http://www.winterspeak.com/2010/02/p...-nutshell.html

anyone care to comment on how the statements/conclusions drawn are wrong and why the Obama/Timmay administration isn't get the US into a double dip recession?

LOL

Angels jizz when people insult Keynesians. (Post-Ks too). Another great monetary crank is Warren Mosler.

The PK view boils down to this: fiat currency is simply valuable because the government says so e.g. it can throw you in jail or kill you. So it can pump money into the economy ad infinitum and reflate its way to permanent prosperity.

OMG this is how it appears to work (post 1971 full fiat/end of Bretton Woods). I wonder if there any consequences to G printing? Apparently not, so everything will continue as it has (as long as we keep printing enough money).

http://bilbo.economicoutlook.net/blog/?p=7743

This is a blog of one of the leading proponents of MMT or chartalism.

Here's a quick and easy to digest response from a commentator on his blog post regarding public debt hysteria.


Rationalist says:
Wednesday, February 3, 2010 at 20:00

To me, and to most average people, government deficit and debt ultimately correlates to a government living beyond its means. I simply cannot reconcile any other view on debt and deficit…



bill says:
Wednesday, February 3, 2010 at 20:15
Dear Rationalist

What is it about the logic I present you cannot reconcile?

The concept of the government having finite means (in a financial sense) in the same way you and I have finite means is inapplicable to a fiat monetary system. The only constraint on government is the availability of real goods and services for purchase. As long as these are for sale then the government can purchase them. Once there are no real goods and services left then any additional government net spending is “living beyond the nation’s means”. But a deficit doesn’t imply that at all.

best wishes
bill

So MMT states that under a fiat money regime a government does not have to plan ahead for it's spending the way that a private household does. The govt must spend first! Then it only has to figure out how much of the money to withdraw from the spent "pool" via taxes. Taxes are not used to pay for government services as those are already payed for when the money is printed. When paying taxes that money is actually destroyed.

So the tea party protests about government wasting all my tax dollars are a false analogy. That is commodity backed currecny thinking.


(I am not arguing for this system, I think it is savage and immoral, just trying to point out that MMT is right about a lot of the govt debt criticism being false when it makes analogies to debt burdened private households.)


And since when you pay taxes that money is destroyed then that means if everyone stopped paying their taxes it wouldn't really matter because the money supply would not shrink and everyones just ends up paying anyway through inflation.

Well, this adjustment period would benefit taxpayers in the same way spending benefits the early recipients of new dollars.

Are you suggesting an "increase the ratio of privately held dollars to annually created dollars" party?

Either way, they are complaining about the fact that the government is decreasing their % of the total dollars that are competing for fixed (at any given time) number of goods.

But good couple of posts imo.

Interesting link, I have one question though. If China buys USTs with money acquired through trade what is the mechanism where people claim a failed auction will cause the USD to tank? Obviously comparing a government deficit to household deficit is pretty silly, but governments do default on their debts and bad things happen to countries that do. Its not simply caused, as the articles tone seemed to claim, by conservative pundits getting everyone scared of debt.

Is he claiming here that the only function of taxation is to regulate AD? Is he claiming that USG pays interest on bonds by crediting bank accounts with money from thin air?

No one can demand their cash back before the bond mature but they can sell the bond, I'm not sure exactly the consequences but it seems if the USG is inflating its way out of its debt the dollars returned to final holder will be less than what was originally lent.

If the USG is continually printing bonds to pay for its spending the holders of bonds will have to continually purchase bonds or else they will recieve capital losses on their remaining bonds. If they keep inflating the bubble eventually the return is going to be less then they are lending and future losses are going to be greater then present losses. Its just a matter of when the holders of the bonds decide accept their losses, and it seems as if China has already started to sell off its holdings of USTs

If there was a crash in the USD all that money would come crashing back into America causing serious inflation. If the USD dropped a lot, the costs of trade from abroad would rise meaning (by this guys logic) there would be less dollars for foreigners to lend the USG and the USG would be forced into a situation where they would have to tax to pay for spending.

These are just some thoughts I had. Admittedly in the view that foreigners lend money to the USG that was spent (I hadnt really thought of that before) I dont really have a good grasp of the interaction between the USD and USTs. But it really striked me that there is some inflationary trap this guy is missing.

I think it's different for all other countries but the US since the US is the reserve currency. So since all their fiat currencies are backed by the US fiat it's like they are still on a make-believe commodity currency. They can't print more dollars to back up the currency, they simply have to find a way to earn more dollars. And therefore it would be much better for these countries to do away with any dollar backing and let their fiat float free, but they are still mired in centuries of commodity backed thinking about debt and deficits.


I may be wrong as I only came across this MMT last month, but his blog has a decent search engine. Here is a link to why you can't compare Zimbabwe hyperinflation to a potential US scenario or even to the Weimar republic.

http://bilbo.economicoutlook.net/blog/?p=3773

ya I thought he might be getting at the US and China's specific situation and not some general theory, but I will have to look into that site a little more when I have some free time.

Thanks for the links Slater, I'll definitely read some more of his posts (and am subscribed now).

I guess I don't understand why you can't say the opposite.

1: Print money
2: Spend money
3: collect taxes
4: spend tax dollars
5: collect even more taxes if your being conservative, print more money if your not
6: spend tax/new money
7: collect taxes
8: repeat

"And since when you pay taxes that money is destroyed then that means if everyone stopped paying their taxes it wouldn't really matter because the money supply would not shrink and everyones just ends up paying anyway through inflation."

Unless you end the cycle on after a collect taxes run and then don't provide anymore govt. services, right? Or am I missing something.

It seems you are thinking of taxes as resources that are given to the government to spend on projects. The government already owns all of the Nations resources (goods/services) under a fiat system. The tax rate then merely determines the level at which the private sector will be allowed to manage these resources. If the tax rate is low the private sector managment of resources increases, but they can never own resources.


(At least this is how it appears to me.)

Ya that makes sense the fiat money is legal tender for all debts.

Crank alert.

explain please

all I see is epic fail for 2 years

After reading that Billy blog for a few days I am of the opinion that:

A. His word to idea ration is higher than in any other blog I've ever read.
B. He repeats himself way too much.
C. He understands MMT well but somehow manages to fail epically repeatedly. It's possible that my impatience with his writing style has lead me to misinterpret his position on various matters but:

"The private sector wants the government to spend spend spend so they can pay their taxes?"

No. The concept that the government has to create money for the private sector to pay taxes isn't lost on me. But what the private sector "wants" is decreased taxes and decreased spending. And if they knew better they'd demand it.

I also got the idea that he seems to be of the opinion that we need more stimulus, but like I said, I got bored.

Anyway, I'll probably keep an eye on his posts because there is definitely some useful content mixed.

Here's a good comment from "The Vandals are gathering" blog topic.


alienated says:
Saturday, February 20, 2010 at 20:08
Yossarian wrote:

"I see this as a moral issue and I fear how the MMT will be co-opted by Collectivists everywhere."

MMT, in itself, is non-committal on ideological matters, as any legitimate economic theory should be. It does not follow from MMT that more government is better than less. It does not even follow that low unemployment is better than high unemployment. These are political choices. Once society determines the direction in which it wants to move, MMT indicates the options available under a modern monetary system.

If society wants an economy dominated by private-sector activity and a retention of business-cycle fluctuations on the grounds that it spurs innovation, structural adjustment, or whatever, that is an option. MMT indicates that this will create fairly regular periods of mass unemployment. If society wants to shield workers from the brunt of business-cycle effects, MMT shows that it can do so through a job guarantee. However, if society does not wish to shield workers from the brunt of business-cycle effects this is also an option. MMT does not cast judgment on that choice. It is a political matter up to the community to resolve.

Likewise, if society opts for a more substantial role for government, including business-cycle stabilisation, public-sector provision of some goods and services, or even a move toward socialism, MMT indicates the options available under the existing monetary system. But MMT is silent on whether these choices would be good or bad.

It is not the role of a legitimate economic theory to start from an ideological position, and then cast everything in terms of that ideological judgment. I realise this is what neoclassical macroeconomics does. It starts from the ideological position that there is no role for government unless it can be established that there is an externality or market failure that cannot be addressed through a market solution. The rationale for this decision rule is purely ideological, and not at all scientific. The theory’s ideological nature largely explains why it has remained dominant in academia and policy circles, despite having been thoroughly discredited on logical grounds. Like neoclassical economists, some appear to want a theory that favours their particular brand of “morals”. That is scientifically unacceptable. They should start a church if that’s the way they wish to proceed with their economic analysis.

It is transparent why they prefer such a dishonest approach. They fear that if the system is presented as it is, without all the obfuscation, mystification, misinformation, etc., society as a whole might turn out to make different ideological judgments than they would like.

That being said old Billy obviously has a left wing bias and he admits as much. If you look at the about section of the blog he shows you where he falls on the political spectrum from one of those online tests.

The interesting thing I got from this blog and MMT is the idea that under a fiat system government doesn't necessarily have to be big.

And the response....




Yossarian says:
Sunday, February 21, 2010 at 9:17
Alienated: thx and I believe I understand MMT. However this is very much an ideological blog whereby MMT is the base with which to build a theoretical construct to advocate the role of govt in ensuring full employment and preventing price deflation and any decline in nominal output. I am arguing against the ideological agenda that is using MMT as their basis, admittedly on behalf of my own (in my view far superior) ideological agenda. So on behalf of my agenda here are my response:

-Really Tom Hickey, if the people understood MMT they would break off from the Conservative-imposed shackles of limited government and score one for the little guy? In what way has govt growth been limited? The total govt expenditures as a % of GDP has rising continuously in the US from about 5% in the early 1900’s to around 35% pre-crisis (I will ignore the latest explosion to 45%). This whole process has not been enabled by any conservative ideology. Less directly, the mainstream (from Krugman to Friedman) failure to tolerate any economic contraction (I say reorganization is a better term) and the belief that inflation is necessary for economic growth has caused both the unjust income disparities (note, I have no problem with the JUST income disparities as evidenced Steve Jobs, etc.) and the growth in the public role in the allocation of private resources. When you have inflation it is not the weak who benefit but the wealthy- those who own assets and have access to credit and the associated purchasing power before the value is eroded. Those who suffer are wage-earners and seniors on fixed-income as well as diligent savers of capital. The main beneficiaries of an inflationary environment are the financiers, governments (who realize increasing revenues), and those associated with them. It is my ideology, not your’s, which is in the interest of the (motivated) little guy.

-Furthermore, even when the cycle-smoothing solutions make sense in theory, the implementations render them deeply flawed and often wasteful. Before you say the unemployed are wasteful human capital I will say that you fail to understand the process- many can find work but are reluctant to acknowledge that their skill set is not worth quite as much as they once thought. Or they are waiting to re-apply their skill set to a new endeavour. Your Macro theories fail to understand the Micro.

I have doubts about the nature of any work that says this

Can you define inflation in such a way so that Hyper-inflation is just big time inflation? Sure. Its just not ****ing useful to do so, they causes and outcomes are so different on so many levels that any conclusions you draw from them are going to be either A. Horribly wrong or B. Just lucky.

Wow- this guy is just flat out wrong- he doesn't have an ECON 101 understanding of currency and markets


Money only has value when it is accepted by others- I have near unlimited ability to electronically create tolbiny bucks- but no one will give me anything for them so I am revenue constrained. And before you say that the government can force people to use its currency- that didn't stopped the Ruble from crashing. Prices can (and have) outstrip money creation.

Only under hyperinflation it can't.



Lots and lots of examples in this column... I mean there is ummmmmm, there is uhhhhh, I mean what about.....???

MMT might not suggest that a government has to be big but I'd defy anyone to prove that it isn't in the nature of a state to grow in scope over time.

Now here is a blog I would like to subscribe to!

I do appreciate the better understanding of MMT this thread has given me though and it is something I will continue to devote a little time to learning about. It'd be cool if you posted anything really interesting that you come across wrt MMT in this thread.

Legal tender laws and taxing effectively remove these constraints, at least when dealing with it's own citizens.


In practice it can't but only because it would cause a revolt. In theory, through the above mentioned taxing and legal tender laws, it can.


Yeah, this one is pretty much lololololol.