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Modern Monetary Theory: - The state creates money and spends it into existence - The state taxes back money to control inflation, achieve social outcomes and incentivise certain behaviour.

The problem is the population like 1, and dislike 2. But inflation comes later and humans are bad at thinking rationally about future consequences (see: climate change).

So it’s almost inevitable you get uncontrolled spending with printing. Aka ‘brr’.

The other problem is that printing by itself is actually quite socialist. If everybody got equal and the dollar devalues equally across all asset classes goods/services, you end up reducing savings and reducing debts. One could argue this is Good.

The problem is the printing just pours straight into the fat cats of Wall St and you end up with gross inequality.

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The trouble with MMT isn't necessarily so much that it's wrong, it's that it seems to have been latched onto by populist rabble-rousers who tell people that the government could just print enough money to give people all the nice, expansive government programs they'd want without the part where they tax ordinary people to pay for them, and the only reason they haven't already is because politicians are in the pockets of wealthy fat cats.

If MMT is not wrong (and it's not), it means that the government can spend all that it choose in its own currency with the only limit of inflation. This means, that the size of public deficit is important because it can be inflationary, but the size of the public debt, it's only an accumulate of past deficits and it's kind of irrelevant.

If this is the case, it seems to me, that when, politicians say that there is not enough money, or the public debt is too high, they are basically lying to the population. That's the kind of lying that we don't hear when is time to spend in a war, or cut taxes for the rich, for instance.

We agree that many politicians are in the pockets of wealthy fat cats.

The size of the debt is not irrelevant in MMT.

Public debt is simply shifting inflation in time, with the costs that additional inflation will be created, due to the additional spending on interest.

In short it is simply reducing inflation today in order to have that inflation in the future, and that shift in time will require additional taxes to pay for it.

There is not mechanism by what issuing public debt will reduce inflationary risks, in fact the opposite could be true.

There is a suspicion in MMT that issuing bonds and high interest rates could be actually inflationary because the interest payment of that bonds. They don't think that there is a clear proof of it, though. Note that this is the opposite of what mainstream economics believe.

Now, from the MMT perspective, issuing bonds is not necessary in order to fund spending. From the MMT perspective, bond issue is a "choice". It's not exactly a choice because there is a legal mandate, but from the practical point of view bonds are not necessary to facilitate spending. So, you could just expend without creating new bonds, and keep the public debt number as accounting device (that it's what basically is).

Even if a government "choose" to issue bonds, the interest is decided by the government through the Central Bank. The Central Bank have the capacity to keep the interest at any point they decide (as you can see in the Euro-Area at the moment). And, of course, if the bonds are owned by the Central Banks (as is the case of a lot of the USA, Euro or Yen debt at the moment), the interest will go to the government who can decide if to run a deficit or a surplus depending of the fiscal space available at the moment.

>>"and that shift in time will require additional taxes to pay for it. "

Because governments are the issues of the currency, they don't need to tax in order to spend. Increasing taxes could be necessary if you want to spend and the fiscal space is not there in the economy, but that's highly dependent of the circumstances of the economy at that point in time, not a given.

So, no, it's not reducing inflation today in order to have inflation in the future and, not, it will not require additional taxes to pay for it.

> There is a suspicion in MMT that issuing bonds and high interest rates could be actually inflationary because the interest payment of that bonds.

A long-term increasing interest rate (especially at a low absolute level) ought to push inflation from income-producing assets to other things, because rising interest rates would undermine the reason for buying the claim on future income. I think that's backed by theory and empirical evidence from the 70s, and simply amplifies how tenuous the macro financial situation has become. Even more alarming, the Fed thinks the lever to reduce inflation is interest rate increases ... which as noted at some point in the rate-raising process should shift asset inflation into consumer inflation, which would beget more raises.

MMT is wrong in the sense that it's unimplementable. If you need to curb spending or raise taxes to slow inflation in the latter half of a cycle a politician can run on a platform of not doing that thing, get elected on that mandate and then it all falls apart.

If it ran on autopilot then it might work, but in a democracy it won't run on autopilot.

MMT is not unimplementable because it's already how it works. In its major part it's a description not a policy. So, with MMT already working all these past years, inflation have been below the desire target. The poster child of MMT, in terms of monetization of debt, is Japan, and Japan has been incapable to create inflation despite wanted it desperately for many years.

>>"If it ran on autopilot then it might work, but in a democracy it won't run on autopilot."

If you listen to the MMT economist, you will see that they are big proponents of automatic stabilizers. The infamous "job guarantee program" is basically an automatic stabilizer of inflation and unemployment.

I mean, the issue is our tax code isn't taxing wealthy people enough.

I don’t think you mean that exactly.

I think what you mean is that the super-wealthy are the primary benefactors of the system which everybody else (mostly the moderately wealthy) is forced to pay for.

But you’ll never get ‘fairness’ by force. Whoever wields power will use it to their own benefit.

It seems that you are implying that "Modern Monetary Theory" has been adopted, if that's the case, you are totally missing the point.

MMT it's a description (a theory that can be validated) of how the system works, not a recipe. Finally, after unavoidable evidence, people are starting to accept that this is how modern money really works (and have been working for quite a while).

Now, we can have a conversation about what to do with it (I suspect that's a conversation many don't want to have), instead of talking about "public debt" and "borrowing from our grandchildren".

By the way, most MMT economist recommend very different policies of what has been done, what is vindicated here is the "the state creates money and spends it into existence" only limited by inflation part. That doesn't mean that they recommend Quantitative Easing for instance.

> One could argue this is Good.

Milton Friedman has several lectures around this. While excessive taxation and inflation are both bad for various reasons, inflation disproportionately hurts the poor.

People who own homes, businesses, stocks, cars, gold, silver, bitcoin, farm land etc. dont have to worry about inflation as much. Those who have only cash in hand are the losers. Poor people who typically have only few thousand dollars in cash deposit savings see their money being wipes out by inflation. You dont have to worry if you have sp500.

The poor aren't affected so much by monetary inflation as by old-school wage-price inflation. If wage inflation > price inflation, they're winning. Considerable effort has been invested (mostly by Friedmanites) to suppress the mechanisms of wage inflation. Conversely, if wage inflation < price inflation, that's a serious and immediate cashflow problem which will eat up their savings far faster than mere inflation will.

> typically have only few thousand dollars in cash deposit savings see their money being wipes out by inflation

10% inflation on $1k savings vs 10% inflation on a $20k salary: you do the maths?

Couldn’t the government counter this effect with tax breaks or UBI? Like how a carbon tax along with tax offsets alleviates the burden on the poor due to an increase in price of consumer items.

The carbon tax, like vat, is a tax targeting the poor entirely. Tax offsets? Yea right..

The middle class pays nearly the entire tax income ball. Funding UBI or anything else will have to come from there. The tax offset will always be in the benefit of the upper brackets, because they can't fund such a pool of money to be redistributed anyway. Tax corporates? Oh no, that would stifle innovation and reinvestment. So, tax the middle class. But that won't work. They already spend 2/3 of their earned wealth in various taxes. Nobody is going to work to fund a UBI they can get anyway.

I love the idea of UBI, but doing the math and figuring out how people think about whether producing value for others vs doing nothing should show that it just can't work.I would happily be won't and take the UBI cheque and do something productive while not really having to care about the adoption of whatever I'm producing

The Canadian carbon tax returns 90% of its revenue as a rebate. It works great -- my family gets $500 a year, more than what we pay.

As far as the middle class paying for most of UBI, that's exactly what's supposed to happen. If you're an average taxpayer and UBI is $1000/month then your taxes should increase $1000/month.

The 90% carbon tax rebate is interesting, because everybody thinks they are at least 10% better than average.

> The middle class pays nearly the entire tax income ball.

Only because we choose to gift the capitalist class with preferential tax treatment. If we treated all income as income, the tax burden would shift from the middle class and higher-income working class to the capitalist class, where it rather self-evidently belongs

For most citizens, the benefit of spending goes negative after a certain point. But each additional dollar does benefit somebody, and everybody is fighting for it to be them. The strategy of reduced spending is a global optimum, but not a Nash equilibrium.

FED creates most money just by allowing commercial banks to loan the same money multiple times. How many times is controlled by rates.

Good thing about producing money this way is that it has a fixed lifetime. When credit is paid back money becomes borrowed one time less and thus disappears from the economy.

So the way to control inflation is to just adjust rates so that more credits are being paid back than issued. This scales down money in the economy.

Taxes have barely anything to do with it.

The only fault of this system is that when people default on their loans en mass, the additional money stays in the economy and can't be removed which results in inflation.

https://en.wikipedia.org/wiki/Money_multiplier

The fundamental problem is that we don't want to tell baby boomers that they will have to work until 70 in order to keep the system afloat, or that if they are rich (including the value of their house) that they should pay for their own retirement and healthcare in old age and not receive any handouts.

Instead we will allow them to retire at 60/65, pay pensions independent of their personal wealth, and run the system into the ground.

(Government spending on the healthcare and welfare - which is overwhelmingly baby boomers with expensive chronic health conditions, and their pensions - is about 50% of Government spending).

Aren’t most baby boomers already retired?

> The fundamental problem is that we don't want to tell baby boomers that they will have to work until 70 in order to keep the system afloat, or that if they are rich (including the value of their house) that they should pay for their own retirement and healthcare in old age and not receive any handouts.

We could also tax the rich to fund the pensions and healthcare of the masses. The amount of wealth the mega-rich have gained over the last year alone is absurd.

That doesn't really solve the end purpose, which is that Baby Boomers need to lessen their consumption of national resources (real estate) and global resources (food, energy), so that these limited resources can be utilized by the next generations.

It should be mandatory (either formally or through the pension/taxation system) for example to downsize your home and portfolio before you receive any subsidies or welfare.

I don't think there are a lot of MMT proponents at the Fed.

There are lots of research economists at the fed with many different views. The St. Louis fed in particular produces many excellent reports.

But… the fed is a business. They will operate to expand their domain to the maximum extent possible, regardless of internal opinion. Same with government.

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