5 ms·
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:
by 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 ago5 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 agoItem 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 agoI 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 agoCan 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 agoI 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 agoI hope it's clear that I meant "in a very weak sense" - just noticed the typo.
- HideousKojima 5y ago1 and 2 have really only been the case since the 70's with Nixon and Bretton Woods