. Good explanation of MMT. Here are some suggestions for improvement.

    1. You claim that improved productivity is a contributor to unemployment (around 2.20). That is not necessarily true, and for the following reasons.

    Improved productivity, i.e. a reducing the cost of a product in real terms always leaves cash in someone’s pocket. E.g. if the cost of widgets is halved, money is left in the pockets of widget purchasers. And assuming the latter spend their newly acquired cash, demand and employment remains constant.

    But this is far too complicated issue for a very short video clip, so I suggest replacing the claim about productivity improvements, with a simple statement to the effect that unemployment sometimes rises too far.

    2. Re the claim that we can escape a recession by simply printing and spending new money, you could reinforce this point by pointing out that both Keynes and Milton Friedman agreed with this claim.

    For Keynes, see 2nd half of 5th para here: http://www.scribd.com/doc/33886843/Keynes-NYT-Dec-31-1933

    As to Friedman, see para starting “Under the proposal..” (p.250), here: http://nb.vse.cz/~BARTONP/mae911/friedman.pdf

    3. The clip seems to suggest it is possible to employ 100% of the workforce, a claim I don’t agree with. Most economists think that some minimum level of unemployment is inevitable due to people changing jobs, bankruptcies, etc etc., and I agree. In other words I think you do MMT no favours by including this extremist claim.

    But if you really do know of a way of employment 100% of the workforce, you’ll get several Nobel Prizes for explaining exactly how to do it. Of course there is the Job Guarantee idea proposed by many MMTers. But that involves employment where productivity is so low that those concerned are better off enjoying a few weeks of leisure plus doing some job searching, I think.

  2. Thanks Prof. Musgrave. I didn’t realise you were a Professor or from the UK until recently. The object of this site is to keep things as simple as possible.
    I absolutely agree with your point 1. and I think the video does too, as it notes the difficulty, it doesn’t state it as a sole cause.
    Point 2 stands on its own merits and any sturdy economic theory. I may make it into a future post. I don’t suppose Hayek has a similar quote too?
    On point 3. it depends what we mean by 100% of the workforce. I’m going to assume you mean people that want work rather than those in the workforce. As you note, some unemployment is due to changing jobs, health reasons, etc and that’s why the MMTers, at least, define it as frictional unemployment.
    Do you have a rebuttal for the “full employment” period post world war II or against the workforce (actually working) being used as a buffer stock for price controls?
    You can’t get any leisure time if you haven’t earned an income even with job searching that constantly turns up empty. How do you subsist? Barely, if at all.

  3. Here’s a little graphic I put together to help illustrate the sectoral balances (flow of funds):

    to me it’s useful in visualizing the flows “physically”, to others maybe not so much.

  4. @ paulie46

    I posted your graphic at Mik Norman’s
    Sectoral balance flow of funds graphed

    Nice job.

  5. Sennex, I’m not a professor, but am from the UK. I think I may refer to myself in future as “Not-Prof-Musgrave” 🙂

  6. On the subject of MMT being simple, Abba Lerner agreed. He said:

    “Fundamentally the new theory, like almost every important discovery, is extremely simple. Indeed it is this simplicity which makes the public suspect it as too slick. . . . . What progress the theory has made so far has been achieved not by simplifying it but by dressing it up to make it more complicated, and accompanying the presentation with impressive but irrelevant statistics.” See:

    http://k.web.umkc.edu/keltons/Papers/501/functional%20finance.pdf

  7. Ralph said..
    “1. You claim that improved productivity is a contributor to unemployment (around 2.20). That is not necessarily true, and for the following reasons.

    Improved productivity, i.e. a reducing the cost of a product in real terms always leaves cash in someone’s pocket. E.g. if the cost of widgets is halved, money is left in the pockets of widget purchasers. And assuming the latter spend their newly acquired cash, demand and employment remains constant.”

    Higher productivity will likely result in small cost decreases by virtue of automation or process efficiency improvement. Without an increase in output, i.e. if demand is relatively inelastic,the very definiton of productivity leads to fewer man-hours used in production. This leads to someone losing a job in that firm.

    Some income is then freed up on the part of the buyers of the product. To what other goods will this incremental income be drawn. That will determine whether employment is affected. If the dollars go to foreign producers, there will definitely be a loss of employment.

  8. The use of additional government workers to improve the infrastructure has the result of raising the value of the land. This helps land-value speculators to get rich for doing nothing. It is this side of the economy which actually is holding down the opportunities and for more work because the potential use of the land is wasted and the available land becomes overpriced due to the competition for what is gradually being occupied. The resulting high cost of the produce has the immediate effect of lowering demand, reducing output and adding to the unemployed and homeless.

    The basic problem in the macroeconomy can be solved without printing more money (an as the last speeker said, inflating the currency) but by taxing land values instead of earnings. This will stop speculation in land values and cause the strangle-hold the land monopolists have to cease. It is not simply a matter of money availability and the MMT is badly incomplete because it has no capacity to include the above matter. I believe that borrowing money is not a good option and that it is about time that the Keynesian policy of growing deficit budgeting was seen to be a policy that is eventually going to result in so much interest being paid to the banks that the relationship of them to the government must be changed.

    The present system of debit economy with the use of credit cards and deferred payments has resulted in nearly all the actual money or currency finishing up in the bank vaults where it does no good, not even to the banks.

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