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

Phantasmal: Jun 6, 2001

Dead Reckoning posted:

Can you explain this part to me? Because I don't really understand it.

I get that deficits don't matter in that the US Government doesn't have a finite supply of dollars it can run out of, but I think a majority of people both inside government and out understood that (although some Republicans pretended otherwise when Dems were in power.)

It's not just that deficits don't matter, but that they're actively desirable. The sectoral balances framework in MMT illustrates that as an accounting identity the currency issuers deficit is equal to the private sector surplus (minus the trade deficit of the country in question). Portions of the Democratic party still push the idea that a government surplus is indicative of good governance, but as Stephanie Kelton puts it:

quote:

The private sector cannot survive in negative territory. It cannot go on, year after year, spending more than its income. It is not like the US government. It cannot support rising indebtedness in perpetuity. It is not a currency issuer. Eventually, something will give. And when it does, the private sector will retrench, the economy will contract, and the government's budget will move back into deficit.

So deficit spending is a necessary component of fiat currency system, and the real question is what policy goals should the issuer have for its deficit spending.

quote:

Under MMT, government spending is still constrained by the need to avoid high inflation, so the government can't run huge deficits year over year by spending past that limit, since its creditors want to get paid evertually... which would require printing more money past that limit.

Inflation is a relation between the size of the active money supply and the total goods and services available, and the major historical examples of runaway inflation are tied to major destruction of productive capacity or some other resource bottleneck. Given this, the goal of the government is to use it's deficit spending to ensure that the material development of the economy is sound. We're trained to be terrified of this perpetually impending hyperinflation and subsequently refuse to make investments in our infrastructure that would insulate us from the type of resource shocks that lead to actual hyperinflation. We had constant warnings of runaway inflation from the 2008 qualitative easing that never came close to materializing, and maybe it's time to recognize that these inflation fears are a gross exaggeration pushed by people with an agenda to encourage austerity politics in order to prevent governments from doing anything about the runaway wealth inequality that's gradually undermining both our economic development and the underlying social contract that stabilizes society as a whole.

Phantasmal fucked around with this message at 08:34 on Jan 27, 2019

# ¿ Jan 27, 2019 08:28

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Phantasmal: Jun 6, 2001

I wish I could find a less dense writeup but http://bilbo.economicoutlook.net/blog/?p=32396 is still, I think, a good outline of the formulas underlying it.

quote:

First, we can measure the sources of spending that flow into the economy over a given period. Economists use the shorthand expression:

(2) GDP =* C + I + G + (X � M)

which says that total national income (GDP) is the sum of total final household consumption spending (C), total private investment including inventory accumulation (I), total government spending (G) and net exports (X � M).

...

Adding in the net external income flows (FNI) to Expression (2) for GDP we get the familiar gross national product or gross national income measure (GNP):

(3) GNP = C + I + G + (X � M) + FNI

...

To render this approach into the sectoral balances form, we subtract total taxes and transfers (T) from both sides of Expression (3) to get:

(4) GNP � T = C + I + G + (X � M) + FNI � T

Now we can collect the terms by arranging them according to the three sectoral balances:

(5) (GNP � C � T) � I = (G � T) + (X � M + FNI)

The the terms in Expression (5) are relatively easy to understand now. The term (GNP � C � T) represents total income less the amount consumed less the amount paid to government in taxes (taking into account transfers coming the other way).

In other words, it represents private domestic saving.

The left-hand side of Equation (3), (GNP � C � T) � I, thus is the overall saving of the private domestic sector, which is distinct from total household saving denoted by the term (GNP � C � T).

In other words, the left-hand side of Equation (3) is the private domestic financial balance and if it is positive then the sector is spending less than its total income and if it is negative the sector is spending more than it total income.

The term (G � T) is The government financial balance and is in deficit if government spending (G) is greater than government tax revenue (T), and in surplus if the balance is negative.

Finally, the other right-hand side term (X � M + FNI) is the external financial balance, commonly known as the current account balance (CAD). It is in surplus if positive and deficit if negative.

In English we could say that:

The private financial balance equals the sum of the government financial balance plus the current account balance.

I'm not 100% sure I would commit to saying that the deficit is the "size of your economy," but it's necessarily the offset for the private sector to express a net preference for savings. Apparently I don't know how to embed images anymore, but https://theweek.com/articles/625515/hillary-clinton-loves-trumpet-bills-budget-surplus-shouldnt has a picture that illustrates this dynamic.

If you're more of a pivot to video person, there's also a pretty succinct explanation here: https://www.youtube.com/watch?v=zxDVRISfsls

Squalid posted:

What do the proponents of MMT think about the modern Japanese economy? IIRC they have maintained high deficits alongside very low unemployment and low inflation for the past two decades.

I don't know if this helps answer your question directly, but http://bilbo.economicoutlook.net/blog/?p=3225 goes into Japan's recession in the 90s and http://bilbo.economicoutlook.net/blog/?p=20607 talks about some of the more recent developments in their economy. He's just one MMT perspective, but most of the other MMT stuff I can recall tends to be US-centric. Also, the Japan stuff gets pretty dense, so I don't feel comfortable trying to summarize it.

# ¿ Jan 27, 2019 17:57

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