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

plogo: Jan 20, 2009

Squalid posted:

yeah this is how I try to make sense of macro econ stuff. It makes mentally visualizing what's going on a lot simpler.

What if it is not near zero? Basically, I'm trying to understand how MMT handles bond payments.

So the principle of the government creating and destroying money in MMT makes a lot of sense to me. Where I start to get confused is when its proponents start saying deficits don't matter in today's economy. This is because when the US deficit spends, it also issues interest carrying bonds. These bonds take cash out of the economy, but with the promise of giving more cash in the future to the bond holder. As with all assets, the vast majority of these bonds are owned either directly or indirectly by the one percent.

Therefore as the national debt increases, the government will have increasing obligations to give money to the owners of capital. As debt increases, the proportion of government money going to this class should increase. This should produce inflation that weakens the buying power of people who don't have any assets, as an increasing proportion of cash should be flowing to those who already have wealth. The state can use inflation to reduce the value of the debt by printing money. Still it means the level of debt remains important and has to be managed and constrained.

Of course central banks can just buy government bonds themselves, which I guess makes them disappear effectively? Macro is all very confusing.

Bonds are set in nominal terms (except for TIPS), so for longer duration government debt inflation is actually the biggest destroyer of wealth. Nobody hates inflation more than bond holders. Part of the reason why inflation hawks are so often associated with the Republican Party (and why Trump's complaints about Powell raising rates are kinda hilarious) is because of the bond bear market back in the day.

# ¿ Jan 25, 2019 06:25

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# ¿ May 15, 2024 11:35

plogo: Jan 20, 2009

I don't think I'm every gonna understand what the difference between MMT and "conventional" economics is.

Lumpy posted:

Question for those who seem baffled that MMT can / does work: How did we pay for the Iraq War, the war in Afghanistan, and the 2008 bailout? Follow up question: Did the massive tax cuts Trump & the GOP passed cause runaway inflation?

I mean plenty of mainstream economists did not think there would be inflation after 2008.

# ¿ Jan 30, 2019 21:23

plogo: Jan 20, 2009

theblackw0lf posted:

I wouldn't say will. Because different programs will have different inflationary pressures. I need to find it. but Stephanie talks specifically about single payer and in her mind it might not actually create inflation, because in part it's just a transference of money, instead of new money.

Though I'm not sure that was the argument she made.

Yeah, I think that we can vastly reform healthcare without inflationary pressures. The logic exists independently of MMT- health care in the United States is extremely expensive as compared to other countries, so it stands to reason that there are expansive reforms that will actually cause prices to decline or at least not jump to the extreme levels need to cause inflation at an aggregate national level.

Dead Reckoning posted:

With OwlFancier, I'm trying to figure out whether the degree to which printing money to fund a specific program will contribute to rising inflation can be accurately figured out in advance, in a coherent universal method that works for any proposed spending.

Going down that road seems like a fools errand. Determining the inflationary impact of any given program after the fact is extremely difficult, forecasting the impact of individual programs is gonna be an educated guess at best.

# ¿ Jan 30, 2019 21:51

plogo: Jan 20, 2009

Squalid posted:

Yeah it’s my understanding that macroeconomics can only make very approximate estimates of the effect of big fiscal policy. That’s not a weakness of MMT, every economic paradigm will have the same problem. That doesn’t mean you can’t make predictions you just have to prepared to adjust policy on the fly depending on outcomes.

Haha yes, to quote an old review essay paper (from a skeptic of fiscal policy, no less): "I will conclude that the U.S. aggregate multiplier for a temporary, deficit financed increase in government purchases (that enter separately in the utility function and have no direct effect on private sector production functions) is probably between 0.8 and 1.5. Reasonable people can argue, however, that the data do not reject 0.5 or 2. "

# ¿ Jan 30, 2019 22:12

plogo: Jan 20, 2009

Fiscal multiplers are often brought up by MMTers, they absolutely belong in the discussion.

What is unique about this to MMT? "The question MMT asks is must we create debt, then create fiat currency to 'buy' the debt, or can we just create the fiat currency and directly use it."

# ¿ Jan 30, 2019 22:42

plogo: Jan 20, 2009

plogo posted:

What is unique about this to MMT? "The question MMT asks is must we create debt, then create fiat currency to 'buy' the debt, or can we just create the fiat currency and directly use it."

Here is, for example, a pretty well known paper discussing the same tradeoff from another perspective.
https://www.minneapolisfed.org/research/qr/qr531.pdf

I would also point you towards the fiscal theory of the price level stuff from eric leeper and friends.

# ¿ Jan 30, 2019 23:16

plogo: Jan 20, 2009

http://jwmason.org/slackwire/tag/lost-in-fiscal-space/

I think this sorta captures my feelings. I don't know if JW Mason and Arjun Jayadev speak for all MMTers, but I can't help but think theory wise there is nothing new.

"An increasingly visible school of heterodox macroeconomics, Modern Monetary Theory (MMT), makes the case for functional finance�the view that governments should set their fiscal position at whatever level is consistent with price stability and full employment, regardless of current debt or deficits. Functional finance is widely understood, by both supporters and opponents, as a departure from orthodox macroeconomics. We argue that this perception is mistaken: While MMT�s policy proposals are unorthodox, the analysis underlying them is largely orthodox. A central bank able to control domestic interest rates is a sufficient condition to allow a government to freely pursue countercyclical fiscal policy with no danger of a runaway increase in the debt ratio. The difference between MMT and orthodox policy can be thought of as a different assignment of the two instruments of fiscal position and interest rate to the two targets of price stability and debt stability. As such, the debate between them hinges not on any fundamental difference of analysis, but rather on different practical judgements�in particular what kinds of errors are most likely from policymakers."

# ¿ Jan 30, 2019 23:51

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# ¿ May 15, 2024 11:35

plogo: Jan 20, 2009

My understanding is that full employment is the target for MMT, so if the fiscal policy required to hit that target results in a surplus, then great! There is no reason that deficits will necessarily result. If the goverment just prints money to pay for the fiscal policy, then there will be no deficit at all, for example.

# ¿ Jan 31, 2019 02:09

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