Utopia for Realists
May 9, 2017 10:21 PM   Subscribe

The Rock-Star Appeal of Modern Monetary Theory - "Their foundational point [is] that fiat currency is a social construct, and that there are therefore no fiscal limits on how much a sovereign currency-issuing nation can spend... once we change the way we think about money, we can provide for everyone: We don't have to 'find' the money to 'pay' for universal health care by 'cutting' the budget elsewhere. In fact, our government already works that way: Spending must precede taxation, or there would be no dollars in the economy to tax. It's the political will to spend on certain things, not the money to afford it, that's lacking."
Conventional wisdom holds that the government taxes individuals and companies in order to fund its own spending. But the government—which is ultimately the source of all dollars, taxed or untaxed—pays or spends first and taxes later. When it funds programs, it literally spends money into existence, injecting cash into the economy. Taxes exist in order to control inflation by reducing the money supply, and to ensure that dollars, as the only currency accepted for tax payments, remain in demand.

It follows that currency-issuing governments could (and, depending on how you lean politically, should) spend as much as they need to in order to guarantee full employment and other social goods. MMT’s adherents like to point out that the federal government never “runs out” of money to fund the military, but routinely invokes budget constraints to justify defunding social programs. Money, in other words, isn’t a scarce commodity like silver or gold...

The decisions about how to issue, lend, and spend money come down to politics, values, and convention, whether the goal is reducing inequality or boosting entrepreneurship. Inflation, MMT’s proponents contend, can be controlled through taxation, and only becomes a problem at full employment—and we’re a long way off from that, particularly if we include people who have given up looking for jobs or aren’t working as much as they’d like to among the officially “unemployed.” The point is that, once you shake off notions of artificial scarcity, MMT’s possibilities are endless. The state can guarantee a job to anyone who wants one, lowering unemployment and competing with the private sector for workers, raising standards and wages across the board.
Free Lunch for Everyone - "Bregman's basic ideas are pretty simple. He thinks (and many scientists agree with him) that if you give people a basic income with no strings attached, they will make better decisions, work more, cost the state less in the areas of things like health care and incarceration, and be happier and feel less humiliated, scared, and insecure... He also argues pretty forcefully that working longer hours makes us less productive and also more unhappy... More relaxing, less working and consuming – that's where we should be looking. So he proposes a 15-hour work week... what's so interesting about modern America is our hostility to the mere idea of trying to create an easier and happier life."
posted by kliuless (75 comments total) 72 users marked this as a favorite
 
I saw this today and thought: "I'll bet kliuless has a post up on this shortly."
posted by Chrysostom at 10:37 PM on May 9, 2017 [11 favorites]


It's not like the Fed has any difficulty in handing over multiple $T to Citibank, Goldman Sachs, et al. How hard would it be to shave off a couple of $k for the rest of us?
posted by cfraenkel at 11:02 PM on May 9, 2017 [12 favorites]


Aw yiss. Thanks kliuless!
posted by the man of twists and turns at 11:07 PM on May 9, 2017


The appeal of MMT is that it gives the government unlimited power to print money to fund pet projects.

The reality would be far worse than the current Federal Reserve system, but at least it would only bankrupt one state at a time instead of the entire USA.

When someone promises, in the title of their article, a "Free Lunch" - well, then check your wallet.
posted by NeoRothbardian at 12:08 AM on May 10, 2017 [9 favorites]


The economic value that someone can generate when they are working is almost always higher than the cost it takes to house and clothe and feed that person. Every argument to the contrary is arguing that a billionaire should grab some more profit at the expense of someone else's misery.

So billionaires live and breathe the need to compete with each other. It used to result in opera houses in places like Pittsburgh, but the bolts have come flying off that system. Perhaps we need a metric swhere a billionaire earns a dollar, that dollar goes back into the public purse to pay for a childcare worker's salary or a bridge or a space shuttle, but they still get to keep having earned that dollar on their score card vs. Mark Zuckerberg. Keeps them motivated to innovate instead of lobbying for tax breaks, keeps the economy going, they can literally guzzle caviar until they die at less expense than what we have now.
posted by Space Coyote at 12:28 AM on May 10, 2017 [30 favorites]


here are therefore no fiscal limits on how much a sovereign currency-issuing nation can spend...

Sure, if that currency-issuing nation is the US issuing USD. The rest of us would end up devaluing our own currency.
posted by Pruitt-Igoe at 12:40 AM on May 10, 2017 [11 favorites]


Problem is money can be invested to make more money, so even for a billionaire who just cares about income for egotistical reasons, giving up a dollar is giving up future income.

Maybe we could sell non-voting shares in the US government or something, like the Packers.
posted by vogon_poet at 1:16 AM on May 10, 2017 [3 favorites]


I don't see how an unconstrained money supply wouldn't inflate like crazy. I've talked to some people who seemingly don't care about inflation at all, but there's a certain elephant in the room, specifically that it would create a strong incentive for the creation of parallel currencies, or at least savings instruments. You'd probably have people sticking their savings back in gold depositories and passing around gold certs and bearer certificates pretty quickly. (Or bitcoins. When people prefer bitcoins to your currency, you know you are doing a bad job.)

People tend to forget, I think, that one of the problems that faced national central-bank fiat currencies back when they were first conceived was getting people to use them. And it's ugly when a country decides its central bank's currency isn't a good value store. Hard to get people to perform work for the government if they don't have confidence in the money the government will pay them with. And while you can force them to accept whatever scrip you want at gunpoint, eventually the folks with the guns might start to get suspicious, too... In the best case, you create a new currency, quickly. In the worst case (if you're the government), they create a new government.

The best case I can see, steady-state, is a sort of dual-currency arrangement, like the USSR or Cuba had (and maybe Cuba still does, although I'm not sure on the particulars). E.g.: You could have a unconstrained internal currency that the government handed out to everyone and which could be used for the purchase of basic goods, and then a "hard" currency for luxuries and imports which traded at a floating rate to the soft/internal currency. (This falls apart a little when basic goods require imports, but it would probably be acceptable in the US if you were willing to burn a lot of coal instead of petroleum. Nobody would starve, at any rate.) I suspect that most people with export-creating jobs would presumably demand to be paid in the hard currency, and get it -- but the producers of those basic goods purchasable with internal/soft currency would be a bit stuck. If the government only turned around and paid them in soft currency, given that it's used to buy things they already produce, they wouldn't have a lot of incentive to actually, you know, produce stuff. (If the basic allotment is enough to meet anyone's average demand for those basic goods sold at the Citizens Commissary, which one would hope is the case if this is really a utopian project, then getting paid extra isn't that grand.) Again, you can always force them into the fields -- one soldier paid in hard currency with an AK-47 can keep a lot of peasants heads-down harvesting their grain, so it's not clear that this is necessarily inefficient, per se -- but this appears to be historically incompatible with democracy, much less something you can call a utopia with a straight face. A fairer way would be to pay the basic producers (farmers, miners, etc.) in "hard" currency, which the government recovered through taxes on hard currency transactions, imports, etc., basically expending public revenue in the normal manner in order to be able to give away a basic allowance of select goods to citizens.

But I think once you've done that, you have basically just reinvented Food Stamps, only handed out more generously and useful for a wider range of items. Which isn't a bad idea at all, but there's no reason to make it into a full-blown currency. In fact, not calling it a currency lets you do some other neat stuff, like making them nontransferable or setting expiration dates to prohibit hoarding. The issue you run into with this is the classic inefficiencies of a planned economy, which is a different argument altogether, and I think one that's gradually losing traction given the degree of government involvement in most putatively market-based economies. So I think it could work.

But it seems extremely hard to actually have a single currency that's both a good negotiable instrument and a store of value, and create it out of thin air at a rate that completely eliminates poverty, because of the inflation issue eating away at the currency-as-value-store purpose. Unless it's a small experiment, you need to pull the money out of the system somewhere else, and you might as well just call that 'taxes' and start arguing about who pays them.
posted by Kadin2048 at 1:17 AM on May 10, 2017 [34 favorites]


I have been wondering if it might be a little bit easier to have a planned government now with the wealth of information you can get about people's spending habits. You don't get quite the same market inefficiencies if you can get granular data on what people will probably need in the next six months, and what you do get is more palatable as necessary waste in the program.
posted by solarion at 1:42 AM on May 10, 2017 [4 favorites]


Kadin: the whole point is that taxation provides both a drain on the money supply *and* the source of demand for it simultaneously. Said demand backed by the force of arms where necessary.

Go read David Graeber’s Debt: the first 5,000 years. Money was *invented* as a way to supply armies in the field by issuing currency to soldiers & then demanding the same currency in taxation from everyone else. Suddenly your farmers are keen to swap food & other supplies for these tokens you demand from them! Sure, you *could* force them into the fields with your army, but this is horrendously inefficient. Far better to have a population that voluntarily gives up some of their surplus to your soldiers & even self-organises to transport the goods to them!

As a government you don’t actually want your currency to be a store of value: this is completely irrelevant to you & not what currency is for in the first place. The fact that it happens to make a pretty good store of value most of the time is an (occasionally un-)happy accident of circumstance that your people might take advantage of but it’s not the thing you care about. Indeed, sometimes it’s counter-productive: you *want* currency to circulate in order to drive economic productivity. Limiting economic output because there’s not enough cash on hand is one of the stupid holes the UK economy used to regularly fall into during the C19th when the £ was (notionally) on the gold standard.
posted by pharm at 2:03 AM on May 10, 2017 [22 favorites]


Note that modern fiat economies are mostly trading credit anyway, the vast majority of which is created by the banking system. You can’t have a full model of the economy without incorporating the banks, and in a modern banking regime with a central bank with the power to issue credit in the name of the government the banking sector is effectively an arm of government monetary policy.
posted by pharm at 2:07 AM on May 10, 2017 [4 favorites]


This is really counter-intuitive but very interesting.

It only works for countries that issue debts in their own currency; the EU nation states, for instance, can't do this. This is because of the realisation that, as long as people believe the country will be around in 30 years, a country can pay any debt that's due by simply issuing a bond for the same amount as what they owe. If you can't do that, for instance, if you are a state, then you actually have to have money on hand to pay a debt.

The reason this isn't vulnerable to inflation is that inflation's not actually driven by how much money is circulating, which is why it's always measured by a "basket" of various goods. It's driven by what people believe the currency is worth; you can, for instance, get people pricing goods and negotiating wages assuming a certain level of inflation, which then causes that inflation to happen because prices go up and wages go up. This is what happened during the stagflation crisis in the 70s.

So if the government says 'we're going to spend as if we just printed the money, but we're not spending so much that inflation will be a problem', then inflation is fine as long as the market believes them.
posted by Merus at 2:59 AM on May 10, 2017 [6 favorites]


NeoRothbardian: Sometimes there absolutely is a free lunch available, as both Keynes & the MMT crowd have pointed out.

But that doesn’t mean that MMT gives governments free reign to spend money on whatever they want - quite the contrary. Honestly I wish MMT theorists would spend more of their energies talking about how MMT limits government spending because it would get more of the right-wing on side. It’s understandable that people hear 'MMT lets government spend without taxation' and jump immediately to thoughts of the rampant inflationary periods of the past. Wrong, but understandable.

Perhaps MMT is one of those things that we need governments to use, but not actually admit to using...
posted by pharm at 3:14 AM on May 10, 2017 [7 favorites]




Here's what I agree with MMT about: The government gets a pretty big "spending bonus" every year because it issues the currency, and also has to pay its bills in the same currency. Since a bit of increase in the money supply is totally fine, the government can spend more than it takes in taxes, every single year, without any negative effects on the economy.

Here's what I don't get about MMT: Our government already gets that spending bonus. The bonus is hidden, because the government issues bonds when it runs a deficit -- but it gets a far better interest rate on those bonds than anyone else, because everyone knows the government can always print currency to cover its debts so the bonds are "risk-free."

So what MMT advocates are really talking about is using the bonus for something else, not getting it in the first place. Which is the same as saying the government should spend its money on different programs than it does -- more social benefits, less military and benefits for the rich. Which is a political argument, not an economics argument. It's an argument I agree with, but you don't need any theory about the value of money to make it.
posted by miyabo at 5:24 AM on May 10, 2017 [6 favorites]


Just finished reading this short piece on what Britian's 100 richest people are into. Out of the 100: 26 make their money from property, 10 from investment, 10 from finance. 7 make their fortune from retail, and just 6 from industry.

The article goes on to describe how property wealth isn't really 'productive' wealth, and I would argue also that money made from investing and from financial services isn't that productive either.

I'm not very knowledgeable about economics, but I understand that the finance and investment industries are supposed to be an important part of the overall economy in that they funnel funds into economic expansion. But it seems to me that they are more industries unto themselves. More money is being made, by fewer people and companies, from moving money around, and less of that money is actually going into the 'real' economy of making and selling stuff that all of us need/want.

And of course control of property is the very definition of rent-seeking behaviour. So, it seems right now that the 'real' economy is increasingly being pillaged to generate profits in this other abstract economy, which only benefits a few. Is this distortion any less bad than what's proposed for MMT?

(I'm a bit conflicted because we have some modest retirement investments and we stand to realize a big tax-free gain from eventually selling our home of 27 years)

I'm also in favour of trying out Basic Personal Income. It's got to be more efficient at supporting the disadvantaged than the current patchwork of overlapping and conflicting programs in most countries, and it's an affitmation that yes there's still such a thing as sovereignty and that all members of a country are entitled to share in that country's success. I also think it's part of a necessary rethink about the nature of work, as we go into a future where there's more people and fewer meaningful jobs.
posted by Artful Codger at 5:34 AM on May 10, 2017 [4 favorites]


if you give people a basic income with no strings attached, they will make better decisions, work more, cost the state less in the areas of things like health care and incarceration, and be happier and feel less humiliated, scared, and insecure.

Some people. Definitely not all people. One reason rich parents tell their kids that the kids are not going to inherit is because the parents fear that a basic income with no strings attached will encourage them to make bad decisions and work less, at times get involved in activities that can lead to incarceration. Which is humiliating, scary, and insecure. Based on my limited exposure to rich families, the parental fear is justified.
posted by IndigoJones at 5:35 AM on May 10, 2017 [4 favorites]


There's a Grand Canyon of difference between Basic Personal Income, and inheriting or getting a fat allowance from parents' wealth. What if said wealthy people told their kids that they'll get an education paid-for but just $30k a year after that from the family? Which means they could 'live' on that, but they have to get busy if they also want BMWs and a place in the Hamptons? it would be interesting to see what choices the kids make there.
posted by Artful Codger at 5:40 AM on May 10, 2017 [15 favorites]


Money isn't magical 'goods and services' producing dust. Forget healthcare. Let's imagine that the government decides that everybody needs a tesla. So they print 100,000 for every person in the us over the age of 16.

Those teslas have to come from somewhere. If tesla suddenly gets an order for 50,000,000 teslas they're either going to backlog them for decades or (more likely) they'll raise the price. In any case, you're not going to get 50,000,000 teslas this year.

Okay, so people start sloshing that money around to buy other things-- and those other things aren't going to be able to meet demand either, so the price is going to go up for all those things, too.

Now, this policy absolutely would benefit the poor in a huge way. Their buying power would increase, but it would in effect be a giant tax on anybody with any savings or investments. My retirement account that I've spent ten years building would be near worthless. Anybody who owned bonds would be wiped out.
posted by empath at 5:42 AM on May 10, 2017 [5 favorites]


I'm not saying that printing money is a bad way to fund the government, but there are costs to it that people have to recognize.
posted by empath at 5:43 AM on May 10, 2017 [5 favorites]


One reason rich parents tell their kids that the kids are not going to inherit is because the parents fear that a basic income with no strings attached will encourage them to [...] work less

how is this bad? do you really think most of us show up at our soul sucking retail or office jobs or what have you because we find it fulfilling?
posted by indubitable at 5:53 AM on May 10, 2017 [16 favorites]


The original post and most of the comments read like the authors failed to read about MMT beyond the introduction. Nothing about MMT excuses an unlimited debt load or miraculously prevents inflation in an economy with an out-of-control money supply.
posted by SemiSalt at 5:55 AM on May 10, 2017 [4 favorites]


how is this bad?

It's a classic composition problem where the local optima scales badly. Every parent wants their kid to have a better life, but the sum of all the strivings is to diminish the effort of each.

These kinds of problems abound in economics/political economy, see the paradox of thrift (EU's current dilemma), etc.
posted by Reasonably Everything Happens at 6:28 AM on May 10, 2017 [2 favorites]


My retirement account that I've spent ten years building would be near worthless. Anybody who owned bonds would be wiped out.

More demand for Teslas means more work for people.

Current mfg employment was last this low in mid-1941

Our current economy is being throttled (in the bad way) by lack of spending power in the lower 3 quintiles, and concomitant L-curve raking of monopoly rent-seeking profits by the top 5% (incomes > $200,000), and interest-earning-interest by the top 1% (incomes greater than $500,000).

MMT is a blunt instrument tho, I personally prefer going after the rent-seekers directly.

Housing rents are sky high. MMT would be great to fund a $200B/yr housing program, on the German model, perhaps.
posted by Heywood Mogroot III at 6:31 AM on May 10, 2017 [3 favorites]


Stephanie Kelton, one of the heavy hitters in MMT, is vocally opposed to Basic Income. Her position is that GDP/productivity could be higher—that what would be better would be a job guarantee. There's a ton of work that has to be done (infrastructure repair, children and elder care, construction of affordable housing), and it isn't currently being done. She points out that GDP is still well below pre-Financial-Crisis projections. There is plenty of room for more economic growth and more useful work to be done. The limiting factor right now is the stinginess of the Federal government due to bipartisan deficit-phobia.

Kelton advocates for a WPA-style Federal jobs program, and making the Federal government the "employer of last resort." From what she says, concerns about automation/labor obsolescence are premature. Maybe when all the airports, roads, bridges, and plutonium processing facilities are overhauled and there is honestly NOTHING left for humans to be paid to do, we can talk about BI. Until then, pay people good wages to work.
posted by overeducated_alligator at 6:35 AM on May 10, 2017 [8 favorites]


https://fred.stlouisfed.org/graph/?g=dGCM shows how the Fed did $1.8T of bank-shot MMT into the housing market 2009-2015.

$200B/yr into new housing would be +2 million jobs in the first-round analysis.

At $250,000 per housing unit (not counting land costs, a separate topic) that would be +800,000 units. Spread evenly, an area with 500,000 people would see 100 new units come to market a month.

Sounds about right.
posted by Heywood Mogroot III at 6:37 AM on May 10, 2017


>Her position is that GDP/productivity could be higher—that what would be better would be a job guarantee

yeah, this is what I'm saying. Remove the "bond vigilantes" and GOP shitheads from the social spending equation.

The important thing with MMT is that the intervention prompt the production of new goods and services, not just support current consumption, as that's the path to Zimbabwe/Venezuela of the typical Austrian counter-argument one encounters in these online discussions.
posted by Heywood Mogroot III at 6:41 AM on May 10, 2017


Okay, so people start sloshing that money around to buy other things-- and those other things aren't going to be able to meet demand either, so the price is going to go up for all those things, too.

For me, the key to understanding where MMT is coming from is the idea that you can break the entire economy down into two unequal sectors: the government, and everything that is not the government. If fiat money is, essentially, created by government activity, then we can boil down the entire thing into money flowing in and out of the 'everything-except-the-government' sector, where money flows in via government spending, and then flows out via taxes. This is unfamiliar but it basically makes sense, right? So obviously if the government turns the spigots on and pours money into the not-them economy, unless they put on real punitive tax measures the economy's going to become unstable and trust is gone.

But the only relationship between taxes and government spending is the stability of the economy. They're otherwise not linked. You can't buy Teslas for everyone, obviously, but as long as the transfers between the government and non-government sectors aren't too destabilising, you can wait until you actually know what a program is costing to recoup the inflation. To extend your example: if MMT is right, you could nationalise Tesla, and with proper KPIs and modern management techniques, assign Teslas to every citizen as you make them, keeping a careful eye on the market value. The transfer in is Teslas + materials + wages; match that via taxes in some fashion (e.g. taxes on cars that are not Teslas) and the economy should be fine.

Note: if I understand MMT right, government jobs and non-government jobs have different effects on inflation.
posted by Merus at 6:54 AM on May 10, 2017


how is this bad? do you really think most of us show up at our soul sucking retail or office jobs or what have you because we find it fulfilling?

I hate to go with the 'it builds character' line but: there's a measurable trend where genius children do much worse in life, and have much less resilience, than merely bright children. What happens is that genius children are never tested at school. They get it as soon as the teacher tries to explain something, or maybe they need a second example and then they're good. Bright children get things faster, sure, but it doesn't take them long before they have to deal with not knowing something and not being able to figure it out. Genius kids get there too - but it's usually pretty close to adulthood by the time it happens, and by that point most of their personality and behaviour is set. They are, almost always, wiped out.

Same with rich kids. There's a point at which you learn to work because you have to that they don't get to because they don't really have to for much longer.
posted by Merus at 6:57 AM on May 10, 2017 [6 favorites]


I understand basic income. The American economy works pretty well for people who have some discretionary funds and can do things like move to a new town where there are jobs. If people are boats in this analogy, then it is the difference between being aloat vs being around. I support adding water even if it has a negative (but hopefully not too negative) effect on my personal wealth. It shouldn't, though, as people will sort themselves out to contribute to the economy once they can afford to go where the jobs are.

I don't understand the whole "employer of last resort" thing. If you are guaranteed a job, what keeps you from doing it really half-assed? Does the person who works hard get the same money as the person who phones it in? I don't want it to be my civic duty to care about someone else's job performance (elected officials excepted, of course).

So based purely on my desires to care for people in the aggregate without having to care about them specifically, UBI seems better than UE.
posted by BeeDo at 7:18 AM on May 10, 2017 [4 favorites]


Any new system should build in the old one, and in a digital way. One way would be a treasury system that pays directly to the vendor, never to the recipient or to their bank. This is possible in a digital environment, and keeps it simple. This also allows the government to specify how the money is spent. If someone bought both a prescription drug and some candy from the drug store, the payment method would know if the recipient is retired or unemployed, or earning minimum wage, or receives some money from investments. It pays out in real time what the recipient qualifies for, and for which item. It also balances out any taxes owed on the fly, so only those collecting fees from others, and who already have accountants, would file taxes.
posted by Brian B. at 7:30 AM on May 10, 2017


If someone does a half-assed work on guaranteed employment, that's still more productivity than them doing nothing. My thought is that there would be a UBI that covers enough, but also an employment guarantee that adds more income to allow everyone to have the "dignity of work" if they want it. There is benefit to society if they do good work(even if they're just picking up trash or answering phones) and there isn't the huge penalty to a person if you have to fire them for being detrimental or demoralizing (which having shitty people around making what you do can be). The government could also do placement or have positions with very specific tasks that those with mental or physical disabilities could perform.
posted by TheJoven at 8:07 AM on May 10, 2017 [1 favorite]


Now, this policy absolutely would benefit the poor in a huge way. Their buying power would increase, but it would in effect be a giant tax on anybody with any savings or investments. My retirement account that I've spent ten years building would be near worthless. Anybody who owned bonds would be wiped out.

This is a feature not a bug. But definitely should be a sliding scale (I've been thinking about this since kliuless posted about the experiments with negative interest rates in Germany)...over a billion in savings? -10% interest rate...over a million? -1%, a million? 0%...under a million? Ok, you can have positive interest rates.
It would go a long way towards solving our current problems, which have mostly arisen because 8 people control over half the entire planets total wealth.
posted by sexyrobot at 8:15 AM on May 10, 2017 [7 favorites]


the post-Keynesians and MMT types would probably claim that I am overly steeped in orthodoxy, and maybe they're not wrong. But this article typifies two reasons I'm skeptical of it:

- Whenever it gets discussed, it appears to be about giving a theoretical justification for policies that the proponents already like. As a factual matter, they're right that a government that controls the printing press can turn that on to pay for stuff; the debate is generally whether the benefits of doing that are worth the costs. That doesn't mean the policy proposals are a bad idea, but it does make the whole thing feel less like economics and more like policy entrepreneurship.
"but aha" you say, 'this is what economists already do.' Well, it's what some economists do, and perhaps those are the ones who are the most visible in the press. And some economists have had very successful careers providing an intellectual veneer for policies politicians already wanted and being fun for journalists to talk to (see: art laffer). But it's really not what most research is about, even within macro- and monetary economics which is where I think these folks are positioning themselves. Which brings me to the second point:
- There doesn't appear to be a lot of positive content that could be used to distinguish it from other theories or be used to make predictions about the likely effects of policy.
'Quantitative easing won't cause inflation' is too vague a prediction to be useful as guidance for policy, for instance, and is also a prediction you don't need MMT to generate, so it doesn't really vindicate their approach. Again, this is not to say that the predictions they make are wrong, but I'm not convinced that this is a particularly useful way to think about the world if you're trying to understand business cycles look the way they do, or what the likely effects of a change in monetary or fiscal or regulatory policy will be. I have other questions about some of the positive claims that are alluded to in the article. For instance, I really don't understand the MMT account for where inflation comes from. But I will happily concede that's about my ignorance and doesn't mean the theory is deficient.

Full disclosure: this is not something that gets discussed within 'mainstream' departments, so I am largely going off of how these folks talk about themselves and get talked about in the press. But I don't trust that they've got a coherent or accurate positive description of the world, and without that it's hard for me to get on board with their arguments for policies. Again, maybe UBI or government-as-a-backstop-employer is a great idea but if your predictions of its effects are predicated on MMT being true then I would need to understand why MMT is true.
posted by dismas at 8:47 AM on May 10, 2017 [1 favorite]


TheJoven: Thank you. Yes, full employment (for those who want it) is completely compatible with a Universal Basic Income. Something I feel a lot of UBI people miss is that work, even shitty, menial work, gives a lot of people some kind of meaning in their lives. As long as it's full employment for those who _want_ employment, we get the best of both worlds.
posted by SansPoint at 8:53 AM on May 10, 2017 [1 favorite]


to follow up, perhaps more succinctly: One can believe a policy is a good idea for any number of reasons which have nothing to do with its benefits in terms of economic welfare per se. However, those policies have economic consequences. If we care about those consequences, it makes sense to be forward looking and to make predictions about what they are. Many proponents of MMT theory appear to make arguments that get this backwards, from my vantage point; they like a policy and then invent an economic theory that tells them the consequences are what they want them to be. (I will concede this is not a problem unique to MMT). But at the end of the day, if MMT makes predictions that are different from other theories (and hence lead us to different conclusions about whether a particular policy is desirable ), then at a minimum they should tell us something different about the way the world works that we can corroborate with data, and I haven't seen anything to convince me that they have an explanation of the world that is able to explain economic data.
posted by dismas at 9:03 AM on May 10, 2017 [1 favorite]


Perhaps we need a metric swhere a billionaire earns a dollar, that dollar goes back into the public purse to pay for a childcare worker's salary or a bridge or a space shuttle, but they still get to keep having earned that dollar on their score card

This metric exists and is called "a tax return," and the dollars used to go into the public purse through increasingly-higher marginal tax rates.
posted by rhizome at 9:40 AM on May 10, 2017 [6 favorites]


The best case I can see, steady-state, is a sort of dual-currency arrangement

This is basically what happened in the Massively Multiplayer Online game Star Wars Galaxies. You have MASSIVE inflation because every character is constantly printing in-game currency. Every quest completed and every NPC killed injects a little more into the economy. There are only a few ways that currency leaves the in-game economy. There were nominal fees to use shuttle stations to move between planets or around areas of a single planet, fees to list and sell things from vendors, and every structure paid an automated property tax. The problem is to keep the game accessible to new players, those fees all have to be pretty low.

After a while you end up with a relatively stable player population but the total money supply keeps growing and growing so if you're not constantly earning money, you're falling behind.

It used to be that having a hundred million credits in the bank made you a VERY wealthy player but if you stepped away from the game for a few months, you'd come back to find that you're just upper-middle class, inflation caught up to you.

Instead, players would sink their wealth into rare resources and items. Crafting resources spawned on planets randomly with random stats. The quality of the inputs determined the quality of the items crafted from it. REALLY high quality resources were rare and certain mixes of resources with really high stats were required max out certain crafted items (especially armor cores). Sometimes there has only ever been a single spawn for a short time of a resource of high enough quality to cap out an item. That resource then could be used as a de facto currency. Buy 10 million units of that ore or whatever with your 100 million credits, come back in two months and sell it for 200 million.

There were also some extremely rare items that were given to players in the game's early days when the population was smaller that had unique capabilities. They were rare and powerful items that could no longer be obtained. It used to be common practice to store some of these items by putting them up for sale on a vendor NPC for the max price (99,999,999 credits) but eventually those rare items were worth a lot more than that so folks would buy them and turn around to sell them player to player where the cap was much higher.

Everyone who wanted a job had one and you could absolutely play the full game without every interacting with the larger economy. Since it's a virtual world, no one starved. Other than changes to combat mechanics that changed demand for certain items and resources over others, most of the variables didn't change. Demand for armor crafting resources went WAY up after they created a system where you could equip one set of armor/clothes for their stats and another for their looks, for example. Other than that, the only things that really changed were the size of the money supply and the number of active players.

I'm still kind of surprised that I don't really hear about any economists using MMOs to study economics. You could get access to extremely fine grained data in that you can track every single transaction whether in involves currency or not and you can track a ton of detail about each of those transactions. Then you can implement rules with a lot more precision and authority. Developers could simply create a central bank for you to hand out loans. You could add an income tax by simply coding it in. Your only limit is basically how much the developers will let you mess around with their players (and how much of that players will tolerate) and they can be totally deregulated (or regulated to within an inch of it's life) without any real externalities. MMOs should be an economist's sandbox.
posted by VTX at 9:54 AM on May 10, 2017 [10 favorites]


I don't trust that they've got a coherent or accurate positive description of the world...

#describes every economic theory ever


Ok, it's not quite that bad. There's plenty of accumulated explanatory 'wisdom' in economics. But I don't know what unified theory you're contrasting MMT against. There is ample critique of the theory that has dominated econ schools the last fifty years (hint, the start of the neoliberal era). These are as much class tools in one direction as your claim is that MMT is in the other.

The difference is that one class has its hand on the steering wheel.

Re: VTX, I seem to remember a comment [couldn't find tho] in a past MMT thread where they used MMT to track EveOnline and it worked like a charm.
posted by Reasonably Everything Happens at 10:02 AM on May 10, 2017 [1 favorite]


Those teslas have to come from somewhere. If tesla suddenly gets an order for 50,000,000 teslas they're either going to backlog them for decades or (more likely) they'll raise the price. In any case, you're not going to get 50,000,000 teslas this year.

I think it says a lot about the current situation that the third option doesn't even occur to you: that, because Tesla will want to capture as much of that money as possible, it builds more plants and hires more people to produce those Teslas! Obviously, it cannot expand its manufacturing capacity infinitely, but this really used to be one of the most basic assumptions of economics: that the market will act to create a supply to meet an increased demand.

Such a simplified assumption does not work in all circumstances, of course, and there are always other, competing forces, so I don't want to suggest that the scenario outlined is perfectly predictable or anything. But that it literally did not occur to you that if people want to and can afford to buy something, companies might try to increase their capability to make it so they could sell it to them...it shows what a grim economy we're really living in for the bottom three quartiles. Increased demand from them has apparently become unimaginable.
posted by praemunire at 10:14 AM on May 10, 2017 [8 favorites]


>There's a Grand Canyon of difference between Basic Personal Income, and inheriting or getting a fat allowance from parents' wealth. What if said wealthy people told their kids that they'll get an education paid-for but just $30k a year after that from the family? Which means they could 'live' on that, but they have to get busy if they also want BMWs and a place in the Hamptons?

Actually, that's exactly the kind of person I had in mind. I know such people, educated through college and content to live without the BMW or the Hamptons wealthy, and living the low life for decades on end, surfing the net, and at a certain point unemployable because they have no work history and not enough gumption (or talent) to start a paying business of their own. It would be unkind to call them societal leeches, but if you're taking out and not putting in, well, what would you call it?

> how is this bad? do you really think most of us show up at our soul sucking retail or office jobs or what have you because we find it fulfilling?

I throw it back at you - do you think sleeping late every day and doing nothing more than surfing the web all day is fulfilling or soul enriching or useful to society? Look, life is full of ups and downs, and the downs are what make the ups that much sweeter. I've had those jobs. When they got too much, I quit and found other jobs, and more often than not it was the co-workers that made them bearable, not the nature of the work. In life there are times you have to do the crap job because if you don't, nobody will.
posted by IndigoJones at 10:16 AM on May 10, 2017 [2 favorites]


From TFA:

It drove home their foundational point that fiat currency is a social construct, and that there are therefore no fiscal limits on how much a sovereign currency-issuing nation can spend.

Somehow the article manages not to mention:
- Weimar Germany
- Zimbabwe
- Hungary, 1946
- Brazil, 1980-1994

We have a lot of really concrete, horrible examples that yes, there is actually a limit on how much a sovereign currency-issuing nation can spend.

Like, are these the economists who decide to ignore history or something?
posted by GuyZero at 10:23 AM on May 10, 2017 [4 favorites]


So I've read it twice now and I want to have a sanity check here: the article doesn't actually describe MMT does it? It talks about it indirectly but it never actually goes into detail on what MMT is. Right?
posted by GuyZero at 10:27 AM on May 10, 2017 [1 favorite]


Like, are these the economists who decide to ignore history or something?

It doesn't agree with theory
posted by thelonius at 10:28 AM on May 10, 2017 [4 favorites]


Is it fair to say that is was FISCAL limits that were the issue with the four examples you cite or was it inflation, interest rates, or something else?

That's a genuine question, I'm not familiar enough with those examples to say and don't have the time to do the research.

I'm also not totally clear on a "fiscal" limit looks like. Do they just mean that there is nothing that prevents a fiat currency country from just printing money or is there more to it?
posted by VTX at 10:30 AM on May 10, 2017 [1 favorite]


MMT says a government can print. Not that it should or must GuyZero. It also tells you when the consequences of that printing will be inflationary & when they won’t. Like any tool, in the hands of a bad government it can be used for bad ends, but none of your examples needed excuses provided by economists to generate hyperinflation.

VTX. A modern government has pretty good insight into the total amount of money in circulation & it’s velocity at any given moment through the banking system it controls (there’s a reason off-shore banks that trade in the credit of major currencies are called the shadow banking system) - you can go and look at lots of lovely graphs the Federal Reserve generates for the $ right now. Hence a government can, if it chooses, know a priori whether the balance of money injected into the system & taxes / bond sales pulling money out is expansionary or deflationary. It’s a policy choice.
posted by pharm at 10:42 AM on May 10, 2017 [2 favorites]


(NB, there’s a sleight of hand there in the precise definition of inflation chosen. But there are as many definitions of inflation as there are economists, so it’s OK for the MMT crowd to pick on a particular one so long as it works IMO.)
posted by pharm at 10:44 AM on May 10, 2017


I throw it back at you - do you think sleeping late every day and doing nothing more than surfing the web all day is fulfilling or soul enriching or useful to society?

Getting awfully judgmental here, aren't we? When people have enough resources to comfortably survive, and enough self-esteem because society isn't constantly telling them they're useless, they don't always sit idle. People compose music, draw pictures, write novels, or post comments on community weblogs. Or are these activities too idle for you, because they don't involve selling one's labor to the capitalist class?

Or for that matter, maybe some people really are satisfied and fulfilled sitting around and passively consuming all day. I wouldn't know because I haven't asked them, but I suspect you haven't either. And you know what? I'm fine with this. If there's really enough to go around, then I don't mind subsidizing them. Someone who takes a BPI and contributes literally nothing is still better for society than a financier who hoards billions.
posted by Faint of Butt at 11:05 AM on May 10, 2017 [8 favorites]


I throw it back at you - do you think sleeping late every day and doing nothing more than surfing the web all day is fulfilling or soul enriching or useful to society?

Here's the rub:

The person on the couch may feel unfulfilled, but their relationship to that lack of fulfillment is likely to be directed inwards. The person in the 'soul-sucking' job is likely to develop animus that is outward focused.

Now, there's plenty of GNP positive events that come from that negative outward animus. The Defense Industry!, sex trade!, drugs!...rock and roll!? However, most people don't need these 'economies of trauma' in order to get off the couch. In fact, most subsidy and UBI research shows just the opposite: there're amazing amounts of latent, untapped human productivity.

So why don't we see it?

There are the constraints we typically think of:
- basic health (potable water, disease, nutrition)
- network effects (roads, internet, financial institutions)

...but these aren't the problem for the guy on the couch...what is? It's crowding out, but not by the government,... by rent seekers.

One of those gems of wisdom that economic history gets right is the limited amount of places wealth can go: land, capital, labor. A more modern translation of this could be property (especially intellectual), digitization (since this is where the bulk of non-labor productivity growth comes from) and you.

Besides commodities (land), the biggest companies on the planet are either digitize'rs or those who've cornered a property market (think pharma or increasingly, Apple). The problem isn't laziness it's lack of incentive to work.

Now that's the political economy issue, for those who are interested in the accounting/finance, I've been enjoying this discussion at Brown (this is part I of V) organized by this guy (previously).

Re: inflation, Blythe also makes a convincing case that Weimar and all the other examples were not 'natural' occuring inflation, but vested interests using inflation as an economic and political weapon. YMMV
posted by Reasonably Everything Happens at 11:07 AM on May 10, 2017 [2 favorites]


Re: inflation, Blythe also makes a convincing case that Weimar and all the other examples were not 'natural' occuring inflation, but vested interests using inflation as an economic and political weapon. YMMV

This relies on a fairly large assumption that people know what they're doing and can actually predict the outcomes of things like printing lots of money.

This seems more like a theory designed to reinforce the notion that economists make accurate predictions rather than making any actual statements about inflation.
posted by GuyZero at 11:09 AM on May 10, 2017 [1 favorite]


Ok, it's not quite that bad. There's plenty of accumulated explanatory 'wisdom' in economics. But I don't know what unified theory you're contrasting MMT against. There is ample critique of the theory that has dominated econ schools the last fifty years (hint, the start of the neoliberal era). These are as much class tools in one direction as your claim is that MMT is in the other.

I'm familiar with the idea that mainstream economic theory is not a unified entity and has its problems; if I thought economics were a solved problem, I wouldn't be studying it!

I'll give a concrete example of what I mean. From the original article, it *seems* like the MMTist account of inflation is that (1) it's driven by fiscal policy, particularly, taxation and (2) only a thing that is a meaningful concern at full employment.

So that says something about inflation, changes in tax policy, and the degree of slack in the economy. The article is in this weird space of claiming MMT benefits from being easy to explain without explaining how this works but that's not the MMT people's fault.

While there isn't a grand unified theory of price determination to contrast this with, there are some candidates that show up more than others. Avoiding the esoterica that gets you there, the type of monetary macroeconomic models typically used to analyze monetary policy at central banks often arrive at a "Phillips curve" type relationship, which relate current inflation to a notion of economic slack as well (although one that is derived from assumptions about how firms compete with each other, set prices, and hire factors of production; these are hopefully transparent assumptions and can be refined or examined systematically using data). It also depends on how they form expectations. (So my academic work is about this last part; how do people form expectations about the macroeconomy and how do those expectations affect their behavior when setting prices or investing?). These models provide some guidance for looking at data; if we see that there doesn't appear to be a systematic relationship between labor market slack and price setting, that tells us something about the theory; perhaps we're thinking about how firms set prices incorrectly, or how they substitute between inputs, or maybe it tells us we're thinking about labor markets incorrectly (for instance, focusing on too narrow a notion of the unemployment rate), for instance. At their heart, these kinds of models root inflation in monetary policy, because central banks pick how monetary policy responds to changes in the economy and if it decides to let prices change or if it tries to steer final demand so that prices do not change; and what people expect the central bank to do affects their own decisions. So this story does not rely on taxes per se to determine inflation, although you could think about how taxes affect the behavior of households and firms and how that feeds into inflation.

You could contrast this with another proposal which does focus more on a fiscal explanation, which is blandly referred to as the fiscal theory of the price level. The FTPL argues that changes in the price level are driven by the fiscal authority's balance sheet, the real value of their liabilities (the stock of debt divided by the price level) on one side and the present discounted value of their assets (future primary surpluses) on the other. They make predictions about how the real price of debt should respond to unanticipated budget surpluses or deficits, which again we can try to test with data. I can't contrast the FTPL with the MMT view of inflation because I don't have a firm grasp of what the MMT view is. On some level, they appear to make competing claims about how government budgets affect the world. I don't find the FTPL too convincing because in the form its proponents usually seem to discuss it, it rules out certain kinds of animal spirit-like fluctuations that I think are relevant but I admit this is not my area of research.

So there are at least a couple of different ideas of the relationship between some idea of the slack resources in the economy, monetary and fiscal policy, and observed inflation. What're we to do? A fair amount of work in time series econometrics (drawing on insights from statistics, decision theory, and other fields) is in formalizing a notion of model selection, which isn't independent of a loss function. So in principle, if you weren't completely confident in your model of how macroeconomic data were generated and wanted to compare its ability to explain a dataset to other candidate models, we have tools that tell you how to do it given what kind of losses you care about.

My concern is that there's not enough "there" there to MMT to think about these kinds of questions in anything more than a heuristic way, which I find unsatisfying as an explanation of macroeconomic phenomena or as a guide to policy. Again, my point is not that the MMT people are wrong about policy, but that it's unclear to me what they think about the world that justifies their claims about what policies will do, and whether what they think about the world can be distinguished from other theories with data.

You can think UBI is a good idea or a bad idea regardless of whether MMT is true. You can think high marginal tax rates are the right thing to do regardless of the economic consequences. But if you make predictions about economic consequences, I guess I just want to understand how those predictions are generated and whether they can be compared to other competing predictions in a meaningful way, so that I'm not choosing my view of how, say, inflation or the unemployment rate is determined by whether it justifies a policy I like that affects those outcomes.
posted by dismas at 11:40 AM on May 10, 2017 [1 favorite]


I've had those jobs. When they got too much, I quit and found other jobs

Can you possibly, possibly be under the impression that this is a reliable possibility today for people working the kinds of truly precarious, truly shit jobs that the poor in our country, the ones who would come closest to being able to "replace" their annual earnings with some kind of UBI, currently hold? You can't. Can you?

I'm guessing you've never depended on holding one of the truly precarious, truly shit jobs of today to feed and house yourself and your kids, or you couldn't possibly entertain the idea that some kind of terminal video-game-playing ennui is a worse condition for the human soul than being compelled to turn up on an unpredictable schedule to a physically and/or psychologically brutal job where you are exploited with no care for your dignity or, often, for your safety, exposed to all kinds of abuse from your superiors, for a begrudged pittance. Poor people in the U.S. do not live in the world of "this job runs way too unnecessary many fire drills, it's toxic," they live in the world of "my boss is stealing my tips, my supervisor likes to grope people and no one cares, the heavy lifting is wearing down my back and I don't even know how long I can keep doing this, I get scheduled different hours every week so I'm in a constant child care crisis--yet never enough for benefits, I'm pretty sure people are getting sick from breathing that actually toxic vapor." Yes, those people would be better off even if all they could find it in themselves to do is sit on the couch. However, maybe if they weren't caught in a constant dehumanizing and demoralizing struggle just to meet very basic needs, they just might come up with ways to contribute better to society.
posted by praemunire at 12:13 PM on May 10, 2017 [18 favorites]


> If fiat money is, essentially, created by government activity, then we can boil down the entire thing into money flowing in and out of the 'everything-except-the-government' sector, where money flows in via government spending, and then flows out via taxes.

This is the spigot and drain system that MMO economies work on , and I think it's a fine model for a monetary system. (Seriously). I just don't think turning on the spigot without adding more drains solves any problems.
posted by empath at 12:20 PM on May 10, 2017


the whole point is that taxation provides both a drain on the money supply *and* the source of demand for it simultaneously.

Agreed, to a point — if government spending is the "source" of a particular national currency (which I'm not sure is a safe simplifying assumption, since a lot of the money supply—the vast percentage in the US—comes from fractional reserve banking), taxation is the "sink" in the sense that it takes money from one part of the economy and lets the government spend it somewhere else, while also requiring people to convert from other currencies into the national currency, even if it's only for the purpose of paying the tax.

But if you have the source without the sink—just spend money, don't worry about recovering it in taxes or balancing the budget—you get inflation. Some amount of inflation is okay, so you can have spending exceeding receipts to some extent (though you need to be aware of other sources of inflation), but I think the idea seemingly implied by some MMT proponents that you can spend without worrying about taxes or "paying for it", and thereby dodge the political disagreements involved which prevent us from spending on those things right now, doesn't wash.

Either you end up having taxes qua taxes, or inflation qua taxes, and while the latter might delay the awkward political conversation for a while, it won't do so indefinitely—people seem to hate high inflation almost as much as they hate high taxes, so it's still going to be a fight.

Similarly, combining spending with a definition of "inflation" that makes the spending "noninflationary" is just a rhetorical maneuver if the overall effect feels like inflation to someone in the economy. You can say it's not inflation, but if it feels like inflation—if prices are increasing, and especially if they increase faster than savings does in a low-risk vehicle—I strongly suspect people are going to stop believing you, and find someone to listen to who does say that it's inflation. So that seems counterproductive if your ultimate goal is to enable more public spending: it doesn't avoid the fight over spending, and it creates a credibility gap when the fight does happen.

I don't think there's a way to avoid the fundamental issue, which exists even if you take away money and economics completely and just drill down to the function of government itself: how do you want to distribute resources, some of which are scarce and rival, and how do you want to incentivize labor, and to what ends? Creating more money doesn't create more resources, and it certainly doesn't answer any of those questions or avoid having to collectively answer them in a democracy.
posted by Kadin2048 at 12:53 PM on May 10, 2017 [4 favorites]


The critical line is:

The decisions about how to issue, lend, and spend money come down to politics, values, and convention, whether the goal is reducing inequality or boosting entrepreneurship.


There are issues with MMT, but what I like is that it lays bare this reality.
posted by 8k at 8:13 PM on May 10, 2017 [2 favorites]


you all sound like a bunch of supply siders! :P

i should have also included this link to steve randy waldman's (who i think went to UMKC for a time?) MMT stabilization policy — some comments & critiques where i first encountered the idea. i was particularly drawn to this part:
A government's solvency constraint ultimately lies in its political capacity to levy and enforce the payment of taxes... Note that a government's "political capacity to levy and enforce payment of taxes" depends first and foremost on the quality of the real economy it superintends. The value that a government is capable of taxing if necessary to sustain the value of its obligations increases with the value produced overall. A government that wishes to be solvent should first and foremost interact with the polity in a manner that promotes productivity. Secondly, the political capacity to levy taxes depends upon either the legitimacy of or the coercive power of the state. A government that wishes to sustain the value of its obligations must either gain the consent of those it would tax or maintain an infrastructure of compulsion... I like to imagine excessively coercive regimes are inconsistent with overall productivity.
this gets to the difference between japan and zimbabwe or the US and venezuela, viz. Why Information Grows... or like re: weimar, cf. Why you won't find hyperinflation in democracies - "Hyperinflation is caused by many things, such as losing a war, or regime collapse, or a massive drop in domestic production. But one thing is clear: it's not caused by technocrats going mad or bad."
posted by kliuless at 9:41 PM on May 10, 2017 [3 favorites]


Kadim: "Agreed, to a point — if government spending is the "source" of a particular national currency (which I'm not sure is a safe simplifying assumption, since a lot of the money supply—the vast percentage in the US—comes from fractional reserve banking), taxation is the "sink" in the sense that it takes money from one part of the economy and lets the government spend it somewhere else, while also requiring people to convert from other currencies into the national currency, even if it's only for the purpose of paying the tax. "

Sure & if you go read the references you'll see that the MMT crowd understand this intimately. We live in a credit money economy & the banking system creates most of that credit. You're still linking the money transferred to the government via taxation with the money spent by the government however: The central observation of the MMT crowd is that this link doesn't exist. A government that prints it's own currency is free to tax more than it spends (which is net deflationary) or spend more than it taxes (which is net inflationary). The association between taxation and spending is merely a political convention, not an actual constraint.

If you beleive in business cycles, then you'll note that there are times when the private sector has over-reached itself and is forced to contract in order to pay off debts incurred during the previous expansion. This contraction will reduce tax receipts, yet this is precisely the time that the government should spend in order to put spare capacity in the economy to use. Build bridges, invest in capital goods etc etc. Tradition "tax and spend" economics insist that when the private sector is contracting, the public sector must also contract, compounding the recession.

I don't think there's a way to avoid the fundamental issue, which exists even if you take away money and economics completely and just drill down to the function of government itself: how do you want to distribute resources, some of which are scarce and rival, and how do you want to incentivize labor, and to what ends? Creating more money doesn't create more resources, and it certainly doesn't answer any of those questions or avoid having to collectively answer them in a democracy.

Ironically, this is exactly the point: MMT says that the under-use of economic resources in a recession due to falling tax takes is a political choice, not a constraint imposed by the real availability of resources. It's an accidental by-product of the monetary system. Creating more money doesn't magic into bring more resources, but ironically creating more money can bring into use resources (and by resources we really mean people here) who would otherwise lie idle simply because the contraction of the money supply meant that the private sector was unable to bring them to bear.
posted by pharm at 1:48 AM on May 11, 2017 [5 favorites]


I appear to be very ironic today.
posted by pharm at 1:54 AM on May 11, 2017


The critical line is:

The decisions about how to issue, lend, and spend money come down to politics, values, and convention, whether the goal is reducing inequality or boosting entrepreneurship.

There are issues with MMT, but what I like is that it lays bare this reality.
Sovereign Citizen.

I can never resist a "sovereign citizen" like Winston Shrout, who is a leader of that "loosely affiliated group of Americans who claim to be emancipated from the government":
Sovereign citizens may believe local sheriffs to be the highest valid form of government, or that they can evade taxes in perpetuity by misspelling their names, or that all Americans are secretly owed $630,000, which was placed in a federal bank account upon their birth. From his popular YouTube channel, an expensive series of DVDs, and a lecture circuit, Shrout espoused all manner of theory on how Americans could allegedly free themselves from the federal government on wild technicalities.
And now he's on trial "for allegedly issuing more than $100 trillion in fake financial documents," things like "International Bills of Exchange" and "Non-Negotiable Bills of Exchange" and other random concatenations of finance-ish words with big numbers stamped on them.

What I love about guys like this is that they really do expose deep fundamental mysteries about the financial system. Money, financial instruments, the right of the state to tax its citizens -- at some level these are delusions. It's just that they are collective delusions; because we all believe in them, they work. They are what Yuval Noah Harari calls an "imagined reality": "something that everyone believes in, and as long as this communal belief persists, the imagined reality exerts force in the world." "Politics," writes David Graeber, "is that dimension of social life in which things really do become true if enough people believe them." Money shares in that character. That means that Shrout's project is not purely silly. "If you could convince everyone in the entire world that you were King of France," writes Graeber, "then you would actually be the King of France." If Shrout could convince enough people that the state has no power to tax them, then the state would have no power to tax them. If he could convince enough people that his $100 trillion of paper was money, it would be money.
posted by kliuless at 6:54 AM on May 11, 2017 [2 favorites]


you all sound like a bunch of supply siders! :P

there is a lot of space between Art Laffer and Stephanie Kelton my dude

A government's solvency constraint ultimately lies in its political capacity to levy and enforce the payment of taxes... Note that a government's "political capacity to levy and enforce payment of taxes" depends first and foremost on the quality of the real economy it superintends. The value that a government is capable of taxing if necessary to sustain the value of its obligations increases with the value produced overall. A government that wishes to be solvent should first and foremost interact with the polity in a manner that promotes productivity. Secondly, the political capacity to levy taxes depends upon either the legitimacy of or the coercive power of the state. A government that wishes to sustain the value of its obligations must either gain the consent of those it would tax or maintain an infrastructure of compulsion... I like to imagine excessively coercive regimes are inconsistent with overall productivity.

See, I don't think that most economists would find this a particularly controversial statement, although they would perhaps phrase it differently. An unfortunate feature of the fact that Post-Keynesians/MMTists/etc exist in a parallel universe to the mainstream (which I do not think is their "fault" but I do think has become self-sustaining) is that I think there's lots of places of agreement that aren't noticed or acknowledged. Herbert Gintis gets at this in his review of that book Reasonably Everything Happens threw at me upthread. It's also true of your (later) quote from Graeber! mainstreain monetary economists are aware that pieces of paper are just pieces of paper.

Pharm, when you say If you believe in business cycles, , I don't understand what you mean. This is somewhat related to your comments about there being "as many definitions of inflation as there are economists" upthread. I'm having a little trouble phrasing this, but there is a consensus understanding of both of these terms; business cycles referring to the fact that the level of economic activity tends to expand and contract (around some trend) over time. "If you believe in business cycles" sounds a bit like "if you believe in rainstorms" to me. I completely believe that someone out there uses this term differently, just as Austrians have apparently re-defined inflation to be a change in the money supply instead of prices (if I understand how they use it correctly), so they can always claim expansionary Fed policy will cause inflation. But this isn't typical, and to the extent that folks try to score academic points by redefining commonly accepted terms (or at least terms of art?) and then saying "well you have your definition and we have ours" seems to impede understanding at best.

8k: The critical line is:
The decisions about how to issue, lend, and spend money come down to politics, values, and convention, whether the goal is reducing inequality or boosting entrepreneurship.
There are issues with MMT, but what I like is that it lays bare this reality.


At some point I need to stop posting in this thread and do work but I will keep beating this dead horse: Macroeconomic policy decisions are the product of a political process. An input into that process is an understanding of what the consequences of policy actions will be and an evaluation of how we weigh those consequences. There is a diversity of opinions about the second one, but even if I agree with everyone at UMKC about the second one, we can still disagree about the first. MMT does not, at first glance, seem to say enough about how the macroeconomy 'works' to generate meaningful or actionable positive predictions, and I guess I'm uncomfortable (and I suppose I think others should be uncomfortable) with that, even if we all generally agree about what outcomes we would like to see.
posted by dismas at 8:22 AM on May 11, 2017


dismas. As far as I can tell you appear to be convinced that a) all government expenditure that exceeds the tax take (+ bond sales etc) is automatically inflationary and that therefore b) the MMT people must be hiding that inflation by redefining it. This is not what’s going on - MMT does not redefine inflation in order to squirrel it away under the carpet.

My point about 'if you believe in business cycles was not to suggest that they don’t exist, but merely to take them as a given basis for that particular argument - i.e. that there are times when extra government expenditure is not inflationary because it fills a demand hole left by the private sector. This is neither controversial or new! Keynes said it, a bunch of other economics have said it: in what way was this point problematic?

Look, you can just Google "MMT inflation" and get a bunch of articles on this topic. Here’s one I plucked out of thin air. MMT proponents are *well aware* of this criticism, believe me.
posted by pharm at 9:21 AM on May 11, 2017 [1 favorite]


MMT says that the under-use of economic resources in a recession due to falling tax takes is a political choice, not a constraint imposed by the real availability of resources.

So just to be really obvious, MMT economists say that in a recession that you could stimulate the economy by printing money instead of borrowing it (via bonds) and that it wouldn't be immediately inflationary? Or that it's fine as long as it only happens within some arbitrary constraint?

I guess that makes sense but I suppose I've become comfortable with decoupling budgeting with money creation - I don't know if I trust politicians with the ability to print money to match their budget.
posted by GuyZero at 10:09 AM on May 11, 2017


Pharm: I think you're conflating my posts with some made my other people. I don't hold position (a), and (b) doesn't follow. I don't have a problem with countercyclical fiscal policy or automatic stabilizers and I don't disagree with the notion that fiscal policy could stabilize inflation and output when there's a shortfall of aggregate demand. I feel like you think I'm being willfully obtuse because I don't like their policy prescriptions. I don't have highly developed views on the merits of some of these policies, and I assure you I'm not just playing dumb here as a rhetorical tactic.

The post you linked actually makes it seem like the 'theory' part of MMT is not distinct from mainstream theory, in fact; the argument appears to be "we are in favor of more countercyclicality in fiscal policy, and the Fed will act if inflation rises above its target." Which, okay, fine!

Where I get lost (and am still lost having skimmed some of the MMT primer posts) is the mapping from neo-chartalist views of money to any specific prediction about anything other than whether or not governments 'can' default. The neo-chartalist view seems to be the main positive difference between MMT and the mainstream alternative, with the rest of it basically coming down to disagreement about welfare economics. I'm trying to focus on understanding the former and the extent to which it drives (or is driven by) the latter.

My question is not "will a jobs guarantee or UBI or whatever cause runaway inflation" so much as "how would a MMTheorist account for inflation and disinflation in the first place, and could they tell you whether or over what what horizon inflation would be predicted to be 0% or 8%." It seems like the answer to the first part is something like "when the economy is at full employment and the fiscal authority increases the primary deficit, or when there's some demand or cost-push reason, you can have inflation, but increases in the primary deficit don't matter unless you're at full employment."

And as for the second part, it doesn't look like the MMT people (at least based on the articles collected on the NEP blog) are all that interested in answering that kind of question.

I think, having skimmed some of the MMT primer on the NEP blog and the linked scholarship, that the lack of numerical specificity is somewhat by design, or at least reflects a difference in philosophy of science or epistemology (here I am a little out of my depth). This working paper from the Levy institute seems to suggest that there's a rejection of the notion of using econometrics among many people who describe themselves as "post-Keynesian" although it makes the case that this is not necessarily on firm ground methodologically. They're not talking about MMT specifically, although I think implicit in the presentation on the NEP blog is that this is what the MMT position is. Wholesale rejection of formal econometrics is a big departure from mainstream economics (It's not a departure from the Austrian position on econometrics, although I bet they arrive at that conclusion from different directions, and despite their volume there are not many Austrians in academia or doing policy design within government institutions I don't think).

UMKC does teach their grad students econometrics so obviously this is not a universally-held position, and on the NEP blog Eric Tymoigne does at least contrast his interpretation of a quantity theory story of inflation from what seems to be his preferred account, albeit in an eyeball econometrics kinda way (which is fine, it's a blog post). That's at least something that could serve as a basis of the kind of discussion that mainstream economists usually are interested in and might help us distinguish between a MMT account of the world against alternatives. I would argue that this is an important input into policy design and decision making in a democracy, aside from being an interesting thing to understand in its own right.
posted by dismas at 11:55 AM on May 11, 2017


Based on what you're saying about points of agreement with mainstream economics, and the downplaying of hard numbers, it seems like it may be useful to talk about it in terms of other pop-econ understandings. The success of MMT among non-economists, to my mind, is that it provides an easily understandable counter to the popular but wrong understanding of a government's budget as like a household's budget. In reality there's many ways in which that analogy fails, and mainstream economics has been plugging away at those for a long time now, but MMT has an elevator pitch length, layperson-accessible explanation for why they're not similar, in a big way.
posted by vibratory manner of working at 1:44 PM on May 11, 2017 [1 favorite]


> It's not like the Fed has any difficulty in handing over multiple $T to Citibank, Goldman Sachs, et al. How hard would it be to shave off a couple of $k for the rest of us?

In the same vein, what if the US government subsidized payday loans to the same extent it subsidized college loans, mortgages, or Citibank, Goldman Sachs, et al?
posted by bunbury at 2:22 PM on May 11, 2017 [1 favorite]



Based on what you're saying about points of agreement with mainstream economics, and the downplaying of hard numbers, it seems like it may be useful to talk about it in terms of other pop-econ understandings. The success of MMT among non-economists, to my mind, is that it provides an easily understandable counter to the popular but wrong understanding of a government's budget as like a household's budget.


Yeah, I realize that the way I'm trying to engage with it is probably not the way non-economists engage with it, but I don't think they would want me to dismiss what they're doing as as fundamentally only useful to correct a mistaken analogy among nonacademics. They want it to be useful economics!
posted by dismas at 1:03 PM on May 12, 2017


IANAE

GuyZero, an MMT economist would ask you to be more specific about your question. When you say “print money,” do you mean:
  • Increase checking account balances uniformly?
  • Buy specialized imports?
  • Hire more skilled employees?
  • Contract for new construction?
These are very different activities that could have different outcomes. Let’s say you mean “contract for new construction.” The government contracts for construction. The contractors deposit their government checks in their bank accounts, increasing the quantity of reserves in the banking system. Now, your question is, what if they government refuses to issue bonds (earning, say, 3%), and instead forces the banks to just earn interest on reserves (say, 0.025%). Why would 0.025% interest be more inflationary than 3% interest?

An MMT economist would also say that budgeting and money creation aren’t decoupled today—US government spending really does create new money.

***

dismas, I am not qualified to give a comprehensive MMT treatment of price or wage inflation. What I would like to do, though, is give an example of an MMT description of a real economy in which inflation was a concern: the US economy as the country entered WWII. First, some basic facts:
  1. The US has a sovereign currency and is operating under no self-imposed fiscal constraint
  2. The sovereign debt of the US is denominated in its sovereign currency
  3. The economy is currently organized to produce consumer goods and services
  4. There is a strong mandate to direct the productive forces of society toward winning the war
The government wants to radically expand the arms manufacturing sector to supply the war. Because it faces no hard fiscal constraint, it could simply spend the money necessary to buy the arms it requires. The government can always outbid private actors by writing a bigger check.

In this case, though, the government probably doesn't want to do that. Aggressively outbidding the private sector for huge quantities of goods would push the economy well past full employment, triggering substantial inflation. Furthermore, there would likely be production bottlenecks that would further inflate prices of certain war-critical goods and distort the economy over the long term. Raising taxes to pull the economy back to only full employment would not address the bottlenecks and might further distort the economy.

Since the war is a short-term deviation from which we expect the economy to revert to a more traditional peacetime production mix, the government could choose a set of policies other than simply buying what it needs. It could intentionally suppress private demand through rationing. Rationing can specifically target bottlenecks or potentially reduce private demand as a whole. To further reduce private demand, the government can offer an incentive for deferring spending: war bonds. To avoid long-term distortion of the economy, the government can encourage or impose temporary price and wage controls, particularly in industries where bottlenecks are expected or discovered.

***

MMT folks see themselves as being true followers of Keynes. Lots of their descriptions of the economy are self-consciously quotes of Keynes, so if you find yourself thinking that a lot of this is nothing new, you’re right.

Here are some MMT principles that seem to pop up a lot:
  • MMT is a vertical description of money, describing the movement of money from creation to destruction. If you are looking for a horizontal description of money, describing the movement of money through the financial system, you may find circuit theory to be a compatible framework (though some circuitists disagree).
  • When dealing with a sovereign currency, sovereign spending creates money.
  • Sovereign currency has value because people must pay taxes in sovereign currency. If a US citizen living in the US fails to accumulate enough USD to pay her taxes, the government will imprison her and confiscate her possessions. People hate prison and love their possessions, so money has value.
  • The real action is in fiscal policy. The parts of monetary policy that are effective are non-discretionary; the parts that are discretionary are ineffective.
  • The long run is a series of short runs; underestimate hysteresis at your peril.
  • When analyzing sovereign debt, you must distinguish between debts denominated in the sovereign’s currency and those denominated in foreign currency.
  • The natural rate of unemployment and NAIRU are both non-rigorous and have no predictive or explanatory power.
  • If you are paying someone to look for work, consider paying them to work instead.
  • Make sure your modeling of macro variables is stock and flow consistent.
  • The private sector is important because freedom to satisfy one's needs in one's own way is an important freedom. There is no economic principle that makes it impossible to have a huge public sector and a puny private sector, but it is good for people to be able to buy, sell, and trade in mutually beneficial ways with minimal government coercion.
FWIW, the first article creates the impression that MMT folks are UBI supporters, but as overeducated_alligator pointed out above, they are more likely than not to be UBI-hostile.

If you’re looking for more on MMT, I found these resources helpful:
  • Understanding Modern Money by L. Randall Wray
  • Full Employment Abandoned by Bill Mitchell and Joan Muysken
  • Stephanie Kelton’s Podcast, which unfortunately stopped updating once she was tapped by Sanders for the Senate Budget Committee
Full Employment Abandoned is a graduate-level text and is written and priced accordingly. I would not recommend it unless you have already read a primer like Understanding Modern Money. If someone is looking for a copy to borrow, uh… MeMail me?
posted by Ptrin at 8:39 PM on May 12, 2017 [1 favorite]


there is a lot of space between Art Laffer and Stephanie Kelton my dude

supply side liberals, confess!

here's cullen roche's critique btw, who had a falling out with MMTers (over whether a job guarantee is "central" to MMT ;) oh and also over pizza and FTPL: "MMT is simple. It's the quantity theory where t-bonds are part of the monetary base. ... In MMT you'd consolidate Tsy and Fed, unwind QE, rates at 0%. Base would mostly be T-Bonds."

also btw over at monetary realism, something i've been thinking about...
The Future of Money is Cancellation and Control - "The future of money is full government control and knowledge of what was spent, where it was spent, and what it was spent to purchase. And its going to happen very, very soon."

what with the 'india stack', the BoE consolidating and opening up its RTGS system (fedwire for all!) and the death of banks :P what would perry mehrling say?

ranging further afield, banking off MMOs and speaking of modeling, i wonder if:
  1. economies and markets are considered complex adaptive systems and amenable to agent based modeling, and
  2. prices are formed through a kind of dimensionality reduction, then
  3. maybe running billions of unique AIs in a large enough sandbox could yield some macro insights from 'micro-level data'?
but don't count on it! :P
posted by kliuless at 8:42 AM on May 13, 2017 [1 favorite]


micro-level data: "The leveraging up in the household sector is actually a very important factor in understanding why the recession was as deep as it was in the US."

ya think!

blue is total household wages x 10%, red is annual household mortgage debt take-on

I do love the idea of modelling the economy at a finer level than just FRED agglomerated graphing. By income decile and location would be very interesting too.

We have the machinery to model the economy on the individual agent level. Wonder how big a simulation I could fit on my 512GB SSD
posted by Heywood Mogroot III at 8:58 AM on May 14, 2017


Not very. Agent based modeling is a thing people do. It's computationally challenging to do it in a way that is does not arbitrarily bake in the result instead of having something observable inform the result, as I understand it.
posted by dismas at 3:13 PM on May 14, 2017


what if the US government subsidized payday loans to the same extent it subsidized college loans, mortgages, or Citibank, Goldman Sachs, et al?

One proposal I've heard that would do the same thing while also wiping out the skeezy payday loan places would be to prohibit overdrawn check fees, and force banks as a condition of FDIC insurance or the latest bailout package du jour to treat overdrawn personal checks as a loan, with the interest rate pegged to the prime rate + a risk premium, where the risk premium would be set by an interbank pool (kinda like FDIC insurance but against customer defaults rather than bank defaults), up to a maximum set at some percentage of the average balance over 12 months or something. The banks would be responsible for losses incurred due to Know Your Customer failures on their part, which is a nice stick to be able to wave in their direction on that front.

I'll have to see if I can dig it up. It was a neat proposal. No legs politically, of course, because corruption, but it was a fairly cool idea.

I think the main reason it would be nearly impossible politically is because of the wailing it would engender from the credit card companies, since it would also prevent their more extortionate business models from working quite so well.
posted by Kadin2048 at 12:43 PM on May 23, 2017 [1 favorite]


and force banks as a condition of FDIC insurance or the latest bailout package du jour to treat overdrawn personal checks as a loan,

I would like to see a quick loan banking protocol for established customers, where the bank would offer low interest loans to IRS-qualified recipients, but from loan pool funds set aside from individual depositors that allows them to use part of the charitable instrument as a tax deduction, and part of the direct loss as a tax credit. It would add proper accounting for charitable donations without adding to the bureaucracy, and with least risk of fraud.
posted by Brian B. at 10:02 PM on May 23, 2017 [1 favorite]


Budgeting for utopia[*]
posted by kliuless at 11:19 AM on May 27, 2017






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