Modern Monetary Theory discussion

[amadeus]

Boiled down MMT is print a lot if money that will retain it's value just because?

MMT proponents are more than welcome to criticize and correct this post if I have misrepresented their position.

My understanding of MMT as such as that no government needs to ever default on debts because it can print more money. Inflation is prevented by taking that extra money used to get the economy to full employment and then destroying it by raising taxes and simply eliminating the money by fiat.

I think the easiest way to poke the MMT bubble is the assumption that politicians are going to be willing to voluntarily raise taxes on their constituents only to destroy and “not spend” that money.

 

[Zardnaar]

MMT proponents are more than welcome to criticize and correct this post if I have misrepresented their position.

My understanding of MMT as such as that no government needs to ever default on debts because it can print more money. Inflation is prevented by taking that extra money used to get the economy to full employment and then destroying it by raising taxes and simply eliminating the money by fiat.

I think the easiest way to poke the MMT bubble is the assumption that politicians are going to be willing to voluntarily raise taxes on their constituents only to destroy and “not spend” that money.

Yeah there's some big flaws there IMHO.

I think people have taken something needs to be done and the right runs up debt and carried it to extremes.
Money's only worth something because we believe it. If your print to much people stop believing it's out of the goverments hands.

If a government tried this why would another country accept their currency?

Is it that different than China or the USSR saying their currency is worth whatever with an official exchange rate that is only good in their country?

I remember when our dollar almost hit parity with the USA dollar. Also when our dollar hit 0.39 USD.

Ebay was great when it was 0.82.

 

[Naskra]

I think the easiest way to poke the MMT bubble is the assumption that politicians are going to be willing to voluntarily raise taxes on their constituents only to destroy and “not spend” that money.

It's been tried. In practice, taxation has not been able to keep pace with inflation. MMTers have a hard time distinguishing the legal analysis of finance from the economics of it.

 

[amadeus]

If a government tried this why would another country accept their currency?

If one country adopted MMT, I would try to collect as many of their dollars as I could, then hold on to them until the bank’s governors or legislature decided to try to reduce the money supply, then flood the country with my dollars and buy up its assets.

 

[Moriarte]

Gold is the same as money.

Gold is a mineable resource and a medium of exchange. Money is a medium of exchange.

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

It has value, because it is universally used as storage of value, in production of jewelry, in production of electronics.

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

Whatever we use for currency needs to have widespread adoption and superior logistics, faith is unmeasurable and irrelevant construct.

 

[amadeus]

Whatever we use for currency needs to have widespread adoption and superior logistics, faith is unmeasurable and irrelevant construct.

Faith is the only relevant construct, and it is measurable.

Would I take bolivars for my work? No. Would I take bitcoin for my work? No. You can measure that; of a sample size of one, 0% accept bolivars/bitcoin as a money.

Bolivars being worthless and bitcoin being a silly speculative “investment” that produces nothing.

 

[Zardnaar]

Money's the greatest religion. Everyone has some amount if faith in it. At least things like me the USD.

I hear Zimbabwe and other countries have pretty toilet paper.

USD is only data and a paper/cotton blend at the end if the day. Ours is plastic.

How much faith people have in currency basically explains it's fluctuating value.

I probably wouldn't sell my house if BZ adopted MMT.

Going into debt to buy some might be a good idea. The likely ensuing hyperinflation makes paying debt easy.

 

[Bootstoots]

What peak of the business cycle?
Denmark, a net importer running a government surplus in most years, has had low unemployment for a very long time. Indeed, during the crisis of 2008-9, when even low unemployment countries saw their unemployment rate go to double digits, it peaked at around 6% in Denmark, going down to 3% quickly afterwards. What kind of peak of the business cycle is this?

I'm seeing a positive current account since 2012 for both Iceland and Denmark and a positive balance of trade for Denmark (but not Iceland) since 2000, ignoring a couple of extremely brief dips. Here are links to Denmark balance of trade and current account to GDP. What am I missing? My understanding of econ isn't enough to determine if these are actually the best indicators to look at here.

Assuming you're correct that there are some net importers with long-term government surpluses and very low unemployment for at least the past two decades, I too would like to see MMTers explain how this can happen over this amount of time without creating a giant private debt bubble. I'm not sure that unemployment is the best indicator to look at here, though - perhaps MMTers can suggest something else?

As for my own stance on MMT, when I've tried looking at it in the past I've found that it turns out to be a through-the-looking-glass way of thinking about standard Keynesian macroeconomics. Although some of its proponents seem to advocate larger deficits, they acknowledge that high inflation does occur just as mainstream economics says it will if the money supply is increased too much by running large deficits. So, @Hygro, @Lexicus, et al., what are the differences between MMT and mainstream economics in terms of the policy implications?

 

[amadeus]

Forgive me but I'm still lost as to how a trade surplus affects decisions made by central banks re: money supply. Does anyone have a good link that explains the relationship between the two?

 

[El_Machinae]

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

Also, that would be printing money. Just so we're all on the same page. Just printed into the top of the economy instead of into the bottom

 

[El_Machinae]

If one country adopted MMT, I would try to collect as many of their dollars as I could, then hold on to them until the bank’s governors or legislature decided to try to reduce the money supply, then flood the country with my dollars and buy up its assets.

But this is always true, and it's what causes the wealth imbalance. As it is, I collect as much cash as possible and wait for recessions. And then I buy assets. Because I'm wealthy enough, I never increase my consumption in order to create employment. My sole goal is to purchase increasing ownership of the actual economy

What is always needed for a growing economy is a mechanism by which new dollars enter the system. Luiz hasn't described how he thinks new dollars are created, other than with hand-waving. That, along with starting his criticism of mmt by invoking Germany and France make this conversation a little frustrating, because we can't tell where everybody's knowledge base is. I need to learn what everybody knows before I can learn from them or try to reciprocate.

Another mechanism of creating new dollars, one that actually works quite well most of the time, is bankruptcy. What happens during a bankruptcy is that the holder of the debt paper suddenly gets less than they paid for it. And the owner of the debt suddenly loses an asset. But the lent money has been put into the economy. Those spent dollars are no longer backed by debt and are available for other people to collect to pay off their debts. During the healthy part of a business cycle, bankruptcies are essential. They create the dollars and are part of the creative destruction

But bankruptcy causes asset prices to fall, as people are forced to clear their loans. The best time to buy is when there's blood in the water.

Two things. Your desire to collect dollars, despite the fact that they're not backed, will help maintain the strength of the currency. As well, if their government is incapable of reining in inflation, holding the currency waiting for recession is a bad strategy

@luiz , can you help me up? I actually don't know a good way of figuring out if a country is an net exporter or importer. Can you tell me what mechanism you use to say that Denmark was a net importer? (Edit: x-post on this haha)

Also @All, I don't know how Denmark increasing its CB balance sheet a few years ago fits it. You could run budget surpluses at the government level if the CB is printing. Heck, in some ways, Obama only added $4 trillion to the national debt, though the printed wealth nearly immediately shuttled to the top.

 

[El_Machinae]

Going into debt to buy some might be a good idea. The likely ensuing hyperinflation makes paying debt easy.

You will notice that people are kind of ignoring your posts. The problem is is that you're talking about something that isn't really relevant. I don't think you will learn anything until you get off the idea that anybody is advocating for hyperinflationary policies. In order to get Healthy Growth, you need new dollars entering the economy. After that, it's a calculation about how to get those new dollars in.

Nobody is discussing hyperinflationary policy. Nobody is discussing government surpluses to the point where there is grinding recession.

It's a bit like there are two groups of people discussing how to cross a frozen lake, one person advocating for dog sleds and the other advocating melting the ice to use a boat. And your posts are the equivalent of expressing concern that warming the water too far will cause it to boil. We know hyperinflation is a risk. And people talking about surpluses being possible in a healthy economy also know that they need to be within a reasonable bound.

To complete my contribution to the analogy about crossing the lake, you can cross the lake when it's frozen or you can cross the lake when it's melted. One might be better than the other. But you definitely don't want the lake undergoing a state change when you're part way through the Journey

 

[amadeus]

But this is always true, and it's what causes the wealth imbalance. As it is, I collect as much cash as possible and wait for recessions. And then I buy assets. Because I'm wealthy enough, I never increase my consumption in order to create employment. My sole goal is to purchase increasing ownership of the actual economy

A difference with regards to what I mean, though: you’re talking about timing asset purchases to recessions, which is already I think a losing strategy overall unless someone is good at predicting the future. MMT is creating deflation even if the general price index remains unaffected (I suspect that’s equally unlikely!)

With MMT proponents though it seems their prescription for preventing future runaway inflation is for the government to find some mechanism to remove that surplus of currency from circulation once full employment has been reached. Now just how in the heck is Washington going to stick its hand of the pockets of private investors or governments in London, Paris, Tokyo, etc.?

 

[El_Machinae]

Yup. Similar how to massive tax cuts every (R) cycle are nearly impossible to undo. Keep in mind, the central bank can also raise rates. I don't know how hoarding currency will help in your situation. That said, buying on the dip is what every active trader is trying to do. The only reason why it's hard to do is that are a gazillion people smarter than me doing it.

 

[Estebonrober]

Yes, I have a masters in economics.
And why trust me when you can trust Mankiw or Sumner?

BTW, running a deficit does not mean following MMT. If it did, the MMT cultists would not be so critical of US economic policy, would they?

I don’t trust you because as a master of economics I’d expect you to bring some authority to your argument. Furthermore as an academic i expect you to bring some nuance to it. You’ve done neither which is why I called you blowhard. You just sound like a political person. Economics is more then just politics and I expect people to have a higher level discussion than you seem to want here.

 

[Estebonrober]

Truth through repetition? The MMT government funding scheme is unlawful; it has not been going on for forty years. The government must balance its books. Laws (quite a few) need to be changed before MMT can be put in practice. Only then can you enter magical final state of fiat money - called scrip.

Unlawful? The law is what we choose it to be. I have no idea what you think you are saying. Maybe rephrase this point?

 

[amadeus]

I guess I have a more conservative investment strategy overall, but my Milli Vanilli trading cards and New Kids on the Block pogs are going to get me that brass ring one day!

Jokes aside, I don’t think GOP tax cuts have done all that much in reducing the federal government’s take of GDP percentage-wise over the last few decades. They hover around 15-20% no matter what seems to get passed in Congress.

 

[El_Machinae]

Yeah, they're just hard to undo. They're also seemingly linked to the deficits. Because productivity doesn't create dollars. Wealth, sure, but not dollars.

The feds have to balance their books. But the CB legally printed money. So, you put quote marks around "balance".

 

[Estebonrober]

A difference with regards to what I mean, though: you’re talking about timing asset purchases to recessions, which is already I think a losing strategy overall unless someone is good at predicting the future. MMT is creating deflation even if the general price index remains unaffected (I suspect that’s equally unlikely!)

With MMT proponents though it seems their prescription for preventing future runaway inflation is for the government to find some mechanism to remove that surplus of currency from circulation once full employment has been reached. Now just how in the heck is Washington going to stick its hand of the pockets of private investors or governments in London, Paris, Tokyo, etc.?

MMT is obviously susceptible to the same fallacies Keynesian economics or neo liberal economics are susceptible to, humans.

 

[Farm Boy]

Also, that would be printing money. Just so we're all on the same page. Just printed into the top of the economy instead of into the bottom

Seems a pretty good working hallmark of advanced kleptocracy.

Failure to maintain value through failure to break up sticky capital and tax the top is bad enough. Funneling new money in through the top intentionally breaks the raw value of the wealth held at the bottom. Degrees of difference in how rigged the game is.