And with crypto this applies to people too! 😂 Anyone can create and print more of their own coin. But just like govt you have to keep telling a good story, otherwise your currency becomes like Zimbabwe. https://t.co/W8BXYXq7dC
Both Trump and the leading Democrat candidates want to increase budget deficits and print more USD. A new bout of QE to monetize the irresponsibly growing US Government debt feels inevitable. https://t.co/A1VuwkO4In
This seriously makes me think of a girl who has discovered laxative bulimia trying to sell her friends on it being some sort of magical innovation. Eat as much as you want and then just take these pills! In all seriousness, the consequences would be just as dire. You can only abuse your status as a world reserve currency for so long before people start denominating things in Euros or Yuan and end up like Argentina with a debased currency and toxic debt.
If expenditures are not concentrated in pursuing the same limited array of luxury goods (primarily ultra high income residential property in a few financial center cities), then one can print as much money as needed. Inflation is a product of a specific type of war. The best example is the "Vietnam War", the next best example, the series of screw ups called OEF / OIF. And the best way to prevent such a war is by keeping a very close watch on the foreign policy that allows such wars to occur.
So MMT is bad because MMT is what Japan does by not printing ENOUGH money?
As far as deflation, how is that bad if it is by choice? If people are actively deciding to not have kids and to not consume more and more, because that is what makes them happy, but that results in deflation, how is that a bad thing?
To the degree that I can see deflation being a bad thing, it only makes sense to the degree that it is coupled by a lack of investment in the creation of capital that creates the goods and services that make people happy. Is Japan somehow starving for quantities of goods and services that would make them happy?
Regarding kids: Japan is doing the thing that, not only will the whole world be doing by the middle of the century, but that it HAS to do in order to avert hard physical limits: not produce over carrying capacity. In effect, Japan has decided that it has hit its utilitarian carrying capacity.
It sucks, in a way, I guess, but what do you think is going to happen, that we are just going to grow the population and the consumption per person forever? How the fuck are we supposed to feed unlimited people the goods and services they need to live decent lives with limited resources?
If you think the government doesn’t already do this you’re kidding yourself.
100% the government prints money to suit their spending needs. And a lot of it just goes right into the stock market (mostly via futures contracts) to keep the market elevated to maintain leverage in the trade war.
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Of course he is. That way Congress can spend money to their hearts content the way Republicans tax cut to their hearts content and pretend that "deficits don't matter." Except they do. And Sanders is wrong.
The article starts off with typical New Yorker snark, but does have some interesting nuggets re Warren Mosler and Bernie Sanders.
Does anyone have references to papers where Kelton discusses "sustainable inflation"?
US government spends into the economy by crediting the bank accounts of its vendors. We do it to the tune of $700B for military personnel and DoD contractors. MMTers are arguing we should be extending this model to more things, including modernizing our ag and energy infrastructure. It’s not printing money; it’s how money is created and inserted into the economy
...Kelton is the foremost evangelist of a fringe economic movement called Modern Monetary Theory, which, in part, argues that the government should pay for programs requiring big spending, such as the Green New Deal, by simply printing more money.
the basic principle of M.M.T. is seductively simple: governments don’t have to budget like households, worrying about debt, because, unlike households, they can simply print their own money. ... the constraint on government spending shouldn’t be debt but inflation: How much new money can you pump into the economy before prices rise?
...Kelton, who does at least five interviews per week, plus lectures, speaking gigs, and conferences, is, more than anyone, responsible for building M.M.T.’s digital army. She has written regular columns for Bloomberg; started the movement’s most influential blog, New Economic Perspectives; and is working on a book, “The Deficit Myth,” which will come out next year...
Kelton replied, “...to just leave trillions of dollars, literally, on the table, by not taking advantage of the fiscal space that we have, by running our economies below potential, by living below our means as a nation, year after year after year.”
How soon will we become Zimbabwe...? Never, according to Kelton; under M.M.T., the focus is sustainable inflation, whereas fiscal traditionalists worry about the deficit and don’t consider inflation at all. Doesn’t M.M.T. then require accurate forecasting of inflation risk? Yes, and, Kelton conceded at the festival, the models aren’t perfect, “but we can do a pretty good job.” And, anyway, government spending, she believes, is responsible for just a small part of inflation.
Kelton believes that, though M.M.T. is a new framework, it builds on old ideas found buried and forgotten in the work of foundational economists. The first person to begin assembling the pieces was a hedge-fund executive named Warren Mosler. A polymath with an iconoclastic streak, Mosler shopped around his ideas about money creation and the deficit in the early nineties, looking for allies and finding none. Working some connections, he eventually, in 1993, scored a meeting with Donald Rumsfeld...
Rumsfeld agreed to set up Mosler with a few economist friends. Most helpful was Art Laffer...Laffer helped Mosler workshop his ideas and directed him to a group of post-Keynesian economists who ran a boisterous Listserv...Mosler logged on and found the economists who became M.M.T.’s founding thinkers.
Kelton first encountered M.M.T. in the mid nineteen-nineties, when, as a graduate student at Cambridge University, she came across Mosler’s online agitating. Kelton applied for a fellowship at the Levy Institute, where many of the early M.M.T. thinkers had gathered. There, in 1998, she authored one of M.M.T.’s foundational texts, a paper titled “Can Taxes and Bonds Finance Government Spending?” The paper concludes that taxes don’t actually pay for anything—that the federal government spends first, then taxes some of that money back later.
Kelton went on to get her Ph.D. from the New School, then was hired by U.M.K.C. In 2013, she became the chair of its economics department. Soon, she became the preferred interlocutor of hedge-fund managers and politicians who had questions about M.M.T. She held meetings with members of Congress. Larry Summers, who had recently stepped down as the director of the National Economic Council under Barack Obama, solicited M.M.T. literature.
...The important question, she said, shouldn’t be “How will you pay for it?” but “How will you resource it?” She uses the mobilization for the Second World War as an example; the country focussed on maximizing its resources to make planes and guns and food. The deficit was not a concern.
In the economy that Kelton envisions, spending would rise and fall with the economic cycle. Sometimes, if the economy were overheating, the government might call for a budgetary surplus. This is, basically, standard Keynesianism: spending during downturns, which then tapers as the economy reaches full employment. Kelton and others add a federal jobs-guarantee program—she calls it an “automatic stabilizer.” When the economy tanks, more people enter the program, and spending increases. When the economy improves, people move on to better, private jobs, and spending shrinks.
“Winning, for me, looks like prioritizing human outcomes over budget outcomes,” she told me. “Winning looks like handing the Congressional Budget Office a piece of legislation and saying, ‘This legislation is designed to lift ten million kids out of poverty. Tell me, will it be successful? Tell me, does it carry inflation risk? Do I have the offsets right?’ And then we vote.”
The current economic conditions look pretty good for M.M.T. In Japan, where deficits are high and the interest rate is set at less than zero, the economy has met with no calamity.
...in 2017, the C.B.O. predicted that there would be a jump in interest rates caused by the deficit. This hasn’t happened. Still, most mainstream economists view M.M.T. as the Cult of the Magic Money Tree, deriding what they see as its theorists’ preference for analogy over mathematical modelling or empirical evidence...
The rhetorical simplicity that frustrates professional economists is, for a layman, part of M.M.T.’s appeal. A framework called sectoral balances undergirds much of the theory.
Kelton, in her speeches and writing, likes to explain it this way: the government and the private sector are on two sides of a balance sheet. If the government has a deficit, the private sector must have a surplus
...This is a useful model, but, in the real world, the math isn’t as clean. When the government spends, most of the money ends up in the hands of the people, but there are leakages on the way—to international markets, most significantly. (Also, to corruption.) Interest rates, too, are heavily influenced by the global economy. If the American government has a deficit, the private sector has a surplus. But whose private sector?
One frequent critique of M.M.T. is that it’s basically Keynesianism with some social-media-influencer branding. This elides a few important differences between the two...According to most mainline economists, the bigger the deficit the more the government has to borrow, which means that, past a certain point in the economic cycle, the interest rate may have to go up. This stifles private investment and chokes off growth.
Kelton argues that the Fed can, and should, set the interest rate near zero—problem solved. Abstract economic questions being what they are, this debate is not likely to kill at parties. But the interest-rate question is perhaps the key difference between M.M.T. and Keynesianism. Under an M.M.T. framework, with the interest rate set near zero, Congress would take on the Fed’s dual mandate to control inflation and reduce unemployment.
If inflation is expected to rise, this could present Congress with tough decisions on spending and taxing that neither political party wants to make. “It’s helpful advice for some political universe that I’ve never visited,” Krugman said.
...Glen Hubbard, the chairman of the Council of Economic Advisers under George W. Bush, told me that M.M.T. raised a few interesting questions, but that “it has no coherent framework at all.” Like Krugman, he thought that expecting Congress to fulfill the Fed’s role demonstrated “breathtaking naïveté.”
Hubbard...was also an architect of George W. Bush’s tax cuts, which added an estimated three hundred billion dollars per year to the deficit.
But Hubbard argued that the private-sector gains from the cuts would be worth the added deficit, and he said he never denied that the country would have to pay off that debt in one of two ways: taxes or inflation. “I think the country can have more debt than it has now. I view that as an open and interesting question that we can talk about”...
...Kelton worked for the Democrats throughout the 2015 budget negotiations and became an adviser to Sanders’s Presidential campaign that spring.
Sanders, however, has never offered an endorsement of M.M.T. When asked, in February, how he planned to pay for his policies, Sanders responded, “Am I going to demand that the wealthy and large corporations start paying their fair share of taxes? Damn right, I will!”
Kelton and Mosler believe that taxing the wealthy does nothing for a big program like the Green New Deal: taxes don’t fund spending, after all, and wealth taxes won’t control inflation.
...you tried to pay for it with a wealth tax, you’d get massive inflationary pressures,” Kelton told me. “You’ve removed all the income from people who aren’t going to spend it.” To remove cash from the monetary base, and thereby offset inflation, you have to tax the people who spend most of their income—the poor or middle classes. (According to M.M.T., the converse is also true—if you want to spur growth, tax cuts should target the poor and middle class.)
Mosler told me that he has met with Sanders’s staffers, and many of them expressed a familiarity with M.M.T ... Mosler has his own remedy for inequality, “but it’s so counterintuitive that it catches people out,” he said. Part of it “is to eliminate the federal income tax entirely, corporate and individual. And replace it with just a property tax.”
...Kelton..said that Mosler’s proposal would make sense, in theory, if the country’s tax system could be redesigned from scratch, but that it’s not realistic. “If you say, ‘Eliminate the corporate income tax,’ Bernie’s head would explode,” she said.
The usa already "prints money'' every time it spends, just by "printing" out-of-thin-air bonds. Same thing, the swaps to make bonds into spending are just vestigial steps that are a wash accounting-wise . Melton is right in every sense. You do not grasp the full accounting
There's a pretty good argument that the US has maintained a domestic demand shortfall since at least March 2001, depending on how you view the housing bubble. For example, look at total capacity utilization data from the Fed. Or just think about all those closed factories. As a result, most of the discussion of MMT gets framed as printing money. But Kelton advocates destroying money when/if the US gets to a point where it faces a domestic supply shortfall. Most MMT people seem to suggest destroying the money with higher taxes, prompting the other side to point out the political infeasibility of higher taxes and the pain/regressive nature of relying on austerity to curb demand or even of relying on higher interest rates (which uses financial markets to try to efficiently create unemployment to reduce income and curb demand).
This is how Volcker slowed inflation. Unemployment reduces the unemployed workers demand by reducing their income. If the issue causing inflation is too much demand and not enough supply, then higher unemployment reduces inflation. It's an extremely painful way to reduce inflation, but there is no way to reduce demand through higher interest rates without reducing employment.
Edit: I get that the Fed has a dual mandate, but they practice inflation targeting. What would you say is the mechanism through which the Fed influences demand using interest rates?
Remember the context of the time--temporary layoffs were common and factories would simply reduce shifts or hours and lay people off temporarily with the assumption that they would be rehired when the economy recovered. That is much less common today.
> If the issue causing inflation is too much demand and not enough supply
To increase supply you need more people working. Are you talking about firing unproductive workers? Well why lower rates to get them hired in the 1st place. So if tomorrow they raise rates to 5%, who exactly is going to get fired and why? Can you provide some real world examples
Volcker is the best real world example and the one usually discussed in a monetary econ course.
You can read how the [Fed describes it](https://www.federalreserve.gov/faqs/money_12856.htm):
>In the short run, monetary policy influences inflation and the economy wide demand for goods and services—and, therefore, the demand for the employees who produce those goods and services—primarily through its influence on the financial conditions facing households and firms.
I'm not sure how much detail to go into here. The real world example would be that when the Fed raises interest rates to slow inflationary pressures, some firms that are less profitable can't afford to borrow and go out of business. Those firms no longer pay employees. The result is that fewer people are at the store trying to buy the same goods because the set of unemployed workers can't afford the goods any more. With fewer people at the store, prices stop going up. If the firm was making something really important, it wouldn't have gone out of business. That's why some people like the idea of using financial markets to decide which people to lay off. It could also be that the firm just cuts part of its workforce because of higher borrowing costs and does pick out the least productive people to fire.
Of course you are right that it takes people to make goods and that more people make more goods. I get how silly all of this sounds and am not advocating any of it (I believe taxes are good). There are hard constraints on some things in the short term though, and economists usually think of inflationary spirals in those terms. For example, it might take a few years to open a new mine for nickel, and so in that short-term period before a new mine can be opened, prices for nickel will rise when demand rises because supply necessarily stays constant. Also, if the firm that closed was doing something not very useful, it now freed up workers to go work at the existing nickel mine to try to increase the supply of nickel. Because nickel prices are so high because demand is so high, the nickel mining firm is able to keep hiring even with higher borrowing costs. I'm ignoring a big part of the story called the wage-price spiral, which you could look up, but tried to capture the basic ideas.
Does that help? The other question you asked was why lower interest rates in the first place. The idea is that during the part of the business cycle where demand is lower than supply, lower interest rates would mean: more firms are profitable -> more hiring -> more demand for goods. The Fed raises interest rates to slow a hot economy and lowers interest rates to stimulate a weak economy. Ideally, my guess is Fed officials just want to be at a neutral rate and not have to make tough decisions affecting so many people's lives.
So I don't know how Kelton differs from Mosler in her views of inflation, but I recently reviewed Mosler's book, and it has straight up the worst model of inflation I have ever seen. It is straight up Mugabe-esque, as Mosler believes that the government can control inflation by pinning one or two prices and having the rest fall in line.
Here's a passage from my review:
To understand the flaws of Mosler’s core economic theories, let’s start with his ridiculous and not internally consistent understanding of inflation that underpins the rest of his theories. To which we can turn to page 114, where Mosler explains that in his opinion, inflation exists because the government agrees to pay higher prices for the goods and services it purchases:
the government can, as a point of logic decide what it wants to pay for things, and the economy has no choice but to sell to the government at the prices set by government in order to get the dollars it needs to pay taxes, and save however many dollar financial assets it wants to. Let me give you an extreme example of how this works: Suppose the government said it wasn’t going to pay a penny more for anything this year than it paid last year, and was going to leave taxes as they are in any case. And then suppose this year all prices went up by more than that. In that case, with its policy of not paying a penny more for anything, government would decide that spending would go from last year’s $3.5 trillion to 0. That would leave the private sector trillions of dollars short of the funds it needs to pay the taxes. To get the funds needed to pay its taxes, prices would start falling in the economy as people offered their unsold goods and services at lower and lower prices until they got back to last year’s prices and the government then bought them. While that’s a completely impractical way to keep prices going up, in a market economy, the government would only have to do that with one price, and let market forces adjust all other prices to reflect relative values
This is, quite frankly, the single most ridiculous understanding of inflation I have ever seen. Mosler seems to believe that by pinning the price of one of one item, governments can control inflation as the market “adjusts to reflect relative values”. Refutation of this is trivial: if the government begins to subsidize a product (any single product), do we see a huge, disproportionate decrease in inflation (or the onset of deflation)? It has literally never happened.
There are also many products where the price is controlled by the government. Consider the case of Venezuela gasoline: the price of gasoline is fixed in Venezuela, yet Venezuela has recently suffered from hyperinflation. If Mosler is correct, than Venezuela should not have any inflation, as it pins the price of gasoline (the one price), and market forces adjust other prices to reflect its relative value with gasoline. Of course, that never happened.
The idea of fixed “relative value” straight up does not exist. Prices for different objects are mostly set independently due to supply and demand. After all, consider this example: A few years ago the Blue Jays were great, tickets were in high demand. Today the Blue Jays are terrible, and I’m paying around half the price of what I used to pay to see them. At the same time, my Netflix subscription has gone up in price. Why didn’t my Netflix subscription drop in price by half to “reflect relative values”?
In fact, Mosler directly contradicts himself on the next page:
So for me, our biggest inflation risk now, as in the 1970’s, is energy prices (particularly gasoline). Inflation will come through the cost side, from a price-setting group of producers, and not from market forces or excess demand. Strictly speaking, it’s a relative value story and not an inflation story
Why can’t the government just “refuse to pay” and kill off gasoline prices? Or hell, why can’t the government depress the price of a different commodity (like say, apples) and let “relative value” reduce energy prices? Could it be that even Mosler himself understands that his relative value theory is absurd?
Mosler has a great analogy he uses to explain how inflation and unemployment are fundamentally state controlled phenomena. I'll paraphrase.
A hundred people are in a lecture hall with Mosler, who is presenting. He pulls out his wallet, and from it a small stack of business cards.
"Who wants to polish the floor of the hall in return for one of my business cards?"
No hands go up.
"By the way, there's a guy at the only exit to this room, and he works for me. He'll shoot you if you try to leave without giving him one of my business cards."
"You are now all unemployed." Snickers of realization bubble from the newly unemployed audience.
"The price level of things in this room is now is a function of how many cards I pay for work and how many cards I charge to leave."
I still find this bizzare:
Excited to share his various economic theories, Warren met economist [Arthur Laffer](https://en.wikipedia.org/wiki/Arthur_Laffer) through a tip from [Donald Rumsfeld](https://en.wikipedia.org/wiki/Donald_Rumsfeld). Arthur suggested Warren to seek out postkeynesian economists [L. Randall Wray](https://en.wikipedia.org/wiki/L._Randall_Wray), [Bill Mitchell](https://en.wikipedia.org/wiki/Bill_Mitchell_(economist)), and [Stephanie Kelton](https://en.wikipedia.org/wiki/Stephanie_Kelton) to discuss his ideas.
the basic principle of M.M.T. is seductively simple: governments don’t have to budget like households, worrying about debt, because, unlike households, they can simply print their own money. So M.M.T. proposes that the constraint on government spending shouldn’t be debt but inflation: How much new money can you pump into the economy before prices rise?
From the very beginning in the 1990s, MMT has NEVER argued that 'printing money' was necessary. Anyone saying MMT = "print money," even if they (correctly) incorporate an inflation constraint, is getting MMT dead wrong.
>From the very beginning in the 1990s, MMT has NEVER argued that 'printing money' was necessary. Anyone saying MMT = "print money," even if they (correctly) incorporate an inflation constraint, is getting MMT dead wrong.
Irrelevant, it's spending money you don't have, will never have nor will ever pay back. Silly semantics games.
Well, you'll just borrow more money to pay back the previous money you borrowed. Not paying back money implies defaulting on the debt.
I don't pretend to understand MMT completely, but from a purely economic standpoint it seems reasonable to continue to borrow money to pay your debts as long as you're able to continue to pay the interest on the loans. When times are good MMT says that you should increase taxes to siphon off excess funds from the economy and when times are bad you should increase spending through borrowing to offset falling demand.
Of course, raising taxes is a political nightmare.
Well Mosler's argument is that treasury bonds exist to control inflation. The Federal Reserve can just issue as much money as they want (which is true).
The issue here is that most non-MMT economists would argue that seigniorage to finance spending is disastrous to inflation and foreign exchange.
>The issue here is that most non-MMT economists would argue that seigniorage to finance spending is disastrous to inflation and foreign exchange.
What MMT economists point out is that the question of finance is moot. You get to the same bottom line regardless of whether there is corresponding issuance of treasuries or not.
>Just like Zimbabwe
Anyone invoking Zimbabwe for comparison has to reconcile a couple of important differences. First, Zimbabwe was on the hook for USD-denominated obligations which of course it has to earn or borrow from somewhere else because Zimbabwe doesn't issue USD.
Second, Zimbabwe's agriculture sector comprised about 80% of its GDP. In the wake of Mugabe's "land reform" policies it collapsed by about half. Such a collapse in the real economy has consequences for inflation and the currency.