The Modern Monitary Theory question

[ygolo]

Modern Monetary Theory (MMT): Definition, History, and Principles

Modern Monetary Theory (MMT) is a macroeconomic theory that says government spending should not be restrained by fears of rising debt.

www.investopedia.com

key principles include:

1. Governments with monetary sovereignty cannot run out of money and aren't operationally constrained like households
2. The primary purpose of taxation is not to fund government spending but to create demand for the currency and manage inflation
3. Government deficits are generally beneficial for the economy, representing a net financial asset for the private sector.
4. Fiscal policy, rather than monetary policy, should be the primary tool for managing inflation and employment.
5. The interest rate on government debt should be very low or zero, as interest rate policy has limited effectiveness.

As someone drawn to post-Kensian ideas, this appeals to me. But is MMT true or is it a recipe for inflation?

I want to evaluate evidence for MMT.

Relevant data sources are:

Daily Treasury Statement (DTS) | U.S. Treasury Fiscal Data

Daily cash and debt operations of the U.S. Treasury, including cash balance, deposits, and withdrawals; tax deposits and refunds; and debt transactions.

fiscaldata.treasury.gov

Federal Reserve Balance Sheet: Factors Affecting Reserve Balances - H.4.1 - Release Dates

The Federal Reserve Board of Governors in Washington DC.

www.federalreserve.gov

Recent Auction Results — TreasuryDirect

www.treasurydirect.gov

Treasury Bonds — TreasuryDirect

treasurydirect.gov

 

[ygolo]

I don't know if this economist is right, or how he accounts for inflation. But I found out he made the software (Minsky) that I wanted to use.

He has an updated paid software called Ravel. Like every on YouTube there's something to sell, but you can skip those parts.

In the video, I am still unclear how inflation is accounted for in the model.

 

[ceecee]

But is MMT true or is it a recipe for inflation?

I mean, what exactly do we have now?

I recommend Stephanie Kelton's book for more reading on this.

Book Review: The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy by Stephanie Kelton - LSE Review of Books

In The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, Stephanie Kelton dispels six key myths that have shaped the conventional understanding of deficits as inherently bad, instead arguing that deficits can strengthen economies and lead to faster growth. This book is...

blogs.lse.ac.uk

 

[ygolo]

I mean, what exactly do we have now?

I recommend Stephanie Kelton's book for more reading on this.

Book Review: The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy by Stephanie Kelton - LSE Review of Books

In The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, Stephanie Kelton dispels six key myths that have shaped the conventional understanding of deficits as inherently bad, instead arguing that deficits can strengthen economies and lead to faster growth. This book is...

blogs.lse.ac.uk

I've read a summary the book before(and others like it). MMT isn't new to me. I want to evaluate the theory based on evidence.

I'm no economist, but expert economists disagree. I feel like every single one of us may have to explain things to people in an evidence based way.

My gut wants to agree with MMT. But that's precisely why I need to start with looking for disconfirming evidence.

People who believe that MMT causes inflation, believe that now the inflation is due to the money printing done by both Trump and Biden during COVID.

Their theory is that increased money supply causes more dollars to chase goods, leading to price increases.

In addition, they believe this hurts the lower classes more because the government also simultaneously buys assets. This shrinks the pool of assets, leading to asset prices (the things rich people have) inflating prices faster than everything else.

Both MMT claims, and whether MMT causes inflation through the process shown above should be traceable/testable based on available data.

Edit:
Even in the book(from before long run inflation that followed) has sections concerning inflation. From the review/summary you linked.

Once the economy begins to recover, policymakers will have to keep their eye on inflation. Nonetheless, for nearly 40 years, inflation has been well controlled. Partially this is due to international supply-chain competition and the business models of big corporations (Amazon, Wal-Mart, etc) that are built on low prices. There are several forces that will keep low inflation intact.

With no inflation and no bottlenecks, the government can address the true deficits (Chapter Seven), such as the good jobs deficit, the healthcare deficit, the education deficit, the infrastructure deficit, the green climate deficit and the democracy deficit, with no fiscal constraint.

Edit 2: It reads to me like MMT advocates may rely on technological deflation to offset potential inflation.

 

[ygolo]

A seemingly relevant and apparently heated debate in the UK that I may want to have on in the background sometime this week:

 

[Virtual ghost]

I think you guys are thinking about all this in too abstract fashion. Is new debt good or bad totally depends on real life details behind it. In other words if you are spending on nonsense that wouldn't make much of a positive difference then it evidently bad. While if it will make major positive difference in the future and the money will be back then it is good. In similar fashion rising debt levels in good times is bad, but rising debts in the bad times is often good move (as long as the money is placed well).


In other words government debt serves as financial backup for the whole country in the times of problems (or when there is an outright crisis). This is why the debt has to go down during good times since that allows that is goes up during bad times. What can really make a difference during bad times. However if you push for a ton of new debt during good times the bad times will wreck you completely. If your national debt to GDP ratio is at 130% even before bad times you are in for the world of hurt. Since that means you are something like 4 national budgets "underwater" and now someone should borrow you even more. Therefore everyone will start to have doubts that they will get they money back. What leads into plenty of problem: interest on your whole debt will go up, maybe no one will borrow you more, many will decide to invest less in your economy due to extra risks due to debt burden (and that opens many new problems). Also if you go too far you will probably have various problems with inflation (what is also a nasty can of worms on it's own) .... etc.


Therefore it is absolutely vital that deficits and debts don't go too far up. In other words if you have to spend more on the long run you have to adjust your taxation to match that. What can solve many problems when the times are bad, however deficits have to be avoided as much as possible. Because when they pile one on another the system breaks.

 

[ygolo]

Of relevance are:

Fisher effect - Wikipedia

en.m.wikipedia.org

Fisher equation - Wikipedia

en.m.wikipedia.org

What Is the Phillips Curve (and Why Has It Flattened)?

Historically, an inverse relationship seems to have existed between unemployment and inflation. Does it still exist? And why does this matter?

www.stlouisfed.org

Khan Academy

www.khanacademy.org

https://www.sciencedirect.com/science/article/pii/S1090944324000516

 

[ygolo]

I think you guys are thinking about all this in too abstract fashion. Is new debt good or bad totally depends on real life details behind it. In other words if you are spending on nonsense that wouldn't make much of a positive difference then it evidently bad. While if it will make major positive difference in the future and the money will be back then it is good. In similar fashion rising debt levels in good times is bad, but rising debts in the bad times is often good move (as long as the money is placed well).


In other words government debt serves as financial backup for the whole country in the times of problems (or when there is an outright crisis). This is why the debt has to go down during good times since that allows that is goes up during bad times. What can really make a difference during bad times. However if you push for a ton of new debt during good times the bad times will wreck you completely. If your national debt to GDP ratio is at 130% even before bad times you are in for the world of hurt. Since that means you are something like 4 national budgets "underwater" and now someone should borrow you even more. Therefore everyone will start to have doubts that they will get they money back. What leads into plenty of problem: interest on your whole debt will go up, maybe no one will borrow you more, many will decide to invest less in your economy due to extra risks due to debt burden (and that opens many new problems). Also if you go too far you will probably have various problems with inflation (what is also a nasty can of worms on it's own) .... etc.


Therefore it is absolutely vital that deficits and debts don't go too far up. In other words if you have to spend more on the long run you have to adjust your taxation to match that. What can solve many problems when the times are bad, however deficits have to be avoided as much as possible. Because when they pile one on another the system breaks.

I think this is the intuition that comes from thinking of a sovereign nation as a household or a business.

The MMT folks might ask to consider printing or minting money to pay off a national debt, if needed. That's part of the reason some consider deficits and debts as myths. If money is made up by the government, why can't it just make more?

 

[Virtual ghost]

I think this is the intuition that comes from thinking of a sovereign nation as a household or a business.

The MMT folks might ask to consider printing or minting money to pay off a national debt, if needed. That's part of the reason some consider deficits and debts as myths. If money is made up by the government, why can't it just make more?

Because with printing money you are messing up the supply and demand of money. What in the end causes inflation.
US has this perk of world reserve currency that eases the factor somewhat. However if you go too far the system will break anyway. However for the remaining 200 counties mass printing of money on large scale is bad idea. It is for US as well, but to some degree US can compensate the negative sides. But in the end this is potential bubble as well. Since in other to have this perk you need to be firmly in control of global trade. Because with that you are insuring that everyone takes your money. In other words if you start to lose ground in this game your entire economy and printing money will become a bubble that will eventually break. Since printing money will no longer do it's job, which is that it can be sent/spend abroad and then it doesn't case inflation at home. In a sense this is exactly why the country is where it is, one party wants to print money for the people none stop, while the other is giving the finger to all those abroad that should absorb plenty of extra cash. Therefore if you want total economic meltdown this is evidently the way to do it.


If you give everyone a million dollars that simply means that your monthly expenses will be some similar amount of money. If everyone has one then it just isn't worth that much anymore and all prices will have to be remade. Especially since number of people and physical output will remain similar. With mass printing of money you are basically just adding zeros on all prices, since in physical sense the economy will remain about the same. Therefore without advances in physical economy you can't really rise standard of living. Plus as I said: if you want more redistribution then make sure that rising public spending is covered with taxes. Otherwise you are just disrupting purchasing power down the road for everyone.

 

[The Cat]

Money is made up, but the greed of dragons and giants is very real.

 

[Virtual ghost]

Money is made up, but the greed of dragons and giants is very real.

Just because it is made up that doesn't mean that it doesn't have certain rules of how it works. Just as everything else that humans invented over the ages.


Just saying.

 

[ygolo]

Because with printing money you are messing up the supply and demand of money. What in the end causes inflation.
US has this perk of world reserve currency that eases the factor somewhat. However if you go too far the system will break anyway. However for the remaining 200 counties mass printing of money on large scale is bad idea. It is for US as well, but to some degree US can compensate the negative sides. But in the end this is potential bubble as well. Since in other to have this perk you need to be firmly in control of global trade. Because with that you are insuring that everyone takes your money. In other words if you start to lose ground in this game your entire economy and printing money will become a bubble that will eventually break. Since printing money will no longer do it's job, which is that it can be sent/spend abroad and then it doesn't case inflation at home. In a sense this is exactly why the country is where it is, one party wants to print money for the people none stop, while the other is giving the finger to all those abroad that should absorb plenty of extra cash. Therefore if you want total economic meltdown this is evidently the way to do it.


If you give everyone a million dollars that simply means that your monthly expenses will be some similar amount of money. If everyone has one then it just isn't worth that much anymore and all prices will have to be remade. Especially since number of people and physical output will remain similar. With mass printing of money you are basically just adding zeros on all prices, since in physical sense the economy will remain about the same. Therefore without advances in physical economy you can't really rise standard of living. Plus as I said: if you want more redistribution then make sure that rising public spending is covered with taxes. Otherwise you are just disrupting purchasing power down the road for everyone.

Money is made up, but the greed of dragons and giants is very real.

The two sides of the debate in a nutshell.

Money is made up by only certain entities to be trusted, and that trust has a locale of influence.

Can you imagine going to buy food at a diner with chuck-e-cheese tickets?

If some random people without authority were to print money of a particular currency, you'd call it counterfeiting.

Edit: Also, debt-credit pairing is the other way what you could call money is made. A loan in exchange for something that money could buy. Or if someone is running a tab.

 

[The Cat]

Just because it is made up that doesn't mean that it doesn't have certain rules of how it works. Just as everything else that humans invented over the ages.


Just saying.

Hey I'm with you. It's genuine magic what enough belief in something can lead to.

 

[SensEye]

If some random people without authority were to print money of a particular currency, you'd call it counterfeiting.

These days, I believe it's called crypto currency

PS> Trump seems a big fan. I believe he has got a major grift scheme underway, although it seems he would rather own hard US dollars than his own crap coin, whatever he is calling it. Exchanging one for the other is the whole basis of the con.
PSS> Sorry for being off topic. I think MMT is complete bupkus, but I am too lazy to get into this discussion.

 

[ygolo]

These days, I believe it's called crypto currency

PS> Trump seems a big fan. I believe he has got a major grift scheme underway, although it seems he would rather own hard US dollars than his own crap coin, whatever he is calling it. Exchanging one for the other is the whole basis of the con.
PSS> Sorry for being off topic. I think MMT is complete bupkus, but I am too lazy to get into this discussion.

To be fair, Chuck-E. Cheese tokens and tickets are usable for getting things in their establishments. You could use US dollars to get the tokens. So, it's not counterfeiting.

Similarly, bitcoin and other cryptocurrencies were established to be used in some network, that you could exchange for US dollars and other sovereign currency. So, it's not counterfeiting, either.

That said, there are many pump-and-dump schemes in this area. I won't say they are all cons, but the level of cons and grifts is much higher in the cryptocurrency and NFT areas than in many aspects of the normal economy.

 

[ceecee]

The two sides of the debate in a nutshell.

Money is made up by only certain entities to be trusted, and that trust has a locale of influence.

Can you imagine going to buy food at a diner with chuck-e-cheese tickets?

If some random people without authority were to print money of a particular currency, you'd call it counterfeiting.

Edit: Also, debt-credit pairing is the other way what you could call money is made. A loan in exchange for something that money could buy. Or if someone is running a tab.

Crypto? An unregulated, unsecured form of currency Ponzi scheme that sucks up tons of energy and run by a bunch of goddamn door knobs?

 

[ceecee]

These days, I believe it's called crypto currency

PS> Trump seems a big fan. I believe he has got a major grift scheme underway, although it seems he would rather own hard US dollars than his own crap coin, whatever he is calling it. Exchanging one for the other is the whole basis of the con.
PSS> Sorry for being off topic. I think MMT is complete bupkus, but I am too lazy to get into this discussion.

The $TRUMP and $MELANIA tokens? lol

https://www.newsweek.com/trump-crypto-coin-melania-meme-price-election-tariffs-205

 

[ygolo]

Crypto? An unregulated, unsecured form of currency Ponzi scheme that sucks up tons of energy and run by a bunch of goddamn door knobs?

I don't want to defend all the scam and fraud cryptocurrencies out there.

I was just pointing out that technically, most of the grifting isn't counterfeiting. There's a lot of fraud for sure.

Bitcoin does burn a lot of energy in mining, but it follows a particular scheme. It's more like chukecheese money combined with tulip bulb mania.

A lot of the stable coins and secondary networks are more like competition for Visa and Mastercard systems but trying to lower the transaction overhead. Whether or not the stable coins do that is still a matter of debate.

 

[ygolo]

I find this economist explains Post-Kensian ideas clearly. I believe this lecture is his take on inflation.

I haven't watch this yet, but I've read some of his work. I may come back and post my summary of his lecture.

My summary on his take based on what I read so far:

• Money has accounting rules that are followed.
• Banks create money in the form of credit.
• Central Banks/Treasuries create fiat sovereign money.
• A deficit by the government leads to more money in the private economy.
• Distribution is core to inflation. Money chasing goods is not.