Modern Monetary Theory discussion

[civvver]

Money is not just a "representation of real resources". That is the key problem here. @Hygro and I subscribe to a financial theory of investment. The key point that MMT makes is not that deficits automatically lead to prosperity (only someone who has never engaged with anything actually written by an MMT economist would say such a thing) but that there is a crucial difference between financial wealth and real wealth, and that we can't handwave away all the institutional and political questions by saying "money is a representation of real resources" or "the extra money came from a growth in productivity"

All MMT does is apply rigor to macro analysis by looking at where financial assets actually come from, and where they go. Because what happens with financial assets, far from being only a "representation" of what happens in the real economy, actually determine what happens in the real economy to a significant degree....and that is, as Hygro says, because sometimes if you want people to do something you just pay them to do it. In modern capitalist economies "pay people to do the thing" is the main way real wealth is generated...

I agree here, I'm not sure I subscribe fully to MMT, but productivity gains have to be driven by something. Productivity is cause by investment, whether it's in equipment and tech or in workers via pay. So you need the money, put that into the economy via loans, those businesses hire workers or buy stuff directly, which increases GDP. That's why the government runs a deficit, because they are always loaning out more money than they get back because the GDP growth follows the spending, not the other way around.

 

[Naskra]

Where do you think the money comes from that pays down the debt?

The question is moot; the debt does not get paid down.

 

[El_Machinae]

Who is running a surplus while being a net importer and has full employment? If they aren’t crushed by the next margin call I will happily rethink everything.

How would you detect this crushing? It seems like Central Bank money-printing could be used to solve the crisis, and somewhat make it disappear.

 

[Hygro]

If you agree with your mainstream monetary education then you'd know that you can run a surplus without being a significant net exporter and still have full employment.

You can, until the margin call, which they call an “exogenous shock” and suddenly you understand why I, a student of monetary economics, had to supplement my university learning with some specialized bean counting.

 

[luiz]

You can, until the margin call, which they call an “exogenous shock” and suddenly you understand why I, a student of monetary economics, had to supplement my university learning with some specialized bean counting.

Well, in the real world, many of these countries running surpluses that I listed have dealt with major exogenous shocks far better than countries running deficits. So I'd drop the bean counting and go back to mainstream monetary theory.

 

[Naskra]

in the real world,

This is waaay off-topic.

 

[Zardnaar]

So you want the gold standard, or what?

Gold is the same as money.

It only has value because we percieve it to have value.

Whatever we use for currency will have that problem. You need to have faith it's worth something.

 

[cardgame]

Gold is the same as money.

It only has value because we percieve it to have value.

Whatever we use for currency will have that problem. You need to have faith it's worth something.

I agree, just trying to draw out their own words to continue the discussion.

 

[uppi]

Then we're back full circle. Where do you think the money comes from that pays down the debt? I asked for your instinctive answer, but I mean it in the bean counter sense

Simple: more debt.

When the central bank gives out a loan, it supplies the economy with more money. To repay that debt, you just take on more debt.

 

[Zardnaar]

We invented money because copper and bronze ingots are inconvenient.

The basic idea is supply good to people. Farmers expect stuff for their crops, money these days probably copper, bronze, pottery and wine pre money.

Money's only worth something because we percieve it's worth something. Print more money it's value goes down.

We have plenty of examples of that.

 

[cardgame]

Simple: more debt.

When the central bank gives out a loan, it supplies the economy with more money. To repay that debt, you just take on more debt.

Well then it's just turtles all the way down

 

[Commodore]

Gold is the same as money.

It only has value because we percieve it to have value.

Whatever we use for currency will have that problem. You need to have faith it's worth something.

True. My favorite example to bring up to support this point is an article I read years ago that talked about how drug dealers were accepting laundry detergent as payment since that was one of the ingredients for the drug they were making.

 

[El_Machinae]

Well then it's just turtles all the way down

Doesn't need to be Turtles all the way down, people have to know that's how it is until it isn't. There are two additional ways of clearing debt without more borrowing. The common one is bankruptcy. And money printing can be used if the bankruptcies risk destabilizing the entire economy

 

[Hygro]

Well, in the real world, many of these countries running surpluses that I listed have dealt with major exogenous shocks far better than countries running deficits. So I'd drop the bean counting and go back to mainstream monetary theory.

Hand waving away the cause and scope of the shock caused by having untenable private debt and then saying the rich countries recovered better doesn’t answer the question.

Running big deficits isn’t the point, the point is that if everyone runs surpluses then you are requiring the private debt load to grow as a proportion until it hits 100% and then the follow up is continue to issue loans to cover the loans, which necessitates people grinding productivity gains until their bodies wear out, or a game of asset price increases to cover new loans. Both end in financial crisis, before starting back up, and absent government intervention (huge influx of nonbank money) we have good example that the resulting depressions don’t really fix themselves.

There’s no “solution” as money cannot be “solved” but we can certainly mind the balance of how leveraged private sector finances are via public taxation and spending.

 

[Naskra]

away the cause and scope of the shock

"Exogenous shock" is Fedspeak for "not our fault". "Margin call" in the context is meaningless.

 

[uppi]

Running big deficits isn’t the point, the point is that if everyone runs surpluses then you are requiring the private debt load to grow as a proportion until it hits 100% and then the follow up is continue to issue loans to cover the loans, which necessitates people grinding productivity gains until their bodies wear out, or a game of asset price increases to cover new loans. Both end in financial crisis, before starting back up, and absent government intervention (huge influx of nonbank money) we have good example that the resulting depressions don’t really fix themselves.

The central bank can just lower the price of new money to the point where you actually make a profit when taking a new loan, thus reducing the debt load. In principle, the money supply could be completely unrelated to government spending.

 

[Hygro]

The central bank can just lower the price of new money to the point where you actually make a profit when taking a new loan, thus reducing the debt load. In principle, the money supply could be completely unrelated to government spending.

At some point you would have to pay banks to lend (negative bank borrowing rates). They haven’t been brave enough to try.

 

[Estebonrober]

My point still stands. Whine and cry all you like but the US and especially the GOP in the US has basically been running a fiat version of MMT to finance the military along with some programs being ran by the democrats during the last down cycle.

I don’t think anyone has a good grasp on this crap. Has managing inflation instead of trying for full employment been better or worse? Wages in this setting have been stagnant or worse. Morally full employment is better instead of trying to stabilize capital investment.

We clearly need something better. This form of freidman/Reagan capitalism is a walking dead man.

 

[Naskra]

fiat version of MMT

Fiat version is the only flavor MMT comes in.

 

[Zardnaar]

My point still stands. Whine and cry all you like but the US and especially the GOP in the US has basically been running a fiat version of MMT to finance the military along with some programs being ran by the democrats during the last down cycle.

I don’t think anyone has a good grasp on this crap. Has managing inflation instead of trying for full employment been better or worse? Wages in this setting have been stagnant or worse. Morally full employment is better instead of trying to stabilize capital investment.

We clearly need something better. This form of freidman/Reagan capitalism is a walking dead man.

There's a limit to what you can do with printing more money/ borrowing.

What the right has been doing is racking up large deficits without drastic cuts to spending.

In effect they're borrowing for tax cuts.

They don't tend to cut it choke programs that their voters care about such as pensions.
Welfare is open though as most welfare types don't vote right wing and there's not that many anyway.

Since 25% to 33% don't tend to vote you only need your core 30% that are motivated to vote plus maybe another 5%bto win elections.

So when the left eventually win power they inherit a big deficit and they get painted as tax and spend. The right is just spend and borrow.
. But if the left wants to get anything done they have to put up taxes which tends to get them binned out of office.