Modern Monetary Theory

Discussion in 'Business & Economics' started by Seattle, Mar 24, 2019.

  1. Seattle Valued Senior Member

    This seems to be getting some traction. Why, I can't quite fathom. Politically, some of its proponents raise some valid points but as an economy theory it's got some fatal flaws.

    Are there any proponents here?
    synthesizer-patel likes this.
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  3. synthesizer-patel Sweep the leg Johnny! Valued Senior Member

    I'd be interested to hear what you think the fatal flaws are - I've only just started to dip my toes into the theory, but most of the critiques I've seen of the theory are strawmen - i.e "MMT says we can print infinite amounts of money and it will have no negative effects on the economy" - which is not what MMT says at all.

    At it's most basic level MMT is simply a description of how money and sovereign debt work in relation to the issuer of the currency that the debt is denominated in - and every single central banker in the world agrees with that description -including economists/central bankers who unironically reject the theory - so in that sense MMT is 100% empirically solid.

    There's also the argument that we are in fact already doing MMT to some degree.
    No one, least of all conservatives, really care about debt and deficits (unless they are not in power and they are using it as a stick to beat the opposition with) - MMTers would therefore argue that if we are just going to deficit spend like drunken sailors on a 2 day shore leave anyway (hopefully with less dead hookers than your average republican convention) - and the dire consequences that we are continually told will result of doing so stubbornly fail to materialize - lets use the deficit spending for something more economically productive than simply funding tax cuts for the wealthy.

    In general I think that most of the pushback towards MMT comes from political resistance to the ways that some of it's proponents propose to utilise it - like infrastucture investment, universal healthcare, and job guarantee schemes - instead of tax cuts for the wealthy - instead of from a genuine critique of the economic theory itself.

    I'll leave with a podcast of one of my favourite economists Mark Blyth discussing MMT with one of it's main proponents Stephanie Kelton which describes the theory and blows away some of the strawmen.

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  5. Seattle Valued Senior Member

    I think MMT creates the strawman and then knocks it down. They say the opponents (which is pretty much everyone) claim that all they want to do is print free money forever and that they (MMT) think it will have no negative effect.

    MMT says, no that's just misunderstanding our policy, our policy is more nuanced than that. They say that you can spend, more or less, all the money you want as long as it is for productive things. Inflation is when you are spending beyond the productive stage.

    If you need free education and healthcare for all, roads, other infrastructure, retirement safety nets, those are all productive things and if you need it you can spend money on it. They say if you spend too much forever of course that will be inflationary but they say we don't propose that.

    They do, more or less, propose that though. They also take the current reality, which is a ticking time bomb and instead of fixing that problem, they say it's not a problem. We know that there are structural reasons that the U.S. can get away, for a while, with incurring the debt that we are incurring. A lot of it has to do with the US dollar as the default international currency. Brazil can't follow MMT and get away with it. The U.S. can't either forever.

    It's like having your cake and eating it too. It's taking a current bad habit (excessive debt) and just saying it's not a bad habit. Don't direct it toward the rich and the military but instead of just not doing that and making the economy stronger they say to continue the bad habit of incurring debt, just use that money as Bernie Sanders wants and give a free lunch to his constituents.

    No matter how you try to disguise it, at the end of the day it's inflationary and won't work. MMT is usually short on examples and instead they just say that everyone misunderstands what they are saying.

    Literally they are saying that the government can spend as much money as it "needs" to. There are no examples of this working out anywhere. It's like Marxism, Communism in the sense that whatever the theory is, it never works in reality. Economic "equality" of outcome doesn't work. Everyone isn't the same and unless you shrink the economy to some base amount (thus making everyone poor) you won't have equality of outcome.
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  7. synthesizer-patel Sweep the leg Johnny! Valued Senior Member

    OK I get what you're saying and for the most part I think it's kind of a reasonable expectation - although it does seem that you've kind of gone where I predicted in terms of your objection being more of a political one than an economic one.

    Can you clarify something in what you said above in the passage I've quoted though please - what is it about excessive private sector savings that is a bad habit? How would reducing private sector savings by (presumably) putting the private sector into deficit make the economy stronger? that seems counter-intuitive to me
  8. Seattle Valued Senior Member

    I'm hesitant to compare governmental budgeting to an individual's budgeting but it seems helpful in this case. Your argument is similar to saying why should I pay off or keep my credit card balance low because that will mean I will have less cash in my bank account and surely it's better if I have more cash.

    In your scenario there is private sector savings only because the government is not being fiscally responsible over some time period.

    Sure there is a balance between taxation and government spending and therefore debt but it's just that, a balance, and not all taxation or no taxation. You seem to want to ignore the responsible part. The government can do anything as long as tax payers are willing to pay for it. They will not be willing to pay for programs to infinity.

    That's the appeal of MMT. It's just a way to get votes with unlimited spending at no cost to the taxpayers.

    If MMT worked there wouldn't be a poor country in the world. That's not the case obviously.

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