MMT: overcoming the political divide.

Discussion in 'Economics & Trade' started by a better world, Mar 12, 2020.

  1. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I'm not sure what you mean. A free market doesn't really authorize the reserve bank to create/spend money.

    (In fact, if the reserve bank truly conducted its operations like a classical private bank, I think they could expand the money supply and that not create inflation. But that would involve not giving out free money, or trying to manipulate interest rates)
     
    Last edited: Mar 6, 2021
  2. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    If you have the central bank print money to fund a guaranteed job program, the degree to which you can get away without causing inflation will be dependent on the efficiency with which you can do such a thing, and by efficiency I mean what the market demand is for those services.

    Productivity doesn't really "eat up" inflation unless there is money chasing after it.

    You're basically just advocating a command economy (like Communism).

    How that would work would end up being determined by many details, which you have not really fleshed out enough. For example, these guaranteed jobs, is it a government employer or a private employer?
    Is this government running a business and consumers are voluntarily paying for services?
     
    Last edited: Mar 6, 2021
  3. Lil Mike

    Lil Mike Well-Known Member

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    It's just communism. This is 36 pages of him not trying to use that word.
     
  4. a better world

    a better world Well-Known Member

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    And by now we know free markets by themselves don't work......witness the Texas grid disaster as the latest example.

    Anyway, here is an interesting article by professor Claudia Sahm showing how even the "experts" can't agree:
    (link)
    Institute for New Economic Thinking (ineteconomics.org)

    A Big Fiscal Push is Urgent, The Risk of Overheating Is Small

    The Repubs are proving to be complicit in criminal negligence, as the GFC and now the pandemic witness increasing inequality and "scarring" among those with the least wealth.

    "Yet, 10 million jobs are still missing–a loss larger than that in the depths of the Great Recession. And yet aggregate employee compensation has recovered. How can that be?

    The answer has to do with the massive income inequality in the United States. Aggregate personal income—the largest component of which is employee compensation—is dizzyingly skewed toward the highest income families
    ".
     
    Last edited: Mar 6, 2021
  5. a better world

    a better world Well-Known Member

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    In the post above, I commented that free markets by themselves don't produce satisfactory results. It's that simple.

    YOU might be comfortable, but nearly half the US population are not.

    Professor Harvey: " perhaps the real nail in the coffin of the “money growth==>inflation” view is this: the phenomenon that Milton Friedman identifies as key to the whole process, i.e., the excess of the money supply over money demand, cannot happen in real life." Read the article.

    Can't conceive of a mixed economy, with central bank money-printing to enable desired social outcomes, alongside private bank money-printing to enable private enterprise in free markets?

    [Imagine if AGW climate change was real and urgent closing of the fossil industry was required.....or covid-19 keeps transmuting and requires continuing lockdowns; private sector free markets would soon devolve into UNIVERSAL chaos. Then even you would cease to be comfortable]

    You are showing you haven't taken the time to learn the basics of MMT. JG jobs are national-government funded, local-council organised jobs which serve unmet community needs on an ad hoc basis, when the private sector leaves a proportion of the available workforce idle.


    No kidding. But the community would sure benefit from the authorization......

    Silly comment. Such a "reserve bank" would be no different to a private-sector bank. Of course private sector banks only create money when they write loans to credit worthy customers, money which has to be paid back.

    That's the whole point of reserve money creation by the "government's" bank (in MMT terminology) - the money doesn't have to be paid back.

    Note: In MMT, a 'government bank' can issue and spend money (the nation's currency) without assuming a debt: whereas private banks are users of the currency, and although private banks also create money ex nihilo when they write loans for credit worthy customers, this is different to issuing the currency.
     
    Last edited: Mar 6, 2021
  6. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I could agree with that statement but that still wouldn't mean your idea or MMT was the proper solution.
     
  7. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    You do realize that seems like total crazy talk, if that statement is taken in isolation.
    Is there some sort of additional context behind it?
     
  8. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I can, but I don't see how lots of money printing would be better than the plain old taxation method of doing things.

    The question is, who would bear the cost. A complicated thing when we are talking about inflation. (Of course you keep claiming there would be no inflationary effect)
     
    Last edited: Mar 6, 2021
  9. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    We're getting off-topic, but I don't believe when a private bank does it that it creates inflation.

    I started a whole thread about it. Not going to waste my time trying to find it right now unless you ask.

    It seems you might agree with me on that point.
     
    Last edited: Mar 6, 2021
  10. a better world

    a better world Well-Known Member

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    Taxation on incomes is complex and inefficient.

    (link)

    Microsoft Word - tbb_33.doc (cato.org)

    "Income Tax Rife with Complexity and Inefficiency"


    Not often I cite the Cato Institute (Libertarian) to back my case...but it will do for now..
     
    Last edited: Mar 6, 2021
  11. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Once again, I will ask you to provide an example of how MMT would work in a hypothetical barter economy without money.

    Suppose everyone is bartering in cookies, if you want.

    That would really help us to be able to understand your idea and visualize how it could possibly work.
     
    Last edited: Mar 6, 2021
  12. a better world

    a better world Well-Known Member

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    Basically agree. But while (in normal times) private-bank credit creation doesn't create harmful inflation, that doesn't mean the economy is producing socially acceptable outcomes, in the free market...


    And private banks themselves can display criminal negligence when it comes to the health of the macro-economy.
    Graphically shown in the interaction between useless financialization, ie the vast financial industry with its complex derivatives, and the real econom; eg the ballooning mortgage-writing leading up to the GFC, (though inflation was NOT a problem throughout that whole episode; even when the Fed began its ineffective QE program - ie, creating reserves for private banks - in a less than satisfactory attempt to rescue the economy).
     
  13. a better world

    a better world Well-Known Member

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    Given the fact that MMT assumes central sovereign government as the source and basis of law, it's perhaps not appropriate to create an analogy with a barter economy, beyond observing that cookies COULD be adopted as the unit of exchange....IF the government had perfect knowledge of the capacity of individuals to produce, and the needs of individuals to consume.. In other words, if the barter value of exchange was set by the government.

    Interestingly, cookies wouldn't actually need to change hands, once a determination had been adopted that a sheepskin, or a basket, was worth 'x' number of cookies.

    But obviously the analogy breaks down because barter economies are decentralized, depending only on face to face exchange.

    Also interesting in the barter scenario: the view of inflation as a manifestation of tension between people bargaining for limited resources.
     
    Last edited: Mar 6, 2021
  14. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I'm sorry, I don't really understand how that explanation answers my question.

    Would you be talking about some sort of government imposed price controls? (In this hypothetical barter economy that would mirror the function of an economy with money)


    What I mean is, what does money really do exactly in exchange, and if we hypothetically got rid of that money, what would have to be done (theoretically) to make the same economic situation happen as before?

    (talking about an economy run under your MMT idea)
     
    Last edited: Mar 6, 2021
  15. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    If there's limited resources, then your MMT would redistribute the resources, wouldn't it?
    Otherwise, how exactly would your MMT increase productivity?
    Simply employing more people, well it takes some barter thing of value to pay them, so how does that increase productivity?

    (even if you want to talk about paying them with money, it takes some equivalent barter thing of value to pay them with ultimately, since they will consume something real with the purchasing power from that money)
     
    Last edited: Mar 6, 2021
  16. a better world

    a better world Well-Known Member

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    Yes, indeed; but MMT has developed in a world where 'real' scarcity no longer exists: ie modern highly productive economies can house, clothe and feed everyone.

    Given my above comment (ie, scarcity requiring bargaining no longer exists), your question is misconstrued;
    productivity is continually enhanced by technological advance.

    Addressed above.

    I originally mentioned a barter economy (as they have existed in the past), only to show that money is not a real resource which is required to house, clothe. feed and transport people...eg, in pre-Roman, iron-age Britain (no written language, no money).

    Any further extension of the barter analogy is not useful, for reasons out-lined previously.
     
    Last edited: Mar 6, 2021
  17. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I was asking how MMT would increase productivity over (compared to) the present system.
     
  18. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I'm sorry, I don't think you did adequately outline that previously.

    (can you refer me to a page number of this thread, because I don't see it on this page)

    Why can't you state your MMT theory in terms of a barter economy? (even entirely theoretically)
     
    Last edited: Mar 6, 2021
  19. a better world

    a better world Well-Known Member

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    post #888:

    "But obviously the analogy breaks down because barter economies are decentralized, depending only on face to face exchange.
    Also interesting in the barter scenario: the view of inflation as a manifestation of tension between people bargaining for limited resources".



    Why can't you state your MMT theory in terms of a barter economy? (even entirely theoretically)[/QUOTE]

    Because MMT assumes a sovereign currency-issuing government, the value of which currency is based on the nation's entire productive capacity (and accepted by citizens because they need the currency to pay government fees and levies).
    A barter economy operates on agreed exchange between individuals at the point of exchange, meaning variability in valuation of exchange, by different individuals at different times.
     
  20. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Yes, but what would it look like, in this imaginary hypothetical world?

    Suppose for example you could impose a system where exchange was impossible unless some special procedure was followed, no matter how strange.
    Or suppose everyone was robots and you could somehow program something into them.
    Remember, this is only for illustrative purposes, to be able to imagine an analogy of MMT.
     
    Last edited: Mar 7, 2021
  21. a better world

    a better world Well-Known Member

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    Well.....that 'yes' is all l require from you, since you have not objected to any of my remarks.

    (You are free to ponder an impossible world based on both barter and MMT ....of course. I will look at what YOU can invent...)
     
  22. a better world

    a better world Well-Known Member

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    Heard a Repub senator yesterday saying the covid-rescue debt will be "a burden on our grand-children".

    He has it back to front, of course: If the government fails to quickly bring the economy back to full employment and full productive capacity after the pandemic, then the scarring of the present generation of un/underemployed workers will permanently damage the nation's potential output, resulting in a reduced standard of living for our grand-children.

    And even these two have caught onto the fact that government debt is not like household debt:

     
    Last edited: Mar 7, 2021
  23. a better world

    a better world Well-Known Member

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    Here is an (relatively) easy to read summation of the MMT principle that government deficits (aka fiscal deficits) must equal net private (non-government) savings (surpluses).
    [The article considers the three sectors of the economy: government, private domestic, and external, with the last two comprising the non-government sector.]

    Government Deficits and Net Private Saving | heteconomist

    The present is a time of deep private indebtedness, especially household indebtedness. A key question for macroeconomic policy is how this debt burden can be alleviated. Until excessive private debt is cleared away, the expenditures of households and firms will be severely constrained, hampering economic recovery. One approach would be to conduct an orderly write down or cancellation of a substantial part of private debt. Another method would involve government making appropriate use of fiscal policy by engaging in substantial and concerted net spending (government spending in excess of tax revenue) to sustain overall demand and income until households and firms can sustainably revive their own levels of spending. A currency-issuing government always has the financial capacity to conduct net spending of this kind. This post focuses on a key positive effect of the second policy approach, but ideally a combination of the two approaches would be employed.]

    It may not be apparent from perusing newspapers or watching the evening news, but the capacity of households to save and pay off debt is inextricably linked to the government’s use of fiscal policy. Attempts to slash government deficits actually work against the efforts of both households and firms to get debt under control. By directly subtracting from demand, fiscal contraction has a negative impact on output, employment, income, and therefore private saving, frustrating the attempts of households and firms to pay off debt.

    The following accounting identity shows an aggregate relationship that must hold by definition for a closed economy, such as the global economy as a whole:

    (G – T) = (S – I)

    In this identity, G is government expenditure, T is tax revenue, S is private saving and I is gross private investment.

    The left-hand side of the identity, G – T, is the fiscal deficit or ‘government balance’. The right-hand side, S – I, is net private saving or the ‘private sector balance’.

    Net private saving is the amount by which disposable income (income, Y, minus tax revenue, T) exceeds private spending. This can be seen by noting that S = (Y – T) – C, where C is private consumption expenditure, which in turn implies S – I = (Y – T) – (C + I). When the private sector, in aggregate, spends less than its disposable income, it is said to be in surplus. When it spends more than its income, it is in deficit.

    The identity can therefore be restated as:

    Fiscal Deficit = Net Private Saving

    or, equivalently,

    Government Deficit = Private Sector Surplus

    This shows that, in a closed economy, the net saving (or financial surplus) of the private sector matches the government’s fiscal deficit, dollar for dollar. A larger fiscal deficit means higher net private saving. A reduction in the fiscal deficit implies lower net private saving.

    This relationship makes sense considering that government expenditure involves crediting bank accounts whereas taxing involves debiting bank accounts. If the government spends more and taxes less, there is an increase in bank reserves, held in special accounts with the central bank, and a corresponding increase in bank deposits held by households and firms. Some households and firms may use the extra funds to buy government bonds, which will result in some bank reserves being converted into bonds. Either way, there is an increase in net financial assets (which comprise currency, bank reserves and outstanding government bonds). If, on the contrary, governments try to cut spending and raise taxes, as they are beginning to do in a misguided attempt to run fiscal surpluses, private saving will be squeezed.

    For open economies (i.e. individual trading nations), the analysis can be extended to include external sources of revenue and expenditure. There are now three major sectors: the government, domestic-private and external sectors. The accounting identity becomes:

    (G – T) = (S – I) – (X – M)

    Here, X – M denotes net exports (exports minus imports). In words, we have:

    Fiscal Deficit = Net Private Saving – Net Exports

    If we rearrange this expression, it becomes clear that there are now two possible sources of net private saving:

    Fiscal Deficit + Net Exports = Net Private Saving

    If domestic businesses sell more goods and services to foreigners than domestic businesses and households buy from overseas, export revenue will exceed import spending and there will be a build up of private-domestic financial assets. So, in an open economy, private net saving can come either from government deficit expenditure or net exports.

    In many countries, though, including the US, net exports are typically negative, which means the external sector subtracts from net private saving. This leaves the fiscal deficit as the only source of net private saving. For trade-deficit countries such as the US, in other words, it is impossible for the private sector to net save unless the government runs a fiscal deficit.

    Again, this is not a problem for a currency-issuing government. Public debt creates no financial difficulty for a currency issuer provided its debt is denominated in the currency of issue. It is private debt that can be problematic. Households and businesses can go bankrupt. Currency-issuing governments cannot.

    Notwithstanding this elementary principle, governments around the world, including the governments of trade-deficit economies, seem intent on slashing their deficits. This strategy is bound to fail if the aim is to enable sustainable economic recovery. The fact that private households and firms desire to net save, in aggregate, means that private sources of demand are concurrently weak. By engaging in fiscal contraction at the same time, governments will only succeed in further subtracting from demand, resulting in lower output and employment. With both private and public domestic demand weak, this leaves exports as the only remaining source of demand. However, not all countries can export their way out of trouble. One county’s exports is another’s imports. At the global level, net exports cancel out to zero. Not every country can have a trade surplus.

    Despite the limitations of export-based solutions, the current trend towards austerity puts the onus increasingly on export performance. Not only is this approach doomed to fail at a global level, but it is not even likely to help the majority of citizens in individual countries. By giving primacy to export performance, the task is presented as one of reducing wages to improve international competitiveness. But wage reductions in one country can be countered by wage reductions in other countries. The end result is little if any change in each country’s competitiveness but a redistribution of income from wages to profits. This benefits a small minority, but is detrimental to the interests of most.

    Even in normal times when the global economy is not in crisis, the accounting identity presented above makes clear that if there is a private-sector desire to net save in a trade-deficit economy, there must, by necessity, be a government deficit. So long as the private sector as a whole desires to spend less than its income, government deficits are the normal requirement, not an aberration. It is a requirement that a currency-issuing government can meet without difficulty.
     
    Last edited: Mar 22, 2021
  24. a better world

    a better world Well-Known Member

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    Professor Bill Mitchell's latest expose on central bank antics:

    [link]

    RBA shows who is in charge as the speculators are outwitted – Bill Mitchell – Modern Monetary Theory (economicoutlook.net)

    "As of today, the RBA (Reserve Bank of Australia) has purchased $A68,250 million worth of Australian Government bonds under its so-called –Long-dated Open Market Operations.

    If it continues in this vein, then it will hold about 25 per cent of all outstanding Australian government debt by about August 2021.

    The Government politicians have not been saying much about this program for obvious reasons.

    They don’t want the public to know that one arm of the currency-issuing government is accumulating a large proportion of the liabilities issued by another arm (Treasury), to follow the rise in the fiscal deficit.

    If they explained what was going on in the real world to the public, it would become very clear that the central bank is effectively ‘funding’ a significant proportion of the increase in the fiscal deficit, (rather) than any notion of some taxpayer account or the reliance on private bond markets.

    It would also disabuse the public of notions that such coordination between the central bank and the treasury, which is at the heart of the understanding you get from learning about Modern Monetary Theory (MMT), is dangerously inflationary."
     
    Last edited: Mar 24, 2021
  25. a better world

    a better world Well-Known Member

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    A wonderful critique of MMT:

    The Most Powerful Woman On Earth? | investing.com

    "The foundational principle of MMT is that government budgets are not like individual or private entity budgets because the sovereign enjoys the privilege of seigniorage or printing money. The government can therefore spend money first and then raise revenue later either though monetization by the central bank or through taxation. As Kelton succinctly puts it, “MMT replaces the fake constraint of deficit with the real constraint of inflation.”

    As Ms. Kelton is first to note the key constraint of the MMT model is runaway inflation which diminishes the sovereign’s ability to monetize debt via central bank balances, and MMT’s success going forward will depend on just how much growth MMT policies will generate relative to inflation. If the fiscal spend pushes real growth above 3% – something that has occurred just three times this century, then higher nominal inflation will be a small price to pay for much better economic performance but if the economy fails to lift off, there will be no doubt that all the disgraced neo-classical economists will come after MMT with a vengeance.
     

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