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A Beginner’s Guide to MMT

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Re: A Beginner’s Guide to MMT

#111

Post by apo »

rafiki6 wrote: post #97

Ugh...it seems that no one in the media actually understands what MMT is saying and what's underpinning it. http://www.levyinstitute.org/publications/modern-money-theor... MMT isn't actually proposing anything, but rather is simply explaining how money in the modern economy of a country like America, who's currency is a fiat currency and effectively underpins the currencies of many other much smaller economies, behav…

From the introduction of that paper:

One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints. Not only can they issue their own currency2 to meet commitments denominated in their own unit of account, but also any self-imposed constraint on their budgetary operations can be by-passed by changing rules. As such, this type of government is not financially constrained in the way that non-sovereign units are, so that it can focus on issues such as full employment and price stability.

This reads very much like the articles on MMT that I've been seeing.

Explaining why "monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints" seems a lot like a green light for deficit spending. Maybe not advocacy, but something that will be used by advocates. I see it as similar to the way a research article might say that leafy green vegetables are good for you without telling you to eat them.

Later, the article continues:

"... All these institutional and theoretical elements are summarized by saying that monetarily sovereign governments are always solvent, and can afford to buy anything for sale in their domestic unit of account even though they may face inflationary and political constraints."

Saying a company is solvent to buy another doesn't mean that the writer is advocating the purchase, but it may be used by board members advocating the purchase.

Theories never advocate, they attempt to summarize a model of how something works.

Unfortunately, the model that MMT describes ignores very important details, such as the way that the implosion of debt-fueled asset bubbles interact with political systems to cause further bubbles.

Re: A Beginner’s Guide to MMT

#112

Post by pytester »

manfredo wrote: post #106
pytester wrote: post #72

Earlier quoted context omitted.

It will result in inflation, but that's not necessarily a bad thing. At its heart inflation is just a wealth transfer from creditor to debtor (god forbid, right? creditors are king ). The real issues are that: * Inflation is treated as a bogeyman in the investor managed media rather than an integral and necessary part of a monetary system (you want real pain? try DEflation). * Complete misrepresentation of the risks…

Not exactly. Wealthy people will just move their assets into something other than dollars. Low and middle income people (which probably have more of their assets in dollars) will have their savings constantly devalued. Interest rates in loans will skyrocket in order to offset inflation.

>Low and middle income people (which probably have more of their assets in dollars) will have their savings constantly devalued.

Low and middle income people tend to have little in the way of savings (40% of Americans are one paycheck away from poverty) and a lot in the way of debts - debts which will be constantly devalued in a high inflation environment.

Re: A Beginner’s Guide to MMT

#113

Post by xyzzyz »

apo wrote: post #111
rafiki6 wrote: post #97

Ugh...it seems that no one in the media actually understands what MMT is saying and what's underpinning it. http://www.levyinstitute.org/publications/modern-money-theor... MMT isn't actually proposing anything, but rather is simply explaining how money in the modern economy of a country like America, who's currency is a fiat currency and effectively underpins the currencies of many other much smaller economies, behav…

From the introduction of that paper: One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints. Not only can they issue their own currency2 to meet commitments denominated in their own unit of account, but also any self-imposed constraint on their budgetary operations can be…

> "... All these institutional and theoretical elements are summarized by saying that monetarily sovereign governments are always solvent, and can afford to buy anything for sale in their domestic unit of account even though they may face inflationary and political constraints."

Sure, government can always confiscate everything that exists under its sovereignty. It can either happen via crooks going around with guns, or via "paying" for things by Kinko dollars. The end result is the same in both cases: products and services are not created, because what's the point of doing these, if they are confiscated anyway?

What's the MMT insight again? What does it say that's different than mainstream economics? What predictions it makes that are different than mainstream economics? Why it even has a name, and why are we even talking about it? Ah, I know, it's because it promises "full employment" and all other kinds of free lunches.

Re: A Beginner’s Guide to MMT

#114

Post by dragonwriter »

apo wrote: post #111
rafiki6 wrote: post #97

Ugh...it seems that no one in the media actually understands what MMT is saying and what's underpinning it. http://www.levyinstitute.org/publications/modern-money-theor... MMT isn't actually proposing anything, but rather is simply explaining how money in the modern economy of a country like America, who's currency is a fiat currency and effectively underpins the currencies of many other much smaller economies, behav…

From the introduction of that paper: One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints. Not only can they issue their own currency2 to meet commitments denominated in their own unit of account, but also any self-imposed constraint on their budgetary operations can be…

> Explaining why "monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints" seems a lot like a green light for deficit spending.

No, MMT is not a green light for deficit spending.

MMT is an explanation for why the entire fiscal model in which “surpluses” or “deficits” (and even moreso government borrowing and having “debt” to finance deficits) exists is a misleading façade when governments monetary power is considered, a holdover that only really makes sense with commodity—rather than same-government-issued fiat—money.

> Maybe not advocacy, but something that will be used by advocates.

Sure, every theory will be used by advocates of something; MMT isn't used to advocates of deficit spending, but by advocates of monetizing fiscal policy. (Though the latter can look like the former if you are stuck on the model of reality that MMT points out is flawed.)

Re: A Beginner’s Guide to MMT

#115

Post by pytester »

tptacek wrote: post #102
pytester wrote: post #100

Earlier quoted context omitted.

^^ This is a straw man. I also agree that runaway inflation is bad. Almost everybody does. What I wrote above cannot, under any serious interpretation, be considered as a defense of runaway inflation.

Help me understand where I went wrong reading this. I read, paraphrased: "The problem with MMT is that if everyone believes in it, they'll do things that cause inflation to rise", and "This is a problem primarily for the investing class".

That's accurate. Note that I did NOT say that it would cause runaway inflation.

Runaway inflation (or hyperinflation, if we're being terminologically precise) == Inflation > 50% per month == Zimbabwe destroying its farmland and industry and having nothing useful to export and thus not having an economy that can support the current level of spending.

Rising inflation == The US deciding, according to MMT principles, in the next decade that "fiscal responsibility" is not a reasonable justification for preventing medicare for all and maybe seeing a percentage bump in inflation as a result.

Re: A Beginner’s Guide to MMT

#116

Post by tptacek »

pytester wrote: post #115
tptacek wrote: post #102

Earlier quoted context omitted.

Help me understand where I went wrong reading this. I read, paraphrased: "The problem with MMT is that if everyone believes in it, they'll do things that cause inflation to rise", and "This is a problem primarily for the investing class".

That's accurate. Note that I did NOT say that it would cause runaway inflation. Runaway inflation (or hyperinflation, if we're being terminologically precise) == Inflation > 50% per month == Zimbabwe destroying its farmland and industry and having nothing useful to export and thus not having an economy that can support the current level of spending. Rising inflation == The US deciding, according to MMT principles, in…

MMT economists don't support inflation at any level, do they? They support alternative means of controlling inflation. Put differently, it sounds like you're using "MMT" as an incantation to dismiss inflation, which would be unfair to the MMT'ers.

Re: A Beginner’s Guide to MMT

#117

Post by AnimalMuppet »

dragonwriter wrote: post #109
the_optimist wrote: post #48

A credentialed economist should put a stake through the heart of the heart of MMT. Two simple critiques: 1) Relative to a financial statement (i.e. budget), it is difficult to predict and measure inflation. This difficulty lowers the likelihood of government fiscal responsibility and increases the likelihood of devestating inflation. 2) A basic second-order effect: What happens when people realize transfer medium is…

> A credentialed economist should put a stake through the heart of the heart of MMT. MMT is, AFAICT, pretty soldily grounded recitations of facts about fiat money that are widely recognized. It's been embraced by advocates of monetizing fiscal affairs because, well, it says that there is virtually unlimited short-term capacity to do that in a fiat-money system. But it's exactly that temptation in a fiat money system…

This, a thousand times.

MMT advocates want Congress to run the economy? Are you out of your freaking minds? They haven't even managed to pass an actual budget in the better part of a decade!

Re: A Beginner’s Guide to MMT

#118

Post by maerF0x0 »

> His insight was that while any single household can dig itself out of a hole by cutting spending when its income falls, the economy as a whole cannot. One household’s spending is another’s income, so if everybody cuts back, no one gets paid. What you get then is a depression—a situation only government can fix because, unlike the private sector, it can afford to spend freely, putting money in people’s pockets and thus getting the economy back on track.

IMO this is a failing assumption that is designed to benefit politicians who make entitlement promises in the future (you can use inflation to undermine the truth of those promises)...

While thrift may initially lead to a stutter/halt in the economy, eventually people will get desperate enough to work for less or products will devalue to lower prices, debtors will accept lower interest rates or even less than principal.

I have long felt that America needs a strong depreciation period so that worker's wages can fall to reasonable values in the world wide scene. (The only reason a living wage is $15 an hour is because so is the price of a burrito w/ tip) ...

Re: A Beginner’s Guide to MMT

#119

Post by skewart »

pytester wrote: post #112
manfredo wrote: post #106

Earlier quoted context omitted.

Not exactly. Wealthy people will just move their assets into something other than dollars. Low and middle income people (which probably have more of their assets in dollars) will have their savings constantly devalued. Interest rates in loans will skyrocket in order to offset inflation.

>Low and middle income people (which probably have more of their assets in dollars) will have their savings constantly devalued. Low and middle income people tend to have little in the way of savings (40% of Americans are one paycheck away from poverty) and a lot in the way of debts - debts which will be constantly devalued in a high inflation environment.

> debts which will be constantly devalued in a high inflation environment.

Why wouldn't lenders just charge higher interest rates to offset inflation?

Re: A Beginner’s Guide to MMT

#120

Post by pytester »

tptacek wrote: post #116
pytester wrote: post #115

Earlier quoted context omitted.

That's accurate. Note that I did NOT say that it would cause runaway inflation. Runaway inflation (or hyperinflation, if we're being terminologically precise) == Inflation > 50% per month == Zimbabwe destroying its farmland and industry and having nothing useful to export and thus not having an economy that can support the current level of spending. Rising inflation == The US deciding, according to MMT principles, in…

MMT economists don't support inflation at any level, do they? They support alternative means of controlling inflation. Put differently, it sounds like you're using "MMT" as an incantation to dismiss inflation, which would be unfair to the MMT'ers.

>MMT economists don't support inflation at any level, do they?

MMT does not make normative judgements on inflation. It does state that taxation and fiscal spending are more effective control knobs to target inflation than monetary policy, but that isn't a normative judgement either.

>it sounds like you're using "MMT" as an incantation to dismiss inflation

I'm giving context to why hyperinflation / inflation scaremongering surrounding MMT exists.

I'd do it for the same reason for why I'd reference oil company profits in reference to global warming skeptics - because it's the responsible thing to do to associate the motive for spreading bad science with the bad science.

Naturally this gets abuse slung at me - with phrases like "left-wing back-rationalized voodoo economics" slung around for instance.

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