The World-System Versus Keynes


The most incredible  modern lie is the one of nation-state sovereignty.  From the left to right,  the relative success of an administration is aways interpreted as a function  of endogenous variables the nation-state can  supposedly control.  In the case of the right wing, they see the perceived failure of their society as related to the government not closing the borders, running high deficits,  or allowing companies to outsource jobs.  From the left’s perspective, the nation-state is simply not running high enough deficits to fund more social programs, not supporting full employment policies, or refusing to raise the minimum wage. Meanwhile, a totalizing world-system pulsates  in all corners of the planet,  with flows of information, commodities,  securities, and dollars  creating a complex system that subsumes the sovereignty of most nation-states.  In the heart of this world-monster,  there is a hierarchy of nation-states, with some states having more influence and control  over the world-system than others.

Recently, with the advent of the Great  Recession in 2008, many people in the left, some of them self-proclaimed socialists, have been doubling down on the myth of national sovereignty.  They see the economic crisis, and the continuous casualization of workers, as an opportunity to administrate the nation-state in the “right way” to reverse these trends. They see themselves as holding secret truths and insights about the economy that neoliberals don’t truly fathom.  Only if these social democrats had the opportunity to apply  the right ideas, ideas that they claim have been pushed out of the political and academic mainstream for venal reasons, they could fix the economy.

What are these right ideas?  In the first half of the 20th century, John Maynard Keynes had already developed a toolkit for any eager leftist technocrat to  manipulate in order to attenuate economic crisis.  He, in contrast to the classical economists that preceded him, argued that sometimes the market did not clear, which generated a recession.  By market clearing, I mean that the supply of commodities wasn’t balanced out by  their demand. This is sometimes referred as Say’s Law.  Another important aspect of the failure of Say’s Law is the existence of unemployment, given that there is more supply of labor than demand.  While classical economists argued that economic crises could self-correct themselves and eventually clear, by for example, lowering the wage of workers or cheapening commodities,  Keynes argued that these recessions could persist for a very long time without the aid of governmental fiscal and monetary policy. According to Keynes, some of the reasons the markets fail to clear are: (i) workers will not accept wage cuts, (ii) recession would make investors risk averse, causing them to save their money rather than invest, and (iii) mass unemployment and risk aversion would decrease the buying of commodities.

Keynes thought that the state could  force the market to clear through fiscal and monetary policy.  He argued that in the case of recession, aggregate demand is lower than what it should be, and this in turn, caused negative feedback loops that halted the economic engine (e.g. the underconsumption of commodities). In order to stimulate demand, the state could increase the amount of money in the consumer side by: (a) public spending on infrastructure in order to employ the previously unemployed, (b) lowering taxes so that the consumer has more available money. Meanwhile,  the state could stimulate demand through monetary policy by lowering the interest rate so that consumers and investors can buy an invest through cheap loans and credit.  This monetary policy was thought to cause inflation because it would increase the money supply by allowing low interest/cheap borrowing, but at the same time, this policy was thought to cure the greater diseases, which were mass unemployment and low aggregate demand.   Keynes’ policies often required deficit spending, that is the government spending more than they acquire, usually by accruing debt. Furthermore, Keynesian policies  tend to trigger inflation because they increase the money supply. However the Keynesians thought that this inflation was a necessary evil to cure unemployment.

In the 1970s, however, economic crisis displaced Keynesianism into the fringe.  The rapid increase of the price of oil coupled with a large money supply created a crisis. These high prices discouraged companies from investing, given that production costs were too expensive and inflated. The Keynesian approach to dealing with crises was not applicable since unemployment was coupled with low demand and inflation (stagflation), which ran contrary to the Keynesian consensus of the time. So it seemed that inflationary policies, such as increasing the money supply, wouldn’t solve the stagnation and unemployment problem.  In response to the crisis, some economists, like the monetarist Milton Friedman, claimed   that Keynesian monetary policy was at least partly responsible for the crisis given its inflationary nature.  Friedman argued that in order to cure the recession, governments should reduce the money supply.  Therefore in accordance to Friedman’s prescription, the Fed in the United States sharply increased interest rates, which ran contrary to Keynesian policy. This tightening of the money supply by the Fed is thought to have aided in the resolution of the crisis. The empirical falsification of Keynesianism because of the stagflation crisis, coupled with a protracted cultural war by classical economists such as Hayek, Friedman etc., and the shift of power towards financial speculators,  displaced Keynesianism into the fringe of heterodox economics that exists today.

Nowadays Keynesianism has been rebranded into all sorts of heterodox disciplines that found a place in Left. Keynes became a darling of the Left for three reasons: (i) melancholy for the post-WWII welfare state and cheap credit, (ii) a consumer-side perspective (e.g. focus on aggregate demand) that seems to value working class consumers over capitalist suppliers, and (iii) the idea that capitalism is crisis prone in contrast  to the the neoliberal orthodoxy of economic equilibrium.  Some of these rebranded Keynesian theories go under different names, such as Post-Keynesianism and Modern Monetary Theory.  Although these Post-Keynesian theories are not exactly isomorphic to the original theories and prescriptions set by Keynes, they all roughly agree with the main heuristics, mainly that the state should strongly intervene in the market, and that an increase of money supply and government spending should be used to counter crisis rather than neoliberal austerity.  Finally, all these approaches rely on one particular thing (which I will show later on why it’s flawed), which is the strength of the sovereignty of the nation-state.  I will focus on Modern Monetary Theory (MMT) as an example given that it is one of the more contemporary iterations of Keynesianism.

Modern Monetary Theory’s basic premise is simple:  a nation-state that issues its own currency cannot go bankrupt given that it can print more of its own money to pay for all necessary goods and services.   Another way of stating this theory is that governments don’t collect taxes for funding programs and services. Rather governments literally spend money into existence, printing money in order to pay for necessary services and goods. Taxes are just the government’s mechanism to control for inflation. In other words, taxes are the valve used to  control the money supply. MMT therefore argues that since money is in the form of fiat currency,  it’s not constrained by scarce commodities such as gold and silver, and therefore it is a flexible social construct. So governments don’t need to cut social programs in order to increase revenue – they could simply spend more money into existence in order to pay for social programs. Furthermore, the government can  enforce full employment by spending jobs into existence  – the state can create jobs through large-scale public works, and then print the necessary money to pay the workers. In a sense, MMT is another iteration of the Keynesian monetary heuristic that increasing the money supply is a good way to solve high unemployment and crisis.

Imagine the potential of MMT for a leftist!  The neoliberals  arguing for austerity and balanced budgets are talking nonsense – the state can simply spend money into existence and therefore pay for welfare and other public services, and also use this new minted money to employ the unemployed! If the increase of money supply triggers inflation, the state can simply tax more, fine-tuning the quantity of money. If only the MMTer would convince the right technocrats, we wouldn’t have to deal with the infernal landscape of austerity.

However, the idealized picture presented by MMT is missing key variables.  Ultimately,  an MMT approach would be  heavily constrained by national production bottlenecks.  In order for MMT approaches to work, the increase of demand caused by the sudden injection of money should be able to be met by the production of  the desired commodities.  In an ideally sovereign nation, society would be able to meet the demand of computers, medicine, or food by simply producing more of these commodities. We may refer to a country’s capacity for producing all the goods it needs as material sovereignty.

However this is where the fundamental achilles hill of MMT (and Post-Keynesianism in general) lies.  Most countries are not materially sovereign at all. Instead, they depend on imports in order to meet their demand on fundamental goods such as technology, fuel, food or medicine.   In the real world, countries have to buy forex currency (e.g. dollars) in order to be able to import necessary goods. The price of the dollar in terms of another currency is not in control of the currency’s issuer. Instead it’s a reflection of the economic and geopolitical standing of that nation amidst the current existing world-system. Whether the dollar is worth 20 or 30 Mexican pesos has to do with Mexico’s  position in the global pecking order, and this exchange rate, if anything, can be made worse by the adoption of Keynesian policies. For example, if Mexico suddenly increases its own currency supply, the Mexican peso would simply be devalued in contrast to the american dollar, making its ability to buy the necessary imports diminished.  This puts a fatal constrain on a nation-states ability to finance itself through simple monetary policy.

The economic castigation of “pro-Keynesian” countries by the world-system is a cliche at this point.  To name some examples:  Allende’s Chile,   Maduro’s Venezuela, or pre-2015 Greece. In the case of Allende, the sudden increase of the money supply by raising the minimum wage created a large unmet demand and also eventually depleted the country’s forex reserves (there was also economic sabotage aided by the United States, but this also reinforces my argument).  In the case of Maduro, Chavez ran large deficits, assuming the high revenues from oil will last long enough. Greece overspent itself through massive welfare and social programs.  Although Greece doesn’t have its own currency, it still engaged in a high deficit fiscal policy that led to its default.   If these countries had their own material sovereignty, such as being able to produce their own food, technology, and other necessary goods, the global order would not have been able to castigate them so harshly. Instead, what ended up happening is that foreign investors pulled out,  the national currency plummeted, and their forex reserves depleted,  making these governments unable to meet the national demand for necessary goods through imports or foreign capital injection.

The above scenario reveals a fundamental truth about capitalism – national economies are functions of global, exogenous variables, rather than only endogenous factors.   Keynesian policy is based on the idea that nation-states are sufficiently sovereign to have economies that depend mostly on endogenous factors. If  the nation-state’s economy depend solely on  national variables, then a Keynesian government could simply manipulate these variables in order to get the desired outcome of  its national economy.  However it turns out nation-states are instead firms embedded in a global market, and their fate ultimately lies in the behaviour of the planetary world-system.  The nation-state firm has to be competitive in the world-system in order to generate profit; this implies that inflationary policies, large debts, and state enforced  “full employment” are not necessarily healthy for the profitability of the firm.   Furthermore, it means that the leftist nationalists that want to, for example, leave the eurozone in order to be able to issue their own currency, are acting from misguided principles.

Given the persistence of the totalitarianism of the world-system, no matter the utopian schemes of leftist nationalists and their fringe hetetodox academics, it’s infuriating to witness how the Left has lost its tradition of internationalism. Instead, the Left, since the advent of WWII, has been pushing for “delinking” of the world-system, whether it’s through national liberation during the 60s, or more recently, by leaving the euro-zone, fomenting balkanization in countries like Spain or the United Kingdom, etc.

The world-system can only be domesticated to pursue social need with the existence of a world socialist government.  Regardless of how politically  unfeasible the program of world government is, its necessity follows formally from the existence of a world system. Only through world government could socialists have sufficient sovereignty in order to manipulate the economy for social need. In fact, the Keynesians indirectly point at this problem through their formalism.  Post-Keynesian theories such as MMT start from the idea of a state having material sovereignty. Yet, the only way for a state to have material sovereignty, and therefore be able to manipulate endogenous variables for its own economic ends, is to subsume the whole planet into some sort of unitary, democratic system.  A planetary government could then manipulate variables across the planet (e.g. both in China and in the United States) to enforce social-democratic measures like full employment or a welfare state, without dealing with the risk of international agents castigating the economy, or having to import goods from “outside”.  But the funny thing is that once we have global. fiscal and monetary policy, Keynesianism becomes irrelevant, given that market signals can be supplanted by a planned economy.

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26 thoughts on “The World-System Versus Keynes

  1. I agree that left-keynesianism and MMT is often incoherent, and that the leftist governments you mention were failures, but I think there are some issues with your argument.

    “The nation-state firm has to be competitive in the world-system in order to generate profit; this implies that inflationary policies, large debts, and state enforced “full employment” are not necessarily healthy for the profitability of the firm.”

    Why should the community be concerned with the profitability of the national firm? Commodities have a use value and an exchange value. Profitability relates to exchange value but use value is what’s important. Isn’t it equally valid that in the crisis of the 70s the West chose politically to stay fully within the logic of capitalism and this required Thatcher, neoliberalism etc…

    “Most countries are not materially sovereign at all. Instead, they depend on imports in order to meet their demand on fundamental goods such as technology, fuel, food or medicine.”

    This appears true but your presupposing that the current global division of labour, trade, and factor movements are inevitable and natural rather than contingent and social. They appear to be ‘facts of nature’ that leftists must adjust themselves to, but on closer inspection, trade as % of GDP was higher before 2008 and factors were more mobile in the ‘first age of globalisation’. If we’re on a one way street to globalisation then why is this the case? Is the logic of capitalism moving towards more trade or less?

    Most countries have to the potential to be materially sovereign but this would run against the logic of capitalism not the production of material wealth. Think about a war economy where suddenly autarky and full employment are necessities. As long as a state controls trade and factors then there is no reason the current lack of material sovereignty has to stay.

    Your proposed world socialist government is far more utopian than the nation-state embedding capitalism within a social plan. While the communication technology exists to create such a government, there is no evidence that people are becoming more international (the opposite is probably the case). There is also no evidence that this will change. An ‘upgrading of consciousness’ from the national to the international would be useful but it’s surely imprudent to base your entire political strategy on something for which there is no evidence.

    But the main problem with your argument is that we (and by that I mean humanity) don’t have the luxury of sitting around waiting for a world socialist culture to proceed a world socialist government. To maintain our current standards of living (of use-values) we need to radically reorganise our economies to overcome climate change (mitigation, adaption, etc). The longer we do nothing the greater the chance that our productive capacity is destroyed that would form the economic basis for our freedom. From this it seems to be that one nation-state has to make the first move.

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    1. Keynesians can’t avoid the issue of the nation-state as a firm if they have no material sovereignty. You need to have “profits” in order to tax so that you can buy the dollars or whatever necessary to get fundamental goods like food, medicine etc. from abroad. The moment the nation-state is not a “firm” we aren’t in capitalism anymore. So yes, in theory we should emphasize the use-value of commodities, but the moment we do so, they aren’t commodities anymore, but simply goods.

      The world-system is not a natural fact but at-least a fact about capitalism and probably a fact of a high tech civilization. In fact, already Adam Smith was describing the coupling of various nations in the clothes of a working man, ergo the 18th century already had a global division of labour in some of the most elementary commodities. Bullion flows became a semi autonomous world-system already in the late 16th century, with the plundering of the americas for silver and gold. So it seems given the empirical evidence, that there is no such thing as a “national material sovereignty” capitalism. There has never been a “national” capitalism and probably there will never be.

      The war economy point you gave doesn’t seem to help your argument. Currently there are some war-economy like nations like North Korea and Cuba, but they exist in this formulation at the expense of immense material sacrifice, including immense shortages. Do we really want something like that?

      I actually think that climate change can’t be tackled without some sort of world government like structure. In capitalism, nations and firms are competing against each other. Given the logic of profit, how on earth will they coordinate in a system that pitches them against each other to pursue those marginal profits? What you are saying is incoherent. Nation-states embedded in a market with a “social plan” already is setting up the scaffolding for a world-government.

      About your argument on political realism. Well, I actually yielded to that point at the end of my piece so I am not sure what is your point? My arguments are “formal” and follow from the deficiencies of the existing arguments and systems, I am well aware they don’t exist in a generalized way in the consciousness of people. However something is unrealistic until it is realistic. It is not an unrealistic program because the laws of physics says so, but simply because the arguments and ideas are unpopular. So I am trying to popularize the unpopular, which may fail, but so what?

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  2. Replying to your criticism of MMT, there’s definitely some truth to your argument, but I think that requiring “material sovereignty” in order to have full employment is overstating it. For one thing, on a floating exchange rate, the nation isn’t going to run out of foreign reserves. Secondly, MMT is explicit that exchange rate devaluation is a risk of full employment policy, but replies that 1) it’s probably an overstated risk, as history shows that large current account deficits can persist for a very long time, and the exchange rate can’t fall forever, eventually it’s just going to shift jobs to the export sector, and 2) even if it happened, that doesn’t mean you have to abandon full employment policy. You just do something else about it. For instance, by making some of the Job Guarantee payments in-kind instead of in money (like, the workers provide services to themselves), you can reduce imports without reducing quality of life.

    On another note, MMTers do consider bottlenecks, and the Job Guarantee, as we envision it, is actually a price-stabilizer, it is not inflationary. That’s because it’s highly counter-cyclical, since it is a fixed-price/floating-quantity spending rule.


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  3. “However, the idealized picture presented by MMT is missing key variables. Ultimately, an MMT approach would be heavily constrained by national production bottlenecks. In order for MMT approaches to work, the increase of demand caused by the sudden injection of money should be able to be met by the production of the desired commodities. In an ideally sovereign nation, society would be able to meet the demand of computers, medicine, or food by simply producing more of these commodities. We may refer to a country’s capacity for producing all the goods it needs as material sovereignty.”

    You are correct that MMT does not offer some utopia where there are no real resource supply constraints. But it does not pretend to do so. And I can’t think of any economics school of thought that does for that matter. What MMT shows is that a country with its own currency has the ability to utilize idle resources, including unemployed labor, so long as those resources are available and are for sale in the currency. Theoretically, all available resources being employed results in maximum output or supply of goods and services. Optimists like me think that situation would spur productivity increases which could increase total supply possibilities, but that is not necessarily a part of the MMT story.

    “However this is where the fundamental achilles hill of MMT (and Post-Keynesianism in general) lies. Most countries are not materially sovereign at all. Instead, they depend on imports in order to meet their demand on fundamental goods such as technology, fuel, food or medicine. In the real world, countries have to buy forex currency (e.g. dollars) in order to be able to import necessary goods. The price of the dollar in terms of another currency is not in control of the currency’s issuer…..This puts a fatal constrain on a nation-states ability to finance itself through simple monetary policy.”

    MMT is better characterized as advocating fiscal policy- not monetary policy. And MMT does not hold that real resource constraints disappear when more money is created. In my understanding, MMT recognizes that nations that cannot produce a particular good would have to engage in trade with other countries in order to acquire that good. Because that good may not be for sale in their own currency. In that case the importing country will have to sell some of its own production for the currency in which that particular item is for sale in. There is nothing really controversial about MMT’s view on this.

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    1. If someone where to ask my advice as to how to sell an MMT style jobs program my first piece of advice would be to call it The Sacred American Values Militia Act, or The Traditional American Values Militia Act. This act would establish the Sacred American Values Emancipation Militia (SAVEM)
      Anyone can volunteer for the program. They would be able to report for immediate induction at any National Employment Center. They will get free uniform wit shiny buttons and with an American Flag or an American Eagle patch on the shoulder. They won’t have to wear the uniform though if they do not want to. In addition to a reasonable hourly wage after three months of SERVICE TO THE NATION they will recieve a certificate of appreciation certificed by the VFW as being signed by an AI hologram of Dwight Eisenhower. After six months of service they will recieve an additional certificate of Appreciation cotton fibre paper produced by hand in Germany signed by an AI hologram of Ronald Reagen. After nine months of service they will reoieve a certificate framed with simulated Vietnamese Bamboo grown on an authentic American bamboo farm signed by a hologram of John Wayne. After one year of service they will recieve a certificate that is signed by Charlton Heston and is embossed with a hologram that shows Charelton Heston parting the Red Sea with a flintlock in one hand and a James Bond book in the other hand. The book will be one of stories in which Sean Connery played Bond in the movie version.
      The next certificate will not be given out until after two years of service. It will be engraved in copper mounted on cherrywood. But further details have to remain undisclosed for the time being. I guess because they have yet to be decided upon.
      In addition to special certificates given out to the patriotic volunteers supporing America on the home front just as many of our forefathers did in the 1940s after the 3rd and fourth years of service. They will also get a title after the fourth year of service. Militia Minuteman would be an apporpriate title after this length of time. After five years of service the volunteers can add a light blue military style cord to the shoulder of the uniform. Additional accessories and additional titles could be added for additional service.
      I should addd that without a doubt anyone wearing thier uniform would be allowed to use public transportation for free. If they are injured while in uniform they should be able to go to any hospital for treatment and know that at least 80% of the bill will be covered with 100% being covered once there hospital bills go over 1500 for the year.
      I do recognize that there is one drawback to the militia concept. That is that it could not be open to those under 18 years of age. Well maybe even for those that are 16 and 17 that is for the best anyways. Or on second thought just as some high schools have junior ROTC a complimentary program to the SAVEM could be Junior Minuteman which offer job training programs.


      1. Heck, I am really getting in to this. To prove to the conservative skeptics that MMTers have lost their minds and are promoting conservative ideas we can add weapons to the mix of items that are given out to those who have provided service to the nation for performing MMT style work. After 5 years of active service, not neccessarily continuous service, the SAVEM Minute Man will recieve an airpowered .17 cal single shot all plastic target pistol, made with real hydrocarbons from Saudi Arabia. Then gun will fire with olympic percision accuracy up to 15 meters, and be designed to look like a flintlock. Then after 10 years the the SAVEM Lance Corpral will recieve a two shot .22 cal target rifle which can fire with olympic accuacy out to 50 meters. Then after 15 years a double barreled 20 guage shot gun. Then after 20 years a 3 shot 7.1mm bolt action hunting rifle with a nondetachable magazine. Of course those who have been flagged with mental instabilty will be exempted. Anyone who has a moral objection to accepting such a tool can recieve a gift certificate to an amsement part instead.
        Those taking part in the program will also get an ID card that says that they are member of a limited edition numbered Sacred American Values Efficiency Regiments (SAVER) which are part of limited edition Sacred American Values Enhancement Divisions (SAVED). Although such units will be assigned to the federal government they will be attached for operational purposes to more local governments.
        I should emphasis that there will be no dress code. However it will be forbidden to wear, carry or create Nazi or Confederate or Soviet or Religous or Anti Religous symbols while on active duty with the Militia.
        The expression of the ideas of these movements during work breaks will not be prohibited however. Of course it will be emphasised that freedom of speech ends at the tip of someone elses nose and violent responses to free speech will not be tolorated. If someone wants to we can discuss the definitions of a hostile work environment at greater length.
        Finally terms of active duty service will be for 3 month periods with the potential for extentions as needed.
        But the enlistee can quit at any time with one or two weeks notice depending on the needs of the locality which will be determined at the time of the enlistment.
        Some people might say that this reminds them of the German Brownshirts, the SA. My response is that the SA was only a half baked concept that fell under the control of bad leadership. This program will be just as bad if it falls under the control of bad leadership. Big deal, Leadership is ALWAYS decisive. The best ideas of geniuses and saints can and will be corrupted by bad leaders if they get to implement the ideas.


    2. The job guarantee that I have read about is fixed at one wage reguardless as to what the work done is.
      I stll have to say that this is nonsense and quite frankly I do not know why it is promoted like that. Here in Germany there are different minimum wages depending on the type of work involved. More importantly say if there was a pay scale of of 14, 15, and 16 dollars per hour the 14 dollars per hour woiuld become the defacto wage Anchor that the MMTers on Bill Mitchells site are so fond of touting. So it is certainly no big deal to have a simple wage scale.


  4. Cuba has a lot of material constraints. I think that its government has done a darn good job of making the most of what it does have.
    I wonder if some of the principles of Parecon could be adopted to the relationships between countries?
    If it is at all possible it might be easier if there were fewer countries.
    I do think that two things need to be considered in managing the international allocation of resources.
    The first is that the have nots deserve to have a better life than they have now. An implication of that is that the haves will have to make sacrifices to acheive a better life for the have nots. The second thing is that the sacrifices that the haves should be expected to make can not be to sudden. The haves deserve a chance to adapt to new circumstances. I guess it could be called becomming aclimatized with the new environment.
    The reason I think that this is legitimate is in my own expierience it is very psychologically difficult to go through economic downsizing. On the other hand it is psychologically pleasant to go through economic improvement. When these two principles are combined the speed of change that policy makers seek to impose should be grapidual.
    Another thing that my own expierience indicates to me is that many families that will have to live on less will need remedial training on how to get by on less. Leaders or technocrates can not expect that people living in their countries will know what to do to make a successful transition to a new kind of economy.

    It nice to see Jerry Brown from Bill Mitchells MMT site making a comment here.

    Liked by 1 person

  5. @Jerry Brown,
    BTW Bill censored my response which explained how the leadership of the US and the UK deliberately prolonged the Second World War in Europe. If you did not have a chance to read that before he removed it I would be glad to rewrite it somewhere else where you can read it.

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  6. Thank you Curt 🙂
    I agree with you about how psychologically difficult it is to go through economic downsizing. I would add that it is also very difficult politically to take things away from people that they think they deserve whether they really deserve them or not. My experience has been that most people most of the time believe they deserve what they have plus some. I fall into that category most of the time also.

    One of the things about economics is that it offers a supposedly neutral explanation about why some people have and deserve more than others. And the idea that the ‘economy’ did it is also used to justify why it is necessary that, say, a worker with a ‘good’ job would go through the “economic downsizing” they experience when the employer goes out of business or relocates. You know- its just the economy done that- nothing we can do about it.

    What I like about MMT is that it shows that some of these assumptions are very arguable. And I like to argue 🙂

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  7. MMT is currency analysis, focused on institutional level finance. Dissecting balance sheets and following cause and effect in a stock-flow consistent framework. You conflate analysis with common sense conclusions and then attempt to debunk the facts using the recommendations. The national accounts identity proves that federal govt deficits are equal to private sector surpluses in the exogenous money supply. Since the exogenous supply is the only means by which the national payments system can clear, the larger the exogenous supply the more transactions can occur within the functional economy. In the event the exogenous supply is too large, as with QE injections, no detrimental effect occurs within the functional economy because the private sector only uses what we need to transact our daily lives. The balance sits in savings accounts. How are savings accounts detrimental to the economy? Conversely, shortages in the exogenous supply destabilize the economy when payments can’t clear due to reserve drains created by default. Lack of exogenous money is what collapsed the US, and by extension global economy in 2008. These are truths revealed by those of us who can read balance sheets and apply them to functional finance at the institutional level. Public safety nets are direct injections of default risk free money into the functional economy. This is the fact. The amount of money required to stabilize society should reflect the decisions of an informed majority. We dimply describe how it works. Please put away your pitchfork and have a nice day.

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  8. The author does not realize that Keynes foresaw the problem outlined and proposed using a supra-national currency called the bancor and had a whole system of trade designed around it. Keynes’ bancor addresses many of the points in the article. But alas the U.S. won out as the Reserve currency and the rest is history.

    That said the detailed analysis above by Mike Morris brings us up to date.

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  9. Quite a casual dismissal of Greece’s lack of monetary sovereignty, following the generally adequate understanding of MMT. Generally adequate, until you posit that MMT-inspired policies would REQUIRE government to deficit spend beyond the capacity of the economy to produce. One must suspect that this is disingenuous at best. But there is indeed a “world system”, countries interconnected by trade, whether they have their own currencies, fixed or floating, or a shared currency over which they are not sovereign.

    It is a good insight that simply being monetarily sovereign doesn’t negate a need to import critical goods. I usually say that a country’s prosperity is determined by what it can produce. Perhaps a corollary insight is that it is incumbent upon the countries that are higher in the “pecking order” to ensure that there is an adequate world supply of reserve currencies to enable the others to earn the dollars, yen, pounds and euro that they need to fund their imports. And to drive their own economies to full capacity (not beyond), which will increase their current account deficits and fund the imports of those not materially sovereign. And to continue to use, and increase the use of their own monetary sovereignty through foreign aid, to directly fund imports in those countries.

    And nothing about it is inherently “left” or socialist. The benefit to the 1% from worldwide full employment would exceed their wildest dreams.

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  10. the idea that an integrated world-government could be realistic expected to emerge given a world-system is really untenable. there’s absolutely no path to common governance, even given international interdependence.

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  11. Dear Cyborg,
    I have pointed out what you said a number of times on this blog. What might be possible is that Institutions like the EU and ASEAN and NAFTA evolve in to something better than what they are now and that eventually every current counrty in the world becomes part of something bigger on a continental scale.
    To Anyone else who takes the time to Read this.
    But that brings me to Russia where elections were held yesterday. Russia is certianly a country continental in scale. It has an abundance of natural resources. It has an abundance of the most important national resources. I wonder what the excuse is of Putin and those people in his government who support him for pro capita gross national happines index lower than that of Cuba. *° At this poin in history there is really no reason at all that the per capita gross national happiness index for Russians should be any lower than that of Americans.
    Well wait just a moment…………………………….I can actually think of a factor that when all other factors were equal could be decisive. If you are a country of delusional people you are likely to be a country of people who is far more optomistic about the future than is justified by an accurate asessment. An optomistic population would certianly be happier than a pessimistic nation even when such optomism is not justified. So do the Russians need some free points to offset the disadvantage of being compared with an optomistic, but delusional population? Or, do they need to some free pointers about how to improve their economic performance sustainably?

    *° If you (anyone reading this) need to see the origninal source for this claim find it yourself. I am a not a college professor. But if you do not believe my assertion that Cubans are happier than Russians on a per capita basis I hope that it takes you a really really long time to find a source that supports my assertion.

    PS. Just because I am criticising Russian economic performance does not mean that I support current Ukrainian government attempts to become part of the EU or NATO. The Ukraine even is not legitimately an independent country. It is legitimately part of Russia. The only independence movement that is more illegitimate than that of the Ukranians is that of the Catalonians. The Ukrainians should not be making war with Russians they should be making love with Russians. And when they are lying in bed togehter afterwards perhaps they can figure out together how to improve thier economies together.

    PPS. Just because I do not support the independence of the Ukraine (or Catalonia) now does not mean that I would not support it under any circumstances.

    Liked by 1 person

  12. I don’t know what do you f***ing know about what’s happening in Catalonia. So don’t dare to use the Word “balkanization” (I don’t know, maybe you are one of those leftists who think that Milosevic was really cool) or compare it to Brexit. Discourse seems to be cheap up here (specially when coming from any anglo-saxon country. which still see themselves as the centre of the universe and civilization), better stick to your scientific field of knowledge… pedazo de tonto

    Liked by 2 people

      1. Pues si… Cataluña es la Padania Española, le falta a su gobierno pedir bombardear a los refugiados para que se parezca del todo a la Liga Norte. Supongo que organizaciones como ERC o la CUP no te suenan mucho (o la izquierda abertzale en Euskadi -esa es nuestra Costa Azul, seguro-). Por cierto, es comunidad autónoma, constituida en cuatro provincias

        Liked by 1 person

  13. Dear Barrot,
    I am not in a position to say whether or not Milosevic was cool or restarded. I am in a position to say that the breakup of Yugoslavia was a mistake for the Yugoslavians.

    Ohhh right very funny. That is just halarious. Let me repeat for the audiance what you just said, Then it could not have been a mistake for anyone because there are no more Yugoslavians. I will not bother to respond to that.

    What I will say is that this trend that because a region of a country is better off than the rest of the country therefore the region should become independent is a bunch a hooyey balluy. At least when a region is poorer than the rest of the country the residents there have the cover of making the claim that they are being persecuted by the rest of the country. OHHHH WAIT A SECOND. But thats what the Catalonians are saying, even some of the leftist parties. We make more so we are a cash cow for the rest of the country. WOW that really shows a lot of solidarity with those that are less fortunate.

    Catalonia, Croatia……..Scotland, Slovenia, Switzerland………….Northern Ireland, and Norway. Which one does not belong. Answer Scotland now not before. If Scotland wants to remain in the EU it has a just as much right to do so as……..wait a second………..and then break free from where it belongs just as much as ……wait a second…..what do I hear?? Do I need to restate the question?

    Liked by 1 person

  14. Northern Great Britian, I like the sound of that. But mcving on to more important matters.
    When everything is boiled down to the mollasses what we should be left with is a world divided up in to 10 confederations or federations which follow either the path of Cuba, or the path of MMT or the path of Parecon at thier internal level with some form of international coordination to insure that Russians and Canadians do not freeze to death during the winter and Saudis and Iranians get enough water during the summer. In other words no failed states. In short kind of a wartime economy when looked at from outerspace.

    Liked by 1 person

  15. Really? A socialist buying neoliberal mantra? Wow.

    How should i put it? The point you completely miss on your argument is that national governments, even small countries, have the policy options available to them to avoid the austerity measures used and abused.
    Exchange rate policy and capital controls can be pretty effective.


  16. I just went on an internet journey tonight to better understand MMT. It started off with trying to understand how mmt deals with private saving. If I understand the ideas correctly the government does not need to inject money in to the economy to precisely offset savings and imports it just spends until full employment is reached, using a government job guarantee program as one means to achieve full employment.
    So that led me to ask the question of whether or not if such policies were adopted by the USA and western Europe and Japan and Australia if the developing world would be damaged. Well what I found out was that it seems that the founders of mmt do not support free trade. It seems that they would advise the developing world to implement trade and capital controls to protect themselves from exploitation from the developed world.
    With that all of my major questions about mmt seem to be answered and the system seems like a plausible alternative to the world’s current policies as long as there is a high enough rate of progressive taxation to force the neccessary austerity, without unemployment, to give the world time to try to salvage the environment before it kills all of us.


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