MMT: overcoming the political divide.

Please tell me what's so bad about deflation resulting from a growing economy, when the money supply does not expand.

 

This has not been demonstrated. It seems to be merely an article of faith.

It also seems to be fantasy, but as I've said, I welcome both a third world and first world country (not the US however) demonstrating this.

 

Like communism, "true" MMT has never been tried!

 

The Wikipedia link has a pretty good non technical summary. But it seems to mean in essence that the government can print whatever money they need, with no real need for taxes or borrowing. It's all very Weimar.

 

Maybe they can go try it in Haiti.

A bunch of MMT fanatics can go over there and offer Haiti their services.

I'd really like to see these progressives go try to implement their ideas in poor countries.
Rather than trying to raid rich countries for everything they have in some spectacular short-lived blowout.

 

Haiti needs the miracle of MMT more than any First World country.

 

OK. But can you see a flaw?

1. Resources available ...check
2. public and private sector money creation available...check
3. JG 'buffer pool' to take up the slack when the private sector sheds workers....check
4.Taxes not required by the currency-issuer to fund the JG (variable buffer pool); rather taxes are the mechanism to restrain excess demand on available resources (inflation)...….check.

OK. Though there are geopolitical problems which would be solved if the US was on board with MMT (since it is the largest economy).

Then the wiki article did not make it clear: taxes are for controlling inflation, AFTER full employment via the JG is implemented. So the public and private sectors operate together to create maximum efficiency in the ENTIRE economy.

Let's see if this article is better than the wiki piece:

https://theglobepost.com/2019/03/28/stephanie-kelton-mmt/

Q. What is modern monetary theory all about fundamentally and what are some of the core tenants of it?

Kelton: I would say that MMT is about recognizing that the monetary regime under which a country operates matters. So countries like the U.S. – those that float their currencies, that don’t borrow in a foreign currency – can never run out of money and they can never be forced to default on their debt.

So what that means is that a country like the U.S. doesn’t need to tax or borrow in order to get the currency in order to spend. So it’s never about whether you can afford a program in financial terms. You always can. It’s about whether spending to fund your program will cause an inflation problem.

We can move onto Q2 later.

We ALL need the 'miracle' of MMT now, unless you are OK with enriching bankers even more as governments are forced to borrow to deal with an impending un-employment catastrophe....

 

OK, let's start again...I'll take it step by step (since you are "good at understanding complex economic theories":

https://theglobepost.com/2019/03/28/stephanie-kelton-mmt/


Question 1:

Q. What is modern monetary theory all about fundamentally and what are some of the core tenants of it?

Kelton: I would say that MMT is about recognizing that the monetary regime under which a country operates matters. So countries like the U.S. – those that float their currencies, that don’t borrow in a foreign currency – can never run out of money and they can never be forced to default on their debt.

So what that means is that a country like the U.S. doesn’t need to tax or borrow in order to get the currency in order to spend. So it’s never about whether you* can afford a program in financial terms. You always can. It’s about whether spending to fund your program will cause an inflation problem.

* NB: by 'you' and 'your', Kelton is referring to the government; indeed private citizens CAN run out of money....

How are we doing so far?

…..

Also, I noticed this question of yours:

Example please?

["The problem with deflation is that often it can contribute to lower economic growth. This is because deflation increases the real value of debt – and therefore reducing the spending power of firms and consumers. Also, falling prices can discourage spending as consumers delay their purchases"].

In any case, ANY involuntary un/underemployment (currently c.10% in the US*) is unacceptable in a modern economy with high productive capacity.

* ie, U6 + those who are not statistically registered because they have given up looking for work.

 

This isn't about enriching bankers, it's about a crackpot theory that's about to go mainstream with no empirical or practical evidence or experimentation to prove that it will work like promised rather than destroy the economy.

 

Surely that was monetarism in 1979?

 

Monetarism worked.

 

HAHAHAHA! The only Government to be bought by that guff was Thatchers. She engineered a recession worse than the Great Depression. How did monetarism work with the 'cure' for the financial crisis?

 

That's how we defeated inflation in the US. Sorry your results were less than optimal. Maybe you can convince the UK to to try MMT. Should be a hoot!

 

Did you know? Who was that then? Give President and give empirical evidence in support.

Good luck!

 

Friedman's Chicago School monetarism defeated the inflation part of the stagflation problem in the 70's (stagflation resulting from the Arab oil embargo and Asia's increasing competitiveness), but not the unemployment part, resulting in entrenched poverty and rising inequality in the West ever since - eg, manifested in the '1st world rust belt', and more recently in the low-paid, insecure gig economy.

So much so that young people no longer believe in democracy or free market capitalism, which is why Bernie Sanders raised more money from grassroots donations than any other candidate in the present presidential campaign.

Now, apparently you aren't OK with enriching bankers and wealthy government-bond holders.

So what is your solution to the approaching unemployment catastrophe, which will require MASSIVE public intervention?

 

And my reason for doing so would be...?

 

I assume by "approaching unemployment catastrophe" you are referring to some version of the robot apocalypse? I'm aware of the problem, but that has nothing to do with whether or not MMT is a viable theory. Just because we have a real problem that requires solving doesn't mean that the solution is just to hand wave a magical cure all.

 

I dont expect you to provide evidence. I know you cant. I was merely being polite.

 

Evidence about what, Monetarism? That's not even the subject of this thread.

 

It's all connected. You've whinged about crackpot theory. You have no problem with monetarism though, despite it being crackpot (and an ignorant reaction to neo-Keynesianism).

 

Multiple First World countries have adopted Monetarism over the past couple of decades. Which ones have adopted MMT?

 

Those that adopted monetarism soon realised the crackpottery. As already mentioned, the most obvious example is Britain. It destroyed the industrial base, ensuring productive firms were wiped out.

Monetarism was actually the result of a misrepresentation of Keynesianism. The breakdown of the Phillips Curve allowed right wing dogma to go unchecked. MMT, in contrast, is not the result of intellectual dishonesty.

 

Can you prove that empirically?

 

That, and the more immediate problem of corona-caused loss of employment.

I will assume your main objection (paranoia) is inflation.

from professor Bill Mitchell:

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.

Being the polar opposite of MMT, Friedman and monetarism have everything to do with this thread.

In fact, currency-issuing governments are constrained by resources NOT money, unlike households (you and me) who indeed must earn an income (money) before they can borrow and/or spend.

 

Of course. The likes of Backhouse, for example, has published how the Government- infected by monetarism- actually generated inflationary pressures that were only eliminated after economic meltdown.

Any Econ 101 participant should know about the fake debate between neo-Keynesianism and monetarism. They'd know that the Phillip's Curve was a historical empirical relationship, but nothing to do with Keynes. They'd know that the subsequent breakdown of that curve was used to peddle the most ridiculous crackpottery. First Friedman and then the guff from New Classicalism.