A 600-Page Textbook About Modern Monetary Theory Has Sold Out
bloomberg.com
bloomberg.com
The Wikipedia article seems far more useful:
https://en.wikipedia.org/wiki/Modern_Monetary_Theory
To quote the intro:
"MMT advocates argue that the government should use fiscal policy to achieve full employment, creating new money to fund government purchases. The primary risk once the economy reaches full employment is inflation, which can be addressed by raising taxes and issuing bonds, to remove excess money from the system.[3] MMT is controversial, with active debate[4] about its policy effectiveness and risks."
Net result was: everyone had a job, everyone had a high (in nominal value) salary, but the money we had was worthles - you couldn't actually buy anything with it, because the store shelves were empty. Government had to ration all consumer goods, by introducing stamps (similar to foods stamps in the US).
It is funny to see communism making its great comeback :)
Mainly because, I feel there are very few data points to draw conclusions on how this will turn out.
Look at bitcoin, its value is expected to go up, so owners never use it, they don't even feel the need to put it in a bank account to hedge against inflation, because the likelihood is there'll be the opposite, deflation (because theres a fixed number of coins that can be made). So now you have all this cash sitting there doing nothing. Not being lent to businesses, so they can grow, or invent hover boots or what ever, it's not being put in a bank, so they can lend it to someone to buy a house.
It just gums the system up, the haves accrue more by doing literally nothing. The have nots have no opportunity to improve their lot, or the lot of the haves.
Additionally, lending and borrowing is becoming a really popular application for crypto. You should take a look into things like Compound, Dharma, dYdX, nuo, BlockFi, and others. [1] Decentralized lending + borrowing with collateral is super hot, with amazing interest rates. On dYdX right now you can get a 6.2% APY on USDC, which is a stablecoin pegged to the US dollar. My bank savings account only gives me 2.2%. That's a 2.8X multiplier on the best bank rate available right now. And not on a volatile asset - a pegged-to-USD asset.
It's actually practical - more practical than traditional finance - if your goal is to save via compound interest. The idea that crypto is sitting around doing nothing isn't accurate at all.
But besides all that, the idea that "money sitting there doing nothing" is bad is wrong anyway, since the money that "does something" becomes worth more. This argument confuses numbers for value. Economic output doesn't care about how we quantify it, it cares about resource allocation. The value of our flappy paper tabs changes to reflect economic activity and its own scarcity in the economy, not vice-versa.
[1] defipulse.com
Money that "does something" ie gets lent to businesses to expand, or to people to buy houses is being allocated, its being allocated to something productive, whereas under the mattress isn't. Under the mattress isn't economic activity, lending it out is, or can encourage it at least.
Plus in my jurisdiction I get a capital gains allowance, so its better to spend the bitcoin now and make full use of each years allowance, than save it up for whenever.
This is one of the most magical modern things you can do with debt. Previously in human history, you can borrow money to others to create wealth which was then translated into more money. This was an extra-ordinarily powerful concept we called "debt". Now we can borrow from future ourselves! No one knows how this will pan out.
I guess I'll just hoard ammo and gold bars instead of building savings. At any given time at least one of those is in high demand.
You're describing someone that's good at managing money, which runs counter to the idea of having a big pile of uninvested cash.
And if you would ever actually consider gold for stability, stocks should be no problem at all.
Cash nearly always loses to inflation, that's why you're only supposed to keep medium/short term money in the bank, longer term saving should be done elsewhere.
Moreover, when the poor are in debt, assuming they have access to some sort of formal or informal banking services, which many do not, they're usually in debt at short term high interest rates (think low double digits in the case of credit cards for the lower middle class down to 20-30% per annum rates for lending shops for near-poverty and below), which are basically unaffected by nominal debt burden effects of inflation.
If you're spending 90% of your income on day to day needs and there's 1% inflation, that's a ~10% decrease in your margin of survival. If you're spending 20% of your income on day to day needs that's ~1% decrease in your margin of survival.
Now, of course "wages keep up with inflation" or something like that. Except, they don't: (https://www.epi.org/productivity-pay-gap/ - bonus: the divergence kicks in right after nixon closed the gold window), and even if they did, the model that inflation is a policy strategy for correct for sticky wages (https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...) goes out the window.
Inflation exists to silently steal from the poor to give to the rich.
Your link talks about wages not keeping up with productivity, not inflation.
Wages have most definitely grown faster than inflation over the past 50 years.
Financial instruments that only the rich have access to (shorts, puts, ETFs)
And doesn't the price of assets increase in lockstep with inflation? Those holding cash and bonds are the ones getting pinched during inflation.
According to this article [0], the Fed controls two of the three most important interest rates in the U.S. But if you look at their chart, all three rates have followed each other very closely since 2000. Although the Fed doesn't control the prime rate it seems that the prime rate doesn't deviate from what the Fed is doing very much.
[0] https://www.thebalance.com/what-interest-rates-does-the-fede...
> If inflation (as measured by the Fed) increases and the Fed wants to lower it, they can decide to raise interest rates but it doesn't happen automatically.
That's what I meant.
Rich people in general know about inflation and invest in things not affected by it.
On the other hand deflation negatively impacts rich people. Vast majority of income for many rich people is passive income. Deflation makes it miniscule while at the same time empowering poor people to aquire capital at negligible cost.
Most (all?) rich people will leverage their capital by purchasing assets with debt. The value of the assets increase with inflation while the debts typically decrease (both in real terms and as they are paid down).
Now, this works for the middle-class homeowner too by increasing the value of their largest asset: primary residence. However, wages typically won't keep pace with higher rates of inflation.
I would argue that the total amount of debt doesn't really matter to most working-class people, it's actually the monthly payment. Most are constantly comparing their monthly take-home pay to their obligations and looking for additional opportunities to consume.
Please let me know where I bugger this.
New money is either created through Federal fiscal spending or through loans (e.g., businesses). Because there is only so much monetary space in an economy beyond which inflation occurs, policies must choose between a mixture of fiscal spending (public works) and loans (private sector).
1. The prototypical fiscal conservative position is low taxes & low spending.
2. The prototypical fiscal liberal position is high taxes & high spending.
Each of these policies can provide roughly the same monetary space for money creation through new loans, but can incur different problems (e.g. over/under regulation, over/under provision of services).
3. A low taxes & high spend policy could push on inflation, pushing out money creation via loans if maintaining inflation target (via raising interest rate).
4. A high tax & low spend policy could pull deflation, driving money creation via loans if maintaining inflation target (via lowering interest rate (but will there be customers?)).
But none of this has to do with the "federal deficit is bankrupting us" arguments that have plagued our policy discussions. The shift in framing by MMT allows us to move away from debt towards how to most productively use new money creation. Some believe public works are productive. Some believe that businesses are most ready to use new money productively. hy does productivity matter? Apparently, from what I gather, when new money is used productively (creates value) it is less likely to be inflationary, perhaps because it creates new products and services instead of just driving demand. And the shift in focus allows us to focus on answering the important questions about how much money can be pumped into the economy (and to whom) before we see significant inflation, and relatedly, what are the real drivers of inflation. For example, money creation can create too many dollars chasing too few goods, but if there is an excess in supply/supply capacity, then you won't see inflation until there is an equilibrium. I suspect that our economy can run a lot hotter before we see a lot of inflation outside of housing, non-competitive markets, and healthcare.
I'm just a guy that has read a few blogs on monetary policy. I'm probably wrong on a bunch of levels.
https://news.ycombinator.com/item?id=20065380
That being said, MMT is also similar to what Japan has done, and it caused neither recession nor growth there. I mean the Japanese central bank owns even equity ETFs, it's kind of insane. And still no results, which is even more insane:
https://www.economist.com/special-report/2018/10/11/what-to-...
MMT is very "in" right now but most people won't finish a 600pg novel, let alone a texbook.
I'm a bit confused. My impression is that this is overwhelmingly the dominant view in mainstream political discourse. My impression is that, at least in the United States, it's considered fairly radical to talk seriously about significant spending cuts, balancing the budget, or even having the slightest concern at all about budget deficits or national debt.
Society says go find an echo-chamber and don't bother anyone. ¯\_(ツ)_/¯
Republicans (and some democrats) have used "balancing the budget" rhetoric, to justify cutting or refusing to expand wellware and social safety net programs. This has died down once they got into power because no one actually want to balance the budget (cutting military spending is not exactly a hit in republican strongholds).[1]
So in a way you are right, no one is _seriously_ talking about balancing the budget, but people certainly were talking about it.
[0] https://en.wikipedia.org/wiki/The_Path_to_Prosperity [1] https://www.vox.com/policy-and-politics/2018/12/10/17929460/...