Let's learn about MMT - Modern Monetary Theory. Everything you know about federal financing is wrong.

I guess. OTOH, here's the three reasons the author gives to "worry about the federal government’s finances":

1. Interest rates have risen.

2. The unemployment rate has fallen to 3.7 percent

3. Inflation is a bigger problem than it used to be, and higher deficits could make it worse

I don't see "we're going to run out of money" in that list.

Two is a problem because "today, the private sector needs less help." That doesn't sound very economics-y to me, more political/policy preference. If someone wants to give the private sector less help, I'm not sure why an MMT framework would make a difference.

One and three are kind of the same point, and are also the one area where MMT and "traditional" economics are in some disagreement, but I personally don't feel I have a solid grasp on exactly what economists believe about inflation (and the pages upon pages in the other thread have convinced me that MOL commentators don't either) which leaves me unsuited for adjudicating how much MMT truly disagrees.

The one part that does seem clear is that whereas traditional economists say part of the answer is in raising interest rates, MMT says that instead we should raise taxes. And sure, that sounds reasonable to me in theory, but again, that presumes a politics where we can raise taxes to combat inflation and that doesn't seem all that reasonable to me. Heck, even if tomorrow everyone became an MMT proponent, I still don't think it'd happen because I think the people who hate taxes would say they'd prefer inflation to a tax raise (and in fairness, even if the COVID aid contributed to inflation, I would say I prefer inflation to the alternative of not having sent that aid).

Also, the key part of that whole article for me:

"And the economy may be able to continue growing at a steady clip for years despite the debt."

of course, how many people read past the headline?

moving on...

"The one part that does seem clear is that whereas traditional
economists say part of the answer is in raising interest rates, MMT says
that instead we should raise taxes."

and again with the taxes? why/where does MMT say to raise taxes? in response to what exactly and to what end?

I don't see any prominent MMT'er saying that tax increases are needed at this time or at any time in the foreseeable future. and certainly not in response to the debt.

where are you getting this from?

as for the fact that "running out of money" is not explicitly stated.

seriously?

the whole point of raising debt issues is the fear, implicit or explicit, that we're not going to have enough money to finance it and will have to take some kind of drastic measure so that we can afford it. a variation on "how do we pay for it".

also, vis a vis the quote above, are you saying that traditional economists say we need to raise interest rates in response to rising interest costs?

what?

one of us is confused - and currently that is me trying to understand your post.

PVW said:

Also, the key part of that whole article for me:

"And the economy may be able to continue growing at a steady clip for years despite the debt."

well then, maybe he should have just tweeted that, and skipped writing the article.

drummerboy said:

and again with the taxes? why/where does MMT say to raise taxes? in response to what exactly and to what end?

I recall it from when I read The Deficit Myth:

I support the covid relief bill and the upcoming infrastructure bill, but if someone asks at what point we have to worry about inflation, what's the answer? Does MMT give us some tools for finding that answer that other approaches don't? On that last point, I do wonder if part of the answer is "taxes." She talks about taxes as being used to counter inflation and redistribute resources.

I don't have the book now -- borrowed it from the library when I read it -- so can't go back to refresh my memory on it. But the wikipedia entry for MMT seems to align with my recollection:

MMT argues that the primary risk once the economy reaches full employment is inflation, which acts as the only constraint on spending. MMT also argues that inflation can be addressed by increasing taxes on everyone to reduce the spending capacity of the private sector.

drummerboy said:

PVW said:

Also, the key part of that whole article for me:

"And the economy may be able to continue growing at a steady clip for years despite the debt."

well then, maybe he should have just tweeted that, and skipped writing the article.

Indeed.

PVW said:

drummerboy said:

and again with the taxes? why/where does MMT say to raise taxes? in response to what exactly and to what end?

I recall it from when I read The Deficit Myth:

I support the covid relief bill and the upcoming infrastructure bill, but if someone asks at what point we have to worry about inflation, what's the answer? Does MMT give us some tools for finding that answer that other approaches don't? On that last point, I do wonder if part of the answer is "taxes." She talks about taxes as being used to counter inflation and redistribute resources.

I don't have the book now -- borrowed it from the library when I read it -- so can't go back to refresh my memory on it. But the wikipedia entry for MMT seems to align with my recollection:

MMT argues that the primary risk once the economy reaches full employment is inflation, which acts as the only constraint on spending. MMT also argues that inflation can be addressed by increasing taxes on everyone to reduce the spending capacity of the private sector.

yeah, the first part of that wiki quote is wrong. the constraint on spending is the lack of resources in the economy to absorb the money put into the economy. the lack of resources could then lead to demand-pull inflation, but inflation is not the constraint, it's more of a warning sign that spending was miscalculated. subtle point perhaps, but important.

anyway, my question was why do you think MMT says taxes should rise in response to increasing debt?

drummerboy said:
anyway, my question was why do you think MMT says taxes should rise in response to increasing debt?

I was responding to the article you shared, that links debt to inflation:

Third, inflation is a bigger problem than it used to be, and higher deficits could make it worse. When Congress spends more or cuts taxes, Americans have more money to spend. As they spend that extra cash, prices tend to increase. The reverse is true as well: A smaller deficit can ease inflation.

drummerboy said:

and no, mr. daveschmidt , the word doom does not appear in the article. I made that part up for dramatic effect.

It didn’t cross my mind.

this is a great explanation of the actual nature of our "national debt" and why it is no threat to us now or in the future. The author, Frank Newman, is not even an MMT'er

Japan has a debt-to-gdp ratio of 255% (2023) with gdp growing at just over 1% and inflation at roughly 3%.  Its 10-year bond yield is 0% (beats losing .1% in a savings account). And -- shock of shock -- as a ratio, japan has the highest national debt on this planet. 

The reason why the US can spend without limit (to a point) has to do with the international desire for the USD: it's lighter than gold, exchanges favorably against other currencies, and maintains a relatively stable value.  Not even Bitcoin flotsam can put a dent in it. 

dave said:

Japan has a debt-to-gdp ratio of 255% (2023) with gdp growing at just over 1% and inflation at roughly 3%.  Its 10-year bond yield is 0% (beats losing .1% in a savings account). And -- shock of shock -- as a ratio, japan has the highest national debt on this planet. 

The reason why the US can spend without limit (to a point) has to do with the international desire for the USD: it's lighter than gold, exchanges favorably against other currencies, and maintains a relatively stable value.  Not even Bitcoin flotsam can put a dent in it. 

not sure of you're point about Japan, other than it's very much a case in point for some of the tenets of MMT.

Your second point is not really correct, at least not per MMT. A country can "spend without limit", as you put it but I wouldn't, if they have monetary sovereignty, which is not dependent on other countries desire for their currency.

good interview with Kelton

grrrr

just saw Sununu on the TV railing about the debt and yelling that our children are doomed by it and it's we, we, we who will be paying the debt.

wanted to punch the screen. had to turn it off. (more xanax please)

this myth is so damaging to our discourse. don't tell me that MMT is just the same ol' same ol'. correctly understanding the nature of the debt is so important to finding a way forward.

I have no intention of getting into a back-and-forth, but please educate us all on how we should “correctly understand the nature of the debt” so that we can move forward.

Bonus points for defining whether there is ever “too much debt.”

Could we spend, say, $50 trillion next year, if we had the capacity to do so, without any problems?

jimmurphy said:

I have no intention of getting into a back-and-forth, but please educate us all on how we should “correctly understand the nature of the debt” so that we can move forward.

Bonus points for defining whether there is ever “too much debt.”

Could we spend, say, $50 trillion next year, if we had the capacity to do so, without any problems?

well, first of all, it's not really debt as we normally think of it. it is not money that is borrowed in the conventional sense, nor is it used to pay for federal spending. it actually has nothing to do with spending. therefore the question of having "too much debt" is the wrong question. people have been saying we have too much debt for decades and decades. at some point we're going to realize this thinking is wrong. I hope.

do you want me to continue?

as for the 50 trillion - yes, we have the capacity to do so since we just create the money at will. but as for problems, pumping that much money into the economy would be problematic. where would it go? who would get it? what would it pay for? spending has to be effectively targeted based on the capacity of the economy to absorb it.

but those are the questions that should always be the most important regarding spending. instead, our primary question is always "how do we pay for it", which makes no sense and inevitably stops us from having nice things.

The reason we don't have universal health care, high speed rail, and other nice things isn't because of worries over the debt.

If I were to give MMT the best spin I could, I would point out that in order to accomplish big, ambitious things we need to be able to imagine that they are possible, and that a lot of the framing we have around what's possible these days includes thinking of debt as a constraint. MMT challenges us to change this pattern of thought, and in so doing can free us to imagine a wider, bigger world of the possible.

I'd say that's probably true, to a degree. I question if it's a degree that matters much -- out of the people who would currently oppose, say, a high speed line from NYC to Boston, how many would become supporters if they adopted an MMT framing? Some, sure, but enough to make such a project noticeably more likely? I doubt it. Same for most other examples I could think of.

I suppose what I'm really underwhelmed with on MMT is the inherent assumption that it's technocratic limits that constrain our politics -- that we don't pursue big transformative projects because we don't think we can, and that if only people could see that it is in fact possible, we'd see dramatic change. Appealing as that is, I think the reality is that we mainly don't do these things because too many people don't want to. Look at the ACA - remember Rush Limbaugh calling it "reparations"? That's where opposition to those kinds of initiatives comes from, not concerns over solvency.

Ask a general question, get a general answer. Fair enough. Thanks.

PVW said:

The reason we don't have universal health care, high speed rail, and other nice things isn't because of worries over the debt.

...

sorry, you're quite wrong.

the main reason we have the worst welfare state in the world is because too many people think their tax dollars pay for things for people who don't deserve it. this is erroneous thinking (both that it's going to undeserving people but more so that it's their tax dollars paying for it) and this thinking is tied into the same wrong thinking about the debt. it's all the same thing - a misunderstanding of the nature of federal spending. people think it's going to cost them directly out of pocket through higher taxes now or higher taxes on their children, and it's not.

politicians have played on these two fears - "it's your tax dollars!" and "we can't afford it, look at the deficit!"  my whole lifetime. yours too. these are powerful, deeply ingrained memes.

are there other reasons that we don't have nice things? of course. American attitudes are pretty messed up in general. but fundamentally it's a question of cost.  it always comes down to that. if the problem of cost were gotten rid of, we could have intelligent conversations about what things we should have, but it never gets that far.

drummerboy said:

the main reason we have the worst welfare state in the world is because too many people think their tax dollars pay for things for people who don't deserve it. this is erroneous thinking (both that it's going to undeserving people but more so that it's their tax dollars paying for it) and this thinking is tied into the same wrong thinking about the debt. it's all the same thing - a misunderstanding of the nature of federal spending. people think it's going to cost them directly out of pocket through higher taxes now or higher taxes on their children, and it's not.

Welfare queens - a winning formula for the GOP since 1976.

Return of the 'Welfare Queen' | CNN Politics

Here’s how Reagan first told the story when he ran for the Republican presidential nomination in 1976. At virtually every campaign stop, he attacked welfare chiselers by bringing out the same character, according to press accounts.

“There’s a woman in Chicago,” Reagan said, according to an article in the now-defunct Washington Star. “She has 80 names, 30 addresses, 12 Social Security cards. … She’s got Medicaid, getting food stamps and she is collecting welfare under each of her names. Her tax-free cash income alone is over $150,000.”

PVW said:

I stopped taking concerns about the debt seriously during the G.W. Bush administration. If the party home to the highest concentration of people who claimed to care about the debt could launch a gigantically expensive open-ended war and pass tax cuts, then clearly "the debt" was not a real issue.

I started to get suspicious about it during that time for the same reason, but I didn't understand the financing aspect of it and still thought we'd get banged with higher taxes at some point.

regardless, the talking point is still enormously powerful. it's why the green new deal was never taken seriously,  the quoted cost was too astronomical for john q. voter to comprehend, and of course the proponents tried to pretend that it could be paid for through taxes. it's why social security and medicare cutbacks are still talked about. and on and on.

drummerboy said:

the main reason we have the worst welfare state in the world is because too many people think their tax dollars pay for things for people who don't deserve it. this is erroneous thinking (both that it's going to undeserving people but more so that it's their tax dollars paying for it) and this thinking is tied into the same wrong thinking about the debt. it's all the same thing - a misunderstanding of the nature of federal spending. people think it's going to cost them directly out of pocket through higher taxes now or higher taxes on their children, and it's not.

I think you’re misunderstanding human nature, and reinforcing PVW’s point. If people think others are getting money they don’t deserve, they don’t care where the money is coming from — they don’t want the undeserving to have it whether it’s taken out of their taxes or falling out of the sky.

DaveSchmidt said:

drummerboy said:

the main reason we have the worst welfare state in the world is because too many people think their tax dollars pay for things for people who don't deserve it. this is erroneous thinking (both that it's going to undeserving people but more so that it's their tax dollars paying for it) and this thinking is tied into the same wrong thinking about the debt. it's all the same thing - a misunderstanding of the nature of federal spending. people think it's going to cost them directly out of pocket through higher taxes now or higher taxes on their children, and it's not.

I think you’re misunderstanding human nature, and reinforcing PVW’s point. If people think others are getting money they don’t deserve, they don’t care where the money is coming from — they don’t want the undeserving to have it whether it’s taken out of their taxes or falling out of the sky.

Yeah.

No.

What would the politician's argument be in the falling out of the sky case? What would they say that wouldn't immediately brand them as racist? In the tax dollar case, you don't really have to say that people are undeserving - you just have to say that it's YOUR hard-earned money going to OTHER people. You'd have to be a lot more explicit to get the same effect in the non-tax dollars case. And as messed up as we are, we are progressing away from such explicit language. See Lee Atwater.

So no, not really buying that argument. The "stealing money from your pocket/dooming your children's children" is a very powerful metaphor.

eta: forgot to mention that the metaphor, along with the adjacent "how do we pay for it" talking point also works by not just appealing to racism but by appealing to fiscal responsibility, so it hits two different sets of voters, which together are essentially all voters.

Here's another concrete example:

South Dakota rejects federal food funding despite 25,000 children going hungry (Rapid City Journal)

Let's say that tonight Gov. Noem is visited by the three spirits of the economy past, economy present, and economy yet to come, and she wakes up tomorrow morning a changed woman, running through the streets proclaiming the truth of MMT. Does that change her position here?

PVW said:

Here's another concrete example:

South Dakota rejects federal food funding despite 25,000 children going hungry (Rapid City Journal)

Let's say that tonight Gov. Noem is visited by the three spirits of the economy past, economy present, and economy yet to come, and she wakes up tomorrow morning a changed woman, running through the streets proclaiming the truth of MMT. Does that change her position here?

your data point of one is impressive

PVW said:

Here's another concrete example:

South Dakota rejects federal food funding despite 25,000 children going hungry (Rapid City Journal)

Let's say that tonight Gov. Noem is visited by the three spirits of the economy past, economy present, and economy yet to come, and she wakes up tomorrow morning a changed woman, running through the streets proclaiming the truth of MMT. Does that change her position here?

I raise your Noem with one Manchin

https://www.nbcnews.com/politics/congress/manchin-privately-raised-concerns-parents-would-use-child-tax-credit-n1286321

WASHINGTON — Sen. Joe Manchin, D-W.Va., had privately raised concerns in recent months that parents would use their child tax credit payments — a key part of the Build Back Better legislation — to buy drugs, three sources familiar with the comments said.

drummerboy said:

your data point of one is impressive

“What’s a reply that will disregard any representative qualities of an anecdotal example?”

[Checks list of social media cliches.]

“Data point of one.”

drummerboy said:

I raise your Noem with one Manchin

Sorry. Now two data points.

good explainer on how we pay for stuff