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There's an analytical and prescriptive component to "Modern Monetary Theory." People like Cullen Roche have argued that the analytical side is correct, but don'

by nwah1 9y ago

There's an analytical and prescriptive component to "Modern Monetary Theory." People like Cullen Roche have argued that the analytical side is correct, but don't share the prescriptive views. He calls that Monetary Realism. Whether the debt is a "good thing" or not must be separated from whether the analysis is true. Furthermore, it is possible for the government to simply print money without debt. It is also possible for the federal government to acquire zero-interest loans, given that everyone knows it has the magic printing press, so long as everyone is convinced that it will honor the bonds. That is why it is able to force bond yields to extremely low levels, even during a major recession.

quadrangle 9y ago
FWIW, the vast majority of all the MMT stuff I've seen ends with stating that because the facts are what they are, the questions about what to do are all policy questions. It then does not go on to prescribe what policies to pursue, aside from the fact that the authors of the MMT stuff may themselves have political views expressed elsewhere. I think MMT is best considered to not have any prescriptive component. I see the idea of one more often from critics of MMT looking for something to attack than from MMT itself. That said, I'm just one reader with a limited scope of experience… but my view is that there ought not be prescriptions within MMT, and I'm happy I don't generally see any.
- nwah1 9y ago
  I respectfully disagree. There are a lot of statements like "deficits are good" and "we need to raise aggregate demand" and "there should be a Job Guarantee." There are strong prescriptive and value-laden keynesian overtones. I don't want to name names, but just search for the "Job Guarantee," for instance, and you'll see lots of writing about it.
  - quadrangle 9y ago
    No MMT reasonable person ever says "deficits are good" are some prescriptive statement. The point is that deficits can be good, are often good, and are normal. The message is that having deficits or not should never be considered in itself good or bad, it's only in context that we can make such a judgment. I do recall seeing MMT folks describe "full employment" as a policy goal that the government should have, so you're right there. I think that ought to be left out from MMT. Whether or not that is a good goal is independent from the facts of how fiat currency works. Incidentally, I happen to believe that tying distribution of basic necessities to employment is unethical and economically destructive (it promotes make-work and even destructive broken-window-fallacy type crap).
    - candiodari 9y ago
      You can easily split up the statements, and see things much more clearly. "deficits are good". What are deficits ? Well government taxes X dollars, and governments spends Y dollars, on skyscrapers, computer systems, ... and Y > X. That means 2 things. One, short term, one, long term. Short term there is at least Y - X more demand in the economy. That means more production is needed. That's great ! And no worries, every rightist on the planet will agree with that. More demand, more need for goods. That's great, that's excellent. Long term, there is the problem that the government doesn't produce anything. If the government buys something (with some exceptions like infrastructure that represent like 5% of the budget at best) it's only a user. That means that if I pay $1000 in tax, or buy bottles of whiskey for $950 and drink them all, I have made the same contribution to the economy. Deficit spending means that while I paid $1000 in tax, the government bought $1200 (for example) in bottles of whiskey, and drank them. It used the money for non-productive purposes (in the sense that they won't generate extra economic activity in the future). In fact it's worse, since it's pretty much both throwing $1200 down the drain, in spending that I'm sure someone will enjoy but is ultimately useless, AND $200 in a loan that interest will come due on. But, if demand is anemic, the short term boost can matter more than the long term costs. If instead I spent $1000 buying equipment for a coffee stand near a park in my neighborhood, and run that business, however. People would have access to coffee in the local park, and that would generate income, a job, ... That's the kind of spending we want : spending that grows the economy.
      - quadrangle 9y ago
        > That means that if I pay $1000 in tax, or buy bottles of whiskey for $950 and drink them all, I have made the same contribution to the economy. No, that would be just bad accounting. If you pay $1000 in tax, then there's $1000 less currency. If you consume $1000 in goods, then while there's less of the good, there's likely some profits through the supply chain and anyway the currency goes to the people who supplied the good and exists for them to use again. But the rest of what you are saying is true. The question about spending is always what do we spend on…
candiodari 9y ago
> It is also possible for the federal government to acquire zero-interest loans, given that everyone knows it has the magic printing press, so long as everyone is convinced that it will honor the bonds. And let's not forget that what Greenspan did, lend the government money with interest, then pay the interest to the treasury department is very different from interest free loans. VERY different I tell you ! VERY ! Well, not that different. > That is why it is able to force bond yields to extremely low levels, even during a major recession. Unfortunately that does mean that an ever increasing proportion of the effort and work of actual people goes to work that has no utility for society, and at some point it starts actually preventing people from doing useful work (because their income would be cut significantly compared to when they're doing useless work, paid by loaned money). And at some point ... people realize this is what's happening. Rapidly and suddenly. The worst of it is, despite > 4 TRILLION dollars injected in the economy by Obama (and a little by Bush and Trump), the economy is barely at the point it was before the crisis. By this I mean that there are important indicators that have more or less recovered (e.g. GDP), and important indicators that have not even recovered at all (e.g. Participation levels). But even the most positive indicators have recovered to the level the government claims it has. There has not, at all, been 2-3% average growth since 2009. At all. I don't understand why people believe that.

by nwah1 9y ago

quadrangle 9y ago

FWIW, the vast majority of all the MMT stuff I've seen ends with stating that because the facts are what they are, the questions about what to do are all policy questions. It then does not go on to prescribe what policies to pursue, aside from the fact that the authors of the MMT stuff may themselves have political views expressed elsewhere. I think MMT is best considered to not have any prescriptive component. I see the idea of one more often from critics of MMT looking for something to attack than from MMT itself. That said, I'm just one reader with a limited scope of experience… but my view is that there ought not be prescriptions within MMT, and I'm happy I don't generally see any.

nwah1 9y ago
I respectfully disagree. There are a lot of statements like "deficits are good" and "we need to raise aggregate demand" and "there should be a Job Guarantee." There are strong prescriptive and value-laden keynesian overtones. I don't want to name names, but just search for the "Job Guarantee," for instance, and you'll see lots of writing about it.
- quadrangle 9y ago
  No MMT reasonable person ever says "deficits are good" are some prescriptive statement. The point is that deficits can be good, are often good, and are normal. The message is that having deficits or not should never be considered in itself good or bad, it's only in context that we can make such a judgment. I do recall seeing MMT folks describe "full employment" as a policy goal that the government should have, so you're right there. I think that ought to be left out from MMT. Whether or not that is a good goal is independent from the facts of how fiat currency works. Incidentally, I happen to believe that tying distribution of basic necessities to employment is unethical and economically destructive (it promotes make-work and even destructive broken-window-fallacy type crap).
  - candiodari 9y ago
    You can easily split up the statements, and see things much more clearly. "deficits are good". What are deficits ? Well government taxes X dollars, and governments spends Y dollars, on skyscrapers, computer systems, ... and Y > X. That means 2 things. One, short term, one, long term. Short term there is at least Y - X more demand in the economy. That means more production is needed. That's great ! And no worries, every rightist on the planet will agree with that. More demand, more need for goods. That's great, that's excellent. Long term, there is the problem that the government doesn't produce anything. If the government buys something (with some exceptions like infrastructure that represent like 5% of the budget at best) it's only a user. That means that if I pay $1000 in tax, or buy bottles of whiskey for $950 and drink them all, I have made the same contribution to the economy. Deficit spending means that while I paid $1000 in tax, the government bought $1200 (for example) in bottles of whiskey, and drank them. It used the money for non-productive purposes (in the sense that they won't generate extra economic activity in the future). In fact it's worse, since it's pretty much both throwing $1200 down the drain, in spending that I'm sure someone will enjoy but is ultimately useless, AND $200 in a loan that interest will come due on. But, if demand is anemic, the short term boost can matter more than the long term costs. If instead I spent $1000 buying equipment for a coffee stand near a park in my neighborhood, and run that business, however. People would have access to coffee in the local park, and that would generate income, a job, ... That's the kind of spending we want : spending that grows the economy.
    - quadrangle 9y ago
      > That means that if I pay $1000 in tax, or buy bottles of whiskey for $950 and drink them all, I have made the same contribution to the economy. No, that would be just bad accounting. If you pay $1000 in tax, then there's $1000 less currency. If you consume $1000 in goods, then while there's less of the good, there's likely some profits through the supply chain and anyway the currency goes to the people who supplied the good and exists for them to use again. But the rest of what you are saying is true. The question about spending is always what do we spend on…

candiodari 9y ago

> It is also possible for the federal government to acquire zero-interest loans, given that everyone knows it has the magic printing press, so long as everyone is convinced that it will honor the bonds. And let's not forget that what Greenspan did, lend the government money with interest, then pay the interest to the treasury department is very different from interest free loans. VERY different I tell you ! VERY ! Well, not that different. > That is why it is able to force bond yields to extremely low levels, even during a major recession. Unfortunately that does mean that an ever increasing proportion of the effort and work of actual people goes to work that has no utility for society, and at some point it starts actually preventing people from doing useful work (because their income would be cut significantly compared to when they're doing useless work, paid by loaned money). And at some point ... people realize this is what's happening. Rapidly and suddenly. The worst of it is, despite > 4 TRILLION dollars injected in the economy by Obama (and a little by Bush and Trump), the economy is barely at the point it was before the crisis. By this I mean that there are important indicators that have more or less recovered (e.g. GDP), and important indicators that have not even recovered at all (e.g. Participation levels). But even the most positive indicators have recovered to the level the government claims it has. There has not, at all, been 2-3% average growth since 2009. At all. I don't understand why people believe that.