Modern Monetary Theory discussion

[Zardnaar]

Stealing a quote from an arab: the oil ago won't end for lack of oil, any more than the stone age ended for lack of stone. Decline of oil use won't be sudden, it'll just be replaced slowly for energy uses. Very slowly.
And would that humans could wipe out insects just like that. We'd have gotten rid of malaria and other nasty diseases globally long ago. But insects reproduce very fast. There is a decline in bees, almost certainly due to pesticides, and it will take near-disaster to stop it. But they'll recover.

Can't really use a lot of alternatives to oil in producing good.

NZ for example can produce enough food for 20-30 million and could hypothetically double or triple that if people are vegetarian with less than 10% of our population.

But we need cheap oil. Tractors, trucks, pick up trucks etc. Can't really have an electric team on the farm.

 

[innonimatu]

It needs oil because we've reduced labout input in agriculture to an utterly residual value. It can always be increased if that turns out to be necessary.

 

[yung.carl.jung]

Stealing a quote from an arab: the oil ago won't end for lack of oil, any more than the stone age ended for lack of stone. Decline of oil use won't be sudden, it'll just be replaced slowly for energy uses. Very slowly.
And would that humans could wipe out insects just like that. We'd have gotten rid of malaria and other nasty diseases globally long ago. But insects reproduce very fast. There is a decline in bees, almost certainly due to pesticides, and it will take near-disaster to stop it. But they'll recover.

I wish I could share your enthusiasm, but I fear it stems from misinformation. I agree that insects somehow managed to not get killed even though we blew massive pesticides in the air. that seems to not have been enough. I do not think that insects can reliable reproduce anymore when average temperatures rise, as has been shown in some studies. these creatures are incredibly susceptible to temp and base their entire biological rhythm on it. that's not even to speak about the fact that in the last century 75% of all flying insects in Germany have died off. I am pretty sure it's worse in.. certain other countries.

 

[innonimatu]

I do not think that insects can reliable reproduce anymore when average temperatures rise, as has been shown in some studies. these creatures are incredibly susceptible to temp and base their entire biological rhythm on it. that's not even to speak about the fact that in the last century 75% of all flying insects in Germany have died off. I am pretty sure it's worse in.. certain other countries.

I saw the news, today.And I thing that is misinformation? Do you know where there are more insects and more biodiversity? The hot tropics. Species of insects may end up replaced when average local temperatures change. But average local temperatures change much slower than insects reproduce: many generations in one year decades or centuries. The idea that the world will somehow lack insects due to temperature changes seems to me preposterous. I am however concerned about heavy use of pesticides.

 

[yung.carl.jung]

the effects of temperature on insects are insanely complex and vary by species. some will actually reproduce more during climate change, all that move will alter their migratory cycle, some will lose territory, others might die out, all will be affected by the changes in the ecosystem due to the aforementioned effects. it's entirely possible that the outcome could be "beneficial", ok, or catastrophic. the insects we rely most on for food production are flying insects (not just bees, wild pollinators), which have proven to be more susceptible to both climate change and pesticides. a related study I found:

Insects and the environment Insects are cold-blooded organisms - the temperature of their bodies is approximately the same as that of the environment. Therefore, temperature is probably the single most important environmental factor influencing insect behavior, distribution, development, survival, and reproduction. Insect life stage predictions are most often calculated using accumulated degree days from a base temperature and biofix point. Some researchers believe that the effect of temperature on insects largely overwhelms the effects of other environmental factors (Bale et al 2002). It has been estimated that with a 2o C temperature increase insects might experience one to five additional life cycles per season (Yamamura & Kiritani 1998). Other researchers have found that moisture and CO2 effects on insects can be potentially important considerations in a global climate change setting (Hamilton 2005, Coviella and Trumble 1999, Hunter 2001). Climate Change and Agriculture: Promoting Practical and Profitable Responses III - 10 How rising temperatures affect insects Climate change resulting in increased temperature could impact crop pest insect populations in several complex ways. Although some climate change temperature effects might tend to depress insect populations, most researchers seem to agree that warmer temperatures in temperate climates will result in more types and higher populations of insects. Increased temperature could increase pest insect populations Researchers have shown that increased temperatures can potentially affect insect survival, development, geographic range, and population size. Temperature can impact insect physiology and development directly or indirectly through the physiology or existence of hosts. Depending on the development “strategy” of an insect species, temperature can exert different effects (Bale et al 2002). Some insects take several years to complete one life cycle – these insects (cicadas, arctic moths) will tend to moderate temperature variability over the course of their life history. Some crop pests are “stop and go” developers in relation to temperature – they develop more rapidly during periods of time with suitable temperatures. We often use degree-day or phenology based models to predict the emergence of these insects and their potential to damage crops (cabbage maggot, onion maggot, European corn borer, Colorado potato beetle). Increased temperatures will accelerate the development of these types of insects – possibly resulting in more generations (and crop damage) per year. “Migratory” insects (corn earworm in northern parts of the northeast) may arrive in the Northeast earlier, or the area in which they are able to overwinter may be expanded. Natural enemy and host insect populations may respond differently to changes in temperature. Parasitism could be reduced if host populations emerge and pass through vulnerable life stages before parasitoids emerge. Hosts may pass though vulnerable life stages more quickly at higher temperatures, reducing the window of opportunity for parasitism. Temperature may change gender ratios of some pest species such as thrips (Lewis 1997) potentially affecting reproduction rates. Insects that spend important parts of their life histories in the soil may be more gradually affected by temperature changes than those that are above ground simply because soil provides an insulating medium that will tend to buffer temperature changes more than the air (Bale et al 2002). Lower winter mortality of insects due to warmer winter temperatures could be important in increasing insect populations (Harrington et al. 2001). Higher average temperature might result in some crops being able to be grown in regions further north – it is likely that at least some of the insect pests of those crops will follow the expanded crop areas. Insect species diversity per area tends to decrease with higher latitude and altitude (Gaston & Williams 1996, Andrew & Hughes 2005), meaning that rising temperatures could result in more insect species attacking more hosts in temperate climates (Bale et al 2002). Based on evidence developed by studying the fossil record some researchers (Bale et al 2002) conclude that the diversity of insect species and the intensity of their feeding have increased historically with increasing temperature. Increased temperature could decrease pest insect populations Some insects are closely tied to a specific set of host crops. Temperature increases that cause farmers not to grow the host crop any longer would decrease the populations of insect pests specific to those crops. The same environmental factors that impact pest insects can impact Climate Change and Agriculture: Promoting Practical and Profitable Responses III - 11 their insect predators and parasites as well as the disease organisms that infect the pests, resulting in increased attack on insect populations. At higher temperatures, aphids have been shown to be less responsive to the aphid alarm pheromone they release when under attack by insect predators and parasitoids – resulting in the potential for greater predation. (Awmack et al 1997).

 

[Hygro]

I brought this all up to test the idea that the dollar wasn't strong during the Great Depression

Dollar was strong for the first part, 1929-1933, as a strong dollar was the goal of the Fed. Indeed it was a driving cause of the Depression.

 

[Hygro]

But nobody actually advocates running big surpluses forever.
And it's not that "rich countries recovered better". It's that some rich countries running surpluses recovered far better than other comparably rich countries running large deficits. But I'm not saying the surplus caused the fast recovery, I'm saying that the MMT belief that the government must always run at least a small deficit otherwise Doom is horse dung. There is absolutely no link between government deficit and full employment. It does not exist in the real world.
The real world disproves MMT. Drop the oversimplified bean counting and revert to your classical monetary education.

Countries with efficient policies can run small deficits and/or trade surpluses to maintain longterm growth. This is not news. You examples are Iceland and Denmark. Over the last 25 years both have been virtually budget neutral, but where Denmark trends a surplus (mostly leading up to the GFC, corrected by deficits after), they run a trade surplus to cover it. Iceland, meanwhile, on average runs a small trade deficit, paid for by a small budget deficit. On the balance both countries are creating or acquiring new money.

You run efficient deficits when you have a more equal, law bound, egalitarian society with efficient and intelligent, bottom-up government programs and financial regulation (Iceland jailed its fraudsters). But on the balance these countries are still creating new money or selling for it.

You said you can list a bunch more that run both trade deficits with budget surpluses and maintain good employment figures. Let's see them.

 

[luiz]

Countries with efficient policies can run small deficits and/or trade surpluses to maintain longterm growth. This is not news. You examples are Iceland and Denmark. Over the last 25 years both have been virtually budget neutral, but where Denmark trends a surplus (mostly leading up to the GFC, corrected by deficits after), they run a trade surplus to cover it. Iceland, meanwhile, on average runs a small trade deficit, paid for by a small budget deficit. On the balance both countries are creating or acquiring new money.

You run efficient deficits when you have a more equal, law bound, egalitarian society with efficient and intelligent, bottom-up government programs and financial regulation (Iceland jailed its fraudsters). But on the balance these countries are still creating new money or selling for it.

You said you can list a bunch more that run both trade deficits with budget surpluses and maintain good employment figures. Let's see them.

Australia from the mid 90's until the 2008 crisis? Which BTW Australia weathered far better than most countries. Both a a government surplus and a CA deficit. And very low unemployment, which was actually falling fast during this whole period (while MMT says it should be booming).

Are we still discussing this?

MMT is a silly misunderstanding of financial economics. It's equating things which aren't equal. It's part stating the obvious and part charlatanism. There is a reason why it's not taken seriously by any credible economist or Central Banker.

(to be clear, because this is CFC and we all must state the obvious, I'm not saying governments should run surpluses. Nor deficits. Small deficits and small surpluses are fine. During big crisis running a large deficit for a while is also fine, specially if before the crisis you were running a surplus - like Australia did. But consistently running a huge deficit is not fine, and owning a printing press does not magically change this. Also, the nature of deficit matters, not all money is equal, etc etc etc).

 

[El_Machinae]

I don't think anyone is on a different page, really. Just looking at different parts of the elephant.

Where do you think the money came from that allowed the debt to come down in those countries? Like, what's your intuition?

It came from gains in their productivity, as standard economic theory goes.

Wait, you think that new money comes from productivity?

So, Australia. During the period that you mention, household debts almost tripled.
https://tradingeconomics.com/australia/households-debt-to-gdp
Or five times, in nominal terms
https://www.ceicdata.com/en/indicator/australia/household-debt

And then if you look at post 2008 (or 2011), household debts kinda stabilized. At the same time the national debt was rising.

Everyone knows you can only consume actual productivity. But 'surpluses' are accounting. It's why I asked you where you thought new money comes from. For the federal deficit to go down, either someone's dollar savings have to go down or someone else's debts have to go up. It's hard to figure out where the discussion is hiccuping. I'm not really a supporter of MMT (at least, not when it comes to policy choices). But I don't know of a mechanism that allows total debts (in nominal amounts) to go down without either bankruptcies or printing. In the end, there's never enough dollars to cover all outstanding debts (this is a simple accounting principle). And the only 'mainstream' way of creating new dollars is to borrow them into existence. Central banks also print them into existence. When they print them into existence to encourage exports we see it in one set of figures. When they print them to buy government bonds, we see it in another set of figures.

 

[luiz]

I don't think anyone is on a different page, really. Just looking at different parts of the elephant.






So, Australia. During the period that you mention, household debts almost tripled.
https://tradingeconomics.com/australia/households-debt-to-gdp
Or five times, in nominal terms
https://www.ceicdata.com/en/indicator/australia/household-debt

And then if you look at post 2008 (or 2011), household debts kinda stabilized. At the same time the national debt was rising.

Everyone knows you can only consume actual productivity. But 'surpluses' are accounting. It's why I asked you where you thought new money comes from. For the federal deficit to go down, either someone's dollar savings have to go down or someone else's debts have to go up. It's hard to figure out where the discussion is hiccuping. I'm not really a supporter of MMT (at least, not when it comes to policy choices). But I don't know of a mechanism that allows total debts (in nominal amounts) to go down without either bankruptcies or printing. In the end, there's never enough dollars to cover all outstanding debts (this is a simple accounting principle). And the only 'mainstream' way of creating new dollars is to borrow them into existence. Central banks also print them into existence. When they print them into existence to encourage exports we see it in one set of figures. When they print them to buy government bonds, we see it in another set of figures.

Well he asked for an example of a country that 1) ran a government surplus, 2) ran a trade deficit, 3) had low unemployment. Australia in the cited period had all 3, plus unemployment was falling. When it was hit by a big external shock (the global financial crisis), it actually weathered it far better than most developed countries, which does not speak against its previous policies.

Rising household debt is normal in times of prosperity, as people borrow to buy houses and finance business ventures. See the booming Chinese household debt that has accompanied their incredible economic development. It's not a bad thing in itself, and again, when the financial crisis hit Australia actually weathered it well enough.

I don't know whether I disagree with you or anyone else in any particular. I know MMT is false, it's pseudo-science, and it's policy prescriptions are dangerous, specially for non rich countries.

As for money being created, it's always being created. The monetary base is constantly expanding, and in advanced countries the expansion is rather constant. A big expansion could trigger massive inflation. Even during the height of QE, the monetary base that matters (M2) continued expanding at roughly the normal, pre-QE rate, even while trillions of dollars were created from thin air. And that's why QE didn't trigger massive inflation. But this is what a purely accounting look at financial economics will fail to tell you: not all money is equal.

 

[El_Machinae]

Yeah,I agree that all money is not equal. But I keep trying to get you to answer "where does new money come from". You keep saying "it happens". But that's not an answer. I described the two mechanisms that I know of. Can you either agree or disagree (and explain)?

 

[luiz]

Yeah,I agree that all money is not equal. But I keep trying to get you to answer "where does new money come from". You keep saying "it happens". But that's not an answer. I described the two mechanisms that I know of. Can you either agree or disagree (and explain)?

Both the Central Bank and private banks create money. What is there to discuss?

 

[El_Machinae]

Both the Central Bank and private banks create money. What is there to discuss?

Not much, apparently. I typed out efforts to communicate on this topic. I'll try one more time.

Central Banks creating money allows the federal debt to be monetized away. Private banks creating money increases someone else's debt load. So, to get Federal surpluses, you either need money printing or someone else's debts to rise, right? (Or someone's savings to fall, at least).

Do you disagree with any of that? That federal surpluses require either higher debt burdens or debt monetization? If otherwise, how?

 

[Cutlass]

Point made by Noah Smith in a recent blog similar to what I've been saying.

The answer, I think, is that MMT is engaged in a very different activity from traditional economic analysis. Traditional econ is trying to model and understand the economy. But MMT is engaged in policy advocacy — their goal is to make the government more willing to run deficits.

https://noahpinion.substack.com/p/mmt-and-the-meme-ification-of-macro

 

[Lexicus]

*facepalm*

 

[Hrothbern]

A nice quote of Stephanie Kelton who wrote "The Deficit Myth" on MMT:

Even for Senate members on the US Budget Committee, this is hard to comprehend, according to an anecdote from The Deficit Myth.
Imagine you had a magic wand, Kelton reminded them, with which you can wipe away all the national debt with one stroke. Would you do that? Of course, everyone said, who wouldn't want to pay off debts?
Kelton continued the thought experiment. And who would use that same magic wand to make all US Treasury bonds disappear?
Nobody of the Senators wanted that. Wouldn't that be capital destruction?
"I thought it was fascinating!" Writes Kelton.
"These people were on a committee that was literally set up to look over the state budget, and not one of them got the trick." Because the trick, of course, is that what's called debt to the state is investments for the private sector. In other words: one person's shortage is the other's savings.

 

[Samson]

Point made by Noah Smith in a recent blog similar to what I've been saying.

The answer, I think, is that MMT is engaged in a very different activity from traditional economic analysis. Traditional econ is trying to model and understand the economy. But MMT is engaged in policy advocacy — their goal is to make the government more willing to run deficits.

https://noahpinion.substack.com/p/mmt-and-the-meme-ification-of-macro

My argument here would be "What evidence is presented that traditional economics is any more "unbiased search for truth" than MMT?" For example, they state "Keynesianism really works", and present as evidence this. If we compare this to an actual search for truth, eg. the pfizer vaccine protocol there are some big differences. The core elements that are missing is a falsifiable hypothesis, a description of what the data would look like in both the accept and reject situations, and some indication that these were defined before looking at the data. Without that, it is very hard for me to believe that there is good empirical evidence to show that one model is better than any other.

I am not at all an economist, but I spend most of my time these days building mathematical models that can process pre-existing data in a way that allows me to accept or reject hypotheses to a standard that gets my work published in peer reviewed journals. I have never seen an economic text with anything like the rigor that would get it published in a "real" science journal, and see no reason why considering the vast availability of economic data. My conclusion is that no economists care about truth as much as advocacy.

 

[Estebonrober]

My argument here would be "What evidence is presented that traditional economics is any more "unbiased search for truth" than MMT? For example, they state "Keynesianism really works", and present as evidence this. If we compare this to an actual search for truth, eg. the pfizer vaccine protocol there are some big differences. The core elements that are missing is a falsifiable hypothesis, a description of what the data would look like in both the accept and reject situations, and some indication that these were defined before looking at the data. Without that, it is very hard for me to believe that there is good empirical evidence to show that one model is better than any other.

I am not at all an economist, but I spend most of my time these days building mathematical models that can process pre-existing data in a way that allows me to accept or reject hypotheses to a standard that gets my work published in peer reviewed journals. I have never seen an economic text with anything like the rigor that would get it published in a "real" science journal, and see no reason why considering the vast availability of economic data. My conclusion is that no economists care about truth as much as advocacy.

This like a thousand times over. If it walks like a duck and quacks like a duck. . . its probably a duck. I certainly do not think that MMT is any less of a theory then Keynesian economics, maybe less fleshed out. Economics is still much more soft science then hard science and therefore, like psychology, it suffers from an inability to have consistent verifiable results. A notable improvement in economics was the addition of game theory into it which distinctly showed markets are not rational, but this kind of result only shows further that it is a study of human psychology and not a hard science. In the end its all advocacy still.

 

[yung.carl.jung]

I believe the distinction between soft and hard science is mostly propaganda in order to discredit other disciplines as "not really proper science". the main difference between what we call "soft science" and "hard science" is imho the amount of variables that have to be considered. working with human subjects makes this amount of variables approach infinity very, very fast. which is why, say, doing a clinical trial is so incredibly expensive and extensive. many experiments from the hard sciences may be more "in a vacuum" compared to those from soft sciences, but are obviously still influenced by the researchers conducting the experiment and all the other people involved.

"soft sciences" have the same standards (or should have, I can't speak for your favorite journal in terms of methodology, experimental design, sampling, hypotheses, and even theoretical models (if we believe Kuhn anyway).

or, in other words, when physicists were deciding whether to stick with a modified newtonian model of science or adapt an Einsteinian one, their decisions was primarily an emotional, social one, and only to some degree based on evidence and reason. (sorry for the very rough generalization, you can read up on this in "the structure of scientific revolutions" if you care)

I have never seen an economic text with anything like the rigor that would get it published in a "real" science journal, and see no reason why considering the vast availability of economic data. My conclusion is that no economists care about truth as much as advocacy.

I agree with all of your post, but want to add this.

the fact that many studies in economics "lack rigor" as you state may also be a result of that scientific discipline having completely different standards than your discipline does. just as a quick generalization: in humanities a researcher is usually asked to examine his/her own biases, and not doing that would be akin to a grave mistake in many contexts. I doubt this is stressed as much in mathematics, although it may also play a crucial role there, too. that is just not how the discipline of mathematics has historically evolved, thus this criteria is not stressed as relevant.

what you say about economics and to an extent psychology is of course not wrong, I think it's simply not exactly the right diagnosis. psychology especially has struggled for years now with what is generally called "the crisis of reproduction", which is the fact that many gold-standard, influential studies are actually not at all reproducible. the fact that the discipline itself acknowledges this, and is trying to work against it or correct it, is imho a sign of a relatively healthy scientific establishment.

and this is where I would diagnose the problem with economics. it is not so much that economists, from our outsider perspective, lacks the scientific rigor (I doubt we're in a position to judge this fairly), it is much more than the problems that this discipline faces are all too oftentrivialized, explained away, ignored and so forth, instead of being dealt with in a healthy and productive matter. I thus call economics the ostrich discipline. while perhaps the humanities, if I may generalize, are almost too painfully self-aware of how they're perceived by other sciences or laymen, and as a result have made a conscious effort to appear more as a "hard science" (which ironically might not be the most productive way to research). (classical) economics as a science prefers to dig the head in the sand and talk to itself when criticism comes flying by.

 

[Samson]

I believe the distinction between soft and hard science is mostly propaganda in order to discredit other disciplines as "not really proper science". the main difference between what we call "soft science" and "hard science" is imho the amount of variables that have to be considered. working with human subjects makes this amount of variables approach infinity very, very fast. which is why, say, doing a clinical trial is so incredibly expensive and extensive. many experiments from the hard sciences may be more "in a vacuum" compared to those from soft sciences, but are obviously still influenced by the researchers conducting the experiment and all the other people involved.

This does not agree with what it looks like to me. An example of the sort of data I work on is the UK Biobank. This has data on >100,000 people, 100's of biological measures and megabytes sequencing data on each. This is at least equivalent (probably much richer) than economic data. It certainly makes the model building interesting, but the answer is usually better more validated models, not to give up on standards of evidence.

the fact that many studies in economics "lack rigor" as you state may also be a result of that scientific discipline having completely different standards than your discipline does. just as a quick generalization: in humanities a researcher is usually asked to examine his/her own biases, and not doing that would be akin to a grave mistake in many contexts. I doubt this is stressed as much in mathematics, although it may also play a crucial role there, too. that is just not how the discipline of mathematics has historically evolved, thus this criteria is not stressed as relevant.

what you say about economics and to an extent psychology is of course not wrong, I think it's simply not exactly the right diagnosis. psychology especially has struggled for years now with what is generally called "the crisis of reproduction", which is the fact that many gold-standard, influential studies are actually not at all reproducible. the fact that the discipline itself acknowledges this, and is trying to work against it or correct it, is imho a sign of a relatively healthy scientific establishment.

and this is where I would diagnose the problem with economics. it is not so much that economists, from our outsider perspective, lacks the scientific rigor (I doubt we're in a position to judge this fairly), it is much more than the problems that this discipline faces are all too oftentrivialized, explained away, ignored and so forth, instead of being dealt with in a healthy and productive matter. I thus call economics the ostrich discipline. while perhaps the humanities, if I may generalize, are almost too painfully self-aware of how they're perceived by other sciences or laymen, and as a result have made a conscious effort to appear more as a "hard science" (which ironically might not be the most productive way to research). (classical) economics as a science prefers to dig the head in the sand and talk to itself when criticism comes flying by.

We do not have high standards of evidence in the medical sciences because of some inherent cultural reason, but because we have plenty of experience of what happens if we do not. The same thing seems to apply to economics, so I do not know why we as taxpayers/voters (who pay for most of this work) do not insist on decent levels of rigor.