Economic Update: Government Deficits; Why They Happen, Who Benefits From Them, and MMT
Richard Wolff mentions the printing of money occasionally, but he never squares that with the government supposedly needing to tax and/or borrow first before it can spend.
He spends the last two minutes talking about MMT, but not as a theory of fiat money; instead as a novel monetary policy proposed by “progressive-minded economists.”
Somewhere in there he also repeats the common fallacy that what banks lend is other people’s savings. They don’t. The money they lend is created out of thin air, and the “money multiplier” is a myth.
I’m just a technerd who’s never taken an economics course, and I grind my teeth every time this expert botches these fundamentals. Why Michael Hudson and Radhika Desai never push back on him when they do talks together is a mystery to me.
What happens to MMT if you take away imperialism? Does China rely primarily on MMT for its domestic policy and if not, why not? (I used China as the example here because of its success story)
(These aren’t gotchas :) )
The problem with MMT is it’s sort of like the social democracy of economics theories. It is an improvement on neo-classical economics, a correction if you will, but it still proceeds from many of the same capitalistic assumptions about how an economy is supposed to function. It is not a radical break with those theories like Marxism is.
MMT is not Marxism and Marxists should not be advocating for MMT as the theoretical framework through which we should look at monetary policy. Marxism proposes an entirely different paradigm for how to look at economics as a whole, not just monetary theory. A lot of the confusion that still exists in MMT is cleared up if you read Capital.
As for China, the economics field is quite ideologically diverse in China and there are certainly people there whose thinking is very close to MMT, mainly because the economics field globally is strongly influenced by western ideologies, but that doesn’t mean the government bases its policies on them. And MMT is not a set of policy prescriptions anyway.
MMT is not Marxism and Marxists should not be advocating for MMT as the theoretical framework through which we should look at monetary policy.
Sure—it’s not some comprehensive theoretical framework. It’s only a basic puzzle piece to integrate into one’s framework. Whether it’s Marxist or not depends on whether a Marxist, like Michael Hudson & Radhika Desai, integrate it into their framework, or don’t, like Wolff (who somehow also still doesn’t understand how banks work!).
I’ll quote myself from last year:
MMT isn’t a politics and isn’t prescriptive. It’s simply descriptive of fiat monetary sovereignty. Many liberal proponents and detractors alike seem to want to load up MMT with all sorts of things that it isn’t. It certainly isn’t going to solve all of capitalism’s internal contradictions under a dictatorship of the bourgeoisie. But China seems to be showcasing its veracity.
And also:
MMT is just a description of how fiat monetary sovereignty works. It’s not prescriptive, and it’s not comprehensive. For instance, it says nothing about international trade / international balance of payments / currency exchange.
What happens to MMT if you take away imperialism?
The core of MMT alone can’t speak comprehensively to imperialism, because it doesn’t speak to international trade. Under neocolonialism the peripheral states’ monetary policies are usually captured by empire, often involving the IMF and/or World Bank. Once that goes away, the indigenous bourgeoisie make the policies, and once it becomes a DotP, the state does. That’s where China is now.
Are we talking about the MMT of Randall Wray and Bill Mitchell? What do they cover of significance that Marx does not? Does not a monetary theory lacking consideration for say international trade then deficient? Does a theory of money not reflecting class struggle leave wanting for a more comprehensive theory?
Are we talking about the MMT of Randall Wray and Bill Mitchell?
I’m only talking about the core of MMT, not the liberal nonsense liberals pile on top of it.
Does not a monetary theory lacking consideration for say international trade then deficient?
Yes, as I’ve been saying for the last year, it’s not a comprehensive framework. All it does is explain that the state creates fiat money out of thin air, and that state destroys money through taxes.
For instance, it says nothing about international trade / international balance of payments / currency exchange.
…? How on earth can you have an economic theory that centers around how fiat money works without a comprehensive accounting of international conditions?
…? How on earth can you have an economic theory that centers around how fiat money works without a comprehensive accounting of international conditions?
Obviously you can’t, which is what I just said. I literally said several times in the comments of this post that it isn’t a comprehensive economic theory. Why so many people seem to think it claims to be one, I have no idea.
Because promoters of it always treat it like one and suggest that countries should adopt it to guide their policy. If it’s not a comprehensive economic theory then it should not be used to guide policy because it can’t actually made adequate predictions. We couldn’t actually have any confidence at all that any of its claims are correct. If it does not even claim to take into account basic stuff then it should not be taken seriously as an actual economic theory. At best we can say it’s a tentative economic theory that might be interesting to develop further as an intellectual program, but should have no role in actually influencing policy decisions.
The idea behind MMT is not that MMT is a policy. It’s a theory about how money is created. It’s a replacement for the old nonsensical quantitative theory of money (QTM) used by many neoclassical to talk about prices, as if prices increased if more money was flowing into the economy. QTM is still rooted in the idea of commodity money (like gold or silver) representing money, so when there’s more money circulating in the economy it is worth less because it’s becoming a fraction of its initial quantity. There are many empirical studies proving QTM wrong, but as things are in the study of economics, wrong theories are still circulating because of ideological reasons (in the Marxian concept of ideology).
The idea behind MMT is that money is actually credit. When someone gets a loan, they puts the money in the economy but when he pays the loan, the money is actually taken from the economy. The idea of more money circulating in the economy means that more products and services are circulating inside it (think about M-C-M circuit from Marx). Prices don’t have anything to do with the amount of money circulating in the economy, they are affected by productivity of labor, supply and demand of goods and services.
Then you have the role of states that emit currency. Whenever a government spends, it is creating new money and when it taxes, it is taking money out of circulation. Since the government does not need taxes to pay for their expenses it can run into deficits without necessarily taking loans or raising taxes. New money circulating does not necessarily causes inflation, it depends on whether this new money is being used to increase the productivity of labor in the economy, allocating idle resources in the economy (unemployed workers, for example), both not causing inflation or if it’s putting more pressure into existing supply of goods, which then causes inflation.
So Rick Wolff got MMT totally wrong. In fact his talk about currency is much closer to the idea of the QTM than MMT.
Thanks for the response- to add to the sentiment of what cfgaussian said; one can describe MMT without evoking class struggle or imperialism and therein lies its deficiencies - it does not cover anything of substance that marxist-leninist understanding of money under capitalism does not already cover. Without this fundamental tenet it becomes an abstraction of fiscal policy under capitalism.
Put it another way, we have to use qualifiers such as “western marxism” to denote those who claim they are using marxism but downplay the importance of class struggle and imperialism (which is essentially the class struggle on the world stage).
TLDR: what does MMT bring to the table that is outside of marxist understanding of capitalism? And how would that be useful for a worker’s revolution?
TLDR: what does MMT bring to the table that is outside of marxist understanding of capitalism? And how would that be useful for a worker’s revolution?
It answers the question of where money comes from, something every child asks. It answers, “How can it be that the state must tax or borrow in order to spend, when all the money that exists was created by the state[1]?” and “If the state’s debts are just the money it created, and the state pays off all its debts like neoclassical economists urge, how can there be any money left at all?”
That helps in the worker’s revolution by agitating against the bourgeois state, and it helps after the revolution by dispelling economic myths so we don’t trip over them.
Not counting the money that private banks create through loans, which is most of it. But banks can only do it with permission from the state. ↩︎
It answers the question of where money comes from, something every child asks. It answers, “How can it be that the state must tax or borrow in order to spend, when all the money that exists was created by the state[1]?” and “If the state’s debts are just the money it created, and the state pays off all its debts like neoclassical economists urge, how can there be any money left at all?”
I’m not sure what here is not answered in Capital? (I believe volume 1 but happy for somone to correct me). Is MMT then just useful for liberals who are seeking post-keynsian reforms and not so much for marxists?
I haven‘t read Capital, and I’ve yet encounter an explanation from Marxist or Engels that explain where money—particularly fiat money—came from or comes from.
Most Marxists seem not to have an explanation for why the state borrows money. I think the state does it because the bourgeoisie want risk-free investments, and also to manipulate money’s value in relation to other monies, and also so they can confuse us about “our taxpayer dollars” and “how are we going to pay for it*?”
*Except for military spending.
Most Marxists seem not to have an explanation for why the state borrows money.
Convergence of factors that empowers the bourgoisie? I mean the state could use an MMT paradigm of money but does not, which begs the questions why not? Where some proponents of MMT consider the likes of taxation or other forms of account deposits as “deletion” of money from an MMT circuit but the bourgoisie do not, so why do they not? Who is MMT useful for then? Those who do not want supercede capitalism but spread the loot of imperialism more equitably?
The problem with MMT it attempts to isolate itself from its own externalities and in doing so loses its usefulness.
The reason I asked about imperialism because if countries in the peripheries attempted to frame its fiscal policies based on how MMT describes circuit of money then they risk capital flight and hyeprinflation if they do not have a dictatorship against capital. It is therefore an imperial core centric paradigm of monetary theory. We haven’t even gone into how US imperialism reduces the inflationary pressure agsinst the dollar.
The central problem with MMT is that it sidesteps theory of value. All value is labour and MMT cannot address this. All capital including money represents labour. The MMT circuit is inadequate in addressing this.
Any supposed usefulness that MMT provides for praxis requires a dictatorship against capital at which point it then appears to lose its usefulness.
(Genuinely thanks for replying nonetheless!)
I’ll just stop using the term MMT altogether, because every time almost everyone thinks I mean all sorts of things by it that I don’t. The fundamental theory within it, which is a small & modest (and correct), gets buried under expansionist liberal ideas every time I bring it up.
First of all, MMT is not something that is necessarily revolutionary. Many proponents of the MMT are bourgeois economists (usually of the post-keynesian trend) who are interested in improving capitalism instead of surpassing it.
However there are many Marxist economists interested in MMT because it is a useful tool to understand political economy. Let’s remember most of Marx’s political economy is not originally from him, but he did a thorough review of bourgeois classical economists. The labor theory of value and the theories of surplus value came from studying the classical theory. In the case of MMT, there were Marxist economists working on the foundations of the theory and there are elements of MMT that came from a Marxist analysis of the economy.
We currently live in the neoliberal era, an era where financial capitalism replaced the industrial capitalism of Marx’s era. In the neoliberal era, we have free trade zones, globalization of trade, global supply chains and now the service sector replaced industry in most economies in the world. Not only that, but we have Wall Street as the global financial hub (this is changing now with China and Russia bringing depolarization). The economy today is different from the industrial economies of Marx’s time and different from the multipolar imperialism of Lenin’s time.
So neoliberalism pushed an agenda of privatization, austerity, “independence” of the central banks, free trade zones, and the centrality of the US dollar and US-backed multilateral institutions like the World Bank, IMF and OECD. Austerity policies, or structural adjustments, has been imposed as an imperialist policy against underdeveloped countries. They justify their horrendous policy by using this discourse of efficiency, telling the government to tax more than spending, talking about government debt as if the government was borrowing money.
That’s when MMT enters. While Marx analysis of commodities was done to understand where value comes from, how exploitation occurs in capitalism, and to understand all manners of surplus value extraction (price hikes, taxes, interests, rents, exploitation etc) MMT sheds light upon how money is created, circulates and then is destroyed. First of all, governments does not need to borrow any money, because they create money in the first place. Secondly government does not need taxes to fund itself. What really limits government spending are the amount of resources available in the economy. So if a country has unemployed construction workers, and an idle cement factory, then it can create money and put those idle resources to work, and use those resources to build pavimentation, without any need of “borrowing” or raising taxes. When government debt is really concerning? When their debt exists in an external currency, like the dollar. Actual borrowing is the act of acquiring external currency to import goods and services, because this way a country acquired money it cannot print or put in circulation in the economy.
Who profits with all this false borrowing? Banks, hedge funds, real estate investors etc, and to maintain control over other countries financial operations. Why Wall Street firms are so powerful? Because this system of money-credit with austerity gives them a lot of power. It transfers the ability to plan and allocate resources of the economy to those banks. As Lenin noted in his book about imperialism, industry has also merged with financial capital, meaning they all function as financial institutions as well, investing their surplus in financial assets while using bonds and stocks to finance their operations etc. All this transformed the industrial economy of the 19th and 20th centuries into renting economies. With globalization, those financial institutions have power to spread supply chains throughout the world and by using free economic zones coordinate production and surplus extraction from the whole world. Globalization also helped to dismantle working class power in many countries, since productions is now spread over many different countries.
How China was able to escape this stranglehold of financial capital? Because it didn’t allow this financial sector to grow, since most banks in China are owned by the state (and by the communist party, in consequence). With those powers in check, China was able to run budget deficits for over 30 years and then become the most productive economy of the world by stimulating industrial development without the constraints of unproductive capital.
The other importance of MMT is to end ideological dominance of the neoclassical thinking from the left. As many neoclassical economists joined the left, it started adopting many policies that would make the current status quo stronger and stronger. Ever since the end of the URSS, the left started becoming more and more irrelevant, while the right became stronger, since with the neoclassical framework the left was unable to improve anything and had to limit social spending by adopting the austerity discourse. This is a big ideological trap that mainstream economy put over the left, and since then the so called progressives have been depoliticizing the economic debate, as social spending became the “villain”.
So, in summary, while MMT is not necessarily a revolutionary idea, it’s a new, more accurate way to understand the economy, and a way the destroy the ideological bindings that have been destroying socialist economic thought.
Good questions. IMHO China does use MMT. It creates money via its central bank loaning it to its own local governments.
This is called debt because more money is flowing out of the government into the hands of consumers than is taken in via taxes.
The idea of balancing your budget like you’re a person doesn’t make sense. If you taxed the shit out of everyone then they won’t have any currency to spend on goods and you kill your economy. You can’t apply micro economic principles to the macro economic system.
They don’t tax and borrow to spend in MMT. By creating money, the government pay salaries etc. to people who build infrastructure. That money then circulates through the economy.
Under imperialism, the money goes to rich motherfuckers who waste it on shit that doesn’t improve productive things. E.G. share buybacks, trading houses with each other. Then you just get inflation. No extra goods are produced, just extra cash to buy the same amount of goods (therefore inflation).
We see the opposite in China with prices coming down. Because they spent their money improving the production of goods.
Thanks for taking the time to respond.
I feel MMT is not adding anything that is not already covered by Marx, and therefore seeming similarities in socialist economies is a reflection of the respective governments more skilled use of fiscal policy compared to capitalist countries.
I think concepts such as taxing and borrowing in these contexts better reflect the class dynamics of what is occuring and the impression that MMT gives is that it can wish this away without a dictatorship against capital.
the impression that MMT gives is that it can wish this away without a dictatorship against capital
I agree. The amount of MMT capitalists is growing because they are struggling for a monetary fix to a shitty economy. The actual fix is to take the money away from the capitalists because they are wasting resources on shit.
I’m not an economist… but I think Richard Wolff is pretty solid. If absolutely anything, he does a very good job bringing Marxian economics to a wider, western audience.
There aren’t very many highly educated American Marxist economists who have the kind of reach that he does and can explain very complex ideas in terms that people without economics degrees can understand.
I just think this comes off very unnecessarily hostile.
Aside from these few but significant issues, I agree that Wolff is great, and I often recommend him to people.
My hostility comes from 3+ years of frustration in watching him flub these basics over and over again.
I mean it’s possible to that his perspective is just different on some of these things. Wolff isn’t necessarily interested in discussing the intricacies of MMT, more just introducing the concept to wide audience in an engaging way.
If Wolff were speaking at a panel to other economist scholars, I think he would probably provide more than a 2 minute analysis on MMT.
I mean, I really think the guy an incredibly brilliant economist who’s goal is to reach as many people as possible with Marxist economic analysis which is a great thing
All truth is God’s truth. Marx did not live to see modern fiat currency systems. We can of course take his writings and apply them to modern fiat currency, but the reality is that even if the nature of money is unchanged since Marx’s time, the operational nuts and bolts of modern money do need evaluation with modern tools.
I find MMT to be a useful tool for understanding how sovereign monetary systems function in the present day. I have yet to find anything in MMT that is fundamentally opposed to Marx’s understanding of the nature of money.
I also find that MMT has a tremendous amount of empirical support behind it. While I don’t advocate for a wholesale, uncritical acceptance of MMT, I think it would be shortsighted to simply write off MMT as bourgeois economics with no value.
Just for one example, I see the assertion that MMT ignores class struggle. I don’t think this is true. In fact, MMT points to a theoretical optimum of how government finances and monetary policy should operate. It then points out that most governments under capitalism do not operate this way; most governments today say that we must “balance the budget”. This balanced budget almost always comes on the backs of slashing services for workers instead of, say, higher taxes on the wealthy. The “balanced budget” paradigm serves a purpose for the bourgeoisie. Maybe it’s the Marxists who read up on MMT moreso than the pure MMT folks who highlight this, but I don’t think that’s a problem with the theory itself.
No offense, but he’s a renowned economics professor, and like you said you’re just a layperson; I think you’re kind of nitpicking, I don’t see anything incorrect with what he says.
You’re welcome to disagree, but that’s precisely my point: That here we have a renowned Marxist economist being wrong about basic things that even a layperson like me can identify.
Here’s the worst of his errors (emphasis mine):
For whatever reason, if the taxes are less than the spending, then there’s a gap, and the simple name for that gap is “the deficit.” And how does the government go about doing it? How can the government spend more than it raises in taxes? And the answer […] is that the government does what you do: it borrows the money.
This is fundamentally false. A sovereign state that has a monopoly on money creation is nothing like you or me, or a even like a business. And when it’s a fiat money, the fallacy is all the more obvious. Businesses and families are users of money while the state is the issuer of money.
It’s true that the US currently does borrow its own currency, but unlike you or me or a business, it clearly doesn’t have to, because it can and does create money by fiat.
The question one should be asking is, why is the state borrowing its own money? Because the answers are illuminating, and they’re not for the reason Wolff is implying.
By making this error, Wolff is perpetuating the neoclassical economic “common sense” that a country should be run like a family or a business. He’s bolstering neoliberalism’s own propaganda.
He’s also often wrong in talking about our “taxpayer dollars,” which perpetuates the idea that our taxes pay for anything. And a big problem with that is the implied framing: that the more taxes one pays, the larger a stake one ought to have in how the state spends money. It’s an anti-democratic bourgeois framing.
These errors are frustrating because he’s responding to many requests from people like me who are pushing back on them, and he still fumbles it. So they’ve become calcified in this 83 year old, and there’s no hope of movement in this area from this person with a platform, which I suspected but hoped this video would prove wrong.
For someone who has no fucking clue what youre saying what would you recommended for reading material to become familiarized with “mmt” and “fiat money”? Im just a self-taught ML so I’m curious for suggestions from more learned comrades
These Marxist explanations are critical of liberalism’s MMT errors & excesses:
- JT Chapman: Why The Government Has Infinite Money
- Hudson: The Use and Abuse of MMT
- Desai & Hudson: Understanding money and the dollar system’s contradictions
These short PEGS Institute explainers aren’t from Marxists, but they touch on important ideas without veering into liberalism so much. The last one addresses the common neoclassical argument that printing money = hyperinflation.
I found YouTube links in your comment. Here are links to the same videos on alternative frontends that protect your privacy:
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The Deficit Myth by Stephanie Kelton is a good absolute intro. L. Randall Wray’s “Modern Money Theory* is better but a bit more advanced. Kelton is more openly political so that will probably rub folks here the wrong wrong, just take those parts with a grain of salt.
Mentioning Kelton reminds of the MMT documentary, Finding the Money, wherein we visit the University of Missouri-Kansas City and interview every MMT professor but Michael Hudson, the sole Marxist one 🤬
I found YouTube links in your post. Here are links to the same videos on alternative frontends that protect your privacy:
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