Let's learn about MMT - Modern Monetary Theory. Is it the liberal panacea?

drummerboy

MMT has apparently been around for awhile, but is getting more notice these days from the new-wave lefties that have entered Congress this year.


In a nutshell - MMT says that the federal government can pay for stuff just by printing money. Deficits - at least at our level, don't matter. Printing money is not inflationary, by itself.

I think I got the high points. It's obviously more complicated than that.

The point of all of this is that this is the answer to the incessant question posed against social programs - "how ya gonna pay for that, huh buddy boy?"


Here's a good primer, focusing on some common criticisms of MMT by the mainstream left (Krugman, Summers, Rogoff)


So far, to me, the arguments for MMT seem pretty strong. I'll have to part ways with Krugman on this one. 

Anyone else have thoughts about MMT?



Formerlyjerseyjack

Didn't they do that in 1929 Germany? It seems like a good idea. They were able to pay war reparations for an entire war with running the printing press.


We could pay for Cheney's Iraq War doing that.


bub

To quote Carl Sagan, “extraordinary claims require extraordinary evidence.”  For now it's a ahistorical fairy tale economic theory to back up free stuff political platforms.  Where's the evidence?  If this worked, how is it that there are any poor countries in the world?  Every government should already have been able to print enough pieces of paper with a guy's picture on it to ensure perpetual prosperity.


drummerboy
bub said:
To quote Carl Sagan, “extraordinary claims require extraordinary evidence.”  For now it's a ahistorical fairy tale economic theory to back up free stuff political platforms.  Where's the evidence?  If this worked, how is it that there are any poor countries in the world?  Every government should already have been able to print enough pieces of paper with a guy's picture on it to ensure perpetual prosperity.

The evidence is that the US does this all the time. How do you think we paid for the Iraq war? It was not part of the defense budget. In response to the financial crisis, the fed pumped trillions of dollars into the economy through it's "monetary easing" over the last ten years.

And we are not suffering from inflation.

So explain that.





tjohn

I think that if China was clever, they would build an open, transparent, trusted financial system such as we did after WW II.  This would offer an alternative to the USD.  Once the USD is a choice rather than the only option, we would soon discover the limits to printing money to pay for our whims.


drummerboy

I haven't read the above link, but how long have people been crowing about our debt, predicting doom and gloom?

Also, Japan.


drummerboy

Also, why should I care what Ben Hunt has to say? He's a bookie.


Jaytee

It's because the US dollar is international currency. Brazil, Ecuador and Venezuela learned he hard way not to print money because you can. He who has gold rules....


bub

You should read it.  It's funny and not too long.  And it talks about past practices, QE, and Trump/Republican fiscal irresponsibility ell.  It's not a right wing hit piece.

I'm sorry but I won't abandon my common sense and knowledge for "what me worry" economics as much as i want, like any citizen, want to believe there are easy outs to our problems.    


drummerboy
bub said:
You should read it.  It's funny and not too long.  And it talks about past practices, QE, and Trump/Republican fiscal irresponsibility ell.  It's not a right wing hit piece.

I'm sorry but I won't abandon my common sense and knowledge for "what me worry" economics as much as i want, like any citizen, want to believe there are easy outs to our problems.    

 I read it, but it has absolutely no critical analysis of MMT. It's just a rant.

What common sense are you referring to?


bub

It's a rant but your initial "it looks good to me" endorsement had a lot to bite into?


drummerboy
bub said:
It's a rant but your initial "it looks good to me" endorsement had a lot to bite into?

 Did you read the link in the OP?

I'm no expert on this - I'm just learning about it.


bub

Also lively but perhaps more substance for you:  https://www.businessinsider.com/weekender-the-trouble-with-modern-monetary-theory-mmt-2011-1

I get back to the Sagan thing.  The idea that the government's printing press is some kind of metaphysical exception to the rules we know govern our lives on the micro and macro level that it needs extraordinary evidence to back it up.  I'd like to see someone answer this writer's points.  


STANV
tjohn said:
I think that if China was clever, they would build an open, transparent, trusted financial system such as we did after WW II.  This would offer an alternative to the USD.  Once the USD is a choice rather than the only option, we would soon discover the limits to printing money to pay for our whims.

 "If China was clever..."

We on MOL are so much smarter than the leadership of the Peoples Republic of China.


drummerboy

Again, like the "common sense" you mentioned earlier, I'm not sure what "rules" you're referring to.

As I said earlier, we've been pumping money out of thin air into the economy throughout the 21st century. We should have had a monetary crisis by now, according to standard theory.

I think the biggest problem people have in accepting this is that they can't separate the rules of household economics from the rules of managing a national economy. We've been listening to decades of nonsense trying to compare a household budget to the budget of the U.S., and most of us believe it.


STANV
drummerboy said:
Also, why should I care what Ben Hunt has to say? He's a bookie.

 Bookies live and die by their predictions.

Economists and "pundits" receive their salaries no matter how wrong they are.


drummerboy
STANV said:
 Bookies live and die by their predictions.
Economists and "pundits" receive their salaries no matter how wrong they are.



PVW

I thought the second piece Bub linked to was good -- two points in particular spoke to me. First, that it matters what the government spends money on (the "Productivity Problem") heading. I think you could take this critique and still make a pitch for, say, medicare for all, by arguing that this is money that will end up raising the overall productivity of the nation. Different people might buy or reject that argument, but my point here is that you can make that argument without buying into MMT (haven't read Krugman's take, but given that he is both a skeptic of MMT and generally in favor of progressive politics, I wouldn't be surprised to hear him taking a tack along those lines).


I also found the analogy of Monopoly vs Clue -- that players (investors) can simply pick another game, convincing. Sure, everyone today is playing the USD game, but I think there are plenty of reasons to believe that won't always be the case. What happens if we breach the debt ceiling and default, for instance? Given recent politics, that's certainly not  non-zero risk. And in general, I think there are signs that the US at risk of losing its status as the "indispensable nation" -- politically and financially. Trump's certainly given our allies reason to doubt our commitment to them, which means they're probably, on some level at least, reconsidering tying themselves quite so tightly to a world where the US is the lynchpin. Even after Tump's gone I don't think that changes -- his election has shown that someone like Trump is possible, and that our political system can't guarantee there are not more Trumps in the future. If I'm Europe, or South Korea, or Japan, I'm thinking twice about if I can really rely on the US, and eventually those doubts I think could also have implications for the modern global financial system. And if I"m China or (to a lesser degree) Russia, I'm certainly going to do what I can to fan those doubts...

Overall point being, it does seem like MMT relies on the special circumstances of the US continuing indefinitely, and I don't know that's a good bet.


BG9
drummerboy said:
I haven't read the above link, but how long have people been crowing about our debt, predicting doom and gloom?
Also, Japan.

Doom and gloom is here. You haven't noticed. Its like a frog placed in gradually heating water, and then its too late.

Debt has to be repaid. Our yearly debt cost will exceed the military budget, exceed Medicare costs, exceed children's programs.

https://www.nytimes.com/2018/09/25/business/economy/us-government-debt-interest.html

You can use more debt to pay for our current debt. But as any responsible homeowner knows that doesn't work. Bankruptcy with loss of home is the result.

So what to do? Raise taxes? No. The 1% and corporations will not like that. It seems that "entitlement" cuts will be the future. Those silly entitlements - Soc, Sec, Medicare, CHIP, etc.

Look at Greece where debt went too high with their currency is not being the world's reserve currency. I wouldn't count on us remaining the world currency considering Trump's Make America Irrelevant program.


drummerboy
BG9 said:
Doom and gloom is here. You haven't noticed. Its like a frog placed in gradually heating water, and then its too late.
Debt has to be repaid. Our yearly debt cost will exceed the military budget, exceed Medicare costs, exceed children's programs.
https://www.nytimes.com/2018/09/25/business/economy/us-government-debt-interest.html

You can use more debt to pay for our current debt. But as any responsible homeowner knows that doesn't work. Bankruptcy with loss of home is the result.
So what to do? Raise taxes? No. The 1% and corporations will not like that. It seems that "entitlement" cuts will be the future. Those silly entitlements - Soc, Sec, Medicare, CHIP, etc.
Look at Greece where debt went too high with their currency is not being the world's reserve currency. I wouldn't count on us remaining the world currency considering Trump's Make America Irrelevant program.

Again, comparing the federal budget to your own is wrong. We are economically illiterate because of beliefs like that - to our great detriment.


tjohn
drummerboy said:
Again, comparing the federal budget to your own is wrong. We are economically illiterate because of beliefs like that - to our great detriment.

The minute we aren't the world's reserve currency, our budget deficits will start to matter in ways most of us cannot imagine.


drummerboy
tjohn said:
The minute we aren't the world's reserve currency, our budget deficits will start to matter in ways most of us cannot imagine.

FWIW - apparently the dollar has been strengthening it's position as the reserve currency lately.

But apart from that:

1 - explain Japan. They're not the reserve currency, and their debt/gdp ratio is way beyond what standard economic theory would have predicted as unsustainable.

2 - why is losing our role as the reserve currency that important in regards to the deficit?  Do you think all of a sudden the world will stop buying our debt? If that's the case, the debt is probably the least of our concerns, as that would indicate a catastrophic economic collapse.

And what any of this has to do with my point about likening a household budget to the fed budget, I don't know.


bub

A poll of economists from the University of Chicago:

http://www.igmchicago.org/surveys/modern-monetary-theory


tjohn
bub said:
A poll of economists from the University of Chicago:
http://www.igmchicago.org/surveys/modern-monetary-theory

 You're going to listen to people who actually know how economies work instead of Drummerboy?


bub
tjohn said:


bub said:
A poll of economists from the University of Chicago:
http://www.igmchicago.org/surveys/modern-monetary-theory
 You're going to listen to people who actually know how economies work instead of Drummerboy?

 I was chastened by his suggestion that MMT critics were economically illiterate so I thought I'd defer to the specialists.


drummerboy
bub said:
 I was chastened by his suggestion that MMT critics were economically illiterate so I thought I'd defer to the specialists.

 We're not going to have much of a discussion if you ignore what I actually say and then go put words in my mouth.

I nowhere suggested that MMT critics were economically illiterate. What is illiterate is likening one's household budget to the federal budget.


ctrzaska

I think we can all agree on two things, then: that a HH budget and the US budget are dissimilar, and that MMT is woo. 


And FWIW on the above-noted comment re: USD as reserve ccy, I wouldn’t say the situation is anything approaching precarious, but it’s not as if the pressures aren’t coming more than they ever have.  Setting aside China’s quiet sell off over time, SWIFT challenges and the EU’s SPVs are a clear shot across the bow. 


STANV
tjohn said:
 You're going to listen to people who actually know how economies work instead of Drummerboy?

 Just saw this comment. Not sure what it refers to, but having had two PH.D Economic Professors in College and having heard lectures from other PH.D economists and having read drummerboy's posts and met him I'd go with the latter.


tjohn

When Drummerboy talks about stuff like this, I form a mental picture of a mad scientist who straps a slice of buttered toast to the back of a cat butter side up and then drops it on the floor.  Now, since buttered toast must land butter side down and a cat must land on its feet, the result is that the cat spins at a great rate and generates unlimited power.  



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