Technically the government is not constrained, but it is practically. Warren Mosler uses the analogy of a football stadium putting up points on the score board. Where do those points come from? A bucket in the basement? Of course not. Hence the stadium is not constrained by some finite amount of points they must be constantly aware of.

But I find this analogy disingenuous. The stadium is constrained by the game of football and what is happening on the pitch. What no MMT advocate would ever suggest, for example, is that we give everyone, debt free, say $10 million, because there are indeed constraints in the economy, in the ability of our eco-systems to cope with our rapacious consumption habits, and things like the necessity of employment in the first place, and other core properties of money such as rich and poor. So when I say ‘finance’ I’m thinking along MMT lines, of money as a flow of spending power that corresponds to economic activity. We don’t just pump in endless amounts of money, even though we can ‘create’ and ‘destroy’ money as appropriate (though whose, out of which pockets and how?). Also, what attracts me about ‘funding’ or perhaps ‘balancing’ a guaranteed income from negative interest and taxes on environmentally damaging economic behaviour is that we need no income tax should we follow this path. This is an MMT principal but with minimal Big Government and maximum direct democracy. It’s about flow and distribution before quantity, societal health before the size of the economy. Money isn’t everything, but while we still believe we need it as a so-called medium of exchange, it has rules and costs and constraints. And they are legion. 😉

And MMT, from what I have seen, would continue to allow commercial bank money creation, claiming their private sphere activities “net to zero”. Of course each loan nets to zero because it, alone, does not change the amount of high powered money (or bank reserves) in existence, but seeing as credit money represents 97% of the money in action out there in the economy, this “nets to zero” position is dangerously wrong in my opinion. If all credit money were to disappear from the economy, there would be chaos. And, as Steve Keen, the NEF and others have pointed out, the real power is with the commercial banks, whose activities lead central bank money injections and drainings. It is not the other way around, as MMT seems to imply.

As I say, chartalists have an interesting position (one the Chinese have held for centuries actually), one I think far more helpful than metalists or any other position which asserts commodities have ‘intrinsic’ value. I was attracted to MMT from the start, but find it cowardly in its application generally (and it seems to be all about Growth). It lacks the courage to follow through on its deeper implications. What is happening now in the Occupy movement is a revolution, or the early beginnings of one, in which Big Government, Big Business, Perpetual Growth and other insanities are being challenged. What comes of it only time will tell, but I am with them in spirit.

@ Toby

I don’t have any signignificant disagreements with what you say.

But I think you need to think of MMT much more as an enabling framework.

The Job Guarantee proposal is a somewhat optional element of it, but it is important to realise that the scheme advocated by MMT proponents is primarily an enhanced (over unemployment benefits) ‘automatic stabiliser’ mechanism. Ehanced in both the quality & quantity of (debt free) gov spending, as a counter cyclical measure, & from the viewpoint of those made redundant from (likely better paid) private sector jobs.

So it highlights two things. One, that gov is not constrained in debt free spending to pay the unemployed and two, the actual work they do can be focused toward the wider public, community purpose.

To me, it opens up a way of thinking that would enable serious consideration of the kinds of basic income etc. you advocate.

MMT provides the conceptual basis for all that – it’s very important to realise that taxation does +not+ constrain gov spending. I think you have not understood this key MMT concept? I say this because you seem to be suggesting that, for example, provision of a basic income must be ‘financed’ in some way by taxation. It does not – providing the conditions of the currency type are met, fiat, free floating etc. This is in fact the case right now with such currencies as US, UK & many others – the truth being carefully hidden by the combination of banking elite interests & intellectual capture.

Taxation then has only two functions, neither of which is to ‘fund’ anything – distributive use of resource preference & regulation of aggregate demand to avoid inflation.

Do you see how much clarity this can offer to public policy decisions & how easily the considerations you talk about can be incorporated?

So, I see MMT & functional finance as an enabling system. Key parts of it are simply a proper recognition of what is in fact possible right now, once the conceptual barriers are overcome.

Crack that & it opens up the space for what you would like to see for serious democratic consideration. (Providing, as ever, we can get a functioning democracy – but if we can’t get that, we’re f*%*d anyway.)

Kind of one step at a time? Please don’t underestimate how important MMT could be.

Government as the state is about the protection of private property and the enclosure of the commons into private property. History is very clear on this.

Government (or governance) by the people of the commons is something quite different, it is in fact the opposite of the state. Direct democracy and re-localization are the major characteristics of that particular model, one which is being tentatively explored in public squares across the world.

So when I say small state I mean large commons and democratic governance, because the state, as stated (ha ha), is protection of private property. Managing the commons via direct democracy is therefore the antithesis of the state, but the epitome of democratic governance. I am not for the neoliberal free market in any way, unless we have a money system that can facilitate and foster steady state growth and cooperation. Arabic medieval economic theory, to throw a different light on the market, was for ‘free’ markets, and against state interference, but believed markets promoted and were about cooperation, not competition. Their Invisible Hand was the Will of Allah. And this 6 centuries before Adam Smith! For me though, the Internet offers humanity its first real glimpse of what a free market might look like. It is a democratic market in which 1 vote really is 1 vote. At least it is this potentially.

MMT interests me IF we also acknowledge that the economic sphere has to shrink, that usury-based, debt-based commercial bank money creation is anathema to steady state or de-growth economics, and if we likewise acknowledge that the quantity theory of money is at its most democratic when the distribution of that money is as healthy and sustainable as can be. That is, distribution mechanisms are key.

MMT battle cries like full employment are unhelpful, since that just means continuing with this current model and tweaking at the edges. Must we really earn a living? I prefer guaranteed income funded by ecological taxes and negative interest (demurrage) to keep money flowing to ALL people. In terms of what people are then freed to contribute to the healthy operating of society, that should be decided by their passions and interests. Only then can we be sure of genuine engagement and participation, and therefore societal health. If we insist everyone has a job, we’ll be paying people to dig holes just to fill them again. Of course there is much work to be done, and there always will be, but why motivate or reward this work only with a wage? Sometimes that’s necessary, but often it is not. A guaranteed income frees us up to be flexible in this area, not be stuck with the binary: employed=good, unemployed=bad. There’s automation for tedious and unfulfilling work anyway, and, as behavioural economics has been proving recently, creative and cooperative work suffers if money is used as a reward for it. So we don’t need full employment, we need full and meaningful participation, some of which can be employed, some not. As we are increasingly recognizing, money is not wealth, and accumulation of property is not happiness.

I enjoyed “The Ecology of Money” and often recommend it as a decent intro, but feel Douthwaite does not entertain sufficiently profound change. Again, Charles Eisenstein (along with some German economists I have been reading) are doing that best, as far as I can tell. There’s a forward in The Ecology of Money by Bernard Lietaer. He’s very much for demurrage currency, but also for a variety of money types to cover different aspects of our economic lives. I find that an appealing idea too, since monopolies are not really part of nature’s way.

Begins and ends with RBS, but also includes discussion of an analysis by Natixis of what various European banks might need to bolster them up.

Meanwhile nine of Portugal’s banks have also been downgraded by Moody’s this morning.

Look at the last two months since the mini plunge. The market races up and then crashes down, up down up down. Just like corporal Jones in dads army running around shouting don’t panic, he couldn’t make up his mind which way he should run to. When the panic stops the markets will capitulate and go straight down

I saw Steve Keen at UCL on Tuesday evening. A well attended event (250+) perhaps.

Some of the usual money reform suspects were around (e.g. NEF, Positive Money and Renegade Economist anchorman Ross Ashcroft).

Hopefully Steve will post a video on this soon, or at least the slides (which had some excellent charts):

http://www.debtdeflation.com/blogs/

NIce to see some in the mainstream venturing to listen to the “deep thinkers” that until now only reside in the blogosphere.

Keen made the fundamental point (oft raised on here) that we should focus on the “Irresponsible Lending” that has happened, not just the “Irresponsible borrowers”.

Let’s hope that message gets hammered home to Monbiot and the world !!

Incidentally, the CEO who masterminded this demerger – Ian Dyson – is happily ensconced at Spirit.

Keen uses an ‘accounting methodology’ (in contrast to mainstream economists) and was one of very few to predict the beginning of the whole crisis. What he’s saying should be taken very seriously.

Incidentally I wrote to Monbiot some weeks ago suggesting he look at economics issues, particularly the intellectual bankruptcy of the mainstream, mentioning Keen & MMT proponents as good places to start looking for some reality.

Never got a reply, but I wonder….?

@ Toby

The concept of the commons is a good one, but I think what Charles is getting at here is that the only protector of the commons & the interests of ordinary citizens needs to be government – a properly functioning democratic one for sure. Whichever way you look at it, there needs to be something of that ilk.

Given the onslaught of neo liberal dogma against government of much any kind, bar one (less highlighted) giving handouts to the wealthy, I think any talk of ‘small government’ is merely playing into their hands regardless of whether something quite different to that ideology is meant.

The author of ‘Ecology of Money’, Richard Douthwaite has great interest in innovative money systems. I’ve met him a number of times where various possibilities involving 2, 3 or 4 parallel currencies have been (privately) discussed, each one with different characteristics and purpose. But all require sensible reform of the system we have now as a starting point.

I don’t know if you’re aware of this but Richard is one of the founding members of Feasta – foundation for the economics of sustainability.?One of the spin-offs is Smarttaxes network – very much a Feasta project, run by co-founder Emer O’Sucrui. They are both highly supportive of MMT & ‘functional finance’. Regardless of what innovative money systems may be possible in future, there’s no doubt that MMT is seen as a highly suitable economic framework as regards sustainability.

I suppose it’s at least a good illustration of, as Golem has often stated the heap of crap RBS is, when they are already talking about a bailout, even before a Greek default & EU banking collapse. Surely it would be political suicide anyway.

Here’s a graphic you might like showing the evolution of ” Too big to fail ” in the US.

http://dailybail.com/storage/banks-monopoly-graphic.JPG