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Comment by OGWhales | Hacker News Reader

> The MMT folks think this is business as usual

MMT folks generally advocate that inflation is the way to measure if the spending is "too much" and argue that spending should generally aim to improve productivity (i.e. increase gdp) to minimize this issue (e.g. spending to build infrastructure so people can get to work is productive vs spending so people stay home is inflationary).

There is this pervasive idea that MMT promotes limitless spending and I'm not sure where it comes from, what they actually preach feels like a reasonable way to evaluate government spending to me.

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I think the major argument against MMT is that no one has the stomach to actually implement the level of taxation necessary to counteract inflation when it starts to rise too quickly. Or at least no major political party in the United States.

Everything can be sound on paper about MMT but if no one is going to practice it properly then the theory isn’t really going to work out.

As much as “eating your vegetables” in terms of government budget policy makes sense, if making people do that in practice gets you immediately voted out of office (or not even elected in the first place), then we won’t be eating our vegetables.

Keynesianism has the same problem - the government is supposed to spend in the bad times (to keep the economy moving) and save in the good times. But in the good times there is an incredible pressure on the government to spend more as tax revenues increase.

The US is All Keynes All The Time.

The issue here is divorcing budgeting from democracy, which I believe Germany did after their travails?

Similar to how well-run companies separate their CFO duties (how much we can and can't afford) and from their CEO ones (what we choose to invest that in).

The US has that in the monetary side (for now, the Fed) but has never had that on the budgetary side with Congress being concerned with being reelected (and bringing home the bacon being a reliable way to make that happen).

Paying down US debt seriously will only happen if Congress and the President choose to cede part of their spending cap authority to an independent entity, and that's never likely to happen.

It's really hard to do that in the general case. As the aphorism goes, "Show me your budgets and I'll show you your priorities", and in a democratic society, the priorities are supposed to be decided by the voters.

You could however envision a system where the bottom-line (the overall budget surplus or deficit) is dictated algorithmically by economic conditions, with the government free to move funds between different priorities, raise taxes, or cut overall spending as long as they met the target budget surplus. Actually wouldn't be a bad idea; it mimics how private organizations and households have to adjust their spending to fit constraints. The whole idea of algorithmic central banking and algorithmic fiscal policy could be quite interesting, particularly now that you have cryptocurrency where you can build algorithms into the nature of money itself.

Better said than I: that was the distinction I was trying to make.

What should absolutely be democratic.

Bottom line, maybe we try less so.

You can't make voters care about budgeting for the future. They have unrealistic expectations and politicians have to pander to voters.

The majority of voters can't manage their own finances that well.

When the future hits us hard, we simply all blame the past politicians for not being prudent. Or people older than us - like boomers - the blimmin idjuts.

To make matters worse, when inflation spikes, that's kind of when people need the money. Good luck radically increasing taxes in a 10% inflation shock.

People not being able to afford things is the point of raising taxes to curb inflation. When people can't afford things they don't buy things and that's what lowers inflation.

But there's a time mismatch, at least at typical government action timeframes. Quarterly inflation looks high, meaning people are already out of pocket. Tax goes up at the same price levels, making people more out of pocket. Inflation reduces, hopefully, but that doesn't mean prices go down - people remain out of pocket. Then, you hope, wages catch up, but that whole cycle can easily take a year.

Elections are on average 2-3 years away. Midterms in USofA 1 year away.

The point of economics is to give people what they can have, not to give them what they want. High inflation in a MMT context means that the economy as a whole wants more than it can have. The reason for the inflation is that people are bidding against each other for scarce goods; you've injected more means to pay than exists means to produce. The way you cure it [1] is by reducing demand, which you do by decreasing the means to pay. MMT proposes doing this by increasing taxes; monetarism proposes doing it by increasing interest rates. But in both cases, the whole mechanism for solving the problem is people going without things that they want, which will almost always be unpopular.

[1] When you can't increase production capacity, which in a macro full-employment context means increasing productivity, which is outside the scope of MMT or most other schools of macroeconomics.

I get that (at least the theory, as with UBI, I'm not convinced). My point is rather that this is like treating broken bones with a hammer. Maybe it works, but the pain of it might well be unbearable.

Do you have a better idea?

It's easier to put them out of work. That's what we do here.

MMT is descriptive, not prescriptive - the economy follows MMT whether you agree it does or not. Separate from MMT, are the ways you would expect would be good ways to run an economy if you believe the economy follows MMT (which it does).

Almost no economists agree with MMT¹. How do you square that with believing it's descriptive?

1: https://www.businessinsider.com/economist-survey-alexandria-...

The parent comment isn't saying MMT is true or false. They are just saying MMT is a theory of how the economy operates (descriptive). _If_ you take it as true then here are things you can do (prescriptive).

It's sort of like saying something like the water-sky color theory is descriptive not prescriptive. The theory is that the sky is blue because water is blue and light reflects that color back into the sky. There is no behavioral prescription just a description of how one influences the other. If you want to change the color of the sky change the color of the oceans. That part would be prescriptive. This says nothing of whether the theory is well-founded or how many scientist agree with it.

Parent is saying MMT simply lays out a theory of how a (our) economy currently operates, not whether it's good or bad. People who adhere to the theory would then derive their policy prescriptions based on it being true and (crucially) their desired economic/political/social outcomes.

Your point is well taken, but I think @eggprices was affirming the descriptive validity or truth of MMT by saying:

> [...] if you believe the economy follows MMT (which it does).

I think it's worth looking at what was actually asked. From your article, they were asked these two questions:

> Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt

> Countries that borrow in their own currency can finance as much real government spending as they want by creating money.

MMT is quite clear about limiting factors that make those two statements false, yet the article frames them as "the basic aspects of MMT". To me, those questions feel intentionally malicious and even if not, the survey is certainly meaningless as to the opinions of economists on what MMT actually describes.

There is this pervasive idea that MMT promotes limitless spending and I'm not sure where it comes from

Right. The theory says you can (should?) spend until you hit the "inflation ceiling," then use taxes to drain liquidity.

But what we saw in 2020-2022 was that we hit the ceiling at 100mph. The "tax it away" solution proved to be a political fantasy. No politician is going to hike taxes on the middle class to cool down the price of eggs.

My understanding (I'm not an economist) is that MMT is currently viewed as a "fair-weather theory." It explained why we could spend during a liquidity trap, but offered no viable steering mechanism once the engine overheated.

In my mind, this puts it in the same box as Keynesianism. Both theories are politically convenient because they offer politicians an excuse to pander. But those politicians aren't willing to do what their pet theory would require once the emergent crisis has passed.

> But what we saw in 2020-2022 was that we hit the ceiling at 100mph.

The 2020-2022 inflation spike wasn't due to following MMT based spending policies though. Slamming the brakes at 100mph may certainly have bad consequences, but driving at 100mph in low visibility conditions was the problem, not braking before you hit something.

The fact is everyone knew the combination of supply chain disruptions, remote work, and the changes in spending habits would eventually produce inflation, and yet we kept pumping money in. Every economic school would have advised against that course of action. MMT only calls for spending to keep pace with economic growth, not to run the money printers as fast as you can.

Economic theories, like scientific theories, are successful if they correctly predict what will happen if you do X. If the theory of gravity predicts that you will fall to your death if you jump off a cliff, it's not a failure of the theory of gravity that it doesn't tell you how to levitate after you've already jumped.

Why is remote working considered inflationary?

I don’t think it is.

In fact, all else being equal, switching to work from home should be deflationary.

You spend less on gas, less on eating out, less on movement and activity in general…

The transition to work from home may very well be inflationary… But the end result seems quite obviously deflationary to me.

Remote working itself isn't inflationary, but transitioning from office to remote is. Remote workers can get high paying jobs in low cost of living areas and can generally job hop with less friction so salaries rise, spending that would have gone to commuting expenses and daytime childcare is now disposable income, people spending more of their time at home causes them to invest in larger or nicer homes. More money getting thrown at fewer items causes prices to rise.

Economic theories, like scientific theories, are successful if they correctly predict what will happen if you do X.

In addition, an economic theory can only be useful if the actions that they dictate can actually be put into practice; if nobody's going to follow what the theory tells you to do, then it's of little use at all.

This is the big problem with both MMT and Keynesianism: they're both great figleafs for politicians to wear when they want to spend in order to pander. But when the theory tells them that the situation has changed and they need to change their actions accordingly, they don't heed the need to raise taxes (MMT) or slash spending (Keynes).

Unless we really do the thing, then pointing at a given macroeconomic theory is just an excuse.

> In addition, an economic theory can only be useful if the actions that they dictate can actually be put into practice; if nobody's going to follow what the theory tells you to do, then it's of little use at all.

That is not a requirement for a theory to be useful. The fact that not using it has a cost is proof of its utility.

> But what we saw in 2020-2022 was that we hit the ceiling at 100mph.

Except that 2020-2022 was not (completely) about fiscal/monetary problems that could be fixed with fiscal/monetary solutions. A good portion of the spike was because of 'outside' factor(s), e.g.:

* https://en.wikipedia.org/wiki/Russo-Ukrainian_war_(2022–pres...

What would extra taxation do to help that? There are various types of inflation, categorized by 'root cause', and 'too much money' is not the source of all of them:

* https://en.wikipedia.org/wiki/Inflation#View_post-2000_to_pr...

* https://en.wikipedia.org/wiki/Cost-push_inflation

It's also pretty funny when you realize that the GOP loves MMT when it comes granting tax cuts but when you use the same MMT principles they use for say social welfare suddenly MMT is nonsense!

Faulty to think we can outsource our inflation globally when that chain can get yanked outside our control.

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