
The Problem with “Modern Monetary Theory” Is That It's True - oftenwrong
https://www.forbes.com/sites/nathanlewis/2019/02/21/the-problem-with-modern-monetary-theory-is-that-its-true/#4e92523456fb
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manfredo
Asking "can modern monetary theory work" is sort of like asking "can I
recreationally use heroin and not get addicted". The answer to both of these
questions is yes, in _theory_ both are possible. But look at the realities of
these situations.

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.

~~~
evrydayhustling
The article argues that it's an even more unstable proposition: you must not
only safely use the heroin, you must convince others to invest in your
business while you do so publicly!

Even if you know in your heart of hearts you will spend responsibly, you must
find others to extend the same trust.

~~~
shadofx
Do note however, that powerful nations often do such convincing with the
barrel of a gun.

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aetherson
[http://noahpinionblog.blogspot.com/2019/03/examining-mmt-
mod...](http://noahpinionblog.blogspot.com/2019/03/examining-mmt-model-in-
detail.html)

Noah Smith talks about how MMT is a pretty slippery concept to pin down.

~~~
tim333
Krugman has similar stuff to say
[https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-
wo...](https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wonkish.html)

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munk-a
I think this article is very misleading and would've been more clear if it had
started from the angle that currencies are constantly accumulating trust and
confidence - where that trust can be spent to reduce the debt of the issuer.

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.

~~~
evrydayhustling
What the article alludes to is that while the demand to spend money is
relatively liquid because it is linked to the whole economy, the demand to
hold it, loan it, or commit to prices over time are a speculative bet on how
it will be issued. And because it is speculative, it can move disproportionate
to the economic size of the actions involved.

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?

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bjourne
Interested parties should really watch this short talk by Richard Wolff:
[https://www.youtube.com/watch?v=DGZ7nJCzlW4](https://www.youtube.com/watch?v=DGZ7nJCzlW4)
If you are really impatient (really, spare five minutes and watch it in full)
skip to 4:20 for his conclusions. Wolff is a Professor Emeritus of Economy in
Massachusetts. No wonder MMT is shunned by so called "legitimate" economists!

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spinchange
I've said it before and I'll say it again: Modern Monetary Theory is kind of
just giving a name and theoretical application to something that is
essentially contemporary, defacto monetary practice.

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jey
I really liked this article, but I also notice that I seem to be suffering
from a severe case of the Gell-Mann amnesia effect[1]. Not sure if it's
related.

1\. [https://en.wikipedia.org/wiki/Gell-
Mann_amnesia_effect](https://en.wikipedia.org/wiki/Gell-Mann_amnesia_effect)

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dv_dt
The problem with this article's accounting of the Fed, is that it's missing
4.5T in quantitative easing assets that were injected into banks, in crisis,
outside the conventional theory of Fed management.

[https://www.thebalance.com/what-is-quantitative-easing-
defin...](https://www.thebalance.com/what-is-quantitative-easing-definition-
and-explanation-3305881)

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.

~~~
spiralx
Well, fractional reserve lending isn't a useful model for how money is created
in the modern economy - bank loans are just a matter of adding an amount to
the borrower's account balance and are constrained solely by the bank's
judgement of the risk of a default and to a lesser extent reserve requirements
imposed by law. The amount of money that is deposited in a bank has no effect
on its ability to loan money.

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.

~~~
dv_dt
The point is that “just adding an amount” to the balance, creates money,
temporarily if the lone is repaid, but potentially inflationary as long as the
loan is open, and the money is spent and circulating.

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dnautics
The problem with this article, is that as a supply sider, the author has no
compassion for the lower classes, who are hurting the most through these
policies. It should be no surprise that the divergence between labor
productivity and real compensation began diverging immediately after the
collapse of bretton woods (and the concomitant widening of the gap between the
rich and poor); after all, inflation is basically the means by which the
government steals from the poor to give to the rich, in a compounding fashion
(slow though the time constant may be)

~~~
zzzzzzzza
wait what... The poor have debt, inflation eases debt burdens. I would agree
that the mechanism the fed uses to control inflation (interest rate which acts
more or less as a proxy for housing prices/mortgages), does end up gouging the
poor through the housing market, but this is only because the government
allows real estate monopolists/speculators to harvest land rent since we don't
have a land value tax.

~~~
tatersolid
> the government allows real estate monopolists/speculators to harvest land
> rent since we don't have a land value tax.

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.

~~~
zzzzzzzza
Property taxes are not land value taxes, and there's a difference between a
halfway land value tax and a full on land value tax where 100% of the natural
rent of land is collected (that is, all the external value generated by the
surrounding community is harvested by the government instead of rent seekers).

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.

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jokull
No, banks are not stuffed with reserves because they learned a lesson from
2008 and are being cautions like "before 1970". It’s because the Fed has been
furiously swapping assets with the banks, buying their MBS’s for example. This
is a balance sheet exercise which the Fed hopes prevents recession. It hasn't
worked very well and that's why the MMT’s feel vindicated now that everyone's
talking about how ineffective central banks have been since the recession.

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arisAlexis
Chancellor on brink of second bailout for banks - Genesis block of Bitcoin

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dools
Never have I seen so much middle brow dismissal from a bunch of people who
understand so little about a topic. Sad.

