Tuesday, December 27, 2016

The MMT blind spot

Well, there are two circuits in the economy: the circuit of government money and the circuit of wealth/resources, and they circulate in opposite directions to one another. The qualifier “government” added to money is intentional. There is more money than government money, but the trick is getting it accepted… :). It is true, as outlined by MMT, that government money can be produced at will by the government, and it does not need any taxes to do so. However, in order to function, the government does need wealth/resources (electricity, gasoline, food, clothes, etc). As a non-productive entity, it needs to obtain these from the productive/private sector, and it obtains these through taxation. The money it taxes reduce aggregate demand, and then the government can come in with its own demand to fill the aggregate demand back to what it was without taxes. And it buys the required wealth/resources it needs to function.
For some reason, MMT concentrates only on the money circulation, and ignores the wealth circulation. The wealth circulation closely resembles the orthodox economic narrative about money circulation. I think this is one big motive why people have problems accepting MMT. They intuitively feel this wealth circulation in between the sectors, and they conflate it with the money circulation, greatly helped by the fraudulent orthodox narrative. Then when MMT says it is the other way around, the general public feels it in their bones that its wrong. MMT should acknowledge the wealth flow, and then maybe it would be easier to propagate the message.
MMT/MS briefly does a hat-tip acknowledgment of real resources when it says governments are not money-constrained, they are resource constrained, and then leaves it at that.
Telling the public that yes, their intuition is right, but it applies to wealth, whilst the government money are a government creation, and it circulates the other way round, and we are in no way constrained in money, as we can create it at will. – might get us further down the path and increase the penetration of the progressive message.
I know it is hard, I am not holding my breath, but I am still hoping… :)

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