Differences Between Keynesianism and Modern Monetary Theory

Introduction

As the global economy continues to evolve and face new challenges, economists and policymakers are constantly searching for the most effective ways to promote growth and stability. Two economic theories that have gained significant attention in recent years are Keynesianism and Modern Monetary Theory (MMT). While both theories aim to address economic issues, they differ in their approach and solutions. Keynesianism emphasizes government intervention and spending to stimulate economic growth, while MMT argues that governments can print money to fund public programs without causing inflation. So, which theory is best for today's economy? In this article, we'll explore the key differences between Keynesianism and MMT, and provide insights into which theory may be better suited to tackle today's economic challenges.

The Basics of Keynesianism

Keynesianism is an economic theory that was developed by British economist John Maynard Keynes in the 1930s. The theory suggests that in times of economic downturns, the government should intervene by increasing its spending and cutting taxes to encourage consumer spending and stimulate economic growth. Keynes believed that the government should be responsible for stabilizing the economy through monetary and fiscal policies. 

The theory is based on the idea that the economy is driven by aggregate demand, which is the total demand for goods and services in an economy. The theory of aggregate demand (AD) explains the total demand for all final goods and services in an economy at different price levels, typically downward-sloping, meaning lower prices increase the quantity demanded due to wealth, interest rate, and exchange rate effects. Key drivers of AD include consumption (C), investment (I), government spending (G), and net exports (NX), summarized as AD = C + I + G + NX, with Keynesian theory emphasizing that government intervention (fiscal policy) can stabilize demand and output, especially during downturns. 

Classical theories expected prices to adjust to restore full employment without government influence.

The Keynesian approach to economic policy is based on the idea that the government should actively manage the economy to promote full employment and stable economic growth. This means that during periods of recession, the government should increase its spending to create jobs and stimulate demand. The theory also suggests that during periods of economic growth, the government should reduce its spending to prevent inflation.

One of the key components of Keynesianism is the concept of the multiplier effect. The multiplier effect suggests that a small increase in government spending can lead to a much larger increase in the overall level of economic activity. This is because increased government spending leads to increased consumer spending, which in turn leads to increased business investment and job creation.

The Basics of Modern Monetary Theory

Modern Monetary Theory (MMT) is a relatively new economic theory that has gained popularity in recent years. The theory suggests that a government that controls its own currency can never run out of money and can use its currency to fund public programs without causing inflation. This is because the government can simply create more money to pay for its programs.

According to MMT, the government's ability to spend money is not limited by taxes or borrowing, but rather by the availability of goods and services in the economy. The theory argues that inflation is only a concern when the economy is operating at full capacity and there is a shortage of goods and services.

The MMT approach to economic policy is based on the idea that the government should focus on achieving full employment and promoting economic growth through public investment. The theory suggests that the government should increase its spending to create jobs and stimulate demand, and should only worry about inflation when the economy is operating at full capacity.

The Similarities Between Keynesianism and Modern Monetary Theory

Despite their differences, Keynesianism and MMT share some similarities. Both theories emphasize the importance of government intervention in the economy to promote growth and stability. Both theories also recognize the importance of full employment and suggest that the government should take an active role in creating jobs.

In addition, both theories reject the idea that the government's ability to spend money is limited by taxes or borrowing. Keynesianism suggests that the government can borrow money to finance its spending, while MMT suggests that the government can simply create money to fund its programs.

The Differences Between Keynesianism and Modern Monetary Theory

Although Keynesianism and MMT share some similarities, they differ in their approach to economic policy. Keynesianism emphasizes the use of fiscal policy, such as government spending and taxation, to stabilize the economy. 

MMT, on the other hand, emphasizes the use of monetary policy, such as the creation of new money, to stimulate the economy.

Another key difference between the two theories is their approach to inflation. Keynesianism suggests that inflation can be controlled through a combination of monetary [central bank intervention] and fiscal [government intervention] policies, while MMT suggests that inflation is only a concern when the economy is operating at full capacity.

Finally, Keynesianism suggests that the government should balance its budget over the long term, while MMT argues that a government that controls its own currency does not need to worry about balancing its budget.

The Pros and Cons of Keynesianism

One of the main advantages of Keynesianism is that it provides a framework for government intervention in the economy during times of recession. The theory suggests that the government can use fiscal policy to stimulate demand and create jobs, which can help to stabilize the economy.

However, Keynesianism has been criticized for its potential to create inflation and for its reliance on government intervention. Critics argue that increased government spending can lead to inflation and that the government should not be involved in the economy to the extent that Keynesianism suggests.

The Pros and Cons of Modern Monetary Theory

One of the main advantages of MMT is that it provides a new way of thinking about government spending and public investment. The theory suggests that the government can create money to fund its programs without causing inflation, which can help to promote economic growth and stability.

However, MMT has been criticized for its potential to create inflation and for its reliance on monetary policy. Critics argue that increased government spending can lead to inflation and that the government should not rely on the creation of new money to fund its programs.

Which Theory is Best for Today's Economy?

There is no clear answer to which theory is best for today's economy. Both Keynesianism and MMT have their advantages and disadvantages, and the best approach will depend on a variety of factors, including the state of the economy, the level of government debt, and the political climate.

Some economists argue that a hybrid approach that combines elements of both Keynesianism and MMT may be the best approach. This could involve using fiscal policy to stimulate demand and create jobs, while also using monetary policy to fund public investment.

Ultimately, the best approach will depend on a variety of factors and will require careful consideration and analysis by policymakers and economists.

Criticisms of Both Keynesianism and Modern Monetary Theory

Both Keynesianism and MMT have been criticized for their potential to create inflation and for their reliance on government intervention in the economy. Critics argue that increased government spending and the creation of new money can lead to inflation and can cause long-term economic problems.

In addition, both theories have been criticized for their potential to lead to increased government debt. Critics argue that increased government spending can lead to increased government debt, which can have long-term consequences for the economy.

Conclusion

In conclusion, Keynesianism and Modern Monetary Theory are two economic theories that have gained significant attention in recent years. While both theories aim to address economic issues, they differ in their approach and solutions. Keynesianism emphasizes government intervention and spending to stimulate economic growth, while MMT argues that governments can print money to fund public programs without causing inflation.

There is no clear answer to which theory is best for today's economy, and the best approach will depend on a variety of factors. Some economists argue that a hybrid approach that combines elements of both Keynesianism and MMT may be the best approach. 

Ultimately, the best approach will require careful consideration and analysis by policymakers and economists to promote growth and stability in today's economy.

And That’s that!

Posted on Face Book Instead See https://www.facebook.com/rick.adamson.981

 

Modern Monetary Theory

by Rick Adamson

3.25.2022

Modern Monetary Theory (MMT) is a macroeconomic theory that has gained popularity in recent years. It has been a topic of intense debate among economists and policymakers, with some arguing that it is the solution to our economic problems, while others claim that it is a dangerous idea that could lead to hyperinflation and economic collapse. In this post, we will explore the origins and history of MMT, its key principles, the controversy surrounding it, and its impact on the economy.

The Origins and History of MMT

MMT is a relatively new economic theory that has its roots in the work of economist Warren Mosler, who first introduced the idea in the 1990s. Mosler was a Wall Street trader who became interested in economics and began to develop his own theories about how the economy worked. He believed that the traditional economic theories were flawed and that a new approach was needed to explain how the economy functioned.

MMT gained popularity in the aftermath of the global financial crisis of 2008, as policymakers and economists searched for new solutions to the economic problems facing the world. The theory gained further attention during the COVID-19 pandemic, as governments around the world implemented unprecedented fiscal measures [debt] to support their economies.

The Key Principles of MMT

The central idea behind MMT is that a sovereign government that issues its own currency can never run out of money. This is because the government can always create more money to pay its bills. This is in contrast to the traditional economic theory that suggests that governments must balance their budgets and avoid running up large debts.

According to MMT, the government can spend as much money as it wants without fear of running out of money or going bankrupt. This is because the government can simply create more money to pay its bills. The only limit to government spending is inflation, which occurs when there is too much money chasing too few goods and services.

The Controversy Surrounding MMT

MMT has been a highly controversial theory since its inception. Some economists and policymakers believe that it is a dangerous idea that could lead to hyperinflation and economic collapse. They argue that if the government spends too much money, it will cause inflation to soar, and the value of the currency will plummet.

Others, however, argue that MMT is a necessary and innovative approach to economics that can help solve many of the world's economic problems. They argue that traditional economic theories are outdated and that new ideas are needed to address the challenges of the modern world.

MMT vs. Traditional Economic Theory

MMT is fundamentally different from traditional economic theory in several ways. The most significant difference is that MMT does not view government spending as a problem. In traditional economic theory, excessive government spending is seen as a problem because it can lead to inflation and other economic problems.

MMT, on the other hand, argues that government spending is necessary to stimulate the economy and create jobs. It also argues that the government can always create more money to pay its bills, so there is no need to worry about running out of money or going bankrupt.

MMT and Government Spending

One of the key principles of MMT is that government spending is necessary to stimulate the economy and create jobs. MMT argues that the government should spend money on public goods and services, such as healthcare, education, and infrastructure, to improve the overall well-being of society.

MMT also argues that the government should not be constrained by budget deficits or debt. Instead, the government should spend what is necessary to achieve its goals, and any resulting budget deficits can be managed through monetary [manipulation by the central bank] policy.

MMT and Inflation

One of the main criticisms of MMT is that it can lead to inflation. The theory argues that the government can spend as much money as it wants without fear of running out of money. However, if the government spends too much money, it can cause inflation to soar, and the value of the currency can plummet.

MMT acknowledges the risk of inflation but argues that it can be managed through monetary policy [manipulation by the central bank]. The theory suggests that the government can use various tools, such as interest rates and taxes, to control the money supply and prevent inflation from spiraling out of control.

Criticisms of MMT

MMT has faced significant criticism from economists and policymakers. Some argue that the theory is overly simplistic and ignores many of the complexities of the modern economy. Others argue that MMT is a dangerous idea that could lead to hyperinflation and economic collapse.

Another criticism of MMT is that it ignores the role of private investment in the economy. MMT argues that the government should spend money on public goods and services to stimulate the economy. However, critics argue that private investment is also essential for economic growth and job creation.

The Impact of MMT on the Economy

MMT has the potential to have a significant impact on the economy if it is widely adopted by policymakers. The theory suggests that the government can spend as much money as it wants without fear of running out of money or going bankrupt. This could lead to increased government spending on public goods and services, which could stimulate the economy and create jobs.

However, if MMT is not managed correctly, it could lead to inflation and other economic problems. If the government spends too much money, it could cause inflation to soar, and the value of the currency could plummet.

Conclusion and Future of MMT

In conclusion, MMT is a controversial economic theory that has gained popularity in recent years. The theory suggests that the government can spend as much money as it wants without fear of running out of money or going bankrupt. However, critics argue that MMT is a dangerous idea that could lead to hyperinflation and economic collapse.

The future of MMT is uncertain, and it remains to be seen whether policymakers will adopt the theory on a large scale. However, the theory has sparked an important debate about the role of government spending in the economy and the need for new economic solutions to address the challenges of the modern world.

And That’s that!

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The Anointing of Hillary Clinton

Rick Adamson

2019.05.12

Hillary claims the 2016 election was stolen from her. See video here.  

She has a point and here is why: 

In 2008 she was a Senator from New York and a presidential candidate. A deal was cut and she conceded the race to Barack Obama. The deal involved Obama, Clinton, Chuck Schumer (Senior Senator from New York) and Harry Reid (Senate Majority Leader), among others.

The deal was that if Clinton dropped out of the 2008 race she would be guaranteed the Democratic nomination in 2016. In the meantime Obama would give her a top cabinet position-Secretary of State as it turned out. You see- 

1. Obama wanted a clear path to victory at the convention, 

2.  Chuck did not want Clinton to return to the Senate because as the senior Senator from New York he was used to calling the shots: something Clinton resisted and 

3.  Reid did not want her back in the Senate because she was not a team player.

Thus,  she was "anointed" (or so she thought) by Democratic leaders to succeed Obama.

Supporting evidence:

1.  As the 2016 presidential race began it was not certain if anyone would challenge her-after all, they knew of the "anointment."  Finally, a few relatively unknown Democrats entered the race only to withdraw shortly thereafter. 

2.  Bernie Sanders, an independent, had entered and refused to withdraw. This was a surprise to the "anointed" Clinton and party leaders so in order to fulfill their promise the Democrats rigged the DNC to disadvantage Sanders. The Democrats cheated him.

3.  Hillary tried to get Bernie to concede to her. See Clinton to Sanders: I dropped out for Obama – it was 'the right thing to do.'

            4.  Counting on the "promise" and the Democrat's obvious electoral advantage Clinton never visited Pennsylvania, Michigan, Wisconsin, and certain other industrial areas.

            5.   Joe Biden, the former Vice President and natural next leader of the Democrats, never entered the race.  Why,  because he knew of the "anointment."

So, when the promise failed to  come through she, understandably, felt "robbed."

And That's that! 

The Russians are Coming!

Rick Adamson 02.23.2020

            

          The New York Times reported that the House Intelligence Committee [Adam Schiff's committee] received a Feb. 13 briefing that Russia planned to interfere in the 2020 elections, including the Democratic primaries, and favored Trump.

       "Intelligence agencies were telling Congress that President Vladimir Putin is presumably striving to get President Trump re-elected..." -NYT
            
          "Russia is looking to help Trump win in 2020, an election security official told lawmakers," -CNN
          
          John Ratcliff (R-TX), who was in the meeting/briefing, said today (02.23.2020) the reporting by NYT [and by association CNN] is inaccurate.
          
           Here they go again:

Schiff-
            
          "The President's misconduct cannot be decided at the ballot box, for we cannot be assured that the vote will be fairly won." -Adam Schiff
            
          In response to his comments and leaks, "Adam Schiff is the one helping Vladimir Putin destabilize US democracy." -CNN

Pelosi-
           
          "All Members of Congress should condemn the president's reported efforts to dismiss threats to the integrity of our democracy & to politicize our intel community," -Pelosi tweeted Thursday night.
            
          Really, it seems that the intel community politicized itself by leaking classified information.
          
          Also note: "Intelligence reports are as much art as science, a mixture of informants, intercepted conversations and intuition, as analysts in the nation's 17 intelligence agencies try to get into the heads of foreign leaders," according to some intelligence officials. Intelligence is hardly a perfect process, as Americans learned when the nation went to war in Iraq based in part on an estimate that Saddam Hussein was once again in search of a nuclear weapon.
          
          As a result, the leaking of such reports or briefings is of benefit to no one except those (politicos and reporters) who want to use it to smear someone or to sow dissension in the American electorate.
           
          Few, if any, doubt that Russia (and probably others) interfered in the 2016 election or that they fully intend to do the same this year. After all, Russia's goal is/was to instill distrust in our elections and to sow dissension in the American electorate.
          
          ("Some analysts believe the Kremlin's goal is to cause maximum disruption within the United States and that it throws the support of its hackers and trolls behind candidates based on that goal, not any particular affinity for the people running."-Washington Post)
          
           I think this description is most likely the case. Putin even said in a TV interview that he "did not care who won the 2016 election." I tend to believe him because foreign policy toward Russia has not changed much in decades, whether under Democratic or Republican administrations. So, it probably does not matter much to Putin which personality occupies the White House.
           
           Everyone knows that interested parties try to affect elections. That’s not new. We just need to understand what the foreigners did, how they did it, and STOP them.
           
           And That's that!

Culture and Common Culture

Rick Adamson

8.8.19

“Our Constitution was made only for a moral and religious People. It is wholly 

inadequate to the government of any other.” John Adams             

  Think about these words for a moment. Do you think Americans are a moral people? Do you think Americans are a religious people?

If your answer is NO, and if Adams was right, our government may very well be inadequate and in need of modification.

   I think the answer is, generally, yes. But there are fringe groups who are not moral or religious. They are loud and blusterous and receive undue attention (attention that far exceeds their grievances) which results in the authorities being so attentive to their grievances that they offend the rights of the majority; so attentive to various sub cultures' hurt feelings that they offend the rights of those of the common culture.

            The point is, moral and religious people, who make up the common culture in America, have fewer grievances and certainly not outlandish ones. Such people, in general, are less likely to abuse the liberty and freedom contemplated by the founders. Put another way, people who do not live by a commonly accepted moral code do not function well in America-they abuse their privileges and fellow people.

 When a group of old White religious dudes formed the USA and wrote our founding documents, they had in mind a general government, the purpose of which was to protect and defend its members (former colonies/states and their citizens).

           

They envisioned a Nation where local civic and/or religious institutions (schools, civic clubs, and churches, etc.) would thrive and contribute to the moral development of the people as well as to provide for the needs of the poor in their communities.

         

 They understood human nature and knew they could not change it; however, their new system was designed to moderate it, as far as the general government was concerned. They left the moral development of the people to the local civic institutions to which those people subscribed.

         

All went pretty well for about 150 years, at which time the general government began to grow and to involve itself in the daily life of everyone. (4)

         

No doubt this reorientation was based on good intentions but also, unintended consequences.

         

Over time, with the help of the growing general government and the hyper-active courts, the importance of these local civic institutions was diminished and their impact upon moral development retarded.  After all, once the general government assumed responsibility for moral development and for poor folks, what need was there for the local civic organizations? Moreover, unlike the general government, a local organization might shame a person’s misbehavior: maybe shun it. Who needs that? (7)

As a result, we have evolved into a "...Nation afflicted by fads, crazes, manias, and rages; where mass murder has become all too common. This is what you get in a culture where anything goes and nothing matters.

         

Extract all the meaning and purpose from being here on earth, and erase as many boundaries as you can from custom and behavior, and watch what happens.

         

For many, there is no armature left to hang a life on, no communities, no fathers, no mentors, no initiations into personal responsibility, no daily organizing principles, no instruction in useful trades, no productive activities, no opportunities for love and affection, and no way out. This abyss of missing social relations is made worse by the everyday physical settings for everyday lives based on nothing.” (1)

          What caused this?

1.    Unbridled immigration since the mid 1960’s;  forsaking the need for careful management

2.    The welfare state (3)

3.    The court’s involvement in religious practices (2)  

4.    The general government’s involvement in every public school in America

5.    Failure to assimilate home grown minorities into the common culture

6.    Illegal immigration and a failed immigration system

7.    Birthright citizenship (6)

8.    The general government’s and the court’s preoccupation with the feelings of complainants

9.    Various economic reasons and the failure of parents to properly raise their offspring

10. The loss of psychiatric hospitals for which our jails are substituting (5)

The problem is:

          √  1. and 2. are incompatible,

√  2.  and 6. are incompatible,

√  2.  and 7. are incompatible,

√  2.  contributes to the problem of 5.,

√  6.  resulted in 911 and MS13,

√  3.  and 4. prohibit local schools from functioning as their community desires - including prayer and separate dressing rooms for boys and girls 

√  8.  feelings are not covered by the founding documents.

            

 What can be done? We need a convention of the states to convene and take back our Country. Follow this link for a handbook which describes the process: Link here.

           And That’s that!

                     

Notes

(1)  https://kunstler.com/clusterfuck-nation/hold-the-teddy-bears-and-candles/?fbclid=IwAR084eMuDjH1nDSY3YDqY-0L01VIjPeGHKJSRv6iyNfJeMeiGcIx0CeMJ7o

(2) See “Assalt on Religion”

(3) See “Catastrophic Mistake”

(4) See  “The Federal Government (FedGov) is Out of Control”

(5) See “How The Loss Of U.S. Psychiatric Hospitals Led To A Mental Health Crisis”

(6) See "Birthright Citizenship”

(7) See  "On the Deterioration of American Society"