1000 Castaways: An MMT Journey with Clint Ballinger
We admit that Macro n Cheese can be quite wonky. We interview an impressive array of scholars and a typical episode looks at functional finance on a granular level. This episode is a treat for the rest of us, with a guest who makes a point of speaking in plain English.
Clint Ballinger’s book, 1,000 Castaways: Fundamentals of Economics, is meant to be a primer, bringing macroeconomics to those with no special background in the subject. Its title - and dominant model - is a reaction to the Austrian school’s hypothetical society consisting of 10 people or Paul Krugman’s “babysitters co-operative.” Clint expanded his model to more accurately reflect reality. Let’s face it: 10 people is reductionism, not simplification.
“A renegade band of Modern Monetary Theorists has overturned mainstream economics in part by emphasizing that there is not one, but two systems of modern money, the ‘vertical’ and the ‘horizontal.’ They conclusively demonstrate how unifying our understanding of these is crucial for grasping modern economics.”
Clint’s jumping-off point for the book is Warren Mosler’s quote: “The key to understanding Modern Monetary Theory is this vertical-horizontal relationship”
On his island of castaways, Clint creates simple scenarios that illustrate the need for, and development of, the two money systems. Horizontal money is bank credit, ideally used to provide capital to improve productivity. On the island, a fisherman realizes he could catch more fish by using bigger nets, so he hires others to help weave them. A primitive payment system develops into the use of IOUs, and eventually a ‘trusted group of citizens’ begin making those loans.
The hypothetical community determines a need or desire for goods and projects that will add to the wellbeing of the citizens. For example, a road will improve access to lumber and a school will educate the children. Thus, vertical, or government-issued money, is born to fund projects that will directly improve their lives or will amplify private industry.
To the citizens, it’s a seamless system: a dollar is a dollar. But in reality, the government-issued dollar remains in existence until it’s taxed out. Banks just operate as accounting ledgers, providing the promise to pay. In the private system, it nets to zero.
Simple and elegant, it’s also crucial; Clint believes that voters, public servants, and students of economics need to understand how these basic systems operate. In the later chapters, 1,000 Castaways addresses how we can use these principles for real-world solutions.
As Steve points out, it all comes down to real resources and the island is a great illustration because it’s a confined system where you easily see cause and effect. There is so much misinformation about economics. The mainstream uses confusing terms, leaving people ill-equipped to defend themselves. The narrative becomes the rule and the rule becomes how we structure society, rightly or wrongly.
In Clint’s view, the problem that led to the 2008 recession was that the FIRE section (finance, insurance, real estate) was allowed to become too bloated. There’s a simple fix. We give public licenses to banks; we can take them away. Meaningful regulation would limit banks to funding productive enterprises and running our payment system. Period.
Could combining a sensible, boring, banking system with robust funding for the public purpose turn our modern world into an ideal society? You decide.
Clint Ballinger got his MA in Political Science at the University of North Carolina at Chapel Hill, where he focused on modern uneven economic development and went on to specialize in the interpretation of global econometric data for his PhD in Geography at Cambridge University. His interest in developing economies has led him to live in China, Costa Rica, and the former Soviet Republic of Georgia.
https://clintballinger.wordpress.com/2019/01/14/1000-castaways-fundamentals-of-economics/
@ClintBalllinger on Twitter
