A Beginner’s Guide to MMT
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Two simple critiques: 1) Relative to a financial statement (i.e. budget), it is difficult to predict and measure inflation. This difficulty lowers the likelihood of government fiscal responsibility and increases the likelihood of devestating inflation.
2) A basic second-order effect: What happens when people realize transfer medium is being debased? They'll obviously try not to store value in that transfer medium. How will volatile inflation affect the use of the transfer medium? Why wouldn't users switch to a better store of value, like every single developing market that has ever lost control of its currency?
I am embarrassed for profession of economics that MMT is being entertained as a viable "new-old idea." Of course the government can debase the numéraire of the economy. Obviously, doing so transfers value from non-government to the government similar to taxation. The financial statement of the economy has to balance. This is merely a backdoor way of transferring assets in a deeply unaccountable way.
I share this worry too, but it's not like there's currently any political appetite for fiscal responsibility. I wonder if the threat of inflation and currency volatility would actually serve as better stick, than what we currently have which is continuing to run up a massive debt which will be terrible for our children?
In theory there might be viable ways to control inflation via taxes and other ways of soaking up extra money supply that's created by printing/spending. The implementation will be difficult though, especially if it's driven by a political process. Even if you initially start with something that has all the correct automatic adjustments built in (assume this is possible), there's always the risk that a new gov't breaks it.
I think that for a change in paradigm like this to be successful you'd need stronger guarantees that things would stay in place long term (similar to UBI actually).
WAT
No, (2) would simply add to inflation, adding insult to injury.
"MMT may very well be an accurate depiction of reality, but the problem is that if people start to see it as an accurate depiction of reality then inflation might go up."
That's definitely a problem for a certain class of people (creditors and investors).
MMT is controversial because, if true, it's undermining a lie that is supporting those interests ("keeping inflation as low as possible") over the interests of society as a whole.
What I wrote above cannot, under any serious interpretation, be considered as a defense of runaway inflation.
Runaway inflation (or hyperinflation, if we're being terminologically precise) == Inflation > 50% per month == Zimbabwe destroying its farmland and industry and having nothing useful to export and thus not having an economy that can support the current level of spending.
Rising inflation == The US deciding, according to MMT principles, in the next decade that "fiscal responsibility" is not a reasonable justification for preventing medicare for all and maybe seeing a percentage bump in inflation as a result.
MMT does not make normative judgements on inflation. It does state that taxation and fiscal spending are more effective control knobs to target inflation than monetary policy, but that isn't a normative judgement either.
>it sounds like you're using "MMT" as an incantation to dismiss inflation
I'm giving context to why hyperinflation / inflation scaremongering surrounding MMT exists.
I'd do it for the same reason for why I'd reference oil company profits in reference to global warming skeptics - because it's the responsible thing to do to associate the motive for spreading bad science with the bad science.
Naturally this gets abuse slung at me - with phrases like "left-wing back-rationalized voodoo economics" slung around for instance.
The distinction between my understanding and yours is highly material, because in my understanding, an attempt to actually deploy MMT policies at the Fed in the service of (say) single-payer that resulted in rising inflation would be a problem and evidence of failure, and in your understanding it wouldn't. In my understanding, the MMT economists would say "here are a set of policy levers we should use to ensure inflation doesn't increase", and in yours MMT economists would say, essentially, "single payer is worth extra inflation".
The idea that inflation and deficits simply don't matter as much as conventional economists think it does is, as I understand it, a caricature of MMT that actually annoys MMT economists.
It's in the name - modern monetary theory. Much like the theory of gravitation does not posit that gravity is "bad" or "good", modern monetary theory does not posit that inflation is bad.
>That's not my understanding, it's not what this article says, and it's not what Kelton said in her debate with Jason Furman on Ezra Klein's show.
Much as your earlier posts massively misrepresented what I said, I strongly suspect you are misrepresenting what others said.
>In my understanding, the MMT economists would say "here are a set of policy levers we should use to ensure inflation doesn't increase", and in yours MMT economists would say, essentially, "single payer is worth extra inflation".
MMT economists might very well opine that extra inflation is worth medicare for all and at the same time set out a set of policy levers which can bring down inflation if desired. One is a normative statement; the other positive.
>The idea that inflation and deficits simply don't matter as much as conventional economists think it does is, as I understand it, a caricature of MMT that actually annoys MMT economists.
I think the personal feelings of many MMT economists is probably that a slightly elevated inflation doesn't matter that much. There are economists who are motivated by money and prestige who will naturally gravitate towards, for example, richly funded think tanks representing investor interests and there are economists who are interested in figuring out how the economy actually works.
These two groups will naturally have differing personal feelings about inflation precisely because the people who pay their bills do.
I think what pisses them off are the people who say that MMT is simply a theory that says governments can spend limitless amounts of money.
The difference may be differing assumptions on how likely it is, if MMT were adopted, that we would stop with merely rising inflation.
Your second would be the debate between Furman and Kelton on the Ezra Klein podcast, as I said.
I'll dig up a third cite. Like, one of the things in my head is the Kelton vs. Krugman argument, which I read on Krugman's blog, but that's not the best cite, since you're getting Kelton secondhand through Krugman there.
Happy to help. If you'd like to help too, you could cite a source that says MMT'ers feel like inflation doesn't matter.
So according to the article, MMT actually holds that interest rates are held too high under conventional monetary policy.
"The financial statement of the economy has to balance." The heart of MMT is that the imbalance between money coming in to a powerful central government and money going out is the primary contributor to growth (or contraction) of the economy as a whole. When it is balanced, the economy is neither growing nor contracting. When the government increases the public debt in a sustainable manner (i.e. people are willing to buy all the Treasury bonds being offered) the economy improves.
"This is merely a backdoor way of transferring assets in a deeply unaccountable way." It's not backdoor and it's not unaccountable; it's tax policy.
Only if our measures of economic strength are fundamentally measuring how much money is in it. If what is important is prudent use of resources then there is scant evidence that that is a good idea. And the reason we have an economy is to work out what 'prudent use of resources' means in practice. Governments have no advantage over private individuals in husbanding resources over the generations (look at how many governments make a pigs ear out of setting up pension, retirement systems and infrastructure spending).
Strategically, MMT theories that I've read seem to say that government is a positive, but if we can't be sure who is paying for it maybe nobody is, so the net impact is probably also positive.
That is clearly crazy, but also looks uncomfortably like an honest take on what a lot of governments do in practice. When the government takes on debt, it isn't obvious who is paying for it - the lender thinks they have an asset, so it isn't them. Identifying which taxpayers will pay the money back is as hard as unwinding who money printing is actually hurting.
Arguably, to some proponents of MMT/in some versions of MMT, this is a feature and not a bug. Economically speaking, stored value at rest isn't "interesting", it's a potential indicator of waste or inefficiency of resource utilization in current flows. I've heard the argument that the real "bug" here is the human psychological need to "hoard" stationary value/"keep score", which admittedly is a very hard problem to solve, but having hard problems to solve isn't necessarily a disproof of a hypothesis such as MMT.
Runaway inflation can make even intra-year saving impossible.
If this is a feature of MMT, it seems they'd be willing to give up on a lot of civilization since be began farming.
Yes, it's a very different view of economics from a lot of traditional approaches. It's not a fundamental "give up on a lot of civilization", even where it is a general rethink of "what does it mean to be a member of a civilization", including such things as what should be an individual's guaranteed safety floor, it's still mostly just civilization as we know it today swapping what we today think of as edge cases (social security, medicare, et al) for more generalized principles (in theory at least).
A lot of MMT talks only about exploring better options for how that existing effort/flows is redirected, and if we would get testably better results from other more interesting configurations, not about creating some new tools out of thin air simply because they "want" to.
I have no idea how many proponents of MMT find interest in such similar engineering-oriented views of economics, but general economic theories of inflation/deflation from that point of view seem so primitively useless versus what we know of, say, electric resistance, inductance, capacitance, conductivity, etc.
I cannot tell you if my armchair theories are any better in the long term than the status quo or your preferred models, but only that MMT at least seems to be one of the few areas of economic study currently attempting to address them (albeit indirectly in many cases). That is also not necessarily proof that MMT is correct, just as my models don't ipso facto disprove status quo "wisdom".
The thing is, economists disagree with each other all the time, including the most erudite ones. Expert opinion is nearly always conflicted.
MMT is, AFAICT, pretty soldily grounded recitations of facts about fiat money that are widely recognized.
It's been embraced by advocates of monetizing fiscal affairs because, well, it says that there is virtually unlimited short-term capacity to do that in a fiat-money system. But it's exactly that temptation in a fiat money system that motivated the strong separation we currently have between fiscal and monetary policy, which includes the whole structure of government financing operation g as if it were more like a normal participant in the economy.
OTOH, the entity charged with fiscal policy in the US has either been actively hostile to real needs or asleep at the switch for most of the last couple decades, and monetary policy alone, as currently structured, directs money initially into what is often the wrong place, though fiscal policy can help move it to the right place. The problem with the MMT driven “solution” is it involves concentrating both fiscal and monetary policy in the hands of Congress, and if Congress wasn't being completely worthless we wouldn't have the problem people are turning to MMT to fix.
If Congress were doing good work with fiscal policy but the Fed was screwing it up with poorly chosen or simply negligent monetary policy, then there would be a problem that the way MMT is being invoked would present a solution to.
MMT advocates want Congress to run the economy? Are you out of your freaking minds? They haven't even managed to pass an actual budget in the better part of a decade!
So Congress doesn't want the people to know they already control the economy, because otherwise, people might want them to do the job they elected them to do.
Later on he cites low overall GDP growth in Japan to counter Japan as an example of large deficits/low inflation. This: 1) Doesn't invalidate the point. 2) Totally discounts that Japan has had _some_ GDP growth even as an aging population has led to a _smaller_ workforce over that period.
Im surprised MMT is a thing at all.
Combine these factors with the fact that there are at least three huge areas for government investment: health care, renewable energy, infrastructure. If you believe climate change is an existential threat to our society -- does it matter that we have a balanced budget while we try to tackle it? Especially if recent trends suggest that massive deficit spending WILL NOT cause an inflation catastrophe?
This is exactly what happens when new money in injected at exclusive points. The upper class accumulates ever more financial power, while the lower class is kept fighting over the scraps. An amount that could be a major life changing expense for most of the country is presently a throwaway gadget purchase for someone working for the banksters in NYC or the surveillance industry in SF.
Financially, MMT is analogous to a kid not being stopped for taking money from their parents' wallets to buy candy, so they move on to taking larger sums - whether this is actually a problem entirely depends on how much their parents make. Financial deficits only work as long as they do not undermine faith in the issuer. For the US, this effectively based on energy (historically including Saudi Arabia) and military might. "Withdraw" at a rate faster than "depositors" will tolerate, and faith in greenbacks will collapse.
MMT is especially ironic because it's gaining political support in the name of "going green". But it's actually the same vein of consumerist greenwashing as that "third R" - recycling. Heating up the economy fundamentally causes more crap to be produced ("full employment" !). If you want to conserve earth's natural resources and leave that carbon in the ground, support simply letting natural deflation actually occur.
I will say however, that if MMT can end up justifying an alternative to just dumping most of the consumer-bound printed money into the housing sector, that alone could be a great thing.
MMT says that the only constraint on spending is inflation, but also turns around and says that you can always print more money. That’s a contradiction.
Printing more money does not change the real wealth in the economy. You can’t create additional purchasing power with an increase in the money supply because prices will adjust to the new level.
If I have a car, I own the car. If you break in and steal the car, then you have stolen from me. But if the car company that produced the car decided to overproduce so that there is an excess used car supply in the market (lowering prices), well sorry friend, but the car company didn't steal from you.
The article follows that up by saying:
>> As long as there are enough workers and equipment to meet growing demand without igniting inflation, the government can spend what it needs to maintain employment
and later on:
>> To stabilize employment, MMT would add a federally funded, locally administered job guarantee. Government would employ more people in slumps than in booms.
So I think the idea is that MMT recognizes that inflation would indeed occur if you kept printing money without a demand for that money, which they say will be supplied by government-sponsored full employment.
What I don't understand is: is there a situation in which full employment has already been achieved and the government just keeps printing money for new initiatives, and we're back to inflation?
Imagine you're trying to make a meal and some incompetent dummies want to do some work in the kitchen. It might turn out that someone competent does better work when dummies are not interfering with his work and instead are watching TV. It's called "Too many chefs in the kitchen". Full employment and job creation are not necessarily good for the economy.
Again, I am not here to defend this theory. In fact, I have witnessed your anecdote myself and agree with the premise, at least on a micro scale.
Are you trying to describe unsuccessful startup founders?
Nope, it's when too much money chases too few goods and services. Inflation is everywhere and always a dynamic process. The federal reserve can print 100 trillion dollars and credit it to their own account and it won't affect inflation at all until they start spending it or transferring it to parties that will.
I think the MMT argument is that one can reduce the money supply through taxation. From the article:
> In MMT’s ideal world there would still be taxes, but their main purpose, aside from lessening inequality, would be as “offsets” to keep inflation under control. Taxes would drain just enough money from consumers and businesses so total spending in the economy won’t be excessive.
So currently Left-leaning people are labeled "tax and spend": you increase revenues, which you then turn around and spend on programs/infrastructure. With MMT it's the opposite (AFAICT): "spend and tax". Run the proverbial printing presses to pay for the programs, and then use (higher?) taxes to drain the 'excess' money supply.
MMT also (AFAICT) seems to make the central bank subservient to the finance/treasury people, instead of independent (which is the modern way of doing things). This control of interest rates is important for technical reasons:
* https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wo...
spending = taxes + printed money new money supply = old money supply + printed money
But, I believe that MMT is saying that taxes and spending could be logically separated by assuming that all taxes go to the shredder and all spending comes from newly printed money:
spending = printed money new money supply = old money supply + (spending - taxes)
So it wouldn't be 'increasing spending by taxes', it would be 'reduce inflation by taxes'. The size of 'big-gov' should be measured as spending/GDP regardless of the actual tax rate. The tax rate would float depending on the current inflation target instead of on the current federal spending.
The MMT argument is stronger: taxes only exist in a fiat money system to reduce the money supply (and, to create behavioral incentives with specific targeting.) Viewing them as “paying for” government spending in a balanced sense where you need $1 in revenue (or debt financing which you pay back with interest to a lender) to pay for $1 in spending is, through an MMT lens, wrong, and the result of applying commodity money thinking in a fiat-money world.
> MMT also (AFAICT) seems to make the central bank subservient to the finance/treasury people, instead of independent (which is the modern way of doing things). This control of interest rates is important for technical reasons:
It need not: a system which deeply incorporates MMT might retain a central monetary authority separate from the authority that makes spending and tax-targeting decisions (calling this a “fiscal” authority is perhaps no longer apt), exercising interest rate levers to manage inflation and employment levels as the Fed does today; it might even give it more tools by assigning it then ability to set the rates of broad, non-behaviorally-targeted taxes (like to control a parameter that is a factor in the rates of all income tax brackets), as MMT recognizes that general tax level is an important money supply lever and nothing else. The importance of public confidence in the money supply remains in MMT, and having technocrats insulated somewhat from the pressures of legislative politics primarily responsible for administering such policy under broad policy goals remains, as well.
It probably wouldn't be constituted the way the Fed is, which is driven by the desire of the government to give bankers confidence in the currency because the government will be going to the bankers to borrow debt in the currency to fund deficits.
Because what it would do is eliminate the practice of acquiring debt to finance “deficit” spending in the first place, which changes the constituency at which monetary policy is aimed.
I think this is like the image of the snake eating its own tail, and what you see may depend on whether you see start at the end-end of things or the tail-end. Or the optical illusions that change if between duck/rabiit, etc.
:)
If you have more money chasing the same amount of goods you get inflation. Yes. But if supply is currently in excess, or if production is well below production capacity, then inflation is much less likely. I'd argue that in today's international economy, there is actually a huge excess of supply capacity that is under utilized.
By "supply capacity" here do you mean idle capital? I'm interested in this, but I'm not really sure what metrics show it.
I think the point is more thatn printing money and transferring it to treasury coffers effectively is a tax on anyone holding USD. More government spending -> bigger deficits -> more money printed -> higher inflation (taxes). That's my understanding anyway.
The money supply has almost quadrupled in the last 10 years, yet inflation has been low.
MMT says that spending new money only causes inflation when the money is spent on stuff the private sector is also bidding for. Since that's pretty much everything that the government would want to spend money on, MMT & conventional economics are not in much disagreement here.
"MMT says that the only constraint on spending is inflation, but also turns around and says that you can always print more money. That’s a contradiction."
You can always spend more money, but only if you tax enough back to tame inflation. It's a constraint, not a contradiction.
"Printing more money does not change the real wealth in the economy."
Exactly. MMT doesn't create goods & services out of thin air, but what it does do is unlock idle capacity in the system. If Joe Sixpack is unemployed, he's a resource that the private sector is not utilizing, but he's a drain on society because somebody is paying for his food & shelter. MMT and the jobs guarantee would utilize that resource for good, and it won't affect inflation or the private sector as long as the jobs guarantee wage is at the minimum wage mark.
Caveat: beginner level understanding of MMT
Making money for all intents and purposes is the definition of creating value.
There are some exceptions, but they usually involve distortion by the government or theft.
So let's say that Joe Sixpack can't get a "real" job. Then society's choices for him are
1. Let him starve to death. Hope that if his alternative is starving then he will reform himself enough to get a job.
2. Give him money with no strings attached (currently various welfare programs, possibly UBI in the future)
3. Give him money but make him work a gov't job where he subtracts value (e.g. he is actively making things worse than if he was just not there)
4. Find some kind of gov't job where he creates less value than he is getting paid but is still creating positive value
If we ignore #1 (because if you believe #1 is always the answer then the rest of the conversation is pointless) then the question is who falls into bucket 3?
My guess is that you have two types of people, people who are not capable of doing productive work (which I'd argue are very, very few) and people who will choose to be unproductive because of the jobs guarantee (they know that they have a job no matter how badly they do it).
So maybe the jobs guarantee should be combined with a UBI with differing levels of support. Provide a UBI which covers basic needs and a jobs guarantee which provides a little more money. There will always be people who want to work just for something to do and there will be people who want to earn the extra money to improve their lifestyle. Then you don't force people into jobs where they create negative value.
Explained by "traditional" (e.g., Keynesian) economics already:
* https://en.wikipedia.org/wiki/Zero_lower_bound
When QE was introduced, the US political Right went ape shit talking about inflation. Krugman (for one) predicted it would be fine because of interest rates, citing Japan as an example:
> Everyone knows about the infamous open letter warning Ben Bernanke not to engage in quantitative easing, lest he cause inflation and currency debasement; many are also familiar with the remarkable unwillingness of that letter’s signatories to admit, after more than four years of low inflation and a rising dollar, that they were wrong.
* https://krugman.blogs.nytimes.com/2015/02/12/qe-truthers/
If the private sector is not spending, then the public sector (gov't) should to take up the slack in a lack of demand:
> The problem, of course, is that you can’t cut interest rates below zero (if you try, lenders will just hoard cash.) So the Fed simply can’t do what the rule says it should.
>
> This is why we need a huge fiscal stimulus, unconventional monetary policy, and anything else you can think of to fight this slump. Quite literally, the usual rules no longer apply.
* https://krugman.blogs.nytimes.com/2009/01/17/zero-lower-boun...
There are a finite amount of resources in an economy, and when an "infinite" amount of cash goes after that, you start to big up prices: inflation. I don't think that mainstream (Left-leaning) are against deficit spending to boost the economy; it's just that many of them don't see MMT is adding to what they've already been saying.
I.e. some form of tax on held cash?
Well, he was wrong on that point.
>Crazy as it sounds, several of Europe’s central banks cut interest rates below zero in 2014, and then Japan followed. By mid-2016, some 500 million people in a quarter of the world's economies were living with rates in the red
He revisits the point:
> We now know that interest rates can, in fact, go negative; those of us who dismissed the possibility by saying that people could simply hold currency were clearly too casual about it.
* https://krugman.blogs.nytimes.com/2015/03/03/how-negative-ca... * https://krugman.blogs.nytimes.com/2015/03/06/the-below-zero-... * https://krugman.blogs.nytimes.com/2016/02/12/the-political-e...
The Great Recession was really an "interesting" time for economists: one usually can't run experiments on macroeconomic theories / hypothesis. :)
So, I can tell you that Warren Mosler at least is formulating the theory a bit differently. He starts with the fact, or the claim, that taxes are the primary driver of demand for a Fiat currency. I argued with him about this point. Economists with other views to balance out MMT.
So, I can tell you that warren Mosler at least is formulating the theory a bit differently. He starts with the fact, or the claim, that taxes are the primary driver of demand for a Fiat currency. I argued with him about this point. But if you except it, then it follows that taxes create a scramble by many participants in the local economy to obtain enough money to pay those taxes. Then the government prints the very money that everyone is scrambling to obtain. Warren Mosler concludes by saying that the government is not constrained in how much debt it can take on because a dollar and a treasury bond for a dollar are just two different types of accounts that exactly balance each other. To me this is ignoring everything outside the system. It’s like saying a bank can leverage its reserves as much as it wants because every loan it gives are just assets and liabilities on different sides of the ledger. MMT always acknowledges inflation matters, but it seems to be lip service.
I have come to describe the macroeconomics of the USA very simply:
1. Every country fights to protect its exports because that’s what lets its citizens import everything they need. Russia will fight to export natural gas. And so on.
2. After Bretton Woods, our chief export is not even Music and IP, it’s DOLLARS. We print them, and for decades everyone arouns the world produced goods and services for us, in exchange for dollars.
3. Our dollars and treasuries are used as reserves by banks. Also we engage in petrodollar warfare. We used to buy oil from Saudis, and now we sell weapons to them for the same money we gave them. And so on.
4. The USA is unique in its immunity to inflation and printing. Most countries cannot sustain such high debt to GDP ratios without their treasuries becoming devalued. USA treasuries may eventually face competition from China etc. but we still have a lot of demand for our export, by the world banks and consumers.
5. Being able to print your own currency and run your own monetary policy is essentially the power to impose a flat tax on your local economic activity. When PIIGS countries had their own currencies, they could finance public parks etc. When they joined the Eurozone, they lost a lot of that power and their public infra got bought by German banks. Greece, the “originator” of DEMO KRATIA (power of the people) lost power to foreign capitalists. People and jobs emigrated, capital flight ensued. This also happens in the USA on a city level (Detroit) and state level (Illinois and Puerto Rico).
6. Conclusion: Having your own money supply allows you many chances to print your way out of debt, and also run monetary policy. That always leads to stronger local communities vs the foreign capitalists. But doing too much causes capital flight and an increase in money velocity, ie devaluation of your local currency from an outside perspective.
7. MMT correctly advocates, like Keynsians, issuing money to pay for infrastructure and Universal Health Insurance / Food / Basic Income. Because it can lead to more real economic activity. It’s like a startup that spends correctly on the things tht make it grow and provide a return on investment. More coins chase more goods and services so there is no inflation. In fact, it attracts real capital to the community. But if there is malinvestment and bad bets, too many of those cause inflation.
8. Inflation isn’t just redistributing from the lenders to the borrowers. It also makes the wage earners who aren’t immediately investing their currency into something else the losers. It makes a hot potato hotter and hurts those who don’t have great wealth management.
It seems to me that’s kind of half-a-loaf MMT. Or, to borrow from The Matrix trilogy, it's the spoon-bending level.
Where the full loaf (“there is no spoon”) is: Government is not constrained to take on debt at all to finance an excess of spending the over revenue. The idea that, if the State chooses to create net new tokens in the economy (remember, the key points of MMT is that fiat money is created by the issuing government spending and destroyed by the issuing government recovering it), it must seek the permission of someone with a surplus of existing tokens willing to sacrifice them for a greater number of future tokens, after which the government's pet (but “independent”) token-issuing body will see to the issuance of additional tokens is kind of bonkers, but that seems to be how MMT would view the current relation between fiscal and monetary policy.
The status of fiat being legal tender for all debts is what makes lenders unable to demand other currencies but they can execute forward contracts of X versus a basket of commodities for example.
No, but you can create wealth with that newly printed money. Of course, as soon as you print it you are diluting the value of all other money which one might argue is unfair, but on the other hand is the rather arbitrary model of redistribution we happen to have landed upon right now completely fair?
And setting aside fairness, is the current economic model we've come to right now even roughly optimal?
https://www.consultantsmind.com/2017/10/30/elephant-chart/
> You can’t create additional purchasing power with an increase in the money supply because prices will adjust to the new level.
This isn't "wrong", but I wonder if it's too simplistic to accurately describe the current globalized & automated economy.
I'm not criticizing your logic, but I feel like my entire adult life (I'm 42) I've been bombarded with tales of EVERY proposal will "obviously result in inflation". During this time gold has also been upheld as the only safe investment, doom is always around the corner, Europe has been on the brink of financial collapse, etc
At this point, any argument, even those that might be completely correct, that something will "obviously result in inflation" is suspect. All I've learned in this time is (1) Economists and politicians speak different languages, (2) Economics has done very poorly when it comes to modeling the future - there's always SOME model that predicted some event, but no model that has been widely reliable, and (3) Doom has been falsely predicted a ton of times, but that real financial hardships absolutely CAN happen.
Which leaves me to conclude that I can't trust what I hear, that someone is probably right, and that I have no practical way to know who that is.
The real issues are that:
* Inflation is treated as a bogeyman in the investor managed media rather than an integral and necessary part of a monetary system (you want real pain? try DEflation).
* Complete misrepresentation of the risks of hyper inflation and a total misrepresentation of why it happens (e.g. idiotically pretending that all zimbabwe/weimar/venezuela did was spend just a little bit too much on social programs).
I kind of wish inflation were kept in band between 7 and 12% via fiscal spending and taxation (as MMT says is possible). That would keep it below the level at which it would impact growth and above the level where wealth slowly gets hoarded by the 1%.
Low and middle income people tend to have little in the way of savings (40% of Americans are one paycheck away from poverty) and a lot in the way of debts - debts which will be constantly devalued in a high inflation environment.
Why wouldn't lenders just charge higher interest rates to offset inflation?
The government can pay its own debts as many times as it wants.
It can also dial the interest rate up and down virtually at will through QE or raising interest rates.
It actually makes less sense to think of government debt as debt and makes more sense to think of it mainly as a publicly run savings account.
The government can also push private sector loan interest rates up or down at will through the setting of the base rate.
Obviously governments can pay off debts as often as they want, and there was a time when that was common. But a government that runs up big debts and pays them by making the currency worthless soon has a hard time finding anyone willing to lend it money.
But sometimes they manage. Russia is notorious for defaulting on its debts (which isn’t the same thing as paying with devalued currency, but should be a lesson to future lenders), but they still manage to borrow money. But they do have to pay higher interest rates than other countries to make up for the higher risk of default.
As I said, it doesn't really make sense to think of the national debt as a debt. It's a government run savings account accommodating the private sector's desire to save money.
In the same way if maxlybbert printed maxlybbert dollars, spent them and then "borrowed" them back it wouldn't really be doing it because he actually needed them. He's providing a service.
I don’t really care whether it’s truly borrowing when a country sells bonds and promises to pay the bondholders back with interest. As long as the country feels it has an obligation to pay those bondholders, it has a temptation to pay them with devalued currency. Most countries don’t do that because they expect few people will buy bonds the next time the government wants to sell some.
Which is true.
OTOH, MMT observes that the government doesn't actually need to acquire debts to pay for a gap between spending and revenue in the first place.
> This argument falls into the same boat: sure, the banks will change how they price loans, but for the lucky guys with loans it’ll be glorious!
Sure, and that's why runaway inflation is bad. MMT doesn't favor more-inflationary policy, it just recognizes that inflation, not the availability of revenue, is the constraint on government spending.
That is one way to put it, but you could also say inflation punishes responsible people who work and save money, and rewards less responsible people who spend beyond their means.
If you pretend that wealth is fairly distributed it makes a certain amount of sense.
This isn't true, or at least there isn't consensus around that idea all of the time
> doom is always around the corner
That's just the boom and bust nature of the economic cycles. It's true of any other natural cycle, from the fall from paradise to the fall of Rome. I recommend Georges Canguilhem "The Normal and the Pathological", though I must admit I didn't even fully understood that book when I read it as a teenager.
I'm not saying it's true, nor that "most" people were saying it, just that enough loud voices were doing it.
My point was not that (often uninformed) people have been feeding enough BS about the economy for so long that "obvious" is untrustworthy.
If you believe that there is untapped productivity in the economy then, by increasing money supply and spending the additional money in those areas, it is possible to increase productivity whilst avoiding inflation.
No, it's not. And that's backwards: MMT says that because you can always print more money, the only constraint on spending is inflation, not revenue, and that taxation serves the purposes of creating incentives by specific targeting and limiting inflation by it's overall level, but doesn't actually “pay for” spending in the balanced sense this applies to participants in an economy who are not the sovereign money issuer of the primary currency.
The key upshot of this is that:
(1) the idea that an excess of spending over revenue must be financed by debt owed to some particular party is an artifact of structures which obscure the fundamental nature of fiat currency and try to mimic commodity-based currency; and
(2) the idea of long-term budget balance as a goal is bunk Ina fist money system; in fact, as base money supply is tokens created by government issuing and spending them and destroyed by government recovering them, having a money supply in such a system is synonymous with long-term surplus of spending over revenue.
> Printing more money does not change the real wealth in the economy
Correct.
> You can’t create additional purchasing power with an increase in the money supply
You can't create additional aggregate purchasing power that way, but you can create new purchasing power for the entity holding the newly-printed money (at the expense of purchasing power of those holding existing money of th same currency, and with three side effect of also tranferring purchasing power from all holders of assets denominated in the currency to all holders of liability denominated in th currency.
Starting at the beginner level is where everyone starts when they want to learn something. By definition. Hardly pointless.
Today's inflation manifests itself, not in consumer price increases, but in asset bubbles. Asset bubbles always pop, usually uncontrollably.
The last major asset bubble nearly took out the US economy with it. The next one may finish the job.
Debt matters because the only politically palatable cure for the aftermath of a debt-fueled bubble is more debt. And more bubbles.
Additionally, there are concerns about having the government itself involved with regulating inflation and business cycles. An independent Fed, at least in theory, allows for the fed to take a longer view of the economy even if politicians have incentives to care only about the next election cycle. All it would take is one conservative majority congress to semi-dismantle any MMT mechanism and completely mess up any "controls" put in place by MMT proponents.
That being said, it is refreshing to have different ideas being taken seriously enough to enough mainstream conversation. I don't think the field of economics is "solved" (probably far from it) so I think good ideas that challenge the status quo are generally good.
However, the gutting of the policies by another administration is what scares me in regards to MMT. I'm not sure that incremental changes work with monetary policy. MMT in particular seems like it needs some big, systematic levers in order to actually function properly.
That being said, I'm happy to be wrong about this. MMT being viable would open a more clear path to something like universal health care.
One liberal majority Congress could do the same. They might dismantle in a different direction, but it could be just as disastrous.
I also don’t understand how the jobs guarantee is supposed to work. Presumably if we had work to be done we would have open positions for it. Now we have to magic up jobs, which means diluting jobs other people currently do and the income the currently derive from it, or make pointless “dig and fill” hole jobs. Won’t all this just make everything a hell of a lot less efficient? And won’t it worsen potential economic recovery? You’re depriving potential new industries or business from labour because that labour is working for the government. You’re also preventing government departments (or wherever those jobs go) from improving their own services. To pick a historical example, instead of moving to computerizing records taking away jobs it would now be necessary to continue to do things on a typewriter because you need to keep the jobs. This in turn removes money flowing from the government to computer industry, which helps to drive up and develop whole new businesses and industry that drive the economy. That is, is there not a risk that the way the jobs guarantee is described as helping during the downturns could actually hinder recovery and development of new industry? OTOH why I like UBI is it still leaves all those incentives to do new things in place.
I don't follow the presumption. There's no shortage of work out there to be done, we just don't have the means to PAY for it under the current system. Now, you might not think MMT does either (in real terms), but the world is NOT short of work to be done.
> Now we have to magic up jobs, which means diluting jobs other people currently do
...which doesn't follow if your first point fails.
Ok, I have to agree with this to a certain point as it’s an argument I find myself making in change resisting organizations. But the implication here is that there will always be no shortage of low end minimum wage work and that the best way to discover and assign that work is via a centralized means. So with a jobs guarantee we have to invent a government system that identifies and assigns jobs that need doing in an efficient manner. No one has done that yet.
> which doesn't follow if your first point fails.
I’m not sure it’s entirely failed. Because although the ideal is “there is always more work you can shift to once this job is done” that is simply not what happens in practice. People and organizations don’t behave that way. Try working in an organization facing disruption, or an old developing world government department where people rely on it for their job, etc. It is full of resistence to anything that might put at threat peoples jobs. I’ve worked at places as recently as 2010 that still had telex operators who came to work and sat their doing nothing all day because the telex systems had been decommissioned. This is what you get with jobs guarantees.
I'm not following how that's implied?
I think the implication is that there's no shortage of work that has positive value but less positive value than people are willing to pay for it.
Anyway, the idea is that if the economy is in good shape and most people are employed then the gov't is providing fewer jobs. If you have more slack then the number of gov't jobs goes up as the gov't spends more money (i.e. pays the people it's employing) and so the balance between spending and production doesn't change, thus keeping inflation in check.
The proposed job guarantee talked about is a $15 per hour minimum wage job.
I think the idea is that deficits don't matter if you print money and offset any inflation (1) some sort of jobs program, (2) taxes which can take money back out of the economy and cool inflation, and maybe (3) more traditional ways of tweaking interest rates.
Other countries cant issue dollars which is the world exchange currency. When you print out your countries cash, your currency exchange value drops and then you have to reduce your imports. Its easy for a country like argentina, for example, to keep a negative balance trade, run out of dollars and then it cant pay unless it devaluates the currency so much , outside money comes flooding in.
The US can print out its own money, but the major risk I perceive is that it wrecks its exchange rate. If the dollar loses value, first it actually adjusts the prosperty of the american people relative to imports/exports, but also risks its world-reserve status. It is often underestimated how profitable it is for the US to be financed by the entire earth on trade. If that changed..it would be a serious, irreversible economic damage.
This is MMT. MMT says: "government debt isn't really debt and acquiring massive amounts of it that can never be payed off wont ever have consequences because of x, y, and z mental gymnastics".
You don't need a PhD in economics or to be able to disprove everyone one of the Arcane mental gymnastics performed to understand that "government debts are real and they can have consequences". You don't need any special economic training to understand that if you owe someone money, then next month you have a bit less money because you have a debt payment. There are a million caveats, and fifty people with 10$ words that you can't argue because you don't know what they mean because they don't mean anything will explain to you why you are the dumbest person on the planet for believing that "government debts are real and they can have consequences".
It's ok though because you can look up at the sky and know what color it is.
(don't take the sky example too literally, i know it doesn't really make sense).
Not such a big deal if you own a money printing machine.
The government needs money only to buy the goods and services of the private sector in the service of the public interest. There is no other utility for money in the modern state.
The government no longer needs to keep stocks of gold, the government can create "digital gold" as needed.
Recall why the government needs to print money: because money is an abstraction, a fungible token that represents a constant fraction of the total real wealth in the the entire economic system. If we keep producing more goods and services, but don't produce more money, we enter deflation. To avoid deflation, the government needs only to ensure that the amount of money in circulation increases in line with any increase in economic output. As long as this is managed proficiently, the economic system will be stable.
The government increases the amount of money in circulation by purchasing goods and services from the public. To this end, the government can offer citizens money in exchange for labour that serves the public interest and fulfill both its economic and pro-social obligation.
What's the point of the government creating these abstract value tokens, giving them to us, and then demanding them back? And furthermore, why does the government need to borrow arbitrary amounts of similar tokens from other governments?
It doesn't. Our current system is a relic from the days of governments using a limited, fungible, physical resource (gold) which didn't linearly scale with economic growth.
The government no longer needs to borrow tokens, it needs only to create more of them, and should only occasionally need to remove tokens from circulation (taxation) as a way to account compel pro-social behaviour -- e.g. carbon emission taxes.
http://www.levyinstitute.org/publications/modern-money-theor...
MMT isn't actually proposing anything, but rather is simply explaining how money in the modern economy of a country like America, who's currency is a fiat currency and effectively underpins the currencies of many other much smaller economies, behaves. That's all it does.
In essence, conclusions can be drawn about government debt from this. Politicians are doing this. MMT scholars and economists happen to agree with them because of what MMT shows. Scientifically or rather economically, MMT isn't much different from something like the Credit Theory of Money, in that all it's attempting to do is explain the real behavior of money as opposed to the fiction we create about money in order for our society to function.
MMT does develop this idea of a deficit dove vs. deficit owl, which is where all of this comes from. If you read the article I linked above, you'll see that MMT is mostly focused on deficit spending during a recession.
One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints. Not only can they issue their own currency2 to meet commitments denominated in their own unit of account, but also any self-imposed constraint on their budgetary operations can be by-passed by changing rules. As such, this type of government is not financially constrained in the way that non-sovereign units are, so that it can focus on issues such as full employment and price stability.
This reads very much like the articles on MMT that I've been seeing.
Explaining why "monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints" seems a lot like a green light for deficit spending. Maybe not advocacy, but something that will be used by advocates. I see it as similar to the way a research article might say that leafy green vegetables are good for you without telling you to eat them.
Later, the article continues:
"... All these institutional and theoretical elements are summarized by saying that monetarily sovereign governments are always solvent, and can afford to buy anything for sale in their domestic unit of account even though they may face inflationary and political constraints."
Saying a company is solvent to buy another doesn't mean that the writer is advocating the purchase, but it may be used by board members advocating the purchase.
Theories never advocate, they attempt to summarize a model of how something works.
Unfortunately, the model that MMT describes ignores very important details, such as the way that the implosion of debt-fueled asset bubbles interact with political systems to cause further bubbles.
Sure, government can always confiscate everything that exists under its sovereignty. It can either happen via crooks going around with guns, or via "paying" for things by Kinko dollars. The end result is the same in both cases: products and services are not created, because what's the point of doing these, if they are confiscated anyway?
What's the MMT insight again? What does it say that's different than mainstream economics? What predictions it makes that are different than mainstream economics? Why it even has a name, and why are we even talking about it? Ah, I know, it's because it promises "full employment" and all other kinds of free lunches.
No, MMT is not a green light for deficit spending.
MMT is an explanation for why the entire fiscal model in which “surpluses” or “deficits” (and even moreso government borrowing and having “debt” to finance deficits) exists is a misleading façade when governments monetary power is considered, a holdover that only really makes sense with commodity—rather than same-government-issued fiat—money.
> Maybe not advocacy, but something that will be used by advocates.
Sure, every theory will be used by advocates of something; MMT isn't used to advocates of deficit spending, but by advocates of monetizing fiscal policy. (Though the latter can look like the former if you are stuck on the model of reality that MMT points out is flawed.)
"Now they claim we have got nothing new. And, yet, much of the thought that we integrated in MMT had been lost in the postwar period. Even the very best of the heterodox thinkers—people like Bob Eisner—had got caught up in debates over just how strong “crowding out” is. He took what we call a “deficit dove” argument, against the “deficit hawks”. The debate took place largely on orthodox grounds, trying to find some “sweet spot” for budget deficits and debts. Most of our critics remain in the “dove” camp, arguing that deficits in recession are fine, but that if “too large” they become unsustainable. We developed the “deficit owl” position—a position that indeed can be found in the work of those we follow, but a position that was mostly lost by second and third generation heterodox economists."
They go on to explain what that is, and why it matters.
IMO this is a failing assumption that is designed to benefit politicians who make entitlement promises in the future (you can use inflation to undermine the truth of those promises)...
While thrift may initially lead to a stutter/halt in the economy, eventually people will get desperate enough to work for less or products will devalue to lower prices, debtors will accept lower interest rates or even less than principal.
I have long felt that America needs a strong depreciation period so that worker's wages can fall to reasonable values in the world wide scene. (The only reason a living wage is $15 an hour is because so is the price of a burrito w/ tip) ...
I can't help but think that rather than starting with a principled look at macroeconomic theory, this is really just politicians figuring out which theory or economic "camp" enables them, and then throwing their weight behind it. In today's age of populism both on the left and right of the American political spectrum, I am extremely wary of proposals for such widely-scoped and fundamental changes to be undertaken just because they have received wide attention very recently. After all, MMT is not new - it is a rehash/repackaging of principles that have been studied in economic theory before.
Similar to how the stock market reacts psychologically to perceived changes in companies management or performance, the USD, could easily be under the same influence - only staying stable as long as it has because Americans and foreigners view the Dollar as “safe”.
Considering most people don’t look into underlying phenomena, but tend to rely on surface level notions like governments printing money as needed = bad, I would say the public perception of the usd could go south.
No one, to my knowledge, has ever been taught that a government should print money as it needs.
If no one believes that is a good thing, then people will lose confidence in the USD as a store of value, which is when inflation starts to get out of control.
At first I thought it was a bit dramatic for schools to differentiate that specific field so much, since I would think it belongs firmly with other STEM fields, but it's definitely the right call.
That such a basic question like how inflation is created (is it when you print the money, or when that money is spent) is still a topic being debated really makes you want more from the field.
Is there really no way to experimentally test these questions?
First, spending and taxes are controlled by Congress. MMT would therefore ask Congress to manage the economy. That seems like an incredibly bad idea. If you think Congress has done a good job of running the rest of the country, it might sound reasonable. But given Congressional approval numbers, nobody actually thinks that.
Second, this assumes that following this approach will get us to full employment at the same time or before it gets us to inflation. That sounds reasonable... but what if it's wrong? What if, say, the constraint on the economy is physical stuff rather than people? We might be able to have the government hire people to do jobs that don't require any stuff... if they're watching for this kind of problem and respond appropriately. Again, though, it's Congress that's going to be controlling this. Do you really trust them not to mess it up?
Third, a minor note: When inflation starts, shut of the spending, don't just raise taxes. Otherwise, you have the economy hitting the limits, government using a lot of the output of the economy, and what's left for the non-government getting taxed. It would be better for the government to release some of the resources that it's using, and if inflation continues, then tax.
It would be good to get rid of the debt ceiling which is a ridiculous prop. Congress can do that. Secondly it would be good to give the federal reserve or other independent policy makers the ability to control payroll taxes to stabilize the economy in a pro-cyclical fashion. When the economy is booming, and we want to curtail inflation , increase payroll taxes, when the economy soft, lower payroll taxes.
(This is a post by Scott Sumner, who is also quoted near the beginning of this article. His earlier post is at https://www.themoneyillusion.com/wrong-in-a-very-confusing-w... and is also worth reading for context.)
I mean that what you mention does not look obvious to me, as you can reach a point where even very high taxes cannot counter inflation.
My understanding of MMT is that it removes the direct relationship between the ideas of spending and taxation, instead tying them both to inflation. Spending increases inflation by adding currency into circulation, and taxation decreases inflation by removing it from circulation. Although I'm not sure how that fits into a one-liner :)
> MMT says that, contrary to appearances, banks don’t make loans out of deposits. Rather, they make loans based on the demand for borrowing, then the borrowers stash the proceeds in the bank. Anyone they write a check to simply makes a deposit in another bank. The bottom line is that loans create deposits rather than deposits creating loans. This is one aspect of MMT that even some conservative central bankers—including those at Germany’s Bundesbank—agree with.
Do tell.
Really? How?
> If you printed your way out of debt that would be a default in all but name.
Oh, right, actually they don't. So in fact it is actually impossible to default on debt in your own currency and you're admitting as much.
> You would cause a collapse of credit and a collapse in confidence in the currency itself.
Right. And a reduction of value of a currency is also called inflation. Which is pretty well accounted for within the discussion.
"why it's a bad idea"
aka, inflation. Which MMT spends a lot of effort modelling.
The conventionals recognize this too:
> With everything else going on, I really don’t want to spend time arguing with the Modern Monetary Theory people; after all, we agree on basic policy issues right now, and they are never likely to have as much destructive influence as the deficit scolds. But the MMT people think they have an argument with conventional Keynesians like me, and as long as they’re out there claiming that standard macroeconomics is all wrong, I guess we need to respond.
* https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wo...
2. Inflation is caused by printing money.
3. Governments can print money.
4. Governments are debtors.
Guess what happens next ...
And so it goes. Some steps forward, how many back - don't know but the article does demonstrate just what a political football MMT has become - I'm sure AOC is great but I'm not sure she's an expert in economics. I'd like to see a better theory of non-linear dynamics in economics. The non-linear elements are basically feedbacks where feedbacks allow components of systems to adjust more quickly to changes elsewhere in the system. A forest fire (speaking metaphorically) clears an area of land? The first species to recolonize the land are those that get there quickest. You need to be quick when opportunity arises and feedbacks jumpstart you.
To go back to the electrical circuit - have we even adequately characterized the components (resistor, capacitor, etc.) that go into making up an economic electrical circuit? Also as regards China. China accedes to the WTO in 1999 and only 8-9 yrs later (2007-2008) the circuit blows itself out. Add a huge new power source without compensations elsewhere in the circuit and it will likely fry itself and here we are more than 10 yrs later with the smoldering wreckage still visible. Although if you've come of age in the last 10 yrs, this might not be visible to you. An interesting thing to study is global capital flows - something like the electricity of the system. There was something somewhere where Joseph Stiglitz said: we need a better theory of finance. That is, we really don't know how this shit works.
Left leaning Paul Krugman sees MMT as nutty
https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wo...
Even further left, Doug Henwood is down on MMT
https://www.jacobinmag.com/2019/02/modern-monetary-theory-is...
It's not just conservatives who are down on this. Left and center-left economists see MMT as wishful thinking.
He would then continue: "The problem is spending, thats what you have to cut". (MMT, however, took the exact opposite stance).
Just modern keynesians wanting to confiscate savings somehow, and what better way than to print money. But even then, MF would say "You print money, reduce your deficit and your currency devalues to match your import/export". MMT has less weakness in inflation as it has in the exchange value of the dollar.
You dont want to mess the dollar value because it might take away its role as a world reserve currency, meaning everything gets way more expensive for the us if that happens.
This is why MMT is ignored in most academic circles - it doesn't bring anything new, and neither it does in a scientific way and understandable way.
There is also the question of politics - there is a perception that mainstream economists are right wing that is why somw turn to "heterodox" economics. Of course this is non-sense, and mirrors libertarian obsessions with Austrian school economists. Mainstream economics can inform both left-wing and right-wing policy making, just fine.
Do people really disagree with this?
The MMT theorists began with the conclusion they wanted and concocted a theory to get there. This is policy shaping theory at its finest.
https://www.nakedcapitalism.com/2018/10/randy-wray-modern-mo...
Here's the thing: MMT isn't a policy position. It's simply an attempt to accurately describe how the monetary system actually works from an operational perspective[2]. It was a reaction against the Krugmanite nonsense that has no basis in reality and describes the activities of no market practioners. Anyone curious should read the linked primer, but the core principle of MMT is that Taxes drive the value of money. The sovereign's power to impose taxes that can only be paid in the sovereign's liabilities creates an intrinsic demand for those liabilities, which is to say money. Even the gold standard worked this way. The government used to print gold certificates and use those to buy bullion from miners! And of course gold certificates were accepted to extinguish tax liabilities.
That said, a number of MMT theorists are in fact politically liberal and believe that the government should use its monetary sovereignty to interfere more in the economy. It's valid to object to claims like "every dollar of spending has to be funded by a dollar of taxes" because they are observably false. But you could be a hard money conservative goldbug and MMT would STILL be a theoretically valid understanding of how money works. The theory correctly describes the consequences of using a currency the sovereign cannot issue, be it gold, or another sovereign's liabilities.
One area where MMT does hand-wave a bit is on the importance of business investment in creating additional demand for the sovereign's liabilities. While from an authoritarian perspective the power to tax and imprison suffices to create demand for sovereign liabilities, in terms of having a society that isn't awful to live in it's really nice to have lots of businesses doing interesting things that can be paid for with those sovereign liabilities too. I suspect this is partially why proponents of the theory are so bullish on the sovereign controlling more of the economy, they fail to adequately consider the indirect consequences. Or they simply don't care or even consider a command economy a feature rather than a bug. I don't know.
So, please, don't confuse the factual descriptive theory with the subjective policy recommendations some people attempt to justify with that theory. The theory can only describe what government CAN do. What government SHOULD do is not dictated by MMT.
Edit: I discovered MMT during the first Greek debt crisis when lots of economists were going on about how America was going to be the next Greece. Farcical, but I guess it got clicks? This[3] is a nice overview of why the USA isn't like Europe. Of course this isn't really news, since Wynne Godley described the problem in 1992[4].
[1]http://paulgraham.com/submarine.html
[2]http://neweconomicperspectives.org/modern-monetary-theory-pr...
[3]http://neweconomicperspectives.org/2011/09/mmp-blog-16-unusu...
[4]https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-al...
That's not in the slightest bit surprising. Larry Summers instinctively sides with the large banks and has essentially built an entire career off that.
He was also one of the advisors to the Soviet Union breakup who told them how to privatise in such a way that oligarchs captured most of the wealth.