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OpEdNews Op Eds    H3'ed 1/14/15

What if the Public Understood How Money Works?

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The Real Fear of Libertarians and Conservatives

The attacks on MMT and my UMKC colleagues' development of job guarantee programs from the hard right and libertarians for informing the public about what people in finance have known for roughly a century are understandable. They both project their worst fears of government unto the proposals. Their worst fear, of course, is that democratic governments would be successful in helping people and that the people would view democratic decision-making favorably. They know, however, that openly stating their worst fears is a poor strategy. They have long talked instead of the sure ruin of inflation should the government fund effective social programs.

Freaking Out over Kelton's Appointment

Senator Bernie Sanders' appointment of our colleague Stephanie Kelton as Chief Economist of the Senate Budget Committee brought increased attention to MMT and the desirability of ensuring full employment through a jobs guarantee program. Dylan Matthews' January 10, 2015 column explained the significance of her appointment -- and promptly generated a full-fledged Forbes freak-out entitled "Watch Out, MMT's About, As Bernie Sanders Hires Stephanie Kelton." Tim Worstall wrote the column. His Forbes bio begins: "I'm a fellow at the Adam Smith Center in London"."

Worstall, as Randy Wray and Scott Fullwiler have aptly explained, is the most recent proof of our family saying that it is impossible to compete with unintentional self-parody. I won't repeat Randy and Scott's detailed takedown. The first key takeaway is that Worstall admits what my colleagues have been emphasizing for years -- first and foremost, MMT explains how money actually functions, including how a sovereign currency functions v. how non-sovereign currencies function. This explains why finance practitioners have long been supporters -- indeed, most famously in the case of Warren Mosler, developers -- of MMT. It also explains why MMT's core is actually not controversial -- as Worstall admits.

Keynes as Prometheus and the Revenge of the Priestly Caste

There are variants of the story of the Titan Prometheus (foresight), but the common element is that he enrages Zeus by taking an action that aids humans. The variant I discuss is his bringing the secret of fire (symbolic of light, warmth, and knowledge) to humans. Zeus is pissed, and Zeus is really mean when he is pissed off. He chains Prometheus to a rock and sends an eagle (his avatar) to peck out and eat Prometheus' liver every day. Prometheus is immortal, so his liver regenerates daily so the endless cycle of torture can continue.

Prometheus has for millennia been the greatest hero of humans. Indeed, it is another hero, Heracles who frees Prometheus after ages of torment. Prometheus never renounces humans even while suffering endless agony.

A comment by a reader of Scott's column over at Naked Capitalism illustrates the continuing temptation to "unleash the eagle" at the liver of anyone who brings the secret of money to the public. The commentator agrees that MMT is correct, but believes that Keynes did a terrible disservice by trying to help the public understand money.

"Thankfully Mr. Worstall's fears will dominate for the foreseeable future. Knowing how an Indy car is built and driving one are too [sic] different skill sets. Should MMT gain any traction it will not resemble itself by the time it comes out the end of Social Policy and Buchanan's Public Choice. It would be like giving the keys to your ten year old. Now if you have a fondness or belief in an enlightened overlord class MMT in the hands of your favorite politico might sound wonderful."

Humans are "ten year olds." We must protect them from their crazed desire to be productively employed. Put everything in the hands of the economists who serve the biggest banks (the rapacious and corrupt overlord class) -- but avoid democracy like the plague.

Worstall trots out the following parade of horribles -- Kelton's arrival could lead the Republican-dominated Congress to fund "another 7 carrier battle groups." Worstall's comment illustrates three serious flaws in his anti-democracy screed. First, we all know that the Republicans will not do so for multiple reasons.

  • They do not believe that doing so would be desirable.
  • The Pentagon, even the CNO, does not believe it would be desirable.
  • The electorate does not want them to do it.
  • If they tried to do it, Obama would veto their legislation and the Republicans would not be able to override his veto
  • There would be (as MMT scholars repeatedly warn) real resource constraints if we tried to build another 7 carrier battle groups" in a very short time period.

To sum it up, Worstall's example is false and the reasons it is false are important. It turns out that democratic governments and reasoning impose real constraints that limit terrible decisions.

We should look also at what Worstall does not take into account about defense spending. I think that U.S. defense spending is far too high and that much of the money is spent poorly because of the influence of government contractors. From my perspective, U.S. democracy is not working properly to prevent these defects. I don't think democracy is even remotely perfect.

Under Monetary Myth Theory, the proponents of the existing seven carrier battle groups (and the 600 vessel proponents) claim (1) their desires must be the overriding priority and (2) that even when there are zero real resource constraints their spending has paramount priority and should "crowd out" spending on education, health, infrastructure, prosecuting the elite banksters, regulating effectively to prevent the next financial crisis -- or even caring adequately for our veterans when they are grievously wounded in our wars.

Even in response to the Great Recession, when increasing the deficit through increased net government spending would greatly aid the recovery of the economy and reduce future deficits, even when the programs that would be funded would be effective and would reduce suffering, and even when there are no real resource constraints Monetary Myth Theory teaches that we should adopt austerity by slashing helpful government spending and actively makes things worse. That is a nightmare result and Europe shows it isn't hypothetical. Monetary Myth Theory is now law in the Eurozone in the form of the oxymoronic "Stability and Growth Pact," which produces recurrent crises and cripples growth. The European priestly caste chants the "TINA" (there is no alternative to austerity) mantra. Unless Monetary Myth Theory is successfully countered it must corrupt the democratic governance process by not spreading a myth that prevents the alternative of what Worstall concedes is the ready alternative of the economic reality of how money actually functions from even being heard. Worstall wants to produce the same result in the U.S. -- excluding reality in favor of myths that he knows cause, gratuitously, epic levels of harm.

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William K Black , J.D., Ph.D. is Associate Professor of Law and Economics at the University of Missouri-Kansas City. Bill Black has testified before the Senate Agricultural Committee on the regulation of financial derivatives and House (more...)
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