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An interesting aspect of this is that the endless printing of money in the last few years was a sort of stress test of modern monetary theory, which has been se

An interesting aspect of this is that the endless printing of money in the last few years was a sort of stress test of modern monetary theory, which has been seeing lots of discussion in those same years. I never quite understood how this theory would work while avoiding inflation, and what's happening now seems to at least be related - https://www.nytimes.com/2022/02/06/business/economy/modern-monetary-theory-stephanie-kelton.html https://www.nytimes.com/2022/02/06/business/economy/modern-m... Conceptually the answer in the theory is to suck up the excess money with taxes, which of course is not going to fly in the US. But maybe this inflation will make that more viable in the future: "Ms. Kelton and her colleagues make clear that the pandemic relief packages did not follow one of M.M.T.’s key tenets — they did not try to account for resource constraints ahead of time. In an M.M.T. world, the Congressional Budget Office would have carefully analyzed possible inflation ahead of time, and lawmakers would have tried to offset any strain on available workers and widgets with stabilizing measures and tax increases."

GoodJokes 5y ago
simpthrown8id 5y ago
>>Conceptually the answer in the theory is to suck up the excess money with taxes Govt spending is already 45% of GDP, so there's not much room to increase it more. As for MMT, I think what the MMT crowd doesn't realize is that there's a lot of latent inflation coming. Asset prices and CPI do not go up in tandem. First Asset prices are inflated, then later for the next decade or so, as people slowly make withdrawals from those inflated asset prices, it begins to affect the CPI. And that's where we are right now, at the beginning of the CPI impact.
- hn_throwaway_99 5y ago
  > >>Conceptually the answer in the theory is to suck up the excess money with taxes > Govt spending is already 45% of GDP, so there's not much room to increase it more. Taxes (government income) is not all that related to government spending, as we've seen recently.
- ummonk 5y ago
  MMT doesn't prescribe spending to curb inflation; it prescribes taxes.
- cjsplat 5y ago
  I can't repro the 45% number. BEA says 2021 US GDP is nearly $23T, CBO says total 2021 budget is $6.8T.
  - jmalicki 5y ago
    Federal budget is $6.8T, the 45% includes state and local government spending as well. https://fred.stlouisfed.org/graph/?g=8fX https://fred.stlouisfed.org/graph/?g=8fX https://en.wikipedia.org/wiki/Government_spending_in_the_United_States#:~:text=By%202019%2C%20federal%20spending%20was,45%25%20of%20total%20government%20expenditures https://en.wikipedia.org/wiki/Government_spending_in_the_Uni....
    - projektfu 5y ago
      OK, that says 20% federal + 17% state/local, and that state/local is about 45% of all government expenditures. In other words, it's 37% and not 45% of GDP.
- tarsinge 5y ago
  As I understand it taxes in MMT are just destruction of money, it's the essential counterpart of money creation used to balance supply. It's irrelevant to GDP and spending in that model, since in MMT the government doesn't need taxes to spend, it just print what it needs, that's the core idea.
  - Scarblac 5y ago
    I seem to recall that France used to do this -- create money for government spending, taxed money ceases to exist, no need for government debt. But I can't find anything about it, and I don't know if I'm just not using the right search terms. Has this been put into practice in large countries before?
    - zer0tonin 5y ago
      Is France a small country now?
      - tatersolid 5y ago
        > Is France a small country now? Frances’s GDP is 15% smaller than the single US state of California, and its population is only about 1.67x that of California.
        zzleeper 5y ago
        Well Cali has 1/7th of the entire US GDP, so it's an unfair comparison. By itself, it would be the 5th largest economy in the world.
      - Scarblac 5y ago
        It's not, I'm just doubting my own memory so was wondering in general if there was an example, France or elsewhere.
  - nostrademons 5y ago
    Interestingly, the mechanics of this seem backward. A major problem with the Fed's operations is that operations on financial markets take 12-18 months to spread to the real economy, so they have to target interest rates now based on what they think the economy is going to look like in 12-18 months. Conversely, money going into or out of the average person's checking account now affects what they do in the real economy now, without a lag time. When we've recovered from significant economic crises (2008 and 2020), it's often been through direct fiscal stimulus. It seems that the logical thing to do would be to put money into the economy through directly giving it to citizens, and then take money out of the economy through interest rates, by making it more expensive to borrow and reducing business investment. Typically you want to put money into the economy in a hurry, in response to a crisis, but you want to take it out gradually, so that businesses can plan ahead. MMT's framing of this still seems backwards, even if they've realized that fiscal and monetary policy are two sides of the same coin. You'd also get a lot less political resistance to the fiscal policy side if it involved giving people money rather taking money away from them.
- toyg 5y ago
  > Govt spending is already 45% of GDP, so there's not much room to increase it more. Several European countries are well over 50%. There is plenty of room.
  - landemva 5y ago
    This points to why the EU will likely disintegrate - member countries can't print to monetize country debt. Either EU members split out to regain currency autonomy, or EU officially federalizes member country debt.
    - toyg 5y ago
      Obviously the latter will happen - it is in fact already happening, between eurobonds and recovery fund. We just don't make a big song and dance about it - quiet work is how the EU is managing to do the unthinkable of federating this anarchic and unruly continent. The economic imbalances between EU states are nothing, compared to the ones between US states. Do you see the US "disintegrating" anytime soon?
      - landemva 5y ago
        USA federalized State debts a long time ago. I could see Illinois imploding due to retiree obligations and pieces of Illinois being absorbed by neighbor States. More likely for federal government to take over State pensions because federal government can emit unbacked money.
- causalmodels 5y ago
  I am by no means a fan of mmt, but I think looking at government spending as a share of GDP misses the point mmt proponents attempt and often fail to make; which is that financial constraints are should not be the limiting factor of the economy. A better indicator would be the price of labor and commodities since they better reflect the constraints of the real economy. Unfortunately for the mmt people, the prices are going nuts because we are actually dealing with real resource constraints now.
- dillondoyle 5y ago
  I can think of a few trillion in urgently needed money we could spend taxes on: renewable energy, batteries, retrofitting homes for chargers, resilience building (and paying people to move out of high risk areas), invest in carbon capture/moonshots.
  - landemva 5y ago
    I would also pay for those items before we send another penny to NATO or WHO.
paulpauper 5y ago
has MMT worked. it remains to be seen
- unyttigfjelltol 5y ago
  Says the man midway through a 40-story fall from a skyscraper: "So far so good!"
  - birdyrooster 5y ago
    The alternative is a static or deflationary currency. This leads to hoarding of assets which were originally intended to serve and increase commerce. Think Bitcoin. Without MMT, we would be falling from a skyscraper as you depict.
    - solotronics 5y ago
      Bitcoin isn't static or deflationary. There is a schedule of inflation built in via the mining reward which is currently at 1.5% until the next "halvening" where it will become 0.75%. The mining reward will continue to half every 4 years until roughly near the year 2140. https://charts.woobull.com/bitcoin-inflation/ https://charts.woobull.com/bitcoin-inflation/
      - birdyrooster 5y ago
        You realize 2140 isn't that far away and that the cap is what is inflating current values (and coin hoarding) right? Just ask investors and they will tell you.
    - landemva 5y ago
      ' deflationary currency ... leads to hoarding of assets '. Someone owns every asset. By making it impractical to save using the fiat money, savings goes to non-fiat items like land, stocks, energy, and BTC. This harms the poor who are rarely able to escape into those non-money items.
deleted 5y ago
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hn_throwaway_99 5y ago
Here are the first two paragraphs on the MMT Wikipedia article: > Modern Monetary Theory or Modern Money Theory (MMT) is a heterodox[1] macroeconomic theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires.[2][3] MMT is opposed to the mainstream understanding of macroeconomic theory, and has been criticized by many mainstream economists.[4][5][6] > MMT says that governments create new money by using fiscal policy and that the primary risk once the economy reaches full employment is inflation, which can be addressed by gathering taxes to reduce the spending capacity of the private sector.[7] MMT is debated with active dialogues about its theoretical integrity,[8] the implications of the policy recommendations of its proponents, and the extent to which it is actually divergent from orthodox macroeconomics.[9] Regarding this being a "test" of MMT, I don't see why. The first part of the first sentence of that second paragraph, MMT says that governments create new money by using fiscal policy and that the primary risk once the economy reaches full employment is inflation, which seems to be precisely what has happened, no?
- IncRnd 5y ago
  > ...and that the primary risk once the economy reaches full employment is inflation, which seems to be precisely what has happened, no? Certainly, there is inflation. There isn't full employment.
  - OGWhales 5y ago
    MMTers argue that government spending at full employment will cause inflation, not that there must be full employment for there to be inflation.
  - dlp211 5y ago
    Inflation has many inputs and looking at inflation strictly through a monetary lens will provide a distorted picture as to why there is inflation. Additionally, MMT states that it needs to use taxes to manage inflation, which the US federal gov't is clearly not doing, which undermines the testability of the theory.
pkulak 5y ago
How is it a test? MMT doesn't say you can increase monetary supply forever without consequence. It says that you can increase monetary supply until you see consequences, at which point you need to start reducing it, mostly through taxation. Raising interest rates does reduce monetary supply, but I don't think nearly to the degree that MMT would call for. Now, if congress immediately votes in a bunch of new taxes, it'll be a wonderful test. :D
- birdyrooster 5y ago
  MMT simply has currency scaling with the exponential utility of commerce. Value is created on both sides of each business transaction, not just for the recipient of the money. The money supply increases to reflect all of the new value created by commerce.
boppo1 5y ago
> Congressional Budget Office would have carefully analyzed possible inflation ahead of time... Ah yes, surely central planning is the solution.
- r00fus 5y ago
  You jest, but that's exactly what the CBO is supposed to do.
dragonwriter 5y ago
Yeah, MMT basically asserts that the separation between fiscal and monetary policy is artificial, and that the only real constraint on “fiscal” policy (tax and spending) is monetary effects, not the metaphorical limited purse (“fisc”) that must be filled with revenue and borrowing to allow spending. It is not “Congress can spend willy-nilly” but “Congress needs to stop thinking about fiscal balance and start thinking like the Fed.” (Or, perhaps, “Congress needs to define fiscal policy with movable levers which it gives control of to the Fed or a Fed-like body.”)
- throwaway894345 5y ago
  Irrespective of its economic merits, any policy which depends on a competent and upright Congress does not inspire confidence. It feels like it's bound to be one of those "True MMT Hasn't Ever Been Tried (TM)" things.
  - travisgriggs 5y ago
    Let’s rebrand it as Critical Fiscal Theory. I’ve got my popcorn already.
    - kregasaurusrex 5y ago
      Not-quite Fiscal Theory: the fed mints a $1 trillion dollar platinum coin and lends it to congress to allocate the year's budget. The coin may not have any value beyond spot, but everyone can see that congress has a rare piece of metal!
  - hn_version_0023 5y ago
    The best definition of Congress I’ve ever seen was this: Congress: 535 ants on a leaf, floating down a river towards a waterfall, with each ant thinking they’re steering. I share your lack of confidence.
    - mushbino 5y ago
      If it said being paid not to steer, I think that would make more sense in our current oligarchy.
athrowaway3z 5y ago
I keep these things in the back of my mind when talking about economic theories: - an economist is someone who can tell you today why he was wrong yesterday. - the central bank of Sweden made up an award in the honor of Nobel. Twice the recipient made a point to remind people economic theory is not an exact science.
- solveit 5y ago
  > an economist is someone who can tell you today why he was wrong yesterday. Which puts them near the bottom as a hard science, but near the top of the social sciences. (I'm agreeing with you, but the valence of your observation depends on what reference class you have in mind for economics)
OGWhales 5y ago
> I never quite understood how this theory would work while avoiding inflation I see this sentiment any time MMT is brought up. I think it shows a misunderstanding of what MMT is saying. While I’ve got my own issues with MMT, it’s always been made clear by MMTers that inflation is an important signal to respect and that you can’t infinitely ‘print’ money due to the constraint of real resources.
- freedomben 5y ago
  You're correct, but I think the problem is that a lot of people who advocate for MMT, don't actually understand it, because many of the pro-MMT people I've talked to really do think you can print money forever. It's not unique to MMT, the same thing happens with plenty of other subjects too.
  - causalmodels 5y ago
    Not even the MMT people understand MMT. The lack of formal models means everyone is working with wildly different and often contradictory definitions
    - OGWhales 5y ago
      > everyone is working with wildly different and often contradictory definitions I’ve found the main MMTers to be mostly consistent amongst themselves in their theories. Now, I think some ideas are wrong, but they do seem mostly on the same page. I agree MMT does an excellent job convincing laymen of some pretty wacky ideas and that’s one of my bigger complaints with it. Also, I find the focus on mathematical models problematic in mainstream economics. It obfuscates a lot of erroneous assumptions. Models are great for testing, but words are useful for communicating ideas too and can sometimes be a better format, especially for wider audiences. To be clear, I’m not saying models are bad or that MMT shouldn’t use them, in fact I saw one MMTer post this paper recently: http://www.levyinstitute.org/pubs/wp_992.pdf http://www.levyinstitute.org/pubs/wp_992.pdf
  - OGWhales 5y ago
    Absolutely, I think MMT in particular is prone to doing this and it’s one of my bigger gripes with it.
stjohnswarts 5y ago
The problem is all that new wealth created, about 90% goes to the top 1% who can easily store it away in nontaxable assets (at least until said assets are sold) since generally the “buy tax” isn't all that high compared to growth in value of securities and real estate (at least good investments thereof). Just siphoning more money out of the poor and middle class will not fly in the USA you will be voted out and your policy rescinded within a couple of years.
roenxi 5y ago
An important point to keep in mind when talking about MMT in a policy setting is that the people who will implement it don't care about theory and will make a series of short-term politically expedient and/or vaguely corrupt decisions. If they implement MMT, there are good odds that it will just look like money printing. It doesn't really matter what the academic plan is, the policy isn't going to follow it. Much like how interest rates were supposed to rise after being dropped to emergency levels a decade or so ago and instead a 25 bps rise is front page news. All the politicians/relevant voters are looking for is a green light to hand out money and some buzz to say that it'll make everyone better so ignore the doubters. If they cared about good economic policy the last few decades would look very different. The dominant ideology is that centrally planned interest rates are a good idea, and that is questionable.
- SkyMarshal 5y ago
  Yeah, happened with both monetary policy as you observe, and with Keynesian fiscal policy - deficit spend to cushion and shorten downturns, then contract govt spending and pay down the debt during good times, so that you can afford to deficit spend again in the next downturn. Makes sense in theory, but the second half doesn't always happen b/c politicians like buying votes with govt spending (either via under-taxation or over-spending, to the extent those aren't the same thing).
  - mjevans 5y ago
    Or alternately raise taxes in the good times (rather than interest rates) and pay down that debt... which at least in the US we've got one political party dead set against at all costs.
    - deleted 5y ago
      [deleted]
    - lumost 5y ago
      A generation ago, progressive cycles of deficit spending and taxation had put the top tax bracket in the US at 90%. Still, there was persistent inflation - and worse high unemployment. The belief was that the Federal Government had grown too large in the economy and needed to be "starved". To what extent government austerity vs. new monetary policy moved the needle for the US economy is unknowable. However many Americans of that generation feel that the starve the beast approach was correct. If you talk to Americans opposed to new taxes, their opposition is usually based on the idea that the government will waste the money in one way or another. Even those on the left in favor of taxes are often in favor of taxes for redistribution purposes. It's rare that anyone pitches the government as competent outside of military spending, and even then there are many asterisks on 10k light bulbs in submarines. If you want Americans to agree to taxes you'll need to change the perception of government competence.
wolpoli 5y ago
I would encourage readers to also review this [1] document which compares and contrasts MMT and other economic theories. The author concluded that "MMT contains some kernels of truth, but its most novel policy prescriptions do not follow cogently from its premises. " [1]:https://scholar.harvard.edu/files/mankiw/files/skeptics_guide_to_modern_monetary_theory.pdf https://scholar.harvard.edu/files/mankiw/files/skeptics_guid...
datavirtue 5y ago
You can expect inflation as you grow the money supply. Inflation is good. Runaway, uncontrolled inflation is not. We have not had, nor do we have now, runaway inflation. You have to grow the money supply as the population and productivity increases. Most of the talk and reporting on inflation is just silly.
- landemva 5y ago
  Inflation is not good for savers who do not want to be speculators. Inflation is not good for those on fixed incomes like retirees.
mariodiana 5y ago
Even if we imagine MMT working perfectly — whatever that means — it represents a stealthy redistributing of wealth. The idea behind it is for the government to acquire and then redistribute goods and services from those in the private sector who would otherwise command that wealth, and do something else with it: in other words, give these goods and services to others. And no one is going to notice this? The people who are used to enjoying some quantity of goods and services are not going to notice that they now enjoy less, because someone else is enjoying them? Or, is this somehow supposed to "stimulate" the economy, so that more goods and services are actually produced, because of the extra money? This is alchemy. Production comes before consumption.
MuffinFlavored 5y ago
How did "printing lots of money" https://fred.stlouisfed.org/series/CURRCIR https://fred.stlouisfed.org/series/CURRCIR not spike USD to EUR? did EUR also print lots of money? https://finance.yahoo.com/quote/USDEUR=X/ https://finance.yahoo.com/quote/USDEUR=X/ basically unchanged 5 years ago -> now
- ThePhysicist 5y ago
  M3 has roughly tripled in the last 20 years, so yeah we've printed lots of money too.
- Amfy 5y ago
  EUR has negative interest. You pay to deposit money at banks. Yes, EUR has been printing a lot as well. Also, from my understanding, EURUSD goes up/down mostly based on their difference in interest rates.
  - MuffinFlavored 5y ago
    If we haven't devalued our USD currency against the EUR because we printed while they also printed, is there a currency that we did devalue ourselves against (or a country that didn't devalue their own currency through printing?) Does printing always actually equate to devaluation?
ajross 5y ago
> endless printing of money in the last few years This didn't happen in a vacuum, though. It was simultaneous (and, obviously, co-causal) with a very rapid economic contraction and a subsequent supply shock across a ton of industries. Any analysis of this situation that starts end ends with "the government printed money" is, IMHO, basically pushing an agenda. What actually happened is that the device under control (the economy) had an excursion (picture a car blowing a tire and veering) and the government corrected rapidly (prevented it from entering another travel lane, say), but it was something of an overcorrection (the car ran off the shoulder). Should we have "printed less money"? Probably yes, in hindsight. Was the alternative worse? Of course it was; we were looking at a huge jump in poverty. Was anyone unaware of the inflation risk? No, not really. Was anyone dead-on correct about the right amount of stimulus? Not that I can see. We'll be fine.
cyanydeez 5y ago
monetary theory is meaningless if its based on the american dollar as reserve currency. its more american monetary beliefs
chrisco255 5y ago
MMT has all the same problems as Communism: nice in theory, but terrible in practice. MMT proponents will argue that no one has ever properly implemented it. However, an economic theory that is not effective in practice, given the realistic constraints of human nature and politics, is useless. In theory the only way MMT works is to arbitrarily raise taxes to counter inflation. The Fed does not have the power to raise taxes, Congress does. But such a floating, variable tax rate is ripe for abuse of power and I don't know anyone who would not revolt under such a system.
- spiralx 5y ago
  It's like the anthropic principle in physics IMO in that it can be taken either descriptively or prescriptively, and while the former is almost trivial in what it describes, the latter invariably ends up leading to significant consequences far beyond the initial description.
vmception 5y ago
If you scare people into thinking money wont matter in the future, then you can get a lot of money from them. Congress got scared and passed a bunch of pre-written laws.
eigenvalue 5y ago
"Conceptually the answer in the theory is to suck up the excess money with taxes" Huh, why is that the answer? Why wouldn't the conceptual answer be "do the opposite", i.e. sop up the excess liquidity by removing money from the money supply, by doing things like raising interest rates, increasing bank reserve ratios, and selling some of the trillions of dollars of securities already on the Fed's balance sheet? The last thing anyone should want is the government to take a lot more in taxes so it can be squandered on foolish projects. Also, once government programs start up and build/lease buildings and hire a bunch of people, they are almost impossible to get rid of (the process of terminating a Federal employee is a Kafkaesque nightmare).
- hfourm 5y ago
  I would love more "foolish" infrastructure projects in my area. In my state/city, We are dealing with increasing flooding, overcrowded roads, and could always use more green space. I get your sentiment, but the government could be using that money in positive ways that don't involve spinning up whole new organizations
- 8note 5y ago
  MMT would say that the government takes the money in taxes, then just burns it The money the government spends is then unrelated to that which it taxes
tvanantwerp 5y ago
Any theory of economics that only works if you can depend on an elected body to take quick and reasonable steps—like raising taxes—is one doomed to failure, and ought not be tried.
gscott 5y ago
Most of the money printing has been reabsorbed by the Fed... banks would buy the treasury bonds and then loan them back to the Federal Reserve. It isn't until recently that money was printed, sent out, and actually got out into the economy... (at the same time that China shuts down, etc).
dv_dt 5y ago
Most prices haven't inflated on supply constraints, they've risen on opportunism of profit margin increases by companies who were allowed to merge and grow with insufficient anti-monopoly regulation.
diob 5y ago
You raise a good point that we could really reverse inflation by actually closing tax loopholes and reabsorbing the excess we printed and gave out to the 1%. . . but like you said, never going to happen unfortunately.
- hgomersall 5y ago
  It's likely you can't because the 1% don't really spend excess money, so it's not inflationary. Another important insight from MMT.
WalterBright 5y ago
> how this theory would work while avoiding inflation That is a puzzler, until one realizes it did cause inflation, which was offset by the deflation from the banking collapse.
pibechorro 5y ago
the only long term sustainable economy is one that has a sound money where natural supply/demand laws govern it, not a central and politically motivated agenda where money can just poof be made from nowhere, people are falible and complex systems are impossible to control. Ultimately mmt is like relying on weathermen to be 100% on point. Mmt is just a boom bust cycle where debt is kicked down the road and the bubbles grow larger with a false sense of security.
horns4lyfe 5y ago
I haven’t studied MMT enough to be able to comment on it beyond a surface level, and the economists behind are smart, accomplished people. What I do know is that in the real world of policy, MMT will just be used as an excuse to spend limitless amounts of money by politicians that also don’t understand it.

GoodJokes 5y ago

simpthrown8id 5y ago

>>Conceptually the answer in the theory is to suck up the excess money with taxes Govt spending is already 45% of GDP, so there's not much room to increase it more. As for MMT, I think what the MMT crowd doesn't realize is that there's a lot of latent inflation coming. Asset prices and CPI do not go up in tandem. First Asset prices are inflated, then later for the next decade or so, as people slowly make withdrawals from those inflated asset prices, it begins to affect the CPI. And that's where we are right now, at the beginning of the CPI impact.

hn_throwaway_99 5y ago
> >>Conceptually the answer in the theory is to suck up the excess money with taxes > Govt spending is already 45% of GDP, so there's not much room to increase it more. Taxes (government income) is not all that related to government spending, as we've seen recently.
ummonk 5y ago
MMT doesn't prescribe spending to curb inflation; it prescribes taxes.
cjsplat 5y ago
I can't repro the 45% number. BEA says 2021 US GDP is nearly $23T, CBO says total 2021 budget is $6.8T.
- jmalicki 5y ago
  Federal budget is $6.8T, the 45% includes state and local government spending as well. https://fred.stlouisfed.org/graph/?g=8fX https://fred.stlouisfed.org/graph/?g=8fX https://en.wikipedia.org/wiki/Government_spending_in_the_United_States#:~:text=By%202019%2C%20federal%20spending%20was,45%25%20of%20total%20government%20expenditures https://en.wikipedia.org/wiki/Government_spending_in_the_Uni....
  - projektfu 5y ago
    OK, that says 20% federal + 17% state/local, and that state/local is about 45% of all government expenditures. In other words, it's 37% and not 45% of GDP.
tarsinge 5y ago
As I understand it taxes in MMT are just destruction of money, it's the essential counterpart of money creation used to balance supply. It's irrelevant to GDP and spending in that model, since in MMT the government doesn't need taxes to spend, it just print what it needs, that's the core idea.
- Scarblac 5y ago
  I seem to recall that France used to do this -- create money for government spending, taxed money ceases to exist, no need for government debt. But I can't find anything about it, and I don't know if I'm just not using the right search terms. Has this been put into practice in large countries before?
  - zer0tonin 5y ago
    Is France a small country now?
    - tatersolid 5y ago
      > Is France a small country now? Frances’s GDP is 15% smaller than the single US state of California, and its population is only about 1.67x that of California.
      - zzleeper 5y ago
        Well Cali has 1/7th of the entire US GDP, so it's an unfair comparison. By itself, it would be the 5th largest economy in the world.
    - Scarblac 5y ago
      It's not, I'm just doubting my own memory so was wondering in general if there was an example, France or elsewhere.
- nostrademons 5y ago
  Interestingly, the mechanics of this seem backward. A major problem with the Fed's operations is that operations on financial markets take 12-18 months to spread to the real economy, so they have to target interest rates now based on what they think the economy is going to look like in 12-18 months. Conversely, money going into or out of the average person's checking account now affects what they do in the real economy now, without a lag time. When we've recovered from significant economic crises (2008 and 2020), it's often been through direct fiscal stimulus. It seems that the logical thing to do would be to put money into the economy through directly giving it to citizens, and then take money out of the economy through interest rates, by making it more expensive to borrow and reducing business investment. Typically you want to put money into the economy in a hurry, in response to a crisis, but you want to take it out gradually, so that businesses can plan ahead. MMT's framing of this still seems backwards, even if they've realized that fiscal and monetary policy are two sides of the same coin. You'd also get a lot less political resistance to the fiscal policy side if it involved giving people money rather taking money away from them.
toyg 5y ago
> Govt spending is already 45% of GDP, so there's not much room to increase it more. Several European countries are well over 50%. There is plenty of room.
- landemva 5y ago
  This points to why the EU will likely disintegrate - member countries can't print to monetize country debt. Either EU members split out to regain currency autonomy, or EU officially federalizes member country debt.
  - toyg 5y ago
    Obviously the latter will happen - it is in fact already happening, between eurobonds and recovery fund. We just don't make a big song and dance about it - quiet work is how the EU is managing to do the unthinkable of federating this anarchic and unruly continent. The economic imbalances between EU states are nothing, compared to the ones between US states. Do you see the US "disintegrating" anytime soon?
    - landemva 5y ago
      USA federalized State debts a long time ago. I could see Illinois imploding due to retiree obligations and pieces of Illinois being absorbed by neighbor States. More likely for federal government to take over State pensions because federal government can emit unbacked money.
causalmodels 5y ago
I am by no means a fan of mmt, but I think looking at government spending as a share of GDP misses the point mmt proponents attempt and often fail to make; which is that financial constraints are should not be the limiting factor of the economy. A better indicator would be the price of labor and commodities since they better reflect the constraints of the real economy. Unfortunately for the mmt people, the prices are going nuts because we are actually dealing with real resource constraints now.
dillondoyle 5y ago
I can think of a few trillion in urgently needed money we could spend taxes on: renewable energy, batteries, retrofitting homes for chargers, resilience building (and paying people to move out of high risk areas), invest in carbon capture/moonshots.
- landemva 5y ago
  I would also pay for those items before we send another penny to NATO or WHO.

paulpauper 5y ago

has MMT worked. it remains to be seen

unyttigfjelltol 5y ago
Says the man midway through a 40-story fall from a skyscraper: "So far so good!"
- birdyrooster 5y ago
  The alternative is a static or deflationary currency. This leads to hoarding of assets which were originally intended to serve and increase commerce. Think Bitcoin. Without MMT, we would be falling from a skyscraper as you depict.
  - solotronics 5y ago
    Bitcoin isn't static or deflationary. There is a schedule of inflation built in via the mining reward which is currently at 1.5% until the next "halvening" where it will become 0.75%. The mining reward will continue to half every 4 years until roughly near the year 2140. https://charts.woobull.com/bitcoin-inflation/ https://charts.woobull.com/bitcoin-inflation/
    - birdyrooster 5y ago
      You realize 2140 isn't that far away and that the cap is what is inflating current values (and coin hoarding) right? Just ask investors and they will tell you.
  - landemva 5y ago
    ' deflationary currency ... leads to hoarding of assets '. Someone owns every asset. By making it impractical to save using the fiat money, savings goes to non-fiat items like land, stocks, energy, and BTC. This harms the poor who are rarely able to escape into those non-money items.

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hn_throwaway_99 5y ago

Here are the first two paragraphs on the MMT Wikipedia article: > Modern Monetary Theory or Modern Money Theory (MMT) is a heterodox[1] macroeconomic theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires.[2][3] MMT is opposed to the mainstream understanding of macroeconomic theory, and has been criticized by many mainstream economists.[4][5][6] > MMT says that governments create new money by using fiscal policy and that the primary risk once the economy reaches full employment is inflation, which can be addressed by gathering taxes to reduce the spending capacity of the private sector.[7] MMT is debated with active dialogues about its theoretical integrity,[8] the implications of the policy recommendations of its proponents, and the extent to which it is actually divergent from orthodox macroeconomics.[9] Regarding this being a "test" of MMT, I don't see why. The first part of the first sentence of that second paragraph, MMT says that governments create new money by using fiscal policy and that the primary risk once the economy reaches full employment is inflation, which seems to be precisely what has happened, no?

IncRnd 5y ago
> ...and that the primary risk once the economy reaches full employment is inflation, which seems to be precisely what has happened, no? Certainly, there is inflation. There isn't full employment.
- OGWhales 5y ago
  MMTers argue that government spending at full employment will cause inflation, not that there must be full employment for there to be inflation.
- dlp211 5y ago
  Inflation has many inputs and looking at inflation strictly through a monetary lens will provide a distorted picture as to why there is inflation. Additionally, MMT states that it needs to use taxes to manage inflation, which the US federal gov't is clearly not doing, which undermines the testability of the theory.

pkulak 5y ago

How is it a test? MMT doesn't say you can increase monetary supply forever without consequence. It says that you can increase monetary supply until you see consequences, at which point you need to start reducing it, mostly through taxation. Raising interest rates does reduce monetary supply, but I don't think nearly to the degree that MMT would call for. Now, if congress immediately votes in a bunch of new taxes, it'll be a wonderful test. :D

birdyrooster 5y ago
MMT simply has currency scaling with the exponential utility of commerce. Value is created on both sides of each business transaction, not just for the recipient of the money. The money supply increases to reflect all of the new value created by commerce.

boppo1 5y ago

> Congressional Budget Office would have carefully analyzed possible inflation ahead of time... Ah yes, surely central planning is the solution.

r00fus 5y ago
You jest, but that's exactly what the CBO is supposed to do.

dragonwriter 5y ago

Yeah, MMT basically asserts that the separation between fiscal and monetary policy is artificial, and that the only real constraint on “fiscal” policy (tax and spending) is monetary effects, not the metaphorical limited purse (“fisc”) that must be filled with revenue and borrowing to allow spending. It is not “Congress can spend willy-nilly” but “Congress needs to stop thinking about fiscal balance and start thinking like the Fed.” (Or, perhaps, “Congress needs to define fiscal policy with movable levers which it gives control of to the Fed or a Fed-like body.”)

throwaway894345 5y ago
Irrespective of its economic merits, any policy which depends on a competent and upright Congress does not inspire confidence. It feels like it's bound to be one of those "True MMT Hasn't Ever Been Tried (TM)" things.
- travisgriggs 5y ago
  Let’s rebrand it as Critical Fiscal Theory. I’ve got my popcorn already.
  - kregasaurusrex 5y ago
    Not-quite Fiscal Theory: the fed mints a $1 trillion dollar platinum coin and lends it to congress to allocate the year's budget. The coin may not have any value beyond spot, but everyone can see that congress has a rare piece of metal!
- hn_version_0023 5y ago
  The best definition of Congress I’ve ever seen was this: Congress: 535 ants on a leaf, floating down a river towards a waterfall, with each ant thinking they’re steering. I share your lack of confidence.
  - mushbino 5y ago
    If it said being paid not to steer, I think that would make more sense in our current oligarchy.

athrowaway3z 5y ago

I keep these things in the back of my mind when talking about economic theories: - an economist is someone who can tell you today why he was wrong yesterday. - the central bank of Sweden made up an award in the honor of Nobel. Twice the recipient made a point to remind people economic theory is not an exact science.

solveit 5y ago
> an economist is someone who can tell you today why he was wrong yesterday. Which puts them near the bottom as a hard science, but near the top of the social sciences. (I'm agreeing with you, but the valence of your observation depends on what reference class you have in mind for economics)

OGWhales 5y ago

> I never quite understood how this theory would work while avoiding inflation I see this sentiment any time MMT is brought up. I think it shows a misunderstanding of what MMT is saying. While I’ve got my own issues with MMT, it’s always been made clear by MMTers that inflation is an important signal to respect and that you can’t infinitely ‘print’ money due to the constraint of real resources.

freedomben 5y ago
You're correct, but I think the problem is that a lot of people who advocate for MMT, don't actually understand it, because many of the pro-MMT people I've talked to really do think you can print money forever. It's not unique to MMT, the same thing happens with plenty of other subjects too.
- causalmodels 5y ago
  Not even the MMT people understand MMT. The lack of formal models means everyone is working with wildly different and often contradictory definitions
  - OGWhales 5y ago
    > everyone is working with wildly different and often contradictory definitions I’ve found the main MMTers to be mostly consistent amongst themselves in their theories. Now, I think some ideas are wrong, but they do seem mostly on the same page. I agree MMT does an excellent job convincing laymen of some pretty wacky ideas and that’s one of my bigger complaints with it. Also, I find the focus on mathematical models problematic in mainstream economics. It obfuscates a lot of erroneous assumptions. Models are great for testing, but words are useful for communicating ideas too and can sometimes be a better format, especially for wider audiences. To be clear, I’m not saying models are bad or that MMT shouldn’t use them, in fact I saw one MMTer post this paper recently: http://www.levyinstitute.org/pubs/wp_992.pdf http://www.levyinstitute.org/pubs/wp_992.pdf
- OGWhales 5y ago
  Absolutely, I think MMT in particular is prone to doing this and it’s one of my bigger gripes with it.

stjohnswarts 5y ago

The problem is all that new wealth created, about 90% goes to the top 1% who can easily store it away in nontaxable assets (at least until said assets are sold) since generally the “buy tax” isn't all that high compared to growth in value of securities and real estate (at least good investments thereof). Just siphoning more money out of the poor and middle class will not fly in the USA you will be voted out and your policy rescinded within a couple of years.

roenxi 5y ago

An important point to keep in mind when talking about MMT in a policy setting is that the people who will implement it don't care about theory and will make a series of short-term politically expedient and/or vaguely corrupt decisions. If they implement MMT, there are good odds that it will just look like money printing. It doesn't really matter what the academic plan is, the policy isn't going to follow it. Much like how interest rates were supposed to rise after being dropped to emergency levels a decade or so ago and instead a 25 bps rise is front page news. All the politicians/relevant voters are looking for is a green light to hand out money and some buzz to say that it'll make everyone better so ignore the doubters. If they cared about good economic policy the last few decades would look very different. The dominant ideology is that centrally planned interest rates are a good idea, and that is questionable.

SkyMarshal 5y ago
Yeah, happened with both monetary policy as you observe, and with Keynesian fiscal policy - deficit spend to cushion and shorten downturns, then contract govt spending and pay down the debt during good times, so that you can afford to deficit spend again in the next downturn. Makes sense in theory, but the second half doesn't always happen b/c politicians like buying votes with govt spending (either via under-taxation or over-spending, to the extent those aren't the same thing).
- mjevans 5y ago
  Or alternately raise taxes in the good times (rather than interest rates) and pay down that debt... which at least in the US we've got one political party dead set against at all costs.
  - deleted 5y ago
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  - lumost 5y ago
    A generation ago, progressive cycles of deficit spending and taxation had put the top tax bracket in the US at 90%. Still, there was persistent inflation - and worse high unemployment. The belief was that the Federal Government had grown too large in the economy and needed to be "starved". To what extent government austerity vs. new monetary policy moved the needle for the US economy is unknowable. However many Americans of that generation feel that the starve the beast approach was correct. If you talk to Americans opposed to new taxes, their opposition is usually based on the idea that the government will waste the money in one way or another. Even those on the left in favor of taxes are often in favor of taxes for redistribution purposes. It's rare that anyone pitches the government as competent outside of military spending, and even then there are many asterisks on 10k light bulbs in submarines. If you want Americans to agree to taxes you'll need to change the perception of government competence.

wolpoli 5y ago

I would encourage readers to also review this [1] document which compares and contrasts MMT and other economic theories. The author concluded that "MMT contains some kernels of truth, but its most novel policy prescriptions do not follow cogently from its premises. " [1]:https://scholar.harvard.edu/files/mankiw/files/skeptics_guide_to_modern_monetary_theory.pdf https://scholar.harvard.edu/files/mankiw/files/skeptics_guid...

datavirtue 5y ago

You can expect inflation as you grow the money supply. Inflation is good. Runaway, uncontrolled inflation is not. We have not had, nor do we have now, runaway inflation. You have to grow the money supply as the population and productivity increases. Most of the talk and reporting on inflation is just silly.

landemva 5y ago
Inflation is not good for savers who do not want to be speculators. Inflation is not good for those on fixed incomes like retirees.

mariodiana 5y ago

Even if we imagine MMT working perfectly — whatever that means — it represents a stealthy redistributing of wealth. The idea behind it is for the government to acquire and then redistribute goods and services from those in the private sector who would otherwise command that wealth, and do something else with it: in other words, give these goods and services to others. And no one is going to notice this? The people who are used to enjoying some quantity of goods and services are not going to notice that they now enjoy less, because someone else is enjoying them? Or, is this somehow supposed to "stimulate" the economy, so that more goods and services are actually produced, because of the extra money? This is alchemy. Production comes before consumption.

MuffinFlavored 5y ago

How did "printing lots of money" https://fred.stlouisfed.org/series/CURRCIR https://fred.stlouisfed.org/series/CURRCIR not spike USD to EUR? did EUR also print lots of money? https://finance.yahoo.com/quote/USDEUR=X/ https://finance.yahoo.com/quote/USDEUR=X/ basically unchanged 5 years ago -> now

ThePhysicist 5y ago
M3 has roughly tripled in the last 20 years, so yeah we've printed lots of money too.
Amfy 5y ago
EUR has negative interest. You pay to deposit money at banks. Yes, EUR has been printing a lot as well. Also, from my understanding, EURUSD goes up/down mostly based on their difference in interest rates.
- MuffinFlavored 5y ago
  If we haven't devalued our USD currency against the EUR because we printed while they also printed, is there a currency that we did devalue ourselves against (or a country that didn't devalue their own currency through printing?) Does printing always actually equate to devaluation?

ajross 5y ago

> endless printing of money in the last few years This didn't happen in a vacuum, though. It was simultaneous (and, obviously, co-causal) with a very rapid economic contraction and a subsequent supply shock across a ton of industries. Any analysis of this situation that starts end ends with "the government printed money" is, IMHO, basically pushing an agenda. What actually happened is that the device under control (the economy) had an excursion (picture a car blowing a tire and veering) and the government corrected rapidly (prevented it from entering another travel lane, say), but it was something of an overcorrection (the car ran off the shoulder). Should we have "printed less money"? Probably yes, in hindsight. Was the alternative worse? Of course it was; we were looking at a huge jump in poverty. Was anyone unaware of the inflation risk? No, not really. Was anyone dead-on correct about the right amount of stimulus? Not that I can see. We'll be fine.

cyanydeez 5y ago

monetary theory is meaningless if its based on the american dollar as reserve currency. its more american monetary beliefs

chrisco255 5y ago

MMT has all the same problems as Communism: nice in theory, but terrible in practice. MMT proponents will argue that no one has ever properly implemented it. However, an economic theory that is not effective in practice, given the realistic constraints of human nature and politics, is useless. In theory the only way MMT works is to arbitrarily raise taxes to counter inflation. The Fed does not have the power to raise taxes, Congress does. But such a floating, variable tax rate is ripe for abuse of power and I don't know anyone who would not revolt under such a system.

spiralx 5y ago
It's like the anthropic principle in physics IMO in that it can be taken either descriptively or prescriptively, and while the former is almost trivial in what it describes, the latter invariably ends up leading to significant consequences far beyond the initial description.

vmception 5y ago

If you scare people into thinking money wont matter in the future, then you can get a lot of money from them. Congress got scared and passed a bunch of pre-written laws.

eigenvalue 5y ago

"Conceptually the answer in the theory is to suck up the excess money with taxes" Huh, why is that the answer? Why wouldn't the conceptual answer be "do the opposite", i.e. sop up the excess liquidity by removing money from the money supply, by doing things like raising interest rates, increasing bank reserve ratios, and selling some of the trillions of dollars of securities already on the Fed's balance sheet? The last thing anyone should want is the government to take a lot more in taxes so it can be squandered on foolish projects. Also, once government programs start up and build/lease buildings and hire a bunch of people, they are almost impossible to get rid of (the process of terminating a Federal employee is a Kafkaesque nightmare).

hfourm 5y ago
I would love more "foolish" infrastructure projects in my area. In my state/city, We are dealing with increasing flooding, overcrowded roads, and could always use more green space. I get your sentiment, but the government could be using that money in positive ways that don't involve spinning up whole new organizations
8note 5y ago
MMT would say that the government takes the money in taxes, then just burns it The money the government spends is then unrelated to that which it taxes

tvanantwerp 5y ago

Any theory of economics that only works if you can depend on an elected body to take quick and reasonable steps—like raising taxes—is one doomed to failure, and ought not be tried.

gscott 5y ago

Most of the money printing has been reabsorbed by the Fed... banks would buy the treasury bonds and then loan them back to the Federal Reserve. It isn't until recently that money was printed, sent out, and actually got out into the economy... (at the same time that China shuts down, etc).

dv_dt 5y ago

Most prices haven't inflated on supply constraints, they've risen on opportunism of profit margin increases by companies who were allowed to merge and grow with insufficient anti-monopoly regulation.

diob 5y ago

You raise a good point that we could really reverse inflation by actually closing tax loopholes and reabsorbing the excess we printed and gave out to the 1%. . . but like you said, never going to happen unfortunately.

hgomersall 5y ago
It's likely you can't because the 1% don't really spend excess money, so it's not inflationary. Another important insight from MMT.

WalterBright 5y ago

> how this theory would work while avoiding inflation That is a puzzler, until one realizes it did cause inflation, which was offset by the deflation from the banking collapse.

pibechorro 5y ago

the only long term sustainable economy is one that has a sound money where natural supply/demand laws govern it, not a central and politically motivated agenda where money can just poof be made from nowhere, people are falible and complex systems are impossible to control. Ultimately mmt is like relying on weathermen to be 100% on point. Mmt is just a boom bust cycle where debt is kicked down the road and the bubbles grow larger with a false sense of security.

horns4lyfe 5y ago

I haven’t studied MMT enough to be able to comment on it beyond a surface level, and the economists behind are smart, accomplished people. What I do know is that in the real world of policy, MMT will just be used as an excuse to spend limitless amounts of money by politicians that also don’t understand it.