Gregg,

It's not about worrying about the debt/deficit, since that's equal to aggregate Savings on the other side of the balance sheet, (i.e., the domestic sector plus the foreign sector). Dollars, (or pounds, or yens, etc.) are infinite. It's real resources that are finite. It's a matter of getting the economy to full productive capacity. (We're only somewhere along the lines of 75-80% of our productive capacity now). Continuing to spend beyond that point is what can become a problem, (e.g., inflation). Japan has a 250% debt-to-GDP ration, with only 2% inflation.

The problem with the Trump tax bill is that most of the deficit spending is directed towards the rich. Next, they'll play the "deficit is too big" card, and try to cut entitlements, like Social Security and Medicare. 

The points on a scoreboard analogy is decent enough, from what I understand. (Think of using a debit card or getting direct deposit. It's just numbers shifting from one account to another.)

Here's a little video of University of Missouri at Kansas City economics professor, Randall Wray (left), giving a simple explanation. (He even says something interesting about Colonial Virginia, as well):

How Does The Federal Government Actually Spend

~ Jason

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How Does The Federal Government Actually Spend

Professor L. Randall Wray, on with Steve Grumbine of Real Progressives, explaining what actually happens when th...
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    On Sunday, March 18, 2018, 2:30:46 PM EDT, Henriques, Gregg - henriqgx <[log in to unmask]> wrote:  
 
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Dear Jason,
 
  Thanks much for this review of MMT. It is an interesting set of ideas that I think folks should be aware of. I am convinced by the arguments that we are thinking about debts and deficits in a VERY MISGUIDED WAY if we do not distinguish between currency issuers and currency users.  
 
  
 
  One of the things that is hard to wrap my head around with MMT is the idea that money is just created like points in a football game. It also seems to suggest that governments (at least like the US) should almost not worry at all about debt-deficit issues. 
 
  
 
 This makes me wonder what you think about the current debt-deficit. Can it be too high? Should we ever worry about it?
 
  
 
  To put it in more concrete terms, what was your reaction to the Republican Tax bill, specifically in relationship to its potential impact on debt/deficit issues?
 

Best,
Gregg 
 
  
 
From: tree of knowledge system discussion [mailto:[log in to unmask]]On Behalf Of nysa71
Sent: Monday, March 12, 2018 1:52 PM
To: [log in to unmask]
Subject: MMT, Psychology, & the ToK
 
  
 
Hello ToK Society,

I thought I'd start a thread on what's called, "Modern Money Theory" (MMT). Now, I'm not an economist, but I've learned from economists over the years who are experts in this area, so I'd like to think I have a pretty good layperson's grasp on the subject.

I think it's a subject that could be of interest to psychologists in general, (both in terms of "academic" psychology and in regards to "applied" psychology, such as clinical psychologists and community psychologists), and to those of us who are into the ToK specifically. Perhaps some connections to the ToK can be made over the course of discussion, both at the "Cultural dimension" of the ToK, and to BIT, as well.

In anticipation of the sorts of connections that can be made, a couple of things come to mind. 
    
   - I regards to a description of how money functions, it's strikingly similar to what psychologists call a "Token Economy" (except on a much larger scale, of course!). And since token economies are grounded in Skinner's work, a potentially interesting connection can be made to BIT here, even if indirectly. Indeed, MMT is partly grounded in a school of thought called "Chartalism", (a "state theory" of money), derived from the Latin word, charta, which literally means, "token".
   - Once that description is understood, variousprescriptions can be offered. Insofar that a poor economy can be a significant contributing factor to problems like mental health problems and various social ills in our communities, then an understanding of MMT can be of vital importance to psychologists. For now, let's say that austerity policies are absolutely unnecessary and are based in a gross fundamental misunderstanding of how sovereign currencies function. Furthermore, the question, "How are we going to pay for it?" is an utterly meaningless question.
 
  
 
  
 
So here's a few basic fundamental concepts to understand to get things started.

First, money is an abstraction...a number....a unit of account...even a unit of measure, (i.e., it measures economic value). Countries like the US federal government, Canada, Mexico, the UK, Japan, etc. issue their own currency. They are examples of currency-issuers. This is unlike households or businesses or Eurozone countries or even state & local governments who are currency-users. It'snot a commodity like gold, for example.The US used to have the dollar fixed to gold, (an example of a fixed-exchange rate) until Nixon took us off the gold-standard, putting us what's called a floating exchange rate. That changed everything. However, policy-makers and the general public (and dare I say, a lot of mainstream economists!) still act and think as if we were still on a fixed-exchange rate, causing us significant problems. 

Currency-issuing governments like the federal government aren't going to "go bankrupt" or "run out of dollars". They aren't going to have an insolvency crisis. The federal government can always "pay its bills" because it alone has the monopoly on creating the dollar. Basically, ignore the politicians. They either don't know what they're talking about (no surprise), or they're lying (no surprise) or they like to fear-monger for political gain (no surprise there, either).

As an analogy, think of a scorekeeper at a football game. If a team gets a touchdown, where does the scorekeeper get the six points to put on the board? Out of "thin air". The scorekeeper just "types them in". Now what if the refs say that the touchdown didn't count? The scorekeeper removes them from the board. Where did the points go? Back into "thin air".

This is like the relationship between a U.S. Treasury and the Federal Reserve, (the Central Bank which is the Treasury's bank). Congress authorizes the spending, and the Treasury (part of the Executive Branch) instructs the central bank to "mark up" the appropriate accounts. The central bank is basically just a scorekeeper in this sense. Dollars are essentially just typed into existence. They're just numbers. It doesn't matter if the numbers are in a computer at a bank or numbers on piece of paper you carry around in your pocket. It's the numbers that's the money, not the paper.

Or think of a teacher setting up a token economy in the classroom. The teacher simply issues the tokens into existence, (for example, as a reinforcer for certain behaviors deemed desirable), and removed from classroom's "economy" for undesirable behaviors, (i.e., a punishment).

So if an institution like the Federal Government issues the currency, then what are federal taxes for?

First and foremost, to create demand for the (intrinsically worthless) "tokens" we call money.

The government issues the currency, and then levies taxes, saying that it will only accept its own currency back for people to meet their tax obligation. Those who don't meet that obligation will receive some sort of punishment. Whatever is left over can be saved or spent.

Now a government can acquire real resources for its operations through the issuance of its own currency. That is, it can acquire real resources by purchasing real goods with its own "tokens" from the private sector, which those in the private sector will accept in order to meet its tax obligations.

Voila! A functioning currency.

After that primary function is established, federal spending and federal taxation function as fiscal management tools.

Federal spending is the creation of dollars by crediting accounts. It adds dollars to the economy.

Federal taxation is the destruction of dollars by debiting accounts. It removes dollars from the economy, for example to control inflation which is simply "too many dollars chasing too few goods".

In short, federal taxes have nothing to do with funding federal spending. Indeed, as a matter of logical ordering, the federal government has to spend the dollars into existencebefore there are any dollars to take back in taxes. 

And that's a deficit by definition, which is nothing more than a macro-accounting mechanism. A Federal deficit is just one side of the balance sheet, the other side being equal to a non-federal surplus (or "savings") --- "non-federal" meaning "the domestic sector + the foreign sector". (It's what's called "Sectoral Balances")

Again, think of a teacher setting up a token economy in the classroom. If the teacher issues 100 tokens, then the teacher (analogous to a currency-issuing government) has a 100-token "deficit", and the classroom has 100 tokens in aggregate savings of those tokens. Just two sides of a balance sheet. Nothing more.

The only real constraint here is the productive capacity of a nation. As long as a government doesn't spend beyond the productive capacity of the nation, then inflation isn't really a concern. (And we're only at about 75-80% of our productive capacity, last time I checked.) That's what happened in places like Zimbabwe and post World War I Germany. They continued to issue their currencies way beyond their productive capacities, resulting in massive hyperinflation. That's simply not an issue here in the US or any other well-developed economies. Japan, as a matter of fact, has a 250% of GDP ratio, and can't crack 2% inflation.

So there's a taste of MMT. I can certainly elaborate further, (e.g., I haven't even touched on federal borrowing which, like federal taxes, has nothing to do with funding federal spending. It basically has to do with targeting interest rates.) And I've touched upon some things which may be of interest to psychologists, (e.g., the similarities to a token economy). But also --- and perhaps more pertinent --- is to how I've at least "hinted to" how so much psychological distress exacerbated by economic conditions is unnecessary. Poverty, unemployment, lack of access to healthcare, crippling private debt, etc, certainly are to the detriment of psychological well-being...and they can be resolved. In the language of the ToK, austerity and hand-wringing over deficits and federal "debt" (along with a federal government that continues to fail in serving the public purpose) are completelyunjustifiable. But I can certainly touch on those issues more, as well.

Hopefully, this is of some interest. Feel free to ask questions. I'd be more than happy to go into further discussion.

Have a good one, 
Jason Bessey


 
  
 
  
 
  
 
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