8 ms·

Modern monetary theory is so complex and jargon-filled that the only way lay people can understand it is through conspiracy theories. Conspiracies offer succinc

by spaceman_2020 4y ago

Modern monetary theory is so complex and jargon-filled that the only way lay people can understand it is through conspiracy theories. Conspiracies offer succinct one-paragraph explanations (usually ready-fit for the group's biases) for extremely complex processes. In a way, it's like climate change. Extremely complex and hard to model, which invariably attracts conspiracy thinkers ready to whip it down into digestible quotes and ideas.

roenxi 4y ago
"lay people": It looks a lot like you're printing money and handing it out to your wealthy buddies. "experts": This matter is too complex and jargon-filled for you to take part in the debate. "lay people": Explain again why we have an institution that alternates between handouts to asset owners and crashing the economy? I think prices going up exponentially with time might be bad for my welfare! "experts": Those crazy conspiracy theorists! At it again. They can't even using the word inflation the way we defined it. ... There are complex things involved here, but a lot of it is pretty obviously bankers being confused at the idea that there are options other than taxpayers backstopping their obviously bad gambles. It looks like this round it might turn out pension fund style entities are the ones backing the whole show, I have my popcorn at hand if so and my pitchfork if it happens to be me. I don't want to pay for stuff that I never supported to start with. I don't want my taxes spent on foreign military expeditions either, I think that is actually bad for the economy.
- pjc50 4y ago
  > printing money and handing it out to your wealthy buddies. So much confusion is caused by the inability to distinguish between "gift" and "loan". The problem with allowing banks to hard-fail is that imposes real, huge costs on customers even if the deposits are 100% covered, because the failover is not instant and you end up with money locked up for a period and are unable to make your own payments. > prices going up exponentially with time might be bad for my welfare! And prices going down exponentially is bad for investment, and precisely keeping prices the same forever is impossible; that's why the target is 0-2% and central banks have been extraordinarily successful at meeting that target through interest rate adjustment. > pension fund style entities are the ones backing the whole show Pension funds are more or less obliged to buy the safest assets they can?
  - hoseja 4y ago
    "I loan you a billion dollars now to buy assets, then inflate money so billion dollars is worth half a billion dollars, then demand my billion dollars back. This isn't a gift wink wink."
    - doubleunplussed 4y ago
      After QE4, seems to me inflation wasn't particularly high.
      - CompactNotice 4y ago
        Asset inflation ran quite high throughout QE. The same number of dollars might be obtained by selling half of what one purchased with borrowed money at the start of the program.
        simonh 4y ago
        QE involved the Fed buying assets, not giving away money. What you're saying would suggest that the Fed made massive profits for the public, which is actually correct. Overall QE, apart from it's other effects, has been hugely profitable for the US government. Not so much here in Britain, unfortunately.
        CompactNotice 4y ago
        Who did they buy those assets from, and where did they get the money to buy them in the first place?
        simonh 4y ago
        The government bought them from the banks, using money the Treasury created. When the assets are sold the created money is 'retired' and any profit returned to the Treasury. IMHO QE in the US went too far, but it was absolutely a necessary programme that stabilised the US economy at critical moments. The increased reserve requirements on banks, while dragging on bank profits since, were prudent and seem to be working well, especially compared to Europe.
- bradleyjg 4y ago
  If a subject is too complicated for non-specialists to understand but of critical importance and liable to corruption or incompetence, non specialists must form judgments about the management of the area by the specialists. To do that they are forced to use heuristics since by definition they don’t have the requisite knowledge. Most of us here have been on both sides of that coin. There are no easy answers. We’ve all seen up close supposed experts in our respective fields that were incompetent or corrupt.
  - roenxi 4y ago
    The law is so complicated that even specialists like lawyers aren't trusted to get it right, and we bring in the judges who are experts even among the experts to help with the tricky stuff. Sometimes they talk in latin. And yet, when questioned, they still come up with answers that make sense. There is a profound fairness - often the complaint against the legal system is its procedural fairness is too thorough when people think there are obvious answers. In economics, the argument seems to almost literally be "lol, we have your money hostage, if we don't start the money printers you'll go bankrupt. Yeah, we have policies that will wipe out your savings if you don't put it up as a hostage. This is in your own best interests. No your doubts aren't legitimate you're just not being reasonable and/or we don't want to engage with you in common English. All the evidence was established in 1930 and the debate is settled, we don't really need to provide it now, trust us we're right and you don't understand it anyway". I say almost because the "lol" is not included in the serious version.
- kypro 4y ago
  In this case it doesn't matter if you're a tax payer though. Central bankers have no power to levy taxes, they manipulate the value of the currency itself by altering rates and bond market interventions.
  - roenxi 4y ago
    > In this case it doesn't matter if you're a tax payer though. They don't explain who is going to be paying in advance. Usually it is a surprise. The approach is to wait for the crisis to come to a head then make a snap decision if it is the government that needs to settle things. There are literal trillions of dollars floating about. Someone is fronting up real resources, somewhere. Who? What? These are important questions. I'm assuming taxpayers until proven otherwise. If people wanted to know they could design a simple system, but it is obfuscated - probably with intent but maybe not malice. Every time people figure out who is paying another add another layer of indirection gets built up to confuse the situation. > Central bankers have no power to levy taxes I get what you mean in context, but this is false. I pay a lot of capital gains on my gold because of them. Now I'm no aurumologist, but I'm pretty sure my lucky 10g of gold hasn't doubled in size to 20g. And yet I'm paying taxes as though it has. Now, arguably maybe supply and demand has shifted and my shiny rock has doubled in value. But that is pretty patent bullshit, I bought it thing because there is obvious asset price inflation happening long term. And I'm being taxed as though it is growing.
    - cykros 4y ago
      Thankfully, it is not ONLY taxpayers, but rather, all market participants that make use of the US dollar. Which, considering it is the reserve currency of the world, is a lot more than simply US taxpayers. Admittedly, the Federal Reserve does purchase primarily securities that do end up in one form or other as the obligation of the US Government (either treasury securities, or agency MBS's), but by and large, they don't seem to take much issue with payment in the form of principle and interest through issuance of further debt. For an illustration of this in action, see here: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren.... Ultimately, does this mean the taxpayer is getting a higher and higher national debt? Sure. But if it's never something being paid off, then the cost of this arrangement ultimately falls to those faced with an ever larger growing money supply, which, again, is the population of Earth. Though, a curious thing happened this year, when Russia was kicked off of SWIFT, and an alliance of those willing to do business with them outside of the dollar markets started to emerge, which does threaten to throw quite a bit of turbulence if suddenly the percentage of the globe we're spreading out the cost of inflation to shrinks drastically. We've fought wars to protect the dollar's reserve status before (just ask Gaddhafi), and it does seem that sooner or later there'll come a breaking point -- but this is hard to say for sure, as we are ultimately in uncharted territory. Basically, like it or not, most of the rest of the world is wrapped up enough in this that the taxpayers can hardly be said to be alone, except for those who seem to be in the process of crafting lifeboats for themselves. Whether that's a consolation to anyone is a question I leave up to you to decide for yourself.
- ElevenLathe 4y ago
  Liberal economics (i.e. the only kind presently understood when you say "economics") wants to have it both ways: 1) The world economy is too complex to be understood fully, so its best to be hands-off and let markets regulate it. Also: 2) The market is no good at regulating the world economy so we have to set up central banks, staff them with personnel from the finance industry, and give them extraordinary powers to create and destroy money and other government-backed securities. We also HAVE to let them do whatever they want with those powers, free from political pressure, since only then can they freely apply their perfect scientific knowledge of economics (which involves math now, so laypeople can't understand it without taking off their shoes) to the task of selflessly minimizing unemployment (or maybe keeping inflation down, they get to pick which) and therefore making everyone richer.
ShredKazoo 4y ago
Can anyone recommend educational resources that cut through the jargon and explain the subject accurately?
- WastingMyTime89 4y ago
  There is not that much jargon. It’s just an advanced topic so people use economic terms they expect people to know. Grab an introduction on macroeconomics for exemple Mankiw then any book on modern monetary theory and everything should be quite clear.
  - concinds 4y ago
    Strange to recommend Mankiw, and Modern Monetary Theory (a discredited, non-mainstream economic concept that Mankiw wrote against) in the same sentence. MMT is practically pseudoscience, makes unclear claims, claims a foundation in mainstream economics but makes completely wild logical leaps when it comes to policy recommendations, and it's promoted by politicians more than real economists.
    - largepeepee 4y ago
      Isn't wild leaps in assumptions just economics in general? So many economic theories are built on wild assumptions, like assuming everyone is rational as a basis. Economics is closer to politics than any hard sciences imo. So on a high level like CBs it's all about narrative.
    - amrocha 4y ago
      Ah yes, MMT, classic discredited concept, unlike classic synthesis theory that has been completely unable to predict modern economic responses and can't explain the 3rd largest economy in the world. You do know mainstream economics isn't science right? Because it's completely unable to prove anything it predicts
      - concinds 4y ago
        To quote Jim Rickards: "economics is a science but most economists aren't scientists." DSGE is bunk, so is the Phillips curve, so is the EMH (more finance than economics), so is a whole bunch of stuff. I subscribe to complexity economics, not the standard model. But MMT is even worse than the mainstream stuff. Even central bankers think it makes no sense (https://publications.banque-france.fr/en/meaning-mmt https://publications.banque-france.fr/en/meaning-mmt).
chiefalchemist 4y ago
I don't see the climate analogy. People live their plight. On a day to day basic they know where they stand. They have been watching costs rise and incomes not keeping pace. This is situation decades old but only breaking the narrative surface lately. They're reminded of the power of The Fed. True, they might get the exact details wrong, but they have a solid enough grip on who. They also see others (i.e., 1%) doing better and better. "I'm struggling to pay my bills" is all they need to understand. Because the people don't understand the nitty gritty doesn't make The Fed any less accountable.

roenxi 4y ago

"lay people": It looks a lot like you're printing money and handing it out to your wealthy buddies. "experts": This matter is too complex and jargon-filled for you to take part in the debate. "lay people": Explain again why we have an institution that alternates between handouts to asset owners and crashing the economy? I think prices going up exponentially with time might be bad for my welfare! "experts": Those crazy conspiracy theorists! At it again. They can't even using the word inflation the way we defined it. ... There are complex things involved here, but a lot of it is pretty obviously bankers being confused at the idea that there are options other than taxpayers backstopping their obviously bad gambles. It looks like this round it might turn out pension fund style entities are the ones backing the whole show, I have my popcorn at hand if so and my pitchfork if it happens to be me. I don't want to pay for stuff that I never supported to start with. I don't want my taxes spent on foreign military expeditions either, I think that is actually bad for the economy.

pjc50 4y ago
> printing money and handing it out to your wealthy buddies. So much confusion is caused by the inability to distinguish between "gift" and "loan". The problem with allowing banks to hard-fail is that imposes real, huge costs on customers even if the deposits are 100% covered, because the failover is not instant and you end up with money locked up for a period and are unable to make your own payments. > prices going up exponentially with time might be bad for my welfare! And prices going down exponentially is bad for investment, and precisely keeping prices the same forever is impossible; that's why the target is 0-2% and central banks have been extraordinarily successful at meeting that target through interest rate adjustment. > pension fund style entities are the ones backing the whole show Pension funds are more or less obliged to buy the safest assets they can?
- hoseja 4y ago
  "I loan you a billion dollars now to buy assets, then inflate money so billion dollars is worth half a billion dollars, then demand my billion dollars back. This isn't a gift wink wink."
  - doubleunplussed 4y ago
    After QE4, seems to me inflation wasn't particularly high.
    - CompactNotice 4y ago
      Asset inflation ran quite high throughout QE. The same number of dollars might be obtained by selling half of what one purchased with borrowed money at the start of the program.
      - simonh 4y ago
        QE involved the Fed buying assets, not giving away money. What you're saying would suggest that the Fed made massive profits for the public, which is actually correct. Overall QE, apart from it's other effects, has been hugely profitable for the US government. Not so much here in Britain, unfortunately.
        CompactNotice 4y ago
        Who did they buy those assets from, and where did they get the money to buy them in the first place?
        simonh 4y ago
        The government bought them from the banks, using money the Treasury created. When the assets are sold the created money is 'retired' and any profit returned to the Treasury. IMHO QE in the US went too far, but it was absolutely a necessary programme that stabilised the US economy at critical moments. The increased reserve requirements on banks, while dragging on bank profits since, were prudent and seem to be working well, especially compared to Europe.
bradleyjg 4y ago
If a subject is too complicated for non-specialists to understand but of critical importance and liable to corruption or incompetence, non specialists must form judgments about the management of the area by the specialists. To do that they are forced to use heuristics since by definition they don’t have the requisite knowledge. Most of us here have been on both sides of that coin. There are no easy answers. We’ve all seen up close supposed experts in our respective fields that were incompetent or corrupt.
- roenxi 4y ago
  The law is so complicated that even specialists like lawyers aren't trusted to get it right, and we bring in the judges who are experts even among the experts to help with the tricky stuff. Sometimes they talk in latin. And yet, when questioned, they still come up with answers that make sense. There is a profound fairness - often the complaint against the legal system is its procedural fairness is too thorough when people think there are obvious answers. In economics, the argument seems to almost literally be "lol, we have your money hostage, if we don't start the money printers you'll go bankrupt. Yeah, we have policies that will wipe out your savings if you don't put it up as a hostage. This is in your own best interests. No your doubts aren't legitimate you're just not being reasonable and/or we don't want to engage with you in common English. All the evidence was established in 1930 and the debate is settled, we don't really need to provide it now, trust us we're right and you don't understand it anyway". I say almost because the "lol" is not included in the serious version.
kypro 4y ago
In this case it doesn't matter if you're a tax payer though. Central bankers have no power to levy taxes, they manipulate the value of the currency itself by altering rates and bond market interventions.
- roenxi 4y ago
  > In this case it doesn't matter if you're a tax payer though. They don't explain who is going to be paying in advance. Usually it is a surprise. The approach is to wait for the crisis to come to a head then make a snap decision if it is the government that needs to settle things. There are literal trillions of dollars floating about. Someone is fronting up real resources, somewhere. Who? What? These are important questions. I'm assuming taxpayers until proven otherwise. If people wanted to know they could design a simple system, but it is obfuscated - probably with intent but maybe not malice. Every time people figure out who is paying another add another layer of indirection gets built up to confuse the situation. > Central bankers have no power to levy taxes I get what you mean in context, but this is false. I pay a lot of capital gains on my gold because of them. Now I'm no aurumologist, but I'm pretty sure my lucky 10g of gold hasn't doubled in size to 20g. And yet I'm paying taxes as though it has. Now, arguably maybe supply and demand has shifted and my shiny rock has doubled in value. But that is pretty patent bullshit, I bought it thing because there is obvious asset price inflation happening long term. And I'm being taxed as though it is growing.
  - cykros 4y ago
    Thankfully, it is not ONLY taxpayers, but rather, all market participants that make use of the US dollar. Which, considering it is the reserve currency of the world, is a lot more than simply US taxpayers. Admittedly, the Federal Reserve does purchase primarily securities that do end up in one form or other as the obligation of the US Government (either treasury securities, or agency MBS's), but by and large, they don't seem to take much issue with payment in the form of principle and interest through issuance of further debt. For an illustration of this in action, see here: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren.... Ultimately, does this mean the taxpayer is getting a higher and higher national debt? Sure. But if it's never something being paid off, then the cost of this arrangement ultimately falls to those faced with an ever larger growing money supply, which, again, is the population of Earth. Though, a curious thing happened this year, when Russia was kicked off of SWIFT, and an alliance of those willing to do business with them outside of the dollar markets started to emerge, which does threaten to throw quite a bit of turbulence if suddenly the percentage of the globe we're spreading out the cost of inflation to shrinks drastically. We've fought wars to protect the dollar's reserve status before (just ask Gaddhafi), and it does seem that sooner or later there'll come a breaking point -- but this is hard to say for sure, as we are ultimately in uncharted territory. Basically, like it or not, most of the rest of the world is wrapped up enough in this that the taxpayers can hardly be said to be alone, except for those who seem to be in the process of crafting lifeboats for themselves. Whether that's a consolation to anyone is a question I leave up to you to decide for yourself.
ElevenLathe 4y ago
Liberal economics (i.e. the only kind presently understood when you say "economics") wants to have it both ways: 1) The world economy is too complex to be understood fully, so its best to be hands-off and let markets regulate it. Also: 2) The market is no good at regulating the world economy so we have to set up central banks, staff them with personnel from the finance industry, and give them extraordinary powers to create and destroy money and other government-backed securities. We also HAVE to let them do whatever they want with those powers, free from political pressure, since only then can they freely apply their perfect scientific knowledge of economics (which involves math now, so laypeople can't understand it without taking off their shoes) to the task of selflessly minimizing unemployment (or maybe keeping inflation down, they get to pick which) and therefore making everyone richer.

ShredKazoo 4y ago

Can anyone recommend educational resources that cut through the jargon and explain the subject accurately?

WastingMyTime89 4y ago
There is not that much jargon. It’s just an advanced topic so people use economic terms they expect people to know. Grab an introduction on macroeconomics for exemple Mankiw then any book on modern monetary theory and everything should be quite clear.
- concinds 4y ago
  Strange to recommend Mankiw, and Modern Monetary Theory (a discredited, non-mainstream economic concept that Mankiw wrote against) in the same sentence. MMT is practically pseudoscience, makes unclear claims, claims a foundation in mainstream economics but makes completely wild logical leaps when it comes to policy recommendations, and it's promoted by politicians more than real economists.
  - largepeepee 4y ago
    Isn't wild leaps in assumptions just economics in general? So many economic theories are built on wild assumptions, like assuming everyone is rational as a basis. Economics is closer to politics than any hard sciences imo. So on a high level like CBs it's all about narrative.
  - amrocha 4y ago
    Ah yes, MMT, classic discredited concept, unlike classic synthesis theory that has been completely unable to predict modern economic responses and can't explain the 3rd largest economy in the world. You do know mainstream economics isn't science right? Because it's completely unable to prove anything it predicts
    - concinds 4y ago
      To quote Jim Rickards: "economics is a science but most economists aren't scientists." DSGE is bunk, so is the Phillips curve, so is the EMH (more finance than economics), so is a whole bunch of stuff. I subscribe to complexity economics, not the standard model. But MMT is even worse than the mainstream stuff. Even central bankers think it makes no sense (https://publications.banque-france.fr/en/meaning-mmt https://publications.banque-france.fr/en/meaning-mmt).

chiefalchemist 4y ago

I don't see the climate analogy. People live their plight. On a day to day basic they know where they stand. They have been watching costs rise and incomes not keeping pace. This is situation decades old but only breaking the narrative surface lately. They're reminded of the power of The Fed. True, they might get the exact details wrong, but they have a solid enough grip on who. They also see others (i.e., 1%) doing better and better. "I'm struggling to pay my bills" is all they need to understand. Because the people don't understand the nitty gritty doesn't make The Fed any less accountable.