6 ms·

While arguing against MMT, the author completely neglects the measures that are required to prop up the supposedly stable operations of the current system - on

by 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.
- StuntPope 8y ago
  It's called "kicking the can" and the only reason it looks like a sustainable system is because we haven't hit the end of the runway yet. But now that we're trapped at the zero bound and cannot normalize, the next few years should see the beginning the end of the debt supercycle and the USD as world reserve currency.
  - kortilla 8y ago
    Please explain what you mean by “trapped at the zero bound”. It can’t possibly mean interest rates.
    - jcriddle4 8y ago
      I think he does mean interest rates, which are not currently at the zero bound, as the fed has raised them several times lately. I think he probably should have written "trapped too close to the zero bound" which would actually make more sense. For instance the last round of interest rate increase look like they caused the markets to get very sick. That puts pressure on the Fed not to do any more raises. However if the Fed does not raise rates and if some nasty down-turn happened at this point then would the fed accomplish much by dropping rates to zero? Another idea here being that if you muck around all the time with interest rates to solve problems the effectiveness of the medicine may wear off, particularly if this medicine has delayed people from making needed structural reform. By structural reform I mean rebuilding the middle class not cutting social security or crap like that. Let me put forward a very radical idea. I suspect we need to actually restrict the amount of debt that people can accumulate as it make the system as a whole incredibly brittle. Think of consumer debt like a sort of "tragedy of the commons" situation. An individuals debt load should be their own business but if just about everyone is loading up on debt then the overall economy could explode which is everyone's business. In addition if a creditor can resell bad debt to other unsuspecting buyers then they have an incentive to give toxic loans and credit cards to people as long as they aren't holding the large amount of toxic debt on their own books for very long.
      - StuntPope 8y ago
- dv_dt 8y ago
  So MMT is terrible because it prints money and will be a catastrophe, but measures like QE are fine because it prints money to bail out the financial sector but isn't that large a catastrophe?
  - kortilla 8y ago
    The difference is that money had to be paid back. Issuing loans is significantly different than the government taking on arbitrary amounts of debt and spending it all.
    - dv_dt 8y ago
      Uh, I think you are possibly mistaking TARP (which did need to be paid back) for Quantitative Easing (which did not). QE wasn't a loan, and the assets purchased by the Fed only recently started being returned, and there is no requirement to repurchase the assets by the same entity they were purchased from.
  - StuntPope 8y ago
    Make no mistake, the bailouts were a catastrophe and NOT fine. The author says as much: "Compared to what I see as the inevitable “dual death spirals of MMT”, letting all those banksters fry in 2008 looks a lot more palatable in retrospect. David Stockman’s Great Deformation shows how the economy would have fully recovered by 2010 or 2011 instead of being where we are now: trapped at the Zero bound and headed toward democratic socialism and MMT."
  - manfredo 8y ago
    Quantitative Easing was essentially the same thing, to a degree (increasing the money supply). But it was done so with the specific goal in mind, to keep key financial institutions from collapsing. It was also done during a period relatively low inflation, and was done in low enough rates that inflation did not substantially rise. By comparison, MMT is basically telling the government to use quantitative easing to pay for everything. When you really dig down into it, the proponents of MMT know exactly how deceptive the scheme really is. They fully understand that it's allowing the government to pay for whatever it wants by printing money and letting the populace lose their savings due to larger inflation. And it fails to address immediate shortcomings: namely the fact that people will stop accepting payment in dollars if the government starts rampantly increasing inflation.
ChrisLomont 8y ago
>one where the recessions have been periodic, getting deeper over time and continued cycles, From [1], a list of US recessions: "The National Bureau of Economic Research dates recessions on a monthly basis back to 1854; according to their chronology, from 1854 to 1919, there were 16 cycles. The average recession lasted 22 months, and the average expansion 27. From 1919 to 1945, there were six cycles; recessions lasted an average 18 months and expansions for 35. From 1945 to 2001, and 10 cycles, recessions lasted an average 10 months and expansions an average of 57 months. This has prompted some economists to declare that the business cycle has become less severe. Many factors that may have contributed to this moderation including the establishment of deposit insurance in the form of the Federal Deposit Insurance Corporation in 1933 and increased regulation of the banking sector. Other changes include the use of fiscal policy in the form of automatic stabilizers to alleviate cyclical volatility. The creation of the Federal Reserve System in 1913 has been disputed as a source of stability with it and its policies having mixed successes. Since the early 1980s the sources of the Great Moderation has been attributed to numerous causes including public policy, industry practices, technology, and even good luck." [1] https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit...
bilbo0s 8y ago
I don't get the sense that the author believes the current system is perfect, or without flaws. The author simply points out some of the flaws, as the author perceives them, in MM Theory. Is the current system brittle, and growing more so over time? Absolutely. Is MM Theory the answer? I couldn't say. But part of ascertaining whether or not MM Theory can help us is taking a look at all of its wrinkles. (We should be taking a look at all of its benefits too. Again, just intellectual honesty, and necessary to the full analysis of the idea.)
- AnimalMuppet 8y ago
  > Is the current system brittle, and growing more so over time? Absolutely. The current system is growing brittle along one axis. After World War II, there was a cycle of recession and recovery, but each cycle had a higher level of inflation... until Reagan (or, if you prefer, Volcker). Since then, we've had the same cycle of recession and recovery, but each one with a lower level of inflation. But the problem has moved to a different axis - real wages.

by dv_dt 8y ago

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.
StuntPope 8y ago
It's called "kicking the can" and the only reason it looks like a sustainable system is because we haven't hit the end of the runway yet. But now that we're trapped at the zero bound and cannot normalize, the next few years should see the beginning the end of the debt supercycle and the USD as world reserve currency.
- kortilla 8y ago
  Please explain what you mean by “trapped at the zero bound”. It can’t possibly mean interest rates.
  - jcriddle4 8y ago
    I think he does mean interest rates, which are not currently at the zero bound, as the fed has raised them several times lately. I think he probably should have written "trapped too close to the zero bound" which would actually make more sense. For instance the last round of interest rate increase look like they caused the markets to get very sick. That puts pressure on the Fed not to do any more raises. However if the Fed does not raise rates and if some nasty down-turn happened at this point then would the fed accomplish much by dropping rates to zero? Another idea here being that if you muck around all the time with interest rates to solve problems the effectiveness of the medicine may wear off, particularly if this medicine has delayed people from making needed structural reform. By structural reform I mean rebuilding the middle class not cutting social security or crap like that. Let me put forward a very radical idea. I suspect we need to actually restrict the amount of debt that people can accumulate as it make the system as a whole incredibly brittle. Think of consumer debt like a sort of "tragedy of the commons" situation. An individuals debt load should be their own business but if just about everyone is loading up on debt then the overall economy could explode which is everyone's business. In addition if a creditor can resell bad debt to other unsuspecting buyers then they have an incentive to give toxic loans and credit cards to people as long as they aren't holding the large amount of toxic debt on their own books for very long.
    - StuntPope 8y ago
dv_dt 8y ago
So MMT is terrible because it prints money and will be a catastrophe, but measures like QE are fine because it prints money to bail out the financial sector but isn't that large a catastrophe?
- kortilla 8y ago
  The difference is that money had to be paid back. Issuing loans is significantly different than the government taking on arbitrary amounts of debt and spending it all.
  - dv_dt 8y ago
    Uh, I think you are possibly mistaking TARP (which did need to be paid back) for Quantitative Easing (which did not). QE wasn't a loan, and the assets purchased by the Fed only recently started being returned, and there is no requirement to repurchase the assets by the same entity they were purchased from.
- StuntPope 8y ago
  Make no mistake, the bailouts were a catastrophe and NOT fine. The author says as much: "Compared to what I see as the inevitable “dual death spirals of MMT”, letting all those banksters fry in 2008 looks a lot more palatable in retrospect. David Stockman’s Great Deformation shows how the economy would have fully recovered by 2010 or 2011 instead of being where we are now: trapped at the Zero bound and headed toward democratic socialism and MMT."
- manfredo 8y ago
  Quantitative Easing was essentially the same thing, to a degree (increasing the money supply). But it was done so with the specific goal in mind, to keep key financial institutions from collapsing. It was also done during a period relatively low inflation, and was done in low enough rates that inflation did not substantially rise. By comparison, MMT is basically telling the government to use quantitative easing to pay for everything. When you really dig down into it, the proponents of MMT know exactly how deceptive the scheme really is. They fully understand that it's allowing the government to pay for whatever it wants by printing money and letting the populace lose their savings due to larger inflation. And it fails to address immediate shortcomings: namely the fact that people will stop accepting payment in dollars if the government starts rampantly increasing inflation.

ChrisLomont 8y ago

>one where the recessions have been periodic, getting deeper over time and continued cycles, From [1], a list of US recessions: "The National Bureau of Economic Research dates recessions on a monthly basis back to 1854; according to their chronology, from 1854 to 1919, there were 16 cycles. The average recession lasted 22 months, and the average expansion 27. From 1919 to 1945, there were six cycles; recessions lasted an average 18 months and expansions for 35. From 1945 to 2001, and 10 cycles, recessions lasted an average 10 months and expansions an average of 57 months. This has prompted some economists to declare that the business cycle has become less severe. Many factors that may have contributed to this moderation including the establishment of deposit insurance in the form of the Federal Deposit Insurance Corporation in 1933 and increased regulation of the banking sector. Other changes include the use of fiscal policy in the form of automatic stabilizers to alleviate cyclical volatility. The creation of the Federal Reserve System in 1913 has been disputed as a source of stability with it and its policies having mixed successes. Since the early 1980s the sources of the Great Moderation has been attributed to numerous causes including public policy, industry practices, technology, and even good luck." [1] https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit...

bilbo0s 8y ago

I don't get the sense that the author believes the current system is perfect, or without flaws. The author simply points out some of the flaws, as the author perceives them, in MM Theory. Is the current system brittle, and growing more so over time? Absolutely. Is MM Theory the answer? I couldn't say. But part of ascertaining whether or not MM Theory can help us is taking a look at all of its wrinkles. (We should be taking a look at all of its benefits too. Again, just intellectual honesty, and necessary to the full analysis of the idea.)

AnimalMuppet 8y ago
> Is the current system brittle, and growing more so over time? Absolutely. The current system is growing brittle along one axis. After World War II, there was a cycle of recession and recovery, but each cycle had a higher level of inflation... until Reagan (or, if you prefer, Volcker). Since then, we've had the same cycle of recession and recovery, but each one with a lower level of inflation. But the problem has moved to a different axis - real wages.