MMT | Insight Maker

Wagdy Samir work in progress. Addition of Bill Mitchell's draft textbook chapter1 See also The value of everything book IM

MacroEconomics

Geoff McDonnell

4

Spending by the government creates its own 'financial resource' as the process of crediting an account in the private sector takes place. This may sound like nonsense, but in fact it is 'monetary reality'. This premise is supported by Bell (1998; 2000) and Wray (1998a) who argue that the Treasury does not need to collect or borrow funds in order to spend, but crates new funds as it spends.

Perhaps the following thought experiment helps to understand how this is possible.

If you imagine two drawers, each representing an account. The first drawer contains 100 gold coins and the second is empty. Also imagine that there are no other gold coins available at this time. Let's call the first drawer account A and the second account B. Now if you want to transfer 30 gold coins from account A to account B, you would actually first have to take the coins out of drawer A and then place them into drawer B. Account A will then necessarily have 30 coins less in it. Now imagine accounts A and B are held in a computer as electronic money. Instead of 100 gold coins, account A only contains the computer generated number '100' and account B shows '0'. To get account B to show a balance of '30', it would now simple be necessary to change the '0' to '30' on the computer. The need to raid account A and to take '30' from the number '100' before you could credit account B does not exist. Money is created as it is entered in B's account irrespective of whether A's account is debited before or after this process or not at

Monetary Reality

Hanns-Jürgen Hodann

This model shows the basic functioning and dynamics of a 'modern monetary system'.

The non-government sectors, consisting of the private and foreign sectors initial y starts with zero currency units. It is important to realize that after creating a new currency the government must first spend currency units into the economy before they can be used: without currency units the private sector could not even pay taxes! A government that has its own freely floating currency can create a much money as it wants. It does not need tax receipts to finance its spending, and any money it spends into the economy above that collected in taxes represents income for the private sector. The model show that the government initially created 9 trillion money units, but spent only six trillion into the economy. The six trillion showed up as a government deficit, but also as wealth in the non-government sector.

Since the government can create as many money units as it wishes and transfer them to the private sector to ensure an adequate level of demand in the in the economy, austerity is unnecessary: money is available, though real resource may be scarce. This also shows that the government can contribute actively towards the creation of prosperity.

Please note that this model was originally created by Gene Bellinger, IM 3206, from which this version was cloned.

Clone of Austerity vs Prosperity

Hanns-Jürgen Hodann

This is a simplification of the Austerity vs Prosperity model in the hope that it will be easier to understand.

@LinkedIn, Twitter, YouTube

Austerity vs Prosperity v0

Gene Bellinger

Launch page for Macroeconomics Textbook 2019 by Mitchell, Wray and Watts. There is also a book companion site

Macroeconomics Textbook Overview

Geoff McDonnell

WIP based on Bill mitchell's blogs.

Sectoral balances are relationships among money flows during an accounting period. Where we perceive accumulations of past imbalances to be accrued is another matter....

MMT Fiscal position

Geoff McDonnell

Modern Monetary theory (MMT) has shown how modern monetary systems actually work. It has shown that governments that issue their own currency, such as the US, can never run out of money or be forced to default on debt issued in their own currency. It has also demonstrated that government spending to stimulate the economy is logical and that the resulting deficit is irrelevant - the government always has the monetary means to eliminate it. This directly contradicts neoliberal doctrine that wants to limit government spending and posits that deficits destabilize the economy. Neoliberalism often constitutes a 'worldview' and 'personal identity'. Those who hold such strong beliefs cannot be persuaded to abandon them using rational arguments and facts - psychological reasons usually impede it as research has shown. The worldwide dominance of the doctrine, vested interests and psychologically grounded opposition suffocate MMT and rational arguments showing its superiority are seemingly of no avail.

Irrational rejection of ''Modern Monetary Theory''.

Hanns-Jürgen Hodann

From Bill Mitchell and Warren Mosler December2018 billy blog entry and mosler's MMT white paper (google docs) 2019. Some highly aggregated stocks and flows and boundaries introduced.

The essence of MMT

Geoff McDonnell

Based on Ch 7.3 of Mitchell Wray and Watts Textbook see IM-164967 for overview. IM-165415 Example converted to a continuous time dynamic model using stocks and flows

A Simple National Income Macroeconomic Model Continuous Time

Geoff McDonnell

Based on Ch 7.3 of Mitchell Wray and Watts Textbook see IM-164967 for overview. See IM-165546 for a conversion to a continuous time stock flow version of this simple example

A Simple National Income Macroeconomic Model

Geoff McDonnell

This model shows the basic functioning and dynamics of a 'modern monetary system'.

The non-government sectors, consisting of the private and foreign sectors initial y starts with zero currency units. It is important to realize that after creating a new currency the government must first spend currency units into the economy before they can be used: without currency units the private sector could not even pay taxes! A government that has its own freely floating currency can create a much money as it wants. It does not need tax receipts to finance its spending, and any money it spends into the economy above that collected in taxes represents income for the private sector. The model show that the government initially created 9 trillion money units, but spent only six trillion into the economy. The six trillion showed up as a government deficit but as wealth in the non-government sector.

Since the government can create as many money units as it wishes and transfer them to the private sector to ensure an adequate level of demand in the in the economy, austerity is unnecessary: money is available, though real resource may be scarce. This also shows that the government can contribute actively towards the creation of prosperity.

Please note that this model was originally created by Gene Bellinger, IM 3206, from which this version was cloned.

Clone of Clone of Austerity vs Prosperity

emilio piccoli

This model illustrates the current practice and consequences of government spending. Following the direction of the arrows from right to left the model shows the following sequence based on current practice:

Government Spending at a certain point leads to spending in excess of tax receipts. This will automatically lead to the issue of treasuries in the belief that the excess spending must be financed by borrowing (although the government has the capacity to create money). This in turn will increase the national debt.

Consequences that follow from this practice:

1) That national debt increases whenever the government spends in excess of tax receipts.

2) That the government must pay interest on the debt issued, which in turn increases and reinforces the need for government spending.

3) That the interest paid on treasuries will increase private sector income.

There is an alternative view, supported by Modern Monetary Theory, of how government spending can proceed. Please see this Insight:

https://insightmaker.com/insight/19954

Government Spending (Current Practice)

Hanns-Jürgen Hodann

Summary of Ch 27 of Mitchell Wray and Watts Textbook see IM-164967 for book overview See IM-169093 for added dynamic evolutionary economics history

History of Economic Thought

Geoff McDonnell

4

Partial exposition of Samuelson's Accelerator Model to conform with the Simple Model 7.3 in the Macroeconomics Book, based on MIT D memo D-1761 by Low and Mass 1973 See also more complete version IM-177550

Multiplier Accelerator Model Partial

Geoff McDonnell

WIP based on Bill mitchell's blogs

Sectoral balances are relationships among money flows during an accounting period. Where we perceive accumulations of past imbalances to be accrued is another matter....

Clone of MMT Fiscal position

emilio piccoli

Summary of Ch1 of Mitchell Wray and Watts Textbook see IM-164967 for overview

Macroeconomics Introduction

Geoff McDonnell

49

WIP replication of Khalid Saeed's draft paper presented by the Economics chapter of the SD Society in Sept 2019 youtube video

Unlinking public finance and taxation in fiat currency

Geoff McDonnell

WIP SD representation of Ch11 of their 2007 Monetary Economics book, as suggested by Adam K. Plan is to do a top down simple money flow SFC mmt model and successively split sectors. See also essence of MMT IM and simpler version Ch3 IM

Godley and Lavoie Growth Model

Geoff McDonnell

Summary of Ch 12 of Mitchell Wray and Watts Textbook see IM-164967 for book overview. Compare with SD CLD IM-169071

Keynes and the Classics

Geoff McDonnell

Overview of Part G Ch 27 to 30 of Mitchell Wray and Watts Textbook see IM-164967 for book overview

History of Macroeconomic Thought

Geoff McDonnell

6

Summary of Ch 14 of Mitchell Wray and Watts Textbook see IM-164967 for book overview

The Macroeconomic Demand for Labour

Geoff McDonnell

IM-168155 Summary of Ch 27 of Mitchell Wray and Watts Textbook see IM-164967 for book overview with simplified Mike Radzicki's 2003 Evolutionary Economics history article added

History of Economic Thought 2

Geoff McDonnell

WIP SD representation of Steve Keen's MMT Minsky Model of an MMT fiat credit economy August 2020 patreon

Keen MMT Model

Geoff McDonnell

WIP summaries of bill mitchell's blog postings related to the connections between macroeconomics and wellbeing, particularly via unemployment and inflation

Unemployment and wellbeing

Geoff McDonnell

MMT Models