https://talkingpointsmemo.com/edblog/thinking-about-the-magical-elixir-of-mmt This is the first I've ever heard of it. The concept is very simple. The government spends money in dollars, and the government also prints dollars. So we can completely decouple taxation and spending. It's a breathtakingly revolutionary idea. My sense of it, based on what I know about economics, is that as a policy of how to deal with the next 5-10 years, it's fairly solid, because as a practical matter we won't get to a point where markets question how safe US debt is. But at a certain point, it won't work anymore. But maybe that's just my Newtonian brain failing to understand Einsteinian physics. A few Dems explicitly support the theory, but many more semi-implicitly support it. By that I mean, they favor a level of new spending on Democratic priorities that will cost more than the US will get back by repealing recent tax cuts on the rich. I don't think a financial transaction tax that is low enough to allow markets to function properly will raise enough money to square the circle. So they engage in handwaving arguments on the "how do you pay for it" question. Sure, repeal some recent tax cuts, and introduce an FTT. That only gets us so far. My personal belief is that a radically new defense strategy might well save enough money to square the circle. A carbon tax could do it, but can it do it at a level that's politically feasible? Anyway, interesting article. For those of us interested in policy, the MMT concept will probably begin to factor into policy debates this cycle.
I don't really understand it, either, but it does strike me that one reason for its popularity (aside from having practical implications that please progressives) is that conventional monetary policy has flopped, mightily. At least in the U.S., the traditional relationship between changes in money supply and inflation has long been broken, to the extent that Milton Friedman's (alleged?) doctrine that money is everything might be more accurately stated, money is nothing. Now, MMT is an old concept, so it didn't appear just because monetary theory's predictions have failed. But I think that likely has helped MMT's credibility.
I agree with this part. This thread may be made for Totti fan. We can definitely increase our debt, Japan had about 260% of Debt to GDP and they still function. The thing is what is the max? the USA dollar is the world currency and the USA T-bill the safest asset (relative), we could get perhaps to 500% with no problem, we do not know. There is an argument to be made by Democrats that we do not need to worry about the deficit, but don't play games, just own it, make the argument and see if they can win with that argument.
That, by the way, could be used to describe the policies of modern Republican Presidents, save for Poppy.
https://www.motherjones.com/kevin-drum/2019/02/is-mmt-the-liberal-version-of-supply-side-economics/ Kevin Drum collects a number of links to lefty economists who reject MMT. Which brings us to another difference between the left and the right for the past 30-40 years...the hack gap. Conservative intellectuals are far more prone to whore themselves in support of nutty conservative ideas than liberal intellectuals doing the reverse.
The article you linked does end with a caution. We will see how far they get, it can be seductive, everything you want (in terms of policy) with out having to worry about raising taxes. https://www.huffingtonpost.com/entry/stephanie-kelton-economy-washington_us_5afee5eae4b0463cdba15121 https://www.economist.com/briefing/...-to-shake-up-the-economy-and-save-the-climate
I don't think that it would affect things that much, because we already avoid inflation while spending what we think we should and taxing what we think is prudent (under varying definitions of "should " and "prudent") and they aren't coupled that much these days. The main thing this system would do is efficiency away the whole treasury bond system, and that sounds like a terrible idea.
It’s in macroeconomics 101. You increase the money supply - for example by printing more money to pay for government programs - and prices will go up. We tried that in Argentina, and we got hyperinflation.
The money supply has increased fantastically in the last decade. We have crazy debts and deficits. Inflation isn't happening. Those things aren't linked by iron bars.
That’s what I meant by saying it’s a reasonable policy for the next 5-10 years. spejic is, IMO, right within that time frame. But, again IMO, ASF is right in the long run. One difference between us and Argentina is we are the mother********ing USA. So the rules of Econ that apply to Argentina and Zimbabwe and Greece don’t apply to us. I’m being completely sincere; we can get away with stuff nobody else can. Maybe China in 20 years or something, but not now. Messi won’t lose his starting role over a bad week of training or a bad game. He’s Lionel ********ing Messi. The rules of squad selection that apply to mere mortals don’t apply to him. But if he strings them together for an extended period, well, even LFM, eventually, loses his spot in the 11.
But that is why you run MMT in the long run by having reasonable taxes and not going wild in spending, which is why I said that running things in a MMT system won't be different than the current system (in gross terms). Our current system is a budget system in name only (mostly), but we are used to running it and it provides tools (like Treasury bonds) and the occasional stupidity (like voting to increase the amount of debt). MMT isn't hyperinflation madness, but it isn't magic either. The problem is that it makes you think about things the wrong way. Money may be infinite but resources aren't. It's people's increased competition for resources that create monetary problems like inflation. You can print money like crazy but if it sits under rich people's mattresses it doesn't matter.
Yes, we can say that the levels of consumption in the US -as well other places, like Japan, let's not become American exceptionalists here - have been nothing short of amazing, and they have defied sound economic models. This has indeed served to control inflation in the short term. And as long as there is enough cheap raw material and cheap labor in other parts of the world to support the consumption excesses of the wealthiest nations, the ability of said wealthy nations to continue to increase consumption and avoid inflation seems virtually limitless. But in reality it is not limitless, and to test its limits by giving politicians carte blanche to print money is a very dangerous policy. As you well said, even phenom Messi will wear out if you play him too much. Give politicians the ability to print money to spend, and we'll get inflation. Trust me.
Look at Japan, lots of debt, low/no inflation. They do sort of manage/peg their currency to the dollar. So it depends on how far it goes, but the USA can borrow a lot more than what we currently borrow and still have low inflation and low interest rates. I don't think it is a good idea, but it is not the disaster than econ books would tell us.
Is just pushing the problem down the road. Eventually the markets will/should react and demand higher interest or the supply of your currency will massively exceed demand creating inflation. But the limit that the global market will bear is much higher than previously understood, we are no where near that limit. In a way we are pushing a problem down to our decedents anyways. We can do nothing about global warming and tell them to deal with it (they may have better technology to deal with it), or we can borrow now and try to mitigate the problem. It also depends how we spend the money, short term spending with an end would be better, investing in education would give a good return on investments. But as Superdave's link above indicated, if this is just a liberal version of supply side economics and the money is spent on social programs (well intended as they may be) with low Return on investment, the borrow to keep spending can get out of control.
I have studied under Kelton and Wray (two of the main proponents of MMT), so I'd be happy to answer any questions with regards to it. The two things that have come up so far that I would like to clear up is the issue of "adopting MMT" and inflation. With regards to the first, it is MMT's assertion that at least in its basics (of course it has policy proposals such as the job guarantee currently being popularized by Ocasio-Cortez' Green New Deal), what MMT is arguing is not prescriptive but descriptive - the United States government and every modern nation that is the sovereign issuer of its own currency (that is, any government that spends taxes and sells bonds in a currency it itself creates) already operates according to MMT principles. One of MMT's core points is that any government that is a sovereign issuer of its own currency cannot be forced into bankruptcy for debts denominated in a currency it controls. Any money that the US government spends is simply keystroked into existence by the Treasury-Federal Reserve System. In order for money to exist which subsequently could be paid in taxes back to the government it first has to be spent into existence by the government, which means that logically, government spending cannot be financed by taxes. This means that operationally, the US government is neither constrained in its spending by tax revenues nor by the willingness of other entities to buy US debt. (Note here that the same is not true for state governments. Kansas is what MMT calls a user not an issuer of the US dollar, hence it is constrained by tax and other revenue streams). This leads to the second point - are there other constraints to spending? Besides artificially politically created ones such as a debt ceiling, the main other constraint is what has already been mentioned here, inflation. If government chooses to spend so much that there are no resources left for the private sector to buy, this will inevitable push up prices. Inflation is therefore a real constraint to spending, but it has to be noted that an expansion of government spending from its current level will only lead to significant inflation in the short term if private goods and service construction are already at capacity (since otherwise companies will just increase production rather than prices) and in the long term if increases in production capacity are not possible (since otherwise companies will just increase capacity, at least if they see the increased amount of government spending as permanent). As a final point, the MMT analysis of hyperinflations that have actually occurred would suggest that rather than excessive money printing being a cause of hyperinflation it is rather a consequence of it. Hyperinflations tend to be associated with extreme events such as (civil) wars that lead to significant reductions in production capacity, or, crucially, with the taking out of significant amounts of debt in a currency that the country does not issue. This has been the case with Argentina in the 1980s. (see for a longer explanation on this topic, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102 )
And Venezuela, no civil war (yet), but they have hyperinflation, other countries no longer trust their currency so they have to borrow with foreign currencies. Price Controls may have been that extraordinary even that caused hyperinflation. When prices start to go up, authoritarian governments tend to go for things like rent controls or fuel price controls to keep the population happy, that limits investment into creating new resources. Printing more money also means your currency would be cheaper vs foreign currency (unless other countries do the same) that means their products become more expensive and your products become cheaper for them to buy. That should help your export oriented production companies, but harm your purchase power. Zimbabwe is another case of Hyperinflation not caused by war, but by mismanagement of resources.
Thanks for the extremely helpful insight. So MMT has a theory about inflation, and it has a remedy...stop printing money when inflation starts. The “descriptive” part is insightful. I know Matthew Yglesias has made that point several times. To me, one of the intellectual obstacles MMT needs to overcome is that almost all voters look at macroeconomics as if their family finances, I.e., microeconomics, are the same thing. Politicians feed that bullshit narrative. I’m not sure if they understand it themselves, if their stupid analogies are ignorance or an evil attempt to reinforce conservative priorities.