You contradicted yourself
No. In the coupons example, they are indeed completely irrelevant, which makes Mosler's choice of an example quite ironic as it contradicts his main point. In the real world, with all its complexities and multitude of actors, of course using taxes is different than using pure physical coercion. But my point remains: taxes are not the beginning nor the end of the story, as Mosler's example ironically demonstrates.
Sometimes true, but as stated this is misleading and dangerous. If a large deficit can ensure a level of real output that allows the nominal pension to actually purchase a decent standard of living, then a large deficit is what's going to maintain the real value of the pension.
If the large debt grows too much too fast for too long, the pension will be worthless. You don't need any deficit to pay pensions, but too big a deficit can wipe out their value.
I want both sides to explain this:
Japan has been running deficits well in excess of their GDP growth rate continuously since 1991. Their debt to GDP ratio is now 229%. Inflation is low and often negative, the current yield on their 10Y bonds is 0.06%, and there's no sign that this will change any time soon. If there are inherent limits to running deficits far above the GDP growth rate before serious consequences occur, they must be really far off.
Brazil ended up in a stagflationary depression. A commodity price shock made the situation worse, but their economy has suffered far more than any other Latin American economy save Venezuela. According to
tradingeconomics, their deficit hovered at only about 3%/year for the period 2004-13, only growing larger after the economy started declining in 2014. Just eyeballing the GDP growth rate
chart, it looks as if their deficits may even have been lower than their growth rate on average in 2004-13. In a purely fiscal sense, just looking at the numbers and ignoring the rampant corruption and whatnot, they were more "fiscally conservative" than Japan by a wide margin.
Why can some countries with their own currency run perpetual deficits in excess of their GDP growth rate and not see any negative consequences, while other countries doing this end up with stagflation or at least high inflation?
Well, firstly, you have to look at the cumulative change over the period and not the number of years where one was bigger than the other. Second, the speed of the deterioration matters when determining investors' reactions, as they see how fast things can go to hell in a country. In Brazil, total public debt went from 60% of GDP in 2013 to 76% in 2016.
Third, that's not the only thing you need to look at. If the deficit is growing but public expenditure as a proportion of GDP is stable or falling (and is at a relatively low level, and taxes are low), investors worry less as there's ample room for tax increases to bridge the gap. But if deficit is growing or even stable while government expenditure is booming and at a high level (and taxes are high), investors worry because there's not much hope that tax increases can bridge the gap, or that there's even room for tax increases without crippling the economy. Consider Brazil and Japan. Japan has some of the lowest tax burdens of the OECD, at 27% of GDP, while Brazil has pretty much the highest tax burden of any developing country, at 36%. What's more, in Brazil government spending as a % of GDP has pretty much not stopped rising since the new Constitution of 1988, which mandates a Scandinavian-style welfare state for a poor country. In Japan government spending has been at the same level since 2009, and at 42% of GDP that's actually a low number compared to Western Europe. If Japan were to raise the tax burden to the level seen in the likes of France, Belgium, Germany, Denmark and etc., it would start running surpluses and reducing the debt. In Brazil the room to increase taxes is much smaller.
You have to look at the whole picture instead of just a ratio.
But there are limits to what Japan can do, even if it has more room of maneuver than Brazil. If government spending went to levels much above what we see in other developed countries, bondholders would start freaking out.
Your arguments are pretty clueless, I have to say. You're again only assuming that the government can't control for excess liquidity. Obviously, creating more money without the corresponding goods results in inflation, but only if the money is consistently in circulation.
Right. You wholeheartedly supported Hugo Chávez, who turned an upper middle income country into a starving hell-hole where people clean their butts with leaves, and I'm clueless on economics. You defend MMT, a marginal sect which is rejected by all main economists and economic departments of the world, while I argue for mainstream common-sense, and I'm clueless.
Money alone doesn't create inflation; it has to be moving around, purchasing goods and services.
No sh!t, Sherlock. When the government uses money to finance its deficit, what do you think happens?
Money alone is just pieces of paper or numbers on a computer screen.
The government can, through bonds and managing the banks, remove excessive liquidity before it becomes a problem. They can do this by offering an interest rate that exceeds inflation, if necessary.
And I'm clueless?
What if bondholders lost faith in the government and are not interested in bonds? What if inflation is accelerating at insane levels?
If you think this can't happen, I'll tell you that it happened in my country during my lifetime, as a result of the government following policies favored by the likes of you.
MMT is not controversial --- there is a lot of cranks who wish to abuse its claims to advance bad economics -- but the basics of MMT just describe how the monetary system currently works in most countries with a free floating currency, like the US and the UK for example.
MMT is extremely controversial in its conclusions, and extremely irrelevant in its mechanistic and tiresome description of how the beans move from one pot to another.
Venezuela isn't using a free floating currency, btw, which is behind many of its problems. They have exchange pegs, which I've expressed concern about since at least 2011. Turns out that they were much worse than I expected. I've never liked Venezuela's nationalizations of consumer goods providers, either.
Really, no self-criticism at all for supporting Chávez like the second coming of Jeses Christ? You think Venezuela's problems derive from exchange pegs alone, and not the whole "socialism" thing which destroyed all national private enterprise?
The country of your late idol is starving and that's all you've got?
Let me be very clear: I was entirely right about what Chavismo would do to Venezuela, and you were entirely wrong. Again, I was right, you were wrong. You. Were. Wrong.
You are clueless on elementary economics and following your ideas leads to Venezuela.
I
despise pampered Americans and Western Europeans who from the comfort of their capitalistic, professionally-managed economies "bravely" endorse radical unorthodox solutions for us southern savages. In a just word Noam Chomsky, Oliver Stone, Sean Penn and like-minded individuals would have to answer for their words and deeds in front of an angry starving mob at Caracas.
Yes, certainly rampant inflation can destroy people on fixed incomes. I doubt that any of the MMT people are unaware of this.
Mosler clearly thinks people don't care about that, as he textually stated in the text I quoted.
But again, MMT shows how the government can control inflation in the first place, so your objection is nonsense.
MMT described nothing that was not already known. Everything that is correct on MMT is old, and all that is new on MMT is wrong.
Or, the government can just monetize the debt, offer new bonds with interest higher than inflation, thus never allowing inflation to become a major problem nor letting the government default. There is no reason to assume higher taxes in the future when the govt can transfer resources from the private sector to the public sector without increasing nominal tax liabilities.
Again, if people lose confidence in the government they won't buy any bonds...