Saturday, 1 January 2011

How the government's super-platinum credit card works.

Image: Michelle Meiklejohn / FreeDigitalPhotos.net
Modern Monetary Economics shows us that monetarily sovereign governments (like the US, UK and Japan) are able to spend money before they receive any tax. That's what puts the 'fiat' in fiat currency, but it appears at first glance to be counter intuitive. How can that be?

If you think about it most of us come into contact with this concept every day - its called a credit card. So if you imagine that a government does all its spending on its credit card, then you'll have the structure about right.

There are differences though. A monetarily sovereign government is able to get the best credit card deal in the world. It is a super-platinum credit card with the following benefits:

It has no spending limit

Certain individuals can get 'no pre-set spending limit' cards, so its hardly surprising a sovereign government with full tax raising powers and it own currency can get one (unlike the Greeks who have a spending limit set by Brussels).

It can repay itself

The government issues its own credit card (unlike the Irish, who effectively have a German one) so it can settle the credit card bill and any interest charges with the same credit card. If you had the ability to settle your credit card bill with a credit card you'd never have to fund it with anything real either.

It has the best cashback deal in existence

The key benefit though is the cashback system. You might get a measly percentage when you spend money at Tesco, but when the government spends at Tesco not only does it get a percentage, but when Tesco pays its staff the government gets another percentage, and then when the staff buy beer at the pub the government takes another chunk. And so on until the initial government spending turns entirely into cashback.

For the government it is a cracking cashback deal - for every £100 it spends, it always gets £100 back in cashback. For everybody else it is known as taxation and besides death it is the only certainty in life.

So with this in place the only time they will run a balance on the credit card would be if people out there haven't spent everything they've earned. In other words a balance on the credit card is caused by people saving.

That balance on the credit card would then be known as the 'national debt' and the change in the balance as the 'deficit'. But the cause is still the same - people saving.

If only I had one of those...

Now just think what you could do if you had one of these cards:
  • you could spend as much as you like anywhere where the card is accepted.
  • you'd never have to fund your spending.
  • you'd never worry about the balance because you don't have to pay it off, it doesn't affect your credit limit and you know you'll get the cashback to cover it anyway when people spend their savings.

So what's the catch?

"the possession of great power necessarily implies great responsibility"
(Spiderman fans may prefer this of course. No it's not me doing the acting - I have a doppelgänger)

Although you can never run out of money on your super-platinum credit card, you can run out of real things to buy. So you have to make sure you use the money wisely in a manner that encourages to production of real stuff. That way there is more for you to buy.

If nobody tends your garden, then hire somebody without a job to do that for you. It doesn't cost you anything - you have a super-platinum card - but it gives somebody without one the means to support their family.

You might trim back the cashback percentage a little. It doesn't cost you anything - as long as the rate is positive you'll get all your spending back eventually and you have unlimited balances anyway. But it does put money into the pocket of people and allows them to buy more real stuff for their family and perhaps keep paying the mortgage or rent.

You might pay for the upkeep of universities and training colleges. It doesn't cost you anything - the colleges already exist and keeping them up gives people without work jobs. You might also fund students to go there. It doesn't cost you anything, and those students will be able to use their greater skills in the future to generate more real output for you to buy.

You might decide to create a high speed rail link across the country. Again it doesn't cost you anything - you have a super-platinum card - and engineers short of work like nothing better than a big project to get their teeth into. And that infrastructure would last a century or more - bringing great benefits to all (and not an insignificant amount of accolade to those who created them).

Or you might be really bold and fund everybody who makes a contribution to society so that they can do that work yet still live free from poverty. You can encourage the use of more machines to produce real output more cheaply with less labour so that a reasonable standard of living is provided for all by right - without the current problem of the job losses causing a collapse in income and a recession. That might sound a bit Star Trek, but without an evolution along those lines we'll end up over-consuming the planet.

But I haven't got one of these cards

No you don't, but your government has one, or certainly could obtain one. You might like to ask them "what's in their wallet" and why they're not using their plastic more effectively.

34 comments:

Tom Hickey said...

Excellent post and nice analogies, Neil. I will add it to my list of MMT links.

Fuguez said...

Neil - Happy New Year.

I agree with MMT from a descriptive viewpoint. It is how money works.
I do have certain reservations about the Job Guarantee (JG)/ Employer of Last Resort(ELR) proposals.

Scenario 1:
Let us imagine that the Government pays people to do deliberately unproductive jobs - one half dig holes; the other half fills them in. We can all see the problem in this w.r.t. money not creating anything 'real'.

Scenario 2:
Let us imagine that the Government pays people to do a productive job which 'crowds out' a real or potential 'for-profit' enterprise: eg collection of garbage or even the sorting out of the garbage into the various recycle-able parts.

How does one choose these jobs to ensure that they are productive investments to the economy and that they do not interfere in the private-sector pricing mechanisms.

Afterall if Uncle Sam, at The Federal Level, steps up and guarantees (to some level) the salaries of employees providing jobs and services to States and Local Governments, it would help both the accounts and the employment situation but I am sure it would annoy private companies who could or would provide this service at a higher price.

There are many details that appear absent from most JG/ELR arguments. Job creation occurs very much at the micro-level and I am suspicious when Government gets involved at this level.

What are these jobs?

If everyone who wants to work is allowed to work what guarantee is there that these do not interfere with "The Job's Market" and that these 'Guaranteed Jobs' create something 'useful for The Economy'?


Or maybe the Government can employ people to work at newly-formed Banks to supply credit. ;o)

Thanks

Tom Hickey said...

Fuguez, the simple answer is that government stands ready with the JG to provide a job to anyone willing and able to work that cannot find a job in the private sector. The JG base wage is set below the minimum wage that business is required to pay, so there is no competition with the private sector and no crowding out.

To make it a little more nuanced, the government doesn't necessarily have to hire and manage people in order for a JG tp work. The govt can contract the work to the private sector at bid.

Neil Wilson said...

"Let us imagine that the Government pays people to do a productive job which 'crowds out' a real or potential 'for-profit' enterprise:"

There is a simple solution to that. The government pays a universal pension to all in return for 'useful work' where useful work is defined politically (and could include caring roles, charity roles, 'big society' roles as well as normal jobs).

Essentially you pay everybody in return for a standard week's work, or by right for those exempt by reason of infirmity or age.

That way volunteer roles, carer roles and all the other 'good stuff' in society just become part of the Job Guarantee pool, and the state can if it wants outsource the production of the positions to the voluntary sector - and even the private sector.

The main reason for a Job guarantee is to set the minimum standard for jobs and income in the economy and ensures that the standard competitive model pulls people up from this level rather than pushing them down into destitution as it does at present.

Don't forget that these people have a zero bid at the moment, so even just getting them to spend money in shops is useful work - because it gives demand signals to the rest of the economy triggering production.

We can work on increasing real output once we've taken up all the slack.

Bill Mitchell has written extensively on the JG. I refer you to one of his articles on the subject.

Anonymous said...

Government jobs best do infrastructure; and natural monopolies.

Anonymous said...

I ran this one by a friend. His reply: "You see, that's what I mean. Worthless fiat money. Sure, we get credit because we are working and create something. The government gets credit out of thin air, without doing a d___ thing! No wonder countries are starting to not want to take dollars. They've got trillions of them and they are worried that some day no one is going to want them. Just like Hudson says the BRIC countries are starting to do!"

Fuguez said...

Thanks for the response.

I understand the range of possible jobs that could, or might be, performed under a JG.

However I am trying to work out the material differences between
i) The Government basically being the employer or concessionaire of last resort, and
ii) The Government simply paying people to do nothing productive

From an MMT/aggregate point of view I have not understood the real difference between paying someone to i) do something and ii) do nothing. Both gets Net Financial Assets back into the system.

However from the micro-level there is a massive difference.
Guessing, I believe paying people to do nothing (digging and filling holes) will cause 'less damage' than paying them to do something.

Agreed - government should increase spending, or transfers to the private sector, by infrastructure, training programs etc but these too will have their own (intended and unintended) effect on the structure of the goods and services in the economy. Wonderful roads to nowhere as in Japan.

I prefer a massive tax break as this leaves the private sector to figure things out; however, this does not address the unemployed.

With time, my understanding may improve but I am not convinced on the JG/ELR issue. I do though agree with the concept that fiscal transfers do need to be made if one wants to offset the drop in demand.
The JG/ELR sounds too wooly, cosy, and need I say it socialist.

thanks

Thanks

Fuguez said...

I will read up the Bill Mitchell stuff (some of which I have read previously)

Anonymous said...

Re: "socialist"

What's wrong with that? I don't see why private industry should be assumed to be either more efficient or more honest than government. Do you want an entirely "toll booth" economy? Because that is what you seem to aspire to. The US is a weird country; some of the most inhuman, small-minded, mean-spirited attitudes are praised as wonderful!

Tom Hickey said...

The economic issue with unemployment is inefficiency aka waste. Unemployment and underemployment result in forgone opportunity, which is costly, not only economically but also in terms of human resources.

See Bill Mitchell, The Daily Cost of Unemployment.

The economic decision is whether to use a buffer stock of unemployed to control inflation through wages, as is presently done, or to use the full capacity of the nation to produce, taking steps to run the economy at optimal capacity use and full employment with price stability, as MMT holds to be the wiser course.

Most economists claim that achieving optimal capacity use, full employment, and price stability is impossible. MMT shows how this is possible. The JG is used to set an anchor price for labor in order to manage inflation. This is all carefully worked out as a macro theory. See the MMT literature.

If it is possible, trillions in terms of GDP are being wasted in lost opportunity, not to mention the human cost.

Tom Hickey said...

Anonymous, it is virtually impossible to convince a person with a made-up mind. It's an ideological thing, not a rational one, with such people, like trying to convince a strict Fundamentalist that the world is over 6000 years old.

Anonymous said...

Tom,

Of course, you're right. "Au moins,on s'amuse bien dans la boutique!"

Fuguez said...

Guys - you are trying to sell your message and you harp on like that.
:o)

People who have never lived in a command economy do not know what they have (fortunately) missed. If you want to promote centralised solutions - go ahead and good luck.

I read the Billy Mitchell article - like all his articles it is good, but it still does not fully convince. I will re-read and hopefully return.

I believe that the JG/ELR could learn a lot from open-source operations - i.e private sector non profit and use this as a metaphor.

There are a lot of jobs/services that could be done at local, regional, and national levels and I feel that at the local level, especially, people know what they need.

If people want to band-together and solve their own local problems in times of high unemployment then government should support them. It's all in The Details.

The success or failure will all be down to how one specifies these Open-Source Work Projects (OSWP): What determines a qualified OSWP?

I have no idea.
It is an idea that will have intended and unintended consequences and hopefully will get the For-Profit Work Programs (FPWP) to up their game both in what they offer their customers and employers. It will have a whole host of consequences and I think that Billy Mitchell glosses over this.

If OSWPs for baby-sittying, garbage-collecting, and leaf-raking provides a good-enough service then then the FPWP will have to up their game. At the least it may provide a higher base in service delivery standards.

Good luck.

Tom Hickey said...

Fuguez, what I don't think you are considering is where funding comes from. It is either from government expenditure or bank lending. There is no cost to the economy when a monetary sovereign that issues a fiat currency spends in the nation's own currency. All money created by bank lending carries a debt obligation involving repayment of principle with interest.

One reason that many people, usually the wealthy, want private investment to fund everything is because of the economic rent involved. When the government funds something there is not necessarily any economic rent, since tsy issuance is not operationally necessary under a fiat system. It is a needless subsidy that can and should be eliminated. Tsy issuance is inefficient and also privileges a particular class instead of the serving the public interest.

Anonymous said...

Could you perhaps explain how the Govt, with it's super duper credit card, handles inflation whilst continuing to print all this lovely lolly?

Tom Hickey said...

A monetarily sovereign government as monopoly currency issuer has the sole prerogative and corresponding sole responsibility to provide the correct amount of currency to balance spending power (nominal aggregate demand) and goods for sale (real output capacity). If the government issues currency as nongovernment net financial assets in an amount that results in effective demand in excess of capacity, demand will rise relative to the goods and services that the economy can supply, and inflation will occur due to excess demand relative to supply. If the government falls short in maintaining this balance, recession and unemployment result, due to insufficient demand relative to supply.

The government attempts to achieve balance through fiscal policy (currency issuance and taxation) and monetary policy (interest rates), based on analysis of data in terms of sectoral balances — contribution of government, households and firms, and foreign trade.

MMT can be viewed as an articulation of the basic equation of macroeconomics, GNP/Y = C + I + G + (X-M), where GNP is gross national product (supply), Y is national income (demand), G is the contribution of government, C the contribution of consumer spending, I is business investment, and (X-M) is the current account balance. The rest is stock-flow consistent macro models of national accounts to represent sectoral balances.This is called the sectoral balance approach to macro. It was developed largely by Wynne Godley.

For policy formulation, MMT adopts Abba Lerner's principles of functional finance to regulate nongovernment NFA and influence NAD relative to optimal capacity/full employment/price stability, using deficit expenditure to inject NFA in order to increase NAD and taxation to withdraw NFA in order to decrease NAD, thereby maintaining balance.

Neil Wilson said...

@Fuguez,

I think Warren Mosler describes the difference between an Income Guarantee and a Job Guarantee the best.

A Job guarantee gives an individual the chance to show that they have basic job skills - turn up on time, do a days works, take a shower, etc

And what that does is reduce the risk of hiring that individual for any private sector business in need of labour.

If you reduce risk, you reduce cost.

If you want a juggler you throw them some balls and watch them juggle. If you want a worker, you ideally want somebody who is working.

Tom Hickey said...

Should be pointed out that MMT'ers disagree over the JG and IG. Some would like to see unemployment handled with only a JG alone. Others would use a combination.

While it is true that someone working at anything is more employable, especially over time, there is also the question of "forced labor." The JG alone is seen by some as a road to serfdom and that is certainly a political issue.

However, virtually all MMT'ers agree with the need for some form of JG/ELR to set an anchor price for labor for achieving price stability. The JG is not peripheral to MMT as an economic theory, as some people seem to think. Bill Mitchell made this clear some time ago when it came up.

Anonymous said...

So no one can answer the inflation question then?

Fuguez said...

Tom - I am aware of this and I agree with you.

However this 'economic rent' is a signal in a 'market-economy' on where the private-sector should allocate their own 'constrained' resources.

The actors with constrained financial resources have a different decision process to the actor(s) with unconstrained financial resources.

How we each decide to apply our own labour and the fruits of our labours is an integral part of how the economy works at the micro-level.

I can see certain positives from Government putting a floor on Labour - really I do, but it really has to thought-out/ designed well for it not to be the thin end of a 'centralist' wedge.

Right now in a lot of countries, State/ Regional Governments are insolvent and are about to drop a lot of essential services - JG/ELR sounds like a possible solution to this. However more questions would be raised by this course of action as to what purpose sub-sovereign levels of government should serve and with it their accountability.
Could JG/ELR take over a significant number of local and community services? If I was a local councillor I would drop my 'meals-on-wheels' program and wait for the monetary sovereign to pick up the tab. I would re-structure my responsibilities and pass them over to a JG program. (Not too dissimilar to a "Hedge Fund Bank" restructuring its mortgage back bonds to pass of to the Central Bank).

There is a real problem to Private Credit Creation and the way it has been set out for the last 30 years. However there are real and different problems to Public Credit Creation. These are glossed over.

"There is no cost to the economy when a monetary sovereign that issues a fiat currency spends in the nation's own currency."
Then you should have no issue with the 'no-cost solution' to bailing out The Banksters.

Who decides where this 'no-cost' money goes?
Right now The Banks have first dibs and this is and will be a disaster.

Fuguez said...

@Neil - I will hunt for Mosler's views on this. Reading him is like watching a Derren Brown trick.

I have no problem with people who are prepared to work being paid and finding something useful to do.
I have no issues with safety nets but they do have effects.

cost-free cash is never consequence-free cash especially when a politician is deciding where it should go.

Neil Wilson said...

The econometrics shows that an economy quantity adjusts rather than price adjusts in response to demand stimulus when it is operating significantly below capacity.

The UK, for example, has five million out of work and two million underemployed - about 14.5% of the available working age population. And it is currently operating at about 2003 levels of GDP. There is a lot of spare capacity available as long as we don't let it rot on the vine.

"that'll cause inflation" is the classical economic equivalent to "you'll burn in hell" and to the rational inquiring mind has exactly the same effect on their actions.

Anonymous said...

I'm pretty sure both Hayek & Von Mises would disagree with your assertion. I'm also pretty sure the US economy is actually hiding it's real inflation level. Lets see what happens.

Tom Hickey said...

Fuguez: "Then you should have no issue with the 'no-cost solution' to bailing out The Banksters. Who decides where this 'no-cost' money goes?
Right now The Banks have first dibs and this is and will be a disaster."

The proper course was for the Fed as lender of last resort to provide the liquidity need and as chief regulator to see that to put the insolvent insolvent institutions were put into resolution.

While government has unlimited funds, they are to be directed to public purpose rather than funneled into private gain.

Who decides fiscal policy? Congress and the president through the budgetary process. They are accountable at the voting booth in elections for such decisions. Unfortunately, the apparatus of the state has been captured by oligarchs. The people can change that through electing better representatives and demanding constitutional amendments, laws and regulations that end legalized bribery in politics and government. A a state, the US is corrupt.

The bailout as it was conducted was unnecessary, foolish, and contrary to current law and regulation. See the work of William Black, Randy Wray, Janet Tavakoli, Yves Smith, etc. on this. It was and remains a travesty perpetrated by the Bush and then the Obama administrations, both of which were and are in Wall Street's pocket.

Peter said...

I really liked this post since I've been looking for good metaphors to explain MMT to myself and people. I believe good metaphors are essential for educational impact. This one could work very well, I think. Another issue I see is that people don't understand the "philosophy" of MMT, which I think is "identify the real constraints in the economy, then try to steer it using the available tools for maximal common good". To try to convey this idea, I wrote this admittedly too long write-up. I am looking forward to improving it and fixing any potential errors and misunderstandings. It is clearly very rough on the edges right now. Would love to hear what you think.


MMT (Modern Monetary Theory) focuses on the way monetary systems such as ours operate and the implications from this knowledge.
Is MMT advocating a free lunch? Is it saying that we can simply spend our way to prosperity? No! It instead identifies the real as opposed to imaginary constraints on economic growth.

Think about our economy as of a car that needs to get from where we’re now to its destination – Prosperity! MMT recognizes that the car has a gas pedal and a brake pedal and a steering wheel that if used right can get us to our destination. Think of the gas pedal as injection of money into the economy (also known as “spending”), the brake as removal of money from the economy (also known as “taxation”) The driver is the government and it can steer the car in various directions. Other countries have their own economies, so, think of other cars sharing the roads with yours.
The “deficit-hawks” believe that big deficits are always bad. Deficit is the difference between spending and taxation. So, their position is similar to a belief that too much pressing on gas (without counterbalancing by braking) causes crashes. While it is true that if you go too fast you are more likely to crash, pressing on gas and going too fast are two separate things. For example, when the car is going uphill or stalling, you really need to step on the gas to get it moving. So, deficit hawks in their myopia ignore the road conditions. They concentrate on numbers that are meaningless without a context. Additionally, their fear of spending prevents the economy from realizing its potential. Either they’d have you press on the gas very gently (spend less) or brake too often (tax more), without realizing that they might be causing the car to move too slowly and by the time you’d get to the destination Prosperity - if you got there - the rest of the world was there long ago and left to even further destinations.
The deficit hawks don’t know how the car really works. They don’t even understand that the deficit should be automatically adjusted to road conditions. Imagine if somebody told you you should never press on gas continuously without braking for more than, say, 1 mile. You’d laugh and say: this depends on where you drive and a myriad of other things!
What MMT is saying, is that you should not be shy to press on the gas when needed, to press on the brakes when needed and to steer the wheel as needed. MMT allows you to take the full potential of the car, without imposing arbitrary constraints (such as “pressing on the gas is bad” or “pressing on the brakes is bad”) Is there a fool-proof way to get to the destination? No, there is always an risk and sometimes the driver will make a mistake and sometimes crashes can even occur because of other drivers actions. But have you ever seen a fool-proof system?

Peter said...

I really liked this post since I've been looking for good metaphors to explain MMT to myself and people. This could work very well, I think. Another issue I see is that people don't understand the "philosophy" of MMT, which I think is "identify the real constraints in the economy, then try to steer it using the available tools for maximal common good". To try to convey this idea, I wrote this admittedly too long write-up. I am looking forward to improving it and fixing any potential errors and misunderstandings. It is clearly very rough on the edges right now. Would love to hear what you think.


MMT (Modern Monetary Theory) focuses on the way monetary systems such as ours operate and the implications from this knowledge.
Is MMT advocating a free lunch? Is it saying that we can simply spend our way to prosperity? No! It instead identifies the real as opposed to imaginary constraints on economic growth.

Think about our economy as of a car that needs to get from where we’re now to its destination – Prosperity! MMT recognizes that the car has a gas pedal and a brake pedal and a steering wheel that if used right can get us to our destination. Think of the gas pedal as injection of money into the economy (also known as “spending”), the brake as removal of money from the economy (also known as “taxation”) The driver is the government and it can steer the car in various directions. Other countries have their own economies, so, think of other cars sharing the roads with yours.


Cont'd...

Peter said...


The “deficit-hawks” believe that big deficits are always bad. Deficit is the difference between spending and taxation. So, their position is similar to a belief that too much pressing on gas (without counterbalancing by braking) causes crashes. While it is true that if you go too fast you are more likely to crash, pressing on gas and going too fast are two separate things. For example, when the car is going uphill or stalling, you really need to step on the gas to get it moving. So, deficit hawks in their myopia ignore the road conditions. They concentrate on numbers that are meaningless without a context. Additionally, their fear of spending prevents the economy from realizing its potential. Either they’d have you press on the gas very gently (spend less) or brake too often (tax more), without realizing that they might be causing the car to move too slowly and by the time you’d get to the destination Prosperity - if you got there - the rest of the world was there long ago and left to even further destinations.
The deficit hawks don’t know how the car really works. They don’t even understand that the deficit should be automatically adjusted to road conditions. Imagine if somebody told you you should never press on gas continuously without braking for more than, say, 1 mile. You’d laugh and say: this depends on where you drive and a myriad of other things!
What MMT is saying, is that you should not be shy to press on the gas when needed, to press on the brakes when needed and to steer the wheel as needed. MMT allows you to take the full potential of the car, without imposing arbitrary constraints (such as “pressing on the gas is bad” or “pressing on the brakes is bad”) Is there a fool-proof way to get to the destination? No, there is always an risk and sometimes the driver will make a mistake and sometimes crashes can even occur because of other drivers actions. But have you ever seen a fool-proof system?

Tom Hickey said...

Good analogy for functional finance, Peter. I like it.

Neil Wilson said...

Is that before or after Hayek gave up business cycle research in the 1940s?

"Yet, for some strange reason, they almost always fail to mention that Hayek was roundly defeated in the theoretical battles of the time by Keynesians. In fact, his former students (including John Hicks and Nicholas Kaldor) showed how Hayek's theory was flawed and he gave up business cycle research in the early 1940s for other work. Kaldor's first critique ("Capital Intensity and the Trade Cycle"), for example, resulted in Hayek completed rewriting his theory while Kaldor's second article ("Professor Hayek and the Concertina-effect") showed that Hayek's Ricardo Effect was only possible under some very special circumstances and so highly unlikely. [Kaldor, Essays on Economic Stability and Growth, pp. 120-147 and pp. 148-176]"

Anonymous said...

Whoever "they" are also appear to forget that stagflation (& the failure of the Philips Curve), the equation of exchange, only centralalised control of the economy is possible, 0% unemployment etc.etc.etc hell even the Multiplier Effect have all been roundly critised/shown to be flawed.

Not quite sure what you're point is. About picking a single aspect of one economists work.

Keynes was not a god. On several things he was very human. And human's err.

As for Business Theory, let's see what happens with US inflation rates this year. We've already seen inflation increase in the UK since the stimulus... Just as the Austrians said it would.

Tom Hickey said...

@ Anonymous,

Right, we'll see about inflation. Presently, the big threat in the US is deflation IMHO. However, the price of commodities will rise if the emerging world bids up prices, and this will result in stagflation in the US, as materials and energy costs clash with debt-deflationary pressure due to the still unwinding financial crisis in the developed world. There are a number of factors in play, asymmetries and imbalances abound, and life is uncertain. What unfolds and how also depends on political decisions yet to be taken, for example.

Neil Wilson said...

Not sure where you get the UK inflation idea from. I'm assuming that by 'stimulus' you are meaning QE.

The CPI at constant taxation (CPI-CT - table EAD6) annual rate was 3.2% in Mar 2009 when QE started, 1.7% in Jan 2010 when they'd finished, and the latest figure (Nov 2010) is 1.5%

There has been a 5% rise in VAT (sales tax) over that period, but that isn't systemic inflation - just bad government.

Skeptic said...

Neil,

Linked to your blog from billyblog.

Great article that simply explains the workings of soverign government spending and taxation.

What I'd love to see intertwined, in an as easy to understand fashion, is fractional reserve banking and foreign currency transactions.

That would make a great resource for turning people onto MMT.

Many thanks!

Stephen said...

Thanks for this fantastic analogy Neil. For me it brought to life, in a nice easy to understand way, why national debt = savings.

So why keep this little gem of a story buried deep in your blog? Any chance you could headline it in your home page?

MMT really needs more of this for Joe Public (or at least curious newbies) to even have a chance of 'getting it'.