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MMT stands for Modern Monetary Theory. It's a new(ish) economic theory similar to Keynesian and Classical that's been gaining steam over the years. In short MMT states that a government that can create its own money: - Cannot default on debt denominated in its own currency; - Can pay for goods, services, and financial assets without a need to collect money in the form of taxes or debt issuance in advance of such purchases; - Is limited in its money creation and purchases by inflation, which accelerates once the economic resources (i.e., labor and capital) of the economy are utilized at full employment; - Can control demand-pull inflation by taxation and bond issuance, which remove excess money from circulation, although the political will to do so may not always exist; - Does not need to compete with the private sector for scarce savings by issuing bonds. The most controversial (and appealing) tenet of the theory is the first tenet, in that public debt cannot be defaulted on. While it may sound radical, there is some support for this, even amongst the IMF. I and others have mentioned MMT before in this board and have had people give brief signs of support/jabs. I was wondering what everyone thought of the economic theory so I decided to start this thread instead of derailing others.
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Jun 19, 2019 20:36
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quote:The most controversial (and appealing) tenet of the theory is the first tenet, in that public debt cannot be defaulted on. While it may sound radical, there is some support for this, even amongst the IMF.
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Jun 19, 2019 20:41
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The issue is if it either foreign or domestic public debt. Domestic debt in local currency arguably can’t be defaulted while foreign debt can. Btw the Soviet Union is an illustrative lesson of this, it had its own domestic currency and what could be could be considered debt but it needed to struggle for “hard currency” because it couldn’t pay for imports in Soviet rubles. Soviet rubles had almost no value outside its borders except as a curiosity. Ardennes fucked around with this message at 22:27 on Jun 19, 2019 |
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Jun 19, 2019 22:01
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Ardennes posted:The issue is if it either foreign or domestic public debt. Domestic debt in local currency arguably can’t be defaulted while foreign debt can. true but for USA all foreign debt is denominated in USD anyway so
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Jun 19, 2019 22:30
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Typo posted:true but for USA all foreign debt is denominated in USD anyway so It is why, as I said elsewhere, the USD and arguably the Euro and Yen are special case scenario where MMT probably could work.
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Jun 19, 2019 22:54
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Ardennes posted:It is why, as I said elsewhere, the USD and arguably the Euro and Yen are special case scenario where MMT probably could work. So say Australia couldn't make MMT work?
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Jun 19, 2019 23:13
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If anything, the separation of concerns between public spending and tax gathering makes for a nice reasoning framework. I kinda wish this aspect of MMT got spun off and stopped being systematically associated with the arguably drastic conclusions of the theory.
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Jun 19, 2019 23:22
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punk rebel ecks posted:So say Australia couldn't make MMT work? Considering the relative weakness of the AUD in recent years, I doubt it, but depends on circumstances and mineral spot pricing. Btw, when people say MMT, I would still continual spending, not just occasional QE.
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Jun 19, 2019 23:45
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Ardennes posted:Btw, when people say MMT, I would still continual spending, not just occasional QE. Could you please elaborate?
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Jun 20, 2019 00:05
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punk rebel ecks posted:Could you please elaborate? Basically, expanding the money of supply (printing) on a continual basis, not for short term period although in the case of the US at least QE (quantitative easing) doesn't seem to end. It is why MMT usually works better for the largest economies possible with convertible currency, so it isn't a big help to the developing world.
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Jun 20, 2019 01:31
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MMT is a perfectly reasonable and correct description of the mechanics of money creation the same way physics can give a completely reasonable and correct description of how dry wood catches fire. It's when people take that description and conclude that therefore you can set your house on fire and have both warmth and shelter that it kind of goes off the rails. But that's not MMT's fault.
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Jun 20, 2019 02:46
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These discussions tend to become extremely focused on the MMT argument that governments with their own sovereign currencies cannot default and face an inflation constrained rather than a budget constrained on their spending. While that is a significant aspect of MMT it's practical effects are tempered in most economies by the need for reserves of foreign currencies to pay for imports. However within these limitations MMT still advocates a different framework for thinking about government budgets and their relationship to the rest of the economy, as well as how spending, private and public debt, prices, wages and inflation all interact.
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Jun 20, 2019 03:03
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Will you guys get annoyed if I ask basic economics 101 questions in this thread?
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Jun 20, 2019 03:58
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punk rebel ecks posted:Will you guys get annoyed if I ask basic economics 101 questions in this thread? https://forums.somethingawful.com/showthread.php?threadid=3880447 so I can't imagine any harm in having an MMT thread and a baby's first macroeconomic theory thread.
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Jun 20, 2019 04:26
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punk rebel ecks posted:Could you please elaborate? domestically you can print money to pay for whatever Australia produces so government can just use money printing as a way of allocating how domestic resources/production gets used in economy but you can't print money to pay for whatever, say, china produces because they don't take AUD, they take Yuan and/or USD (most likely USD), Australia does not have the ability to print either one of those currencies you can gently caress around with your domestic monetary policy but when it comes to foreign trade you need to keep reserves of hard currency to pay for imports, if you keep printing money it's going to weaken the AUD against the USD on international currency markets which reduces your ability to pay for foreign imports. Typo fucked around with this message at 18:37 on Jun 20, 2019 |
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Jun 20, 2019 04:44
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Ardennes posted:The issue is if it either foreign or domestic public debt. Domestic debt in local currency arguably can’t be defaulted while foreign debt can. This seems to be a question of what goods are produced within a country. The USSR, for all of its space produced relatively few goods besides oil and gas, and was essentially a petrostate. Seems that a proper MMT can't just be focused on the paper economy.
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Jun 20, 2019 05:10
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Typo posted:domestically you can print money to pay for whatever Australia produces so government Yes, but it also makes your exports more competitive, and printing money to invest in domestic production + an export oriented economy is a tried and true way to amass large reserves of foreign hard cash despite having a devalued currency. Like twerking points out, the way things shake out really depends on what you produce and how your economy is structured. A petrostate printing money to fund pensions is a very different thing than a developed or developing country printing money to invest in it's manufacturing base or infrastructure.
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Jun 20, 2019 05:39
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Morbus posted:Yes, but it also makes your exports more competitive, and printing money to invest in domestic production + an export oriented economy is a tried and true way to amass large reserves of foreign hard cash yes: by forcing your workers to take a pay cut in real terms since your currency now buy less imports this works well in developing countries with low standards of living which -doesn't- import a lot of consumption on the medium term: it's not viable for first world countries with high standard of living which inherently depends on importing items for consumption off the global supply chain
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Jun 20, 2019 05:57
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twodot posted:There's already an MMT thread: Wow, didn't know there was another thread. Surprised nobody in this thread has gone "LMAO, punkrebelecks is such a loving idiot!" Anyway, a question I have is, that the reason debt matters to most theories, is because the more debt a country has the less appealing the currency is. Like a supply and demand issue, if there are a bunch of the same currency around, it isn't worth as much because there is too much of it laying around (debt). Am I on the right track so far?
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Jun 20, 2019 06:21
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punk rebel ecks posted:
The USD is like the most popular currency in the world even though the US has massive public debt
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Jun 20, 2019 06:22
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Typo posted:The USD is like the most popular currency in the world even though the US has massive public debt Why?
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Jun 20, 2019 06:28
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because the US has the largest economy and there is an expectation that, over other currencies, the value of the USD is likely to remain stable over time which means every country/private financial institution holds USD or USD equivalent US treasury bonds as reserve.
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Jun 20, 2019 06:36
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Typo posted:because the US has the largest economy and there is an expectation that, over other currencies, the value of the USD is likely to remain stable over time which means every country/private financial institution holds USD or USD equivalent US treasury bonds as reserve. What if the US is no longer the largest economy? One could say that is inevitable in the not so distant future due to the rise of China and eventually India and possibly Nigeria due to their large populations. Then again, Japan is the third largest economy and is holding up despite having the world's largest debt. punk rebel ecks fucked around with this message at 07:12 on Jun 20, 2019 |
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Jun 20, 2019 07:08
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punk rebel ecks posted:What if the US is no longer the largest economy? One could say that is inevitable in the not so distant future due to the rise of China and eventually India and possibly Nigeria due to their large populations. Then again, Japan is the third largest economy and is holding up despite having the world's largest debt. the probability that the USD lose its reserve currency status is a real possibility in the 21st century, which would, imo, make MMT kind a non-starter for US as a policy. being the world's reserve currency btw, by definition, means you owe a lot of foreign debt Typo fucked around with this message at 07:32 on Jun 20, 2019 |
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Jun 20, 2019 07:29
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punk rebel ecks posted:Then again, Japan is the third largest economy and is holding up despite having the world's largest debt. Sort of kind of, they've been in this weird form of non-growth stasis for a long, long time and they're basically all dying or marrying their anime pillows. Japan's a really oddball place. Also, nobody's really ready to go for the Renminbi as a reserve currency; the Chinese economy is opaque at best - you never quite know what's going on under the hood, and most countries would be very nervous about holding a currency asset that can be very directly influenced by the central government to align with its political aims (America does this too but the less so). The Euro is basically a doomsday device that's gonna cause maybe not the next global crisis, but the one after. That basically leaves you with the US Dollar. All other alternatives are demonstrably worse.
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Jun 20, 2019 10:15
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twerking on the railroad posted:This seems to be a question of what goods are produced within a country. The USSR, for all of its space produced relatively few goods besides oil and gas, and was essentially a petrostate. Eh that isn’t really actually true at all, they produced almost all their consumer goods domestically and did actually also export some manufactured goods including cars. They did export energy and its has its own issues but it was far less of a “petrostate” than current day Russia. Also I would say the quality of Soviet goods was perhaps better than Americans would give them credit for considering the comparable period of history. Btw the USD is based on more than just the US economy but it’s history of being a reliable store of value. Ardennes fucked around with this message at 10:53 on Jun 20, 2019 |
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Jun 20, 2019 10:26
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Junior G-man posted:Sort of kind of, they've been in this weird form of non-growth stasis for a long, long time and they're basically all dying or marrying their anime pillows. Japan's a really oddball place. I was under the impression that their debt didn't have much to do with it. Plus you could say the same about America though that is a bit apples and oranges since America has economic growth, just not for the vast majority of citizens.
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Jun 20, 2019 16:39
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punk rebel ecks posted:I and others have mentioned MMT before in this board and have had people give brief signs of support/jabs. I was wondering what everyone thought of the economic theory so I decided to start this thread instead of derailing others. MMT is also suddenly hip with the left flank of American politics, because it abstracts the relationship between spending and the need to collect revenue or issue debt, which is useful when you want to talk about massive public spending on free college and Medicare for All, but don't want to talk about what it would cost. This is where the problems start to creep in. The first problem is practical: Under our current budgeting model, we clearly understand how to calculate how much any government policy would "cost": combine the number of dollars that the government would have to spend to execute it with the change that would result in government revenues. This is why spending on Internal Revenue Service enforcement is net positive: for every dollar spent on sending IRS agents to work catching tax cheats, they bring in more than one dollar that someone was stealing from the public treasury. (There is presumably a limit on this, but we have never to my knowledge even approached it.) Of course, people try to juice these numbers to make their preferred policies look better (for example, idiots and liars claiming the Trump Tax Cuts would pay for themselves because they would cause the economy to go gangbusters and result in increased revenue collection on that economic activity) but everyone largely agrees on the process in the outlines. If we assume that there is a finite ability of the government to control inflation through taxation and issuing debt, then in order to intelligently discuss government policy we need a similarly algorithmic way to figure out how much a government policy would contribute to net inflation. As far as I know, no one has proposed such a thing. Without it, everyone will simply declare that their preferred policy is inflation neutral/negative. The other problems are political: Our democratic governments are lead by a collection of motivated self-promoters, and not a philosopher-king. Voters want the same or higher levels of service, lower taxes, & cuts only to foreign aid, and political scientists have yet to find any education that will convince them otherwise. Allowing representatives to fund specific, popular-sounding programs by contributing to a collective risk of inflation would have predictable results: every representative would argue in favor of printing money for specific projects or tax cuts with their name attached to them, without restraint. The temptation to spend would be overwhelming, and motivation for fiscal discipline low. When inflation inevitably starts to heat up, and it comes time to decide how to increase taxes or decrease spending, how would our government be any more able to make that decision than it is today? All MMT seems to add is the risk that the govt will choose to keep printing money and hope inflation goes away on its own. There is a reason that the US government chose to silo the part of the government that controls the money supply from the part that spends money. Also, from a taxpayer perspective, "we need to collect money from taxpayers at a higher rate so that we can pay for M4A and free college" vs "we need to delete more money from people's accounts so that we have room to print money for M4A and free college without causing runaway inflation" is a distinction without a difference. It might even be worse, since voters may be willing to stomach paying their taxes so that the government can fund free school lunches or a giant border wall, but less willing to accept the government deleting money out of their accounts in order to stave off an abstract risk of inflation. Believing that MMT tells us something new and useful the way its most rabid proponents claim requires believing that, since the 70s, it has been within the power of the US government to massively increase services without raising taxes, or to slash taxes without cutting services, but no one has done it because they were simpletons who believed the government functioned like a checkbook. Since such a move would be broadly popular with voters, it seems odd that no one until Alexandria Ocasio-Cortez had the courage to eat this free lunch that has been sitting on their plate for decades.
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Jun 20, 2019 16:40
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Pretty sure the result of going full MMT-therefore-nothing-matters-spend-everything in policy would be a country very quickly finding itself unable to borrow in its own currency.
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Jun 20, 2019 16:47
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punk rebel ecks posted:I was under the impression that their debt didn't have much to do with it. Plus you could say the same about America though that is a bit apples and oranges since America has economic growth, just not for the vast majority of citizens. Japan's debt is largely domestic and denominated in its own currency, Japan also has a unique social contract in which the creditors: major japanese corporations, are so closely tied to the government that they would never, ever allow it to go bankrupt anyway
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Jun 20, 2019 17:07
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Dead Reckoning posted:The first problem is practical: Under our current budgeting model, we clearly understand how to calculate how much any government policy would "cost"
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Jun 20, 2019 17:07
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Junior G-man posted:Sort of kind of, they've been in this weird form of non-growth stasis for a long, long time and they're basically all dying or marrying their anime pillows. Japan's a really oddball place. Or alternatively: the world simply reverts to currency blocs instead of a single global trade currency as the USD becomes less appealing i.e East Asia uses the Yuan, Europe uses the Euro, Middle-East uses the Ruble or w/e
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Jun 20, 2019 17:08
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twodot posted:This either completely false or practically speaking we never bother to care about the cost. Like spend arbitrary amounts of money on forever wars on other continents? Apparently completely fine. Free college? Whoa whoa whoa, you can't just go instituting policy that would improve people's lives and the nation's economy, you need to know exactly what it costs, and then ahead of time raise taxes and debts, this is definitely how we handle all policy, which is why we've never raised the debt ceiling in bills unrelated to needing that debt to fund themselves.
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Jun 20, 2019 17:13
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punk rebel ecks posted:- Can control demand-pull inflation by taxation and bond issuance, which remove excess money from circulation, although the political will to do so may not always exist; The entire point of MMT's policy implications is that we assume political will for taxation doesn't exist
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Jun 20, 2019 17:14
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Typo posted:Or alternatively: the world simply reverts to currency blocs instead of a single global trade currency as the USD becomes less appealing As long as we live in a petro-chemical world and the OPEC member states prefer the US dollar, it ain't going anywhere. Also, a multicurrency world would still need the consent/will of those blocs to use those regional currencies, and they're still kinda hosed.
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Jun 20, 2019 17:16
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Typo posted:The entire point of MMT's policy implications is that we assume political will for taxation doesn't exist If the political will to raise taxes to fund left wing policy priorities does in fact exist, then you can just call it taxes and it doesn't matter what framework we use to model government currency flows.
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Jun 20, 2019 17:17
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Junior G-man posted:As long as we live in a petro-chemical world and the OPEC member states prefer the US dollar, it ain't going anywhere. aren't OPEC members -already- starting to trade in non-USD? quote:Also, a multicurrency world would still need the consent/will of those blocs to use those regional currencies, and they're still kinda hosed.
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Jun 20, 2019 17:18
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Dead Reckoning posted:If the political will to raise taxes to fund left wing policy priorities does in fact exist, then you can just call it taxes and it doesn't matter what framework we use to model government currency flows. Dead Reckoning posted:That's not quite what I'm saying. Congress certainly spends money in dumb ways, but irrespective of your feelings about either one, everyone agrees and understands that Operation Iraqi Freedom cost the government more money than free school lunches for low income kids during 2003-2011. With MMT, we do not AFAIK have a way to make a similar algorithmic comparison of how much they contributed to inflation beyond "I dunno, ask your favorite economist."
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Jun 20, 2019 17:24
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Dead Reckoning posted:Voters want the same or higher levels of service, lower taxes, & cuts only to foreign aid, and political scientists have yet to find any education that will convince them otherwise. Dead Reckoning posted:Believing that MMT tells us something new and useful the way its most rabid proponents claim requires believing that, since the 70s, it has been within the power of the US government to massively increase services without raising taxes, or to slash taxes without cutting services, but no one has done it because they were simpletons who believed the government functioned like a checkbook. Since such a move would be broadly popular with voters, it seems odd that no one until Alexandria Ocasio-Cortez had the courage to eat this free lunch that has been sitting on their plate for decades.
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Jun 20, 2019 17:35
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twodot posted:This is incorrect if we need to spend more money than is currently available as taxable. (Which would work out fine if we're spending money in a way that grows the economy as fast as we're spending) twodot posted:Yeah and I'm saying for the purpose of setting policy no one cares about this fact so stop pretending like anyone cares. We absolutely need to feed our children. If feeding our children bankrupts the nation so be it, but I bet you we can afford to feed our children and worry about the effects of that on the economy afterwards.
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Jun 20, 2019 17:37
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