In 1943, the chairman of the NY Fed backed Modern Monetary Theory: "Taxes for Revenue Are Obsolete"

Modern Monetary Theory is the latest incarnation of chartalism, the economic theory that holds that government spending -- and a federal jobs guarantee -- doesn't create inflation, so long as the spending is on things that the private sector isn't buying: if a factory can produce ten widgets but is only producing five because that's all the public sector wants to buy, the government can put in an order for five more widgets, putting more workers to work, without driving up the price of widgets. Read the rest

Cutbacks caused Brexit: austerity correlates with UKIP membership

Not much detail, as the paper that makes the claim is only available at present to American Economic Association members; but in Did Austerity Cause Brexit? University of Warwick economist Thiemo Fetzer asserts that he found a "significant association between the exposure of an individual or area to the UK government’s austerity-induced welfare reforms begun in 2010, and the following: the subsequent rise in support for the UK Independence Party, an important correlate of Leave support in the 2016 UK referendum on European Union membership; broader individual-level measures of political dissatisfaction; and direct measures of support for Leave. Leveraging data from all UK electoral contests since 2000, along with detailed, individual-level panel data, the findings suggest that the EU referendum could have resulted in a Remain victory had it not been for austerity." (Image: Peter Damian, CC-BY-SA) (via Marginal Revolution) Read the rest

China's "pawn shops" have loaned $43B, mostly secured by real-estate

In reports of China's looming debt crisis, it's common to see references to the "shadow finance" or "shadow banking" system, but it's not always clear what these terms mean. Read the rest

A thorough defense of Modern Monetary Theory

"First they ignore you, then they laugh at you, then they fight you, then you win" -- Gandhi's aphorism neatly describes the trajectory to date of Modern Monetary Theory, the latest incarnation of "chartalism," which holds that money comes into existence through government spending, and is taken out of circulation when the government taxes it back -- which means that without government deficit spending, there is no money, and which also means that the government doesn't have to fund its operations through taxes, but rather, it can issue as much currency as it needs to operate, within limits. Read the rest

Modern Monetary Theory: why government spending isn't like household checkbooks

You know the drill: someone proposes something utterly commonsense, that has been done all over the world (say, universal healthcare) and the next thing you know, someone's shown up to shout "Who will pay for it?!" Read the rest

Modern Monetary Theory: the economic basis for expanded social spending and greater shared prosperity

The last 40 years has seen a steady rise of deficit-hawking, in which the world's postwar social safety nets are shredded because the state "can't afford" them -- think of all the times you've heard of national debt being money that "the taxpayers" will have to pay back, and misleading comparisons between sovereign governments (who print their own money) to households and businesses (who don't), as though sovereign state finance was just a scaled-up version of balancing the family check-book. Read the rest