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Comment by roenxi | Hacker News Reader

An important point to keep in mind when talking about MMT in a policy setting is that the people who will implement it don't care about theory and will make a series of short-term politically expedient and/or vaguely corrupt decisions. If they implement MMT, there are good odds that it will just look like money printing.

It doesn't really matter what the academic plan is, the policy isn't going to follow it. Much like how interest rates were supposed to rise after being dropped to emergency levels a decade or so ago and instead a 25 bps rise is front page news.

All the politicians/relevant voters are looking for is a green light to hand out money and some buzz to say that it'll make everyone better so ignore the doubters. If they cared about good economic policy the last few decades would look very different. The dominant ideology is that centrally planned interest rates are a good idea, and that is questionable.

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Yeah, happened with both monetary policy as you observe, and with Keynesian fiscal policy - deficit spend to cushion and shorten downturns, then contract govt spending and pay down the debt during good times, so that you can afford to deficit spend again in the next downturn.

Makes sense in theory, but the second half doesn't always happen b/c politicians like buying votes with govt spending (either via under-taxation or over-spending, to the extent those aren't the same thing).

Or alternately raise taxes in the good times (rather than interest rates) and pay down that debt... which at least in the US we've got one political party dead set against at all costs.

A generation ago, progressive cycles of deficit spending and taxation had put the top tax bracket in the US at 90%. Still, there was persistent inflation - and worse high unemployment.

The belief was that the Federal Government had grown too large in the economy and needed to be "starved". To what extent government austerity vs. new monetary policy moved the needle for the US economy is unknowable. However many Americans of that generation feel that the starve the beast approach was correct.

If you talk to Americans opposed to new taxes, their opposition is usually based on the idea that the government will waste the money in one way or another. Even those on the left in favor of taxes are often in favor of taxes for redistribution purposes. It's rare that anyone pitches the government as competent outside of military spending, and even then there are many asterisks on 10k light bulbs in submarines.

If you want Americans to agree to taxes you'll need to change the perception of government competence.

> It's rare that anyone pitches the government as competent outside of military spending

Genuine question - do people see military as competent when it comes to spending?

The $2000 leather chair and multiple $3000 tvs my commander ordered for his office to be delivered to Kabul during a war would say no.

Nope, but the military gets a pass in most years as at least being competent. Most Americans believe that most government agencies are both incompetent and profligate.

The US military hasn't won a war in about 20 years.

That's too broad a brush. I'm against militarism, but what engagement against conventional forces has the US military lost in the last 20 years?

I can't speak to dealing with insurgencies but it's clear to me that a mix of various administrations policies was to blame more than military effectiveness.

I mean was it the military or Paul Bremmer and co who disbanded the Iraqi military and unleashed a lot of chaos?

Given that it’s the most powerful military in the world I would say it’s probably the one place where we have at least gotten our money’s worth.

I don't want to say yes but damn if we don't have a lot of military might, and as much as an American I want to say stop spending it who will fill the void? We're probably the least bad of all possibilities, and if you disagree, please teach me because I'm legitimately open minded!

Perhaps the void would be democratically elected governments who don't sell their countries to US corporations. Since WWII, USA has a poor record.

There are two straightforward answers to this.

The first is that other Western countries could pick up the slack instead of having it fall disproportionately on the US. It only got the way it is because the others were mostly bombed out after WWII and that's no longer the case.

The second is that if the US spent less and did less military interventionism, adversarial countries might not feel the need to spend as much either, and then the balance of power stays the same while everyone spends less money on bombs and warships.

The US is the only one who can initiate this because they're the only ones who can reduce military spending without being threatened even if others don't.

No, but there is a method to the madness. Military units are often given an allowance for the year. One of the responsibilities of a commissioned officer is to often manage the unit's finances. Being in the Navy, my Bosun manage my aviation fuel division's finances. The captain of the ship manages the ships finances. Or at least, they sign it all off. If units do not use their budget, their budget get slashed last year. Essentially money mismanagement comes down in many way to some rules implemented awhile back (80s I believe during the Reagan admin). If a government agency or group does not use the full amount allotted, then they are at risk of loosing some next time they are allotted money. What this has done is create a system that encourages government agencies and military units to use up the budget no matter the cost. You don't wanna be the guy who had money left over last year, so your budget got cut, not it is this year and you had 4 major equipment casualties and because your shortened budget, can't afford for the unit to buy parts. Then, this makes you looked incompetent and hurts your career.

This is why the fuels division I was in, we often bought new desk chairs every year and $500 pocket knives and parts we would never need. Literally had to throw parts away to make room for the new parts.

> A generation ago, progressive cycles of deficit spending and taxation had put the top tax bracket in the US at 90%. Still, there was persistent inflation - and worse high unemployment.

AFAIK the "90%" rate is highly misleading because at the time there were a lot of deductions that bring the effective rate much closer to today's levels. We can see this in the federal tax receipts as % of GDP, which remained mostly flat despite the top bracket dropping from "90%" to 37%

https://fred.stlouisfed.org/series/FYFRGDA188S

The perception is created by billionaires buying "news" media to spread propaganda to get people to vote against their own interests, leading to "hurts itself in its confusion" attitudes like "keep the government out of my Medicare".

The Kochs, leaders of the "small government" movement are the heirs of a billionaire whoade his fortune building oil refinery for communist USSR government. They only dislike government when it helps the people instead of the oligarchs.

Ironically the thing about the Kochs is a little bit reversed. They have their own agenda, to be sure, but the biggest players in the influence game aren't individual billionaires, they're corporations and government bureaucracies.

The media always dumps on the Kochs because, atypically, part of their agenda is anti-graft. Make the government smaller by reducing corrupt spending programs and regulatory capture. Most of the bureaucracies fight each other for resources but they're not trying to turn off the spigot. The one who does becomes a target for attack. So they're the ones you've heard of.

"A generation ago, progressive cycles of deficit spending and taxation had put the top tax bracket in the US at 90%."

This is incorrect.

The 90% tax rate (and other notably high tax rates from that period) were temporary measures explicitly enacted to discourage war profiteering:

"The crisis of World War II led Congress to pass four excess profits statutes between 1940 and 1943. The 1940 rates ranged from 25 to 50 percent and the 1941 ones from 35 to 60 percent. In 1942, a flat rate of 90 percent was adopted, with a postwar refund of 10 percent; in 1943 the rate was increased to 95 percent, with a 10 percent refund." [1]

These were not tax rates analogous to any of our normal, peacetime rates and they were not enacted as progressive policy measures.

It is misleading and disingenuous to make any comparison between the tax rates we choose in modern peacetime which arise from political decisions about relatively progressive vs. regressive rates, etc., and these administrative rates designed to combat war profiteering and other behaviors related to a wartime economy.

[1] https://en.wikipedia.org/wiki/Excess_profits_tax

> "raise taxes in the good times..."

Oh, I know which party he's talking about!

> "...and pay down that debt"

Huh, nevermind.

Even the extremists admit (thought they try to hide it) the Bill Clinton paid down the debt by raising taxes and cutting military spending by not starting large new wars. Caro insulted Clinton for proposing a $200B/ye deficit, right before Bush 2 issued a one-year addition of $1T in new military spending for his personal vendetta against Saddam Hussein launched on false pretenses.

https://www.cato.org/commentary/no-bill-clinton-didnt-balanc...

The 90's sure were great, I miss voting for Bill! But those days are long over, and most partisans today seem brutally disappointed in Biden because he's only spent $1 trillion instead of $3 or $4.

I assume you're taking a swipe at Team Red, but do remember that the recent TCJA had a provision that removed the ability to deduct state/local (SALT) taxes from your Federal taxes due, above a certain amount. One could consider this very fair: if you argue for higher (Federal) taxes, you should pay what's owed, regardless of what you paid to any local governments, especially since you have much more control over where you live and the taxation policies at the local and state level.

The uproar about this change from Team Blue was palpable; this was clearly a targeted attack on liberal, high-tax areas. The cutoffs for the changes were well above an income level of $150K, which meant it went after the 'rich' that Team Blue always positions as the enemy, but none of that mattered.

Nobody wants more taxation when it actually hits their pocketbook. If there's anything the constituents of the two major political parties can agree on, it's that.

Somehow the Red "cut the taxes and spending" never give back the net inflows they take from Blue states.... Blue states have higher taxes to care for their citizens so they have to take less in Federal handouts.

There aren't really blue states. Only blue cities.

https://miro.medium.com/max/1127/1*86sURhsiwekHqCuqjbFnkQ.pn...

What's the distinction? I always assumed "blue states" meant a majority of voters in that state voted blue, likewise for red states. Otherwise you might as well say "there's no blue cities, only blue neighbourhoods" and keep getting more granular down to the individual voter.

The distinction is that cities are blue and non-cities aren't, as a rule. "Blue states" are just states where the majority of the population lives in cities.

City folk aren't real muricans

That's not how it works:

https://worldpopulationreview.com/state-rankings/donor-state...

California is a net recipient of federal money (though not by a lot). The biggest donors are the blue states in the northeast. But plenty of blue states are recipients and the biggest recipients are the swing states, because politicians shamelessly buy their votes.

And the reason the states in the northeast pay the most isn't because of state-level benefits reducing the need for federal programs (which rarely if ever happens). It's because those states are disproportionately the wealthy people who pay the most taxes.

But getting rid of the SALT deduction didn't care about that. Wealthy people in California lost more than equally wealthy people in New Hampshire, even though California is a net recipient and New Hampshire is a net donor, because New Hampshire has lower state and local taxes.

A state being a net contributor generally means they have a lot of high paying jobs and successful companies concentrated in their state. Michigan is actually a good example as you can see when the big 3 auto companies were at their peak the state was a net contributor, but it has been a receiver since their decline.

But that's not how the federal government is supposed to work? The whole point is for them to engage in redistributive policies, which means you inevitably have "never give back the net inflows they take". I'm sure economically unproductive areas (eg. rural areas) "never give back the net inflows they take from" economically productive areas (ie. major cities), but we don't give people living in cities a tax credit.

This also points to a weird but true situation: Many blue states would be financially better off (or at least neutral) to eliminate federal programs and replace them with state programs, because the smaller the federal budget, the smaller the net outflow from blue cities.

But then they weirdly push for the opposite to the financial detriment of their own constituents, including the lower income ones who could have higher state benefits than existing federal benefits if the feds weren't taking so much of their state's money.

Best guess for why this happens is that the blue team is more captured by government sector lobbyists at the federal level, who don't want to lose jobs to state level government workers.

It was a tax cut bill with tax increases targeted at political enemies. There are many other loopholes that could have been closed but Trump was all about attacking political enemies. The anger wasn't at the tax increases it was about the abuse of power.

Then how did the high tax states get high tax?

I'd highly recommend the historical fiction "Red Plenty" which followed the trajectory of Academics in the soviet union trying to compute idealized prices - meanwhile administrators, consultants, and realists had to just make the system work.

At one point a quota increase leads a factory to sabotage it's old equipment, so that they may get a new machine to hit the quota. The administrator in charge of approval determines as much - and arranges for a new machine. Unfortunately a pricing reform introduced by the same plan leads to an inability to build the new piece of equipment as equipment was priced by the ton. Requiring the intervention of "well connected" individuals to solve the problem...

Systems adapt - any reform will introduce exploits, and pathologies. To pretend that MMT based central planning yields a different outcome in the long hall is folly.

Red Plenty's mathematically illiterate treatment of mutations makes me doubt the rest of the book.

I mean it did make everyone better. The COVID pandemic could have really wiped out a lot of people and we printed money and it helped.

It’s the austerity people that have never cared about anything but their ideology. Austerity for austerity’s sake has caused unfathomable human misery in the globalization era.

Right now the labor market is good for workers. That is good. Getting there has always opposed by the ruling class interests though which is why we haven’t pursued it.

MMT at it’s heart is just an increasingly large number of voices screaming out “fucking STOP” and actually try to get to a relatively tight labor market, because on the whole doing so is better for most people.

Yeah sure inflation is an issue but as we are seeing now it’s always been something that can be addressed by putting on the brakes a little.

And for the record I have a degree in economics. I get the other side of the argument. My point of view is that the other side of the argument and elite economists have been fundamentally corrupt in their analysis for decades.

> Right now the labor market is good for workers

It is good _nominally_. Real wages are basically flat. Meanwhile, for everyone who didn't get a raise or can't currently find a new job for whatever reason, they're losing purchasing power. On top of that, the housing market has been completely destroyed by the Fed printing money and shoving it into mortgage backed securities. In many nicer areas of Southern California you used to be able to get a starter home for $600k (manageable for someone in a working class profession like a nurse or mechanic), now nothing on the market is less than $1.2M.

Also you forget that a big reason the labor market is so tight is because a couple million Boomers retired early during the pandemic.

Seems to me if real wages are flat or mildly increasing and it’s WAY easier to get a job that’s a way better world to live in for the kind of people who apply for jobs.

Compared to a Great Depression type cycle in the middle of the pandemic, what is the other alternative?

Well I think a big contributor to the current inflation problem was the last round of stimulus passed right as the pandemic was starting to wind down. At that point unemployment numbers had almost gotten back to normal and most revenue numbers for things like restaurants, travel, etc. had recovered to at least 70% of pre-pandemic levels. And then some states like California dumped even more money into the economy through multi-round state funded stimulus checks over a year after the pandemic started. The unemployment programs also should have started winding down the moment vaccines were widely available rather than 6 months after the fact.

I personally know a lot of people that just dumped their stimulus checks on memecoins or wasted it buying spurious goods. I'm sure the used car and electronics market also was greatly affected by stimulus as well.

The Fed also should have limited its stimulus to buying Treasuries rather than MBS. It makes no sense for the government to buy mortgage backed securities (basically a freebie to homeowners/homebuyers who are already wealthy).

I expect it's years of money printing to avoid a dip in the middle of the largest demand drop we've had in a very long time, following by a resurgence in demand as folks get out and try to get moving again (resulting in them spending a bunch of that money all the sudden).

It's pretty predictable IMO.

Either we'd have to drop the economy during the demand slackening during COVID (which would have caused a severe recession, because it WAS a recession in activity, and then there would be a bunch of panicked people in the middle of a pandemic who also lost all their income running around and maybe setting even MORE things on fire), or inflate our way out of it.

Hopefully we don't see some crazy 25% inflation like the 80's, but I wouldn't rule it out.

I'd expect that in a few years it'll flatten out though.

> a lot of people that just dumped their stimulus checks on memecoins or wasted it buying spurious goods

By contrast, when the Bush tax cuts were passed all that money was used for tasteful, ethical spending

Never said TCJA or the Bush era tax cuts were used for good purposes :) but it's probably better for the country in the long run to have excess money flowing into tech VC funds rather than being spent on memecoins and shitty electronics. That way maybe 1% of the funds will have positive returns rather than all of it being set on fire.

> better for the country in the long run to have excess money flowing into tech VC funds rather than being spent on memecoins and shitty electronics

Why

I'm just saying in the absence of any alternatives (which I'm sure there are), it's better to have 1% of trillions of dollars going towards advancing humanity and technology than 0%. I am fully aware that 99% of that money is going to be burned on WeWorks and the like.

Pretty sure at least 1% of the random shitcoin/memelord stuff went to advancing humanity too. Probably more.

Link to tech VC firm that has advanced humanity?

At least those tax cuts were on income, by definition money earned through productive activity.

Oh good. I was worried that there were still people earning income from exploitation, rent seeking, monopoly, cronyism, and leveraging principal-agent conflicts of interest but looks like that’s all over now.

Don't forget that nobody has had to pay student loans for two years.

Also a lot of rent forgiveness too!

I haven't seen the actual data, but a Stanford economist compared the stimulus payments with actual consumption and it's pretty apparent most stimulus dollars were not spent, but rather used to pay down debt or invest (hello r/WSB!).

> we printed money and it helped.

I mean, did it? What evidence do you have for this claim?

Vaccines absolutely helped. But now everyone's wages are going down -- it was basically ~$3k stimulus checks that were actually loans with a 400% interest rate.

Real workers wages are falling. Inflation fundamentally increases inequality, i.e. people who own assets watch the value of those assets increase while people who work for income watch their income fall.

> What evidence do you have for this claim

A tight job market

> now everyone's wages are going down

Not the people that just got jobs

> Inflation fundamentally increases inequality

Not nearly as much as unemployment does

MMT is a bunch of emergent identities that get dubbed gospel which depend on the US dollar being a reserve currency backed by global economic imperialism. MMT died the day the US and EU froze Russia's reserves.

“I mean it did make everyone better. The COVID pandemic could have really wiped out a lot of people and we printed money and it helped.”

Well, let’s see:

1. I got maybe $3k from the government due to all that printing.

2. The price level is easily up 25% for things I need to buy, like food, fuel, computing equipment, and vehicles.

3. And I still got Covid, as did literally everyone else I know. My brother still can’t taste anything and a guy I work with died.

If that’s what you guys with economics degrees call a win, I will update my priors from “you guys are idiots” to “you guys are a cult that uses math to further the work of Satan.”

I did, in fact, laugh out loud at this. Did you think those personal checks were meant to prevent you from getting COVID?

Do you have so little respect of your fellow man that you think they are incapable of thinking? A big part of the spending was designed to float businesses during lockdowns to “flatten the curve”. The idea being that paying people to stay home would reduce risk of infection. They are pointing out this outcome did not happen.

>Do you have so little respect of your fellow man that you think they are incapable of thinking?

Funny, I was thinking the same thing about the above comment I was replying to.

>They are pointing out this outcome did not happen.

Flattening the curve absolutely does not mean preventing people from getting COVID; it's about lengthening the time horizon in which the population gets infected to reduce strain on the health care system.

Moreover, a personal anecdote about getting COVID doesn't imply an overall policy failure. Just because someone let sick people cough in their face doesn't mean they should wax intellectual about macroeconomics.

No, but the guy who made the comment I responded to does. I’m explaining why he is wrong.

> I mean it did make everyone better. The COVID pandemic could have really wiped out a lot of people and we printed money and it helped.

Yeah, Helped transfer wealth to the wealthy!

The exact same thing happened with Reaganomics/Supply Side Economics. The economic brains behind these ideas was Milton Friedman, and while he did strongly and aggressively advocate for supply side economics, he also had quite a lot about to say the consumer side of things and advocate for, among other things, a negative income tax [1] that in practical terms is essentially a basic income that solves many of the major problems with things like welfare.

I'm not advocating for a basic income (or supply side economics), but simply emphasizing that what you said is completely true and one of the many risks of MMT. Even if MMT might be theoretically viable, in practice it's going to be interpreted as something not far from a pseudo-intellectual justification for arbitrary levels of debt/monetary inflation.

[1] - https://www.youtube.com/watch?v=xtpgkX588nM

I also don't see the positive result to be honest. We will get high prices and high interest charges? That is only a beneficial development for a very select group of people.

So if that is the result of such a monetary theory or not, maybe it does not have beneficial goals?

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