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MMT - Modern Monetary Theory


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#41 Traveler

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Posted 03 March 2019 - 01:31 PM

View PostRich T Bikkies, on 03 March 2019 - 01:00 PM, said:

A kiddies' guide, please. An idiot kiddies' guide if I'm to have any chance of understanding it.
Yeah, I am in the same boat. Not quite the dislike, but....
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#42 gmat

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Posted 03 March 2019 - 02:18 PM

View PostD. C. Sessions, on 03 March 2019 - 07:31 AM, said:

Matt Bruenig money quote:

Right, this is how I understand MMT. The government sector spends more or less, depending on how the non-government sector is doing, to keep the economic agenda going, whatever that is (eg, full employment).

The purpose of taxes, in this model, is to titrate the money supply.

As someone pointed out here a long time back, I think it was Indy, using taxes this way becomes politically impossible (entirely apart from theoretical feasibility)

#43 D. C. Sessions

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Posted 03 March 2019 - 04:29 PM

View Postgmat, on 03 March 2019 - 02:18 PM, said:

As someone pointed out here a long time back, I think it was Indy, using taxes this way becomes politically impossible (entirely apart from theoretical feasibility)

Part of the problem is that Congress has gotten used to taking credit in election years for handing out goodies. They used to actually vote for COLA adjustments to Social Security until it got so broken that they had to do the sensible thing and put it on an automatic inflation adjustment. Of course that lets the wingier set rail against SS' rising cost while not doing anything (they used to have to vote for the increases, which made for at least some modesty.) Given a bad enough mess they might be persuaded to put tax rates on something halfway autotechnocratic. Maybe.

I'm thinking of rates being adjusted to cover payments on the debt by a rough set of rules and an FED-type board twisting the fine tuning knobs, with deficits or surpluses taking up the short-term slack. Details like what is taxable [2], what the brackets are [3], and a few other actual policy type details left to Congress on a set-and-forget basis.


[1] yeah, I know, the Right wants to automatically cut spending to do the same except they also want to exempt nearly all of the spending -- that proves they're serious.
[2] Everything
[3] There aren't any, it's a smooth curve
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#44 indy

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Posted 03 March 2019 - 06:07 PM

View Postgmat, on 03 March 2019 - 02:18 PM, said:

As someone pointed out here a long time back, I think it was Indy, using taxes this way becomes politically impossible (entirely apart from theoretical feasibility)

Yep, that was me.

#45 Traveler

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Posted 04 March 2019 - 09:00 AM

Indy, were you able to plow through that article? I figure you are one of our economics whisperers.
"Men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing had happened."-- Winston Churchill
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#46 D. C. Sessions

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Posted 04 March 2019 - 09:37 AM

Part of it is that she's attributing positions to Krugman that he doesn't actually hold. Strawmanning doesn't really build credibility.
The way a lot of catastrophes happen is that X doesn't occur because there are safeguards in place, therefore people assume X isn't a worry and they remove the safeguards. Then X happens.
— Nate Silver
"Robots aren't the problem. Capitalism is." -- Last words of Stephen Hawking.
These days, "libertarian" is just a euphemism for a Nazi who's afraid to commit.
"If you're not outraged, you're not paying attention." -- Heather Heyer
"I'd rather have my child, but by golly, if I gotta give her up, we're gonna make it count." -- Her mother
"Your purpose, then, plainly stated, is that you will destroy the Government, unless you be allowed to construe and enforce the Constitution as you please, on all points in dispute between you and us. You will rule or ruin in all events." -- some RINO

#47 indy

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Posted 04 March 2019 - 10:09 AM

View PostTraveler, on 04 March 2019 - 09:00 AM, said:

Indy, were you able to plow through that article? I figure you are one of our economics whisperers.

More or less. I kind of skimmed it. Do you have a specific question or questions?

Here is a very short summary of what I consider the weakness of MMT and it has nothing to do with the theory. MMT postulates that governments can never be insolvent because they print money. Rather inflation is the real risk. You print enough money to provide full employment and spending it on projects when private sector employment is weak, and destroy money when inflation becomes a risk. You destroy the money by taxing it away and then shredding it. Everything else is just getting into the weeds over the mechanics of it all.

Now imagine the US congress. Under the non-delegation doctrine, it cannot delegate its taxing authority. Now imagine a situation where inflation is taking hold and they are trying to get elected. Now imagine them explaining to their constituents in their election speeches that the proper response to the fact that prices are rising all around them is to take away some of their money by raising their taxes and when elected, that is what they will vote for.

I don't need a PhD in either sociology or economics to understand what happens in this scenario.

The great thing about the fed is that it insulates politicians from the tough choices by delegating them to somebody else who isn't elected (and as a bonus are generally trained to think about the details). Interest rates aren't a constitutionally granted authority residing solely in the congress.

#48 JackD

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Posted 04 March 2019 - 11:46 AM

Is the fed's power over interest rates enough to make MMT work?

#49 LFC

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Posted 04 March 2019 - 11:49 AM

View PostRich T Bikkies, on 03 March 2019 - 01:00 PM, said:

A kiddies' guide, please. An idiot kiddies' guide if I'm to have any chance of understanding it.

So part of the Donald Trump Series of technical briefings, filled with pretty colors, diagrams, and pictures of Dear Leader "winning"?
" 'Individual conscience' means that women only get contraceptives if their employers, their physicians, their pharmacists, their husbands and/or fathers, pastors, and possibly their mayors, Governors, State Secretaries of Health, Congressmen, Senators, and President all agree that in that particular case they're justifiable." --D.C. Sessions

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#50 Traveler

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Posted 04 March 2019 - 12:00 PM

Thanks Indy. I can see MMT being kind of a warped Keynesian economics. It makes sense to make everyone poorer when there is inflation, it reduces demand. But that is serious pain, and MMT is supposed to be painless....
"Men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing had happened."-- Winston Churchill
"Anyone who has the power to make you believe absurdities has the power to make you commit injustices" Voltaire

#51 gmat

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Posted 04 March 2019 - 12:11 PM

View PostJackD, on 04 March 2019 - 11:46 AM, said:

Is the fed's power over interest rates enough to make MMT work?

I don’t think so.

For MMT to work, you have to be able to destroy money as directly as you create money. The money is created by the government spending it.

It’s destroyed by the government collecting it in taxes.

(The other function of taxes in MMT is to create a demand for the sovereign currency in the first place)

#52 gmat

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Posted 04 March 2019 - 12:34 PM

But I don’t really know. The central bank, with its interest rate setting capability, has an important function in MMT — I just don’t understand it

eg, http://neweconomicpe...ary-policy.html

#53 gmat

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Posted 04 March 2019 - 12:38 PM

The main misunderstanding I see about MMT is people think that when you say,

“Government sector spending is not constrained by revenue/borrowing”

They hear you saying

“Government sector spending is unconstrained”

#54 D. C. Sessions

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Posted 04 March 2019 - 07:28 PM

Krugman responds in part. As always, paywall.

He also seems to be doubtful that her response is the whole story, since it seems to ignore some pretty recent history. But, read.
The way a lot of catastrophes happen is that X doesn't occur because there are safeguards in place, therefore people assume X isn't a worry and they remove the safeguards. Then X happens.
— Nate Silver
"Robots aren't the problem. Capitalism is." -- Last words of Stephen Hawking.
These days, "libertarian" is just a euphemism for a Nazi who's afraid to commit.
"If you're not outraged, you're not paying attention." -- Heather Heyer
"I'd rather have my child, but by golly, if I gotta give her up, we're gonna make it count." -- Her mother
"Your purpose, then, plainly stated, is that you will destroy the Government, unless you be allowed to construe and enforce the Constitution as you please, on all points in dispute between you and us. You will rule or ruin in all events." -- some RINO

#55 Traveler

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Posted 04 March 2019 - 09:11 PM

THAT was instructive. And thanks to the rest of you. I cannot get my head around MMT.
"Men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing had happened."-- Winston Churchill
"Anyone who has the power to make you believe absurdities has the power to make you commit injustices" Voltaire

#56 LFC

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Posted 04 March 2019 - 09:12 PM

If Krugman can't even understand the arguments you're trying to make then my guess is that they are poorly formed at best and downright dishonest at worst.
" 'Individual conscience' means that women only get contraceptives if their employers, their physicians, their pharmacists, their husbands and/or fathers, pastors, and possibly their mayors, Governors, State Secretaries of Health, Congressmen, Senators, and President all agree that in that particular case they're justifiable." --D.C. Sessions

"That's the problem with being implacable foes - no one has any incentive to treat you as anything more than an obstacle to be overcome."

"The 'Road to Serfdom' is really all right turns." --Progressive Whisperer

""The GOP ... where every accusation is also a confession." --Progressive Whisperer

#57 AnBr

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Posted 04 March 2019 - 11:21 PM

View PostLFC, on 04 March 2019 - 09:12 PM, said:

If Krugman can't even understand the arguments you're trying to make then my guess is that they are poorly formed at best and downright dishonest at worst.

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#58 Traveler

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Posted 05 March 2019 - 10:16 AM

More on Kelton and Krugman. I still dont get it.

Quote

I want to address what Krugman claims I got wrong and also compare the record.

I argued that deficits put downward pressure on interest rates. Krugman says I got that wrong. The standard line – Krugman’s line – is that deficits normally lead to rising interest rates. I argued that deficits actually put downward pressure on the interest rate and that policymakers have to fight against this natural gravitation by doing something to prevent the overnight rate from dropping toward zero. This is really just basic supply and demand.
It keeps on baffling...

Quote

It helps to break the argument into a two-part thought experiment. First, think about what happens if the government is running huge budget deficits. As I explained, these deficits would result in a massive injection of reserves into the banking system.
I never knew deficits were reserves. And goes on to say.

Quote

What is done? The government is coordinating its deficit spending with bond sales, thereby doing a reserve drain (selling bonds) along with a reserve add (deficit spending), so that the newly injected reserves are quickly transformed into newly added Treasuries.
Coordinating? I thought it was financing.

I am lost.
"Men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing had happened."-- Winston Churchill
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#59 George Rowell

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Posted 05 March 2019 - 10:36 AM

View PostD. C. Sessions, on 04 March 2019 - 07:28 PM, said:

Krugman responds in part. As always, paywall.

He also seems to be doubtful that her response is the whole story, since it seems to ignore some pretty recent history. But, read.
D.C. Sessions. Is there an accepted basic economic theory that actually works or is it still largely empirical?
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#60 indy

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Posted 05 March 2019 - 12:31 PM

View PostTraveler, on 05 March 2019 - 10:16 AM, said:

More on Kelton and Krugman. I still dont get it.
It keeps on baffling...
I never knew deficits were reserves. And goes on to say.
Coordinating? I thought it was financing.

I am lost.

It pretty simple really once you get around the technical crap. When the government runs a huge deficit, it is spending a LOT of money. That money gets sent out to the contractors and employees and whatnot, and those people deposit the money in banks. At the end of each day, the bank looks at its deposits, and looks at its reserve requirement, and wants to loan out the excess. When lots of banks have lots of excess, her argument is the interbank loan rates will be zero because no other banks need to borrow because they have all met their reserve requirements for the same reason. They are many lenders but no borrowers.

Now, when you sell bonds, that excess reserve money is used to buy bonds, having a neutral effect on the reserves. Banks need to borrow then to meet the reserve requirements and this drives up the interest rates.

This is the MMT argument.

The standard argument is that massive deficits will lead to a perception of more risk to the lender who will therefore demand a higher interest rate.





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