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Google Modern Monetary Theory. The jist is that printing money is only inflationary when the nations productive capacity is fully utilized.

blowski 5y ago
MMT does say that, but MMT is far from being widely accepted as correct.
- alangibson 5y ago
  OK. No theory is widely accepted before it is.
  - blowski 5y ago
    That doesn’t mean “all theories are eventually correct”.
    - alangibson 5y ago
      No it doesn't. I was just pointing out that you weren't really saying anything in your comment.
- CraigJPerry 5y ago
  Of the 5 tennets of MMT, only 1 is disputed by mainstream economics i think? As i understand it, more or less everyone (excluding fringe groups) agrees that: 1. All money is created by the state or other banks acting under state licence 2. Money only has value because the government promises to back it 3. because taxes must be paid in government-issued money 4. Therefore government spending comes before taxation The bone of contention as i understand it is the 5th tennet: 5. Government deficits are necessary and good because without them the means to make settlement would not exist in our economy As i understand the argument, it boils down to a disagreement about whether public investment can crowd out private. EDIT: points from https://www.google.com/amp/s/criticalfinance.org/2019/02/06/misunderstanding-mmt/amp/ https://www.google.com/amp/s/criticalfinance.org/2019/02/06/...
  - alangibson 5y ago
    5 is really only debated by academics. I think the actions of policy makers prove they think it's true. Does anyone remember the debate during the Clinton years over whether or not they should start paying back government debt given a surplus?
    - stephen_g 5y ago
      Item 5 is theoretically true if you assume accounting rules hold. The sectoral balances formula (derived from the definition of GDP) doesn't hold otherwise. The only way for the economy to grow if the Government is running surpluses is with increasing private debt (so not really "paying down" anything but just transferring debt from one sector of the economy to another), and/or with a big enough trade surplus to cancel out the other sectors.
  - dllthomas 5y ago
    I was under the impression that 2 is manifestly false (unless I'm a very weak sense) given currencies in use that retained some value after the issuing state fell.
    - alangibson 5y ago
      Can you give an example? You could see it being true temporarily just due to lack of any alternative. In any event, the parents take on 2 is not exactly correct. MMT people say that a primary source of demand for a currency is that taxes may only be paid in that currency. Governments spend money into existence and tax it out of existence.
      - dllthomas 5y ago
        I believe the Somali shilling was the case I first heard of. There seems to have been a case in Iraq in the 90s as well with the "Swiss dinar". > [...] a primary source of demand [...] That indeed sounds much more plausible.
    - dllthomas 5y ago
godelski 5y ago
One interesting thing about this is that the effect of printing money (how it influences inflation) highly depends on perception. Radio Lab talked about this in a recent episode[0]. This has been a measured effect too and so it is interesting that fearing inflation can be a self fulfilling prophesy. [0] https://www.wnycstudios.org/podcasts/radiolab/articles/more-money-less-problems https://www.wnycstudios.org/podcasts/radiolab/articles/more-...
- btilly 5y ago
  The best example of how perception matters was how the careful introduction of the Brazilian real ended hyperinflation merely by creating a perception that it wouldn't inflate. (It was pegged to the old currency at a rate that inflated at the same rate that the old currency did. All stores had to post prices in both old and real. After people were used to seeing real standing still, Brazil started printing them and continued indexing them at inflating rates to the old. And the price stayed constant as the old currency was replaced by the new.
ardit33 5y ago
MMT is a junk theory created by silver spooned academics with no real life experience. It has not been proven in practice, or when something close to it is practices it does lead to inflation or devaluation of the country’s currency (Think Argentina, Turkey and today Lebanon). When communism fell, I remember how the west promoted the ‘shock therapy’ to former communist countries, which was devastating to them. Another junk science that lead to a ‘lost decade’ and misery in eastern countries. It was a ‘rip the Bandaid’ type of approach, which failed as it didn’t account that some countries needed time to adjust to the new capital system and it led to the closure of many lines of production that were actually profitable, as it was a ‘hard reset’ Be very wary when someone peddles a new ‘theory’ which is unproved, as a magical cure. Communism was one of them as well.
- alangibson 5y ago
  I'm gonna guess you know much about the history of MMT, because it was created as a description of how money works in the US by a guy that spent his career on a trading desk.
- criddell 5y ago
  If it isn’t shrewd application of MMT, then what explains Japans economy?
toomanydoubts 5y ago
MMT is just something the ones in control of the printing press made up to convince gullible people that they're not being outright robbed by quantitative easing.
- alangibson 5y ago
  Factually incorrect. Mosler spent most of his career in a hedge fund. MMT was a description of how he thought money actually worked in the modern age.
- dv_dt 5y ago
  Most MMT economists I follow on the topic would say MMT is independent of QE as a policy. But also as an outlay of currency, QE is one of the least effective uses to support or generate productive capacity.
- alangibson 5y ago
  MMT people tend to support major direct spending to people on the bottom, not things like QE
- stephen_g 5y ago
  Yeah, no - basically all MMT economists think QE is a bad policy.
trts 5y ago
Does this mean I don’t need to pay taxes until the productive capacity is at 100%, because we can print it? How do we know when we’re getting close to full utilization
- alangibson 5y ago
  MMT says that taxes exist primarily to create demand for a currency. The government doesn't need you to give it money because it is the source of money. You'll know the economy is neat 100% because inflation will kick in.
  - trts 5y ago
    but there has always been inflation?
    - alangibson 5y ago
      When the productive capacity is at a high level of utilization, yes. There hasn't been much inflation in the West for years now. Also, deflation.
- gghhzzgghhzz 5y ago
  Taxes are required to give the currency value, to counter inequality and produce a stable society, to take money out of unproductive or overheating parts of the economy, and to discourage harmful (to individuals or society) behaviour.
  - alangibson 5y ago
    That's a pretty good rundown of MMTs thinking. The government spends money into existence. When inflation starts to tick up, tax the money back out of existence.

blowski 5y ago

MMT does say that, but MMT is far from being widely accepted as correct.

alangibson 5y ago
OK. No theory is widely accepted before it is.
- blowski 5y ago
  That doesn’t mean “all theories are eventually correct”.
  - alangibson 5y ago
    No it doesn't. I was just pointing out that you weren't really saying anything in your comment.
CraigJPerry 5y ago
Of the 5 tennets of MMT, only 1 is disputed by mainstream economics i think? As i understand it, more or less everyone (excluding fringe groups) agrees that: 1. All money is created by the state or other banks acting under state licence 2. Money only has value because the government promises to back it 3. because taxes must be paid in government-issued money 4. Therefore government spending comes before taxation The bone of contention as i understand it is the 5th tennet: 5. Government deficits are necessary and good because without them the means to make settlement would not exist in our economy As i understand the argument, it boils down to a disagreement about whether public investment can crowd out private. EDIT: points from https://www.google.com/amp/s/criticalfinance.org/2019/02/06/misunderstanding-mmt/amp/ https://www.google.com/amp/s/criticalfinance.org/2019/02/06/...
- alangibson 5y ago
  5 is really only debated by academics. I think the actions of policy makers prove they think it's true. Does anyone remember the debate during the Clinton years over whether or not they should start paying back government debt given a surplus?
  - stephen_g 5y ago
    Item 5 is theoretically true if you assume accounting rules hold. The sectoral balances formula (derived from the definition of GDP) doesn't hold otherwise. The only way for the economy to grow if the Government is running surpluses is with increasing private debt (so not really "paying down" anything but just transferring debt from one sector of the economy to another), and/or with a big enough trade surplus to cancel out the other sectors.
- dllthomas 5y ago
  I was under the impression that 2 is manifestly false (unless I'm a very weak sense) given currencies in use that retained some value after the issuing state fell.
  - alangibson 5y ago
    Can you give an example? You could see it being true temporarily just due to lack of any alternative. In any event, the parents take on 2 is not exactly correct. MMT people say that a primary source of demand for a currency is that taxes may only be paid in that currency. Governments spend money into existence and tax it out of existence.
    - dllthomas 5y ago
      I believe the Somali shilling was the case I first heard of. There seems to have been a case in Iraq in the 90s as well with the "Swiss dinar". > [...] a primary source of demand [...] That indeed sounds much more plausible.
  - dllthomas 5y ago

godelski 5y ago

One interesting thing about this is that the effect of printing money (how it influences inflation) highly depends on perception. Radio Lab talked about this in a recent episode[0]. This has been a measured effect too and so it is interesting that fearing inflation can be a self fulfilling prophesy. [0] https://www.wnycstudios.org/podcasts/radiolab/articles/more-money-less-problems https://www.wnycstudios.org/podcasts/radiolab/articles/more-...

btilly 5y ago
The best example of how perception matters was how the careful introduction of the Brazilian real ended hyperinflation merely by creating a perception that it wouldn't inflate. (It was pegged to the old currency at a rate that inflated at the same rate that the old currency did. All stores had to post prices in both old and real. After people were used to seeing real standing still, Brazil started printing them and continued indexing them at inflating rates to the old. And the price stayed constant as the old currency was replaced by the new.

ardit33 5y ago

MMT is a junk theory created by silver spooned academics with no real life experience. It has not been proven in practice, or when something close to it is practices it does lead to inflation or devaluation of the country’s currency (Think Argentina, Turkey and today Lebanon). When communism fell, I remember how the west promoted the ‘shock therapy’ to former communist countries, which was devastating to them. Another junk science that lead to a ‘lost decade’ and misery in eastern countries. It was a ‘rip the Bandaid’ type of approach, which failed as it didn’t account that some countries needed time to adjust to the new capital system and it led to the closure of many lines of production that were actually profitable, as it was a ‘hard reset’ Be very wary when someone peddles a new ‘theory’ which is unproved, as a magical cure. Communism was one of them as well.

alangibson 5y ago
I'm gonna guess you know much about the history of MMT, because it was created as a description of how money works in the US by a guy that spent his career on a trading desk.
criddell 5y ago
If it isn’t shrewd application of MMT, then what explains Japans economy?

toomanydoubts 5y ago

MMT is just something the ones in control of the printing press made up to convince gullible people that they're not being outright robbed by quantitative easing.

alangibson 5y ago
Factually incorrect. Mosler spent most of his career in a hedge fund. MMT was a description of how he thought money actually worked in the modern age.
dv_dt 5y ago
Most MMT economists I follow on the topic would say MMT is independent of QE as a policy. But also as an outlay of currency, QE is one of the least effective uses to support or generate productive capacity.
alangibson 5y ago
MMT people tend to support major direct spending to people on the bottom, not things like QE
stephen_g 5y ago
Yeah, no - basically all MMT economists think QE is a bad policy.

trts 5y ago

Does this mean I don’t need to pay taxes until the productive capacity is at 100%, because we can print it? How do we know when we’re getting close to full utilization

alangibson 5y ago
MMT says that taxes exist primarily to create demand for a currency. The government doesn't need you to give it money because it is the source of money. You'll know the economy is neat 100% because inflation will kick in.
- trts 5y ago
  but there has always been inflation?
  - alangibson 5y ago
    When the productive capacity is at a high level of utilization, yes. There hasn't been much inflation in the West for years now. Also, deflation.
gghhzzgghhzz 5y ago
Taxes are required to give the currency value, to counter inequality and produce a stable society, to take money out of unproductive or overheating parts of the economy, and to discourage harmful (to individuals or society) behaviour.
- alangibson 5y ago
  That's a pretty good rundown of MMTs thinking. The government spends money into existence. When inflation starts to tick up, tax the money back out of existence.