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

Ardennes: May 12, 2002

One issue is that the US could very well sustain deficits either from bonds or simply printing (ie increasing the money supply) more than any other economy on earth because we are the largest reserve currency. Other countries NEED to purchase dollars which essentially subsidizing their relative worth. It doesn't matter that a country is sovereign or not (it helps obviously) but that other countries are willing to absorb their currency in exchange.

Also, the reason the Yen hasn't inflated out of sign, is the nature of its debt. The vast majority of its debt is domestic, and help either by government or semi-government institutions (the Japanese Postal Savings bank) or corporations that have close links to the government. Therefore, it can spend because that debt is extremely stable and not lose Yen doesn't lose its reserve status.

It is why MMT may work in the US, but probably wouldn't work in, for example, Belarus without very high inflation. The demand for Belarussian Rubles is quite weak (in comparison to the US dollar) and Belarus needs to exchange in trade for imports (since autarky would absolutely not work). In contrast, the US probably could absorb that type of hit without the USD losing reserve status. Furthermore, Belarus doesn't have enough local demand for its own debt to subsidize increases to its money supply.

Essentially, it is a very conditional idea, although this is a forum dominated by Americans, so I guess it is a bit understandable.

# ¿ Feb 2, 2019 02:16

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# ¿ May 15, 2024 12:42

Ardennes: May 12, 2002

Granted, taxes mean a currency has some type of minimal value but it doesn�t obviously mean it retains its full value. This is fairly obvious looking at any floating currency.

Also, a moderate about of inflation backed by growth is usually fine and for the US the risk is minimal considering the strength of the USD.

Ardennes fucked around with this message at 05:20 on Feb 2, 2019

# ¿ Feb 2, 2019 05:15

Ardennes: May 12, 2002

Family Values posted:

The IRS assesses income tax on an individual's entire income, not just the income denominated in USD. If you were paid entirely in bitcoin, you would still owe income tax at an exchange rate chosen by the IRS. So yes, taxes mean that all economic activity in the US happens in USD or can be convertible to USD. That counts as 'full value' to me.

Floating currencies don't really factor into this because the income is reported at the time the transaction takes place.

It doesn�t mean the USD is going to retain its value versus convertible assets. This is important because trade exists.

You can say there will be always be �full value� expect when you can�t import anything.

It is why the Soviets continually needed hard currency to offset imports.

# ¿ Feb 2, 2019 07:14

Ardennes: May 12, 2002

Typo posted:

the key problem is that the USD might lose its reserve status within the next few decades as is, this trend speeds up if monetizing the federal budget creates expectations of currency volatility

You can also say that a culmitative lack of spending has its own negative effects and if anything it is up for the US to use its resources in a more productive manner.

The question is how you do it in a controlled manner and direct it to the right investments.

# ¿ Feb 2, 2019 09:23

Ardennes: May 12, 2002

uncop posted:

MMT is right in an immediate empirical sense, it's precisely the keynesian assumptions held by left-wing MMTers that cause them to draw incorrect conclusions from the immediate reality that they understand well. And because no one's letting them anywhere near political power, they can't exactly test those keynesian hypotheses and deepen their theory either. And they won't gain political power, long term anyway, because they represent the interests of no political power bloc.

The core issue at stake is the keynesian hypothesis applied by left-wing MMTers that investment leads profits, that state investment can set the rate of profit to what is necessary to keep capitalists reinvesting their wealth into production of all the concrete goods that society needs. Looking more closely at the essentially correct MMT assertion that the state can always do that with regard to goods sold in the currency that it controls reveals the error: for the former to follow from the latter, you would either need a world state to match the world economy or a closed national economy with a population that is content with what it can produce without resorting to imports. (And even with that, currency is just an allocation mechanism, profit/surplus is generated in production, in the restriction of the production of common consumption goods in relation to production of means of production and luxury goods, so in lean times it's either empty pockets or empty stores for the mass of people. While it's a general social law, it's as intense as it gets in a system of production for profit for a social elite even if it's of a sort that can prevent recessions.)

Basically, left-wing MMT prescriptions used for pseudo-socialist purposes would invite an economic counterattack capable of shutting down the environment that their implicit assumptions require, namely that society can curtail the escape of foreign currency from the economy so that the relative value of its currency stays at a level where production that consumes foreign inputs is generally profitable. See, if it's not profitable, even if the state either takes up the unprofitable production or subsidizes the producers so that they make a profit, that represents a flow of value escaping out of the country through the buying price of those inputs. It's of course fine as long as it's balanced out by a counterflow of value through profitable exports, like Venezuela balanced its import subsidies with oil exports, but once it becomes generalized in the economy, it puts further downward pressure on the relative value of your currency in the world market and forces the economy into either austerity (importing fewer goods and/or reducing costs for exports and foreign investors) or a loop of accelerating devaluation of the local currency.

Nowadays it's a regular policy tool to start this kind of loop through a calculated economic blockade aimed at crashing the supply of core inputs and/or the foreign demand of core outputs, throwing international currency flows off balance and making the stability of the currency being attacked dependent on active central bank operations. Such operations are ultimately limited by its foreign currency reserves and once the reserves start running out and frugality is forced on it, the hard decisions begin. So ultimately MMT will almost certainly be left as a description of how things are now rather than something that will be used long-term to consciously benefit society: those who can apply it would prefer to discredit it for anyone but themselves and those who want to better society can be denied MMT as a tool.

The chief issue here is that the US is not really like other economies because it is the chief reserve currency and that in the past, monetary expansion does not seem to have a tremendous effect on inflation. You could certainly argue that a country with a much weaker currency and few foreign reserves would be in poor shape, and it really couldn't rely on MMT without facing outflows or be forced to subsidize imports. That said, the big arguement is in the US itself, so it is a different situation. Btw, one could argue also that continued MMT would eventually force other countries to drop the USD...but the movement on that front has been historically very slow and if anything it is more likely that the US would face social unrest before that became an issue.

# ¿ May 21, 2019 13:46

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