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Modern Monetary Theory: - The state creates money and spends it into existence - The state taxes back money to control inflation, achieve social outcomes and i

Modern Monetary Theory: - The state creates money and spends it into existence - The state taxes back money to control inflation, achieve social outcomes and incentivise certain behaviour. The problem is the population like 1, and dislike 2. But inflation comes later and humans are bad at thinking rationally about future consequences (see: climate change). So it’s almost inevitable you get uncontrolled spending with printing. Aka ‘brr’. The other problem is that printing by itself is actually quite socialist. If everybody got equal and the dollar devalues equally across all asset classes goods/services, you end up reducing savings and reducing debts. One could argue this is Good. The problem is the printing just pours straight into the fat cats of Wall St and you end up with gross inequality.

Karishma1234fff 5y ago
> One could argue this is Good. Milton Friedman has several lectures around this. While excessive taxation and inflation are both bad for various reasons, inflation disproportionately hurts the poor. People who own homes, businesses, stocks, cars, gold, silver, bitcoin, farm land etc. dont have to worry about inflation as much. Those who have only cash in hand are the losers. Poor people who typically have only few thousand dollars in cash deposit savings see their money being wipes out by inflation. You dont have to worry if you have sp500.
- BreakfastB0b 5y ago
  Couldn’t the government counter this effect with tax breaks or UBI? Like how a carbon tax along with tax offsets alleviates the burden on the poor due to an increase in price of consumer items.
  - hirako2000 5y ago
    The carbon tax, like vat, is a tax targeting the poor entirely. Tax offsets? Yea right.. The middle class pays nearly the entire tax income ball. Funding UBI or anything else will have to come from there. The tax offset will always be in the benefit of the upper brackets, because they can't fund such a pool of money to be redistributed anyway. Tax corporates? Oh no, that would stifle innovation and reinvestment. So, tax the middle class. But that won't work. They already spend 2/3 of their earned wealth in various taxes. Nobody is going to work to fund a UBI they can get anyway. I love the idea of UBI, but doing the math and figuring out how people think about whether producing value for others vs doing nothing should show that it just can't work.I would happily be won't and take the UBI cheque and do something productive while not really having to care about the adoption of whatever I'm producing
    - dragonwriter 5y ago
      > The middle class pays nearly the entire tax income ball. Only because we choose to gift the capitalist class with preferential tax treatment. If we treated all income as income, the tax burden would shift from the middle class and higher-income working class to the capitalist class, where it rather self-evidently belongs
    - bryanlarsen 5y ago
      The Canadian carbon tax returns 90% of its revenue as a rebate. It works great -- my family gets $500 a year, more than what we pay. As far as the middle class paying for most of UBI, that's exactly what's supposed to happen. If you're an average taxpayer and UBI is $1000/month then your taxes should increase $1000/month.
      - jl2718 5y ago
        The 90% carbon tax rebate is interesting, because everybody thinks they are at least 10% better than average.
- pjc50 5y ago
  The poor aren't affected so much by monetary inflation as by old-school wage-price inflation. If wage inflation > price inflation, they're winning. Considerable effort has been invested (mostly by Friedmanites) to suppress the mechanisms of wage inflation. Conversely, if wage inflation < price inflation, that's a serious and immediate cashflow problem which will eat up their savings far faster than mere inflation will. > typically have only few thousand dollars in cash deposit savings see their money being wipes out by inflation 10% inflation on $1k savings vs 10% inflation on a $20k salary: you do the maths?
airza 5y ago
I don't think there are a lot of MMT proponents at the Fed.
- jl2718 5y ago
  There are lots of research economists at the fed with many different views. The St. Louis fed in particular produces many excellent reports. But… the fed is a business. They will operate to expand their domain to the maximum extent possible, regardless of internal opinion. Same with government.
RobertoG 5y ago
It seems that you are implying that "Modern Monetary Theory" has been adopted, if that's the case, you are totally missing the point. MMT it's a description (a theory that can be validated) of how the system works, not a recipe. Finally, after unavoidable evidence, people are starting to accept that this is how modern money really works (and have been working for quite a while). Now, we can have a conversation about what to do with it (I suspect that's a conversation many don't want to have), instead of talking about "public debt" and "borrowing from our grandchildren". By the way, most MMT economist recommend very different policies of what has been done, what is vindicated here is the "the state creates money and spends it into existence" only limited by inflation part. That doesn't mean that they recommend Quantitative Easing for instance.
makomk 5y ago
The trouble with MMT isn't necessarily so much that it's wrong, it's that it seems to have been latched onto by populist rabble-rousers who tell people that the government could just print enough money to give people all the nice, expansive government programs they'd want without the part where they tax ordinary people to pay for them, and the only reason they haven't already is because politicians are in the pockets of wealthy fat cats.
- dannyw 5y ago
  I mean, the issue is our tax code isn't taxing wealthy people enough.
  - jl2718 5y ago
    I don’t think you mean that exactly. I think what you mean is that the super-wealthy are the primary benefactors of the system which everybody else (mostly the moderately wealthy) is forced to pay for. But you’ll never get ‘fairness’ by force. Whoever wields power will use it to their own benefit.
- RobertoG 5y ago
  If MMT is not wrong (and it's not), it means that the government can spend all that it choose in its own currency with the only limit of inflation. This means, that the size of public deficit is important because it can be inflationary, but the size of the public debt, it's only an accumulate of past deficits and it's kind of irrelevant. If this is the case, it seems to me, that when, politicians say that there is not enough money, or the public debt is too high, they are basically lying to the population. That's the kind of lying that we don't hear when is time to spend in a war, or cut taxes for the rich, for instance. We agree that many politicians are in the pockets of wealthy fat cats.
  - djbebs 5y ago
    The size of the debt is not irrelevant in MMT. Public debt is simply shifting inflation in time, with the costs that additional inflation will be created, due to the additional spending on interest. In short it is simply reducing inflation today in order to have that inflation in the future, and that shift in time will require additional taxes to pay for it.
ArkanExplorer 5y ago
The fundamental problem is that we don't want to tell baby boomers that they will have to work until 70 in order to keep the system afloat, or that if they are rich (including the value of their house) that they should pay for their own retirement and healthcare in old age and not receive any handouts. Instead we will allow them to retire at 60/65, pay pensions independent of their personal wealth, and run the system into the ground. (Government spending on the healthcare and welfare - which is overwhelmingly baby boomers with expensive chronic health conditions, and their pensions - is about 50% of Government spending).
- mschuster91 5y ago
  > The fundamental problem is that we don't want to tell baby boomers that they will have to work until 70 in order to keep the system afloat, or that if they are rich (including the value of their house) that they should pay for their own retirement and healthcare in old age and not receive any handouts. We could also tax the rich to fund the pensions and healthcare of the masses. The amount of wealth the mega-rich have gained over the last year alone is absurd.
  - ArkanExplorer 5y ago
    That doesn't really solve the end purpose, which is that Baby Boomers need to lessen their consumption of national resources (real estate) and global resources (food, energy), so that these limited resources can be utilized by the next generations. It should be mandatory (either formally or through the pension/taxation system) for example to downsize your home and portfolio before you receive any subsidies or welfare.
- refurb 5y ago
  Aren’t most baby boomers already retired?
jl2718 5y ago
For most citizens, the benefit of spending goes negative after a certain point. But each additional dollar does benefit somebody, and everybody is fighting for it to be them. The strategy of reduced spending is a global optimum, but not a Nash equilibrium.
scotty79 5y ago
FED creates most money just by allowing commercial banks to loan the same money multiple times. How many times is controlled by rates. Good thing about producing money this way is that it has a fixed lifetime. When credit is paid back money becomes borrowed one time less and thus disappears from the economy. So the way to control inflation is to just adjust rates so that more credits are being paid back than issued. This scales down money in the economy. Taxes have barely anything to do with it. The only fault of this system is that when people default on their loans en mass, the additional money stays in the economy and can't be removed which results in inflation. https://en.wikipedia.org/wiki/Money_multiplier https://en.wikipedia.org/wiki/Money_multiplier

Karishma1234fff 5y ago

> One could argue this is Good. Milton Friedman has several lectures around this. While excessive taxation and inflation are both bad for various reasons, inflation disproportionately hurts the poor. People who own homes, businesses, stocks, cars, gold, silver, bitcoin, farm land etc. dont have to worry about inflation as much. Those who have only cash in hand are the losers. Poor people who typically have only few thousand dollars in cash deposit savings see their money being wipes out by inflation. You dont have to worry if you have sp500.

BreakfastB0b 5y ago
Couldn’t the government counter this effect with tax breaks or UBI? Like how a carbon tax along with tax offsets alleviates the burden on the poor due to an increase in price of consumer items.
- hirako2000 5y ago
  The carbon tax, like vat, is a tax targeting the poor entirely. Tax offsets? Yea right.. The middle class pays nearly the entire tax income ball. Funding UBI or anything else will have to come from there. The tax offset will always be in the benefit of the upper brackets, because they can't fund such a pool of money to be redistributed anyway. Tax corporates? Oh no, that would stifle innovation and reinvestment. So, tax the middle class. But that won't work. They already spend 2/3 of their earned wealth in various taxes. Nobody is going to work to fund a UBI they can get anyway. I love the idea of UBI, but doing the math and figuring out how people think about whether producing value for others vs doing nothing should show that it just can't work.I would happily be won't and take the UBI cheque and do something productive while not really having to care about the adoption of whatever I'm producing
  - dragonwriter 5y ago
    > The middle class pays nearly the entire tax income ball. Only because we choose to gift the capitalist class with preferential tax treatment. If we treated all income as income, the tax burden would shift from the middle class and higher-income working class to the capitalist class, where it rather self-evidently belongs
  - bryanlarsen 5y ago
    The Canadian carbon tax returns 90% of its revenue as a rebate. It works great -- my family gets $500 a year, more than what we pay. As far as the middle class paying for most of UBI, that's exactly what's supposed to happen. If you're an average taxpayer and UBI is $1000/month then your taxes should increase $1000/month.
    - jl2718 5y ago
      The 90% carbon tax rebate is interesting, because everybody thinks they are at least 10% better than average.
pjc50 5y ago
The poor aren't affected so much by monetary inflation as by old-school wage-price inflation. If wage inflation > price inflation, they're winning. Considerable effort has been invested (mostly by Friedmanites) to suppress the mechanisms of wage inflation. Conversely, if wage inflation < price inflation, that's a serious and immediate cashflow problem which will eat up their savings far faster than mere inflation will. > typically have only few thousand dollars in cash deposit savings see their money being wipes out by inflation 10% inflation on $1k savings vs 10% inflation on a $20k salary: you do the maths?

airza 5y ago

I don't think there are a lot of MMT proponents at the Fed.

jl2718 5y ago
There are lots of research economists at the fed with many different views. The St. Louis fed in particular produces many excellent reports. But… the fed is a business. They will operate to expand their domain to the maximum extent possible, regardless of internal opinion. Same with government.

RobertoG 5y ago

It seems that you are implying that "Modern Monetary Theory" has been adopted, if that's the case, you are totally missing the point. MMT it's a description (a theory that can be validated) of how the system works, not a recipe. Finally, after unavoidable evidence, people are starting to accept that this is how modern money really works (and have been working for quite a while). Now, we can have a conversation about what to do with it (I suspect that's a conversation many don't want to have), instead of talking about "public debt" and "borrowing from our grandchildren". By the way, most MMT economist recommend very different policies of what has been done, what is vindicated here is the "the state creates money and spends it into existence" only limited by inflation part. That doesn't mean that they recommend Quantitative Easing for instance.

makomk 5y ago

The trouble with MMT isn't necessarily so much that it's wrong, it's that it seems to have been latched onto by populist rabble-rousers who tell people that the government could just print enough money to give people all the nice, expansive government programs they'd want without the part where they tax ordinary people to pay for them, and the only reason they haven't already is because politicians are in the pockets of wealthy fat cats.

dannyw 5y ago
I mean, the issue is our tax code isn't taxing wealthy people enough.
- jl2718 5y ago
  I don’t think you mean that exactly. I think what you mean is that the super-wealthy are the primary benefactors of the system which everybody else (mostly the moderately wealthy) is forced to pay for. But you’ll never get ‘fairness’ by force. Whoever wields power will use it to their own benefit.
RobertoG 5y ago
If MMT is not wrong (and it's not), it means that the government can spend all that it choose in its own currency with the only limit of inflation. This means, that the size of public deficit is important because it can be inflationary, but the size of the public debt, it's only an accumulate of past deficits and it's kind of irrelevant. If this is the case, it seems to me, that when, politicians say that there is not enough money, or the public debt is too high, they are basically lying to the population. That's the kind of lying that we don't hear when is time to spend in a war, or cut taxes for the rich, for instance. We agree that many politicians are in the pockets of wealthy fat cats.
- djbebs 5y ago
  The size of the debt is not irrelevant in MMT. Public debt is simply shifting inflation in time, with the costs that additional inflation will be created, due to the additional spending on interest. In short it is simply reducing inflation today in order to have that inflation in the future, and that shift in time will require additional taxes to pay for it.

ArkanExplorer 5y ago

The fundamental problem is that we don't want to tell baby boomers that they will have to work until 70 in order to keep the system afloat, or that if they are rich (including the value of their house) that they should pay for their own retirement and healthcare in old age and not receive any handouts. Instead we will allow them to retire at 60/65, pay pensions independent of their personal wealth, and run the system into the ground. (Government spending on the healthcare and welfare - which is overwhelmingly baby boomers with expensive chronic health conditions, and their pensions - is about 50% of Government spending).

mschuster91 5y ago
> The fundamental problem is that we don't want to tell baby boomers that they will have to work until 70 in order to keep the system afloat, or that if they are rich (including the value of their house) that they should pay for their own retirement and healthcare in old age and not receive any handouts. We could also tax the rich to fund the pensions and healthcare of the masses. The amount of wealth the mega-rich have gained over the last year alone is absurd.
- ArkanExplorer 5y ago
  That doesn't really solve the end purpose, which is that Baby Boomers need to lessen their consumption of national resources (real estate) and global resources (food, energy), so that these limited resources can be utilized by the next generations. It should be mandatory (either formally or through the pension/taxation system) for example to downsize your home and portfolio before you receive any subsidies or welfare.
refurb 5y ago
Aren’t most baby boomers already retired?

jl2718 5y ago

For most citizens, the benefit of spending goes negative after a certain point. But each additional dollar does benefit somebody, and everybody is fighting for it to be them. The strategy of reduced spending is a global optimum, but not a Nash equilibrium.

scotty79 5y ago

FED creates most money just by allowing commercial banks to loan the same money multiple times. How many times is controlled by rates. Good thing about producing money this way is that it has a fixed lifetime. When credit is paid back money becomes borrowed one time less and thus disappears from the economy. So the way to control inflation is to just adjust rates so that more credits are being paid back than issued. This scales down money in the economy. Taxes have barely anything to do with it. The only fault of this system is that when people default on their loans en mass, the additional money stays in the economy and can't be removed which results in inflation. https://en.wikipedia.org/wiki/Money_multiplier https://en.wikipedia.org/wiki/Money_multiplier