Latest news with #post-Keynesian
Canada Standard
27-05-2025
- Business
- Canada Standard
What is modern monetary theory? An economist explains how it could help Canada
Few words spark more anxiety in public debate than "national debt" and "government deficit." National debt is the total amount of money the government owes, accumulated over years of running deficits. Government deficit is when the government spends more money than it collects in taxes and other revenues. Dating back at least to the 1930s, the idea that government budgets should mimic household finances continues to dominate public discourse. Politicians, pundits and even some economists routinely warn that deficits are inherently dangerous and must be minimized - arguing that, like households, governments must ensure their spending does not exceed their income, or else bankruptcy looms. But what if this analogy is completely wrong? According to a dissenting school of economic thought known as modern monetary theory (MMT), governments that issue their own currency aren't like households at all. MMT argues that a government with full monetary sovereignty - meaning it issues its own currency, does not peg it to another currency or commodity and does not borrow in foreign currency - faces no hard financial limits on its spending. Unlike individuals, who must earn or borrow money before they can spend, a government with currency sovereignty creates money as it spends, meaning it can always meet its financial obligations. This theory has significant implications for how Canadians understand public debt and deficit spending. MMT draws on a diverse range of intellectual traditions, including Chartalism, functional finance and the post-Keynesian school. Its foundational ideas were first articulated by figures such as Warren Mosler, a financial practitioner whose writings sparked early debates, and later developed by academic economists including L. Randall Wray, Stephanie Kelton and Bill Mitchell. Once dismissed as "voodoo economics," MMT has in recent years moved from the margins of economic thought into the public arena, gaining increasing attention. As Kelton has noted, ideas that challenge conventional wisdom follow a predictable trajectory: they are first ignored, then ridiculed and eventually met with fierce opposition. MMT is now firmly in the "resistance" phase. The question of how governments finance public spending is not just an academic dispute, but also one that shapes the future of economic policy, democratic governance and social priorities. Economic frameworks are debated and contested in the public arena. The way they are framed determines public understanding, political support and ultimately, real-world policy directions. Canada's federal government, through its partnership with the the Bank of Canada, has the authority to issue Canadian dollars "as needed." MMT emphasizes that a country like Canada doesn't need to collect dollars before it can spend them. Instead, it creates money by effectively "marking up" or crediting bank accounts - essentially through keystrokes - when making payments. This process underpins government spending for procurement of goods and services, public transfers (pensions and employment insurance), interest payments on government debt, Bank of Canada asset purchases (quantitative easing) and emergency responses. However, this does not mean governments can spend without limits or consequences. Nor does it eliminate the need for taxes. Instead, MMT shifts the focus from arbitrary fiscal rules to real economic constraints. The key limitation on government spending is not whether it has enough money - because it can always create more - but whether the economy has the capacity to absorb that spending without causing inflation. While the government does not need tax revenue to "pay for" spending, taxes play a crucial role in controlling inflation by removing money from circulation, managing inequality and affecting how people work, invest, spend money and innovate. Critics of MMT often argue that expansionary fiscal policies - such as large-scale government spending or stimulus packages - inevitably lead to inflation. A common explanation for the recent inflationary surge in Canada and elsewhere is that government programs injected excess purchasing power into the economy. However, MMT argues that inflation only becomes a problem when government spending pushes the economy beyond its capacity - when there are not enough workers, materials or resources to meet rising demand. Until that point, government spending can be used to invest in public goods, create jobs and ensure economic stability. From an MMT viewpoint, the main constraint is not where to get money but whether those newly created dollars can be absorbed by unused capacity without creating unsustainable price pressures. Government spending can work if it's well-timed and directed toward productivity-enhancing projects. By targeting idle resources and improving the supply side, government spending can increase output, boost employment and promote stable economic growth. One of MMT's key contributions is democratizing money itself by demystifying the idea that money is inherently scarce. It emphasizes that government spending is constrained by the availability of real resources, not finances. If more people understood this, it could shift the terms of public debate from questions like, "How will we pay for it?" to more practical and meaningful ones like: "Do we have the people, materials and technology to make this happen without sparking inflation?" and "Is this socially beneficial?" For example, when large-scale investments in green energy, health care, child care or affordable housing are dismissed as "too expensive," MMT reframes the issue around real-world capacity and social benefit. Do we have the people, skills and infrastructure to carry them out effectively and sustainably? By shifting the focus from financial constraints and the government's bank account to real economic potential and democratic priorities, MMT opens new pathways for policy discussions that are grounded in material reality rather than outdated fiscal dogma. Canada is well-positioned to benefit from an MMT-informed approach to fiscal policy, which offers a valuable lens for rethinking and prioritizing economic policy. As a country with currency sovereignty and substantial natural and human resources, Canada has the ability to use targeted public spending to address pressing challenges such as housing affordability, health-care and child-care expansion, and climate change mitigation. MMT encourages us to shift the conversation from artificial fiscal constraints to real-world economic possibilities. Instead of asking, "Can we afford it?" we should be asking, "What do we need, and how can we mobilize our resources to achieve it?" Read more: Economic growth tops the priority list for Canadian policymakers - here's why As economic challenges from climate change to growing inequality mount, Canada cannot afford to be held back by outdated myths about government finances. By embracing a more flexible and realistic approach to fiscal policy, Canada can create an economy that works for everyone, not just the wealthiest few. MMT is not a one-size-fits-all policy directive, but a framework that emphasizes how governments with currency sovereignty operate. It highlights that real constraints lie in available resources, not in arbitrary budget limits, offering the government new way to think about economic possibilities.
Yahoo
26-05-2025
- Business
- Yahoo
What is modern monetary theory? An economist explains how it could help Canada
Few words spark more anxiety in public debate than 'national debt' and 'government deficit.' National debt is the total amount of money the government owes, accumulated over years of running deficits. Government deficit is when the government spends more money than it collects in taxes and other revenues. Dating back at least to the 1930s, the idea that government budgets should mimic household finances continues to dominate public discourse. Politicians, pundits and even some economists routinely warn that deficits are inherently dangerous and must be minimized — arguing that, like households, governments must ensure their spending does not exceed their income, or else bankruptcy looms. But what if this analogy is completely wrong? According to a dissenting school of economic thought known as modern monetary theory (MMT), governments that issue their own currency aren't like households at all. MMT argues that a government with full monetary sovereignty — meaning it issues its own currency, does not peg it to another currency or commodity and does not borrow in foreign currency — faces no hard financial limits on its spending. Unlike individuals, who must earn or borrow money before they can spend, a government with currency sovereignty creates money as it spends, meaning it can always meet its financial obligations. This theory has significant implications for how Canadians understand public debt and deficit spending. MMT draws on a diverse range of intellectual traditions, including Chartalism, functional finance and the post-Keynesian school. Its foundational ideas were first articulated by figures such as Warren Mosler, a financial practitioner whose writings sparked early debates, and later developed by academic economists including L. Randall Wray, Stephanie Kelton and Bill Mitchell. Once dismissed as 'voodoo economics,' MMT has in recent years moved from the margins of economic thought into the public arena, gaining increasing attention. As Kelton has noted, ideas that challenge conventional wisdom follow a predictable trajectory: they are first ignored, then ridiculed and eventually met with fierce opposition. MMT is now firmly in the 'resistance' phase. The question of how governments finance public spending is not just an academic dispute, but also one that shapes the future of economic policy, democratic governance and social priorities. Economic frameworks are debated and contested in the public arena. The way they are framed determines public understanding, political support and ultimately, real-world policy directions. Canada's federal government, through its partnership with the the Bank of Canada, has the authority to issue Canadian dollars 'as needed.' MMT emphasizes that a country like Canada doesn't need to collect dollars before it can spend them. Instead, it creates money by effectively 'marking up' or crediting bank accounts — essentially through keystrokes — when making payments. This process underpins government spending for procurement of goods and services, public transfers (pensions and employment insurance), interest payments on government debt, Bank of Canada asset purchases (quantitative easing) and emergency responses. However, this does not mean governments can spend without limits or consequences. Nor does it eliminate the need for taxes. Instead, MMT shifts the focus from arbitrary fiscal rules to real economic constraints. The key limitation on government spending is not whether it has enough money — because it can always create more — but whether the economy has the capacity to absorb that spending without causing inflation. While the government does not need tax revenue to 'pay for' spending, taxes play a crucial role in controlling inflation by removing money from circulation, managing inequality and affecting how people work, invest, spend money and innovate. Critics of MMT often argue that expansionary fiscal policies — such as large-scale government spending or stimulus packages — inevitably lead to inflation. A common explanation for the recent inflationary surge in Canada and elsewhere is that government programs injected excess purchasing power into the economy. However, MMT argues that inflation only becomes a problem when government spending pushes the economy beyond its capacity — when there are not enough workers, materials or resources to meet rising demand. Until that point, government spending can be used to invest in public goods, create jobs and ensure economic stability. From an MMT viewpoint, the main constraint is not where to get money but whether those newly created dollars can be absorbed by unused capacity without creating unsustainable price pressures. Government spending can work if it's well-timed and directed toward productivity-enhancing projects. By targeting idle resources and improving the supply side, government spending can increase output, boost employment and promote stable economic growth. One of MMT's key contributions is democratizing money itself by demystifying the idea that money is inherently scarce. It emphasizes that government spending is constrained by the availability of real resources, not finances. If more people understood this, it could shift the terms of public debate from questions like, 'How will we pay for it?' to more practical and meaningful ones like: 'Do we have the people, materials and technology to make this happen without sparking inflation?' and 'Is this socially beneficial?' For example, when large-scale investments in green energy, health care, child care or affordable housing are dismissed as 'too expensive,' MMT reframes the issue around real-world capacity and social benefit. Do we have the people, skills and infrastructure to carry them out effectively and sustainably? By shifting the focus from financial constraints and the government's bank account to real economic potential and democratic priorities, MMT opens new pathways for policy discussions that are grounded in material reality rather than outdated fiscal dogma. Canada is well-positioned to benefit from an MMT-informed approach to fiscal policy, which offers a valuable lens for rethinking and prioritizing economic policy. As a country with currency sovereignty and substantial natural and human resources, Canada has the ability to use targeted public spending to address pressing challenges such as housing affordability, health-care and child-care expansion, and climate change mitigation. MMT encourages us to shift the conversation from artificial fiscal constraints to real-world economic possibilities. Instead of asking, 'Can we afford it?' we should be asking, 'What do we need, and how can we mobilize our resources to achieve it?' Read more: As economic challenges from climate change to growing inequality mount, Canada cannot afford to be held back by outdated myths about government finances. By embracing a more flexible and realistic approach to fiscal policy, Canada can create an economy that works for everyone, not just the wealthiest few. MMT is not a one-size-fits-all policy directive, but a framework that emphasizes how governments with currency sovereignty operate. It highlights that real constraints lie in available resources, not in arbitrary budget limits, offering the government new way to think about economic possibilities. This article is republished from The Conversation, a nonprofit, independent news organisation bringing you facts and trustworthy analysis to help you make sense of our complex world. It was written by: Mohsen Javdani, Simon Fraser University Read more: Explainer: what is modern monetary theory? Canada's federal election must grapple with the limits of neoliberal economics Modern monetary theory: the rise of economists who say huge government debt is not a problem Mohsen Javdani does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
Yahoo
23-05-2025
- Business
- Yahoo
A new book makes the case for putting money supply at the center of the U.S. economy and re-empowering commercial banks
In the path-breaking book 'Making Money Work,' a pair of leading economists present a manifesto for fixing the financial regime that took America on a careening post-COVID ride through rampant inflation, ballooning values of homes and stocks, and spiking income inequality. In a rush to reverse course and tame prices, the pair argues, a clueless Fed clamped down much too hard, and doesn't even know it. To make matters worse, heavy-handed regulation has hamstrung the commercial banking system, slowing the flow of credit just as the central bank's throttling back. The upshot: These dual, wrongheaded policies are already saddling the U.S. with tepid growth, and could easily trigger an unnecessary, self-inflicted recession. Their solution: Putting the long-ignored 'money supply' at the center of U.S. economic policy. To make that happen, the authors say, Washington must recharge the weakened players that create the flow of dollars––the commercial banks––to move this nation back where we should and can be once again: on a path of stable prices and strong, sustained economic growth. The authors are Steve Hanke, founder and professor at the Johns Hopkins Institute of Applied Economics, Global Health and the Study of Business Enterprise, and Matt Sekerke, a fellow there. Hanke's renowned as a hardcore 'monetarist' who won the nickname 'the money doctor' by advising Estonia, Lithuania, Bulgaria, and Bosnia-Herzegovina on establishing currency boards, and Montenegro and Ecuador on dollarization. Those reforms helped successfully smash inflation and establish stability. The book is an extremely intensive, data-rich work of economic analysis, and a must read for anyone interested in how our economic policy has gone rogue since the Global Financial Crisis. For this review, I conducted an in-depth interview with Hanke where he cuts through the details, and highlights the broad sweep of his and Sekerke's template for reform. I also refer specifically to passages in 'Making Money Work,' which I read carefully. But unless otherwise noted, the capsule summary of its themes come from my talk with Hanke. So what is this book all about? 'It's about getting the money supply back into the game. The Fed does not adhere to the quantity theory of money,' says Hanke. The central bank, he charges, incorrectly focuses only on controlling interest rates. He insists that it's really growth in broad money that determines the levels of economic expansion and inflation, just as an altimeter regulates the altitude of an aircraft. 'The Fed's been using post-Keynesian models that ignore the money supply and hence put us on a rollercoaster,' he says. In our conversation and in his book, Hanke argues that the Fed's easy money policies post-COVID hugely inflated all asset prices including land, real estate, and stocks, and eventually created near-double digit inflation. Those policies penalized the middle class and made the wealthy far richer. 'In January of 2020, billionaires held 14% of the wealth in America as a share of GDP,' he says. 'Today, it's 21.1%.' He and Sekerke argue that to get the money supply growing at the correct, steady speed, policymakers need to render commercial banks once again the centerpiece of the financial ecosystem. They point out that these lenders, not the Fed, are the real elephant in the room. About 80% of broad money in the financial system has been produced by commercial banks via their lending to businesses and households. The book takes a new, holistic view of monetary policy as a three-legged stool. Traditionally, the field's narrowly focused on the Fed. But Hanke and Sekerke emphasize and integrate the roles of two key players that typically get left out of the picture: bank regulation and fiscal policy. 'Bank regulation and the Fed are the two most significant legs,' he adds, with fiscal policy still potentially playing an important role. Following the GFC, Hanke argues, the rules went haywire on banking. Two reforms hit the banks hard: Dodd-Frank legislation and the Basel III international regime both forced lenders to hold far higher reserves as a cushion. 'As a result, the banks became strangled and sharply cut back loans,' says Hanke. After going negative in the months following the GFC, loan growth only gradually recovered, but Hanke and Sekerke argue that it's still much too low. 'Banks are not creating enough money,' Hanke told me. 'The growth of their loan books remains relatively anemic, at rates lower than their levels prior to the GFC.' The authors propose two fixes to get the U.S. back on track for steady prices and steady robust growth. The first: dismantling the 'universal bank' model by 'divorcing' the lending business from investment banking. 'The rates of return are higher in investment banking than lending, so the capacity to make loans at the universal banks gets sucked away,' explains Hanke. Second, Hanke and Sekerke avow that Dodd-Frank and Basel III went much too far by imposing onerous 'risk weightings' that mandate excessive and discriminatory reserves, on different kinds of loans. 'The weightings are too high,' says Hanke. 'They're not fine-tuned. The banks should be given much more leeway in determining the reserves. They know much more about their business than the bureaucrats in Washington and Basel.' One such regulation that the book contends greatly increased the burden on banks is the 'Supplementary Leverage Ratio,' enacted in 2014 as part of the extensive post-GFC reforms. It mandates extra reserves on top of the Dodd-Frank and Basel III requirements that impose relatively high weights for holding even super-safe assets such as Treasuries. Secretary of the Treasury Scott Bessent has called SLR reform 'a top priority,' and it's strongly favored by such banking titans as JPMorgan's Jamie Dimon. In 'Make Money Work,' Hanke and Sekerke assert that the SLR 'binds' loan growth, and that reforming it would fit their prescription for unshackling bank lending. By pursuing policies that undermine and distort lending, Hanke and Sekerke insist, the Fed and Congress are curtailing an overlooked gift embodied in the banking system. When folks invest in stocks, bonds or real estate, that 'savings' is channeled through investment banks and other non-bank financial institutions. Those savings are money the investors aren't spending on consumption––that's not going to groceries, cars or vacations. But when banks provide credit, as Hanke puts it, 'they create money out of thin air' in the form of loans. That money doesn't come out of new savings that forces investors to forego buying stuff. 'It's the magic no one understands,' says Hanke. Or as the book puts it: 'The ability of banks to create deposit money out of nothing is one of the great forgotten facts of monetary economics.' 'The banks act as a type of phantom savers that enable good bankable projects to be financed without having to forego consumption,' Hanke says. 'Making Money Work' writes a new chapter in money and banking, and mounts a compelling case for learning from the post-GFC mistakes, letting the money supply rule by putting the banks back in charge. Because to paraphrase the great bank robber Willie Sutton, 'that's where the money comes from.' 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Yahoo
03-03-2025
- Business
- Yahoo
Austria Installs New Cabinet in Shadow of Recession, Far Right
(Bloomberg) -- More than five months after elections, Austria appointed a conservative-led government entrusted with pulling the economy out of recession while cutting the budget deficit and reversing a surge in right-wing populism. Cuts to Section 8 Housing Assistance Loom Amid HUD Uncertainty Remembering the Landscape Architect Who Embraced the City NYC Office Buildings See Resurgence as Investors Pile Into Bonds Hong Kong Joins Global Stadium Race With New $4 Billion Sports Park NJ Transit to Deploy Customer-Service Teams After Record Delays People's Party Chancellor Christian Stocker will lead a coalition that includes the Social Democrats and liberal NEOS as junior partners. Austria's long history of consensual rule was underscored last month, when the Freedom Party failed to form a government because it couldn't strike a compromise on its radical policy agenda. Germany's ill-fated three-way coalition — voted out of office a week ago — underscores the threat now facing its southern neighbor, whose fragile compromise cabinet now has to contend with an economy characterized by rising political risk. 'For the sake of the country, they've overcome their reservations,' President Van der Bellen said Monday, urging the new government to pay particular attention to economic stability and social cohesion. Christian Stocker, 64, has emerged as an unlikely Chancellor. Previously a party secretary and long-serving deputy mayor of a small city south of Vienna, he replaced Karl Nehammer as People's Party leader in January to break a negotiation deadlock Stocker's immediate job will be to implement a €6.3 billion ($6.6 billion) budget savings program that cuts the deficit to the European Union's limit of 3% of gross domestic product. A plan already presented by the government will taper public payments and raise bank taxes. The Social Democrat's Markus Marterbauer, the former top economist at the Chamber of Labour, was appointed to plot the recovery as Austria's finance minister. His research has focused on post-Keynesian economics and income distribution. Economic output fell by 0.4% in the fourth quarter of 2024, the eighth straight quarter of contraction, Statistik Austria said Monday. NEOS party chief Beate Meinl-Reisinger will steer the Foreign Ministry. The three parties will need to reestablish Austria's place in a turbulent geopolitical era. The country's neutrality - the last nation among continental EU members to shun military alliances - has broad public support, but is increasingly at odds with the risk posed by Russian expansionism and President Donald Trump's recalibration of US foreign policy. The government has pledged to buy new fighter jets and raise defense spending to 2% of economic output by 2032. Rich People Are Firing a Cash Cannon at the US Economy—But at What Cost? Trump's SALT Tax Promise Hinges on an Obscure Loophole Walmart Wants to Be Something for Everyone in a Divided America Warner Bros. Movie Heads Are Burning Cash, and Their Boss Is Losing Patience OXO Fought Back Against the Black Spatula Panic. People Defected Anyway ©2025 Bloomberg L.P.
