10 ms·

Disturbing Rise of Modern Monetary Theory (MMT)

45 points by StuntPope 8y ago

manfredo 8y ago
I see this as another, albeit slightly subtler, way of trying to rationalize a command economy. It's one where the government has unilateral authority to marshal all of a society's resources. Do we really want, say, Trump to be able to print as much money as he wants to fund his wall? I'm not sure whether the fact that the government's method of doing so and the unchecked nature of this power is obscured by currently makes this better or worse than straightforward proposals for command economies.
- skh 8y ago
  Not an economist or a socialist but your question: It's one where the government has unilateral authority to marshal all of a society's resources. Do we really want, say, Trump to be able to print as much money as he wants to fund his wall? assumes that government would be a single person deciding. If power were sufficiently spread out it seems to me that having government allocate resources doesn't have to be worse than the current system.
  - woah 8y ago
    The problem with the government allocating resources is that it cannot do so efficiently
    - Zooper 8y ago
      Sounds like we need better governments.
      - excalibur 8y ago
        We'll just put AI in charge. What could go wrong?
    - indigo945 8y ago
      At this point, only eight people have more than half of the world's net worth. Can these eight people allocate resources more efficiently than the government could?
  - manfredo 8y ago
    Yes, if power were spread out then it wouldn't be an issue. But the whole premise of MMT is to give the government a means of consuming more resources with the actual cost being obfuscated. Taxes are a very transparent way of understanding the cost of government. You can see the money coming out of your pocket at the end of the year. MMT is a means of obfuscating that cost. The average voter doesn't have as good as sense of what printing a trillion dollars does to inflation. Effectively every MMT proponent assumes that MMT will give the government greater ability to consume resources. Think about all the promises MMT proponents usually try to make: universal healthcare, a government provided job for every person that wants one.
- candiodari 8y ago
  If a government merely taxes really high, either directly or through money printing, it merely does things in the positive sense. You can still improve your lot, it's just harder than it normally would be. You can even still become rich. In a true command economy absolutely everything is determined by the government's "no", to everything. And the disappointing BIG main reason for "no" is because no bureaucrat is ever going to risk his/her position for either your fate, or your idea. Money printing does not come with any "no". In a capitalist, even highly taxed and money printing economy, whatever you want to do, if you can do it while being sufficiently positive for the economy, you are allowed to do it (within reason). In a true command economy, you can do nothing. You can't change jobs. You can't move. You can't start a business. You can't educate yourself. You can't help anyone with anything (even trivial things are a risk). You can't ... EVERYTHING is determined by the absolute contempt and incredible jealousy of everyone. You literally carry an old ladies' bag up a staircase ... you've just made enemies of every old lady on the block, one of which has a son who runs the town's transport department and you lose your driver's license. There are a lot of ex-Soviets running around everywhere. Find one and talk to them.
  - manfredo 8y ago
    Money printing is in effect a regressive tax. Inflation is effectively a flat tax, it wipes out X% of people's savings regardless of whether they are in the bottom 10% of the income distribution or to 10%. In fact, it might even behave like an inverse tax, since the wealthy will be the first to move their savings out of dollars while most everyday people will be stuck with their savings becoming worthless. > There are a lot of ex-Soviets running around everywhere. Find one and talk to them. I have spoken to many people who used to be in state run economies (USSR, Cuba). Effectively all of them are skeptical of schemes like MMT that function to give the government more power without public knowledge or consent.
- jbob2000 8y ago
  I’m starting to think that a command economy is actually the default state. Democracy and free market only work when people have tons of money, like they did after WW2 (or when Rome and Greece were at the height of their conquests). With wealth returning to the countries it was taken from, the western world is finally returning the place it always should have been.
  - excalibur 8y ago
    Except that wealth isn't returning to those it was taken from. It's being hoarded by a small group of oligarchs.
  - manfredo 8y ago
    Quite the opposite. Only around the modern era (20th century and onwards) have had the ability to take total or near total command of the economy. Throughout the majority of history, states have only been able to tax and mobilize single digit percentages of the society's GDP. Historical estimates are rough, but good enough to appreciate the stark disparity between modern governments that often mobilize 25-50% of the society's GDP. It couldn't be further from the case that command economies are the default state. They're a relatively possibility in the scope of human civilization.
dv_dt 8y ago
While arguing against MMT, the author completely neglects the measures that are required to prop up the supposedly stable operations of the current system - one where the recessions have been periodic, getting deeper over time and continued cycles, and with the last cycle, required extraordinary measures to prop up the system as a whole.
- StuntPope 8y ago
  The author has written on that extensively, spanning years. See the GC blog and my old one at rebootingcapitalism.com
- luckydata 8y ago
  the only thing the author neglected is forcing you to read it because he has.
- manfredo 8y ago
  Granted, the other way of looking at it has been the fact that we've managed to devise a system that has managed to be stable enough that investment yields consistent growth over any 10 year period (including the Great Depression, and the more recent "great recession"). The extraordinary measures needed to prop up banks in the late 2000s was not really all that large of a catastrophe. How many other economic systems can claim the same?
  - perfmode 8y ago
    Is this not survivorship bias in the flesh? > Survivorship bias or survival bias is the logical error of concentrating on the people or things that made it past some selection process and overlooking those that did not, typically because of their lack of visibility. This can lead to false conclusions in several different ways. It is a form of selection bias.
    - manfredo 8y ago
      Not exactly. Most societies have survived for the last several centuries, at least in a broad sense. If we compare the last century or so, especially the last century since the last conflict since the largest governments, the current economic system has proven to be one that can deliver consistent economic growth without necessitating inter-state violence. Most prior economic systems have failed to do both of these. Either they didn't have that much capacity for growth (e.g. once you're farming all the arable land, your agrarian kingdom isn't going to be producing much more land), or necessitated violent expansion (only way to get wealthier is to raid or annex somebody else's territory). Unless we have examples of societies experience consistent economic growth, without any substantial form of expansion of territory or use of state power, then this isn't survivorship bias. It's just a sober analysis of history.
deleted 8y ago
[deleted]
candiodari 8y ago
So after 2008 and all the QE's (we're up to 5, I believe), government thinks they can just keep going with more and more QE/outright money printing and it won't matter ? Call me unreasonable, but given recent (even last 80 years) history I can certainly understand why they believe this. The truth is not just that I (and I'm almost 40) can't remember any time it didn't work, you'd have to go back to my grandfather's time (he died at >100 years old in 2015) to find counterexamples. Even back then, in the US he would have been too young to realize the last time the US was confronted with this.
- zozbot123 8y ago
  The only reason we'd needed QE in the first place is that we had been printing too little money when the Great Recession happened, and so we let "natural" nominal rates drop well below the zero bound. QE is like a "helicopter lift" for nominal rates (the "helicopter" metaphor is one that economists and central bankers use routinely to explain how QE works) - having to resort to it doesn't mean that we're printing too much money, but too little of it.
  - abakker 8y ago
    Sure...the gist though is that the central bank responses to any situation with only two tools, interest rate, and money supply. If the situations shows them that there was too little money, they add money. A reason why thy might not have had enough money in the system until QE was that the steady state market equilibrium before the 2008 crash might have genuinely required less cash. There is no law that says that after shocks that the market will always equilibrate to the same place. it is specially the nature of shocks that market conditions are shown to not be in the equilibrium that we assumed they were. You may see signs of one happening, but it is far from clear that you could correctly navigate all policies and market participants to re-equilibriate peacefully.
  - AnimalMuppet 8y ago
    Not quite. The problem was that when the Great Recession happened, $4 trillion disappeared. The Fed responded with QE and created $4 trillion, and we got something approaching stability. The problem was that, before the Great Recession, there was probably too much money, rather than too little. The Fed avoided a deflationary spiral, but now the trick is to drain off the excess slowly and carefully, without breaking anything.
tomrod 8y ago
> The more I learned about MMT the more it seemed to be the same thing, in an economic sense and I have frequently made this quip expecrting MMT-ers to call it a strawman or point out some fundamental element that I’m missing but instead they usually confirm that I have it correct in broad strokes. > MMT-ers believe that currency is nothing more than an economic scoreboard or tally, and any government that denominates it’s own currency can never go broke because they can always create more currency. Of course, as Weimar Germany, Hungary, Yugoslavia and more recently Zimbabwe and Venezuela have all found out, you have to watch out for hyperinflation. > The MMT magic bullet for this is… taxation. Through taxation the government can drain excess liquidity from the system while printing as much currency as it needs to fund its projects and as long as the total value of currency printed doesn’t exceed the productive capacity of the economy as a whole.[0] [0] https://medium.com/@markjeftovic/the-disturbing-rise-of-modern-monetary-theory-mmt-aefeeab9dde2 https://medium.com/@markjeftovic/the-disturbing-rise-of-mode...
- zozbot123 8y ago
  Of course, the other word for "taxation" is "balancing the budget and not going into debt in the first place". TANSTAAFL!
- pytester 8y ago
  >Of course, as Weimar Germany, Hungary, Yugoslavia and more recently Zimbabwe and Venezuela have all found out, you have to watch out for hyperinflation. Of course, as Japan awkwardly found out, you can have the highest debt/gdp in the world and still get deflation. (I remember hyperinflation frequently being predicted as the obvious outcome of Japan's staggering deficits in the 90s though... by people who would doubtless pour scorn on MMT) The difference between all of those above examples and Japan is that their economic output was substantially impared (e.g. with Zimbabwe by effectively destroying their agricultural sector) and they were trying to pay off externally denominated debts as well as sustain themselves. None of this requires deficits, it can happen even in surplus.
apo 8y ago
Were an MMT system inevitably go awry, the outward manifestation would be of course manifest as inflation, so central planners would of course try to get ahead of it by draining more liquidity, faster, by increasing taxes. As this fed on itself and accelerated, the populace, as if being swept up in a hyperinflation isn’t bad enough, would be sandwiched between hyperinflation and hypertaxation!. I'm not convinced. Deficit hawks have been beating the inflation drums for decades now, with zilch to show for it. We do see inflation. But rather than inflated consumer prices, we see inflated asset prices as measured by historical valuations of stocks and record-low (or even negative) bond yields for example. MMT seems like a prescription, not for Weimar-style hyperinflation, but a world in which asset prices rise beyond any reasonable level only to collapse in a terrifying catastrophe, only to be rescued by central banks which buy up even more assets to continue the cycle. The Bank of Japan has a leg up on the US here. It currently owns a sizable share of the Japanese stock market: https://asia.nikkei.com/Economy/BOJ-is-top-10-shareholder-in-40-of-Japan-s-listed-companies https://asia.nikkei.com/Economy/BOJ-is-top-10-shareholder-in...
- NTDF9 8y ago
  Asset inflation is THE problem in developed countries. Why? 1. Because there are people alive with large debts on the other side of those inflated assets. Any deflation will kill the lender (if borrower defaults) and the borrower (if the asset's value declines or they can't make any more payments) 2. There are entire populations unable to make asset purchases because assets are too expensive, thus they are left out. The Fed's actions jumpstarted the economy by creating this massive inequality and has left out many behind.
  - 0x8BADF00D 8y ago
    > The Fed's actions jumpstarted the economy by creating this massive inequality and has left out many behind. This should not be surprising to anyone. Bernanke’s stated goal was to inflate asset prices through QE, so that consumers would feel an increased “wealth effect”[1] and spend more. The lie at the root of this policy is that spending == productivity which is probably the biggest bald-faced lie ever told. We don’t call an overleveraged man with 30k in credit card debt rich or productive. That would be absurd. Yet it is this lie that is at the root of quantitative easing and the overleveraged American economy. [1] https://www.federalreserve.gov/newsevents/other/o_bernanke20101105a.htm https://www.federalreserve.gov/newsevents/other/o_bernanke20...
leptoniscool 8y ago
IMO MMT only works if the currency is a reserve currency.
- abakker 8y ago
  If governments do not control debt, at least in theory, though, it is very hard to remain a reserve currency. The definition of a reserve currency is one you can have confidence in, one that will be managed well. If we decided we were not going to do that anymore, we'd stop being a reserve currency. It seems like the kind of policy that you can flirt with occasionally, but not embrace or actually use. You can get forgiveness for periods of justifiably high deficit spending in a Keynesian model, but if you tell people that you don't think you'll ever need to pay it back...well, they'll try to sell those debts real quick.
rhacker 8y ago
Any mirrors? This seems to be a good topic as MMT keeps coming up. Newb question here: People that "advocate MMT" are basically saying it's fine that our deficit keeps rising because geopolitics and inflation/tax control? And the people disturbed by that actually want our existing tax structure to start making headway against the debt instead of increasing it? And secondary question to this, is MMT a mostly left theory (because we need to pay for the free stuff)? I'm not trying to cause arguments I just want to make sure I got how people see this issue.
- StuntPope 8y ago
  https://medium.com/@markjeftovic/the-disturbing-rise-of-modern-monetary-theory-mmt-aefeeab9dde2 https://medium.com/@markjeftovic/the-disturbing-rise-of-mode...
- kortilla 8y ago
  Yes, it seems to be mostly supported by the left in the Sanders/Cortez camps. It’s very convenient to not have to pay for anything when proposing monumental social programs.
  - breakyerself 8y ago
    They both support tax increases. Perhaps not enough to cover the full bill when it comes due, but it's wrong to say they don't intend to do anything to pay for it. They tend to cover their proposed spending increases better than republicans try to cover their tax cuts.
    - kortilla 8y ago
      Not the proposals from Cortez. They aren’t even close to balanced. The tax increases for the rich seem to be more vindictive than any attempt to balance the budget.
- pja 8y ago
  No, MMT is pretty much how the monetary system operates in modern fiat currency economies where the government both prints and taxes in a currency they control. The essential insight is that taxes & spending are not joined at the hip - the only real constraint on total expenditure in a fiat economy is inflation. It’s not a particularly leftist idea - the right has tacitly treated government spending in this way for decades. It was Dick Cheney who said “deficits don’t matter” after all. The author of this article is confused: hyperinflations are a symptom of collapsing economies, not a cause in and of themselves. Having external debts that you can’t default on in a situation where your economy is shrinking is what drives hyperinflation. Look at every major hyperinflation (Weimar Germany, Zimbabwe etc etc) and you’ll see those are the drivers of hyperinflation.
ahmedalsudani 8y ago
Wayback Machine mirror http://web.archive.org/web/20190121183722/https://guerrilla-capitalism.com/articles/the-disturbing-rise-of-modern-monetary-theory-mmt/ http://web.archive.org/web/20190121183722/https://guerrilla-...
throwaway5752 8y ago
What's the phenomenon like Dunning-Kruger where people think their expertise on one domain (like software development and operations) has any bearing on their knowledge in other domains like medicine or macroeconomics? Honest question.
- abakker 8y ago
  Hubris?
- mlevental 8y ago
  simple: it's arrogance. lots of examples come to mind: Francis Crick and race, Freeman Dyson and climate change, Elon musk and literally everything :)
  - r32a_ 8y ago
    Well Musk went from making websites to building a space company and electric car company and now a tunnel making company. So maybe you're underestimating abilities of some people to master multiple fields
    - krapp 8y ago
      Being founder and CEO of different companies doesn't imply a mastery of the fields in which those companies operate, only control of the capital they generate. Elon Musk could buy a Michelin starred restaurant tomorrow, that wouldn't suddenly make him a world class chef.
      - r32a_ 8y ago
        Disagree. the job of a founder + CEO is not to just control capital. If Elon Musk built a 3 star Michelin restaurant himself from scratch then yes I would classify that he has mastery of the fine dining industry. You could be an amazing chef but couldn't run a restaurant if your life depended on it. Just like how there are brilliant engineers that aren't good at being CEOs of a tech company.
    - 8y ago
kortilla 8y ago
Why would someone choose a US 30 year bond as a long term investment with the government having the explicit intention to go massively over its budget? The more a government borrows through bond issuance, the more it has to borrow later to service the debt they didn’t pay for before. Eventually this runs away to the point where there are not enough buyers for all of the debt issuance at reasonable interest rates so the borrowing costs sky rocket. This means even more debt has to be issued to service that debt... you see where this is going. A country’s spending is capped by it’s ability to find borrowers of its bonds. Given that normal tax rates aren’t covering the spending, it’s not likely that even 100% tax rates would be enough revenue to offset these scenarios. Do MMT proponents just advocate literally printing money that is never tied to an instrument to be paid back?
- jhayward 8y ago
  > Do MMT proponents just advocate literally printing money that is never tied to an instrument to be paid back? They don't see any problem with that, and they have some evidence to support the idea.
r32a_ 8y ago
I highly recommend people to read "The Bitcoin Standard". Outside of all the noise and fud surrounding Bitcoin, within it lies a new economic system which has lots of similarities with the gold standard and Austrian economics.
- nosuchthing 8y ago
  Gold to Bitcoin analogies are a marketing falsehood. On paper things might look similar, but looking into the details and history behind Bitcoin and other cryptocurrency software development it quickly becomes clear there's a multitude of cascading flaws. BTC inflation is currently higher than USD Historically, Bitcoin started off as a hyperinflationary mint in order to produce the supply rapidly for a small user group before the general public would be able to access the production methods and before the difficulty settings Satoshi chose would increase the cost of production and reduce the ROI and increase the CAPEX/OPEX dictacted by the BTC mining software and network. Aprox 4.11% of Bitcoin users (addresses) control 96.53% of all bitcoins in circulation. Also there's a chance that something will make Bitcoin obsolete in the near future - immediately destroying the trade value of Bitcoin, either a new cryptocurrency, a quantum computer or cryptographic breakthrough that would allow theft of BTC private keys or more predictably a bug like what recently happened in the main Bitcoin core wallet client software which allowed a user to inflate the supply of Bitcoins past 21 million and mint more BTC for free. https://www.livebitcoinnews.com/cve-2018-17144-the-aftermath-of-a-catastrophic-bitcoin-bug/ https://www.livebitcoinnews.com/cve-2018-17144-the-aftermath... Here’s an explanation on how the Bitcoin market differs vastly from Gold speculation markets: https://www.youtube.com/watch?v=6r04gfWfRkE https://www.youtube.com/watch?v=6r04gfWfRkE Then there's the story of Bitfinex, assumed to be a lingering MTGOX scale exit scam using a "stablecoin" which is pegged 1:1 with USD across all other major cryptocurrency exchanges. With no audit, Bitfinex has printed aprox $2,042,257,000 USD as of today. Much of which is alleged to be used by their own accounts to manipulate the levered futures markets. https://medium.com/@bitfinexed https://medium.com/@bitfinexed
  - r32a_ 8y ago
    Every point you have written is incorrect. I suggest you spend 5 minutes researching all of your points and you can see that. But to summarise, all those coins in those addresses are held in known wallets of exchanges and wallets, bitcoin inflation is halved every few years, breaking bitcoin crypto will have devastating effects on the entire world including all banks and governments, Bitcoin crypto tech can be changed, bitfinexed is a joke and has been proven to be wrong many, many times.
AnimalMuppet 8y ago
The problem with MMT is that, as the article says, "MMT-ers believe that currency is nothing more than an economic scoreboard or tally". That belief is false. Money is not just a unit of account, it's a claim on stuff. If you create a bunch more claims on stuff, without creating any more stuff, that's going to be a problem. (You might call it inflation.) If you try to solve the problem via taxation, then you wind up with a bunch more claims on stuff, no more stuff, and the government holding most of the claims. That's not going to work out well for people who need to use those claims to get stuff - like food, say, or housing, or medicine.
indigo945 8y ago
>Think of an MMT crisis as an economic black hole sucking all value from further and further future generations into a gravitational vortex of the present moment, where all value collapses in on itself and disappears forever. This is, without doubt, the most stupid sentence I have read in my entire life. I really wanted to write a comment that explains why I think that, but then I realized I would be forced to pick the entire article apart piece-by-piece, and I just cannot stomach that. In short, though, even if MMT were the very worst economic theory ever invented (it's not), it would always be possible to re-build the economy after a fatal crash. Value does not "collapse on itself and disappear forever" under any political regime, environmental catastrophes threatening extinction being the possible exception.
lenticular 8y ago
This is a really ridiculous article written by someone with a libertarian, rather than scientific, agenda. While MMT does have its issues, it is a promising future direction for macroeconomics, especially as neoclassical economics has shown more and more problems.
- bromuro 8y ago
  It is ! I can’t say if MMT would be the solution of our problems, as I’m not an economist, but I hope the debate to move on and not stay just black vs. white. I studied some of these theories and actually the MMT was the most refreshing one to me.
nec4b 8y ago
Modern money theory is neither modern neither a theory in a scientific sense of the word. It's more like a fake moon landing type of theory. It's a honey trap for the type of people who mistake an appearance of science to be science.
- dv_dt 8y ago
  Why concentrate that criticism on MMT? It applies to all of economics - neither MMT nor prevailing economic deficit frameworks come out ahead there. Though I would say MMT is making more fundamental observations than the "deficits must be cut" side of things which feel more like cargo cult tradition.
  - nec4b 8y ago
    This is an article about MMT, isn't it? And no, not all economics is pseudo science. Maybe you're looking at economics too much from the political point of view and too little from a scientific perspective.

45 points by StuntPope 8y ago

I see this as another, albeit slightly subtler, way of trying to rationalize a command economy. It's one where the government has unilateral authority to marshal all of a society's resources. Do we really want, say, Trump to be able to print as much money as he wants to fund his wall? I'm not sure whether the fact that the government's method of doing so and the unchecked nature of this power is obscured by currently makes this better or worse than straightforward proposals for command economies.

skh 8y ago
Not an economist or a socialist but your question: It's one where the government has unilateral authority to marshal all of a society's resources. Do we really want, say, Trump to be able to print as much money as he wants to fund his wall? assumes that government would be a single person deciding. If power were sufficiently spread out it seems to me that having government allocate resources doesn't have to be worse than the current system.
- woah 8y ago
  The problem with the government allocating resources is that it cannot do so efficiently
  - Zooper 8y ago
    Sounds like we need better governments.
    - excalibur 8y ago
      We'll just put AI in charge. What could go wrong?
  - indigo945 8y ago
    At this point, only eight people have more than half of the world's net worth. Can these eight people allocate resources more efficiently than the government could?
- manfredo 8y ago
  Yes, if power were spread out then it wouldn't be an issue. But the whole premise of MMT is to give the government a means of consuming more resources with the actual cost being obfuscated. Taxes are a very transparent way of understanding the cost of government. You can see the money coming out of your pocket at the end of the year. MMT is a means of obfuscating that cost. The average voter doesn't have as good as sense of what printing a trillion dollars does to inflation. Effectively every MMT proponent assumes that MMT will give the government greater ability to consume resources. Think about all the promises MMT proponents usually try to make: universal healthcare, a government provided job for every person that wants one.
candiodari 8y ago
If a government merely taxes really high, either directly or through money printing, it merely does things in the positive sense. You can still improve your lot, it's just harder than it normally would be. You can even still become rich. In a true command economy absolutely everything is determined by the government's "no", to everything. And the disappointing BIG main reason for "no" is because no bureaucrat is ever going to risk his/her position for either your fate, or your idea. Money printing does not come with any "no". In a capitalist, even highly taxed and money printing economy, whatever you want to do, if you can do it while being sufficiently positive for the economy, you are allowed to do it (within reason). In a true command economy, you can do nothing. You can't change jobs. You can't move. You can't start a business. You can't educate yourself. You can't help anyone with anything (even trivial things are a risk). You can't ... EVERYTHING is determined by the absolute contempt and incredible jealousy of everyone. You literally carry an old ladies' bag up a staircase ... you've just made enemies of every old lady on the block, one of which has a son who runs the town's transport department and you lose your driver's license. There are a lot of ex-Soviets running around everywhere. Find one and talk to them.
- manfredo 8y ago
  Money printing is in effect a regressive tax. Inflation is effectively a flat tax, it wipes out X% of people's savings regardless of whether they are in the bottom 10% of the income distribution or to 10%. In fact, it might even behave like an inverse tax, since the wealthy will be the first to move their savings out of dollars while most everyday people will be stuck with their savings becoming worthless. > There are a lot of ex-Soviets running around everywhere. Find one and talk to them. I have spoken to many people who used to be in state run economies (USSR, Cuba). Effectively all of them are skeptical of schemes like MMT that function to give the government more power without public knowledge or consent.
jbob2000 8y ago
I’m starting to think that a command economy is actually the default state. Democracy and free market only work when people have tons of money, like they did after WW2 (or when Rome and Greece were at the height of their conquests). With wealth returning to the countries it was taken from, the western world is finally returning the place it always should have been.
- excalibur 8y ago
  Except that wealth isn't returning to those it was taken from. It's being hoarded by a small group of oligarchs.
- manfredo 8y ago
  Quite the opposite. Only around the modern era (20th century and onwards) have had the ability to take total or near total command of the economy. Throughout the majority of history, states have only been able to tax and mobilize single digit percentages of the society's GDP. Historical estimates are rough, but good enough to appreciate the stark disparity between modern governments that often mobilize 25-50% of the society's GDP. It couldn't be further from the case that command economies are the default state. They're a relatively possibility in the scope of human civilization.

dv_dt 8y ago

While arguing against MMT, the author completely neglects the measures that are required to prop up the supposedly stable operations of the current system - one where the recessions have been periodic, getting deeper over time and continued cycles, and with the last cycle, required extraordinary measures to prop up the system as a whole.

StuntPope 8y ago
The author has written on that extensively, spanning years. See the GC blog and my old one at rebootingcapitalism.com
luckydata 8y ago
the only thing the author neglected is forcing you to read it because he has.
manfredo 8y ago
Granted, the other way of looking at it has been the fact that we've managed to devise a system that has managed to be stable enough that investment yields consistent growth over any 10 year period (including the Great Depression, and the more recent "great recession"). The extraordinary measures needed to prop up banks in the late 2000s was not really all that large of a catastrophe. How many other economic systems can claim the same?
- perfmode 8y ago
  Is this not survivorship bias in the flesh? > Survivorship bias or survival bias is the logical error of concentrating on the people or things that made it past some selection process and overlooking those that did not, typically because of their lack of visibility. This can lead to false conclusions in several different ways. It is a form of selection bias.
  - manfredo 8y ago
    Not exactly. Most societies have survived for the last several centuries, at least in a broad sense. If we compare the last century or so, especially the last century since the last conflict since the largest governments, the current economic system has proven to be one that can deliver consistent economic growth without necessitating inter-state violence. Most prior economic systems have failed to do both of these. Either they didn't have that much capacity for growth (e.g. once you're farming all the arable land, your agrarian kingdom isn't going to be producing much more land), or necessitated violent expansion (only way to get wealthier is to raid or annex somebody else's territory). Unless we have examples of societies experience consistent economic growth, without any substantial form of expansion of territory or use of state power, then this isn't survivorship bias. It's just a sober analysis of history.

deleted 8y ago

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candiodari 8y ago

So after 2008 and all the QE's (we're up to 5, I believe), government thinks they can just keep going with more and more QE/outright money printing and it won't matter ? Call me unreasonable, but given recent (even last 80 years) history I can certainly understand why they believe this. The truth is not just that I (and I'm almost 40) can't remember any time it didn't work, you'd have to go back to my grandfather's time (he died at >100 years old in 2015) to find counterexamples. Even back then, in the US he would have been too young to realize the last time the US was confronted with this.

zozbot123 8y ago
The only reason we'd needed QE in the first place is that we had been printing too little money when the Great Recession happened, and so we let "natural" nominal rates drop well below the zero bound. QE is like a "helicopter lift" for nominal rates (the "helicopter" metaphor is one that economists and central bankers use routinely to explain how QE works) - having to resort to it doesn't mean that we're printing too much money, but too little of it.
- abakker 8y ago
  Sure...the gist though is that the central bank responses to any situation with only two tools, interest rate, and money supply. If the situations shows them that there was too little money, they add money. A reason why thy might not have had enough money in the system until QE was that the steady state market equilibrium before the 2008 crash might have genuinely required less cash. There is no law that says that after shocks that the market will always equilibrate to the same place. it is specially the nature of shocks that market conditions are shown to not be in the equilibrium that we assumed they were. You may see signs of one happening, but it is far from clear that you could correctly navigate all policies and market participants to re-equilibriate peacefully.
- AnimalMuppet 8y ago
  Not quite. The problem was that when the Great Recession happened, $4 trillion disappeared. The Fed responded with QE and created $4 trillion, and we got something approaching stability. The problem was that, before the Great Recession, there was probably too much money, rather than too little. The Fed avoided a deflationary spiral, but now the trick is to drain off the excess slowly and carefully, without breaking anything.

tomrod 8y ago

> The more I learned about MMT the more it seemed to be the same thing, in an economic sense and I have frequently made this quip expecrting MMT-ers to call it a strawman or point out some fundamental element that I’m missing but instead they usually confirm that I have it correct in broad strokes. > MMT-ers believe that currency is nothing more than an economic scoreboard or tally, and any government that denominates it’s own currency can never go broke because they can always create more currency. Of course, as Weimar Germany, Hungary, Yugoslavia and more recently Zimbabwe and Venezuela have all found out, you have to watch out for hyperinflation. > The MMT magic bullet for this is… taxation. Through taxation the government can drain excess liquidity from the system while printing as much currency as it needs to fund its projects and as long as the total value of currency printed doesn’t exceed the productive capacity of the economy as a whole.[0] [0] https://medium.com/@markjeftovic/the-disturbing-rise-of-modern-monetary-theory-mmt-aefeeab9dde2 https://medium.com/@markjeftovic/the-disturbing-rise-of-mode...

zozbot123 8y ago
Of course, the other word for "taxation" is "balancing the budget and not going into debt in the first place". TANSTAAFL!
pytester 8y ago
>Of course, as Weimar Germany, Hungary, Yugoslavia and more recently Zimbabwe and Venezuela have all found out, you have to watch out for hyperinflation. Of course, as Japan awkwardly found out, you can have the highest debt/gdp in the world and still get deflation. (I remember hyperinflation frequently being predicted as the obvious outcome of Japan's staggering deficits in the 90s though... by people who would doubtless pour scorn on MMT) The difference between all of those above examples and Japan is that their economic output was substantially impared (e.g. with Zimbabwe by effectively destroying their agricultural sector) and they were trying to pay off externally denominated debts as well as sustain themselves. None of this requires deficits, it can happen even in surplus.

apo 8y ago

Were an MMT system inevitably go awry, the outward manifestation would be of course manifest as inflation, so central planners would of course try to get ahead of it by draining more liquidity, faster, by increasing taxes. As this fed on itself and accelerated, the populace, as if being swept up in a hyperinflation isn’t bad enough, would be sandwiched between hyperinflation and hypertaxation!. I'm not convinced. Deficit hawks have been beating the inflation drums for decades now, with zilch to show for it. We do see inflation. But rather than inflated consumer prices, we see inflated asset prices as measured by historical valuations of stocks and record-low (or even negative) bond yields for example. MMT seems like a prescription, not for Weimar-style hyperinflation, but a world in which asset prices rise beyond any reasonable level only to collapse in a terrifying catastrophe, only to be rescued by central banks which buy up even more assets to continue the cycle. The Bank of Japan has a leg up on the US here. It currently owns a sizable share of the Japanese stock market: https://asia.nikkei.com/Economy/BOJ-is-top-10-shareholder-in-40-of-Japan-s-listed-companies https://asia.nikkei.com/Economy/BOJ-is-top-10-shareholder-in...

NTDF9 8y ago
Asset inflation is THE problem in developed countries. Why? 1. Because there are people alive with large debts on the other side of those inflated assets. Any deflation will kill the lender (if borrower defaults) and the borrower (if the asset's value declines or they can't make any more payments) 2. There are entire populations unable to make asset purchases because assets are too expensive, thus they are left out. The Fed's actions jumpstarted the economy by creating this massive inequality and has left out many behind.
- 0x8BADF00D 8y ago
  > The Fed's actions jumpstarted the economy by creating this massive inequality and has left out many behind. This should not be surprising to anyone. Bernanke’s stated goal was to inflate asset prices through QE, so that consumers would feel an increased “wealth effect”[1] and spend more. The lie at the root of this policy is that spending == productivity which is probably the biggest bald-faced lie ever told. We don’t call an overleveraged man with 30k in credit card debt rich or productive. That would be absurd. Yet it is this lie that is at the root of quantitative easing and the overleveraged American economy. [1] https://www.federalreserve.gov/newsevents/other/o_bernanke20101105a.htm https://www.federalreserve.gov/newsevents/other/o_bernanke20...

leptoniscool 8y ago

IMO MMT only works if the currency is a reserve currency.

abakker 8y ago
If governments do not control debt, at least in theory, though, it is very hard to remain a reserve currency. The definition of a reserve currency is one you can have confidence in, one that will be managed well. If we decided we were not going to do that anymore, we'd stop being a reserve currency. It seems like the kind of policy that you can flirt with occasionally, but not embrace or actually use. You can get forgiveness for periods of justifiably high deficit spending in a Keynesian model, but if you tell people that you don't think you'll ever need to pay it back...well, they'll try to sell those debts real quick.

rhacker 8y ago

Any mirrors? This seems to be a good topic as MMT keeps coming up. Newb question here: People that "advocate MMT" are basically saying it's fine that our deficit keeps rising because geopolitics and inflation/tax control? And the people disturbed by that actually want our existing tax structure to start making headway against the debt instead of increasing it? And secondary question to this, is MMT a mostly left theory (because we need to pay for the free stuff)? I'm not trying to cause arguments I just want to make sure I got how people see this issue.

StuntPope 8y ago
https://medium.com/@markjeftovic/the-disturbing-rise-of-modern-monetary-theory-mmt-aefeeab9dde2 https://medium.com/@markjeftovic/the-disturbing-rise-of-mode...
kortilla 8y ago
Yes, it seems to be mostly supported by the left in the Sanders/Cortez camps. It’s very convenient to not have to pay for anything when proposing monumental social programs.
- breakyerself 8y ago
  They both support tax increases. Perhaps not enough to cover the full bill when it comes due, but it's wrong to say they don't intend to do anything to pay for it. They tend to cover their proposed spending increases better than republicans try to cover their tax cuts.
  - kortilla 8y ago
    Not the proposals from Cortez. They aren’t even close to balanced. The tax increases for the rich seem to be more vindictive than any attempt to balance the budget.
pja 8y ago
No, MMT is pretty much how the monetary system operates in modern fiat currency economies where the government both prints and taxes in a currency they control. The essential insight is that taxes & spending are not joined at the hip - the only real constraint on total expenditure in a fiat economy is inflation. It’s not a particularly leftist idea - the right has tacitly treated government spending in this way for decades. It was Dick Cheney who said “deficits don’t matter” after all. The author of this article is confused: hyperinflations are a symptom of collapsing economies, not a cause in and of themselves. Having external debts that you can’t default on in a situation where your economy is shrinking is what drives hyperinflation. Look at every major hyperinflation (Weimar Germany, Zimbabwe etc etc) and you’ll see those are the drivers of hyperinflation.

ahmedalsudani 8y ago

Wayback Machine mirror http://web.archive.org/web/20190121183722/https://guerrilla-capitalism.com/articles/the-disturbing-rise-of-modern-monetary-theory-mmt/ http://web.archive.org/web/20190121183722/https://guerrilla-...

throwaway5752 8y ago

What's the phenomenon like Dunning-Kruger where people think their expertise on one domain (like software development and operations) has any bearing on their knowledge in other domains like medicine or macroeconomics? Honest question.

abakker 8y ago
Hubris?
mlevental 8y ago
simple: it's arrogance. lots of examples come to mind: Francis Crick and race, Freeman Dyson and climate change, Elon musk and literally everything :)
- r32a_ 8y ago
  Well Musk went from making websites to building a space company and electric car company and now a tunnel making company. So maybe you're underestimating abilities of some people to master multiple fields
  - krapp 8y ago
    Being founder and CEO of different companies doesn't imply a mastery of the fields in which those companies operate, only control of the capital they generate. Elon Musk could buy a Michelin starred restaurant tomorrow, that wouldn't suddenly make him a world class chef.
    - r32a_ 8y ago
      Disagree. the job of a founder + CEO is not to just control capital. If Elon Musk built a 3 star Michelin restaurant himself from scratch then yes I would classify that he has mastery of the fine dining industry. You could be an amazing chef but couldn't run a restaurant if your life depended on it. Just like how there are brilliant engineers that aren't good at being CEOs of a tech company.
  - 8y ago

kortilla 8y ago

Why would someone choose a US 30 year bond as a long term investment with the government having the explicit intention to go massively over its budget? The more a government borrows through bond issuance, the more it has to borrow later to service the debt they didn’t pay for before. Eventually this runs away to the point where there are not enough buyers for all of the debt issuance at reasonable interest rates so the borrowing costs sky rocket. This means even more debt has to be issued to service that debt... you see where this is going. A country’s spending is capped by it’s ability to find borrowers of its bonds. Given that normal tax rates aren’t covering the spending, it’s not likely that even 100% tax rates would be enough revenue to offset these scenarios. Do MMT proponents just advocate literally printing money that is never tied to an instrument to be paid back?

jhayward 8y ago
> Do MMT proponents just advocate literally printing money that is never tied to an instrument to be paid back? They don't see any problem with that, and they have some evidence to support the idea.

r32a_ 8y ago

I highly recommend people to read "The Bitcoin Standard". Outside of all the noise and fud surrounding Bitcoin, within it lies a new economic system which has lots of similarities with the gold standard and Austrian economics.

nosuchthing 8y ago
Gold to Bitcoin analogies are a marketing falsehood. On paper things might look similar, but looking into the details and history behind Bitcoin and other cryptocurrency software development it quickly becomes clear there's a multitude of cascading flaws. BTC inflation is currently higher than USD Historically, Bitcoin started off as a hyperinflationary mint in order to produce the supply rapidly for a small user group before the general public would be able to access the production methods and before the difficulty settings Satoshi chose would increase the cost of production and reduce the ROI and increase the CAPEX/OPEX dictacted by the BTC mining software and network. Aprox 4.11% of Bitcoin users (addresses) control 96.53% of all bitcoins in circulation. Also there's a chance that something will make Bitcoin obsolete in the near future - immediately destroying the trade value of Bitcoin, either a new cryptocurrency, a quantum computer or cryptographic breakthrough that would allow theft of BTC private keys or more predictably a bug like what recently happened in the main Bitcoin core wallet client software which allowed a user to inflate the supply of Bitcoins past 21 million and mint more BTC for free. https://www.livebitcoinnews.com/cve-2018-17144-the-aftermath-of-a-catastrophic-bitcoin-bug/ https://www.livebitcoinnews.com/cve-2018-17144-the-aftermath... Here’s an explanation on how the Bitcoin market differs vastly from Gold speculation markets: https://www.youtube.com/watch?v=6r04gfWfRkE https://www.youtube.com/watch?v=6r04gfWfRkE Then there's the story of Bitfinex, assumed to be a lingering MTGOX scale exit scam using a "stablecoin" which is pegged 1:1 with USD across all other major cryptocurrency exchanges. With no audit, Bitfinex has printed aprox $2,042,257,000 USD as of today. Much of which is alleged to be used by their own accounts to manipulate the levered futures markets. https://medium.com/@bitfinexed https://medium.com/@bitfinexed
- r32a_ 8y ago
  Every point you have written is incorrect. I suggest you spend 5 minutes researching all of your points and you can see that. But to summarise, all those coins in those addresses are held in known wallets of exchanges and wallets, bitcoin inflation is halved every few years, breaking bitcoin crypto will have devastating effects on the entire world including all banks and governments, Bitcoin crypto tech can be changed, bitfinexed is a joke and has been proven to be wrong many, many times.

AnimalMuppet 8y ago

The problem with MMT is that, as the article says, "MMT-ers believe that currency is nothing more than an economic scoreboard or tally". That belief is false. Money is not just a unit of account, it's a claim on stuff. If you create a bunch more claims on stuff, without creating any more stuff, that's going to be a problem. (You might call it inflation.) If you try to solve the problem via taxation, then you wind up with a bunch more claims on stuff, no more stuff, and the government holding most of the claims. That's not going to work out well for people who need to use those claims to get stuff - like food, say, or housing, or medicine.

indigo945 8y ago

>Think of an MMT crisis as an economic black hole sucking all value from further and further future generations into a gravitational vortex of the present moment, where all value collapses in on itself and disappears forever. This is, without doubt, the most stupid sentence I have read in my entire life. I really wanted to write a comment that explains why I think that, but then I realized I would be forced to pick the entire article apart piece-by-piece, and I just cannot stomach that. In short, though, even if MMT were the very worst economic theory ever invented (it's not), it would always be possible to re-build the economy after a fatal crash. Value does not "collapse on itself and disappear forever" under any political regime, environmental catastrophes threatening extinction being the possible exception.

lenticular 8y ago

This is a really ridiculous article written by someone with a libertarian, rather than scientific, agenda. While MMT does have its issues, it is a promising future direction for macroeconomics, especially as neoclassical economics has shown more and more problems.

bromuro 8y ago
It is ! I can’t say if MMT would be the solution of our problems, as I’m not an economist, but I hope the debate to move on and not stay just black vs. white. I studied some of these theories and actually the MMT was the most refreshing one to me.

nec4b 8y ago

Modern money theory is neither modern neither a theory in a scientific sense of the word. It's more like a fake moon landing type of theory. It's a honey trap for the type of people who mistake an appearance of science to be science.

dv_dt 8y ago
Why concentrate that criticism on MMT? It applies to all of economics - neither MMT nor prevailing economic deficit frameworks come out ahead there. Though I would say MMT is making more fundamental observations than the "deficits must be cut" side of things which feel more like cargo cult tradition.
- nec4b 8y ago
  This is an article about MMT, isn't it? And no, not all economics is pseudo science. Maybe you're looking at economics too much from the political point of view and too little from a scientific perspective.