Tuesday, July 23, 2019

MMT Link Roundup


Education about economy critical for coming election

This Economic Theory Could Be Used To Pay For The Green New Deal
"Too often, people get a whiff of MMT, they don't read the literature, and they somehow arrive at the takeaway that MMT is about printing prosperity," Kelton said. "And of course when people hear printing money, they go straight to Zimbabwe or Weimar Germany."

Those are notorious cases of hyperinflation. But Kelton argues that runaway prices are only a danger when demand outstrips the real resources in an economy — the people, machines and raw materials. If there's idle capacity, MMT maintains that additional government spending does not trigger inflation. . . .

[The belief that Japan's high public debt would raise interest rates] "cost both me and my clients or anyone who was stupid enough to follow me money," [bond trader James] Montier recalled. "It was one of the worst trade positions I have ever suggested in my entire life."

He says MMT offers better financial forecasts and helped him understand why interest rates in the U.S. have stayed low, despite growing government deficits.

Taxes for Revenue Are Obsolete (from 1946!)
The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last twenty-five years which have substantially altered the position of the national state with respect to the financing of its current requirements.

The first of these changes is the gaining of vast new experience in the management of central banks.

The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold. . . .

The public purpose which is served should never be obscured in a tax program under the mask of raising revenue. . . .

[Instead, a government should use taxes:]
  1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;
  2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;
  3. To express public policy in subsidizing or in penalizing various industries and economic groups;
  4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.


Rethinking fiscal policy: Progressive US politics meets radical economics
The most intuitively attractive part of the MMT message is that if the economy is running below capacity, policy should aim at stimulus, and this should come through fiscal expansion. Put like this, it is not so far from the Keynesian ideas so relevant in the 1930s. Mainstream economists, however, are cautious or even sceptical, informed by the post-World War II periods when politicians proved reluctant to rein in excessive budgets. Nevertheless, MMT’s ‘free-lunch’ message of limitless budget funding will go on attracting advocates of big-ticket expenditure.
Good over, but le sigh: budgets are not limitless: the real economy is always a limit on spending. However, there are no financial limits to deficits.

The Stupid! It Burns!

AOC Chief of Staff: Green New Deal 'Wasn't Originally a Climate Thing at All'
Many activists have dismissed the cost as irrelevant, because climate change poses an existential risk to humanity. This relies on climate predictions that have proven false time and time again, and a myth of scientific consensus on the issue. Liberals [!] attempting to use modern monetary theory to dismiss the cost are also misguided. [embedded links omitted; emphasis added]

Monday, July 15, 2019

MMT Link Roundup

Fiscal policy to the rescue in the Eurozone

Over the past few years, the economic literature and prominent scholars have paved the way for expansionist fiscal policy. In the US, Modern Monetary Theory proposes to finance a Green New Deal and full employment by increasing the deficit and using the central bank to pay off debt by printing more money. MMT is attracting more and more attention in Europe, including among populist parties, but also beyond, and will certainly be part of the conversation in upcoming elections.

When stock markets fall on good jobs data and easy money is the norm, we are in the midst of a Mad Hatter’s tea party

There’s always Keynesian-style fiscal stimulus to fall back upon, of course, if economic recession strikes. Nowadays, it has a new name, modern monetary theory, which argues that governments can spend their way out of trouble and never default on debt as long as it’s denominated in their own currency.

This puts Asia’s biggest economies including China and Japan in a relatively good position, as by far the bulk of their government debt is denominated respectively in renminbi and yen. But unless one assumes a massive public-sector bailout of private-sector obligations, this is scant comfort.

Will AOC Be the Next Fed Chair if the Dems Win in 2020? (Not really: it's a joke.)

How to Pay for Major Progressive Programs: Add New Money to the System

In Japan, it is a hot topic; and in China, it is evidently taken for granted: the government can generate the money it needs simply by creating it on the books of its own banks. Leaders in China and Japan recognize that stimulating the economy is not a zero-sum game in which funds are just shuffled from one pot to another. To grow the economy and increase GDP, demand (money) must go up along with supply. New money needs to be added to the system; and that is what China and Japan have been doing, very successfully.


Defend Fed independence. You might need it someday.

Both supply-siders and MMT adherents justify [rejection of central bank independence] by arguing that monetary policy is a tool of public policy that should not be controlled by a technocratic committee of economists any more than foreign policy should be controlled by generals. . . .

The Fed was set up this way so that it could take a long-term view without being influenced by the next election or the whims of the party in power. . . .

[Central bank independence] also removes a powerful tool that governments have for making policy. . . . I am willing to swallow this bitter pill because the same institutional structure that prevents supply-side economics from being fully implemented also constrains MMT.

MMT is risky because it overlooks the long-term costs of increased government spending. . . .

If a Democratic president embraces MMT, it will be crucial for an independent Fed to make sure that the potential costs of those policies are transparent, not papered over and left for future generations.

However, Smith says, "MMT waves away concerns about inflation." No, no, no, a thousand times, no! Get this right! MMT waves away concerns about sovereign default. MMT scholars consider inflation to the primary downside risk to fiscal policy.

The Stupid! It Burns!

America is insolvent, broke, deep into the red

More Talk About MMT

The second way [besides taxes] is much more appealing, to some: Simply print as much money as the program calls for, and then spend it.

That's the basic idea behind MMT. Remember, everything's made up, and the money doesn't matter.You see, advocates of MMT insist that because fiat currency is ultimately a creation of the state, governments can and should print as much of it as needed to fund massive public works, guarantee government jobs for the unemployed and much more. And since a government can never run out of money, the theory says, it can never default on its debts. Deficits are meaningless.

Anyone who's studied macroeconomics knows that unfettered money printing on this scale is a recipe for runaway hyperinflation. Look at Weimar Germany in the 1920s, or Zimbabwe a decade ago. Today, Venezuela is facing a head-spinning inflation rate of 10 million per cent, according to the International Monetary Fund (IMF).

Trump Mocks ‘Young Bartender’ AOC, Green New Deal

The Green New Deal
— which would cost taxpayers untold trillions of dollars — has a few rather extreme ways to combat climate change, like rebuilding or upgrading every single building in the U.S. to be more energy efficient, building trains across the oceans to eliminate air travel and banning nuclear energy within 10 years, just to name a few crazy key points.

Tuesday, July 09, 2019

Leftist fascism

the stupid! it burns! And the New York Times makes it, in good company with the Guardian and the Atlantic: Robespierre's America*

*Originally published in the New York Times

The data* confirm what one hears and experiences anecdotally all the time: In the proverbial land of the free, people live in mortal fear of a moral faux pas. Opinions that were considered reasonable and normal a few years ago** are increasingly delivered in whispers. Professors fear their students.*** Publishers drop books at the slightest whiff of social-media controversy.**** Twitter and other similar platforms have delivered the tools of reputational annihilation***** (without means of petition or redress) into the hands of millions, so that no comment except the most private is entirely safe from the possibility of instantaneous mass denunciation.

*What data?
**i.e. egregious racism and sexism
***No, we don't.
****Like The Bell Curve? Oh, still in print. Or Jordan Peterson's work? Nah, still in print. The Turner Diaries? Available on Amazon.
*****No, they haven't.

h/t to Eschaton