The Problem with “Modern Monetary Theory” Is That It's True
forbes.com
forbes.com
Historically governments that primarily paid for services by printing money (as opposed to taxes) have rarely, if ever, done so responsibly. In theory it's possible but MMT lacks the economic pushback caused by taxes. Traditionally, when government spending is too high people and businesses complain and the government sees the economy suffering. In MMT, the costs of government spending are essentially hidden. Or in another perspective, the cost of government spending comes in the form of inflation. To the everyday person, government spending is free because they don't see how much of their paycheck is being sent to the government. They only see the cost of government spending once their savings are wipes out by inflation.
Could the government maintain restraint and not spend much money? In theory yes, but in practice I am very confident politicians would give in to the temptation to try and carry out utopian policies that are insanely expensive. Just look at what proponents of MMT are promising: a government job for everyone that wants one, free University education, and more. I trust politicians not to abuse MMT as much as I would trust myself to use heroin responsibly, which is to say not at all.
Sounds like the theory is wrong then
(Maybe we just have a semantics mismatch of what we refer to by "theory")
I would say it's the other way around: MMT works in practice while in theory it should fail. Heroin, not so much.
These are not utopian.
The job guarantee is the primary policy proposal that has been put forward by MMT economists as the best solution to injecting precisely the correct amount of fiscal stimulus to offset the business cycle.
Whether or not you fund social programs, healthcare and education as well is a political decision, but hey why wouldn't you.
As Warren Mosler puts it:
Make the political decision about what the government should provide, set your taxes appropriately and then mop up around the edges with a job guarantee (paraphrased)
Even if you know in your heart of hearts you will spend responsibly, you must find others to extend the same trust.
But the truth is that the government is already quite addicted to printing money in the form of low interest loans, to which the consumer market's primary exposure is the housing sector.
Economic and technological progress create natural price deflation. Rather than just letting that happen, the Fed prints ever more money to keep the CPI treadmill running, which is causing housing to shoot through the roof.
If MMT could allow new money to be injected into the consumer economy somewhere besides home loans, having more uniform inflation could by itself be a huge win.
My understanding is that you and the article here are both missing a concept that most MMT theory flows from taxes. That the "print money to spend" power of MMT is only true when derived from a strong tax policy. The way I've had MMT described to me, in a fiat currency the only inherent value of the currency is its ability to pay taxes to the government. I've heard that tax policy is where MMT sets the value of the dollar (including impacting inflation). It's taxes that keep money moving, which is a critical component to every good version of MMT I've heard (spending isn't useful if it isn't moving after spent).
I've heard it said that the best spending polices under some of the best versions of MMT are those described almost entirely as loans to be recouped entirely by taxes eventually somehow (not always directly in the same person's income tax), and that most of the "magic" in the "print money to spend money" ability is in defining what the tax systems and time horizons are for "recouping" those loans.
There's no amount to make MMT work: MMT “works” by explaining that the “fisc”, the finite treasury you have to fill with taxes or borrowing in order to spend, is artifice, a set of unnecessary and misleading complications that comes from treating fiat currency as if it were commodity currency; tax and spending levels have monetary effects, and those are the fundamental constraints.
> I don't want them anywhere near monetary policy.
MMT tells you this is a self-delusion: “fiscal” policy is fundamentally monetary, and moreover it's powerful monetary policy, which the notional “monetary” authority is denied because of a fictitious distinction.
If you want an independent guarantor of sound monetary policy, MMT tells you, great, and you can give them control of the level of a universal stipend and/or a parameter that is part of the definition of the tax rates for all tax brsckets, while leaving Congress to set the distributional policy (who is qualified for the stipend, what the other factors in tax rates are, etc.), and its fine because aggregate levels of spending and taxes are no less monetary policy than interbank interest rates sre.
MMT doesn't "work" or "not work", it's an analysis of how currency functions.
One can just as easily understand MMT and legislate a balanced budget if one wants to, but one wouldn't do than anymore than remove the oil from their car every time they finish driving it.
Once you understand MMT it makes sense to legislate a target of 0% involuntary unemployment.
MMT explains the failure and addresses this directly. In fact, it explains the failure as failure to tax. Specifically, MMT explains that spending isn't constrained by revenue, since spending is fundamentally issuing currency, if you eliminate the elaborate rituals by which fiat money issuers pretend to be using a commodity currency that they don't control. But, issuing currency, ceteris paribus, created inflationary which, MMT explains, can be addressed by taxes.
Noah Smith talks about how MMT is a pretty slippery concept to pin down.
This article seemed to fall victim to the clickbait temptation in making the premise of the article "Modern Monetary Theory is somewhat accurate" in favor of just hyperbolic-ly stating that it's true.
In actuality currencies are a sort of stock issued as part of the value of an economy, if that economy does better or worse then the value of that currency does better or worse - it is much more resistant to change since it is far more liquid (imagine that apple said, you will always be able to exchange stocks for a new iPhone at this rate which is pretty steady but will adjust slightly over time). In this analogy printing more money is equivalent to the act of the company issuing more stock (and not equivalent to the act of an owner selling some of their stock) everyone's proportional stake in the company will go down, but as long as you don't issue too quickly then people won't mind, if a company does start over-issuing stock then that stock becomes diluted _and_ rational actors further devalue the stock by jumping ship and trying to convert their partial ownership into a currency they have greater faith in.
Right now the speculators' trust is rooted in the apparent independence of Fed from Treasury. If the US were to seek trust to self-manage from Treasury alone, how would it earn or argue for that trust from the community of speculators?
https://www.thebalance.com/what-is-quantitative-easing-defin...
The other contribution is that fractional reserve lending itself also creates inflationary currency. There is some 22T (IIRC) of private loans. I think the real objection to applying MMT more fundamentally is fear that allowing public programs to focus on good return on investment expenditures without worrying as much about cashflow against direct tax receipts, it takes out "capacity" for private lending to select it's desired investments.
I'm also not impressed by th6 author's claims about the FED not being audited, which is a trope common amongst a particular subset of the right that to the point it's practically a dog whistle for conspiratorial anti-tax and government types.
Even when the poor are in debt, the debt is usually short-term, and high interest rate, which is practically not eased by inflation. The easing of the debt burden by inflation implicitly assumes that wages keep track with inflation, which they do not, empirically, but arguably by design as well:
https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...
"Even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts."
Keynesian (and presumably MMT, I'm not sure) depends on the concept that the Phillips curve is a thing. But the mechanism for the Phillips curve to be a thing depends on wages not keeping track with inflation. In other words, you cannot claim that inflation reduces unemployment without also implicitly accepting that inflation is designed to cheat the poor out of their wages.
Huh? I write a check for many thousands of dollars every six months, based on the assessed value of my home and land.
We absolutely have “land value” tax in the USA, it’s just collected by the states in most cases.
It helps to know how (to simplify) a land value tax is assessed. The gov buys random property, demolishes the building, then sells that property on the open market and uses those data points to calculate a gradient. Then an arbitrarily high tax is imposed on the calculated value (e.g. 100%). It (in the long run) doesn't matter how high the tax is as long as it is high enough to capture all land rent, given current market assessed land values, since the price of land will simply adjust to the higher tax (a 400% tax could easily be levied). When such a tax is levied, no one will buy land except those that have a use for it, that is no land speculation/monopoly can occur. If you have more questions I would recommend asking e.g. the georgism subreddit.
The lower classes are in a bad way. They need help. But if the help is destructive, do they still need it? No, they need help that actually works. Anything else is not help.
So the discussion can't begin with the author's lack of compassion. It has to begin with, is he right? Or is MMT right?