MMT has basically been the dogma that all western mainstream economists subscribe to. Every time there’s an economic crash, which happens roughly once a decade, more currency is issued to keep financial institutions afloat. We’re now starting to see the results of this policy manifest themselves all around us.
Not quite, MMT states that money is just a unit of accounting and the government can print as much money as it wants as long as it’s used to mobilize workers and resources that are currently underutilized - likewise the government doesn’t need to tax in order to amass ‘enough money’ to pay for things, only to regulate the amount of currency in circulation and ensure a demand for currency that will mean their ‘orders’ are carried out.
Under neoliberalism, money is seen as a magic substance that cannot be fully controlled or understood and so it has to be left to the invisible hand of the market. Money printing in the US is controlled by the Federal Reserve, a private entity directed by a board of governors appointed by the President for 14 year (!) terms, but with no oversight beyond that - the Fed can print money, but ONLY to lend it to private banks, who then lend it on again. (Except that, thanks to the wonderful innovation of “fractional reserve banking”, those banks don’t even need enough money to cover the total loans they give out, only a certain fraction of those loans, so the private banks get to effectively print money as well!) This money is then lent out however the bank managers decree, which as it turns out is about 80% real estate loans, 15% financing hostile corporate takeovers, and less than 5% investment in actual business loans that might develop the means of production.
The result of this privatization of money creation and its funnelling into the financial sector is exactly the cause of economic crashes like 2008, as this huge influx of money inflates the price of financial assets - most importantly real estate - far beyond the prices of real economic commodities. This is a huge problem because paying the interest payments on the enormous loans needed to buy real estate to e.g. live in or run your business from, drains money out of circulation in the real economy and into circulation in the mumbo-jumbo financial economy, weakening the real economy’s ability to pay further interest. The bankers who made these loans then sell them on to others, with the ‘price’ of the loan - theoretically determined by its value when paid back in full plus interest - also being wildly inflated due to how much money the financial markets have swilling around them!
Of course, eventually, these untenably large loans are defaulted on by the businesses and homeowners that took them out, in no small part because of the economic slowdown caused by making interest payments, and it’s revealed that huge swathes of the portfolios of certain investment banks, in which they were ‘saving’ their customers’ money, are actually worthless. At this point there are two options - write the debts down to levels that can actually be paid (or even write them off entirely) and watch the price of real estate and ‘financial instruments’ plummet OR print an enormous amount of money, give it directly to the banks who ‘lost’ their gambles, and maintain the debts at exactly the level they were before, and if the debtors default on their mortgage: tough, the bank owns your house now. The latter is what the Obama administration did - gave Wall Street trillions of dollars and oversaw the largest wave of evictions and home repossessions in US history.
Meanwhile, a government running on MMT (aside from not being in this situation in the first place) would have let the lenders get owned, written the debts down (or off) and pumped money into the real economy to mobilize the unemployed, perhaps through a federal jobs program of some sort or by hiring into nationalized industries.
So why do I hear so much about MMT if it’s so easily disproven? Is it just a baby leftist thing?
MMT has basically been the dogma that all western mainstream economists subscribe to. Every time there’s an economic crash, which happens roughly once a decade, more currency is issued to keep financial institutions afloat. We’re now starting to see the results of this policy manifest themselves all around us.
Under neoliberalism, money is seen as a magic substance that cannot be fully controlled or understood and so it has to be left to the invisible hand of the market. Money printing in the US is controlled by the Federal Reserve, a private entity directed by a board of governors appointed by the President for 14 year (!) terms, but with no oversight beyond that - the Fed can print money, but ONLY to lend it to private banks, who then lend it on again. (Except that, thanks to the wonderful innovation of “fractional reserve banking”, those banks don’t even need enough money to cover the total loans they give out, only a certain fraction of those loans, so the private banks get to effectively print money as well!) This money is then lent out however the bank managers decree, which as it turns out is about 80% real estate loans, 15% financing hostile corporate takeovers, and less than 5% investment in actual business loans that might develop the means of production.
The result of this privatization of money creation and its funnelling into the financial sector is exactly the cause of economic crashes like 2008, as this huge influx of money inflates the price of financial assets - most importantly real estate - far beyond the prices of real economic commodities. This is a huge problem because paying the interest payments on the enormous loans needed to buy real estate to e.g. live in or run your business from, drains money out of circulation in the real economy and into circulation in the mumbo-jumbo financial economy, weakening the real economy’s ability to pay further interest. The bankers who made these loans then sell them on to others, with the ‘price’ of the loan - theoretically determined by its value when paid back in full plus interest - also being wildly inflated due to how much money the financial markets have swilling around them!
Of course, eventually, these untenably large loans are defaulted on by the businesses and homeowners that took them out, in no small part because of the economic slowdown caused by making interest payments, and it’s revealed that huge swathes of the portfolios of certain investment banks, in which they were ‘saving’ their customers’ money, are actually worthless. At this point there are two options - write the debts down to levels that can actually be paid (or even write them off entirely) and watch the price of real estate and ‘financial instruments’ plummet OR print an enormous amount of money, give it directly to the banks who ‘lost’ their gambles, and maintain the debts at exactly the level they were before, and if the debtors default on their mortgage: tough, the bank owns your house now. The latter is what the Obama administration did - gave Wall Street trillions of dollars and oversaw the largest wave of evictions and home repossessions in US history.
Meanwhile, a government running on MMT (aside from not being in this situation in the first place) would have let the lenders get owned, written the debts down (or off) and pumped money into the real economy to mobilize the unemployed, perhaps through a federal jobs program of some sort or by hiring into nationalized industries.
Ok yeah, that’s a pretty good dive into how MMT works and the problems with privatizing money creation as seen in US. Very much agree with all that.