MMT: overcoming the political divide.

Umm... how does that work with open borders and immigration?

Are you familiar with what a buffer is in chemistry? Open borders is sort of like the existence of a buffer in the solution. No matter how hard you try, you won't really get the employment rate to go too far up.

 

Because you've been yammering about Monetarism for several posts, even though no one was talking about it except for you.

Uh, you're done. I've already exposed you as a know nothing. You were clueless about subjects that you yourself brought up. You've no legitimacy to ask me or anyone else about anything having to do with economics.

 

I assumed that Joe (or his handlers more specifically) was simply talking about deficit spending.

 

Now we are talking, and you are asking the right questions.

In our broken world, borders have to be HEAVILY regulated. Even Bernie Sanders said as much....though admittedly the Left in general does tend to be 'dewy-eyed' on the issue.

[Keynes of course promoted his visionary global scheme of a 'clearing union' and 'bankor' (global monetary unit) at Bretton Woods in 1944, as a way to promote prosperous development in all nations, but that idea was rejected by the newly victorious US at that time].

But that is not an argument against MMT.

Addressed above.

 

I don't think so: " We, out of the Treasury, are going to pay for this.”

Deficit spending as you - and most everyone else - conceive it must be paid for eventually and results EITHER in a continuing burden on the government, in the form of ongoing interest repayments to bond holders OR higher taxes which would be an increasing burden on the private sector).

Which is why most people think governments - like households - must balance their budgets, but nothing could be further from the truth.

[Stephanie Kelton's new book: "The Deficit Myth" is due for release in June, which should acquaint the general public with the issues in a wider sense].

 

Wait, do you think Joe actually knows what he's talking about? That he's really hinting at some sort of MMT policy? We all agree that Biden is in the early stages of dementia right? I mean, do you actually think he knows what he's talking about?

 

…..no...…..but his minders DO know what they are talking about, and they ARE aware of MMT.

[Practically every above-tertiary economist is aware of MMT these days, though most of them are still refuting it, mainly to save their reputations from the garbage they have been teaching for years.

https://www.forbes.com/sites/johntharvey/2019/03/05/mmt-sense-or-nonsense/#7f6927a95852

 

Do you know what happens if governments don't balance their budgets?
They permanently ruin their credit ratings. Eventually, people don't want to lend money to government, when they know inflation is just going to eat up all their interest, and they don't want to lend money if they foresee they're not going to get their money back.
(And if you're counting on continued population growth and more new people to lend money, that's just a pyramid scheme)
If people are reluctant to lend money to government, the interest rates they demand go up. So you get a feedback effect between inflation and interest rates, such that more inflation doesn't help pay off the debt at some point.

Now, if you're talking about issuing more money to pay for new things, that is simply paying for things through inflation. A big share of the decrease in purchasing power comes out of the government itself. So you print more money, it won't really buy that much more. (And whatever small amount more it will buy is just coming out of the purchasing power of people holding paper money, which people will not be holding very much when you have large scale inflation)

Now, could you explain to us why a government doesn't have to worry about balancing its budget?

 

Somebody will pay for it.
If it's not the government, then it's someone else.

To think somebody won't pay is infantile at best.
Nothing is created without labor input.
Any gains in living standards will be paid through labor input. Nobody gains because the government can create currency.

 

1. If the government "pays for it", then given our current monetarist system, we all pay for it, via taxes or interest payments to bond holders.

2. we are about to see that individuals will NOT be able to "pay for it" (ie, pay for essentials), as the economy is placed in lock-down and unemployment sky-rockets.

But, according to Joe, no-one will pay for it, because treasury will create the funds 'ex nihilo' to pay for essentials to maintain life while the economy is restricted to production and distribution of essentials only ie during a massive contraction in GDP.

Pure MMT...though you don't realise it.....

Listen to what you said: "without labour input", ie, NOT MONEY INPUT.

A prosperous full employment economy needs resources, know, and labour input, not money - money which is merely a convenience to enable functioning of a private sector free market instead of resorting to the inefficiencies of a totally planned economy - in which money would not be required at all...….

Your problem is you don't recognise a role for money creation to pay for social/non-market programs in the public sector, alongside money creation in profit-driven private sector markets.
You think the latter (ie "invisible hand" market) produces the best outcome by itself, but as I pointed out, even before the latest pandemic, REAL un/underemployment was >10% (U6 + those not registered as looking for work), not the false and misleading 3.5% headline figure ("best in half a century"....)

My reply to kazenatsu will be relevant.

 

Nothing is gained by introducing currency that has not been created with labor input

 

Dear me. I notice you haven't absorbed ANYTHING from the original post.

So let's get back to basics.

First: a quick look at money:

1. Money is not a real resource.
2. Money can be created or destroyed at will.
3. Increasing the money supply does NOT result in inflation, if the economy has the productive capacity to absorb the extra spending.

Second: let's look at production.

The beaver wants to build a dam. The beaver doesn't need to go the River Bank Inc. to borrow funds, rather he goes to the river bank to collect the necessary resources to build the dam.

The government is like the beaver. The limiting factors the government faces are the available resources, NOT MONEY…...

MMT'ers as a group are amazed at how this simple concept cannot be grasped by the majority of the population...though MMT'ers recognise that citizens out of their own lived experience ARE very much subject to earning/begging for/stealing money, in order to participate in the nation's economic life.

Which is totally irrelevant to the sovereign currency issuer - which makes the rules concerning the conduct of all the individual players in the economy.

I need you to acknowledge of the points I made above. Then your paragraph above will be seen to be irrelevant.

See Stephanie Kelton's new book : "The Deficit Myth" to be released in June brings all the issues to a head in one book. .

Now you are proving you don't read my posts, like this next quote from professor Bill Mitchell, posted already at least twice:

http://bilbo.economicoutlook.net/blog/?p=34315

"No-one...…. is suggesting that a government would continue expanding nominal spending via ever-growing deficits once an economy had reached full capacity and full employment. It is obvious that if such a strategy was pursued then ever-increasing inflation would be the result.

This is because firms cannot squeeze any more real output out of the resources in use.

Alternatively, when there are idle resources (such as unemployed labour and machines), an expansion of nominal spending will likely be mostly absorbed by higher production (real output) and firms will be highly reluctant to try to increase prices for fear of losing market share to other firms in the sector.

Most importantly, growth in nominal spending can continue even when the economy is operating at full capacity as long as it matches the growth in that productive capacity and doesn’t strain the capacity of the economy to respond to the extra spending with output growth."

For some reason I have not written you off as the usual close-minded troll like AFM who thinks pure free markets are the way to nirvana.

'But if you persist with the type of reply you have given above, without any attempt to address or critique the concepts of MMT, then I will have no choice but to place you in that group of ideologue-trolls.

Addressed above by professor Mitchell, in the underlined section.

QUOTE]Now, could you explain to us why a government doesn't have to worry about balancing its budget?[/QUOTE]

Because a sovereign government is the currency issuer, not the currency user, so it doesn't need to tax or borrow ('get income') in order to spend.

Taxation is required so that government can limit excess demand BY THE PRIVATE SECTOR, should that arise.

Note: If resources including labour are already fully employed, government will NOT be required to add to spending in the economy, but as I have already pointed out to other posters, the free market NEVER achieves full employment, which even before the pandemic, was >10% un/underemployment, despite official the official figure of 3.5% ("the best in a half-century").

Like I said, please demonstrate some capacity to critique MMT itself, rather than just regurgitating orthodox monetarist neoliberalism.

 

Wait, hold it right there.

Increasing the money supply does not result in inflation, if the economy's production expands at the same rate as the money quantity increases.

But why would we want to expand the money supply?
What's so terrible about a little deflation?

The gains in deflation are going to benefit people, so it seems like you're basically advocating for government to harvest those gains, for their own use.

 

Prosperity increases when idle labour, not engaged by the private sector, is engaged in the public sector, eg looking after the elderly in their own homes, provided the resources and productive capacity exist to absorb the additional spending....which they always do in wealthy nations like the US.

Just think: you can bulldoze all those inner-city slums and build a new society.

That's MMT. Resources, not money.

 

To achieve universal above-poverty participation in the economy, since everyone has something to contribute*, and the resources are available to achieve that outcome.
* whether employed in the public or private sector.

Anything less is immoral...."savage capitalism" is a term used by another poster in another thread.

The premise is simplistic; savers might benefit, borrowers will not, because real debt becomes larger in a deflationary cycle; in any case the "harvesting gains" comment has nothing to do with MMT which is about resource allocation in the public sector after the (always) insufficient allocation of resources in the private sector (to achieve full employment).

 

Can you please explain how that has to do with the economy having extra capacity and increasing.

Yes, fine, I'll agree with you for the time being that if you can increase economic capacity, you could increase the money supply without causing inflation, technically.
But how are you going to increase economic capacity? What is the cause of that?

 

I think your fallacy there is assuming "productive capacity" will increase in proportion to what you will pay them.

It of course hinges very much on how you quantify "productive capacity". Otherwise (mathematically speaking) you've fallen prey to an equivocation fallacy.

We have to recognize that when we are talking about "productive capacity", we are talking about what will avoid causing inflation. And that in turn is dependent on consumer demand. Even if we provide something valuable to people, it will still cause inflation if it is not something money-spending consumers will demand. (and I use that in the economic sense of the word).

For example, if the elderly are not willing to pay these people to look after them.

If individual people wouldn't pay for something, then you can't pay for that thing without causing inflation.

 

http://bilbo.economicoutlook.net/blog/?p=44547

It’s Modern Monetary Theory time! No, it always has been!

(from professor Bill Mitchell).

"Many economists are staying quiet at present in a similar way to how they reacted to the fiscal interventions in the early days of the GFC.

They knew they had failed to see the GFC coming and had been using frameworks that didn’t even have financial sectors accounted for (because they believe in ‘efficient markets theory’).

They knew that they had been raving on for years about how ineffective fiscal policy is.

But it didn’t take long, though, for them to emerge from the slime and start berating governments for using their fiscal capacity to save economies from total meltdown...……."

Mitchell then goes on to note the following comments from a usually mainstream financial commentator, Alan Kohler, in 'The Australian" newspaper today:

2. “The economy is likely to be entirely shut down within a few days apart from essential services, in which case government support for businesses and jobs will have to be unlimited, as it is in other countries.”

3. “in any case, the pile of sovereign debt that will be issued in 2020 and possibly 2021 to keep citizens alive will have to be colossal — Napoleonic in scope.”

4. “It seems inevitable to this armchair epidemiologist that the RBA will have to end up buying the government’s debt as well …”

[My comment: recall the BIS saying (at Davos) "central banks might have to buy the fossil fuel industry"?....]

5. “except for the source of the RBA’s QE, and presumably the $90bn facility, that money will be newly manufactured on the RBA’s computers before being dispatched to banks at the click of a mouse …” [as explained by Warren Mosler in his book "7 Deadly Innocent Frauds of (mainstream) economic policy"].

6. “This has a name: Modern Monetary Theory, in which deficits don’t matter because they can be funded with money manufactured out of thin air by central banks.”

(My note: Kohler has omitted the important qualification, namely, provided the productive capacity exists to absorb the additional spending).

7. “Up to now MMT has been mainly pushed by the lefties … and opposed by the Right, and all right-thinking economists, as the thin end of the socialist wedge. But all bets are off now — something new has come along. Capitalism has to close for a while and the state has to step up*. Do governments just keep doing what they’ve always done, which is to scrimp and borrow, or do they try something new?”

Well Alan, MMT is not a matter of Left or Right, or capitalism or socialism. It's a matter of how nations most effectively and sustainably develop their resources.

 

https://twitter.com/i/status/1241876529828642816

 

How can the government support businesses when everything has shut down? I'm assuming then we aren't talking about a physical support, but a monetary support.
But where's that money going to come from?

I still don't think you've addressed the problem that I pointed out.

But how can there be more productive capacity with all those businesses closed?

 

Productive capacity can always increase to employ everyone at above poverty wages, simply by bringing unused resources into play.

eg there is always the capacity to build more machinery...until you run out of workers/teachers, at which point you cease building more machines, obviously. [And the required raw materials are not in short supply even in a full employment economy).

Well I suppose we might need to 'equivocate' between essential and non-essential production, but certainly the quantum of poverty-eradicating resources exists....and after that, discretionary spending can occur depending on the economy's productive capacity.

Yes, as already noted:

Most importantly, growth in nominal spending can continue even when the economy is operating at full capacity as long as it matches the growth in that productive capacity and doesn’t strain the capacity of the economy to respond to the extra spending with output growth." (Mitchell).

Well an economy should be producing
1. essentials that everyone needs.
2. things that people like but cannot necessarily be afforded by everyone (but OTOH an economy ought not be producing things that are harmful to people, but leave that aside for the present).

So we are back to my 2nd paragraph, above.

The things is all elderly people ought to be able to obtain assistance to be able to remain in their own homes for as long as possible, not just those who can afford to pay for such a service. And if the labour is available, the government can fund it without causing inflation, as explained in the1st and 2nd paragraphs above. It's a resource issue, not a money issue.

Individual people WANT assitance to remain in their own homes, it's a matter of whether they can afford it. But of course an economy should not be producing things people do not want.

And the government CAN always afford it, given the resources and productive capacity exist (again refer to paragraphs 1 and 2 above).

 

Well....MMT's time has certainly come now, with this pandemic closing down most of the economy, maybe reducing GDP by 25%?

(Though as Mitchell says, MMT's underlying truth has always existed].

I mentioned essentials in my previous post.

In fact, the government itself is now forced to limit the economy to production of essentials. It's like a command economy forced onto the nation into order to preserve life (by limiting the spread of covid-19 as much as possible).

The idea is for the government to support both businesses who lose their customers (with rent payments etc) AND individuals who lose their jobs (with wages), while most of the consumer economy is shut down. The government can maintain this situation for as long as necessary, while ensuring the essentials eg food, basic hygiene products, medicines, energy, and utilities continue to be produced/operate.

I always knew that resources, not money, were important in this world.

But apparently most people still don't know this.

FYI, money is created ex nihilo in banks (google it); it's just that now, for the duration of the pandemic, most people indeed won't and cannot take out loans in banks, so in fact money creation in the private sector will cease to exist during the period of the pandemic.

This money creation role - money needed to keep both businesses and consumers alive while they have no income - will reside in the government alone, under the auspices of the treasury and central bank.

There won't be, and there does not NEED to be more productive capacity; the production of essentials requires much less of the economy's capacity than the normal c.70% proportion of the production (largely junk IMO, but that's another story) that accounts for GDP in normal times.

So while MMT guarantees an above poverty job for all who want work, in an normal open economy, in the present situation the government must cover people's vital living expenses, indefinitely, while workers in non-essential industries
are forbidden to go to work....

 

Labour did craft something a tad more relevant with their previous support for People's QE. However, I don't think the answer will come from any macroeconomic context. Indeed, its important that state power is curtailed (else we will eventually just return to the right wing support for rentier capitalism). I think the answer can only come from a shift to market socialism. It is firm organisation that will ensure a more stable economic paradigm which supports both efficiency and equity.

 

Your reaction is expected. It is standard right wing cognitive dissonance in overdrive. Once economic reality is mentioned there is no where to go. Monetarism failed. It was indeed a reaction to bastardised Keynesianism. That you didn't know that it was based on double crackpottery (i.e. a naive reaction to a corruption of Keynesianism) is the interesting aspect. It illustrates why you have nothing credible to say about MMT.

 

My point was, how are you going to increase GDP when activity has ceased due to the pandemic ?
What is more money going to do?

...
The only thing I could possibly see it doing is helping people pay already agreed upon prices, by causing inflation, so even though the prices are now less in real inflation-adjusted terms, they are still the same in dollar number.
This is very similar to what the Fed did in the wake of the housing crisis, to keep housing prices from deflating.