7 ms·

A credentialed economist should put a stake through the heart of the heart of MMT. Two simple critiques: 1) Relative to a financial statement (i.e. budget), it

A credentialed economist should put a stake through the heart of the heart of MMT. Two simple critiques: 1) Relative to a financial statement (i.e. budget), it is difficult to predict and measure inflation. This difficulty lowers the likelihood of government fiscal responsibility and increases the likelihood of devestating inflation. 2) A basic second-order effect: What happens when people realize transfer medium is being debased? They'll obviously try not to store value in that transfer medium. How will volatile inflation affect the use of the transfer medium? Why wouldn't users switch to a better store of value, like every single developing market that has ever lost control of its currency? I am embarrassed for profession of economics that MMT is being entertained as a viable "new-old idea." Of course the government can debase the numéraire of the economy. Obviously, doing so transfers value from non-government to the government similar to taxation. The financial statement of the economy has to balance. This is merely a backdoor way of transferring assets in a deeply unaccountable way.

thadjo 8y ago
> This difficulty lowers the likelihood of government fiscal responsibility and increases the likelihood of devestating inflation. I share this worry too, but it's not like there's currently any political appetite for fiscal responsibility. I wonder if the threat of inflation and currency volatility would actually serve as better stick, than what we currently have which is continuing to run up a massive debt which will be terrible for our children?
mason55 8y ago
Right, it seems like the problem is more political than economic. Point 2 obviously flows from point 1, so the argument is whether point 1 is valid or not. In theory there might be viable ways to control inflation via taxes and other ways of soaking up extra money supply that's created by printing/spending. The implementation will be difficult though, especially if it's driven by a political process. Even if you initially start with something that has all the correct automatic adjustments built in (assume this is possible), there's always the risk that a new gov't breaks it. I think that for a change in paradigm like this to be successful you'd need stronger guarantees that things would stay in place long term (similar to UBI actually).
- cryptonector 8y ago
  1. Inflate 2. Tax to reduce inflation WAT No, (2) would simply add to inflation, adding insult to injury.
pytester 8y ago
This critique (and it is the by far the most common critique of MMT I've heard) boils down to this: "MMT may very well be an accurate depiction of reality, but the problem is that if people start to see it as an accurate depiction of reality then inflation might go up." That's definitely a problem for a certain class of people (creditors and investors). MMT is controversial because, if true, it's undermining a lie that is supporting those interests ("keeping inflation as low as possible") over the interests of society as a whole.
- tptacek 8y ago
  This does not make sense as a rebuttal. The MMT'ers and the monetarists agree that runaway inflation is very bad. Essentially what you're doing here is confirming the misperception that MMT is just left-wing back-rationalized voodoo economics, which it is not.
  - pytester 8y ago
    ^^ This is a straw man. I also agree that runaway inflation is bad. Almost everybody does. What I wrote above cannot, under any serious interpretation, be considered as a defense of runaway inflation.
    - tptacek 8y ago
      Help me understand where I went wrong reading this. I read, paraphrased: "The problem with MMT is that if everyone believes in it, they'll do things that cause inflation to rise", and "This is a problem primarily for the investing class".
      - pytester 8y ago
        That's accurate. Note that I did NOT say that it would cause runaway inflation. Runaway inflation (or hyperinflation, if we're being terminologically precise) == Inflation > 50% per month == Zimbabwe destroying its farmland and industry and having nothing useful to export and thus not having an economy that can support the current level of spending. Rising inflation == The US deciding, according to MMT principles, in the next decade that "fiscal responsibility" is not a reasonable justification for preventing medicare for all and maybe seeing a percentage bump in inflation as a result.
dsr_ 8y ago
"A credentialed economist should put a stake through the heart of the heart of MMT" -- yet somehow all the critiques made by credentialed economists have been based on misunderstanding MMT. "The financial statement of the economy has to balance." The heart of MMT is that the imbalance between money coming in to a powerful central government and money going out is the primary contributor to growth (or contraction) of the economy as a whole. When it is balanced, the economy is neither growing nor contracting. When the government increases the public debt in a sustainable manner (i.e. people are willing to buy all the Treasury bonds being offered) the economy improves. "This is merely a backdoor way of transferring assets in a deeply unaccountable way." It's not backdoor and it's not unaccountable; it's tax policy.
- manfredo 8y ago
  It's tax policy that is designed to be non-transparent. When the government collects $20 dollars from my income I know exactly what kind of value is being collected. When the government prints $20 it's not transparent what kind of value is being redirected to the government.
- roenxi 8y ago
  > The heart of MMT is that the imbalance between money coming in to a powerful central government and money going out is the primary contributor to growth (or contraction) of the economy as a whole. Only if our measures of economic strength are fundamentally measuring how much money is in it. If what is important is prudent use of resources then there is scant evidence that that is a good idea. And the reason we have an economy is to work out what 'prudent use of resources' means in practice. Governments have no advantage over private individuals in husbanding resources over the generations (look at how many governments make a pigs ear out of setting up pension, retirement systems and infrastructure spending). Strategically, MMT theories that I've read seem to say that government is a positive, but if we can't be sure who is paying for it maybe nobody is, so the net impact is probably also positive. That is clearly crazy, but also looks uncomfortably like an honest take on what a lot of governments do in practice. When the government takes on debt, it isn't obvious who is paying for it - the lender thinks they have an asset, so it isn't them. Identifying which taxpayers will pay the money back is as hard as unwinding who money printing is actually hurting.
WorldMaker 8y ago
> What happens when people realize transfer medium is being debased? They'll obviously try not to store value in that transfer medium. Arguably, to some proponents of MMT/in some versions of MMT, this is a feature and not a bug. Economically speaking, stored value at rest isn't "interesting", it's a potential indicator of waste or inefficiency of resource utilization in current flows. I've heard the argument that the real "bug" here is the human psychological need to "hoard" stationary value/"keep score", which admittedly is a very hard problem to solve, but having hard problems to solve isn't necessarily a disproof of a hypothesis such as MMT.
- zwaps 8y ago
  So you do not want to store value for things like retirement or risky times? Runaway inflation can make even intra-year saving impossible. If this is a feature of MMT, it seems they'd be willing to give up on a lot of civilization since be began farming.
  - WorldMaker 8y ago
    Many MMT proponents argue heavily for raising strong "floors" such as minimum current flows to/through individuals. The general goals are often to eliminate "risky times" as a category altogether as a general safety net for everyone. Then things like retirement and disability and sabbaticals are merely "special cases" of the general goal of eliminating "risky times". Yes, it's a very different view of economics from a lot of traditional approaches. It's not a fundamental "give up on a lot of civilization", even where it is a general rethink of "what does it mean to be a member of a civilization", including such things as what should be an individual's guaranteed safety floor, it's still mostly just civilization as we know it today swapping what we today think of as edge cases (social security, medicare, et al) for more generalized principles (in theory at least).
- conanbatt 8y ago
  I find the idea that private firms over-save and the way fix that is to print money to be disagreeable, and not an application of scientific or economical mindset, but the mere psychology of wanting to get results today at the cost of results tomorrow.
exolymph 8y ago
Here are some: http://www.igmchicago.org/surveys/modern-monetary-theory http://www.igmchicago.org/surveys/modern-monetary-theory The thing is, economists disagree with each other all the time, including the most erudite ones. Expert opinion is nearly always conflicted.
- airstrike 8y ago
  Obligatory post from 2009: https://gregmankiw.blogspot.com/2009/02/news-flash-economists-agree.html https://gregmankiw.blogspot.com/2009/02/news-flash-economist...
- howard941 8y ago
  Seems you incited someone to submit it [0]. I don't think it's unfair to say there wasn't any meaningful disagreement across the respondents at all. They only differed in how much confidence they had in disagreeing with the answer-begging question. [0] https://news.ycombinator.com/item?id=19456616 https://news.ycombinator.com/item?id=19456616
dragonwriter 8y ago
> A credentialed economist should put a stake through the heart of the heart of MMT. MMT is, AFAICT, pretty soldily grounded recitations of facts about fiat money that are widely recognized. It's been embraced by advocates of monetizing fiscal affairs because, well, it says that there is virtually unlimited short-term capacity to do that in a fiat-money system. But it's exactly that temptation in a fiat money system that motivated the strong separation we currently have between fiscal and monetary policy, which includes the whole structure of government financing operation g as if it were more like a normal participant in the economy. OTOH, the entity charged with fiscal policy in the US has either been actively hostile to real needs or asleep at the switch for most of the last couple decades, and monetary policy alone, as currently structured, directs money initially into what is often the wrong place, though fiscal policy can help move it to the right place. The problem with the MMT driven “solution” is it involves concentrating both fiscal and monetary policy in the hands of Congress, and if Congress wasn't being completely worthless we wouldn't have the problem people are turning to MMT to fix. If Congress were doing good work with fiscal policy but the Fed was screwing it up with poorly chosen or simply negligent monetary policy, then there would be a problem that the way MMT is being invoked would present a solution to.
- AnimalMuppet 8y ago
  This, a thousand times. MMT advocates want Congress to run the economy? Are you out of your freaking minds? They haven't even managed to pass an actual budget in the better part of a decade!
  - mempko 8y ago
    Let me tell you a secret, Congress ALREADY runs the economy. They just ACT like they don't. Notice they had no issue implementing tax cuts (increasing money supply) AND increasing military spending (increasing money supply). They act like they don't because otherwise, people might wonder "Hmm, if they can do that for the rich, and they can do that for the military, maybe, just maybe they can do that for me!". And then people might get strange ideas like, maybe we can afford universal health care, maybe we can have a system oriented towards their needs. So Congress doesn't want the people to know they already control the economy, because otherwise, people might want them to do the job they elected them to do.
cjlars 8y ago
Scott Sumner, who is a leading monetary economist and very much credentialed, has a takedown on his blog: https://www.themoneyillusion.com https://www.themoneyillusion.com
- jhundal 8y ago
  I have not formed an opinion on MMT, nor do I consider myself to have the right background trying to fully understand it or any other economic model, but even at my level of knowledge, the first four paragraphs of Sumner's rebuttal seem to be willful ignorance on his part. The views he cites as inconsistent easily fit into the MMT framework, which asserts that inflation is the only constraint that matters, and other factors (like large deficits) only matter if they affect inflation. Later on he cites low overall GDP growth in Japan to counter Japan as an example of large deficits/low inflation. This: 1) Doesn't invalidate the point. 2) Totally discounts that Japan has had _some_ GDP growth even as an aging population has led to a _smaller_ workforce over that period.
fnord77 8y ago
https://www.nytimes.com/2019/02/12/opinion/whats-wrong-with-functional-finance-wonkish.html https://www.nytimes.com/2019/02/12/opinion/whats-wrong-with-... https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wonkish.html https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wo...
conanbatt 8y ago
Krueger, Summers have very publicly vouched against it. Im surprised MMT is a thing at all.

thadjo 8y ago

> This difficulty lowers the likelihood of government fiscal responsibility and increases the likelihood of devestating inflation. I share this worry too, but it's not like there's currently any political appetite for fiscal responsibility. I wonder if the threat of inflation and currency volatility would actually serve as better stick, than what we currently have which is continuing to run up a massive debt which will be terrible for our children?

mason55 8y ago

Right, it seems like the problem is more political than economic. Point 2 obviously flows from point 1, so the argument is whether point 1 is valid or not. In theory there might be viable ways to control inflation via taxes and other ways of soaking up extra money supply that's created by printing/spending. The implementation will be difficult though, especially if it's driven by a political process. Even if you initially start with something that has all the correct automatic adjustments built in (assume this is possible), there's always the risk that a new gov't breaks it. I think that for a change in paradigm like this to be successful you'd need stronger guarantees that things would stay in place long term (similar to UBI actually).

cryptonector 8y ago
1. Inflate 2. Tax to reduce inflation WAT No, (2) would simply add to inflation, adding insult to injury.

pytester 8y ago

This critique (and it is the by far the most common critique of MMT I've heard) boils down to this: "MMT may very well be an accurate depiction of reality, but the problem is that if people start to see it as an accurate depiction of reality then inflation might go up." That's definitely a problem for a certain class of people (creditors and investors). MMT is controversial because, if true, it's undermining a lie that is supporting those interests ("keeping inflation as low as possible") over the interests of society as a whole.

tptacek 8y ago
This does not make sense as a rebuttal. The MMT'ers and the monetarists agree that runaway inflation is very bad. Essentially what you're doing here is confirming the misperception that MMT is just left-wing back-rationalized voodoo economics, which it is not.
- pytester 8y ago
  ^^ This is a straw man. I also agree that runaway inflation is bad. Almost everybody does. What I wrote above cannot, under any serious interpretation, be considered as a defense of runaway inflation.
  - tptacek 8y ago
    Help me understand where I went wrong reading this. I read, paraphrased: "The problem with MMT is that if everyone believes in it, they'll do things that cause inflation to rise", and "This is a problem primarily for the investing class".
    - pytester 8y ago
      That's accurate. Note that I did NOT say that it would cause runaway inflation. Runaway inflation (or hyperinflation, if we're being terminologically precise) == Inflation > 50% per month == Zimbabwe destroying its farmland and industry and having nothing useful to export and thus not having an economy that can support the current level of spending. Rising inflation == The US deciding, according to MMT principles, in the next decade that "fiscal responsibility" is not a reasonable justification for preventing medicare for all and maybe seeing a percentage bump in inflation as a result.

dsr_ 8y ago

"A credentialed economist should put a stake through the heart of the heart of MMT" -- yet somehow all the critiques made by credentialed economists have been based on misunderstanding MMT. "The financial statement of the economy has to balance." The heart of MMT is that the imbalance between money coming in to a powerful central government and money going out is the primary contributor to growth (or contraction) of the economy as a whole. When it is balanced, the economy is neither growing nor contracting. When the government increases the public debt in a sustainable manner (i.e. people are willing to buy all the Treasury bonds being offered) the economy improves. "This is merely a backdoor way of transferring assets in a deeply unaccountable way." It's not backdoor and it's not unaccountable; it's tax policy.

manfredo 8y ago
It's tax policy that is designed to be non-transparent. When the government collects $20 dollars from my income I know exactly what kind of value is being collected. When the government prints $20 it's not transparent what kind of value is being redirected to the government.
roenxi 8y ago
> The heart of MMT is that the imbalance between money coming in to a powerful central government and money going out is the primary contributor to growth (or contraction) of the economy as a whole. Only if our measures of economic strength are fundamentally measuring how much money is in it. If what is important is prudent use of resources then there is scant evidence that that is a good idea. And the reason we have an economy is to work out what 'prudent use of resources' means in practice. Governments have no advantage over private individuals in husbanding resources over the generations (look at how many governments make a pigs ear out of setting up pension, retirement systems and infrastructure spending). Strategically, MMT theories that I've read seem to say that government is a positive, but if we can't be sure who is paying for it maybe nobody is, so the net impact is probably also positive. That is clearly crazy, but also looks uncomfortably like an honest take on what a lot of governments do in practice. When the government takes on debt, it isn't obvious who is paying for it - the lender thinks they have an asset, so it isn't them. Identifying which taxpayers will pay the money back is as hard as unwinding who money printing is actually hurting.

WorldMaker 8y ago

> What happens when people realize transfer medium is being debased? They'll obviously try not to store value in that transfer medium. Arguably, to some proponents of MMT/in some versions of MMT, this is a feature and not a bug. Economically speaking, stored value at rest isn't "interesting", it's a potential indicator of waste or inefficiency of resource utilization in current flows. I've heard the argument that the real "bug" here is the human psychological need to "hoard" stationary value/"keep score", which admittedly is a very hard problem to solve, but having hard problems to solve isn't necessarily a disproof of a hypothesis such as MMT.

zwaps 8y ago
So you do not want to store value for things like retirement or risky times? Runaway inflation can make even intra-year saving impossible. If this is a feature of MMT, it seems they'd be willing to give up on a lot of civilization since be began farming.
- WorldMaker 8y ago
  Many MMT proponents argue heavily for raising strong "floors" such as minimum current flows to/through individuals. The general goals are often to eliminate "risky times" as a category altogether as a general safety net for everyone. Then things like retirement and disability and sabbaticals are merely "special cases" of the general goal of eliminating "risky times". Yes, it's a very different view of economics from a lot of traditional approaches. It's not a fundamental "give up on a lot of civilization", even where it is a general rethink of "what does it mean to be a member of a civilization", including such things as what should be an individual's guaranteed safety floor, it's still mostly just civilization as we know it today swapping what we today think of as edge cases (social security, medicare, et al) for more generalized principles (in theory at least).
conanbatt 8y ago
I find the idea that private firms over-save and the way fix that is to print money to be disagreeable, and not an application of scientific or economical mindset, but the mere psychology of wanting to get results today at the cost of results tomorrow.

exolymph 8y ago

Here are some: http://www.igmchicago.org/surveys/modern-monetary-theory http://www.igmchicago.org/surveys/modern-monetary-theory The thing is, economists disagree with each other all the time, including the most erudite ones. Expert opinion is nearly always conflicted.

airstrike 8y ago
Obligatory post from 2009: https://gregmankiw.blogspot.com/2009/02/news-flash-economists-agree.html https://gregmankiw.blogspot.com/2009/02/news-flash-economist...
howard941 8y ago
Seems you incited someone to submit it [0]. I don't think it's unfair to say there wasn't any meaningful disagreement across the respondents at all. They only differed in how much confidence they had in disagreeing with the answer-begging question. [0] https://news.ycombinator.com/item?id=19456616 https://news.ycombinator.com/item?id=19456616

dragonwriter 8y ago

> A credentialed economist should put a stake through the heart of the heart of MMT. MMT is, AFAICT, pretty soldily grounded recitations of facts about fiat money that are widely recognized. It's been embraced by advocates of monetizing fiscal affairs because, well, it says that there is virtually unlimited short-term capacity to do that in a fiat-money system. But it's exactly that temptation in a fiat money system that motivated the strong separation we currently have between fiscal and monetary policy, which includes the whole structure of government financing operation g as if it were more like a normal participant in the economy. OTOH, the entity charged with fiscal policy in the US has either been actively hostile to real needs or asleep at the switch for most of the last couple decades, and monetary policy alone, as currently structured, directs money initially into what is often the wrong place, though fiscal policy can help move it to the right place. The problem with the MMT driven “solution” is it involves concentrating both fiscal and monetary policy in the hands of Congress, and if Congress wasn't being completely worthless we wouldn't have the problem people are turning to MMT to fix. If Congress were doing good work with fiscal policy but the Fed was screwing it up with poorly chosen or simply negligent monetary policy, then there would be a problem that the way MMT is being invoked would present a solution to.

AnimalMuppet 8y ago
This, a thousand times. MMT advocates want Congress to run the economy? Are you out of your freaking minds? They haven't even managed to pass an actual budget in the better part of a decade!
- mempko 8y ago
  Let me tell you a secret, Congress ALREADY runs the economy. They just ACT like they don't. Notice they had no issue implementing tax cuts (increasing money supply) AND increasing military spending (increasing money supply). They act like they don't because otherwise, people might wonder "Hmm, if they can do that for the rich, and they can do that for the military, maybe, just maybe they can do that for me!". And then people might get strange ideas like, maybe we can afford universal health care, maybe we can have a system oriented towards their needs. So Congress doesn't want the people to know they already control the economy, because otherwise, people might want them to do the job they elected them to do.

cjlars 8y ago

Scott Sumner, who is a leading monetary economist and very much credentialed, has a takedown on his blog: https://www.themoneyillusion.com https://www.themoneyillusion.com

jhundal 8y ago
I have not formed an opinion on MMT, nor do I consider myself to have the right background trying to fully understand it or any other economic model, but even at my level of knowledge, the first four paragraphs of Sumner's rebuttal seem to be willful ignorance on his part. The views he cites as inconsistent easily fit into the MMT framework, which asserts that inflation is the only constraint that matters, and other factors (like large deficits) only matter if they affect inflation. Later on he cites low overall GDP growth in Japan to counter Japan as an example of large deficits/low inflation. This: 1) Doesn't invalidate the point. 2) Totally discounts that Japan has had _some_ GDP growth even as an aging population has led to a _smaller_ workforce over that period.

fnord77 8y ago

https://www.nytimes.com/2019/02/12/opinion/whats-wrong-with-functional-finance-wonkish.html https://www.nytimes.com/2019/02/12/opinion/whats-wrong-with-... https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wonkish.html https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wo...

conanbatt 8y ago

Krueger, Summers have very publicly vouched against it. Im surprised MMT is a thing at all.