Do We Need To ""Pay For" Federal Programs? Talking Modern Monetary Theory

The Something Awful Forums > Discussion > Debate & Discussion > Do We Need To ""Pay For" Federal Programs? Talking Modern Monetary Theory

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theblackw0lf: Apr 15, 2003; "...creating a vision of the sort of society you want to have in miniature"

Dead Reckoning posted:

This doesn't tell us anything that we didn't already know. Their reaction to the possibility of triggering inflation through money printing is that they would use the "time-honored ways of preempting it," which they list as taxes, bond issuance, etc. The only novelty MMT seems to have is that it offers a rhetorical device for decoupling the massive spending they're asking for from the eventual need to deal with its consequences.

I think the difference is that depending on how you frame the question, you will come up with different policy solutions. If you're looking at a GND and are asking how do we ensure that it doesn't raise the deficit too much, you will very possibly come up with a different policy than if you're asking, how do we ensure that inflation doesn't spike to much?

For example, say you want to fully "pay for" a GND, and you decide a GND will cost 3 trillion over ten years. Then you need to create three trillion in additional revenue to pay for it.

But, if the question is how do we make sure inflation doesn't spike too much, then you're estimating how much you think inflation would rise, and deciding how much money to take out of the economy to stem that inflation. That number could be much less than 3 trillion, depending on how much you think inflation will rise.

And that's also the point of that analysis, which is it''s possible a GND wouldn't raise inflation at all, in which case taking money out of the economy isn't necessary.

MMT doesn't mean that we can just spend money freely. We always have to account for inflation. But the limit of what we can spend is different than if we're looking at through the lens of worrying about deficits and debt.

# ? Feb 15, 2019 18:38

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# ? Apr 29, 2024 16:34

LuciferMorningstar: Aug 12, 2012; VIDEO GAME MODIFICATION IS TOTALLY THE SAME THING AS A FEMALE'S BODY AND CLONING SAID MODIFICATION IS EXACTLY THE SAME AS RAPE, GUYS!!!!!!!

Hentai Jihadist posted:

I've never really understood why people have such trouble understanding MMT.
Nobody I've talked to gets it but "central bank makes money at will" seems intuitive to me

Certain individuals are working really, really hard to not understand.

# ? Feb 15, 2019 18:49

Infinite Karma: Oct 23, 2004; Good as dead

Dead Reckoning posted:

I think everyone understands the theory, the question is whether that theory tells us anything useful about how we should run our government. Because same people are saying, "well, it's really just a more accurate way to model what already happens", and others are saying, "Actually, it lets us spend whatever we want on democratic policy priorities without raising taxes."

It tells us that hyperinflation is a stupid loving bogeyman. And it tells us that a "balanced" budget is meaningless. So we should measure the inflationary/deflationary effects (and money multiplier effects) of spending programs, and the same effects of tax structures separately. Because they're un-loving-related.

It's like deficit hawks think that's a bad faith argument? Maybe because they use bad faith arguments to justify their spending preferences? If this looks like a left-wing biased theory... maybe it's because there's a factual basis for these policies instead of just a tribal preference.

# ? Feb 15, 2019 18:51

Dead Reckoning: Sep 13, 2011

theblackw0lf posted:

I think the difference is that depending on how you frame the question, you will come up with different policy solutions. If you're looking at a GND and are asking how do we ensure that it doesn't raise the deficit too much, you will very possibly come up with a different policy than if you're asking, how do we ensure that inflation doesn't spike to much?

For example, say you want to fully "pay for" a GND, and you decide a GND will cost 3 trillion over ten years. Then you need to create three trillion in additional revenue to pay for it.

But, if the question is how do we make sure inflation doesn't spike too much, then you're estimating how much you think inflation would rise, and deciding how much money to take out of the economy to stem that inflation. That number could be much less than 3 trillion, depending on how much you think inflation will rise.

And that's also the point of that analysis, which is it''s possible a GND wouldn't raise inflation at all, in which case taking money out of the economy isn't necessary.

MMT doesn't mean that we can just spend money freely. We always have to account for inflation. But the limit of what we can spend is different than if we're looking at through the lens of worrying about deficits and debt.

I understand that, but unless you have an algorithmic way of predicting how much inflation a particular expenditure will contribute towards that inflation, it doesn't tell us anything useful, because everyone can find an economist who will say that their preferred policy is inflation neutral/negative. Even if we assume everyone acted in good faith instead of with political motives or in their own-self interest, without a universal yardstick to measure programs, it becomes impossible to determine whether a particular program is a good use of the economy's excess capacity to absorb inflationary pressure.

E: It also still hasn't solved the normative problem of selling constituents on, "We need to take money out of your bank account, not to do anything useful with it, but to destroy it so that the economy doesn't overheat."

Dead Reckoning fucked around with this message at 19:30 on Feb 15, 2019

# ? Feb 15, 2019 19:24

Typo: Aug 19, 2009; Chernigov Military Aviation Lyceum
The Fighting Slowpokes

from a pure political mechanism perspective MMT also demonstrates how dysfunctional the US system is that we are basically talking about relegating the responsibility of revenue raising from an elected legislature to an unelected technocratic institution

# ? Feb 15, 2019 19:49

theblackw0lf: Apr 15, 2003; "...creating a vision of the sort of society you want to have in miniature"

Dead Reckoning posted:

E: It also still hasn't solved the normative problem of selling constituents on, "We need to take money out of your bank account, not to do anything useful with it, but to destroy it so that the economy doesn't overheat."

Still chewing on the other comment, but this I agree with. This is one reason why Bernie didn't embrace MMT

# ? Feb 15, 2019 20:06

Infinite Karma: Oct 23, 2004; Good as dead

Inflation isn't a bad thing. Too much inflation is a bad thing. But too little inflation is also a bad thing. Those are factual and politically neutral statements.

Inflation is a good thing, because it eases debts and increases liquidity in the economy. It also devalues savings and capital, while not devaluing labor (hypothetically), transferring power from the haves to the have-nots. Those are politically loaded statements, but are still good faith arguments, even if you don't want that outcome.

Typo posted:

from a pure political mechanism perspective MMT also demonstrates how dysfunctional the US system is that we are basically talking about relegating the responsibility of revenue raising from an elected legislature to an unelected technocratic institution

That seems like a "how the sausage is made" problem. It's not that the legislature doesn't raise revenue, they just supervise the operations of a technocratic organization more complex than 500 legislators can manage on their own. Likewise, people accept that taxes pay for necessary things right now, even if nobody likes paying taxes. If we realize having money sinks in the economy is necessary, it's unappetizing... but it's still necessary.

# ? Feb 15, 2019 20:18

theblackw0lf: Apr 15, 2003; "...creating a vision of the sort of society you want to have in miniature"

Infinite Karma posted:

Inflation isn't a bad thing. Too much inflation is a bad thing. But too little inflation is also a bad thing. Those are factual and politically neutral statements.

Inflation is a good thing, because it eases debts and increases liquidity in the economy. It also devalues savings and capital, while not devaluing labor (hypothetically), transferring power from the haves to the have-nots. Those are politically loaded statements, but are still good faith arguments, even if you don't want that outcome.

And that's why examining policy through the lens of does it increase/decrease inflation, as opposed to the effect it will have on the defiicit is so essential. Because it's very possible that we're actually in a deflationary cycle and if we try to "pay for" some of our social programs like M4A through tax increases that would also target the middle class (which for example Bernie's does) we possibly risk actually causing more deflation.

# ? Feb 15, 2019 20:21

Typo: Aug 19, 2009; Chernigov Military Aviation Lyceum
The Fighting Slowpokes

Infinite Karma posted:

Inflation is a good thing, because it eases debts and increases liquidity in the economy. It also devalues savings and capital, while not devaluing labor (hypothetically), transferring power from the haves to the have-nots. Those are politically loaded statements, but are still good faith arguments, even if you don't want that outcome.

How does it devalue capital but not labor?

One of the major intended consequences of inflation is to give employers "flexibility" in adjusting worker salaries. Basically everyone gets auto-wage cut of 2-4% a year without rioting in the streets, since people get pissed at direct cuts to their salary of 2% a year but "oh you got a 1% raise instead of 2%" is likely to be brushed off more easily.

and how does it devalue capital exactly? Asset prices, short of very liquid asset like cash, rise with inflation. Inflation screws over people with savings in liquid assets but is neutral or reward people with "harder" assets like housing or stock shares. Poor people have very little of the latter.

The reason why some low rates inflation is good is because macroeconomics, namely that inflation encourages consumption and investment and -deflation- leads to very nasty consequences as the 1930s demonstrated.

Typo fucked around with this message at 22:18 on Feb 15, 2019

# ? Feb 15, 2019 22:00

MSDOS KAPITAL: Jun 25, 2018

Dead Reckoning posted:

E: It also still hasn't solved the normative problem of selling constituents on, "We need to take money out of your bank account, not to do anything useful with it, but to destroy it so that the economy doesn't overheat."

Well that's why you want to maximize the amount of money you can take out of the economy while minimizing the number of people you take it from and guess how you accomplish that.

# ? Feb 16, 2019 07:35

silence_kit: Jul 14, 2011; by the sex ghost

Dead Reckoning posted:

I think everyone understands the theory, the question is whether that theory tells us anything useful about how we should run our government. Because same people are saying, "well, it's really just a more accurate way to model what already happens"

Agreed. It isn�t a very useful �policy design model�, to use lingo from engineering, because one of the key inputs to the model, inflationary risk, is hard to predict.

I�m not sure how you meaningfully apply the model to make government decisions in real time, except if you don�t think about it too much, and just want to say:

Dead Reckoning posted:

"Actually, it lets us spend whatever we want on democratic policy priorities without raising taxes."

# ? Feb 16, 2019 20:28

twodot: Aug 7, 2005; You are objectively correct that this person is dumb and has said dumb things

silence_kit posted:

Agreed. It isn�t a very useful �policy design model�, to use lingo from engineering, because one of the key inputs to the model, inflationary risk, is hard to predict.

I�m not sure how you meaningfully apply the model to make government decisions in real time, except if you don�t think about it too much, and just want to say:

You use the same process that lets you apply "Let's pretend like we're going to balance the budget, and then not actually ever have a balanced budget" as though that is a valid way to finance government. It really doesn't matter how hard measuring inflationary risk is, it's going to have better outcomes than just sticking your fingers in your ears and pretending money supply isn't a thing that requires active management.

# ? Feb 16, 2019 20:34

Helsing: Aug 23, 2003; DON'T POST IN THE ELECTION THREAD UNLESS YOU JOE BIDEN

silence_kit posted:

Agreed. It isn’t a very useful “policy design model”, to use lingo from engineering, because one of the key inputs to the model, inflationary risk, is hard to predict.

If that were true then this objection would equally apply to any current government spending since we apparently we just cannot know whether that latest tax cut or expenditure will trigger a round of impossible to predict inflation.

# ? Feb 16, 2019 20:38

theblackw0lf: Apr 15, 2003; "...creating a vision of the sort of society you want to have in miniature"

Been waiting for this. Ezra Klein has Stephanie Kelton and also Jason Furman to debate MMT, and I found it very revealing and helped clear up a lot of the confusion I had.

https://www.vox.com/ezra-klein-show-podcast

# ? Feb 21, 2019 19:26

TrixR4kids: Jul 29, 2006; LOGIC AND COMMON SENSE? YOU AIN'T GET THAT FROM ME!

Someone from Jacobin did a hit piece on MMT and a job guarantee (semi) recently, I'll admit to not being equipped to really know how much their critiques are valid: https://www.jacobinmag.com/2019/02/modern-monetary-theory-isnt-helping

# ? Mar 5, 2019 16:43

theblackw0lf: Apr 15, 2003; "...creating a vision of the sort of society you want to have in miniature"

This is a good summary on MMT

https://twitter.com/sdgrumbine/status/1102691245284093953?s=21

# ? Mar 5, 2019 17:54

LuciferMorningstar: Aug 12, 2012; VIDEO GAME MODIFICATION IS TOTALLY THE SAME THING AS A FEMALE'S BODY AND CLONING SAID MODIFICATION IS EXACTLY THE SAME AS RAPE, GUYS!!!!!!!

TrixR4kids posted:

Someone from Jacobin did a hit piece on MMT and a job guarantee (semi) recently, I'll admit to not being equipped to really know how much their critiques are valid: https://www.jacobinmag.com/2019/02/modern-monetary-theory-isnt-helping

My take is this is actually the author's concern:

quote:

Taxation may not be full expropriation but it�s the next best thing in this fallen world. It is a form, however mild, of socialization � transforming private investment and consumption into public expenditures. And divorcing taxation of the rich from the provision of public services throws aside the material and agitational advantages of waging class war through fiscal politics. Rich people would have a lot harder time complaining about their money being taken to educate kids and save the planet than if it were taken just because they�re too rich.

# ? Mar 6, 2019 02:18

Splode: Jun 18, 2013; put some clothes on you little freak

Yeah but again isn't it better to model reality rather than just pretend we're still on the gold standard and the government has a big scrooge mcduck pool of money?

"The poor are too stupid for the truth" is not a very good left wing argument.

# ? Mar 6, 2019 07:40

MSDOS KAPITAL: Jun 25, 2018

Also the rich already complain about their money being taken to educate kids and save the planet, and the political response has been to take less of their money at the expense of not educating kids and ruining the planet. So on an empirical basis the argument falls flat.

Frankly I don't think "we're taking their money because they have too loving much of it" is all that bad a take. I'm convinced. It's shorter and simpler and more to the point than having to justify whatever you're going to pay for with the taxes.

# ? Mar 6, 2019 07:48

twodot: Aug 7, 2005; You are objectively correct that this person is dumb and has said dumb things

MSDOS KAPITAL posted:

Frankly I don't think "we're taking their money because they have too loving much of it" is all that bad a take. I'm convinced. It's shorter and simpler and more to the point than having to justify whatever you're going to pay for with the taxes.

Especially when "the reason we need to capture your money is to bomb people for no reason".

# ? Mar 6, 2019 08:29

PookBear: Nov 1, 2008

MSDOS KAPITAL posted:

Also the rich already complain about their money being taken to educate kids and save the planet, and the political response has been to take less of their money at the expense of not educating kids and ruining the planet. So on an empirical basis the argument falls flat.

Frankly I don't think "we're taking their money because they have too loving much of it" is all that bad a take. I'm convinced. It's shorter and simpler and more to the point than having to justify whatever you're going to pay for with the taxes.

Money directly translates into political power

# ? Mar 6, 2019 09:28

Family Values: Jun 26, 2007

MMT: Sense Or Nonsense?

quote:

Before I get into details, I want to make it clear where I stand. I don�t agree with everything in MMT. However, those aspects with which I disagree have never been part of the public debate and they make no difference whatsoever to the policy recommendations. To the general public, they would be minutia (although they might be worth a couple of journal articles!). I mention this simply to assure the reader that I�m actually critical of some aspects of MMT and am not simply toeing the party line here.

Having said that, however, in the context of the current debate the MMTers are right.

# ? Mar 6, 2019 17:58

MixMastaTJ: Dec 14, 2017

TrixR4kids posted:

Someone from Jacobin did a hit piece on MMT and a job guarantee (semi) recently, I'll admit to not being equipped to really know how much their critiques are valid: https://www.jacobinmag.com/2019/02/modern-monetary-theory-isnt-helping

Gist is pretty much what's been brought up here:
-How can legislation respond to economic needs (enforcing taxes in response to inflation) when they're already slow as molasses?
-What if rich people don't want to be taxed?
-What if hyperinflation?

To which my response is:
-Already a problem unaddressed by current tax model, loving take care of people.
-Already a problem unaddressed by current tax model, loving take care of people.
-For most countries this is a legitimate concern. However, the US has the strongest economy in the world and every other country is invested in making sure USD retains value. If the USD fails it's not gonna be from welfare progtams, it'll be because there's a global Communist revolt which MMT might help prevent.

# ? Mar 6, 2019 19:15

Infinite Karma: Oct 23, 2004; Good as dead

MixMastaTJ posted:

-What if hyperinflation?

...

-For most countries this is a legitimate concern. However, the US has the strongest economy in the world and every other country is invested in making sure USD retains value. If the USD fails it's not gonna be from welfare progtams, it'll be because there's a global Communist revolt which MMT might help prevent.

I have to wonder if this is a legitimate concern. Have strong economies ever actually "oopsed" their way into hyperinflation? In real life, the only examples I can think of were places that were weak economies already in dire straits - hyperinflation is one kind of market crash, but they were on a path towards a devastating market crash regardless. Are there prosperous countries who imploded that I don't know about?

# ? Mar 6, 2019 20:13

WampaLord: Jan 14, 2010

Infinite Karma posted:

I have to wonder if this is a legitimate concern. Have strong economies ever actually "oopsed" their way into hyperinflation? In real life, the only examples I can think of were places that were weak economies already in dire straits - hyperinflation is one kind of market crash, but they were on a path towards a devastating market crash regardless. Are there prosperous countries who imploded that I don't know about?

My theory is the stagflation of the 70s scared so many economists they basically have a mild form of PTSD about this potential hypothetical hyperinflation that has never been a true threat to America.

# ? Mar 6, 2019 20:16

Helsing: Aug 23, 2003; DON'T POST IN THE ELECTION THREAD UNLESS YOU JOE BIDEN

TrixR4kids posted:

Someone from Jacobin did a hit piece on MMT and a job guarantee (semi) recently, I'll admit to not being equipped to really know how much their critiques are valid: https://www.jacobinmag.com/2019/02/modern-monetary-theory-isnt-helping

Somehow I knew something like this was coming before it shows up late in the article:

quote:

On social media, the style of argumentation is even more striking. Critiques are first met with the assertion that you just don�t understand � you haven�t read enough of the literature to comment knowledgeably. But they�re quick to resort to mockery and insult. One of my favorite instances came from two of the more prominent younger members of the school, who had these persuasive reactions to my critiques on Facebook.

The mass of MMT rank-and-filers on social media are incredibly fervent. One acolyte emitted 220 tweets in response to a critique I�d offered.

Henwood has been around left spaces for a long time and probably isn't terribly well accustomed to being attacked by a younger generation of lefties who are saying he's actually too conservative in his thinking. In its own way this kind of comes off as the lefty economist equivalent of that Jonathan Chait piece complaining about the totalitarian campus radicals who don't give him enough respect.

It's kind hard to separate his judgement that MMT is a terrible misstep in the left's Gramscian war of position from his personal feeling of aggrievement over the unfair treatment that he and some others have endured online from advocates of MMT.

That isn't to say that there's nothing of substance in that article but the author really rhetorically overplays his hand. This piece just calls out for a re-write that maybe involves fewer allusions to Henwood's hurt feelings.

# ? Mar 6, 2019 20:24

Helsing: Aug 23, 2003; DON'T POST IN THE ELECTION THREAD UNLESS YOU JOE BIDEN

tl;dr when you're a published academic author writing a longform critique of a rival school of economics you probably shouldn't include random screenshots of somebody on facebook making fun of you by capitalizing their words in a funny way. Yes every published author actually is that thin skinned in real life but usually by the time you're as old as Henwood is you've gotten better as disguising it!

# ? Mar 6, 2019 20:27

theblackw0lf: Apr 15, 2003; "...creating a vision of the sort of society you want to have in miniature"

Really encourage people to read this article on how MMT views inflation, and why that's so important for making policy decisions

https://ftalphaville.ft.com/2019/03/01/1551434402000/An-MMT-response-on-what-causes-inflation/

One thing I realized while reading this piece is why, if the MMT view is correct, it's so important to view policy from this framework. Because if the only real constraint to government spending is inflation, then it's important that we shape policies based on how we think that will affect inflation. And that will lead to different policy prescriptions then if you're concerned about deficits. If you're concerned about deficits, the answer is increasing revenue through taxes. But if you're concerned about inflation, there's way more tools in the tool box besides just taxes. And inflation is primarily a resource scarcity issue. So the answer might not be raising taxes, it might be finding ways to increase resources. Or it might be increased regulations to restrict companies that eat up resources.

In fact, there's a possibility that taxes, depending what they are, actually might further limit resources and end up increasing inflation.

# ? Mar 6, 2019 20:37

Squalid: Nov 4, 2008

Could you give an example of how taxes might increase inflation? I�m having trouble imagining it

# ? Mar 6, 2019 20:45

Infinite Karma: Oct 23, 2004; Good as dead

theblackw0lf posted:

[...] inflation is primarily a resource scarcity issue. So the answer might not be raising taxes, it might be finding ways to increase resources. Or it might be increased regulations to restrict companies that eat up resources.

That's kind of the genius of a green/sustinable infrastructure push. Having the government "fiat" its way into building out infrastructure (instead of "borrowing" it, i.e. enriching finance companies in a shell game) is a huge win for available resources that will offset inflation. Traditionally the cost has been that it causes pollution and environmental damage and a whole host of externalities... but if we can roll out green infrastructure, it's basically a win-win.

# ? Mar 6, 2019 20:50

Helsing: Aug 23, 2003; DON'T POST IN THE ELECTION THREAD UNLESS YOU JOE BIDEN

theblackw0lf posted:

Really encourage people to read this article on how MMT views inflation, and why that's so important for making policy decisions

https://ftalphaville.ft.com/2019/03/01/1551434402000/An-MMT-response-on-what-causes-inflation/

One thing I realized while reading this piece is why, if the MMT view is correct, it's so important to view policy from this framework. Because if the only real constraint to government spending is inflation, then it's important that we shape policies based on how we think that will affect inflation. And that will lead to different policy prescriptions then if you're concerned about deficits. If you're concerned about deficits, the answer is increasing revenue through taxes. But if you're concerned about inflation, there's way more tools in the tool box besides just taxes. And inflation is primarily a resource scarcity issue. So the answer might not be raising taxes, it might be finding ways to increase resources. Or it might be increased regulations to restrict companies that eat up resources.

In fact, there's a possibility that taxes, depending what they are, actually might further limit resources and end up increasing inflation.

This is absolutely not the only restraint on government spending. Under capitalism the health of the economy relies on the accumulation of capital within the private economy. If you pass a bunch of policies that reduce the social power of the boss (i.e. getting fired is no longer scary because you always have a government job waiting for you) then this can undermine the profitability of capitalist firms.

It cannot be emphasized enough that while MMT gives us an interesting way to think about fiscal policy it does not solve the problem of class conflict. No amount of good fiscal policy can compensate for the fundamental imbalances of power that actually structure the economy. As long as government is run by and for the rich MMT alone cannot achieve anything. MMT will be useful insofar as it aids the left in its war of position with the capitalist class.

Squalid posted:

Could you give an example of how taxes might increase inflation? I’m having trouble imagining it

A tax on fuel could increase costs throughout the economy which might be passed on to consumers in the form of a price increase.

# ? Mar 6, 2019 20:56

Squalid: Nov 4, 2008

Helsing posted:

A tax on fuel could increase costs throughout the economy which might be passed on to consumers in the form of a price increase.

Yeah that makes sense, a consumption tax has an effect similar to inflation by increasing consumer prices. However I'm skeptical that that would have implications beyond the specific product that was taxed, as it would also necessarily decrease the money supply.

# ? Mar 6, 2019 21:46

Typo: Aug 19, 2009; Chernigov Military Aviation Lyceum
The Fighting Slowpokes

Infinite Karma posted:

Having the government "fiat" its way into building out infrastructure (instead of "borrowing" it, i.e. enriching finance companies in a shell game) is a huge win for available resources that will offset inflation.

What the gently caress does this even mean

# ? Mar 6, 2019 21:55

Infinite Karma: Oct 23, 2004; Good as dead

Typo posted:

What the gently caress does this even mean

Government prints money to pay for building solar power plants and fiber internet and smart grids and other useful things, instead of borrowing it or getting it from taxes. These are scarce resources that can be used by the public. Instead of there being more money in circulation to buy the same amount of resources (this is inflation), there is more money in circulation to buy more resources (which is not inflation).

# ? Mar 6, 2019 23:05

Helsing: Aug 23, 2003; DON'T POST IN THE ELECTION THREAD UNLESS YOU JOE BIDEN

I think this might help shed on light on a hypothetical MMT approach to inflation. It also points out some of the failures of the current approach and suggests why an MMT approach might be better.

Financial Times posted:

MARCH 1, 2019 By: Guest writers

This week in testimony to the Senate Banking Committee, Jay Powell, Chairman of the Federal Reserve, offered a verdict on modern monetary theory. "The idea that deficits don't matter for countries that can borrow in their own currency I think is just wrong," he said. It was a victory for the movement, of sorts: modern monetary theory is now unavoidable. It now must be addressed in a committee hearing of the US Senate.

It's an idea being contested right now on finance and economics Twitter, which sounds like a silly thing to say but is not, because the people who read and write econ Twitter are the people who explain economics in newspaper articles and academic papers for the rest of the world.

Which is how yesterday we got an emai from three MMTers: Scott Fullwiler, Professor of Economics at the University of Missouri, Kansas City; Rohan Grey, a Doctoral Fellow at Cornell Law School; and Nathan Tankus, Research Director of the Modern Money Network. They wanted a chance to respond to several recent articles, our piece on how the US financed the second world war among them. Here, in their own words:

For two decades we and our like-minded colleagues have been putting forward the idea that a monetarily sovereign country like the United States with debts denominated in its own currency and a floating exchange rate cannot �go broke�. We have been writing about this and all the myriad implications this has for macroeconomics under what has come to be known as Modern Monetary Theory.

Excitingly, last month representative Alexandria Ocasio-Cortez brought attention to our views when she said that MMT should be �part of the conversation". This set the economics and finance media ablaze with renewed commentary. In a major step forward, the broad consensus of these pieces in a series of outlets has been to agree with my colleagues and I that the only limit on government spending is inflation. The acceptance of this crucial tenet of MMT is very welcome and new. It was not too many years ago that throughout the economics press it was commonplace to present MMT as a wild new theory and speak in worried uncertain terms about the possibility that bond markets would refuse to buy US treasury securities, causing a debt crisis. We are thrilled to move past this stage in the public macroeconomic debate.

Unfortunately, while the press has been willing to agree with this major proposition, it has not been willing to follow its implications. Josh Barro writing in New York Magazine particularly articulates what seems to be the emerging response to MMT in the press:

quote:
If the government prints and spends money when the economy is at or near full employment, MMT counsels (correctly) that this will lead to inflation, and prescribes deficit-reducing tax increases to reduce aggregate demand and thereby control inflation. See how we have ended up back where we started? Whether you take a Keynesian view or an MMT view, if the government spends more, it�s likely going to need to tax more, sooner or later. [...] Whatever the Federal Reserve�s demerits, the idea of depending on Congress to pass surplus-generating tax increases in order to keep the economy stable and prevent runaway inflation gives me hives.

Contrary to Barro�s assertions, we have not �ended up back where we started." MMT�s approach to budgeting and designing a macroeconomic policy framework for a Green New Deal with price stability is radically different from current Congressional practice and there are no other modern proposals like it.

First, when we suggest that a budget constraint be replaced by an inflation constraint, we are not suggesting that all inflation is caused by excess demand. Indeed, from our view, excess demand is rarely the cause of inflation. Whether it's businesses raising profit margins or passing on costs, or it�s Wall Street speculating on commodities or houses, there are a range of sources of inflation that aren�t caused by the general state of demand and aren�t best regulated by aggregate demand policies.

Thus, if inflation is rising because large corporations have decided to use their pricing power to increase profit margins at the expense of the public, reducing demand may not be the most appropriate tool. The recent controversies over rising housing rents and drug prices demonstrate that we need alternative tools in place to manage the power of big business and ensure their pricing policies are consistent with public purpose. The experience of the last decade inadvertently reflects the potential strength of alternative inflation-fighting tools, as one of the reasons inflation has remained below target for the past ten years is legislated cuts to medicare and medicaid payments.

Because of the pricing power of big companies, whichever administrative agency or agencies is responsible for managing aggregate demand should not be responsible for overall inflation on its own. It should either share joint responsibility for keeping inflation on target with other agencies responsible for regulating business pricing power or new price indices should be constructed that exclude concentrated markets where prices are clearly acyclical.

Second, we do not believe that any and all inflation that does result from excessive demand can and should be addressed by higher taxes. This is a distortion of our view, as years of publications can attest. When MMT says that a major role of taxes is to help offset demand rather than generate revenue, we are recognising that taxes are a critical part of a whole suite of potential demand offsets, which also includes things like tightening financial and credit regulations to reduce bank lending, market finance, speculation and fraud.

Assessing the potential inflationary effect of new spending proposals also requires seriously assessing how underutilised our existing resources are. This requires detailed, expert analysis from a range of industry analysts; not just statistical regressions on aggregate economic data by macroeconomists.

At the same time, we must also confront the fact that the fossil fuel, real estate, defense, and financial industries are too large, too dirty, and eat up too much of our national resources. They must be shrunk one way, or another. Thus, another way to offset excessive demand pressure is to tighten environmental and other forms of regulation, which would disemploy people and resources in those industries, and free them up to be redeployed in green production as part of the broader economic transformation of the Green New Deal. Our current political leaders tend to oppose such an approach on the grounds that demand is limited and jobs are a rare, scarce commodity, so each existing job must be preserved at all costs. MMT allows us to recognise that the government can commit to real full employment. We can instead focus on increasing the quality of jobs and ensuring our economy generates prosperity for everyone.

In addition, we must recognise that the Green New Deal is about creating new resources over the medium term, which will in turn expand green output to further accelerate the decarbonisation process. This is not our current approach. Instead the Congressional Budget Office continually defines potential capacity down from what it actually is, creating a vicious self-fullfiling cycle defined by low productivity and lost output. To address this failure, the Congressional Research Service (as well as other budget advisory organizations) will need to be enlarged to do the analysis necessary to find the right mix of inflation offsets that best move forward the task of decarbonizing our economy. There is no alternative if we are going to succeed at averting climate change.

Regardless of which policy tool is used in a particular context, demand management in general needs to lean much more heavily on the appearance of bottlenecks in specific industries instead of simply tracking changes in a general price index. The immediate signs of bottlenecks are large and sustained rises in unfilled orders for specific goods and services. Preventing shortages is after all what demand management is first and foremost about and price indices are misleading policy targets when they include factors that are insensitive to demand and would be counterproductive to manage with demand. The more actively we regulate big business for public purpose, the tighter the full employment we can achieve and the more resources we can devote to the Green New Deal while preserving price stability.

Third, when we do advocate using tax increases to address inflationary pressure, we are not suggesting that Congress attempt to raise taxes in real time after inflation has already emerged. Indeed, our approach is precisely intended to avoid a situation in which Congress merely spends without paying attention to inflation dynamics until it is too late. Thus, we argue varying tax rates and other inflation offsets should be included in the budgeting process from the outset. In our approach, an MMT-informed Congressional Budget Office would produce detailed reports of how specific spending or lending proposals would increase demand and which sectors and regions would be most affected, and would monitor inflationary pressures closely to determine the appropriate policy response based on specific conditions. This would be a radical improvement over the current CBO scoring process, which looks only at dollar values in aggregate, and treats all sources of revenue as equal. This crude approach can easily lead to mistaken conclusions, like that Elizabeth Warren�s wealth tax could adequately �pay for� large spending proposals, when in reality, such a tax would not be likely to reduce overall demand by very much in the areas that the new government spending would be directed towards (even if it was still desirable from an equity standpoint).

Beyond an improved Congressional budgetary process, there are well-established approaches to policymaking that can assist us in managing inflationary risks. For example, we have long recommended strengthening automatic fiscal stabilisers. Indeed, our principal policy recommendation is a Job Guarantee (which is part of a Green New Deal) which automatically creates more jobs as people need them, but does not continue to spend greater and greater amounts once the economy reaches full employment. Other ways we can strengthen automatic stabilisers include savings policies and no longer indexing tax brackets or indexing them to an inflation target instead and introducing more tax brackets so that as incomes rise faster than the inflation target a higher percentage of income is progressively taxed. With these tools there is much less need to rely on day-to-day discretionary decision making like is currently the case with the Federal Reserve�s management of interest rates.

That said, we are not against one or more agencies being given additional tools to collectively manage demand on a discretionary basis. It is unclear where this myth came from but it doesn�t come from our extensive publication record- in academic journals or in the blogosphere. One of us long ago suggested in the Financial Times the goal of delegating responsibility for day-to-day demand management to an independent agency was a good one but that the Federal Reserve was the wrong agency. As we said then:

quote:
Whereas Bernanke only hinted at the need for a fiscal partner, former Fed Chairman Marriner Eccles openly advocated the use of fiscal policy as the most effective way to fight both unemployment and excessive inflation. In the depths of the Great Depression, Eccles pushed for a payroll tax cut, calling it �the most important single step that can be taken� to stimulate consumer buying power. Years later, just prior to the near tripling of US war expenditures, Eccles urged lawmakers to raise the payroll tax in order to stave off an inflationary episode. Indeed, as his Special Assistant made clear in the following letter, Eccles considered adjustments in fiscal policy (in this case an increase in the payroll tax) to be �the most effective anti-inflationary means of reducing purchasing power.

Commenters are not wrong that some of these proposals and tools will be controversial. What is ignored by this criticism is the fact that our current approach of managing inflation on the backs of a very indebted and underemployed public is also controversial. Indeed, the Federal Reserve has historically been a conservative institution biased against full employment. To ensure the Green New Deal creates and maintains true full employment, we will need a new macroeconomic framework that brings in many currently excluded institutions and stakeholders, and abandons our reliance on interest rate adjustments as a primary tool for stabilising demand.

Modern monetary theory has a range of policy implications that bring us to an entirely different policy world, rather than back where we started. A Green New Deal must include some mixture of the policy instruments we�ve laid out if it successfully plans a new green full employment economy with price stability. Budgeting the traditional CBO way will focus attention on the wrong issues and fail to offset the inflationary potential of this necessary new spending. As we�ve said, there are a number of taxes -- especially on the rich -- which offset much less GND spending than their dollar amounts would imply. This does not mean that we shouldn�t tax the rich -- they are too rich. It just means Congress needs to look elsewhere if they�re going to fully offset the inflationary potential of this spending. We can afford a Green New Deal and we can accomplish it as well. We just need the right policy tools to make sure it's successful.

Helsing fucked around with this message at 23:15 on Mar 6, 2019

# ? Mar 6, 2019 23:11

MixMastaTJ: Dec 14, 2017

Squalid posted:

Could you give an example of how taxes might increase inflation? I�m having trouble imagining it

Technically any tax will reduce consumption, universally lowering demand and thus reducing economic growth.

Consumption, however, grows logarithmicly with income, meaning reducing disposable income for the poor lowers their consumption more than reducing it for the wealthy.

If reduction in consumption exceeds wealth taken you have inflation.

# ? Mar 6, 2019 23:18

Typo: Aug 19, 2009; Chernigov Military Aviation Lyceum
The Fighting Slowpokes

MixMastaTJ posted:

If reduction in consumption exceeds wealth taken you have inflation.

isn't that actually deflationary? Since you are reducing consumption more than the money in circulation?

# ? Mar 6, 2019 23:21

Typo: Aug 19, 2009; Chernigov Military Aviation Lyceum
The Fighting Slowpokes

taxes can cause inflation if you assume there's no propensity to consume at the individual/household level and you take the money and the government spends it

# ? Mar 6, 2019 23:28

MSDOS KAPITAL: Jun 25, 2018

45 ACP CURES NAZIS posted:

Money directly translates into political power

All the more reason to take it.

# ? Mar 7, 2019 00:27

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# ? Apr 29, 2024 16:34

MixMastaTJ: Dec 14, 2017

Typo posted:

isn't that actually deflationary? Since you are reducing consumption more than the money in circulation?

Inflation is the ratio of money in circulation to the actual value of the economy. Say there's a hundred dollars in the economy and a hundred dollars worth of widgets. If we pump 100 dollars in without changing the number of widgets, a widget worth 1 dollar now sales for 2. likewise, if we reduce the number of widgets available by half while still only having 100 dollars, each dollar widget is now two dollars.

If you reduce consumption, demand for widgets will drop along with the profit of widgets. While on a local level the cost for a widget might drop, overall the goods and services available in the economy will drop, meaning each dollar now has less spending power.

Infinite Karma posted:

I have to wonder if this is a legitimate concern. Have strong economies ever actually "oopsed" their way into hyperinflation? In real life, the only examples I can think of were places that were weak economies already in dire straits - hyperinflation is one kind of market crash, but they were on a path towards a devastating market crash regardless. Are there prosperous countries who imploded that I don't know about?

I mean, big one was Germany. Granted a LOT more was going on with Germany.

I'd be concerned about a middle income country like Mexico going nuts with MMT. But yeah, pretty sure Pounds, Loonies or Euros would be hard to kill.

MixMastaTJ fucked around with this message at 03:26 on Mar 7, 2019

# ? Mar 7, 2019 01:12

The Something Awful Forums > Discussion > Debate & Discussion > Do We Need To ""Pay For" Federal Programs? Talking Modern Monetary Theory

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