I'm willing to listen. We've let the alleged fiscally conservative party run with Trickle Down economic theory for decades, despite the fact that it's observably, objectively defective. Let's try some Trickle Up.
That's the more politely worded version of my argument. At any rate, Republicans are in no position to call MMT irresponsible, given that it's a variation of their program. The debate is between those who believe that deficits matter and those who do not, as opposed to Republicans believing that deficits don't matter, as long as it's their deficits. They don't get a voice in this discussion. They've spent 40 years frittering away that right (with the exception of Poppy, who actually did try to be responsible, fat lot of good that did him with voters).
Do you know about Argentina’s history? Argentina was never as strong economically as the US, but it had a healthy economy and a strong middle class into the mid 20th century, and was in fact a preferred destination for European immigrants, until the Peronist-inspired twin evils of protectionism and excessive government spending (fueled by liberally printing money) ruined us. Of course proponents of this so called new idea will be quick to dismiss us and fail to heed our cautionary story. The biggest problem with economics as a science is that it far too often gets hijacked by ideology and political expediency. Do you want to avoid voodoo economics? When in doubt, go back to its basic principles.
All of this is besides the point. Unless Argentina has been issuing debt in its own currency recently. And I know that Argentina exited WW2 as probably one of the top 5 richest countries in the world.
Recently has nothing to do with it. I grew up with this shit. I’m telling you about Argentina's experiments with this so called new idea back in the 1950’s.
If they were issuing debt in their own currency than it has some relevance to what is being said about MMT. If they were issuing debt in British sterling or US dollars, it really doesn't.
Correct. MMT applies to countries that issue debt in their own currencies. The case of Argentina, or pretty much any other developing country as far as I can recall, is immaterial, because Argentina issued debt in a foreign currency. We can't use Argentina to disprove/discredit MMT.
This is from this month. (I went over my allowed monthly articles). https://www.nytimes.com/2019/02/12/...-help-progressives-wonkish.html?module=inline A reply to it from Stephanie kelton who seems to think Krugman is getting wrong what MMT is, so I would say Krugman has not warmed up to the idea. https://www.bloomberg.com/opinion/a...dern-monetary-theory-is-not-a-recipe-for-doom
I wonder how many countries do not hold debt in USA dollars? (Meaning that MMT does not really apply to many countries, perhaps just a handful). According to this the USA has 1 Trillion (as of 2016) worth of foreign currency debt (we could easily convert it to dollars I assume). US foreign currency debt was less than 10% in 2016. https://qz.com/936836/denmark-has-r...debts-for-the-first-time-since-at-least-1834/
No, it isn't easy to convert large amounts of currency between nations. And when you try it has ramifications on the values of the monies.
Krugman thinks it has a kernel of truth, but that the argument is overstated and, yes, dangerous. Which means that Fox might soon be citing Krugman in support of its AOC attacks, an odd sight that will be.
I guess under MMT, the Fed would print more and more dollars so the percentage of debt the US owes in foreign currency will get smaller and smaller to the point of making it immaterial.
Interesting. There is at least a small part of me thinking you are telling me that though to keep SKC fans out of your state ;p One should also note that from an MMT perspective, seeing members of the supposedly more progressive party pat themselves on the back for how much more fiscally prudent they are is extremely frustrating. The budget surpluses during the Clinton presidency, for which the Democratic party is so proud of, can at least partially be seen as the mirror image of rising private sector debt during the same time period. Excessive private sector debt is what most economic crises are made of so this is what we should really be worried about. With respect to this it is interesting that quite a few proponents of MMT would actually argue for the abolishment of government debt. Its main use in the current system is to drain excess reserves in the interbank lending market through FED open market operations, thereby ensuring that the FED will hit its interest rate target. (I realize this sounds pretty wonkyish, I'll try to find an MMT blog article that explains this part in more detail and easier language). There are now quite a few MMT economists who would argue that paying interest on government debt is risk-free interest income that serves no purpose and is harmful from an income inequality perspective. They would say that the government should just let the interest rate fall to zero, which is what MMT economists think would happen without FED intervention. One should note as well with respect to the word 'debt', that technically, from an accounting perspective, government money itself IS debt. When the treasury spends, let's say buying a bomb from a weapons manufacturer, by means of the principle of double bookkeeping what happens is that the payment is registered on the liability side of the treasury balance sheet and the asset side of the manufacturer's balance sheet. A tax payment then is the extinguishing of this debt. In a hypothetical economy where only the government and this weapons manufacturer exist, if the weapons manufacturer was taxed on 100% of its dollar income, the whole government debt (= all the government issued money) would cease to exist and the end result would be that the bomb has been moved to the government's assets and from the manufacturer's. This is why MMT argues that what the modern money (and taxation) system effectively is, is the moving of real resources for the public purpose.
Yes, you can do this. It's called hyperinflation. It's exactly what Germany did to pay their WWI reparations. While it was a temporary measure, I certainly don't recommend it as a policy unless the situation were dire.
An article that I read (can google find it now) claimed that the risk of holding debt in foreign currency compared to local currency was getting lower and lower (I can not remember if they meant lower difference on the interest paid or in terms of countries defaulting). MMT would throw that out of wack wouldn't it? If you turn up the printing presses, then foreign holders of your debt may start to demand you put out debt in foreign currency, if the local buyers of debt are large enough (the Fed is basically doing this by printing money to buy the US debt) then it is not a problem (specially since the US dollar is the international currency, countries will still have to buy it). Japan shows that this is definitely possible, to what point we still yet to find out (at least 250+% of GDP).
Well I do not like it either, I am just trying to wrap my head around on how this would work. MMT is supposed to only be a tool for rich developed countries that can support massive deficit spending with local currency only. I was wondering how many countries this applies to in theory and it seems to be very very few countries could try this theory. I was surprised to find out that even the USA had debts in foreign denominated currency (less than 10%) so in theory, the MMT does not even apply to the USA. But that is probably just me not fully understanding how MMT is supposed to work. BTW Japan is sort of doing something similar, they do not have hyperinflation, they have problems with deflation.
I don't agree with the comparisons between MMT and supply side. The supply side theory is that if you cut taxes on the investment class, that will boost the supply side of capital, which will lead to a booming economy, which will lead to a reduction in social services payments and an increase in tax receipts, so that the tax cuts will pay for themselves. MMT says it doesn't matter whether a tax cut or spending increase pays for itself.
Side note, but part of the reason that MMT is getting a hearing is because conventional economic predictions have been so wrong. When Japan's debt-to-GDP ratio was 125%, the fingers were wagging. Inflation was on its way! Japan would pay for its sins. Now it's double that, FAR more than anybody ever would have thought acceptable, and Japan's most recent annualized inflation rate was .... 0.2%. As Krugman likes to argue, it's difficult to take seriously the arguments of the discredited, when they try to discredit a competing hypothesis.
I am not sure where people are getting the idea that Argentina doesn't issue debt in its own currency. It always has and even now it continues to do so. In fact, there was a time at the height of protectionism when Argentines didn't have legal access to foreign bonds or currency investments, except in the black market, and the only legal investments we had access to were those available in our currency. In recent years, because of the many defaults, the Argentine bonds are considered a very risky investment, and of course people prefer to invest in dollars and foreign bonds, so at the present time the external debt and foreign currency debt dwarfs the internal debt, and it's been that way since the 80s. But, unlike what some people are proposing with the revisionist economic history, in this case the egg clearly did come before the chicken, with the egg being the printing of money and the chicken being the devaluation of the Argentine currency. Before the government started practicing the irresponsible printing of money to cover social programs and infrastructure investments, Argentina had a solid currency. Afterwards it didn't. And BTW, back then Argentina was not considered "a third world economy". I remember as a kid THAT the Encyclopedia Britanica listed Argentina as a developed country, and that is exactly what it was, until we started that nonsense of printing money in order to fund government programs. Part of the problem is that, unlike with taxation, there is no short term political price to be paid for printing excess money. So politicians have no restrains, and the printing becomes addictive. That is what ended up happening with the Peronists - and to be fair, the opposition as well - in Argentina. Look at where Argentina is today and let it be a cautionary tale for those willing to heed it.
Japan is the only reason why we can't just laugh off MMT, it seems to be working for them, why can't it work for the USA or a few other Scandinavian countries. Even what to do with Japan debt is something economics argue about, MMT should say the debt is not real, it could just be written off the bank of Japan is buying up a lot of that debt, so they owe the money to them selves. It is uncharted territory Not all of Japans debt can be write off, lots of it is owned by retirement funds, so the Bank of Japan would have to print money and buy off all the privately held debt (or a huge chunk of it). China may also be an example, the government debt to GDP ration looks "normal" but when you add all the debt that State Own companies hold, their debt to GDP shoots up to Japan levels.
Once again, I'm unhappy with this language of describing MMT as a tool. In so far as policy prescriptions go, MMT would argue to not issue debt in a foreign currency and to not peg your currency to another one, as this restricts your policy space. But even for countries that do, it is still technically true that they do not need to tax or borrow before they can spend their own currency. What is true for smaller, less developed countries, however, is that the real constraint, inflation, kicks in way earlier than for countries such as the US. While it is true that they can afford anything in their currency, spending too much might lead to currency devaluation that might make it difficult to afford stuff in other currencies. While many MMT economists are definitely on the left side of the political spectrum, the key insights from MMT are politically neutral. In fact, quite a few libertarians have recently caught on to it as it allows them to argue for massive reductions in taxes without having to face the question of how to fund police and courts. What MMT argues for is that with any governmentally funded project, the first question should be: do we wanna do it? If this is answered in the affirmative, then the next question should be: Are there enough resources, in the form of raw materials, machines, workers, etc. for sale in the currency we control? If this is answered in the affirmative, then the project should go forward. The result can be a state that employs all of an economy's resources or one that employs virtually none.
Argentina has a history of defaults, so creditors will always get jumpy when they start to bust the "limits" of agreeable debt. The USA and developed nations get more leeway. PDF File. https://www.google.com/url?sa=t&rct...7-p177543514&usg=AOvVaw3N8ep7gZ7gdWQ1VxUJ9IHB
But why should this be? economically in theory there should be no difference on debt being held in foreign currency or local currency if the exchange rates are stable. It is only a problem if you expect your currency to de-valuate, because it makes it more expensive to service the foreign currency debt. On the other hand if you think your currency will grow stronger, you want to buy foreign currency debt as it would become cheaper to service in the future. The USA currently has over a trillion dollars worth of debt valued in foreign currency, how would MNT handle that? For the fed to print money, they need to account for it as a liability no? https://www.thebalance.com/is-the-federal-reserve-printing-money-3305842 That is a debt in accounting terms (well that is my limited understanding) . https://www.independent.com/news/2012/feb/25/how-us-federal-reserve-creates-and-destroys-money/ This is why MMT is very limited on what countries could try it. I will let @Timon19 handle this one if he wants. But only if the country can control the money printing process with our facing devaluation, 99% of the countries in the world can not do this in excess. So that leaves us with a handful of countries that in theory could try to do this. The US being one of them, perhaps the best suited one.