7 ms·

MMT going mainstream is valuable because it's charging the conversation about what we really should be worried about in terms of fiscal policy. And the answer i

MMT going mainstream is valuable because it's charging the conversation about what we really should be worried about in terms of fiscal policy. And the answer is inflation, if you want to know why we are still adding 200,000 jobs a year 10 years into our economic recovery it's because the Fed was too scared of inflation to signal that long term interest rates would remain low. The Fed should probably raise their target interest rate, especially if we are going to invest in green technology to mitigate climate change.

SubiculumCode 7y ago
I think it is helpful that the narrative is changing away from household debt model (gotta pay our bills) to a fiat model (we can always pay high debt owed in our currency, but we risk inflation). Please let me know where I bugger this. New money is either created through Federal fiscal spending or through loans (e.g., businesses). Because there is only so much monetary space in an economy beyond which inflation occurs, policies must choose between a mixture of fiscal spending (public works) and loans (private sector). 1. The prototypical fiscal conservative position is low taxes & low spending. 2. The prototypical fiscal liberal position is high taxes & high spending. Each of these policies can provide roughly the same monetary space for money creation through new loans, but can incur different problems (e.g. over/under regulation, over/under provision of services). 3. A low taxes & high spend policy could push on inflation, pushing out money creation via loans if maintaining inflation target (via raising interest rate). 4. A high tax & low spend policy could pull deflation, driving money creation via loans if maintaining inflation target (via lowering interest rate (but will there be customers?)). But none of this has to do with the "federal deficit is bankrupting us" arguments that have plagued our policy discussions. The shift in framing by MMT allows us to move away from debt towards how to most productively use new money creation. Some believe public works are productive. Some believe that businesses are most ready to use new money productively. hy does productivity matter? Apparently, from what I gather, when new money is used productively (creates value) it is less likely to be inflationary, perhaps because it creates new products and services instead of just driving demand. And the shift in focus allows us to focus on answering the important questions about how much money can be pumped into the economy (and to whom) before we see significant inflation, and relatedly, what are the real drivers of inflation. For example, money creation can create too many dollars chasing too few goods, but if there is an excess in supply/supply capacity, then you won't see inflation until there is an equilibrium. I suspect that our economy can run a lot hotter before we see a lot of inflation outside of housing, non-competitive markets, and healthcare. I'm just a guy that has read a few blogs on monetary policy. I'm probably wrong on a bunch of levels.
notme77 7y ago
Inflation moves money from the rich (who have assets) to the poor (who have debt). Can't have that...
- sytelus 7y ago
  Not at all. Inflation increases asset values in most classes and if anything rich are the main beneficiary of the inflation. For example, a rich person will typically borrow $1M against his other assets to buy a condo at 3%. Inflation makes that condo $2M but you are still paying 3% on original pricing. Your networth just increased on inflation-adjusted basis. On the other hand deflation negatively impacts rich people. Vast majority of income for many rich people is passive income. Deflation makes it miniscule while at the same time empowering poor people to aquire capital at negligible cost.
- htk 7y ago
  Inflation moves money from citizens (who have X amount of money) to the government (who can print money).
  - sytelus 7y ago
    I'm surprised at view of inflation here. Inflation moves money from the future generation to the current generation. When you are printing money, you are in effect borrowing from future yourself (or your descendants). This is one of the most magical modern things you can do with debt. Previously in human history, you can borrow money to others to create wealth which was then translated into more money. This was an extra-ordinarily powerful concept we called "debt". Now we can borrow from future ourselves! No one knows how this will pan out.
    - gowld 7y ago
      See "Debt, The First 5000 Years". The concept of IOUs (inflation) isn't new at all.
  - asynchrony 7y ago
    Only the citizens who like to keep inert piles of cash buried in their back yard.

SubiculumCode 7y ago

I think it is helpful that the narrative is changing away from household debt model (gotta pay our bills) to a fiat model (we can always pay high debt owed in our currency, but we risk inflation). Please let me know where I bugger this. New money is either created through Federal fiscal spending or through loans (e.g., businesses). Because there is only so much monetary space in an economy beyond which inflation occurs, policies must choose between a mixture of fiscal spending (public works) and loans (private sector). 1. The prototypical fiscal conservative position is low taxes & low spending. 2. The prototypical fiscal liberal position is high taxes & high spending. Each of these policies can provide roughly the same monetary space for money creation through new loans, but can incur different problems (e.g. over/under regulation, over/under provision of services). 3. A low taxes & high spend policy could push on inflation, pushing out money creation via loans if maintaining inflation target (via raising interest rate). 4. A high tax & low spend policy could pull deflation, driving money creation via loans if maintaining inflation target (via lowering interest rate (but will there be customers?)). But none of this has to do with the "federal deficit is bankrupting us" arguments that have plagued our policy discussions. The shift in framing by MMT allows us to move away from debt towards how to most productively use new money creation. Some believe public works are productive. Some believe that businesses are most ready to use new money productively. hy does productivity matter? Apparently, from what I gather, when new money is used productively (creates value) it is less likely to be inflationary, perhaps because it creates new products and services instead of just driving demand. And the shift in focus allows us to focus on answering the important questions about how much money can be pumped into the economy (and to whom) before we see significant inflation, and relatedly, what are the real drivers of inflation. For example, money creation can create too many dollars chasing too few goods, but if there is an excess in supply/supply capacity, then you won't see inflation until there is an equilibrium. I suspect that our economy can run a lot hotter before we see a lot of inflation outside of housing, non-competitive markets, and healthcare. I'm just a guy that has read a few blogs on monetary policy. I'm probably wrong on a bunch of levels.

notme77 7y ago

Inflation moves money from the rich (who have assets) to the poor (who have debt). Can't have that...

sytelus 7y ago
Not at all. Inflation increases asset values in most classes and if anything rich are the main beneficiary of the inflation. For example, a rich person will typically borrow $1M against his other assets to buy a condo at 3%. Inflation makes that condo $2M but you are still paying 3% on original pricing. Your networth just increased on inflation-adjusted basis. On the other hand deflation negatively impacts rich people. Vast majority of income for many rich people is passive income. Deflation makes it miniscule while at the same time empowering poor people to aquire capital at negligible cost.
htk 7y ago
Inflation moves money from citizens (who have X amount of money) to the government (who can print money).
- sytelus 7y ago
  I'm surprised at view of inflation here. Inflation moves money from the future generation to the current generation. When you are printing money, you are in effect borrowing from future yourself (or your descendants). This is one of the most magical modern things you can do with debt. Previously in human history, you can borrow money to others to create wealth which was then translated into more money. This was an extra-ordinarily powerful concept we called "debt". Now we can borrow from future ourselves! No one knows how this will pan out.
  - gowld 7y ago
    See "Debt, The First 5000 Years". The concept of IOUs (inflation) isn't new at all.
- asynchrony 7y ago
  Only the citizens who like to keep inert piles of cash buried in their back yard.