The horizon is not so far as we can see, but as far as we can imagine

What Negative Interest Rates Mean and What We Should Do

Alright, so Germany has now introduced a zero interest bond. That means, given inflation, people will get back less effective money than they started with.

At this point, outside the US, the average interest rate is negative.

As Stoller pointed out, that means that people with money can’t figure out anything productive to do with it which will make a profit.

That means that capitalists and banks, including central banks, have failed. It is their function, in a capitalist society, to allocate resources. Money represents resources: people, stuff, and land.

Now if we lived in a utopia, with no real problems, this would make sense, but we don’t. There are tons of real problems which need solving, lots of money floating around, and other capacity indicators show there are people and resources which are not being used, or which could be redeployed.

So capitalism is failing to do what it’s supposed to do, and so are capitalists.

The correct action in a situation like this is to get that money working. The government could borrow it massively, and do what needs to be done. It could (and I would suggest this is the better option) tax it away, and then spend it.

If capitalists absolutely insist on private enterprise doing the work, then they should massively raise taxes on any income or capital gains not used productively, and not count less productive things like loans–they should stipulate that the money must be invested into business activity. They should make stock option grants, stock buy-backs, and all similar activities intended to allow cash-outs impossible. They should get rid of private equity; just make it illegal. Almost all of its activity destroys viable business to create a pay day for a few people.

Heck, you should do away with all those things anyway.

People are very confused about profit. Profit is mostly socially constructed. It is not an independent variable. Taxes, laws, and regulations determine what is profitable and what isn’t. Billions of subsidies, tax breaks, and favorable land deals make extraction industries profitable, for example. Banks get to print money. Media companies like Disney rely on characters and ideas which, in the past, they would long have lost control over. Companies are allowed to pollute for free, to use vast amounts of water for nominal prices, and so on.

Meanwhile, a vast array of regulations and nickel and dime costs makes it impossible for small business to compete. Try starting a bank. Yeah, good luck with that.

This, too, is by design. Before Reagan, regulations were set up to make small businesses easier to start and keep running.

The point is that if investors can’t find anything in which to invest, government has failed to tweak profits correctly. You shouldn’t get rich in land speculation unless you’re building stuff that should be built. You should get rich in alternative energy, but mostly you don’t. You should get rich in making homes that are healthy and energy neutral, but instead we keep building unhealthy and environmentally-degrading housing.

You should make money rebuilding infrastructure, or building high speed trains, or reducing carbon, or reforesting, or making fish and phytoplankton stocks recover.

Yet, you don’t, so these things which need to be done in order to, like, avoid a few billion deaths, don’t get done.

That’s government failure.

Capitalism does not work without effective government control, if it is the dominant economic mode in a society.

So. We have lots of stuff that needs to be done. We have lots of resources and money which aren’t doing those things and, indeed, resources and money which apparently can’t find anything to do

Only a moron can’t look at those facts and know what to do.

Oh, and the 2008/9 bailouts made this situation far, far worse than it should have been. This endless printing of money is only to keep the useless rich afloat when they serve no useful, productive function. They are actually counterproductive, as they are actively stopping productive activity from happening.

Tax them. Stop propping them up and let incompetents die. Destroy, utterly, those members of the ruling class who are actively destructive, like Private Equity. Alter the rules so that productive activity is profitable, and while you’re doing all that, just have governments do the most important stuff themselves, with negative real interest rate loans.

None of this isn’t obvious to anyone who pays any attention.

Yet we don’t do it, because governments have been captured by failed rich people.

Normal. But not acceptable when the cost of inaction could be billions of dead people.

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Our Leaders Kill for Their Own Benefit


About the Amazon Burning: It’s Worse than You Think


  1. Eric Anderson

    I’ve often thought that entry to godhead requires humanity to simply attain the ability to recognize and arrest nonadaptive historical ideologies. But at this point, it seems once set into motion, the momentum of historical hangovers can never be turned until we crash.

    We really just have no ability as a species to implement long term planning, it would seem. Perhaps this is the reason the “free market” ideology has been so successful. Deep down in our bones we know we’re not up to the task — and the free market is just a sad concession to chaos.

  2. Z

    It’s a consequence of the collusion between the Fed, the U.S. Government (both Bush and Obama Administrations), and Wall Street to “save the country” by rigging the markets after the 2008 crisis they were all responsible for creating (except Obama since he wasn’t in office yet). Why should companies and investors bother investing in something that will be profitable in the long-term when they can just pound their capital into the Dow Jones and NASDAQ Etch-A-Sketch Express that Goldman and the Wall Street Boyz have conducted for last ten years? It’s been the easy and smart bet.


  3. Dan Lynch

    This is a great subject and I’m glad Ian brought it up, but while many of the things Ian said are true, I think the main thing is missing.

    That main thing is this: after WWII, people were afraid that the country would slide back into depression — remember, these were people who had lived through the depression and the rise of fascism, and they didn’t want that to ever happen again — and there was a big national debate on how to maintain full employment.

    The New Dealers, led by FDR’s former VP & Sec. of Commerce Henry Wallace, advocated making the WPA permanent, and adjusting WPA funding quarterly as needed to keep the economy right at full employment. Wallace wrote a book on his proposal, “60 Million Jobs,” which is totally forgotten today but is actually a pretty good (though not perfect) proposal, much better in several ways than flawed MMT “Job Guarantee”. If Wallace’s permanent WPA had become law, that’s where you would get your infrastructure fixes, your transition to green energy, etc..

    Republicans and “moderate” Democrats, including Truman, were opposed to big government programs and instead advocating using interest rates to keep the economy at full employment. The interest rate idea was then, and still is, a controversial theory. Nonetheless, the New Dealers lost that debate, and Wallace’s full employment bill was crapified into the 1946 Employment Act which threw Keynesian fiscal policy under the bus and replaced it with monetary policy. Despite tweaks to the law over the years, including the toothless Humphrey-Hawkins law, monetary policy has ruled the roost. Keynesian stimulus was further stigmatized when neoliberal Democrat Jimmy Carter did not have a good answer to 70’s stagflation.

    Well, monetary policy hasn’t been all that great, has it? It’s resulted in big debt bubbles that blow up from time to time, and slow growth because you can’t force people to take out loans no matter how low interest rates are.

    So what negative interest rates mean to me is the logical conclusion of neoliberal economics. In 1946 neoliberals said they could manage the economy merely by tweaking interest rates. Well, they’ve been applying their theory for 73 years and here we are with negative rates, slow growth, and unsustainable debt bubbles.

    What negative rates mean is that monetary policy failed. Neoliberalism failed. Markets failed in the sense that the invisible hand of the market, by itself, is inadequate to manage our society.

    Mind you, I think private enterprise does a great job at producing discretionary consumer products (as long as monopolies are broken up). The market provides us with great quantities and varieties of consumer goods. Shampoo, potato chips (overpriced and monopolistic, but nonetheless they taste good), phones, computers, tv’s, etc.. Of course the invisible hand of the market is not going to fix our potholes or wean us off carbon fuels. So the market has its place, mainly for discretionary consumer goods and services, but for non-discretionary stuff like health care, education, energy, and so forth, the market sucks and I think we’d be better off socializing those sectors.

  4. Mallam

    Z, what ridiculous nonsense. The indices have changed a lot over the past 10 years. The Fed if anything has been too conservative, refusing to allow the economy to run very hot so people can have higher wages. Why would I want them to force a recession by hiking? Interest rates should never have been raised at all. Why needlessly put hundreds of thousands of people (perhaps millions if they hiked even more as many called for) out of work because of some voodoo scary bullshit about “The Fed!” Overall, they have gotten it wrong, yet they’ve gotten it more right than Congress, the IMF, and the EU. All of those institutions were worried about inflation that didn’t exist, and chose to immiserate their nations and people with destructive rate hiking and austerity. Money is fucking free right now, and it was perfectly predictable in all of the economic models — they just chose to ignore that in favor of sadist ideology. It’s a crime we aren’t spending and putting resources to work, as Ian prescribes. Germany should cut VAT, hike taxes on carbon, and build out a full high speed rail system (yes it has rail, but average speed significantly lower than France). Ban private equity. Preferably ban single family homes, but next best thing is to at least allow for apartments and such to be built in residential areas where it’s illegal, and build at rates not seen since 1950’s (NYC, SF, and Boston in particular need to build, instead they’re displacing the poor and middle class with reduced supply). Ban cars in city centers. Make these places livable. People want to go there, artificially reducing supply has made that impossible. Free money to do it, and letting the opportunity go to waste. Meanwhile, the Amazon is burning…

  5. nihil obstet

    After WWII, Truman and the “moderates” didn’t just rely on monetary policy. They also decided that remaining on a permanent war footing would provide the demand for products sufficient to avoid future depressions. Rather than demobbing down to a defense force, they simply renamed the Department of War the Department of Defense, and found all sorts of uses for military spending. When that was no longer enough, they made the U.S. the arms merchant to the world. Trump’s statements that a big arms sale to Saudi Arabia outweigh any reasons to keep our distance from a terrorist-supporting, international-law-breaking, human-rights-violating authoritarian country is right in line with that policy.

  6. Hugh

    Mallam, what we saw when the Fed had rates near zero and ran its huge monetary easing programs was that little or none of those trillions went to workers and wage increases. Doing this again will not change anything, except of course funnel even more money upward to the rich.

    Excellent piece, Ian. It is heresy to say that capitalism has failed even though we have seen endless instances of its failures day in, day out for decades. Time to accept the obvious, and move on.

  7. Bill Hicks

    If you destroy every member of the ruling class who is actively destructive, there won’t be any left–not that it would be a BAD thing.

  8. Z


    “The indices have changed a lot over the past 10 years. ”

    I’ve noticed they gone up a lot as they supposedly continually predict a booming economy that has never materialized. There was one quarter when big banks managed to make money every single trading day.

    The Fed bailed out Wall Street. Wall Street never would have maintained their power without the liquidity from the Fed. There were very likely things done that they all know about that no one in the government, the Fed, or Wall Street wants the public to know about.

    The NY Fed, who determines how much daily liquidity or leverage to give to Wall Street prior to market opening, is heavily influenced by Wall Street to the point of Wall Street more or less being the big brother in that relationship. If they get in trouble they are pretty confident that the NY Fed will be sympathetic to their point of view. They know this because they make it well known that they will find some way to heavily reward people in the NY Fed via well paid cushy jobs or positions after they leave the Fed if they play ball with them.
    Read Noncompliant by Carmen Segarra if you want to get a feel of Wall Street’s influence on their “regulators” at the NY Fed.

    “Overall, (the Fed) have gotten it wrong, yet they’ve gotten it more right than Congress, the IMF, and the EU.”

    The Fed has the master printing press, it has a much greater capability of confirming its predictions that any of those other entities have.

    If wages are not going up and money is supposedly “free”, who is it free to and for what? Why would any more “free” money cause wages to go up? Is it not free enough?


  9. Z


    Most of the spending you wrote about is fiscal spending. It does not require low interest rates.


  10. Mallam

    Hugh, the Fed’s intervention kept the economy from going off the cliff. It was the difference between what we saw with the Great Depression and mass unemployment of 25%+ to what was already brutal in the Great Recession. What’s good for wages is keeping the unemployment rate low and getting people to work. Hiking rates at the Fed would purposefully put people out of work. We already have evidence that the Fed’s rate hikes alone reduced job creation by 500K over the course of the recovery. And you want to increase that and delay recovery — or worse, trigger a recession — because…the rich gained the most? That’s not the fault of the Fed. That’s the fault of the rest of the government orienting policy of redistribution upwards.

    Obviously, monetary policy is limiting. The Fed can’t directly spend money like the government can. So as Ian and Dan document, the government’s of the world should be spending money.

  11. Z


    “And you want to increase that and delay recovery — or worse, trigger a recession — because…the rich gained the most? That’s not the fault of the Fed.”

    You must work on Wall Street


  12. Z


    “That’s the fault of the rest of the government orienting policy of redistribution upwards.”

    The Fed is not part of the government.

    Wall Street fights against the government “orienting policy of redistribution upwards” by corrupting them with back door bribes.


  13. Z


    “Hiking rates at the Fed would purposefully put people out of work. We already have evidence that the Fed’s rate hikes alone reduced job creation by 500K over the course of the recovery.”

    Who is the source of this “evidence”?


  14. Eric Anderson

    Capitalism is little more than an ideological hangover produced from a time long past when low hanging fruit was everywhere for the taking and people thought it would never disappear.

    It can really be explained in two words:

    Party on …

  15. Tom

    As we speak, Siberia, Greenland, Alaska, Amazonia, and a few others are burning with out of control wildfires that are viewable from space. This folks, is it.


    The war economy is what pulled America out of its depression and America has had a war economy ever since. America has been at war with the world and the planet since WWII, so, in that sense, WWII never really ended, it just changed form.

    Think about it, the American economy is the economy copied by the entire developed world and developing world. It is a war economy and the war is waged against humanity and the living planet, by the wealthy against the poor, against people of conscience by people with no conscience.

    It is a war that you know is won when no one, and very few living things, are left standing. The ultimate pyrrhic victory. But hey, all is not lost because at least we can die proudly proclaiming our identity du jour. Posterity matters, you know, even though no one or nothing will be here in the aftermath to respect that.


    Here we are, nearly 45 years later and nothing has really fundamentally changed except they’ve extended the life of this experiment by borrowing from the future until there is no future. 1975 coincides with the shift from savings to credit. Savings were to prepare for and preserve a future, whereas credit is to pull the future into the present to the point now, with negative interest rates, there is no future left to pull into the present. America never did rebuild. It outsourced its manufacturing base to Mexico and China and Asia in general so it didn’t have to modernize its industry and it could avoid paying its workers a livable wage.

    The Permanent War Economy

    The New Deal did not end the Depression; World War II did, and the memory of that fact has had a profound effect on postwar politics. Critics of our enormous military establishment have pointed out the evil things it can cause (Asian war, nuclear annihilation) and the noble things it prevents us from doing (housing for the poor, etc.), but the critics have not managed to shake the unspoken public belief that large‐scale, even profligate military spending is a cornerstone of American prosperity.

    The great virtue of Seymour Melman’s new book is that it addresses this belief directly and attempts to prove the contrary: that military expenditures are destroying the very economy they were supposed to prop up. Melman has made this case before, with negligible results, in his books “Our Depleted Society” (1965) and “Pentagon Capitalism” (1970). But it is 1975 now, with recession upon us and more inflation ahead, and the time may finally be right for these sensible ideas.

  18. Jeff Wegerson

    Oh Ian, what a mish mosh of good and correct ideas. Not one of your better thought through and logically presented works. Early on I was put off:

    The correct action in a situation like this is to get that money working. The government could borrow it massively, and do what needs to be done. It could (and I would suggest this is the better option) tax it away, and then spend it.

    Everyone around here, likely taking a cue from you Ian, has a quick off hand throw away line about how MMT gets something or other wrong. But no one ever lays out their complaint enough to argue the point. So with that caveat I now ask this question:

    Are the anti MMTers taking issue with the central MMT tenet that taxes are not for funding government when the government is the authority of money creation. If one can accept that basic idea, which your piece above seems to accept, then the government failure vis a vis Capitalism is allowing privatised money creation to continue and not taking the job back into its own hands.

    Further, and not knowing your exact criticisms of MMT, MMT’s idea that the major purposes of taxation is for inflation control and dysfunctional wealth reduction and not government funding seem quite sensible.

    The reason all this nit picking is important is that all the programs Sanders and Warren are setting themselves up to embark on will need good economic theoretical support. And right now MMT is carrying the burden of that support.

    And it’s not a competition of ideas as far as I can tell. It is a competition of communication of the ideas. And that dear, dear, Ian is your strong suit when you are on your game. But right now for my money MMT is running rings around you. Sorry but IMHO.

  19. RobotPliers

    Jeff Wegerson: “Are the anti MMTers taking issue with the central MMT tenet that taxes are not for funding government when the government is the authority of money creation. If one can accept that basic idea, which your piece above seems to accept, then the government failure vis a vis Capitalism is allowing privatised money creation to continue and not taking the job back into its own hands. ”

    MMT is strong fiat currency and will explode the economy eventually. Government taking the job back into its own hands might improve things because its hard to get much worse than the current private sector bankers, but then, its hard to get worse than our current crop of public sector elected officials who enabled the private sector bankers too. There are also benefits to having less centralized private sector banking, and moving everything into the federal government would likely eliminate those.

  20. nihil obstet

    The MMT’ers that I’ve read think that it will make a huge difference in people’s understanding of economics and therefore of their willingness to pursue certain policies. I can’t see it. People use tax preparers for simple taxes (the old 1040EZ, for example)! People don’t know what marginal tax rates are. I’ve had some be surprised to learn that FICA isn’t an income tax (this, incidentally, is a reason so much meanness can be generated about taxes. Poorly paid people hear that lots of “takers” don’t pay income tax, and get mad because taxes are taken out of their income, not knowing that they’re paying FICA, but not income taxes).

    So people are going to learn MMT and be influenced by it? I don’t think so.

  21. Hugh

    The preliminary annual benchmark revision to the Bureau of Labor Statistics’ Establishment has come out. The benchmark month is always March and the BLS uses even more comprehensive data than usual for its Establishment survey of jobs, the larger and more accurate of its two surveys. Final revision numbers will be incorporated into the jobs report covering January which is released in February. The take home is that the preliminary data show 501,000 fewer jobs in March 2019 than expected and previously reported. This does not mean that there was some big slump in March but rather that there has been a growing error probably from around October 2018-March 2019. I have been saying for some time now that the 2019 job numbers already have been indicating that 2019 has been the worst for job creation in the last 6 years. This seem to indicate that they, and those for 2018, are considerably worse.

  22. Hugh

    One of the cult-like tenets of MMT is that it is misunderstood. It is by definition never wrong so if you disagree with MMT, you are wrong. You need to go and read more about it. You will know when you have read enough when you agree with MMT. Jeff adds a nice touch though with the idea that as there are several MMT skeptics around here, this just shows we are playing follow the leader, with Ian the leader. And that we are apparently incapable of forming our own opinions because of course if we were, we would comprehend MMT’s manifest perfection.

    What is aggravating is that Jeff gets even the few assertions he makes about MMT wrong. For example, MMTers say the purpose of taxes is to give money value by government creating an artificial demand for it. Randy Wray was pretty clear that using taxes to reduce wealth inequality was a non-starter because taxing the rich would be “too hard.” And so on.

  23. I’ve come with a way to explain high progressive taxation:

    2 concepts:
    1) People only really need a certain amount of money. Above a number ($75k/yr several years ago) the motivations change.
    2) The Principal-Agent problem. The Principal owns a business and pays an Agent to operate it. The interests of the two are not the same. Structuring this relationship to keep the Agent from damaging the Principal’s asset is the core problem of business management and business law.

    There are two reasons to pay an executive more money than their reports:
    1) Ego
    2) Looting

    Higher executive pay happens when the executives are in charge of the business and the stockholders are gelded in various ways (mutual funds don’t vote their proxy, for example). There’s no point looting the company if you just pay it to the govt. High progressive taxation gives a solution to the Principal-Agent problem.

    Executives really don’t need high salaries. If you paid every CEO $1/hr (like Steve Jobs) they would all yell, “that asshole gets $1? I gotta get $2!”.

  24. B

    Wild speculation time: what if the issue is actually that there is more money than there are available resources and capacity, or in other words, that we should be seeing significant inflation (or even hyperinflation) based on the available money supply? If most of the people holding on to most of the money could somehow agree to keep holding onto it, preventing it from being widely distributed, this might delay an inflationary spiral by reducing effective liquidity. If models show that rapid inflation would cause major problems, the biggest holders of the money (mostly banks and investment funds) may be open to such an arrangement.

    Or in other terms, QE injected huge amounts of capital into the economy, inflating asset prices. Maybe the people with the money know the prices are fake, but they can\’t afford to acknowledge it?

    How much real capacity – resources, production facilities, equipment, and labor – are actually sitting idle? Could we actually increase production without wrecking the environment even further and putting more workers at risk?

    If this is true (again, wild speculation), then we\’re really in trouble, because we need to be increasing production in many areas – affordable housing, healthcare, food, all the necessities – in order to clothe, feed, and house the ever-growing world population. But quality seems to be going down (even on the \”premium mediocre\” high end) while prices seem to be steadily climbing upward. And meanwhile, given the current political climate, we\’re almost certainly going to see a global diversion of resources towards military efforts.

  25. Hugh

    Years and years ago, I was talking with a guy who had been part of the upper level executive class until health problems knocked him out of it and made him more reflective. He said that after what would be maybe $400,000 to $500,000/year in today’s money, it was all about ego and power.

    Setting limits on how much anyone can accumulate of society’s wealth is one of the things to keep in mind when you are thinking about what kind of a society you want. Wealth taxes, high marginal income tax rates, and jail time are effective ways to enforce them. It is important to remember that the vast majority of wealth in this country held by the rich is non-productive even destructive and is not a reward based on merit but heredity and crime.

  26. B

    I’d like to revise my hypothesis after looking into it some more.

    In some places we have a dramatic oversupply: autos, for instance. Freight capacity. Oil (temporarily). High end housing. Fashion. Corn. Electronics. Plastic. On-demand streaming entertainment. Diamonds.

    In other areas we have an equally dramatic undersupply. Modest housing. Fresh, healthy food that isn’t sprayed down with chemicals. Affordable healthcare. Forested land. Functioning infrastructure.

    If the oversupply were shifted towards the undersupply, we would be much better off. Of course, except perhaps in the case of housing, it isn’t as simple as switching current production to a new track. We have huge industries with all their factories and offices and employees dedicated to producing things that no longer make as much sense as they once did. An overcorrection would be harmful, as well.

    Regardless, it definitely looks like an outside factor (the people, through the government) is needed to get things unstuck. The big pools of money are sitting on their hands. Why? Who knows. I still think that a big part of it must be fear. Money likes to be used, or at least invested.

  27. Mike Barry

    My casual takeaway from MMT is that it’s main point is that a government sovereign in its own currency cannot “go bankrupt” or “run out of money” and can create whatever money it wants/needs to spend, the only practical limitation being runaway inflation if spending gets excessive.

    This obliterates the “we can’t afford it” BS point that is raised whenever widely beneficial programs like Medicare for All or a Jobs Guarantee are proposed. So if the Democrats really wanted to help the people, they could use this MMT principle to devastate the opposition. (They could also use Dick Cheney’s quote that “Reagan proved that deficits don’t matter.”

    So is Randy Wray’s reluctance to tax the rich an actual part of MMT or just an unrelated personal preference? If the latter, then MMT stands as a sound body of knowledge and a useful policy lever.

  28. Hugh

    Mike Barry, the US isn’t sovereign in its own currency. Most money creation in the US occurs through the regional Feds. And the Feds more closely resemble private banking cartels. They are not the government.

    Even under the current regime, the US can and does run deficits and finances those through debt –when it wants to, for example, for pointless wars and major tax cuts for the rich. Nor can you cherry pick a single tenet of MMT, which sounds good even if it isn’t currently applicable, and somehow say that the rest of the theory filled as it is with assertions which are either false or trivial is now a “sound body of knowledge.” That’s nuts.

  29. scruff

    The Principal owns a business and pays an Agent to operate it. The interests of the two are not the same. Structuring this relationship to keep the Agent from damaging the Principal’s asset is the core problem of business management and business law. […] There’s no point looting the company if you just pay it to the govt. High progressive taxation gives a solution to the Principal-Agent problem.

    I’m not sure I agree, although it might just be because I am accustomed to conceiving of these situations in peculiar ways. The part of the quote before my edit ellipses, for example, I would understand as being roughly equal to ” The capitalist owns and the manager operates; their interests are not the same. Structuring the relationship to prevent the manager from damaging the capitalist’s asset is the core problem of class exploitation.”

    The issue I see is that the capitalist is engaged in extraction of value from everyone else (ie looting); that’s basically the essence of capitalism (one meaningful use of the term anyway). The manager will be in the position of seeing looting happening but not being in the position of looter themselves. They will thus be incentivized to become a looter themselves. The trade of allowing a manager to be somewhat of a looter – at lower scale – in exchange for taking on more responsibility for the maintenance of the asset is, I think, the already existing solution to the Principal-Agent problem you mention above.

    So, if you then enact higher progressive taxation upon the capitalist and the manager, they become more desperate to maintain their prior level of unearned wealth. The primary incentive they each face in the new taxation scheme then, is to loot more so that they can still have just as much looted wealth as they have become accustomed to. Secondary incentives would be to maintain the asset in the face of all this looting.

    I just don’t think taxation solves the problem of capitalism. It’s essentially an ethical issue, and I’m not convinced that you can basically protect everyone from predation from others by reducing the marginal benefit of that predation when the entire economic structure of the society is founded in that very form of predation.

  30. Hugh

    scruff, that’s the reason why 90%-95% marginal tax rates are useful and needed, and why the definition of income should be as expansive as possible. An effective marginal tax rate says: whatever you make below a certain number will be taxed at a lower rate and everything beyond that to all intents and purposes goes to the government. And you count income from whatever source the same. Essentially, you render it impossible for anyone to game the system or make it worth anyone’s while to try. On top of this, you can make doubly sure by slapping a wealth tax on top of all this.

  31. scruff

    Hugh, I think that makes sense. Thanks for walking me through it!

  32. Jeff Wegerson


    Yes the label MMT skeptic is much better.

    I did not get wrong MMT and taxes. They say both what you say, that taxes give money value and they say other purposes for taxes are for managing inflation and controlling rich assholes. In any case I can’t see why it would be “aggravating” even if I were wrong. Unless you are easily irritated. Then I’m sorry no offense intended.

    Calling them “cultists” is uncalled for. They are allies.

    Seriously, though, you skeptics are so off-handed about it that I struggle to discern your economic concerns about MMT. Perhaps it is all personal: “cultism,” fear of the rich, their supposed disdain for the unschooled, those sorts of things. Which don’t help me much in knowing what parts of MMT economics are suspect.

    I would suspect jealousy but you are too grounded in your own thinking for that.

    So in the meantime I’m glad that MMT is giving left-wing Democrats economic weapons to fight with. I’m glad too that they have a reasonably easy to understand and coherent set of economic ideas that even less sophisticated people like myself can use to understand economics at a useful level of competence.

  33. Mike Barry


    If you disagree with Hugh, that’s nuts. We know so ’cause he said so.

  34. False Solace

    “the US isn’t sovereign in its own currency. Most money creation in the US occurs through the regional Feds. And the Feds more closely resemble private banking cartels. They are not the government”

    The Constitution gives Congress the right to coin money. Nobody else in the US has this ability unless Congress delegates it. Congress is ultimately the authority on who gets to issue US dollars. To say the US isn’t sovereign in its currency is just plain delusional. The US doesn’t belong to a currency union like the euro. The US doesn’t peg its currency to another. This is what MMT means by sovereign. Hugh apparently has his own definition.

    The Fed is a creation of Congress. The head of the Fed is appointed by the President. When the Fed turns a profit the proceeds are deposited in the Treasury. The Fed is certainly a cartel, but it’s a creature of the government. To say otherwise is to display a deep misunderstanding of the law.

    When the Congress and the President enact a law to spend money, the Treasury spends the money into existence. This is a matter of fact operationally. It’s just what happens. The money doesn’t exist until Congress decides to spend it. The Treasury then goes out and auctions T bills. Again, this is simply what happens. To argue against this is like arguing about the rules in baseball. The rules could be different, but they aren’t, this is just the way it is. The law says the Treasury has to issue the bills. The law could be changed.

    The public is intentionally misinformed about how marginal tax rates, spending, and everything else works. This works in favor of the wealthy, what a surprise.

  35. Hugh

    Again this is always where things go when people accept MMT without knowing much about it. The US Constitution Art. 1, Sec. 8 gives the Congress the power to coin money. However, with the creation of the Fed in 1913, this power was largely farmed out to the Fed and more specifically the regional Feds. The only part of money creation that the Treasury retained was actual coinage of physical coins. This power was sharply circumscribed and accounts for only a few percent of money creation in the US in any given year. If you have ever heard of the trillion dollar platinum coin you would know that this was a suggestion by a blogger named beowulf to exploit a loophole in the laws governing coinage to return the fiat power of money creation back to, if not Congress, the Executive and the Treasury.

    That’s the reality. But while MMT criticizes neoclassical economics for its failure to address reality, MMT does much the same thing. Only of course when MMTers do it. It’s OK. The federal government does not control money creation at the Fed. This is why our current demented President is so pissed off at the Fed at the moment. I do not expect any of this to have any effect on you. I’ve dealt with MMTers for years, and you either buy into the cult or they go bananas. Whatever.

  36. Jeff Wegerson

    Mike Barry. As near as I can tell I don’t have any substantive disagreements with Hugh. I respect Hugh and his understandings of reality.

    Hugh. Luckily I am not sophisticated enough about economics to be an MMTer so I am able to be disagreed with without going bananas. Or maybe not because since I aggravate you maybe that is part of your definition of bananas

    Your description of the Fed fits my understanding as well.

    Oh “platinum” coin. I thought it was a “plutonium” coin. Well I like plutonium coin better so I’ll keep using that idea. Hopefully no cashier gives me one by mistake.

    Ok so a long history of interaction with MMTers. That I can understand. So what I am slowly coming to further understand is that there don’t appear, so far, to be any real substantive economic disagreements but a lot of tactical disagreements. I’m not happy with the word “tactical” so please take that as a guess word on my part.

    As for money creation I have seen it argued that Congress can appropriate funding for, well whatever, say a military operation to take out the illegitimate government of Brazil and occupy the Amazon prior to turning it over to the United Nations, just say as a very unrealistic example, and then send an order to the “Fed” to cut a check; in effect creating money. Or to put it another way, whenever Congress runs a deficit, and they then authorize themselves to raise the federal debt, they are creating money. Do I have that right?

  37. nihil obstet

    When Corrente and Naked Capitalism started hailing MMT as the economic key to progressive policies, I took reasonable efforts to understand it, even though I couldn’t see why MMT was necessary as a political tool. Since Reagan, the government has shown that it can always, always, always cut taxes on the wealthy (while raising them on the lower orders, if we all remember), lavish trillions on military contractors, build prisons by the score, and subsidize extractive industries and never, never, never provide adequate health care, housing, schools, or education for the proles.

    All that, the MMTers said, was economically convincing without the revelations embodied in MMT. It seemed to me a subcategory of Keynesism, but I was told that this was a total misunderstanding. After some back and forths, I still lack understanding of any serious, meaningful differences. And I still don’t understand how having fits about “taxes don’t pay for spending” advances the economic usages we want; wonking out over the last 30 years lost us the vision of a good, just society. We want to quit throwing money at the military and we want to eliminate the power of the plutocracy over the mass of the people. What’s the point of wringing our hands over Sanders saying that he’ll get money for the common welfare by cutting the military and taxing the rich? Do we really want to say, “All you people who like his ideas are wrong because you don’t understand this new academic description of how money works”?

    For those just getting in on the MMT argument, I’ll admit that I found MMTers not to be as objective and rational as a serious discussion should require. Hugh and others were banned from the two blog sites apparently because once someone was told that he was wrong, continued discussion of an issue somehow proved dishonesty. This practice disturbed me, and I left Corrente which for years had been my commenting home so to speak. So if there’s a sharp edge to some of the discussion, it reflects some not really acceptable practices on the part of the MMTers.

  38. Jeff Wegerson

    nihil. Thanks for the history.

    My first introduction to economics was pop Marxism. Rich people run everything to their advantage and workers need to change it. Next was Keynesian economics of counter cyclical government spending. Between those two I felt I had enough to judge politicians. With the first Clinton, who I considered a Republican, I have to admit I was impressed that he was able to boom the economy and run a government surplus. I thought that good but was schooled by Krugman that no government surplus means private deficit. I was starting to get confused. Then people started throwing around the words neo-liberal austerity economics. OK then I need to learn more if I’m going to participate in intelligent economic conversations. Then whamo MMT comes around. Great they tie a lot of pieces together. As does Ian and Sterling. But Sterling is so god-damned dense in his writing style that it was practically impossible for me to unpack it most of the time.

    So here I am. I respect Ian. I respect Hugh. I respect MMT. I respect Keynes. I even still respect pop Marxism. Hell I would be totally down with a democratic moneyless communism. Who needs economics then.

    I once asked a Lebanese Christian what they thought of Hezbolla. No didn’t like them. But don’t they deserve some credit for kicking out the Israelies? Yes grudging agreement.

    So look, MMT may be some sort of pop left wing economics, but they are the de facto economic gold standard right now. They are moving the Overton window. As such I think it behooves us to do our best to at least work around them where we can’t work with them.

  39. Hugh

    If the federal government wants to deficit spend, it can. But if this deficit spending exceeds the limit on the national debt, then that limit needs to be raised by Congress and signed by the President. The Treasury is constantly receiving payments: withholdings, tax payments, fees, etc. It estimates what the difference is between its inflows and spending outflows each month, and goes to the Fed’s Open Market Committee (FOMC) to sell at auction T-bills, T-notes, and T-bonds (they have different maturities) to make up this difference. The timing isn’t especially important between the payment to the government and the sale because the Fed, not the Treasury, not the Federal government, has the power of fiat money creation. But in general I would think the sale precedes the payment.

    Re MMT, it purports to be a description of how money creation actually occurs, but it isn’t. It is a description of a way it could happen. While the Fed has the power of fiat money creation, the federal government does not. The federal government continues to operate as if it were on a gold standard. It doesn’t need to. It hasn’t always in its past. But for the last 150 years or so, it has.

  40. Jeff Wegerson

    Hugh. Thank you for your time and patience with me. I sincerely appreciated your explanation of the details of the Fed’s money management process. If I followed it correctly then since the Fed works hard to balance spending with receipts via bond sales then the point of actual money creation on the government’s part is the raising of the debt ceiling.

    Next time I’ll see if I can’t get you to do a similar QE for Dummies description of how that process creates money.

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