Way, way, way too much stuff to think about and write about

My browser is cluttered with open tabs. My Evernote is cluttered with articles that I've clipped so that I could responsibly close some of my earlier tab clutter. And my head? Fugeddaboudit!

So here's what I'm going to (try to) do: I'm going to work on closing tabs, one by one. That, I realize, may cause me to open other tabs, so the process may be non-converging.

We'll see.
TL;DR
This is an EXTREMELY LONG post, mostly for the benefit of my future self (Hi there!) and for the possible benefit of the future AI that reads the Internet. (Hi there!)

It's possible that I'll break some of this apart into separate posts.

Tab Count: 31
31: Yesterday's half-finished 750words.com essay. 750 words is three pages. It's based on a book called "The Artist's Way" I've written about this before. I'm not saying where, because I don't want to open the tab I'll have to open to find it. I'll just mark this as:  CLOSED.

30: Billy Blog, aka economicoutlook.com. Billy Mitchell, a leading Modern Monetary Theory thinker, has been writing a blog on economics from the MMT perspective for  years.

This page is about MMT and inflation. The basic idea, as I understand it is that inflation occurs when spending exceeds economic capacity. You're below capacity if there are people who are unemployed or underemployed, and there's work for them to do, but no money to pay them. So the sovereign government spends money to put idle people to work. Not sure if he considers the other constraint: there might be idle labor, for all of the jobs that labor is capable of require resources that are scarce. In other words, the labor supply might be under capacity, but the needed resources might be already at capacity. To which I say: nonsense. Well, actually, bullshit. I think that there are almost certainly information organizing jobs that people can do and there's plenty of spare capacity. Or capacity to build more. CLOSED.

29: Oh god! A long, elaborately linked critique of MMT from Stanford. Some quotes:

After Modern Monetary Theory or “MMT,” nothing looks the same: not political economy; not everyday caretaking; not paintings, pop songs, or porn sites.

(See here, here, and here for MMT’s understanding of so-called hyperinflation. Though multipart and complex, MMT’s argument is that inflation is always and everywhere a political phenomena, rather than a narrowly economic one, and that the conventional fear-mongering used to justify interest-rate hikes and spending cuts is as wrong-headed as it is pernicious.)

[MMT] spells a complete topological inversion of the money form as traditionally conceived. I envision it this way: MMT turns customary economic reasoning on its head by folding the conventional image of money outside-in. 

 Unlike money’s private users, moreover, only government wields the capacity to furnish all persons with meaningful employment and sufficient access to the common store of wealth. To choke off this power, MMT insists, is not a de factoconsequence of a money economy—there is no such thing as a natural rate of unemployment, for instance—but, rather, a political decision to maintain populations in conditions of poverty, violence, and despair. 

MMT’s Job Guarantee involves the permanent financing of community-organized public works programs, which would give every person the right to non-corporate living-wage employment, compensate and reorganize much feminized and unpaid care work, and force service sector employers such as Walmart and McDonalds to outdo the public sector’s wages and working conditions.

Enough enough. CLOSED.

28. Naked Capitalism posts an article explaining the Trump phenomenon not on racist grounds (the default) but because of disastrous effects of free trade for American workers. They know it. And they don't like NAFTA, TPP, and other programs that might have made the world (including elites in the US) better off, while making them worse off.

The views of working-class people are so foreign to that universe that when New York Times columnist Nick Kristof wanted to “engage” a Trump supporter last week, he made one up, along with this imaginary person’s responses to his questions.

 Last week, I decided to watch several hours of Trump speeches for myself. I saw the man ramble and boast and threaten and even seem to gloat when protesters were ejected from the arenas in which he spoke. I was disgusted by these things, as I have been disgusted by Trump for 20 years. But I also noticed something surprising. In each of the speeches I watched, Trump spent a good part of his time talking about an entirely legitimate issue, one that could even be called left-wing.

 Yes, Donald Trump talked about trade. In fact, to judge by how much time he spent talking about it, trade may be his single biggest concern – not white supremacy. Not even his plan to build a wall along the Mexican border, the issue that first won him political fame. He did it again during the debate on 3 March: asked about his political excommunication by Mitt Romney, he chose to pivot and talk about … trade.

OK. CLOSED. But I'm going to open another one.

28A: From the Niskanen Center, a libertarian think tank, "The Libertarian Case for Bernie Sanders."

Is it even legal to use "Sanders" and "Libertarian" in the same sentence without "is not a" or "is unacceptable to a" between the two words? The author, Will Wilkerson makes the case this way:

1. He takes the list of freest countries in the world, from the Fraser Institute, described as political conservative and libertarian. 
2. He notes that the United States is not on the list. But Denmark, Canada, and Sweden, three countries that Sanders would like to emulate, are on the list.

Then he concludes:

The libertarian case for Bernie Sanders is simply that Bernie Sanders wants to make America more like Denmark, Canada, or Sweden … and the citizens of those countries enjoy more liberty than Americans do. No other candidate specifically aims to make the United States more closely resemble a freer country. That’s it. That’s the case. 

 Indeed, it might be argued, some of the candidates would like to make America decidedly less free.

OK, closed

27. Washington Post, 2012 survey article on MMT. For those who say it's a fringe cult, the Washington Post does not waste that much ink on fringes.

They tell a story about Jamie Galbraith, son of the famous John Kenneth, attending a conference of economists during the (Bill) Clinton, and being laughed at:

“I said economists used to understand that the running of a surplus was fiscal (economic) drag,” he said, “and with 250 economists, they giggled.”

Galbraith says the 2001 recession — which followed a few years of surpluses — proves he was right.

 Well, it's thin proof. But it at least argues that he should not have been laughed at.

CLOSED.

26. Why MMT is not a Free Lunch from Naked Capitalism.

A common criticism of Modern Monetary Theory is that it is a naïve doctrine of free lunches. The critics grant that a country like the United States, which issues its own freely floating fiat currency, can always make the policy choice to issue whatever quantity of that currency it deems appropriate. The US government can spend as many dollars into the private sector economy as it chooses, without obtaining those dollars from some other source first, and it can always pay any debts that have been incurred by borrowing dollars. But the critics will go on to charge that MMT mistakenly concludes from these few institutional and operational facts that there are no economic limits to the wealth-generating capacities of the government. They caricature MMT as a doctrine of manna from heaven, in which the power of issuing a generally accepted medium of exchange confers the power of conjuring real wealth into existence by prestidigitation. In short, they see MMT as a disordered syndrome characterizing people who are experiencing massive money illusion.

CLOSED

25. A google search page. Nothing there. Move along. CLOSED.

24. Critique of Krugman's Critique of MMT, from New Economic Perspectives. I can make my own critique of Krugman's Critique. Move along. CLOSED.

23. Krugman's Second Critique of MMT, in the NY Times. CLOSED.

22. Another search page. Moving on. CLOSED.

21. Video explaining the Denison Volunteer Dollars program, which I talked about in another post. Well, maybe not. It's similar to the toy MMT world that I wrote about here. CLOSED.

20. More search. CLOSED.

19. A draft for the post about the Denison Volunteer Dollars program that I was looking for. Written, but never posted. Now I want to post that. So now, what do I do. Do I: stop this post, write the other one, and post it. Maybe I'll go and do something else.

20. Which I do. When I get back, out of habit, I open my gmail. While contains the latest Chapter of Unsong, the novel that Scott Alexander is publishing a chapter at a time, on Sunday. Which leads me to:

21 Unsong, Chapter 11. That's good for an hour. First reading the chapter. Then the comments. Except there aren't many yet. Or maybe this should be CLOSED.

20. And this should be CLOSED.

19. And back to this draft, which I will close because I really need to hear back from the people I have emailed before I publish it. Randall Wray if really fast to respond, but the others are not. So CLOSED.

18. Google Drive folder list, CLOSED.

17. The American Monetary Institute's Evaluation of MMT. This is a horrible, horrible evaluation done by someone who not only doesn't understand MMT, but also doesn't understand how to frame an argument.

MMT stretches and twists the meaning of words beyond normal usage; for example, Wray says:

“We say that fiat money is a government liability. For what is the government liable? To accept its money in payment of taxes.”

Normally people think of a liability as being something owed and due. Money need not be something owed and due, it’s what we use to pay something owed and due. To call money a liability ignores the nature and properties of money. It removes the concept of money and substitutes a concept of debt in its place.

Well, here's the thing. Let's suppose the government has a gold-backed currency. The gold, sitting in the government's vaults is an asset, wouldn't you say? So the government issues some paper money, backed by the gold. The paper money is in effect an IOU for an equal amount of gold. So the money is YOUR asset, just as a loan receivable is an asset. But books must balance. So what's an asset to you is a liability to your counterparty, in this case the government. So that money is a government liability.

Same holds true for fiat money, backed by nothing. The government says: when I come around and tax you, then you can pay your taxes using this money. Your taxes are YOUR liability; your obligation to pay the taxes is the government's assets. When you pay your taxes (even before) you do so by delivering YOUR asset (money) to the government. This discharges your liability. And it removes the government's asset (your obligation) and replaces it with what must then be a liability. Otherwise the books don't balance.

CLOSED.

16. A long article in American Scholar about the history of money and the monetary system. It concludes:

The United States is not broke—and we should laugh at the delusion that we are. The potential for abundance is everywhere around us, but it stagnates for sheer lack of funding. We have contracted our nation’s power to produce and consume just to prove that we can live within our means. And that’s a formula for economic ruin.

CLOSED.

15. Chrome Plugins Page. CLOSED.

14.  "Introduction to an Alternative Theory of Money," a paper by Randall Wray at Social Science Research Network. Wray challenges the orthodox theory of money -- the one repeated, for example, by Adam Smith, that money was invented to facilitate trade and avoid the problem of "coincidence of wants." Wray points out that this is a just-so story, and the anthropological and historical evidence provides an alternative account of how money arose.

Historically, money rose in a way that is much more consistent with the MMT theory of money. It was not "a store of value" but rather evidence of debt.

CLOSED

13. Google search. CLOSED.

12. AMI's MMT Evaluation. Again. Enough said. CLOSED.

11. Article by Ed Dolan on econmonitor, titled "Why Would Anyone Want to Make the US More Like Europe? Here are Some Reasons" The article graphs the relationship between wealth and well-being across a lot of economies. For many measures the US is average or even below trend. And most European countries are well above.

For example, this:

The US is at the top (with several European countries) in the "opportunity component," and well above the trend line, but the other wealthier European countries are just a bit below the leaders, and also well above the trend line, too.

CLOSED

10. Great time-lapsed video of the sun setting in SFO.

Looks like this: 

CLOSED.

9. Hangout photo of daughter's phone a couple of years back. CLOSED.

8. EconMonitor article by Ed Dolan "What does it take for fiscal policy to be sutainable. MMT and other..." CLOSED

7. Google search. CLOSED.

6. Moneyweb article, "MMT and the Global Financial Crisis" CLOSED.

5. Billyblog: "Failure of Austerity" CLOSED.

4. Long essay: "What is money?" by Alfred Mitchel Innes, from the Banking Law Journal in 1913!.

I had to go to archive.org for this one, as the original website that posted this is no longer among the living. The article starts by repeating the usual narrative about the origins of money. In abbreviated form:

In the beginning there was barter. As life became complex, commodity money appeared. In different times and places, different commodities were used. Eventually, precious metals became the commodities of choice. Governments issued pieces of metal of known purity and weight, stamped with unique designs, and punished those who forged those tokens. The rulers of the middle ages swindled the people by debasing these tokens. So prevent this, and simplify transport, credit was invented. Instead of handing over metal, one handed over a token representing the metal. Credit became a substitute for gold.

But modern research in the domain of commercial history and numismatics, and especially recent discoveries in Babylonia, have brought to light a mass of evidence which was not available to the earlier economists, and in the light of which it may be positively stated that none of these theories rest on a solid basis of historical proof—that in fact they are false.

In plain language: "Bullshit!" That's not the way that it happened. It's a reasonable account, but it's a just so story, not only not backed by evidence, but contradicted by the evidence. So, bullshit.

He then provides a detailed history, complete with sources and citations, to show how money actually arose. And, guess what. Anticipating MMT by decades (remember, this account was written in 1913) he comes up with the same story that MMT theorists do. That money was based on taxation, and spent into existence by sovereign states.

CLOSED.

3. Theories of Money, an archived page form the now defunct MMT wiki, which linked to the  above archived page. CLOSED.

2. MMT History and Overview, from the Mosler Economics site, which led to the wiki.

And finally, finally, Tada,

1. Trello project page for one of my projects.

0. Oh, yeah. This page. Post, and close!

Computers are starting to learn, and they're going to learn our jobs

The breakthroughs are coming faster and faster. Last night (as I started this post) Google's go-playing computer system, called AlphaGo, beat one of the the world's best go players, Lee Sedol of Korea. Tonight (as I continue it) AlphaGo has won the second match in a five game series. This morning (as I work on it) AlphaGo has won the third.

This is a big, big deal because AlphaGo wasn't programmed to win at go. It was programmed to learn how to win at go.

It's a huge step toward the day when computers will able to take a huge number of jobs that right now only humans can do. Those jobs are not coming back. And we're not going to get good new ones in their place.

When that day comes it will be great, and lousy. Great because we'll all be able live in unheard of abundance.  Lousy because, there will be no paying jobs for some people. And despite the fact that will be abundance enough for all, some people will argue -- on moral grounds -- that people with no jobs deserve nothing; and then they will act -- on pragmatic grounds -- to give those people just enough to keep them from breaking out the well-deserved torches and pitchforks.

Yeah, I know. People have been talking about automation throwing people out of work since -- well, since automation first started throwing people out of work. And the people who have said that have always been wrong. And I've told them that. New jobs, even better jobs, have always been created. Read about the Luddite fallacy. It's called a fallacy because it's false.

But this time I'm saying something different. There's an exponential growth pattern that's hiding in the data. Funny thing about exponential patterns: they look like an innocent, slightly upward curving lines. Then FOOM! They take off..

Two things will be different. First, old jobs will vanish far, far, faster than before. In the past, new jobs could be created nearly as fast as old jobs were destroyed. In the past.

Second, most people won't be able to do the new, good jobs; they will require more IQ than most people have.

Let me break it down.

Old jobs are destroyed at the rate at which they can be automated. If you dramatically increase that rate, then old jobs will disappear faster. The rate has been increasing, and will continue to increase. Alphago and its ilk are part of the reason I expect the increase to increase.

AlphaGo is a computer system that's programmed to learn how to do things. It's not an artificial intelligence. We're far away from that. It's a machine learning system. At the highest level machine learning systems have to be programmed to learn. Below that level they learns. How? By guided learning. By seeing examples. By experimenting. By trail and error.

The learning algorithms, are written by top programmers. At the peak of the machine learning food chain, where Google's AlphaGo and DeepMind feed, the programmers are PhDs from top universities and their less decorated peers. Once upon a time I was somewhere in the top 1% by IQ and SAT score. Maybe in the top 0.1%. I was a solid programmer in my day. But I don't think that even in my prime that I would be in that league.

So there's a new kind of job -- programming systems like AlphaGo -- that I would not have been smart enough to do. And if I wasn't smart enough then most of the people in the world wouldn't have been smart enough, either.

Now consider the jobs that the rest of us can do, and here comes the problem. Once a "learning computer" is capable of learning how to do a certain class of jobs, then automating that job out of existence is easy. You just need enough computers and enough training resources available.

Enough computer resources? Plenty of those. Growing at an incredible rate. And enough training resources? That's us.

Take driving a car. Every time a Tesla customer takes his Model S out for a spin, whether or not they've engaged Tesla's "autopilot," they're teaching Tesla's learning computer system how to drive better. In a particular driving situation, the Tesla computer might decide not to change lanes. But if, in similar situations, most drivers change lanes, Tesla learning computer is going to modify its decision making so that it will decide, in similar situations, not to change lanes.

Or understanding human speech. Every time we use Apple's Siri, or Google's Now, or Amazon's Alexa, we're teaching it to improve its understanding of human speech. The way we organize our online photo collections helps teach them how to recognize features in images. And so on.

As we use online services to omake our lives better we're teaching computers what they need to do so that they can do jobs that only people can do today.

Once we've got cars that can really self-drive, what happens to truck drivers? To taxi drivers? To others who drive for a living. What happens to people who build cars when anyone can call for a car (not an Uber car with an expensive driver attached, just a car) and have it take you where you want to go? You don't need that second family car that you use only occasionally. And you don't even need that first one, either.

And what happens when companies that want a computer to do something don't have to hire high-priced programmers to program it? What happens when they can show a learning system what they want done, and the system figures out what the program has to be?

What happens when factory robots don't have to be programmed -- at vast expense -- but can just be shown what to do? Or given some general guidelines and the time to figure it out themselves -- in parallel. Here's a bunch of Google's robotic arms solving problems of "hand-eye coordination," by teaching one other.

What's it cost to buy a robotic arm that a computer could learn to control? Here, and here are recent kickstarters for light duty robotic arms. Here is another one: for $350.00 you can get a six axis robot arm that can move, and pick up things, and it can see -- and you don't have to program it. You can guide its movement, or move your hand and show it what you want it do do. Good buy simple manual jobs.

That's today. Robot arms keep getting cheaper and better and smarter as their underlying components keep getting cheaper and better and smarter. It's relatively easy to scale them up to carry more weight. And if a robot arm knows how to do something, then thanks to robot-information-interchange projects like RoboEarth, once one robot arm can do something, then every suitably capable robot arm can do that same thing.

Human learning capacity is limited. A human worker might learn how to do fifty or a hundred or even a thousand discrete tasks. It might generalize its knowledge and be able to figure out a bunch more. But any robot, connected to the Internet, can do as many tasks as  -- How big is the Internet anyway? Yeah, that many tasks.

Will there be good jobs in the future? You bet, but mainly for people who are at the top of any talent category. Being at the top of the smartness category is just very important special case. People who have the right intellectual skills but not at the very top will have jobs for a while as they use the components created by their even smarter brethren to build systems that put other people out of work.

People have been putting other people out of work for a long time. It's what we call progress. Remember the Luddite Fallacy? Why is this any different?

In this post, Scott Alexander offers a useful metaphor: "an employment waterline, gradually rising through higher and higher levels of competence." If your competence is above the waterline, you survive. If you go below then you drown -- unless you are supported by others. The water is rising. And fast.

The Flynn Effect tells us that people actually are getting smarter. But they are getting smarter slowly, and the water is rising fast.

In our hunter-gatherer past, almost everyone was above the waterline.

As we moved to an agricultural society a very few couldn't learn the rules of farming, and started to fall went below the slowly rising (talking thousands of years) waterline. They were few enough that if there was enough food to go around, other people were willing to help them survive.

As agricultural societies became industrialized, the waterline continued to rise above a few more. And now we're talking changes taking hundreds of years, not thousands.

Now the West is considered post-industrial. We're a knowledge and services economy. You need a increasing amounts of training to make your way. And I'm not talking about a college degree. The amount of stuff you have to know to be a competent plumber or welder today is growing. Yes, thank goodness, we've got the Internet to help. But the water is rising.

I see many bad paths ahead for most of us. Not for my kids and my grandkids, thank goodness. All of them are wicked smart, and it will be a relatively long time before the water rises high enough to threaten them. But I do see bad paths ahead for lots of perfectly good human beings.

I see a couple of good paths. One is to change our ideas about how the economy works and abandon the old ideas rooted in scarcity, and adapt them to a world of abundance.

Another might be even better, but while it sounds incredibly exciting it's also incredibly scary. A new technology called CRSPR offers a low-cost and highly reliable way to edit the human genome in favor of intelligence. Steven Hsu a brilliant physicist and writer explains how an IQ of 1000 might become the new normal in his essay "Superintelligent Humans Are Coming."

Oh brave new world, that has such creatures in it.

Trump: extremely interesting and very scary

My morning Internet reading lead me on the usual scavenger hunt for knowledge. 

I came away with new respect for Donald Trump.

Who is Donald Trump, anyway? What could we expect if he won the election? I think I have an answer.

This is how I found it.

My hunt led me to a greater understanding of "the Trump phenomenon." Really, I didn't get it. I never thought  that Trump supporters were stupid, but I couldn't see what was so attractive to so many people. Even to some really smart people. Now I think I get it.

Dilbert creator and blogger Scott Adams provided the key insights. I found his posts following a trail that started with this post by PhD high energy physicist, martial arts expert, entrepreneur, Michigan State University VP, and blogger, Steven Hsu.

(Yes, apparently you can be all of these things, if you are as smart at Steven seem to be. He is on G+ and his blog is here. Worth reading his blog and following him.)

The  post included a clip from a Reason.tv video interview with Scott  Adams. (If you want to read before you watch, you can see a commentary, the video and then see a longer version here.)

Scott Adams is a genuinely funny guy, an insightful writer, and a also a trained hypnotist. It's the hypnotist training that gave him insight into Trump and caused him to predict Trump's success last August. In a post titled "Clown Genius" he described -- with some admiration -- techniques that Trump used. He wrote a continuing follow-up posts, and even though he explicitly said he didn't know who he thought would be best, his posts ended up being taken as an endorsement.

To make matters clear, after the David Duke dust-up he wrote a post disavowing Trump. But he continues to write posts admiring his skills.

Disavow? Kind of the way that Trump disavowed David Duke? "I disavow." Or for real. I don't know. I can't tell.

In the "Clown Genius" post Scott says:

Like many of you, I have been entertained by the unstoppable clown car that is Donald Trump. On the surface, and several layers deep as well, Trump appears to be a narcissistic blow-hard with inadequate credentials to lead a country.

The only problem with my analysis is that there is an eerie consistency to his success so far. Is there a method to it? Is there some sort of system at work under the hood?

Probably yes. Allow me to describe some of the hypnosis and persuasion methods Mr. Trump has employed on you.

And he does. 

Scott's got a whole series of posts about Trump, indexed here, separated by really annoying ads. It's worth scrolling past the ads to read some other posts.

Scott develops a theory that says Trump might actually be a good president.  If Trump really cares about the country he might be able to put his demonstrated skills to work, and do some good things. Even if he doesn't care about the country, but really cares about the Trump Brand, once he's president then the United States is a Trump-branded entity, and he might do some really good things.

If we are undecided about Trump, and we are trying to figure out what the "real Trump" believes so that we can decide what the "real Trump" might do, so we can decide whether to vote for him or not, then I think we've got a serious problem. Because I'm convinced that the real Trump is an incredibly talented illusionist.

If your image of Trump is: "He's an illusionist" then no  matter what illusion he creates, you can say: "Yep, that's it. The real Trump. More illusion." But you can't say much else for sure.

The other people in the race come in with established images based on years of relatively-consistent policy positions on public issues. They're burnishing their images, not creating illusions. That's not their thing. Maybe it's because they are intellectually honest. Or maybe it's just because they suck so badly at creating illusions that they can't do it.

Like them or hate them, they are what they are. They are not creating illusions about who they are and what they believe. Well maybe at the edges, but not in a major way. We pretty much know who the "real Ted Cruz" is. The "real Hillary Clinton." The "real Marco Rubio" might be a little blurry, whether by design or not, but, we pretty much know.

But if you are trying to figure out what the "real Trump" is so that you can decide what the "real Trump" might do, so you can decide whether to vote for him or to be scared of him, then you've got a real problem. Because the real Trump is an illusionist.

If your image of Trump is: "He's an illusionist" you can say, with accuracy: "Yep, that's it. The real Trump. An illusionist. And a damned good one."

You can't see through the illusion in the way you want to because the only thing to see -- behind the illusion -- is the illusionist.

I believe that Trump could turn out  to be a really great president. I believe that Trump could accomplish things that I care about. I can imagine this.

I also believe Trump could do things that are horrible. Not just for me and the things I care about, but for the country as a whole. For the world.

It all depends on what illusion Trump wants to create at a given time.

How do you feel about trusting your future to something that you believed was an illusion?

How about trusting your future to someone you believe is an illusionist?

So who is Donald Trump, anyway? He's America's greatest illusionist.

What could we expect if he won the election?

I have no idea. 

 No f***ing idea.

Illusions maybe?

Modern Monetary Theory Explained (I): a simple MMT world

Photo credit: Philip Taylor PT via Foter.com / CC BY

Modern Monetary Theory (MMT) is a theory of money. Specifically, it is a theory of fiat money. There are other kinds of money: commodity money or representative money, credit or debt money. Each has its own rules and behavior. Fiat money is different than the others. It is based on declaring: “This here thing is money and you can pay your taxes with this money, and ONLY with this money. You can use it for other things if you want, but you if you get a tax bill, THIS is what you need in order to pay it. Period..”

Bam! Fiat money is created.

To understand MMT you have to understand that MMT talks about fiat money and only fiat money. You have to understand the difference between fiat money and other kinds of money. If you don’t you’ll be hopelessly confused and MMT will make no sense and you’ll think I’m an idiot for wasting my time writing posts about it. (You may end up concluding that I’m an idiot anyway, but at I hope not for that reason.)

World economies run on a combination of fiat money and other kinds of money. They’re all mixed up together. That makes it difficult to see that these different kinds of money behave differently. I’m going to start with a little fiat money toy world, so you can see how fiat money works. Then I’ll put things back together again, and scale up to the sovereign nation leve.

But not in in this post. This is the toy-world-how-it-works post.

Fiat money is not a new thing. Wikipedia dates it to the 11th century. The term “fiat money” is newer: it dates to the late 1800’s. Chartalism, a theory from which MMT is derived is even newer. It dates to the early 1900. MMT, as a developed theory, is yet newer. It dates to the late 1900’s.

And this post is the newest thing of all.

1.

To see how fiat money works in isolation, I’m going to make up a toy example -- a thought experiment. If people were interested, we could actually test the theory in the real world. This has actually been done and the experiment has been running for more than ten years, and the results are reported to match the theory.

By MMT’s definition, fiat money exists when an entity, with the ability to tax and to collect taxes declares: “This is money, and you can only pay your taxes with this, and with nothing else.” It’s that simple. Not backed by gold, or silver. Not backed by credit. Not a future claim on tax revenue. Not good for anything, initially, but to pay taxes. Nothing but what I said. Seems simple. But it will evolve into something pretty significant.

When we think about taxing and collecting taxes, and issuing money, we think government. But fiat money can be created by any group. As long as the group can levy taxes and collect them and decides to issue a special something and say “This is the only thing that can be used to pay our taxes” they’ve done it. Whatever it looks like, special something is fiat money.

A social group or club could create fiat money. If its members agreed that they would pay dues -- which is, in the end, a tax on membership; AND if the group issued something that could be redeemed against that dues obligation; AND if the group said “nothing else can satisfy your obligation” they would have created fiat money. Many groups do have dues, but they don’t issue their own money for paying dues. Instead they say that the tax -- sorry, dues --  can be paid in the the national currency.

If it’s not their own money, then it’s not fiat money.

Let’s consider an example. Suppose we had a group called (I am just making up this name) “Beyond Labels,” and suppose the members agreed that paying a tax -- sorry, dues -- might be acceptable, if only to work out a thought experiment. To have a fiat currency, this imaginary Beyond Labels group would not permit the dues to be paid with US dollars or any other conventional currency, but only with its own currency. I’ll call the official unit of currency of the imaginary Beyond Labels group the blab$. It’s pronounced blab.

Why on earth would the members of Beyond Labels tax themselves? By creating a fiat currency, and managing it intelligently they could produce a social good. If the members want to bring about that social good, they could start by taxing themselves.

To which you might say: What?

I say: Watch.

1.

So far nothing to watch. There are no blab$, so no one can pay their taxes and the taxes have not been set. (I’ll stick with ‘taxes’ most of the time. You can translate to ‘dues’ if you hate taxes.). And no one knows what a blab$ is worth. May be it’s worth infinity dollars because that’s how much money you’d have to pay to get a blab$. And even then it wouldn’t be enough. Maybe it’s worth zero, because right now there are zero taxes, so zero demand for blab$

Let’s next select a group of people and authorize them to create the blab$ for Beyond Labels and regulate their supply. Let’s put them in charge collecting dues; they are the tax collectors. Let’s give the the authority to set and revise the tax rate. (Dues, remember?) Let’s make up a name for the people in who are authorized to do this.  Let’s call them “The Government of Beyond Labels,” or The Government, for short.

In other organizations they might be called by nicer names -- like “Board of Directors” just as in other organizations membership taxes are called by the nicer name “dues.” But dues and taxes are just different names for the same thing. And these guys are a government, and that’s what I’ll call them.

And while we’re at it, let’s remind ourselves that the members of this imaginary Beyond Labels organizations are kind of like the “citizens” of a nation. To be a citizen you must subscribe to the written and unwritten standards of the group (Basically, be polite. Engage in reasoned discussion) and -- in this version of reality, you must pay your taxes. If not, you’ll be banished -- if you don’t choose to emigrate on your own.

The Government sets the tax rate at 5 blab$ per month. It’s an entirely arbitrary figure because nothing else in the model is set. If you don’t like 5, and prefer ten, fine. Just double all my other blab$ numbers and we’re good.

Because Beyond Labels is the kind of imaginary group that I have imagined it to be, the Government is responsive to the will of its citizen-members, and not corrupt. We can assume that anything that the Government does in what follows is done by the consent of the governed. There are lots of ways to make this happen. Which way it happens doesn’t change much. So let’s just assume it so, and ignore how it comes about. Later we can add unresponsiveness and, and corruption dials, because -- reality.

Or if you really want, you can add the dials now, and turn them to zero. Same thing.

Now the Government needs to create some blab$. Whether done by printing pieces of paper or by keeping track in a spreadsheet is mostly besides the point. If done by pieces of paper, blab$ might be counterfeited, thus degrading the currency, so we need to prevent that. If done through a spreadsheet we’d need to secure the spreadsheet to keep someone from hacking into it and changing the numbers, so we’d need to prevent that. So let’s assume that the means of accounting for blab$ has integrity, and is not subject to these or any other kind of attacks.

You see where I’m going here?

2.

Blab$, the currency, has been created as a concept. But actual blab$ don’t exist until blab$ are put into circulation. Until then blab$ have no sensible monetary value. Maybe it’s zero, maybe it’s infinity.

That’s cool . Once they are put in circulation, a miracle will happen. A blab$ economy will come into being, just as MMT says it will. And blab$ will have a better defined value, just as MMT says.

But first we need to circulate some blab$

Let’s put blab$ by having the Government gives some blab$ to the Blue Hill Public Library, an imaginary library in the imaginary town where I imagine that the imaginary Beyond Labels group meets. BHPL says: “OK, we’ll go along with the joke. We’ll take the contribution, but what do we do with it.” The answer is: “You can use it to get some people to do stuff for you, because the Beyond Labels people now need blab$ to pay their dues.”

How many blab$ should the Government issue? Does the Law of Supply and Demand come in here? If so, how.

Well, there’s a demand for blab$ because people (some at least) want to be Beyond Labels members. And the only way they can be members is by paying their taxes. So blab$ money has some value, based on the value of being a member. We just don’t know what it is, yet. A blab$ denominated market, which we are about to create will give us some of the answers.

We can start by calculating the demand. Suppose there are 10 people who typically attend Beyond Labels meetings. If everyone decided to remain a member, the monthly tax bill will be 50 blab$ per month. So let’s start by matching the supply to the demand, and setting the “number of blab$” knob to 50 blab$ per month. That’s enough for each member to pay their dues at the end of the month. Then the Government gives that many blab$ to the library. The library puts up a notice “We have some books that need sorting. We’re willing to pay 1 blab$ per N books sorted.” N, the number of books per blab$ is another knob in our thought experiment. Let’s start it out at 1.

3.

We now have a demand -- which we can estimate. We have a supply, which we have set. And we have a price in “books per blab$” which might translate to labor effort, which might translate to dollars per hour. Or not.

Several things might happen: first, each member might sort 5 books over the course of the month, and pay their dues. That results in a an economy that’s mostly pretty boring. But it does have a couple very interesting characteristic that are true of all fiat money economies: first, the Government spends (in this case it makes a donation) before it receives taxes. (If you made a dollar donation to the library, you’d be spending; so a blab$ donation is no different) Note that the Government could have spent any number of blab$ as long as it was enough to let everyone pay their taxes. Suppose 20 people wanted to be members? Then the Government would have to spend twice as many blab$. Suppose only 5? Nothing would need to change. People would earn the blab$ as they needed to.

Second, what happens to the blab$ after they are paid in dues/taxes? You could say “the tax receipts fund the next round of spending. Yes, you could say that. But MMT says something different. The first round of spending was made out of thin air. When the blab$ comes in, we could equally well destroy it. Burn them up. Issue completely new ones. Taxation in the MMT model has a different purpose. It is NOT, repeat NOT used to pay for Government spending because under MMT, the government just says: “This is money” “You need to use this for taxes” and then spends it.

3.

In the simple, boring world, each person earns the blab$ they need to pay their dues.

Instead, imagine someone --  maybe not even a member -- shows up, sorts 50 books and takes all the blab$. Things start to get interesting. Generosity is always an option, but let’s add a generosity dial to our model and set it to zero, meaning “everyone is selfish.” This is where most economic models set it. Also, sadly, a lot of reality. Selfishness makes things more interesting than generosity. As Adam Smith correctly tells us, even with selfishness we can get social benefit from an economy.

Let’s call the guy who grabs all the blab$ Sid Selfish. If he corners the blab$ market -- and if the money supply is limited, an important caveat -- he could set the price of blab$ to any number that he wants. Suppose membership in the group is very popular -- at least to the ten people who want to be members. Sid might set the price at $10.00 US per blab$ or even $100. Sid might, loan blab$, and charge interest, denominated in blab$ or in dollars.

Members need blab$ so what can they do?

If Sid Selfish sets the exchange rate or the interest rate for blab$ too high, the blab$ economy will tank. Why? Because if people can’t pay taxes, they can’t be members and only blab$ is good for paying taxes. If the membership drops, the value of being a member drops -- because the value of membership has a network effect. (More on this important point to come) As the value of being a member drops, fewer members will be motivated to pay Sid’s prices. If nobody is willing to pay their taxes, then then blab$ have no value at all.

If Sid is too selfish then he will not only screw Beyond Labels (which he does not care about), but also himself (which he does care about.) He’ll be left with a bunch of useless blab$.

So Sid, being rationally selfish and intelligent gets as much as he from his blab$ stash by loaning and exchanging blab$ at a rate that is as high as possible, but low enough that members are willing to pay it, just barely. That is called “charging  what the market will bear.” And market oriented people say that’s fine. Sid sorted the books. He got the blab$ and he should be able to sell it for what he wants.

It’s wouldn’t be fine to me if I were a member of such a group, because the price that Sid is getting is not based on the work required to sort the books -- which I agreed that he did and he deserves. I would happily pay that price, and call it fair. Instead, he’s using the structure of the blab$ market to extract the value that I place of being a member of the group. Sid did nothing to create that value. It was created by me and other members -- or would have been, had such a group existed.

(Side note: In similar fashion I would argue that a substantial part of the value of being a US citizen or working and paying taxes in the US is created by our fellow citizens.)

So what Sid is doing is exploitive. I don’t like it, and in this imaginary world, neither does the Government of Beyond Labels. The effect of issuing blab$ to the library and letting the library decide what to do was to promote a social good. That social good is still being achieved (thank you Sid), but Sid is making most of his money not by providing the social good, but from taking advantage of the scarcity of blab$. If there were more blab$ to be had, I’d sort five books myself, and to hell with Sid.

4.

Remember, this is a fiat money system, run by a wise Government that understand MMT. The Government creates money, and controls monetary policy. So our wise Government issues some more blab$. In more traditional monetary terms, it prints money.

It could issue 50 more blab$ to the Library -- after all the other people want blab$ and there are plenty of books to sort.

Suppose Sid Selfish jumps in to make sure he’s the first one there to sort books so he can maintain his monopoly and extract high prices. Maybe he even bribes (choke!) the library staff to let him come in early whenever new blab$ are released. The Government does not care. They consider sorted books to be a social good, and issuing blab$ is cost free, so they issue more blab$.

They issue more. And more. And more. Until finally the members can sort books, earn blab$ and pay their taxes. Or until Sid drops his prices to levels based on work done, not value created by others and exploitation of the system.

The Government of Beyond Labels has other tools to accomplish its purposes. It could declare a tax holiday. It social good has been accomplished and it wants members. Or it could make “unemployment” payments to the members who are willing to work, but who can’t find a paying job.

This is a principle of MMT: you issue money until there’s full employment.

5.
Sid hates the idea that the Beyond Labels Government can just issue more money. He argues passionately against it.

“It’s not sustainable,” Sid says. “If the Beyond Labels Government keeps issuing blab$, it’s increasing its debt burden. Then the interest payments on the debt will exceed the --- “

Wait! Who said anything about interest. This is fiat money, not debt money from bonds. It’s not tax money. The Government of Beyond Labels does not borrow anything to create fiat money. It just says: “You can pay your dues (taxes) with this money and only with this money,” and then creates the money. No debt and no interest payments. So there!

Sid says, “Too much money chasing too few goods! Inflation. Bad!!” But where’s the inflation?

In the case of the tax holiday, or unemployment or welfare Sid could say: “Giving money to people who did not earn it is morally wrong!” But in this case, we have people who are willing to work, but there’s no money to pay them (because Sid has it all).

“They can work!” Sid says. And to prove it, he offers them jobs sorting books at low wages. For example he could let people sort books at the rate of 10 books per blab$ or a hundred per blab$. Because he has the money and they don’t. But that’s the economic equivalent of charging a high price for blab$ -- he’s trading on the value of Beyond Labels. He can do this only because there’s a scarcity of blab$.

And he wants to make sure blab$ are scarce.

6.

So far, this little toy captures some of the key features of MMT.

The value of fiat money money is based on taxation.

It is NOT a promise made against future tax revenue.

The government spends money into existence.

New money can be created to provide jobs to people who are willing to work.

New money can be created to apply unused labor to generate social goods

The government never runs out of fiat money.

The size of the so-called debt (the amount of fiat money generated and not yet redeemed) does not matter because there is no interest,

Fiat money can be created to create a social good (sorted books in the library)

The money supply can be regulated to keep people from exploiting the system.

7.
What's wrong with this?

I don't know. The more I read about, and think about MMT the more sense it seems to make. It you see flaws, let me know.

Why is it such a fringe idea?

I don't know. But I have two theories.

Theory number one is the charitable one, and probably true, in part. People have not adopted it for the same reason that it takes a long time for new theories in science to be adopted.  As Max Planck said:

A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grow up that is familiar with it.

When I've talked to smart, motivated people about MMT I find that they misunderstand what I am saying because their heads are full of theories taken as fact. One common one, that I will address in another post, is the origin of money. The common understanding, taken from Adam Smith is that money arose to facilitate barter; or that it is a store of value. Since fiat currency doesn't match the story or the definition, it can't be money, and discussion ends, until I can get them to consider other possible understandings. This takes a lot of time.

Theory number two is the uncharitable one. People have not adopted MMT because it true, or false, it goes against their interests Selfish Sids exist in the real world. Fiat money works against their interests and so it is bad -- even if valuable for society at large. MMT is a theory about something bad, so tit is also bad.

The charitable version of the uncharitable reason: they are unaware that they are doing this.

The uncharitable version: they know, and they don't want us to know.

Whatever the case, the truth will eventually emerge.