New Economic Perspectives

> (Some people think the trouble starts when you consider a piece of paper to be money in the first place instead of, say, gold, but they are wrong. This is another tangent that I may write about some day, but for now suffice it to say that very few people actually seem to understand what money is or how it works, including many people who work in the banking industry. But I'm getting way ahead of myself.) So sad and so true. I wish more people could bear down, learn and realize how the money system works; how the Government controls it and what the banks involvement is. The work that Stephanie Kelton and crew are doing over at http://neweconomicperspectives.org/ is really great if you're interested.

Steve Keen is a heterodox economist(Circuit-ist I think) with close ties to MMT Modern Monetary Theory (born and raised on blogs). MMT intellectuals predicted the great recession, the European Crisis, and the Recession of 2001. I've become a believer. They are basically hyper-keynesians. The basic Tennats are 1) As a point of logic Government must spend dollars into existence(or loan out) before they can tax them back. 2) Therefore Fed Government funding is independent of taxation. 2) Taxation creates demand for currency and unemployment in the currency of record by definition. 3) Government is not funded by borrowing either. 4) Because of 1) 2) 3) Policy should be to proactively spend counter-cyclicly until economy reaches full capacity. 5) Banks create money ex-nihilio 6) Banks are effectively agents of government because of deposit insurance and membership in the Federal Reserve System. Its pretty fascination stuff b/c MMT says that the mainstream has everything backwards. http://moslereconomics.com http://neweconomicperspectives.org http://www.amazon.com/Currency-Economics-Modern-Monetary-ebook/dp/B009…

Government debt denominated in one's own currency is not really a serious issue because governments can print their own currency to pay it off. Yes this can result in inflation, but the inflationary effects are vastly overstated. Most of the inflation happens at the point of spending. I recommend reading up on Modern Monetary Theory (MMT) http://neweconomicperspectives.org/2014/01/diagrams-dollars-modern-mon…

Taxes are how the government makes a sovereign money worth something. You need dollars because you need to pay taxes in dollars. You might want to read some Modern Monetary Theory: http://neweconomicperspectives.org/modern-monetary-theory-primer.html

For anyone looking for a cohesive macroeconomic theory drawing from the economists mentioned here (e.g. Minsky, Godley, and others at the Levy Institute), I highly recommended taking a gander at Modern Monetary Theory a brief overview: https://www.thenation.com/article/the-rock-star-appeal-of-modern-monet… A not so brief overview: http://neweconomicperspectives.org/2011/06/modern-money-theory-primer-…

And what prevents the arbitrary extension of credit? The present primary reliance on fractional reserve monetary is not a carved-in-stone requirement of financial systems, only the present norm. If you're interested in ideas and thoughts on money, I'd suggest William Stanley Jevons writing as a starting point for modern views. A. Mitchell Innis's "What is Money?" (1913) is not entirely mainstream, but strikes me as among the more insightful enquiries I've read: https://www.community-exchange.org/docs/what%20is%20money.htm I'd stumbled across that here: http://neweconomicperspectives.org/2013/09/money-created-overcome-bart…

Where has deficit spending brought growth? WW2 would be a good example: http://neweconomicperspectives.org/2013/08/mobilization-and-money.html And just imagine if we did the same thing, except instead of building weapons, we invested in healthcare, education, renewable energy, etc. Once you understand the money system, you understand that we are drastically under performing compared to our potential because our citizens and politicians have a backwards understanding of our money. reminds me of a great little clip by Alan Watts: https://www.youtube.com/watch?v=g-JMHiaYIiU

This is part of what Modern Monetary Theory has been explaining but it's always hidden in the public discourse. The consequences of what money is in modern economies, are not well understood or accepted. I suspect that the possibilities that this open scare a lot of powerful people. If somebody want to dig further in the rabbit hole, I recommend: http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf (this one is a pdf) http://neweconomicperspectives.org/modern-monetary-theory-primer.html

The terminology is wrong in subtle bu important ways. Here's a great presentation on the origins of money and debt: http://m.youtube.com/watch?v=0zEbo8PIPSc and here is the analysis of nominalism vs. Metalism from Randall Wray who is one of the key proponents of modern monetary theory http://neweconomicperspectives.org/2011/08/mmp-blog-12-commodity-money…

> The contention upthread was that we shouldn't use government spending for stimulus when monentary policy works better I actually disagreed with this assertion in another comment [0], so I think we're in agreement here. > monentary policy doesn't work at all in this situation This is incorrect, though. A central bank may loan money to banks at a negative rate, with the condition that the loan funds non-financial and household spending (TLTROs) [1]. Such policy can provide stimulus at or below 0% interest rates. > "well, just helicopter in money from the central bank as stimulus", which is... not monentary policy As stated, whether helicopter money is monetary or fiscal policy is murky, but likely depends on its implementation: "In other words, fiscal policy is about managing the net financial assets of the non-government sector relative to the state of the economy, and monetary policy is about managing interest rates (and through it, to the best of its abilities, bank lending and deposit creation) relative to the state of the economy." [2] If, for example, the legislature were to issue a tax rebate to each citizen, it would satisfy Fullwiler's definition of fiscal policy. However, if implemented by directly altering bank lending, as TLTROs attempt to do, it should be considered monetary policy. [0] https://news.ycombinator.com/item?id=20080372 [1] https://www.ecb.europa.eu/mopo/implement/omo/tltro/html/index.en.html [2]…

Taxation doesn't distort the economy. This is such a nonsense statement that it's difficult to say it's even "wrong" -- it's simply meaningless. Taxation and the fundamental ability of the sovereign to create demand for its money tokens is the very basis of any modern, capitalized economy. There is a strong argument to be made that taxes drive money and make economic exchange possible [1]. (BTW, Hacker News is simply terrible at discussing economics. This comment is hardly unique.) > Broken Window Fallacy The entire thread and discussion is a bit off-putting but it's worth noting that the question is, as always, what to do about unproductive assets. Nobody is advocating that healthy, able-bodied people should all receive free money from the government. That's why the Broken Window Fallacy is stupid. It's a fallacy against a straw man. And yes, when it comes to unproductive assets there's good reason to believe that the government should step in and act as the "producer of last of resort." There's always work to be done. The government is never going to run out of money. And, in reality, you're going to end up giving these people money anyways (unless you want to see women and children starving the streets) so you might as well try to see some returns. I've never been a fan of basic income but a Job Guarantee[2] makes perfect sense. Finland would be far better off putting these people to work for the government. Basic income in this form (giving people free money while…

> Should Eric Schmidt be in jail for his role in the employee wage suppression collusion? Er, why shouldn't he be? I can think of three main likely arguments why he shouldn't: i) what he did breached civil but not criminal law: if so then obviously he shouldn't be in jail. I don't know whether that's the case though. I also don't know if he is personally liable for civil damages, and if so why he hasn't been chased for those. (And that's not going into the question of whether his actions should have been made criminal offences by law, and why they haven't been.) ii) the higher standard of evidence in criminal prosecutions, the first issue you raised. This is of course a real issue in criminal cases, but—speaking as a non-lawyer, non-expert who hasn't been following the story very closely—the evidence on this matter doesn't look at all lacking to me. AFAICS, if Eric Schmidt had been discussing a murder rather than salary collusion in the communications discussed by http://www.businessinsider.com/apple-google-recruitment-emails-lawsuit… no-one would be likely to suggest that the evidence was too weak for a criminal prosecution. iii) Eric Schmidt is a nice person like us, and jail isn't really for nice people like us. I hope the egregiousness and total unacceptability of this argument is clear to everyone without any need for explanation. So, yes, why shouldn't Eric Schmidt be in jail? As to the financial sector, while it is obviously difficult to prosecute many…

> Sort of. Banks under fractional reserve are limited by a "reserve requirement" [1]. This limits the amount a bank can loan at any time. Slightly tangential to the main topic, but this is a common misunderstanding and incorrect. Bank lending is not constrained by the amount of reserves a bank has, because banks can and do lend each other reserves (or sell each other reserves in exchange for other assets). So banks just make loans regardless of how many reserves they have. Afterwards, a separate department checks whether they satisfy the reserve requirements. If they do and they have too many reserves, they will try to lend those reserves to other banks. If they don't, they will try to borrow reserves from other banks or from the central bank. Note that banks still cannot make loans willy-nilly. It's just that they're constrained by capital requirements instead, as opposed to what people commonly believe. Edit: If you are interested in the low-level workings of the system, I recommend reading the corresponding writeups of Modern Monetary Theory economists. A good starting point (though somewhat lengthy) is here: http://neweconomicperspectives.org/p/modern-monetary-theory-primer.htm…

"taxation" is the drainage, if we understand Marriner Eccles. http://neweconomicperspectives.org/2013/08/reading-between-the-lines-a…

Wonder what HN thinks of Modern Monetary Theory[1] which posits amongst other things that government debt is consumer surplus - and not inherently a bad thing, and also that printing fiat currency specifically to pay for domestic programs does not itself increase inflation [1] - http://neweconomicperspectives.org/2014/01/diagrams-dollars-modern-mon…

First thing to understand is that taxes for revenue is an obsolete concept and has been for a very long time. http://home.hiwaay.net/~becraft/RUMLTAXES.html Once you have that then the general concept is that you tax bads not goods http://neweconomicperspectives.org/2014/06/tax-bads-goods.html

The idea that taxes create a demand for currency (and hence the value) is explored at depth in Modern Monetary Theory: http://neweconomicperspectives.org/2011/07/mmp-blog-8-taxes-drive-mone…

http://neweconomicperspectives.org/2014/02/introducing-modern-money-mo… An interesting read

I think that understanding Modern Monetary Theory (MMT) and viewing bitcoin through that lens helps a lot. Here's a good article from the MMT perspective: http://neweconomicperspectives.org/2013/12/fair-price-bitcoin-zero.htm… It also helps to understand the history of money and how it came to be in the first place, and how fundamentally currencies and states go hand in hand. David Graeber's "Debt" is good in that sense. And in case that's not enough, here's JPM's Jamie Dimon's take on it: https://www.bloomberg.com/news/articles/2017-10-13/jamie-dimon-lasts-o… It's also weird how bankers, anarchists, and MMT economists come to agree on this.

I'm don't know of a good textbook that explains it well. But for an example of a textbook that gets it wrong, see Mankiw's introductory macro book. Mankiw alludes to the important brake on credit creation (capital constraints), but dismisses them as 'arcane', then goes on to describe a fractional reserve system that doesn't really exist anymore. I've pieced together what I can from reading blogs (Frances Coppola [0] is very informative in this regard). The Bank of England wrote a document explaining their view of the process of money creation [1], which is widely accepted as correct. Edit: actually, this might do: http://neweconomicperspectives.org/money-banking [0] http://www.coppolacomment.com/ [1] http://www.bankofengland.co.uk/publications/Documents/quarterlybulleti…

>there are a lot of studies that show companies where management has skin in the game do measurably better than companies where they don't. There are studies that show that management 'skin in the game' compensation policies have cause an epidemic of control fraud: http://neweconomicperspectives.org/2014/11/ceo-compensation-cheaters-p… >that being said, there aren't data that would tell you, companies where the CEO will earn $1m or $10m depending on how well the company performs don't do as well as companies where the CEO will earn $20m or $200m. Actually there is data, but it demonstrates the exact opposite: http://online.wsj.com/public/resources/documents/CEOperformance122509.… Lower paid CEOs perform better.

Interesting look at the lower bound that got a lot of bitcoiners angry. The comments are actually pretty good as the initial author did miss some of the finer points on bitcoin to which he responds in the comments. http://neweconomicperspectives.org/2013/12/fair-price-bitcoin-zero.htm…

What you are talking about broadly is Control Fraud[1]. One of the most startling things about mainstream (neoclassical) economic theories is that they implicitly make the assumption that control fraud doesn't exist[2]. Yet it has been the cause of many recent high profile crises [3][4][5]. So when you see people talking about how insider trading can't ever be bad, and how executive interests are always aligned with public good, keep in mind that those people are living in a fantasy world where Enron never happened. [1] https://en.wikipedia.org/wiki/Control_fraud [2] http://neweconomicperspectives.org/2013/07/discrediting-regulation-fro… [3] https://en.wikipedia.org/wiki/Savings_and_Loan_Crisis [4] https://en.wikipedia.org/wiki/Enron [5] https://en.wikipedia.org/wiki/Worldcom

> The Danish version of the Nordic model is not sustainable. This piece discusses how government deficits are sustainable. http://neweconomicperspectives.org/2012/12/functional-finance-and-the-…

MMT has been getting a lot of press lately. I wonder what submarine[1] is responsible? Here's the thing: MMT isn't a policy position. It's simply an attempt to accurately describe how the monetary system actually works from an operational perspective[2]. It was a reaction against the Krugmanite nonsense that has no basis in reality and describes the activities of no market practioners. Anyone curious should read the linked primer, but the core principle of MMT is that Taxes drive the value of money. The sovereign's power to impose taxes that can only be paid in the sovereign's liabilities creates an intrinsic demand for those liabilities, which is to say money. Even the gold standard worked this way. The government used to print gold certificates and use those to buy bullion from miners! And of course gold certificates were accepted to extinguish tax liabilities. That said, a number of MMT theorists are in fact politically liberal and believe that the government should use its monetary sovereignty to interfere more in the economy. It's valid to object to claims like "every dollar of spending has to be funded by a dollar of taxes" because they are observably false. But you could be a hard money conservative goldbug and MMT would STILL be a theoretically valid understanding of how money works. The theory correctly describes the consequences of using a currency the sovereign cannot issue, be it gold, or another sovereign's liabilities. One area where MMT does hand-wave a bit…

I got to say... that looks pretty hopeless. Complementary currencies [0] are not new and they have limited utility -- especially since the currency takers still have to pay taxes in fiat. It's very easy to design systems where a single node captures the majority of the value in return for doing the majority of the coordination work. This goes deeper than politics. Look at the design of biological organisms and you find big brains capturing 20 percent of the energy. Look at the design of nation states and you find sovereigns capturing 20-30 percent of GDP. Central coordinators seem to inevitably capture 20-50% of the value. One might even argue that they "earn" it too. Distributed coordination is costly and in a world of scarce resources it's silly to entertain additional coordination costs if you can avoid them. Central coordination has a lot going for it -- in terms of speed, efficiency, economies of scale, and even reliability they are very hard to beat. Decentralization isn't hopeless though. There exists a class of problems where distribution pays off. Problems that can be truly paralellized, indeed ones that when you examine them you realize they are in fact embarassingly parallel [1]. For these problems it's expensive to introduce a central coordinator. Rather than costs being decreased, the central coordinator now introduces costs intothe system. The central coordinator in fact must hire enforcers to go out and impose its will because there is a natural tendency to…

As far as I can make out from that article all the executives were jailed for tarp-related crimes. Since tarp post dates the crisis, it's not really accurate to cure it in response to a claim about bankers responsible for the crisis. They admit most of those jailed were low level. Certainly the one top executive using cited was tarp related. Which makes sense, since there were quite good anti fraud controls in tarp. > It's not illegal, generally speaking, to make dumb investment decisions, and or to take a lot of risk, and lose money You're not going to find criminals if you don't look for them. Bill black: > All right so you have massive fraud driving this crisis, hyperinflating the bubble, an FBI warning and how many criminal referrals did the same agency do, in this crisis. Remember it did well over 10,000 in the prior crisis. Well the answer is zero. They completely shut down making criminal referrals http://neweconomicperspectives.org/2011/09/william-black-why-nobody-we…

I was for a land value tax (because people with more wealth in the form of land would pay more taxes in theory) but after watching the video I am now against it. It hinges on the definition of improving land, and from an environmental standpoint human improvement of land is an externality that as often as not creates negative value through exhaustion of resources, waste and unsustainability. Also IMHO there is far too much investment in construction, when buildings are already sitting idle. As we keep moving forward with tech and automation, this spending will become more superfluous. It's becoming more clear to me that we should be thinking about proportions, not arithmetic. Money is a construct, so hard numbers like the size of the money supply and debt are meaningless. It makes more sense to imagine the median global income as being a unit of 1 (per day, per year, it doesn't matter) and then measure individual assets and debts against that. Americans get a score of 5 ($50k median household income), 5 billion people in the world get a score of 1 or less as they earn under $10,000 per year. Millionaires ($100k per year or more) get a score of 10, billionaires get a score of 10,000, etc. Yes yes there are taxes and expenses but the orders of magnitude remain the same. Dealing at the abstraction level allows seeing patterns that aren't normally visible. The biggest anomaly is the level of work people are willing to maintain while getting paid substantially less…

It would appear that it's a mistake to commit white collar crime without being an American bank. [1][2][3][4] [1] "70% of early payment defaults had fraudulent misrepresentations on their original loan applications" - http://www.anu.edu.au/fellows/jbraithwaite/_documents/Articles/diagnos… [2] "half of all the loans called sub-prime, were also liars loans. Liars loans means that there was no prudent underwriting of the loan" - http://www.neweconomicperspectives.org/2011/09/william-black-why-nobod… [3] "how many criminal referrals did the same agency do, in this crisis. Remember it did well over 10,000 in the prior crisis. Well the answer is zero. They completely shut down making criminal referrals" - ibid [4] "In 2003, Freddie Mac coughed up $125 million after it was caught misreporting its earnings by $5 billion; nobody went to jail. In 2006, Fannie Mae was fined $400 million, but executives who had overseen phony accounting techniques to jack up their bonuses faced no criminal charges. That same year, AIG paid $1.6 billion after it was caught in a major accounting scandal that would indirectly lead to its collapse two years later, but no executives at the insurance giant were prosecuted." - http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail…