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I have no idea how anybody looks at Japan without realizing that the MMT people got it right. Thought experiment: If the government printed money to send unemp

I have no idea how anybody looks at Japan without realizing that the MMT people got it right. Thought experiment: If the government printed money to send unemployed people to uninhabited farmland to start cultivating it (in complete isolation from the rest of the economy) would it cause inflation for the rest of us who aren't connected? If that community was then connected to the rest of the world, would the economic benefit be positive? You can clearly see that the limitation on printing money is unutilized resources in the economy.

pdonis 5y ago
> If the government printed money to send unemployed people to uninhabited farmland to start cultivating it (in complete isolation from the rest of the economy) would it cause inflation for the rest of us who aren't connected? First, this never happens, and certainly is not what's been happening for decades now in the US with the Fed printing money, so it's not a very relevant thought experiment. Second, taking your scenario as given for the sake of argument, what was stopping the unemployed people from cultivating the uninhabited farmland before? Was it the absence of money, or the fact that they didn't own the farmland? In other words, the real operative point in your thought experiment is not the government printing money, but the government giving tangible resources (uninhabited farmland) to a group of unemployed people, so that they will produce something of value from it. The money is really incidental: once they start producing more food than they can consume themselves, they will be able to acquire their own money by selling the excess. The initial printed money is really more like a one-time grant of working capital, so they can buy enough initial supplies to get the operation going. And money doesn't even have to be printed for that: the government could just allocate some tax revenue to it. Third, in our actual system as it actually works, who does get newly printed money? Is it unemployed people who could be doing productive work but aren't? That was perhaps true for COVID relief checks--although those didn't really enable anyone to go back to work, they enabled people to stay out of work, not producing anything, for longer--but in any case those don't actually add up to a lot in terms of the total US money supply. The vast majority of the money the Fed prints goes to financial institutions, and the only thing whose "production" is increased by that printed money is loans. Those loans, since they are mostly mortgages, will certainly redirect productive capacity in the economy (so we build more McMansions and commercial office buildings that sit empty for years after being built, while our roads, bridges, drainage systems, electrical power grid, and other infrastructure deteriorate), but they don't increase productive capacity overall. In other words, they're just redistribution--and almost always (with the COVID relief checks being the only possible exception I can see) from the poor to the rich, since that's who the newly printed money goes to (financial institutions). > You can clearly see that the limitation on printing money is unutilized resources in the economy. No, we can clearly see that the limitation on printing money is how much redistribution from the poor to the rich the rich think they can get away with. Remember that the Fed was initially advocated to the US government by rich bankers who were tired of the government coming to them for bailouts whenever there was a financial panic due to stupid government interventions (the Panic of 1907 was the specific one that prompted the legislation that became the Federal Reserve Act), so they decided to put a system in place that would make it so the costs of the bailouts ended up being paid by ordinary citizens (who wouldn't get any of the money the Fed would print) instead of them.
- burntbridge 5y ago
  The "uninhabited farmland" is just an analogy for some area of the economic landscape that when you spend money on it, can absorb labor and return a tangible benefit that is equal or more than what you spend. Maybe for example repairing worn out infrastructure or creating new infrastructure. >The vast majority of the money the Fed prints goes to financial institutions You maybe thinking of Quantitative Easing. In which case financial institutions are just incentivized to cash in their Government Bonds, whereby they need to look for some place else to put the money, hence perhaps asset inflation. The Government doesn't just print a whole lot of money and give it away to someone.
  - pdonis 5y ago
    > The "uninhabited farmland" is just an analogy for some area of the economic landscape that when you spend money on it, can absorb labor and return a tangible benefit that is equal or more than what you spend. Such areas aren't doled out by the government. They're invented by entrepreneurs. Your "uninhabited land" analogy obscures that vital point since uninhabited land is not invented, it's already there. > Maybe for example repairing worn out infrastructure or creating new infrastructure. As I already pointed out, if there are things like this that are worth doing, and there are unemployed people who can do them, the government can just use tax revenue to pay them to do it. There's no need to print new money. > You maybe thinking of Quantitative Easing. That's one way of doing it, which has been common in recent years, yes. But it's not the only way. > The Government doesn't just print a whole lot of money and give it away to someone. The government goes to great lengths to try to convince people that it's not doing that. But economically speaking, that is what it's doing. When someone "cashes in" a government bond under "quantitative easing", the money they get is not taken from currently existing dollars. The dollars are newly printed money; they are newly created purchasing power that is given to whoever is "cashing in" the bond. That purchasing power doesn't come from nowhere: the purchasing power of a dollar is not fixed, it's determined by the total number of dollars in circulation. So printing new dollars and giving them to someone, even if it's in exchange for a "government bond", is still increasing the total number of dollars in circulation, and that means the purchasing power represented by the new dollars is taken from everyone else who holds dollars. For a simple example, if there are a thousand dollars currently in circulation, and I "cash in" my government bond for 100 dollars of "quantitative easing", there are now 1100 total dollars in circulation, and I now have 100 dollars of purchasing power that was obtained by reducing the purchasing power of all other dollars by 10 percent. It's economically equivalent to taking 10 cents in tax for each dollar of the 1000 dollars that existed before, and giving it to me. Calling it by some other name doesn't make it something else. It just obfuscates what is actually going on. (The Fed can in principle also destroy money, by selling securities and retiring the dollars that it gets for them, but historically it has almost never done this.)
Manuel_D 5y ago
Quite the contrary. Japan's money supply has grown considerably more slowly than other countries - reinforcing the relationship between money supply, economic growth, and inflation. > Thought experiment: If the government printed money to send unemployed people to uninhabited farmland to start cultivating it (in complete isolation from the rest of the economy) would it cause inflation for the rest of us who aren't connected? Sure, because those people can't actually spend the money they were given. But who would agree to be sent to said island? The incentive of getting paid is worthless if you can't spend your money on anything. If the government printed money to pay people to build wind farms with the restriction that they can't spend this money on anything, how many workers would accept this offer?
- jppittma 5y ago
  You're missing the point. The government can and should print money to turn unutilized resources in the economy into utilized resources. What's best for the economy is for every capable person in it to be generating stuff. Everything else is an abstraction around that end. In my thought experiment, there's simply more stuff in the economy because the government printed the money, and the whole is more prosperous for it.
  - Manuel_D 5y ago
    Your thought experiment involves people working for free: being paid with money they can't actually use because they're isolated from the rest of the economy and can't spend that money. Nobody would agree to this. In practice, the people receiving the printed money would not be isolated from the rest of the economy and would be purchasing goods and services with their subsidies and driving up the prices of those products. You're right that if spending printed money created gains in production to match the increase in money supply it wouldn't result in inflation. That's correct, but I seriously doubt that this is how MMT would work out in practice. Most MMT evangelists aren't trying to get a favorable return on investment. They're looking to fund massive social spending programs like UBI, government healthcare, or decarbonization of energy production. To be clear, some of these are important projects but we shouldn't kid ourselves into thinking that printing trillions of dollars to pay for them isn't going to affect inflation. They're worth paying for because of the benefits they bring and disasters they avert, not because they're going to produce a return on investment.
nostrademons 5y ago
Then the unemployed people on uninhabited farmland move back to their home cities with all this extra money and buy a house for a couple million, sending prices skyrocketing. This is literally what's been happening to the economy for the last decade. All the money that went into the economy from 2008 onwards ended up in the financial & tech sectors in NYC, Seattle & the Bay Area. As long as it stayed there, it only increased prices in NYC, Seattle & the Bay Area. Then remote work happened and these techie millionaires realized they could live anywhere. Or they just hit a threshold where they can retire. Suddenly those millions are ending up in places like Boise, Phoenix, Austin, Denver, Asheville, etc. and now we get inflation.
- jppittma 5y ago
  As long as the value of the money that was created was less than the value of the goods that its investment provided, you're in the clear. Sure, home prices have gone up, but what would the phone in your pocket (and all the software that powers it) have been worth in '08?

pdonis 5y ago

> If the government printed money to send unemployed people to uninhabited farmland to start cultivating it (in complete isolation from the rest of the economy) would it cause inflation for the rest of us who aren't connected? First, this never happens, and certainly is not what's been happening for decades now in the US with the Fed printing money, so it's not a very relevant thought experiment. Second, taking your scenario as given for the sake of argument, what was stopping the unemployed people from cultivating the uninhabited farmland before? Was it the absence of money, or the fact that they didn't own the farmland? In other words, the real operative point in your thought experiment is not the government printing money, but the government giving tangible resources (uninhabited farmland) to a group of unemployed people, so that they will produce something of value from it. The money is really incidental: once they start producing more food than they can consume themselves, they will be able to acquire their own money by selling the excess. The initial printed money is really more like a one-time grant of working capital, so they can buy enough initial supplies to get the operation going. And money doesn't even have to be printed for that: the government could just allocate some tax revenue to it. Third, in our actual system as it actually works, who does get newly printed money? Is it unemployed people who could be doing productive work but aren't? That was perhaps true for COVID relief checks--although those didn't really enable anyone to go back to work, they enabled people to stay out of work, not producing anything, for longer--but in any case those don't actually add up to a lot in terms of the total US money supply. The vast majority of the money the Fed prints goes to financial institutions, and the only thing whose "production" is increased by that printed money is loans. Those loans, since they are mostly mortgages, will certainly redirect productive capacity in the economy (so we build more McMansions and commercial office buildings that sit empty for years after being built, while our roads, bridges, drainage systems, electrical power grid, and other infrastructure deteriorate), but they don't increase productive capacity overall. In other words, they're just redistribution--and almost always (with the COVID relief checks being the only possible exception I can see) from the poor to the rich, since that's who the newly printed money goes to (financial institutions). > You can clearly see that the limitation on printing money is unutilized resources in the economy. No, we can clearly see that the limitation on printing money is how much redistribution from the poor to the rich the rich think they can get away with. Remember that the Fed was initially advocated to the US government by rich bankers who were tired of the government coming to them for bailouts whenever there was a financial panic due to stupid government interventions (the Panic of 1907 was the specific one that prompted the legislation that became the Federal Reserve Act), so they decided to put a system in place that would make it so the costs of the bailouts ended up being paid by ordinary citizens (who wouldn't get any of the money the Fed would print) instead of them.

burntbridge 5y ago
The "uninhabited farmland" is just an analogy for some area of the economic landscape that when you spend money on it, can absorb labor and return a tangible benefit that is equal or more than what you spend. Maybe for example repairing worn out infrastructure or creating new infrastructure. >The vast majority of the money the Fed prints goes to financial institutions You maybe thinking of Quantitative Easing. In which case financial institutions are just incentivized to cash in their Government Bonds, whereby they need to look for some place else to put the money, hence perhaps asset inflation. The Government doesn't just print a whole lot of money and give it away to someone.
- pdonis 5y ago
  > The "uninhabited farmland" is just an analogy for some area of the economic landscape that when you spend money on it, can absorb labor and return a tangible benefit that is equal or more than what you spend. Such areas aren't doled out by the government. They're invented by entrepreneurs. Your "uninhabited land" analogy obscures that vital point since uninhabited land is not invented, it's already there. > Maybe for example repairing worn out infrastructure or creating new infrastructure. As I already pointed out, if there are things like this that are worth doing, and there are unemployed people who can do them, the government can just use tax revenue to pay them to do it. There's no need to print new money. > You maybe thinking of Quantitative Easing. That's one way of doing it, which has been common in recent years, yes. But it's not the only way. > The Government doesn't just print a whole lot of money and give it away to someone. The government goes to great lengths to try to convince people that it's not doing that. But economically speaking, that is what it's doing. When someone "cashes in" a government bond under "quantitative easing", the money they get is not taken from currently existing dollars. The dollars are newly printed money; they are newly created purchasing power that is given to whoever is "cashing in" the bond. That purchasing power doesn't come from nowhere: the purchasing power of a dollar is not fixed, it's determined by the total number of dollars in circulation. So printing new dollars and giving them to someone, even if it's in exchange for a "government bond", is still increasing the total number of dollars in circulation, and that means the purchasing power represented by the new dollars is taken from everyone else who holds dollars. For a simple example, if there are a thousand dollars currently in circulation, and I "cash in" my government bond for 100 dollars of "quantitative easing", there are now 1100 total dollars in circulation, and I now have 100 dollars of purchasing power that was obtained by reducing the purchasing power of all other dollars by 10 percent. It's economically equivalent to taking 10 cents in tax for each dollar of the 1000 dollars that existed before, and giving it to me. Calling it by some other name doesn't make it something else. It just obfuscates what is actually going on. (The Fed can in principle also destroy money, by selling securities and retiring the dollars that it gets for them, but historically it has almost never done this.)

Manuel_D 5y ago

Quite the contrary. Japan's money supply has grown considerably more slowly than other countries - reinforcing the relationship between money supply, economic growth, and inflation. > Thought experiment: If the government printed money to send unemployed people to uninhabited farmland to start cultivating it (in complete isolation from the rest of the economy) would it cause inflation for the rest of us who aren't connected? Sure, because those people can't actually spend the money they were given. But who would agree to be sent to said island? The incentive of getting paid is worthless if you can't spend your money on anything. If the government printed money to pay people to build wind farms with the restriction that they can't spend this money on anything, how many workers would accept this offer?

jppittma 5y ago
You're missing the point. The government can and should print money to turn unutilized resources in the economy into utilized resources. What's best for the economy is for every capable person in it to be generating stuff. Everything else is an abstraction around that end. In my thought experiment, there's simply more stuff in the economy because the government printed the money, and the whole is more prosperous for it.
- Manuel_D 5y ago
  Your thought experiment involves people working for free: being paid with money they can't actually use because they're isolated from the rest of the economy and can't spend that money. Nobody would agree to this. In practice, the people receiving the printed money would not be isolated from the rest of the economy and would be purchasing goods and services with their subsidies and driving up the prices of those products. You're right that if spending printed money created gains in production to match the increase in money supply it wouldn't result in inflation. That's correct, but I seriously doubt that this is how MMT would work out in practice. Most MMT evangelists aren't trying to get a favorable return on investment. They're looking to fund massive social spending programs like UBI, government healthcare, or decarbonization of energy production. To be clear, some of these are important projects but we shouldn't kid ourselves into thinking that printing trillions of dollars to pay for them isn't going to affect inflation. They're worth paying for because of the benefits they bring and disasters they avert, not because they're going to produce a return on investment.

nostrademons 5y ago

Then the unemployed people on uninhabited farmland move back to their home cities with all this extra money and buy a house for a couple million, sending prices skyrocketing. This is literally what's been happening to the economy for the last decade. All the money that went into the economy from 2008 onwards ended up in the financial & tech sectors in NYC, Seattle & the Bay Area. As long as it stayed there, it only increased prices in NYC, Seattle & the Bay Area. Then remote work happened and these techie millionaires realized they could live anywhere. Or they just hit a threshold where they can retire. Suddenly those millions are ending up in places like Boise, Phoenix, Austin, Denver, Asheville, etc. and now we get inflation.

jppittma 5y ago
As long as the value of the money that was created was less than the value of the goods that its investment provided, you're in the clear. Sure, home prices have gone up, but what would the phone in your pocket (and all the software that powers it) have been worth in '08?