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Charlz Guybon posted:So why do governments take loans to fund their spending if it's not neccessary to balance the money coming in and going out? At the end of the day, the cash still has to mean something. You need to be able to buy a loaf of bread. How much bread a buck gets you is entirely imagined by our market. It works because we believe it works. If people stop believing that some amount of dollars is worth a loaf of bread, which is a very fragile barrier, your economy is hosed. No one is going to go to a job for money they know is worthless, thus production halts, law enforcement halts and governments begin losing power. The government has to keep up the illusion that money has value so they go into debt. "Look how much debt we have! We're barely scraping by" does more to quell revolution than "lol, we're letting you guys die because we'd rather hoard a few trillion bucks"
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Jan 24, 2019 17:14
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Herewaard posted:Just a note about why Dollars have value since it's been mentioned a few times already. More precisely, USD is worth what the guy holding a gun to your head says it's worth. Of course, political leaders don't tend to hold guns, so it's worth as much as the guy being payed to hold a gun thinks it's worth. And if he decides it's worthless, very little keeps him from flipping his aim.
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Jan 26, 2019 02:42
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The problem is, you're still viewing things from a traditional lens. The traditional lens is "government programs are a necessary evil and taxes are how we pay for them." MMT isn't just "government programs are a necessary evil and inflation is how we pay for them and taxes is how we pay for inflation." The point is we don't NEED to ask "how do we pay" at all. Government programs are a function of a healthy government. Your economy needs economic growth to survive and the only way you get that is by the government printing money. Taxation's SOLE purpose is deflation and tax cuts are for inflation. We ask "should we fund program x?" entirely on the merits of program x. We fund M4A because we need M4A. We cut military spending because we don't need all these tanks. Edit: in fact, how sure are we that M4A will cause inflation? There's a chance that M4A would improve overall health, increasing the effectiveness of our workforce and reducing the overall spending by the government on healthcare. If people are spending more time at work, they're paying more in taxes, and if the government winds up paying less for healthcare, that leads to deflation. In other words, what if it actually needs to be payed for with tax CUTS? MixMastaTJ fucked around with this message at 05:29 on Jan 28, 2019 |
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Jan 28, 2019 05:16
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CrypticTriptych posted:This doesn't seem true. We still need to ask this, except that under MMT we pay for things in inflation points instead of dollars. If we want a reasonable level of inflation, we will still need to make big compromises. Maybe there's some easy gains to be had by switching perspectives -- programs which cost a lot of dollars but not many inflation points become comparatively much cheaper -- but in the end a balance still has to be struck or the economy will go into a spiral. Except the relationship between government spending and inflation is extremely abstract. There isn't a magic inflation points calculator. As pointed out earlier, a government surplus means the private economy is losing money. You NEED an amount of government spending to at least keep up with economic growth, otherwise you get deflation. Yes, these things could cause inflation, but if it's a system we NEED then there isn't any benefit on trying to "pay" for it ahead of time. Like, do you think we'll wait till we can "pay" for military services if another country invaded us? Obviously not: we'd deal with the immediate necessity and deal with economic ramifications after things stabilize. Why aren't we taking the same lens to healthcare, poverty or education?
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Jan 28, 2019 06:38
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CrypticTriptych posted:The only place things would be different are for programs which cause disproportionately more/less inflation for a given amount of dollars spent. You mean like healthcare, quality of life improvements for the working class and education?
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Jan 28, 2019 09:03
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glowing-fish posted:Above, I made an effortpost about the production possibility curve and other such things. But I will try to summarize it. Healthcare isn't a "supply/demand" issue like Fig Newtons. If I want a Fig Newtons and the store is out I buy off brand cookies. If I have a gunshot wound and can't get a doctor, I die. The problem at present isn't lack of hospitals and doctors- it's the average citizen being priced out of needed procedures. It sounds like the implication you're making is "well, if the free market says they should die, they should die." Furthermore, Medicare doesn't work like that? We don't just give money to hospitals and cross our fingers. If the hospitals aren't able to fullfil a medical service they don't get the money for it. That money for a procedure that can't be met never enters the economy. MixMastaTJ fucked around with this message at 18:59 on Jan 28, 2019 |
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Jan 28, 2019 18:51
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Government projects (like building tanks) should DIRECTLY create inflation- imagine the economy like a funnel. Government spending pours water in the top, water flows out the bottom as taxes. When the government buys a tank, they're adding more funds to the economy but the private sector won't have any new labor. Once the tank is built, the builders will go out and spend their cash and the tank will collect dust. The only extra taxes the government will be able to take out (deflating the economy) is what they just poured in anyway. Now, if that tank were used to capture new land for the private sector, valued greater than what was spent on the tank, it would have a net effect of deflation.
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Jan 28, 2019 22:11
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CrypticTriptych posted:If we can't, we might as well keep our current system, or pick programs to fund/cut by throwing darts. Or, y'know, fund the things we need? People are dying of starvation so fund food programs. We're behind in education so fund education. Our healthcare is poo poo so fund healthcare. Seems pretty straightforward to me...
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Jan 29, 2019 02:46
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Traditional view is the government works like this, with government programs as an output function and taxes as an input function: Government💰(Some finite amount of money lowers) -💵Government spending💵-> Economy As the government spends, it loses money to the economy. There is some finity to the government's bag of money. Government💰(Some finite amount of money increases) <-💵Taxes/Loans💵- Economy The government needs to replenish its stock of wealth through taxes and loans. When the government is spending more than it takes in through taxes, it loses money, and if that money reaches 0, it's game over. When the government takes in more taxes than it spends, that's a surplus which will enable us to spend more in the future. This is not how it works at all, though, and the point of MMT is it's actually harmful to view things this way. MMT is about flipping that whole perspective. Rather than viewing government spending as an output and taxes as an input, government spending is an INPUT of the economy and taxes are an OUTPUT of the economy. The government has no real money and the money is IN the economy. But of course you have to understand inflation, here. The economy has an amount of USD floating around. This is a literal number that is countable, right around $20,000,000,000,000. There is also some value of the economy's actual worth. In other words, how much production is there? This is impossible to truly quantify since it involves more data points than we could ever acquire and involves subjective value judgments. For simplicity I'm going to assume that right now the value of our dollar is perfect and the actual value of our economy is 20 trillion dollars. We're going to judge all inflation based on how it affects this perfect balance of 20 trillion dollars in cash versus 20 trillion in economic value. Inflation is modeled thusly: Money in circulation ($20 Trillion) / Value of Economy ($20 Trillion) = 1 + Relative inflation (Currently 0). When the government spends money and there is no economic growth: Money in circulation ($20 Trillion + $N Government Spending) / Value of Economy ($20 Trillion) = 1 + Relative inflation (>0), and so the overall value of each dollar lessens and the price of goods goes up. On the other hand, when the government TAXES without economic growth: Money in circulation ($20 Trillion - $N Taxes) / Value of Economy ($20 Trillion) = 1 - Relative deflation (>0), and the value of each dollar increases and we have deflation. This is what a government surplus entails; inherent deflation. Now, ideally, our economy is actually growing. So, let's look at the conservative wetdream of economic growth and a perfectly balanced budget: Money in circulation ($20 Trillion + $N Government Spending - $N Taxes) / Value of Economy ($20 Trillion + $M Growth) = 1 - Relative deflation (>0). This also leads to deflation. Now there are two edge cases here that are very important to understand: Where relative deflation is at a maximum and where relative inflation is at a maximum. In the former case, you have economic growth, or your rate of production is good however you do not have enough currency in circulation to support this growth. Meaning people are working, items are being produced, but no one has enough cash to make use of this economic growth. The preposterous extreme is the economy is left with one dollar, you need that dollar to purchase bread, however that single dollar is currently in the hands of a shoemaker. You have to wait for everyone in line to finally purchase your good so you can purchase the goods you need with the single dollar in the economy. You can see how this is in no way a functional economy. At the other end of the spectrum... well, there's no "max" value of inflation. We can keep on pumping money in and all that changes is your dollar hamburger now costs 100 dollars. or 1000 dollars. The only limit is practicality: hamburgers costing 1000 dollars is not ideal. However, as long as you HAVE the thousand dollars to buy that hamburger there isn't really a problem. What is a problem is hyperinflation. This is when the cost of goods dramatically exceeds what consumers are capable of paying for them, grinding your economy to a halt. Now, no matter how ludicrous your relative inflation is, there is no inherent hyperinflation. It doesn't matter that a hamburger costs a thousand dollars SO LONG AS the guy getting payed ten bucks an hour now makes 10,000 an hour. This is why your granddad was fine making a nickle an hour - he could buy 5 burgers with it. At a nickle an hour, you'd need to work 20 hours to purchase one hamburger. So steady inflation is fine. Rapid inflation without increase in wages to match is not fine. But now let's put in some actual numbers. Our economy is about $20 trillion and our deficit spending is about $1 trillion. Ergo, if we assume there's no economic growth: $21/$20 = 1.05. In other words, that dollar hamburger will cost you an extra 5 cents next year. That's the effect of $1 Trillion with a T in deficit spending with no economic growth. In actuality, our economy is doing pretty well and growing. The actual inflation rate is estimated around 1.02. So, hey, let's talk about the stupid, dumb, very dumb wall. I like round numbers, so let's call it $6 Billion to fund. Money in circulation ($20 Trillion) + ($1 Trillion extant deficit) + ($0.006 Trillion for the wall) / Value of Economy ($20 Trillion) Except the economy isn't so simple. I'm going to assume that the resources we'll build the wall with are inexhaustible (they aren't). The biggest part of a project like this is labor. I'm going to be VERY generous to Trump and say about $3 Billion is going to labor. So, where's this labor come from? Why, the private sector of course! Let's be clear, America doesn't have $3 billion worth of workers twiddling their thumbs. We have an unemployment rate of 4%, so the vast majority of these builders are going to be at worst leaving more productive government jobs like road work or hospital construction and at best leaving private work that would grow the economy directly. Any dollar that's spent on labor that WOULD have been used for work in the private sector is a direct loss for the economy's value. I'm going to assume everyone who isn't unemployed was in the private sector since the loss in efficiency from failing to maintain roads etc. is entirely speculative and would get complex numbers that are well beyond the scope of my point. I'm also going to generously assume a whole 4% of the workers were previously unemployed meaning we're only diverting .96 * $3 Billion ($2.88 Billion) out of the economy. So, in this model, the cost of Trump's big, stupid, dumb, very dumb wall is: 21.006/19.99712 = 1.05045. Or, that hamburger that cost a dollar now costs a dollar and five cents (actually, 2 cents), but at this rate in 20 years it's going to cost one extra penny. If we increased taxes by $6 billion to pay for it, this would be negligibly less. Is the big, dumb, stupid, very dumb wall big, dumb, stupid and very dumb? Yes, yes it is. Is it going to be the financial ruination of this country? No, probably not. Actually, the bigger cost is assuming it succeeds in its goal, we currently have 8 million illegal workers, earning about 36k a year. In economics terms, we would be losing about 288 billion dollars worth of annual labor. Again, unemployment is not a problem in this country: we have jobs for workers. Regardless of if these workers are paying taxes they are directly contributing to the economy. So ASSUMING the wall is a perfect success and we manage to get all the illegal immigrants out of the country, the cost would be: 21.006/19.80912 = 1.06042. That's assuming we manage to recover from the labor void in a year (but I'm also assuming the big, stupid, dumb, very dumb wall isn't a big, dumb, stupid, very dumb failure.) Now, let's say we spend 6 Billion on something that isn't stupid. Like scholarships! Low estimates peg the return growth on scholarships around 13%. So. 6 Billion in scholarships will actually grow the economy by 6.78 billion (Again, simplifications. Not everybody you give a scholarship to is going to graduate, but this is an average. In reality, it also takes at least 4 years to see the effect of this, but let's pretend we did this 4 years ago.) So, now we still have 21.006 on top but on bottom we're actually increasing to 20.00678. That comes out to 1.0499. Woo! We saved a whole hundredth of a cent on next year's hamburger! (Again, actual inflation rates suggest a better number to use would be 20.406 which would give us 1.0199 in inflation. Still a fraction of a penny.) Okay, so my point- the idea of "paying" with taxes is abstract and dumb to begin with. A 6 billion dollar program, whether it helps or hurts our economy, has such a tiny effect on actual inflation rates. The reason we shouldn't build a big, dumb, stupid, very dumb wall isn't because we can't afford it - it's because there's absolutely no reason to build it and its building will contribute to our rampant xenophobia. The reason we should invest in education isn't because it will "pay for itself" and "it's basically free." It's because an educated populace is desirable. No, we shouldn't consider any government spending as "free," what we SHOULD do is conceptually divorce taxation from spending. I'm not arguing in favor of health care reform because it's economically beneficial. I'm arguing in favor of healthcare reform because people are dying.
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Jan 30, 2019 22:55
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Delthalaz posted:I would imagine that Marxists would disagree pretty strongly with the MMT understanding of value and capital, no? I'm confused by this question? Like, there's not really an ethical "for" or "against" on MMT. It's a model for a sovereign nation's role in its economy. From a Marxist perspective I'd say the ability of a nation to utilize MMT style spending implies virtually unlimited control over the workforce by the ruling class. As well even seizing the means of production wouldn't inherently grind the economy to a halt as the government could continue to issue currency, making a worker's revolt much harder. Do I personally like the idea of plutocrats with this power? No. However my feelings on the matter do not affect the validity of MMT, and nothing will change the U.S.'s economic control short of total economic collapse. As long as this is the case, I'd rather we use that power for benevolent causes instead of funding genocide.
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Feb 1, 2019 09:20
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Dead Reckoning posted:Then you aren't actually making an economic argument, you're making a moral argument and grasping for an economic theory to dress it up. If the conclusion of MMT analysis was that it is economically most efficient to let the bottom 2% die than to spend any money on helping them, you'd be arguing that MMT is bullshit or that the analysis was wrong, irrespective of its merits. u wot. Economic models don't have "conclusions." Either a model is accurate at describing how certain behaviors affect an economy or they aren't. You can punch in the numbers for letting the bottom 2% die, and maybe you'd see a "desirable" output but you're left with the question if that result is worth the moral depravity of letting 6 million people die. Did you actually read my post or just skip to the part that let you say "GOTCHA!"? The only way I illustrated the government having significant impact on inflation was by causing a massive recession, in which case you'd see an extra penny of inflation. At the size of our economy you'd need to spend about 100 billion to actually see a noticable affect within the year. So "we can't afford it" is a bullshit reason not to do most programs. The ethical factors are much more significant talking point than effect on the economy. Opposing Trump's wall on grounds that we "can't afford it" is bullshit. We need to talk about the environmental impact, the diplomatic ramifications and how it's one more step towards genocide.
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Feb 1, 2019 21:32
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Xae posted:Because MMT is a joke. Oh, poo poo. You're right, theory disproved! quote:Some money derives value because it is used for taxation. Phew. Close one, gang, but crisis averted.
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Feb 2, 2019 08:52
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silence_kit posted:I also don’t get how the theory is really that useful, except as a way to promote government spending if you don’t think about it too much. It seems to make similar kinds of predictions as the government budgeting type of thinking, except it involves a nebulous quantity (inflation risk). More precisely, I'd say orthodox theory allows for controlled spending if you don't think about it too much. Our level of deficit spending would suggest a 5 cent annual rate of inflation. We're actually about a 2 cent. This means of the trillion we're "over budget" about 600 billion is actually NECESSARY just to keep up with economic growth. Orthodox theory would suggest zero deficit is ideal but if we did that we'd have economic growth without necessary cash increase- or our money would DEFLATE. If we spent a trillion dollars on some theorhetical program that led to 2 trillion in economic growth, assuming we taxed it we'd deflate by a horrific amount. Paying for successful programs DAMAGES the economy.
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Feb 2, 2019 19:51
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Essentially the value of an economy is the rate at which it produces goods and services/some nebulous concept of how valuable the goods and services are (the free market demand for them, if you will). There are four ways that come to mind in which an economy can grow- increased efficiency (making use of unused labor or supplies), increasing the labor pool (immigration or birth), increasing resources (discovering new metal veins, new ways of recycling, etc.) and technological improvements. I'm gonna simplify your toaster example a bit since you have a lot of unnecessary variables. If we assume there's a number of people unemployed who could be working on toasters and a stockpile of unused metal with which to build toasters, that's market inefficiency. If the government funnels a grand into toaster production and we produce $1000 worth of toasters then we've just expanded the economy $1000. As for how the inflation comes into play, imagine some capitalist decided to invest in toaster production on his own. He invests $1000 and gets $1000 worth of toasters. However, while he may have expanded the economy, there is a cost in the capital he spends. Presumably that $1000 dollars would have been spent on some other good or service which is now unsold, meaning the sellers of those goods and services have less money to purchase toasters. Money has become more scarce than the goods and services being produced and goods and services must lower in price to accommodate this. (Note: this is clearly oversimplified. The wealthy in this country are hoarding ludicrous amounts of wealth and it is very unlikely them investing in labor would in anyway reduce their rate of consumption.) However, this example assumes we have unused labor and resources and that toasters would be the most efficient use for them. I sincerely doubt that. I think education would make for a better example. Imagine a kid who just graduated highschool. With a $1000 scholarship he'll go to school for four years and learn some trade. Otherwise, he'll bum around for 4 years before joining the workforce. If we let him bum around, he'll work for $20k a year at McDonald's, if he goes to school he'll get some tech job for $40k a year. Presumably, those amounts roughly correlate to the value of goods he would put into the economy - at McDonald's he'll produce something like $25k worth of hamburgers a year and at the tech company he'll produce $45k a year worth of some tech product. So, for a thousand dollars, you've increased your labor pool by about $20k. But, again, without the influx of currency to match someone, somewhere, is selling less of their product or service, and is pressured to reduce prices. Further, without even considering economic expansion, the increased income means paying more in income taxes. It won't take long for that $40k income earner to have payed a thousand more in taxes than a $20k earner. At that point, the government is removing more currency than it put in, so straight out deflation.
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Feb 14, 2019 19:55
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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.
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Mar 6, 2019 19:15
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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.
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Mar 6, 2019 23:18
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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 |
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Mar 7, 2019 01:12
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Typo posted:The problem is that when you combine the two, you get a deflationary spiral, because goods and services in the economy drop, people's income drop (people lose their jobs etc) so they have less money to spend, and are less willing to spend money. So prices for goods drop further and the net result is still deflationary. Hm. Good point. I guess in terms of the economy you're looking at it wouldn't cause inflation. I think, though, if you were looking at it from the perspective of some other currency, which remains stable, the spending power of the resceeding dollar would drop? Like, if a business typically takes Euros or USD and they see the US in a deflationary cycle they would require more USD for their goods while the price in Euros would remain stable. It seems intuitive to me that GDP dropping with a constant amount of currency would cause inflation but maybe I'm off base. Splode posted:Germany was not a wealthy power in the 1920s, and certainly wasn't the economic powerhouse it is today. The hyperinflation was just one symptom of many that came from the government disintegrating, not what caused that disintegration. I agree, Germany is a bad example. It's the one MMT critics love, though. But yeah, I don't think there's any reason to suspect hyperinflation could occur in any high income nation without some other severe economic crisis.
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Mar 7, 2019 18:55
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Helsing posted:If a hypothetical tax on real estate speculation resulted in lower rental and housing prices then the additional income going to renters and home buyers might be more than enough to compensates for the reduced income accruing to home owners and landlords. Oh, for sure. I was just describing the most direct effect. Like, that hypothetical tax would directly cause some amount of recession but it would indirectly spur a net economic growth. The point is more a sales tax on off brand food is liable to cause greater amounts recession than would be offset by the cash removed from the economy. So if you used a tax like that to "pay" for some program, you'd effectively hit the economy with an inflation double whammy. There's still a value to vice taxes but they should be passed for that value, not to "pay for x."
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Mar 7, 2019 22:36
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Typo posted:I edited because I think I'm not sure if I understand this statement correctly Okay, thanks. Yeah, I was describing international trade but I guess if price of widgets in the US drop that would actually have a deflationary effect if anything. So, for MV=PQ, rise in P is inflation, right? So technically any sales tax is directly inflationary and either spending will rise to accommodate it or transactions will drop.
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Mar 8, 2019 22:45
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