What is Modern Monetary Theory?

[rah]

What is the point of saying this kind of thing?? Do you think "I don't care about anything except where my meals are coming from" is a noble stand or something? If you don't care about economic theory why are you posting in this thread?

I figured it was obvious. Economics has and will probably remain a more voodoo science than a real one.
MMT is just the flavor of the month and since you've taken the time to read up about it, give it way more importance than it deserves and enjoy looking down your noses at those that have yet to take the time to understand it or simply disagree with you about it.
So feel free to mock me while I laugh.

And since when did anybody (yourself included) ever need a reason to post in a thread here? Sometimes it's a place to discuss the mysteries of the universe and sometimes a place to waste time while pretending to work. Probably more the latter than the former.

 

[civvver]

We're still running the trickle down theory. Want to make sure it really doesn't work. My suspicion is that Boomers are going to learn about money-printing, and its value, as the next recession destroys the non-cash parts of their portfolio.

You don't have to embrace MMT to reject trickle down.

 

[Lexicus]

You don't have to embrace MMT to reject trickle down.

You need to embrace some kind of post-keynesian theory to reject trickle-down. Mainstream "Keynesianism" is trickle-down.

 

[El_Machinae]

Assuming a sufficiently high marginal tax rate, what do you mean?

Unless I am assuming too much, doesn't Keynes not have too many assumptions about where the new dollars come from?

Trickle-down is not well elucidated, because it is a political meme more than anything. But its main weakness would seem to be, to me anyway, that all new spending comes from the wealthy

 

[Lexicus]

Assuming a sufficiently high marginal tax rate, what do you mean?

By mainstream Keynesianism I am referring to the neoclassical synthesis that dominates mainstream macro today. The best-known advocate for this school of thinking is undoubtedly Paul Krugman.

Basically this is the "synthesis" of Keynes' theory of aggregate or effective demand with the classical efficient-market models of the economy. Thus, the mainstream synthesis says that "schocks" can temporarily push the economy out of equilibrium, but the natural tendency of the market toward equilibrium remains generally unquestioned.

The problem with this of course is that Keynes showed that the economy could easily reach equilibrium in a state of mass unemployment. Post-Keynesians go further and say that the economy isn't a system that tends toward equilibrium at all; drawing on behavioral psychology and other extra-economic fields of study they argue that the economy can and frequently does go completely off the rails*! This is one predictive area where the post-Keynesians have the neoclassicals beaten hands-down: left to itself the market does not demonstrate any tendency toward equilibrium, quite the opposite. This leads neoclassicals to systemically underestimate the extent and duration of financial crises.

The worst tendencies of the neoclassicals are embodied in the "real business cycle" theory which completely ignores the role of finance and claims that the business cycle is rational utility-maximizing responses to real changes in the economy.

Anyway: traditional Keynesian pump-priming is trickle-down in the sense that it's giving money to 'investors' and hoping they will invest it. Minksy said that it would inevitably be inflationary without price controls, and he favored a program of public employment instead. The way to avoid trickle-down in public policy is by not giving any money to for-profit companies: give the money to the people who might buy things from those companies instead. Let consumer spending drive investment rather than the other way round.

I suppose in fairness I should mention that mainstream Keynesians do tend to support countercyclical programs like unemployment insurance that do exactly what I'm talking about here. But the "stimulus" as passed under Obama was mostly trickle-down which seriously diluted its effectiveness. If it hadn't been accompanied by the automatic stabilizers it would not have come close to "succeeding".

*they actually claim something closer to "there are no rails except those imposed by policy"

 

[El_Machinae]

Thanks. Yeah if you look at wealth concentration since 2008, it's definitely going upward as we've spent against the recession. My Lehman interpretation is that there is just too much household debt, and because household debt is owned by someone else then creating dollars into the bottom of the economy so that people can clear their debts just means that the person who owned the debt in the first place doesn't get a haircut. And at the end of the story, the household has paid off a debt for an ephemeral good and the lender ends up with real dollars

 

[Lexicus]

Thanks. Yeah if you look at wealth concentration since 2008, it's definitely going upward as we've spent against the recession. My Lehman interpretation is that there is just too much household debt, and because household debt is owned by someone else then creating dollars into the bottom of the economy so that people can clear their debts just means that the person who owned the debt in the first place doesn't get a haircut. And at the end of the story, the household has paid off a debt for an ephemeral good and the lender ends up with real dollars

I think the most important factor here is probably that the Obama administration took no action to prevent the foreclosure crisis. Allowing the banks to seize the real assets when millions were left financially underwater by the crisis and millions more were outright victims of fraud represented an enormous transfer of wealth upwards.

 

[Socrates99]

First, I think we need to kill the ridiculous idea that MMT is just a lefty theory used to justify deficit spending. Nixon took us off the Gold standard and every Republican president in my lifetime has increased spending while reducing government "income" via taxes. Every single one. The right has used MMT as much if not more than the left to goose the economy. The two sides just tend to choose different beneficiaries for the "free money." The GoP just pretends they don't believe in it in order to use the deficit as a political cudgel when Democrats have power. Only one president has had a surplus in the last 40 years and he sure as hell wasn't a Republican.

T-bills are only nominally "borrowed" money in that there is a promise to pay it back but the government does not issue T-bills in order to spend the "borrowed" money. They serve two major purposes. They're a safe way for individuals to save money by investing in the stability of the dollar and the US govt. It's less like loaning than it is like buying stock in the government. The second purpose is they take liquid money out of circulation which helps to control inflation. People don't spend T-bills, they tend to hang on to them for a period of time. That helps reduce inflation, it's one of the many levers available to control the strength of the dollar.

China could tank the dollar if they choose to by cashing in their bonds. This would cause inflation and reduce the value of the dollar. Taxation is a far better way to control inflation but it's super unpopular. Even raising the top marginal rate can hurt a politician because people are unfortunately too stupid to even understand marginal tax rates. That's why we wind up with so much debt floating around. Politicians are scared to do what's necessary to monitor the dollar using MMT because taxation hurts their chance at reelection.

Heaven forbid the day the 99% figure out MMT is easily managed by adjusting the 1%'s tax rates.

 

[Lexicus]

China could tank the dollar if they choose to by cashing in their bonds.

Not really. China cashing in their bonds would probably hurt them worse than it hurt us.

 

[Naskra]

First, I think we need to kill the ridiculous idea that MMT is just a lefty theory used to justify deficit spending

Plenty of work to do here.

T-bills are only nominally "borrowed" money in that there is a promise to pay it back but the government does not issue T-bills in order to spend the "borrowed" money. They serve two major purposes. They're a safe way for individuals to save money by investing in the stability of the dollar and the US govt. It's less like loaning than it is like buying stock in the government.

I can see you've never bought a T-bill. You should remain out of this market.

 

[El_Machinae]

Given that Trump has called for money printing and obviously wants that money printing to cover his deficits*, it's not like many of the factoids that lead to MMT aren't already known at upper levels.

It's hard to figure out if it's a 'lefty' idea. I mean, put a gun to my head, and I just don't know. It insists on a national sovereignty over the currency, and that's about it. The alternative is that private entities retain power over the currency, but even people who're against the idea of a sovereign currency would be in favor of bankruptcy laws (which is just other mechanism by which bad debt defaults). It's 'left' in that it shows additional mechanisms by which a government can interfere in an economy to retain economic health. It's 'right' in that it insists upon a national sovereignty.

Almost like a binary distinction doesn't work in all cases. It's more that it just recognizes what is, that countries control their currencies.

*Surprise, you can goose an economy something fierce if you have political permission to run 4% deficits.

 

[Naskra]

It's hard to figure out if it's a 'lefty' idea

I've never seen anyone but progressives embrace MMT. Trump is quite a progressive in that his instincts are to destroy anything he doesn't understand.

 

[El_Machinae]

I've never seen anyone but progressives embrace MMT.

What theories have you seen 'conservatives' embrace? I mean, obviously they hold different models that justify their deficits, and they won't comprehend MMT, but it's not like the fact that you've only noticed 'progressives' (is 'progressive' the same as 'left'? Not sure) really means much. It's not like it's completely binary.

An idea can be 'centrist' and yet only truly embraced by progressives. Voting rights for felons. Carbon taxes. They're both centrist ideas that are mainly pushed for by 'progressives' in regions that don't have them.

MMT's foundation is a sovereign control over currency. Figuring out how that goes into the left/right divide might not be as simple as a one-liner.

 

[Naskra]

What theories have you seen 'conservatives' embrace

To repeat, I see only progressives embracing this theory. Do you see anything different?

 

[Hrothbern]

Here Alan Greenspan in 2005 answering questions of Paul Ryan on the security of pensions when applying MMT:

"There is nothing to prevent the government from creating as much money as it wants."

it's not about money... it is about having a system that keeps your resources being productive.
(And ultimately resources are time of people.... and productive means productive... not whether you work hard or not).

 

[El_Machinae]

Ryan has no clue that the gist is that the production needs to be available for the retirees to buy, and that's the only real consideration. Everyone knows (even if they don't understand how) that 'growth' is required to solve the current problem that they're imagining. But Ryan thinks that somehow getting the money to retirees one way is fundamentally different from another way, but cannot articulate it at all, because it's just a hunch on how money works.

 

[Naskra]

"There is nothing to prevent the government from creating as much money as it wants."

Greenspan is, unsurprisingly, wrong. The law prevents the government from creating as much money as it wants. And that is all MMT is, a change in the current restrictions on money creation.

 

[El_Machinae]

He's not really wrong. In 2005, the government debt was about $8 trillion. Within a decade, the government printed about $5 trillion dollars. Shortly thereafter, the American economy was able to thrive in a trade war with basically anyone they wanted to. Sure, they had to pass a law to do it. But saying "they cannot do it unless they decide to do it" is a bit of a 'duh' insight.

To repeat, I see only progressives embracing this theory. Do you see anything different?

Yes, as I said, its foundation is that a nation has sovereignty over its currency. You'll see from the clip that this is well-known by some. Calling it 'left' or 'right' just doesn't seem possible from that.

But, maybe it's just a tautology. Only a progressive can embrace a new theory, by definition. A conservative cannot. Just because the conservatives don't have it in their wheelhouse to comprehend it doesn't mean that the theory is 'leftist'. I'm not conflating 'progressive' with 'lefty', mind.

 

[Birdjaguar]

MMT does not address esoteric concerns. Macroeconomics deals with issues that can literally define the course of millions of lives. 1 in 4 Americans ended up unemployed in the 1930s because the policymakers at the time did not understand macro.

It is one thing to look back and use hindsight to say that folks made a mistake and then say that there errors could have been avoided if they had known what you know 80 years later. The past is an easy target. It isn't very helpful today.

We're still running the trickle down theory. Want to make sure it really doesn't work. My suspicion is that Boomers are going to learn about money-printing, and its value, as the next recession destroys the non-cash parts of their portfolio.

So are you saying that stocks, bonds and housing are going down the tubes? When and for how long? Or will it be permanent? Runaway inflation? What are you suggesting is actually going to happen?

I think the most important factor here is probably that the Obama administration took no action to prevent the foreclosure crisis. Allowing the banks to seize the real assets when millions were left financially underwater by the crisis and millions more were outright victims of fraud represented an enormous transfer of wealth upwards.

Ok, again you like to look back and criticize. But look forward. Tell us what should be happening to prevent any financial distress. If you cannot do that then MMT or other theories are not much good.

 

[Hrothbern]

Greenspan is, unsurprisingly, wrong. The law prevents the government from creating as much money as it wants. And that is all MMT is, a change in the current restrictions on money creation.

It is really forbidden by law in the US ?