MMT and Spending First
Did you see this article by JP Koning asking if the government can actually spend first as MMT asserts? The part that got my attention was the comments by JKH who seems to have debunked an essential part of MMT. In essence, he shows that MMT is just describing credit creation when they consolidate the Fed and Treasury. So all credit creation is spending before income.
What's your view here? I believe you've said something similar, but do you think this debunks MMT?
I did see that. JKH is typically great in the comments. He really nails down what MMT does here. This is important and confusing, which is why I think so many people let MMTers get away with it. They consolidate the Fed into the Treasury and then treat all government spending as bank asset issuance, which, is of course spending an asset into the economy first before you have income. This is the most basic tenet of credit creation. But you would never describe credit creation as "spending first" because that's obviously circular. To have credit you need to also have income. In the case of a govt they need output/income to have credibility. Otherwise their assets would hyperinflate.
So yeah, MMT is playing a bunch of word games here. I am not sure if they don't understand the mistake or if they can't admit it. But it's a pretty basic mistake about how the govt issues money and funds its spending. Frankly, I am a little tired of all the MMT talk given how silly some of these mistakes are. Yes, I like many of the things they say, but they're misleading people about how this stuff works and that is not okay.
Hi Lars,
Where are the comment parts from JKH for above link ? It seems there is no comment section over the site.
Looks like they turned off comments.
Is AIER a front for MMTers?
That quote in the article, "as a matter of logic" , end quote. is wrong both in principle and historical practice. In fact the US mint would have minted Dollar coins from silver taken to the mint , for a fee , or the government would have collected taxes in silver and minted the dollar coins and spent them. With this government money in circulation, the population would then be able to settle its tax liabilities with government money.
Glad you point out that the MMT Emperor Has No Clothes regarding "spending money into existence". People love the message (some do anyway) and fall for the charm, charisma and academic tone of its proponents.