NON TI HO DIMENTICATA, DONNA DEI CHICCHI DI MAIS.
The Systemic MEMMT*
solution to Third World poverty
CONSIDERING THE FACTUAL BASIC WORKINGS OF A MONETARILY
SOVEREIGN GOVERNMENT…
A Monetarily Sovereign Government
(hereafter a Sovereign) is an issuer of own floating and non-convertible
currency. A government that runs a peg to gold or to any foreign currency is
not monetarily sovereign. A Sovereign is, for all practical purposes, the monopolist of the currency.
A Sovereign issues its own currency by
spending it. It does not need to ‘borrow’ its own currency, and it may do so
only after it has spent it. A
Sovereign cannot run out of its own currency, since it creates it out of
nowhere.
It follows
that a Sovereign is never revenue
constrained. It spends first and
taxes later. It does not need to do the reverse because the money to pay taxes
come from government spending in the first place. Likewise, a Sovereign’s
emission of government securities is never a borrowing operation, because the
money to buy those securities come from government spending too.
A Sovereign implements a taxation
system primarily to provision itself of all the goods and services it requires,
to keep inflation in check and to regulate aggregate demand and unemployment.
In fact, unemployment is the evidence that taxation is too high, or that
deficits are too small.
A Sovereign’s national debt and deficits
always add net financial assets to the non-government sector (domestic and
foreign) to the penny. In fact governments spend by crediting banks’ reserves of the non-government sector. When
governments issue securities they credit
the non-government sector’s savings accounts. It is therefore factually false
that a Sovereign’s debt translates into its citizens’ debt. Quite the opposite.
A Sovereign can never default on its
debt obligations simply because it cannot run out of its own currency, and will
always meet all payments in full and on time. In fact a Sovereign always ‘rolls
over’ its debt virtually indefinitely, never fully repays it. It can always sustain deficits as long as
they are necessary to benefit the economy. Markets are in no position to
push a Sovereign into a default.
A Sovereign sets its own rates and is
neither market dependent nor market constrained in this operation. It is also
in a position to fully control devaluation and inflation, in cooperation with
the Central Bank. A Sovereign is for all practical purposes a price setter, especially in the field
of national minimum wages.
A Sovereign can spend virtually
unlimited amounts until the economy reaches full capacity. Past that point
inflation can be a problem and expenditure may be tapered.
A Sovereign can buy anything that’s on
sale in its own currency, with very few constraints. This includes, crucially,
all the labour force within its national borders, meaning all the unemployed
persons willing and able to work, thus reaching full employment (via government sponsored Job Guarantee
Programmes).
The virtuous effects of full employment
on the Sovereign’s domestic economy are incalculable if compared to the modest
growth rates of today, and will soon spill over to the private sector,
stimulating aggregate demand, sales, further employment and private investment.
A Sovereign’s real wealth is all the
goods and services it can produce domestically, plus all the goods and services
it can import, minus all the goods and services it exports. It follows the
fundamental principle that a Sovereign’s best economy is domestic, at full employment, and producing/importing real wealth
as defined above.
Mosler Economics-MMT proposes the Systemic lift off by Third World Countries out
of poverty.
First step: The country must be a Sovereign. Thus it will repudiate any peg to gold or to other
currencies, and will restore its currency as floating and non-convertible.
Second step: The country will run sufficiently large deficits in order to
guarantee to the population enough financial means to pay all the taxes, to
live, and to save as desired, and in order to build all the essential modern infrastructure and public services,
particularly public health and schooling.
Third step: The country will immediately
launch a Full Employment Job Guarantee
Programme run by the government, where it will offer a job to any person
willing and able to work. These jobs will pay a dignifying minimum wage that will
be a notch below wages paid by the private sector. The country will also launch
a National Free Education Programme
run by the government where schooling is offered to all children able and
willing to attend class.
Fourth step: The country’s Central Bank
will run a zero rate policy. The
government will only issue bonds with maturities no longer than 3 years.
Fifth step: The country will guarantee all
banks’ deposits, and will legislate to limit the banking sector’s functions to
the servicing of the payments system, to the servicing of the depositors, and
to lend to businesses, for the public
purpose.
Sixth step: The country will tax
appropriately in order for the government to be able to provision itself of all
the goods and services it needs in order to function. VAT will be eliminated, as it serves to hinder the circulation of
the most pivotal components in the economy: real goods and services. The
Country’s tax rates and deficits will have to guarantee full employment at all times, full State education, full State public
health, citizens’ ability to save and the purchase of all the national output.
Seventh step: The country will suppress
its speculative financial system (if
any), as it is a lot more trouble than it’s worth. For limited amounts of time,
and strictly for the public purpose, the Country may impose a measure of
protectionism for its output of goods and services. Commodities exploitation
contracts with foreign firms will be
renegotiated by the country for the public purpose.
Eighth step: The country will
repudiate its foreign debt if it is established that it falls within the
International Law’s definition of ‘Odious
Debt’, namely debt inherited from previous dictatorships. This will lower
the nefarious country’s obligation to export as much produce as possible to
earn foreign currencies to repay its foreign debt.
Ninth step: The country will promote a Domestic Food Reliance Campaign, where the government will
subsidize local farmers who will switch from export agriculture to domestic
foods production for the local population.
Tenth step: The country will launch a Skills for Land Swap Initiative where
the government will call upon Western fully qualified but retired professionals
(doctors, teachers, engineers, nurses, accountants, public purpose economists
etc.) to accept positions in the country in exchange for both a local currency
wage and the free allotment of portions of land with real estate as place of residence.
*
MEMMT stands for Mosler Economics Modern
Money Theory. It encompasses the work of a Century of economics giants such
as Friedrich Knapp, John
Maynard Keynes, Joan Robinson, Abba Lerner, Michal Kalecki, Wynne Godley, Hyman
Minsky, Alain Parguez. It is taught mainly at the University of Missouri Kansas
City, with Professors Randall Wray, Stephanie Kelton, Mathew Forstater, and Dr.
Warren Mosler who leads the MEMMT schools internationally.
- Contatti