6 ms·

One of the biggest things confusing people about how public finance works is that everyone is focused on the Fed rather than the Treasury. A good aspect of MMT

by laurus 6y ago

One of the biggest things confusing people about how public finance works is that everyone is focused on the Fed rather than the Treasury. A good aspect of MMT is that it explains how the Treasury spending more than it takes in in taxes means more money is created into the economy than is deleted out of the economy. This is the more important thing to focus on. Some of the MMT professors also do a good job explaining how QE (quantitative easing) doesn't create new net financial assets into the system, it just shifts around assets in accounts at the Fed. All this focus on the Fed seems counterproductive.

freeMoneySry 6y ago
This reminds me of how the Romans supposedly didn't know that printing money would create inflation. We know MMT is bad long term policy, but politicians in the short term can create favorable economic conditions for the few.
- thomashobohm 6y ago
  These things are not known, actually. There are people much smarter than you or me that would disagree with your sentiment that "we know MMT is a bad long term policy."
  - ravenstine 6y ago
    > There are people much smarter than you or me that would disagree with your sentiment that "we know MMT is a bad long term policy." How is anyone supposed to argue against that? You can use that to try and defeat any argument, but it doesn't really demonstrate anything. What people? How do you know they are smarter? Are smart people always correct?
    - cultus 6y ago
      The grandparent made a blanket statement that "we know MMT is a bad long term policy" which the other poster was rightly pointing out is wrong. This is a ridiculous blanket statement, and clearly and obviously false. Such arguments don't deserve detailed rebuttals.
      - ravenstine 6y ago
        That's really not a good way to address blanket statements. Just referring to nebulous "smart people" adds nothing. It doesn't need a detailed rebuttal. Here are some examples of reasonable responses: - How do you know that? - When in history did that happen? - Could you be more specific? None of those require more than one sentence, or implying that the person is too stupid to have an opinion.
        cultus 6y ago
        The nebulous "smart people" is a good thing to bring up when a tech person is Dunning-Krugering outside of their field.
        andreilys 6y ago
        Except the field of economics is filled with Dunning Kruger’s, despite years and years of education. I am yet to find a macro economist that is sensible and intelligent.
        thomashobohm 6y ago
        Sorry, let me be clear: by "smart people" I mean economists who have spent their lives studying monetary and fiscal policy and analyzing how it can be used to make the world a better place. Not sure why the onus is on me to be "reasonable" in my response when we all agree that the person I was replying to was making an entirely unreasonable assertion.
        logicchains 6y ago
        >I mean economists who have spent their lives studying monetary and fiscal policy and analyzing how it can be used to make the world a better place. This means nothing when they haven't been held accountable for bad predictions. I work in finance, and it's super easy to build a model that looks like it can predict the future, but fails completely when applied in practice, due to some statistical/modelling error. Predicting the future is damn hard; it's way easier for us to convince ourselves that a model is correct than to actuallly produce a correct model, so if somebody isn't subject to a constant process of feedback (a scientific process) it's very unlikely they're producing correct models. Crystal healers have also spent their lives trying to determine how crystals can be used to make the world a better place; it doesn't mean squat because they don't apply the scientific method in their research. From an economic perspective, if these people really had models that could predict the future, they'd be traders, not economists. Because why settle for a meagre economist's salary when they could be making millions?
take_a_breath 6y ago
It is rarely mentioned how deficit spending leads directly to private wealth creation. Increased military spending actually means increased outsourcing. It’s a transfer of wealth from the collective (future taxpayers) to the private (contractors and businesses).
- 3fe9a03ccd14ca5 6y ago
  Is there something inherent to the defense industry that’s not true also for other industries?
  - take_a_breath 6y ago
    Other than the amount of government money they receive, not particularly. Same thing would happen if we increased deficit spending for education purposes. Schools might bring in more external for mental health, contract out food preparation, provide tablets for all students, etc. Each of those would be a transfer of money from public (taxpayers) to private hands (contractors and companies). One could argue that investing in a bomb that explodes in another country doesn't create as much economic value as using that same money to invest in the education of an American child. Eisenhower had some thoughts when he left office [1]: ==This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence -- economic, political, even spiritual -- is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society. In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the militaryindustrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.== ==Another factor in maintaining balance involves the element of time. As we peer into society's future, we -- you and I, and our government -- must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow. == [1] https://avalon.law.yale.edu/20th_century/eisenhower001.asp https://avalon.law.yale.edu/20th_century/eisenhower001.asp
fbonetti 6y ago
> A good aspect of MMT is that it explains how the Treasury spending more than it takes in in taxes means more money is created into the economy than is deleted out of the economy. This is the more important thing to focus on. This is one of the most absurd claims of the supposedly "descriptive" MMT. Taxation does not delete money from the economy. When the federal government collects taxes, it doesn't take that money and burn it in a giant pit. It turns around and immediately spends that money. Yes, the federal government does not need your tax dollars. Yes, they technically have the ability to print an infinite amount of dollars. But that doesn't support the claim that taxation removes money from the economy. > Some of the MMT professors also do a good job explaining how QE (quantitative easing) doesn't create new net financial assets into the system, it just shifts around assets in accounts at the Fed. This is completely false. The Fed creates new reserves (base money) in order to buy assets. https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE
- RobertoG 6y ago
  >>"This is one of the most absurd claims of the supposedly "descriptive" MMT. Taxation does not delete money from the economy. When the federal government collects taxes, it doesn't take that money and burn it in a giant pit. It turns around and immediately spends that money." I didn't know that idea was so polemic. So, what you are saying is that government deficits are inflationary because they add money to the economy, but, on the other hand, government surplus don't retire money from the economy? >>"This is completely false. The Fed creates new reserves (base money) in order to buy assets." Yes, but the assets the Fed buy (when practicing QE) are in the accounts of the commercial banks in the Fed. After buying them, those assets are not there anymore, and, instead there is money (1). And money is basically a government bond that pay 0% interest. 1 - http://bilbo.economicoutlook.net/blog/?p=661 http://bilbo.economicoutlook.net/blog/?p=661
  - fbonetti 6y ago
    > So, what you are saying is that government deficits are inflationary because they add money to the economy, but, on the other hand, government surplus don't retire money from the economy? Honestly I don't know what point you're trying to make, or what deficits or surpluses have to do with anything. A deficit or surplus is merely the delta between total revenues and an arbitrarily defined budget. Inflation is caused by additional dollars chasing the same number of goods. Printing money does not create goods and services - it merely decreases the value of each dollar relative to everything else. If I had a machine that could create an unlimited amount of gold at zero cost, the price of gold would approach zero if I made and sold enough of it. I don't know why you would think dollars would be any different. > Yes, but the assets the Fed buy (when practicing QE) are in the accounts of the commercial banks in the Fed. After buying them, those assets are not there anymore, and, instead there is money (1). And money is basically a government bond that pay 0% interest. Yes, the bank exchanges an asset (like a treasury) in exchange for reserves (base money). The question you need to ask yourself is, where did those reserves come from? Another question you need to ask is, when Fed engages in QE, why does the monetary base increase?

by laurus 6y ago

freeMoneySry 6y ago

This reminds me of how the Romans supposedly didn't know that printing money would create inflation. We know MMT is bad long term policy, but politicians in the short term can create favorable economic conditions for the few.

thomashobohm 6y ago
These things are not known, actually. There are people much smarter than you or me that would disagree with your sentiment that "we know MMT is a bad long term policy."
- ravenstine 6y ago
  > There are people much smarter than you or me that would disagree with your sentiment that "we know MMT is a bad long term policy." How is anyone supposed to argue against that? You can use that to try and defeat any argument, but it doesn't really demonstrate anything. What people? How do you know they are smarter? Are smart people always correct?
  - cultus 6y ago
    The grandparent made a blanket statement that "we know MMT is a bad long term policy" which the other poster was rightly pointing out is wrong. This is a ridiculous blanket statement, and clearly and obviously false. Such arguments don't deserve detailed rebuttals.
    - ravenstine 6y ago
      That's really not a good way to address blanket statements. Just referring to nebulous "smart people" adds nothing. It doesn't need a detailed rebuttal. Here are some examples of reasonable responses: - How do you know that? - When in history did that happen? - Could you be more specific? None of those require more than one sentence, or implying that the person is too stupid to have an opinion.
      - cultus 6y ago
        The nebulous "smart people" is a good thing to bring up when a tech person is Dunning-Krugering outside of their field.
        andreilys 6y ago
        Except the field of economics is filled with Dunning Kruger’s, despite years and years of education. I am yet to find a macro economist that is sensible and intelligent.
      - thomashobohm 6y ago
        Sorry, let me be clear: by "smart people" I mean economists who have spent their lives studying monetary and fiscal policy and analyzing how it can be used to make the world a better place. Not sure why the onus is on me to be "reasonable" in my response when we all agree that the person I was replying to was making an entirely unreasonable assertion.
        logicchains 6y ago
        >I mean economists who have spent their lives studying monetary and fiscal policy and analyzing how it can be used to make the world a better place. This means nothing when they haven't been held accountable for bad predictions. I work in finance, and it's super easy to build a model that looks like it can predict the future, but fails completely when applied in practice, due to some statistical/modelling error. Predicting the future is damn hard; it's way easier for us to convince ourselves that a model is correct than to actuallly produce a correct model, so if somebody isn't subject to a constant process of feedback (a scientific process) it's very unlikely they're producing correct models. Crystal healers have also spent their lives trying to determine how crystals can be used to make the world a better place; it doesn't mean squat because they don't apply the scientific method in their research. From an economic perspective, if these people really had models that could predict the future, they'd be traders, not economists. Because why settle for a meagre economist's salary when they could be making millions?

take_a_breath 6y ago

It is rarely mentioned how deficit spending leads directly to private wealth creation. Increased military spending actually means increased outsourcing. It’s a transfer of wealth from the collective (future taxpayers) to the private (contractors and businesses).

3fe9a03ccd14ca5 6y ago
Is there something inherent to the defense industry that’s not true also for other industries?
- take_a_breath 6y ago
  Other than the amount of government money they receive, not particularly. Same thing would happen if we increased deficit spending for education purposes. Schools might bring in more external for mental health, contract out food preparation, provide tablets for all students, etc. Each of those would be a transfer of money from public (taxpayers) to private hands (contractors and companies). One could argue that investing in a bomb that explodes in another country doesn't create as much economic value as using that same money to invest in the education of an American child. Eisenhower had some thoughts when he left office [1]: ==This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence -- economic, political, even spiritual -- is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society. In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the militaryindustrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.== ==Another factor in maintaining balance involves the element of time. As we peer into society's future, we -- you and I, and our government -- must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow. == [1] https://avalon.law.yale.edu/20th_century/eisenhower001.asp https://avalon.law.yale.edu/20th_century/eisenhower001.asp

fbonetti 6y ago

> A good aspect of MMT is that it explains how the Treasury spending more than it takes in in taxes means more money is created into the economy than is deleted out of the economy. This is the more important thing to focus on. This is one of the most absurd claims of the supposedly "descriptive" MMT. Taxation does not delete money from the economy. When the federal government collects taxes, it doesn't take that money and burn it in a giant pit. It turns around and immediately spends that money. Yes, the federal government does not need your tax dollars. Yes, they technically have the ability to print an infinite amount of dollars. But that doesn't support the claim that taxation removes money from the economy. > Some of the MMT professors also do a good job explaining how QE (quantitative easing) doesn't create new net financial assets into the system, it just shifts around assets in accounts at the Fed. This is completely false. The Fed creates new reserves (base money) in order to buy assets. https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE

RobertoG 6y ago
>>"This is one of the most absurd claims of the supposedly "descriptive" MMT. Taxation does not delete money from the economy. When the federal government collects taxes, it doesn't take that money and burn it in a giant pit. It turns around and immediately spends that money." I didn't know that idea was so polemic. So, what you are saying is that government deficits are inflationary because they add money to the economy, but, on the other hand, government surplus don't retire money from the economy? >>"This is completely false. The Fed creates new reserves (base money) in order to buy assets." Yes, but the assets the Fed buy (when practicing QE) are in the accounts of the commercial banks in the Fed. After buying them, those assets are not there anymore, and, instead there is money (1). And money is basically a government bond that pay 0% interest. 1 - http://bilbo.economicoutlook.net/blog/?p=661 http://bilbo.economicoutlook.net/blog/?p=661
- fbonetti 6y ago
  > So, what you are saying is that government deficits are inflationary because they add money to the economy, but, on the other hand, government surplus don't retire money from the economy? Honestly I don't know what point you're trying to make, or what deficits or surpluses have to do with anything. A deficit or surplus is merely the delta between total revenues and an arbitrarily defined budget. Inflation is caused by additional dollars chasing the same number of goods. Printing money does not create goods and services - it merely decreases the value of each dollar relative to everything else. If I had a machine that could create an unlimited amount of gold at zero cost, the price of gold would approach zero if I made and sold enough of it. I don't know why you would think dollars would be any different. > Yes, but the assets the Fed buy (when practicing QE) are in the accounts of the commercial banks in the Fed. After buying them, those assets are not there anymore, and, instead there is money (1). And money is basically a government bond that pay 0% interest. Yes, the bank exchanges an asset (like a treasury) in exchange for reserves (base money). The question you need to ask yourself is, where did those reserves come from? Another question you need to ask is, when Fed engages in QE, why does the monetary base increase?