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Disturbing Rise of Modern Monetary Theory (MMT) (guerrilla-capitalism.com)
45 points by StuntPope on Jan 21, 2019 | hide | past | web | favorite | 98 comments

Were an MMT system inevitably go awry, the outward manifestation would be of course manifest as inflation, so central planners would of course try to get ahead of it by draining more liquidity, faster, by increasing taxes. As this fed on itself and accelerated, the populace, as if being swept up in a hyperinflation isn’t bad enough, would be sandwiched between hyperinflation and hypertaxation!.

I'm not convinced. Deficit hawks have been beating the inflation drums for decades now, with zilch to show for it.

We do see inflation. But rather than inflated consumer prices, we see inflated asset prices as measured by historical valuations of stocks and record-low (or even negative) bond yields for example.

MMT seems like a prescription, not for Weimar-style hyperinflation, but a world in which asset prices rise beyond any reasonable level only to collapse in a terrifying catastrophe, only to be rescued by central banks which buy up even more assets to continue the cycle.

The Bank of Japan has a leg up on the US here. It currently owns a sizable share of the Japanese stock market:


Asset inflation is THE problem in developed countries.


1. Because there are people alive with large debts on the other side of those inflated assets. Any deflation will kill the lender (if borrower defaults) and the borrower (if the asset's value declines or they can't make any more payments)

2. There are entire populations unable to make asset purchases because assets are too expensive, thus they are left out.

The Fed's actions jumpstarted the economy by creating this massive inequality and has left out many behind.

> The Fed's actions jumpstarted the economy by creating this massive inequality and has left out many behind.

This should not be surprising to anyone.

Bernanke’s stated goal was to inflate asset prices through QE, so that consumers would feel an increased “wealth effect”[1] and spend more.

The lie at the root of this policy is that spending == productivity which is probably the biggest bald-faced lie ever told. We don’t call an overleveraged man with 30k in credit card debt rich or productive. That would be absurd.

Yet it is this lie that is at the root of quantitative easing and the overleveraged American economy.

[1] https://www.federalreserve.gov/newsevents/other/o_bernanke20...

>We do see inflation. But rather than inflated consumer prices, we see inflated asset prices as measured by historical valuations of stocks and record-low (or even negative) bond yields for example

Isn't, say rent, part of the "consumer prices" bit? If so, it is definitely tied to "asset price" of the said home.

I don't want to make a concrete statement on this, I am not an economist, but I know enough of this debate to call out that there's dissent on if the way housing costs are calculated into CPI ends up reflecting the actual costs of obtaining stable housing. ("owner occupied rents" or "imputed rents" are some relevant concepts)

"Central planners" in the case of at least the US means the Fed. They "drain liquidity", not by raising taxes (which they do not have the authority to do), but by selling bonds.

[Edit: And an MMT system is not the same as what we've been doing, so it is not relevant that the deficit hawks have been wrong.]

> The more I learned about MMT the more it seemed to be the same thing, in an economic sense and I have frequently made this quip expecrting MMT-ers to call it a strawman or point out some fundamental element that I’m missing but instead they usually confirm that I have it correct in broad strokes.

> MMT-ers believe that currency is nothing more than an economic scoreboard or tally, and any government that denominates it’s own currency can never go broke because they can always create more currency. Of course, as Weimar Germany, Hungary, Yugoslavia and more recently Zimbabwe and Venezuela have all found out, you have to watch out for hyperinflation.

> The MMT magic bullet for this is… taxation. Through taxation the government can drain excess liquidity from the system while printing as much currency as it needs to fund its projects and as long as the total value of currency printed doesn’t exceed the productive capacity of the economy as a whole.[0]

[0] https://medium.com/@markjeftovic/the-disturbing-rise-of-mode...

>Of course, as Weimar Germany, Hungary, Yugoslavia and more recently Zimbabwe and Venezuela have all found out, you have to watch out for hyperinflation.

Of course, as Japan awkwardly found out, you can have the highest debt/gdp in the world and still get deflation.

(I remember hyperinflation frequently being predicted as the obvious outcome of Japan's staggering deficits in the 90s though... by people who would doubtless pour scorn on MMT)

The difference between all of those above examples and Japan is that their economic output was substantially impared (e.g. with Zimbabwe by effectively destroying their agricultural sector) and they were trying to pay off externally denominated debts as well as sustain themselves.

None of this requires deficits, it can happen even in surplus.

Of course, the other word for "taxation" is "balancing the budget and not going into debt in the first place". TANSTAAFL!

So after 2008 and all the QE's (we're up to 5, I believe), government thinks they can just keep going with more and more QE/outright money printing and it won't matter ?

Call me unreasonable, but given recent (even last 80 years) history I can certainly understand why they believe this. The truth is not just that I (and I'm almost 40) can't remember any time it didn't work, you'd have to go back to my grandfather's time (he died at >100 years old in 2015) to find counterexamples. Even back then, in the US he would have been too young to realize the last time the US was confronted with this.

The only reason we'd needed QE in the first place is that we had been printing too little money when the Great Recession happened, and so we let "natural" nominal rates drop well below the zero bound. QE is like a "helicopter lift" for nominal rates (the "helicopter" metaphor is one that economists and central bankers use routinely to explain how QE works) - having to resort to it doesn't mean that we're printing too much money, but too little of it.

Sure...the gist though is that the central bank responses to any situation with only two tools, interest rate, and money supply. If the situations shows them that there was too little money, they add money.

A reason why thy might not have had enough money in the system until QE was that the steady state market equilibrium before the 2008 crash might have genuinely required less cash. There is no law that says that after shocks that the market will always equilibrate to the same place. it is specially the nature of shocks that market conditions are shown to not be in the equilibrium that we assumed they were. You may see signs of one happening, but it is far from clear that you could correctly navigate all policies and market participants to re-equilibriate peacefully.

Not quite. The problem was that when the Great Recession happened, $4 trillion disappeared. The Fed responded with QE and created $4 trillion, and we got something approaching stability.

The problem was that, before the Great Recession, there was probably too much money, rather than too little. The Fed avoided a deflationary spiral, but now the trick is to drain off the excess slowly and carefully, without breaking anything.

IMO MMT only works if the currency is a reserve currency.

If governments do not control debt, at least in theory, though, it is very hard to remain a reserve currency. The definition of a reserve currency is one you can have confidence in, one that will be managed well. If we decided we were not going to do that anymore, we'd stop being a reserve currency.

It seems like the kind of policy that you can flirt with occasionally, but not embrace or actually use. You can get forgiveness for periods of justifiably high deficit spending in a Keynesian model, but if you tell people that you don't think you'll ever need to pay it back...well, they'll try to sell those debts real quick.

Any mirrors? This seems to be a good topic as MMT keeps coming up.

Newb question here: People that "advocate MMT" are basically saying it's fine that our deficit keeps rising because geopolitics and inflation/tax control?

And the people disturbed by that actually want our existing tax structure to start making headway against the debt instead of increasing it?

And secondary question to this, is MMT a mostly left theory (because we need to pay for the free stuff)?

I'm not trying to cause arguments I just want to make sure I got how people see this issue.

No, MMT is pretty much how the monetary system operates in modern fiat currency economies where the government both prints and taxes in a currency they control. The essential insight is that taxes & spending are not joined at the hip - the only real constraint on total expenditure in a fiat economy is inflation.

It’s not a particularly leftist idea - the right has tacitly treated government spending in this way for decades. It was Dick Cheney who said “deficits don’t matter” after all.

The author of this article is confused: hyperinflations are a symptom of collapsing economies, not a cause in and of themselves. Having external debts that you can’t default on in a situation where your economy is shrinking is what drives hyperinflation. Look at every major hyperinflation (Weimar Germany, Zimbabwe etc etc) and you’ll see those are the drivers of hyperinflation.

Not at all. Another way of looking at money is that money represents value. It's a way of abstracting everything against each other. And let's ignore that that abstraction breaks as soon as you're talking even medium amounts of money, because we can.

The total amount of money commands a fixed set of resources. Increasing the amount of money in circulation does not matter at all for reality. It's just an abstraction. An accounting fiction. If the government spends, there's someone else not using those same resources the government's now using.

Even the Soviets didn't control 100% of the money supply. I once read that it was about 99.6%.

And in both the Weimar and the Zimbabwe (and Venezuela) examples, it is very much the case that the government made the economy collapse, not the other way around. So yes, it is definitely possible to cause hyperinflation through government spending.

Zimbabwe suffered economic collapse because it destroyed its farmland and had no economically productive industries left. Venezuela suffered economic collapse because its industrial base was rendered non-competitive and destroyed.

In neither case was the hyperinflation caused by "spending just a bit too much" - it was a side effect of killing economically productive industries and attempts to pay off externally denominated debts.

> The total amount of money commands a fixed set of resources. Increasing the amount of money in circulation does not matter at all for reality. It's just an abstraction. An accounting fiction. If the government spends, there's someone else not using those same resources the government's now using.

You’re completely ignoring the velocity of money. This kind of confusion of stocks and flows is endemic in online macroeconomic discourse sadly. (Some have said that it’s endemic in the economics profession too.)

Weimar Germany had to pay reparations which were not denominated in Marks. Zimbabwe had to import food, which had to be paid for in $.

Neither had an economy that was capable (at the time) of sustaining these payments. Hyperinflation was the inevitable result.

Since this comment is made essentially 3 times, let me just ask the obvious question. Yes my comment gives the impression that the government just decides to overspend. The thing that matter is THAT the government overspent, why does not factor in meaningfully. Nor how, nor the historical context. Zimbabwe overspent by willfully destroying it's industry and agriculture for racial justice, talk about finding an original way to overspend. That's akin to quitting your 100k a year job and not changing apartments.

Do you seriously think it matters whether it was a choice to overspend or not ? In Weimar Germany's case it was not a choice and arguably it was not really a choice in Zimbabwe either. In Venezuela I think it may have been a choice.

I find a lot of people are obsessed with this justice thing, in various context. With guilt. As if some all powerful deity is just about to descend and decide if you've been good or bad, despite being atheists. And for guilt, of course choice matters. But being entirely innocent and a sac is worth one sac. So is being 100% guilty and a sac. If I gave you a choice of being a worker in Venezuela, Zimbabwe or Wiemar Germany what do you base your choice on ? I would base my choice on in which case I would be able to change my situation the easiest, so I'd pick Venezuela out of those options, because I think my odds of successfully working my way out of that situation is the highest, and that I think Venezuela is more "guilty" than Zimbabwe and more than Weimar Germany just doesn't factor into it.

>That's akin to quitting your 100k a year job and not changing apartments.

It's akin to being in tens of thousands in medical debt, losing your job at walmart because you tried to punch a customer and being told that the only real problem with your finances is that you didn't rein in your spending after you lost your job.

Zimbabwe was destined for hyperinflation even if they had a budget surplus, meanwhile Japan had the biggest deficit in the world and still got deflation. MMT is mostly just not being in denial about that. There's no moral component to it.

What you’re missing is that in all these cases, some sort of series economic fallout was inevitable. The German economy was going to be forced into crisis & deep, unending depression by war reparations that it couldn’t afford to pay, Zimbabwe was going to collapse due to inability to pay for food imports.

The governments in question could have chosen not to print money. All that would have done would be to alter the distribution & order of the collapse. Its occurrence was inevitably either way.

Obviously the Zimbabwean experience was caused by awful choices made by the government. But these were not 'spending' choices. They were policy choices that in turn led to the collapse of the Zimbabwean economy.

“Justice” has nothing to do with any of this. Economics does: Hyperinflation is a result, not a cause.

> What you’re missing is that in all these cases, some sort of series economic fallout was inevitable. The German economy was going to be forced into crisis & deep, unending depression by war reparations that it couldn’t afford to pay, Zimbabwe was going to collapse due to inability to pay for food imports.

No ! That's EXACTLY my point. There was a serious problem (self-inflicted or otherwise) and monetary policy, whichever one was chosen, was just not going to resolve it.

Just like TODAY monetary policy choice are NOT going to save us from the impact of, say, free healthcare, or massive economic efforts to "fight" climate change, or ...

We should choose to implement (or not) those policies assuming that the cost for those projects is a very real cost that will have to be paid, one way or another. It will be paid in real resources that individuals, meaning you and me and everyone, won't have access to anymore.

If some policy costs 1.5 billion dollars you should judge that policy on the basis it's going to cost you 1 less coffee at starbucks per month, or some other 5$ worth of resources. Because that is true for government expenditure regardless of where the money actually comes from.

And I would still argue that Zimbabwe, and for that matter Germany, got into the issues they got into because of their ideas of "justice". Racial justice in Zimbabwe's case. Imperialism in Germany's case (which they of course considered just at that time, and it's just a fact of life that justice changes over time). But you're right too, these were not monetary policy choices.

There’s no left or right in these discussions.

Sometimes it seems that way because of rhetoric, but at the end of the day we need inflation, as without it the incentive to add value grind away.

Yes, it seems to be mostly supported by the left in the Sanders/Cortez camps. It’s very convenient to not have to pay for anything when proposing monumental social programs.

They both support tax increases. Perhaps not enough to cover the full bill when it comes due, but it's wrong to say they don't intend to do anything to pay for it. They tend to cover their proposed spending increases better than republicans try to cover their tax cuts.

Not the proposals from Cortez. They aren’t even close to balanced. The tax increases for the rich seem to be more vindictive than any attempt to balance the budget.

>Think of an MMT crisis as an economic black hole sucking all value from further and further future generations into a gravitational vortex of the present moment, where all value collapses in on itself and disappears forever.

This is, without doubt, the most stupid sentence I have read in my entire life.

I really wanted to write a comment that explains why I think that, but then I realized I would be forced to pick the entire article apart piece-by-piece, and I just cannot stomach that. In short, though, even if MMT were the very worst economic theory ever invented (it's not), it would always be possible to re-build the economy after a fatal crash. Value does not "collapse on itself and disappear forever" under any political regime, environmental catastrophes threatening extinction being the possible exception.

While arguing against MMT, the author completely neglects the measures that are required to prop up the supposedly stable operations of the current system - one where the recessions have been periodic, getting deeper over time and continued cycles, and with the last cycle, required extraordinary measures to prop up the system as a whole.

I don't get the sense that the author believes the current system is perfect, or without flaws. The author simply points out some of the flaws, as the author perceives them, in MM Theory.

Is the current system brittle, and growing more so over time? Absolutely.

Is MM Theory the answer? I couldn't say. But part of ascertaining whether or not MM Theory can help us is taking a look at all of its wrinkles. (We should be taking a look at all of its benefits too. Again, just intellectual honesty, and necessary to the full analysis of the idea.)

> Is the current system brittle, and growing more so over time? Absolutely.

The current system is growing brittle along one axis.

After World War II, there was a cycle of recession and recovery, but each cycle had a higher level of inflation... until Reagan (or, if you prefer, Volcker). Since then, we've had the same cycle of recession and recovery, but each one with a lower level of inflation. But the problem has moved to a different axis - real wages.

>one where the recessions have been periodic, getting deeper over time and continued cycles,

From [1], a list of US recessions:

"The National Bureau of Economic Research dates recessions on a monthly basis back to 1854; according to their chronology, from 1854 to 1919, there were 16 cycles. The average recession lasted 22 months, and the average expansion 27. From 1919 to 1945, there were six cycles; recessions lasted an average 18 months and expansions for 35. From 1945 to 2001, and 10 cycles, recessions lasted an average 10 months and expansions an average of 57 months. This has prompted some economists to declare that the business cycle has become less severe. Many factors that may have contributed to this moderation including the establishment of deposit insurance in the form of the Federal Deposit Insurance Corporation in 1933 and increased regulation of the banking sector. Other changes include the use of fiscal policy in the form of automatic stabilizers to alleviate cyclical volatility. The creation of the Federal Reserve System in 1913 has been disputed as a source of stability with it and its policies having mixed successes. Since the early 1980s the sources of the Great Moderation has been attributed to numerous causes including public policy, industry practices, technology, and even good luck."

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

Granted, the other way of looking at it has been the fact that we've managed to devise a system that has managed to be stable enough that investment yields consistent growth over any 10 year period (including the Great Depression, and the more recent "great recession"). The extraordinary measures needed to prop up banks in the late 2000s was not really all that large of a catastrophe. How many other economic systems can claim the same?

It's called "kicking the can" and the only reason it looks like a sustainable system is because we haven't hit the end of the runway yet. But now that we're trapped at the zero bound and cannot normalize, the next few years should see the beginning the end of the debt supercycle and the USD as world reserve currency.

When you say "trapped at the zero bound" are you saying the control output is saturated basically? I'm thinking in terms of feedback control loops. I would agree that the FOMC doesn't have a lot of room to work with if we were to enter another downturn but they do have some range left in their controller. During the last downturn they reduced the federal funds rates to 0% and that stayed there for years but they are now back up to 2.4% I think. When dropping rates to 0% wasn't enough in 2008 they also reduced longer term rates by buying Treasury securities (operation twist etc). The ended up adding $4.5T of Treasury securities to their balance sheet by the end of it. They have been unwinding those positions for over a year now but the balance is only slightly less than $4T. So I guess one could say there isn't much left in the accelerator pedal if we need it again. Especially given the recent tax reductions while the economy was already improving. That's just one less tool that can be used for the next time. Hopefully we won't have a next time until the Fed is able to get rates over 5% and the Fed balance sheet under $1T. https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

From a feedback control perspective, it amounts to trying to balance an inherently unstable system. Think of a cart-and-pole apparatus where the top end of the "pole" (that is, the natural rate) is constantly being pushed around by unpredictable, outside shocks, and you have to move the "cart" (the policy rate) in the same direction to make up for those and keep the whole thing from falling over (into hyperinflation or extreme deflation - an illusory "boom" or a very real and persistent "bust"). The zero bound is only a leftwards boundary for the "cart", not the "pole" - but when it's hit, you do need something like QE to push the top end of the "pole" rightwards again independently of the "cart".

(The way out of the mess is to stop trying to use monetary policy to manipulate market interest rates, and to instead shift to a short-term policy target that fosters stability rather than instability. Such as, e.g. the money-price of gold. Or some measure of the money supply. Or the market forecast of nominal incomes x months in the future. There are lots of plausible choices!)

And what exactly does "hitting the end of the runway" entail? Alarmist calls about the economy suddenly running out of resources and an ensuing global collapse have been around for decades. Centuries, really. Remember when we thought that we'd all be fighting over oil by 1995[1]? That sovereign debt is going to collapse? The US at least, has debt figures as a percentage of GDP that are a fraction of plenty of other countries mostly regarded as stable.

I'm going to need more info before I believe someone telling me the end is neigh.

1. https://en.wikipedia.org/wiki/Peak_oil

Please explain what you mean by “trapped at the zero bound”. It can’t possibly mean interest rates.

I think he does mean interest rates, which are not currently at the zero bound, as the fed has raised them several times lately. I think he probably should have written "trapped too close to the zero bound" which would actually make more sense. For instance the last round of interest rate increase look like they caused the markets to get very sick. That puts pressure on the Fed not to do any more raises. However if the Fed does not raise rates and if some nasty down-turn happened at this point then would the fed accomplish much by dropping rates to zero? Another idea here being that if you muck around all the time with interest rates to solve problems the effectiveness of the medicine may wear off, particularly if this medicine has delayed people from making needed structural reform. By structural reform I mean rebuilding the middle class not cutting social security or crap like that. Let me put forward a very radical idea. I suspect we need to actually restrict the amount of debt that people can accumulate as it make the system as a whole incredibly brittle. Think of consumer debt like a sort of "tragedy of the commons" situation. An individuals debt load should be their own business but if just about everyone is loading up on debt then the overall economy could explode which is everyone's business. In addition if a creditor can resell bad debt to other unsuspecting buyers then they have an incentive to give toxic loans and credit cards to people as long as they aren't holding the large amount of toxic debt on their own books for very long.

Yes, sorry I meant interest rates. Maybe a poor choice of words. I wrote another article years ago positing that once you hit zero on interest rates, it's looking like you may never be able to normalize again (see Japan).

We're at 2.4% (In the US) but that's still too low and the Fed is trapped. They can't go higher, they've paused and depending on what happens over the next while, they may very well have to cut.

So I use the phrase trapped at the zero bound because once you actually touch that bound I think you get stuck there.

That old post was: https://www.zerohedge.com/news/2016-01-14/trapped-inside-zer...

Is this not survivorship bias in the flesh?

> Survivorship bias or survival bias is the logical error of concentrating on the people or things that made it past some selection process and overlooking those that did not, typically because of their lack of visibility. This can lead to false conclusions in several different ways. It is a form of selection bias.

Not exactly. Most societies have survived for the last several centuries, at least in a broad sense. If we compare the last century or so, especially the last century since the last conflict since the largest governments, the current economic system has proven to be one that can deliver consistent economic growth without necessitating inter-state violence.

Most prior economic systems have failed to do both of these. Either they didn't have that much capacity for growth (e.g. once you're farming all the arable land, your agrarian kingdom isn't going to be producing much more land), or necessitated violent expansion (only way to get wealthier is to raid or annex somebody else's territory).

Unless we have examples of societies experience consistent economic growth, without any substantial form of expansion of territory or use of state power, then this isn't survivorship bias. It's just a sober analysis of history.

So MMT is terrible because it prints money and will be a catastrophe, but measures like QE are fine because it prints money to bail out the financial sector but isn't that large a catastrophe?

Quantitative Easing was essentially the same thing, to a degree (increasing the money supply). But it was done so with the specific goal in mind, to keep key financial institutions from collapsing. It was also done during a period relatively low inflation, and was done in low enough rates that inflation did not substantially rise.

By comparison, MMT is basically telling the government to use quantitative easing to pay for everything. When you really dig down into it, the proponents of MMT know exactly how deceptive the scheme really is. They fully understand that it's allowing the government to pay for whatever it wants by printing money and letting the populace lose their savings due to larger inflation. And it fails to address immediate shortcomings: namely the fact that people will stop accepting payment in dollars if the government starts rampantly increasing inflation.

I think that's an unfair characterization. For one, doesn't a dollar of QE cause just as much inflation as a dollar of MMT?

MMT doesn't say to ignore inflation - it thinks inflation is a key measure to keep an eye on just like the current system - it just says that taxes and debt bonds should be used as independent control parameters from deficit.

> I think that's an unfair characterization. For one, doesn't a dollar of QE cause just as much inflation as a dollar of MMT?

In theory, yes. In practice, not at all. Recessions are exigent circumstances, and no one was under the impression that the government would continue increasing the supply of money to pay for arbitrary things. Not to mention, the bulk of this quantatitive easing took place during two years were we saw deflation - so increasing the money supply was something the government would have likely done anyway.

By comparison, if the government announced that starting in 2020 it would start paying for everything by printing more money then the first thing that will happen is that smart, wealthy, people will just move their assets into things other than dollars. Like resources futures, which are independent of inflation.

The people who actually take on the burden of taxation are people who don't have the means or know-how to manage their assets. So the result is probably that poor and middle class people are even worse off.

> Not to mention, the bulk of this quantatitive easing took place during two years were we saw deflation - so increasing the money supply was something the government would have likely done anyway.

This is just underlining my question. If the congress were operating with an MMT view of the world, they could have injected money into beneficial social program without handwringing over deficits, avoided QE. Regular people would have more wealth in their hands, and less money would be running around the stock market inflating assets. We would have a healthier economy today.

> By comparison, if the government announced that starting in 2020 it would start paying for everything by printing more money

This isn't what MMT says to do, it keeps taxation as a control parameter, it just wouldn't be singularly obsessed about the budget deficit.

> If the congress were operating with an MMT view of the world, they could have injected money into beneficial social program without handwringing over deficits

Avoiding bank runs and the collapse of financial institutions is a pretty massive social benefit, even if it does turn into "bailing out wall street" memes.

> This isn't what MMT says to do, it keeps taxation as a control parameter, it just wouldn't be singularly obsessed about the budget deficit.

The whole premise over MMT as compared to standard government revenue streams is to reduce or substantially eliminate dependency on taxation by having the government print the money it needs. As pointed out earlier, if MMT simply refers to any amount of increase in the money supply then governments already have been practicing MMT for decades.

Again, simply look at what the proponents of MMT are promising. Universal service and government provided jobs for everyone that wants one. Peel off the veneer of the whole premise of inflation vs. taxation and it's really just a means of trying to let the government spend way more money by obfuscating revenue streams.

> Avoiding bank runs and the collapse of financial institutions is a pretty massive social benefit, even if it does turn into "bailing out wall street" memes.

In the immediate crash, I agree, but in the years after as QE kept being needed to stabilize the system, there were other choices. There could have been a different program to inject money directly to the people who took out mortgages, requiring lenders to take a principal write down at the same time. This would have left more wealth in peoples hands, instead of funneling more wealth and assets into bank hands. And in large part it was fear of deficits that prevented consideration of these options.

The argument isn't to "government spend way more money", it's to make a more balanced consideration of how we actually use the power of currency for beneficial purposes in the long term.

The difference is that money had to be paid back. Issuing loans is significantly different than the government taking on arbitrary amounts of debt and spending it all.

Uh, I think you are possibly mistaking TARP (which did need to be paid back) for Quantitative Easing (which did not). QE wasn't a loan, and the assets purchased by the Fed only recently started being returned, and there is no requirement to repurchase the assets by the same entity they were purchased from.

Make no mistake, the bailouts were a catastrophe and NOT fine. The author says as much:

"Compared to what I see as the inevitable “dual death spirals of MMT”, letting all those banksters fry in 2008 looks a lot more palatable in retrospect. David Stockman’s Great Deformation shows how the economy would have fully recovered by 2010 or 2011 instead of being where we are now: trapped at the Zero bound and headed toward democratic socialism and MMT."

The author has written on that extensively, spanning years. See the GC blog and my old one at rebootingcapitalism.com

This is a really ridiculous article written by someone with a libertarian, rather than scientific, agenda. While MMT does have its issues, it is a promising future direction for macroeconomics, especially as neoclassical economics has shown more and more problems.

It is ! I can’t say if MMT would be the solution of our problems, as I’m not an economist, but I hope the debate to move on and not stay just black vs. white. I studied some of these theories and actually the MMT was the most refreshing one to me.

Modern money theory is neither modern neither a theory in a scientific sense of the word. It's more like a fake moon landing type of theory. It's a honey trap for the type of people who mistake an appearance of science to be science.

Why concentrate that criticism on MMT? It applies to all of economics - neither MMT nor prevailing economic deficit frameworks come out ahead there. Though I would say MMT is making more fundamental observations than the "deficits must be cut" side of things which feel more like cargo cult tradition.

This is an article about MMT, isn't it? And no, not all economics is pseudo science. Maybe you're looking at economics too much from the political point of view and too little from a scientific perspective.

The problem with MMT is that, as the article says, "MMT-ers believe that currency is nothing more than an economic scoreboard or tally". That belief is false.

Money is not just a unit of account, it's a claim on stuff. If you create a bunch more claims on stuff, without creating any more stuff, that's going to be a problem. (You might call it inflation.) If you try to solve the problem via taxation, then you wind up with a bunch more claims on stuff, no more stuff, and the government holding most of the claims. That's not going to work out well for people who need to use those claims to get stuff - like food, say, or housing, or medicine.

I see this as another, albeit slightly subtler, way of trying to rationalize a command economy. It's one where the government has unilateral authority to marshal all of a society's resources. Do we really want, say, Trump to be able to print as much money as he wants to fund his wall?

I'm not sure whether the fact that the government's method of doing so and the unchecked nature of this power is obscured by currently makes this better or worse than straightforward proposals for command economies.

I’m starting to think that a command economy is actually the default state. Democracy and free market only work when people have tons of money, like they did after WW2 (or when Rome and Greece were at the height of their conquests).

With wealth returning to the countries it was taken from, the western world is finally returning the place it always should have been.

Quite the opposite. Only around the modern era (20th century and onwards) have had the ability to take total or near total command of the economy. Throughout the majority of history, states have only been able to tax and mobilize single digit percentages of the society's GDP. Historical estimates are rough, but good enough to appreciate the stark disparity between modern governments that often mobilize 25-50% of the society's GDP.

It couldn't be further from the case that command economies are the default state. They're a relatively possibility in the scope of human civilization.

Except that wealth isn't returning to those it was taken from. It's being hoarded by a small group of oligarchs.

Not an economist or a socialist but your question:

It's one where the government has unilateral authority to marshal all of a society's resources. Do we really want, say, Trump to be able to print as much money as he wants to fund his wall?

assumes that government would be a single person deciding. If power were sufficiently spread out it seems to me that having government allocate resources doesn't have to be worse than the current system.

Yes, if power were spread out then it wouldn't be an issue. But the whole premise of MMT is to give the government a means of consuming more resources with the actual cost being obfuscated. Taxes are a very transparent way of understanding the cost of government. You can see the money coming out of your pocket at the end of the year. MMT is a means of obfuscating that cost. The average voter doesn't have as good as sense of what printing a trillion dollars does to inflation. Effectively every MMT proponent assumes that MMT will give the government greater ability to consume resources. Think about all the promises MMT proponents usually try to make: universal healthcare, a government provided job for every person that wants one.

The problem with the government allocating resources is that it cannot do so efficiently

At this point, only eight people have more than half of the world's net worth. Can these eight people allocate resources more efficiently than the government could?

Sounds like we need better governments.

We'll just put AI in charge. What could go wrong?

If a government merely taxes really high, either directly or through money printing, it merely does things in the positive sense. You can still improve your lot, it's just harder than it normally would be. You can even still become rich.

In a true command economy absolutely everything is determined by the government's "no", to everything. And the disappointing BIG main reason for "no" is because no bureaucrat is ever going to risk his/her position for either your fate, or your idea. Money printing does not come with any "no".

In a capitalist, even highly taxed and money printing economy, whatever you want to do, if you can do it while being sufficiently positive for the economy, you are allowed to do it (within reason).

In a true command economy, you can do nothing. You can't change jobs. You can't move. You can't start a business. You can't educate yourself. You can't help anyone with anything (even trivial things are a risk). You can't ... EVERYTHING is determined by the absolute contempt and incredible jealousy of everyone. You literally carry an old ladies' bag up a staircase ... you've just made enemies of every old lady on the block, one of which has a son who runs the town's transport department and you lose your driver's license.

There are a lot of ex-Soviets running around everywhere. Find one and talk to them.

Money printing is in effect a regressive tax. Inflation is effectively a flat tax, it wipes out X% of people's savings regardless of whether they are in the bottom 10% of the income distribution or to 10%.

In fact, it might even behave like an inverse tax, since the wealthy will be the first to move their savings out of dollars while most everyday people will be stuck with their savings becoming worthless.

> There are a lot of ex-Soviets running around everywhere. Find one and talk to them.

I have spoken to many people who used to be in state run economies (USSR, Cuba). Effectively all of them are skeptical of schemes like MMT that function to give the government more power without public knowledge or consent.

What's the phenomenon like Dunning-Kruger where people think their expertise on one domain (like software development and operations) has any bearing on their knowledge in other domains like medicine or macroeconomics? Honest question.

simple: it's arrogance. lots of examples come to mind: Francis Crick and race, Freeman Dyson and climate change, Elon musk and literally everything :)

Well Musk went from making websites to building a space company and electric car company and now a tunnel making company.

So maybe you're underestimating abilities of some people to master multiple fields

Being founder and CEO of different companies doesn't imply a mastery of the fields in which those companies operate, only control of the capital they generate. Elon Musk could buy a Michelin starred restaurant tomorrow, that wouldn't suddenly make him a world class chef.

Disagree. the job of a founder + CEO is not to just control capital.

If Elon Musk built a 3 star Michelin restaurant himself from scratch then yes I would classify that he has mastery of the fine dining industry. You could be an amazing chef but couldn't run a restaurant if your life depended on it. Just like how there are brilliant engineers that aren't good at being CEOs of a tech company.

how much engineering do you think elon musk has done at any of his companies after paypal?

Well, curious people try to understand things outside their area of expertise. We aren't just programming robots; we're humans with outside interests.

That doesn't make us experts on stuff, but a human should have at least some understanding of a broad range of topics, including economics.


I highly recommend people to read "The Bitcoin Standard".

Outside of all the noise and fud surrounding Bitcoin, within it lies a new economic system which has lots of similarities with the gold standard and Austrian economics.

Gold to Bitcoin analogies are a marketing falsehood. On paper things might look similar, but looking into the details and history behind Bitcoin and other cryptocurrency software development it quickly becomes clear there's a multitude of cascading flaws.

BTC inflation is currently higher than USD

Historically, Bitcoin started off as a hyperinflationary mint in order to produce the supply rapidly for a small user group before the general public would be able to access the production methods and before the difficulty settings Satoshi chose would increase the cost of production and reduce the ROI and increase the CAPEX/OPEX dictacted by the BTC mining software and network.

Aprox 4.11% of Bitcoin users (addresses) control 96.53% of all bitcoins in circulation. Also there's a chance that something will make Bitcoin obsolete in the near future - immediately destroying the trade value of Bitcoin, either a new cryptocurrency, a quantum computer or cryptographic breakthrough that would allow theft of BTC private keys or more predictably a bug like what recently happened in the main Bitcoin core wallet client software which allowed a user to inflate the supply of Bitcoins past 21 million and mint more BTC for free.


Here’s an explanation on how the Bitcoin market differs vastly from Gold speculation markets:


Then there's the story of Bitfinex, assumed to be a lingering MTGOX scale exit scam using a "stablecoin" which is pegged 1:1 with USD across all other major cryptocurrency exchanges. With no audit, Bitfinex has printed aprox $2,042,257,000 USD as of today. Much of which is alleged to be used by their own accounts to manipulate the levered futures markets.


Every point you have written is incorrect. I suggest you spend 5 minutes researching all of your points and you can see that. But to summarise, all those coins in those addresses are held in known wallets of exchanges and wallets, bitcoin inflation is halved every few years, breaking bitcoin crypto will have devastating effects on the entire world including all banks and governments, Bitcoin crypto tech can be changed, bitfinexed is a joke and has been proven to be wrong many, many times.

nosuchthing actually presented the results of research. You presented nothing but claims with no support. Advantage: nosuchthing.

The points he presented are so ridiculous that I don't see any point in convincing him, his mind is already made up.

You're attempting to argue with nothing to offer? hmm looks like your mind is made up but you have nothing to show for it?

The main points I presented are provable, leaving only the Bitfinex'ed theory up to the evidence and allegations presented which have been backed up with additional university studies. [1]

A] Bitcoin hyperinflation and low cost ROI/CAPEX/OPEX supply acquisition by Satoshi's Bitcoin mining rule set can be understood by reading the original Bitcoin white paper and factoring in the low difficulty and tiny user base during the initial period of hyper inflation.

B] The current inflation rate for the United States is 1.9% for the 12 months ended December 2018, as published on January 11, 2019 by the U.S. Labor Department.

Bitcoin inflation rate per annum: 3.83% [3]

C] Control of the Bitcoin supply being owned by an oligarchy. This is provable by looking though any of the Blockchain explorer APIs or by analyzing the blockchain yourself.

Even if we were to assume the 4.11% of Bitcoin users (addresses) who control 96.53% of all bitcoins in circulation were actually the main exchanges, this is still much worse than the traditional banking/financial markets due to the current unaccountable nature of how those exchanges operate. An ongoing trend in the Bitcoin markets is the famous BART phenomenon, presumably one of the largest owners of Bitcoins is manipulating the entire market though short squeezes which last a few minutes before the market returns to where nearly exactly where it was before. The most plausible explanation is one or more exchange operators are capable of mixing fractional reserve deposits with manipulation of the futures markets to fraudulently terminate market contracts with those extreme temporary spikes in volatility and minimize their risk by returning the market price back to where it was prior before any deposits/withdraws can be confirmed between exchanges.

[1] https://www.bloomberg.com/news/articles/2018-06-13/professor...


[2] https://www.usinflationcalculator.com/inflation/current-infl...

[3] https://www.bitcoinblockhalf.com/

Bitcoin inflation rate will reduce to be less than gold. Unlike Gold or U.S Dollar, this number can be predicted to perfect accuracy. https://bitcoinvisuals.com/misc-future-supply

Bitcoin hyperinflation during the early period is part of the design? It gave incentive to people invest money into the network and asset.

Many of those addresses are known addresses of exchanges, yes it's a problem that everyone puts money into the exchanges. However that is changing, new decentralized exchanges, atomic swap technologies already exist for people to move away from centralized exchanges. The industry has come a long way and still has further to go. Also the "regulated" banks that you speak of, plunged the world into the financial crisis and got away with it no harm. These "regulated" are constantly caught break multiple laws and manipulating markets.

https://en.wikipedia.org/wiki/Libor_scandal https://www.telegraph.co.uk/business/2017/12/11/hsbc-spared-... http://www.cityam.com/269831/goldman-sachs-hit-52m-fine-shor... https://www.bloomberg.com/news/articles/2018-05-01/goldman-s...

The issue you're ignoring is accountability.

Decentralized exchanges are a myth. Someone is creating the software and with the added complexity, lack of accountability with anonymous developers comes the risk of malware hidden in software updates.

The only reason I can imagine you or anyone would try to argue that the answer to an imperfect legal, regulatory, and financial system is to abolish it and move to a new system designed to bypass accountability and where the money supply was designed to be minted very rapidly to an anonymous group of oligarchs who then simply horde it, would be because there's a strong psychological motivation for you to attempt to convince other people to "buy" into your deregulated penny stock database not because there's any real world benefit over a regulated system, but because you simply want to sell your stock for a higher price - leaving the greater fools who buy database tokens holding a bag of something they can't use anywhere.

Deregulation helps against malicious actors how??



Bitcoin and cryptocoins have been plagued with malicious actors since its inception. From Satoshi's wallets to MTGOX, the countless Bitcoin hacks and scams.





yet another major Bitcoin bank/exchange has exit scammed.




When was the last time a Bank collapsed and FDIC insured deposits were lost?






This is a feature not a bug of bitcoin.

As the saying goes in the community, "Not your keys, not your coins", you're not supposed to store coins on an exchange. But nearly everyone does. Everyone is encouraged to hold their own keys and be responsible for their coins. As UX and wallets improve more and more people are holding their own coins. The people that store coins on exchanges must understand the risk of holding coins on exchanges. It's a reality of crypto.

It's true, current iterations of DEX are not really DEX, they are all centralized companies, these things take time to build, it's not a simple photo-sharing app. If it turns out that is impossible to build a true DEX then you can always do shapeshift style atomic swaps and those are here today!

Bitcoin hacks and scams are not related to Bitcoin. There are even more hacks and scams that happen in the regular finance industry. From SWIFT being hacked to countless and countless of scams by small and big companies. Are you seriously saying that Bitcoin only suffers from scams??

The difference between a Bitcoin bank failing and regular bank failing is that, if Bitcoin bank fails, for people who have stored their coins safely won't be affected. Sure the price will fluctuate because of the news but I still have my coins.

When a regular bank fails the entire country has to pay the price and money is printed and currency is debased. Everyone has to pay for the mistake of a few.

No customer protection and irreversible transactions = "This is a feature not a bug of bitcoin."

Shapeshift is not an atomic swap, it's an exchange and they charge a large fee on top of the current spot price determined by other major exchanges.

Bitcoin hacks are related to Bitcoin because Bitcoin/Ethereum is software.

See: https://www.livebitcoinnews.com/cve-2018-17144-the-aftermath...

When was the SWIFT protocol hacked? I'm guessing you're confusing stolen credentials with "hack" in that case which is indeed similar to the many cases where cryptocoin exchanges get hacked though stolen credentials and user funds are taken - except if that happens to your account at a normal bank you're protected with FDIC insurance or something similar depending on your bank.

You're confused. Regular banks fail, and customer funds are protected. When a regular bank fails, that has absolutely nothing to do with debasing currency, nor does it affect the inflation rate.

When you use Bitcoin there's a lot of trust needed that can't be guaranteed or verified, and while problems exist with traditional payment systems at least customers have protections and criminals or bad businesses can be held accountable.

I'm not sure why you think avoiding a legal system, or avoiding financial regulations would help solve any of the problems with malicious scams and abuse?

It sounds more like you're attempting to sell a product that does not fix any of those things, hoping to convince an audience to buy into an oligarchical penny stock

ala https://en.wikipedia.org/wiki/Company_scrip

I'm sorry your arguments do not make sense, I recommend you read about the multi-faceted nature of Bitcoin. You have a poorly researched and simplistic view of the topic, which is very common on HN.

You are confusing Bitcoin with a payment network like VISA or PayPal. Hacks of exchanges are not related to Bitcoin itself, it is like saying, someone broke into my Gmail account because my password was easily guessed but you say TCP/IP broken. It does not make sense at all!

> No customer protection and irreversible transactions = "This is a feature not a bug of bitcoin."

Bitcoin has the economic principles of gold.

* Pure raw gold has no consumer protection and it is irreversible.

* Government cannot give FDIC insurance to gold bars, because governments cannot print gold bars out of thin air.

* Unlike gold, Bitcoin is digital, which means it can be sent across borders at a low cost, (Almost free with LN)

* You're comparing multiple things (Payment network, economic system, and governance system) with 1 piece of software.

if you want to compare payment network features, then you have to compare bitcoin/LN transactions to VISA, PayPal..etc

If you want to compare the economic system, then it's mostly Austrian vs Keynesian.

If you want to compare governance then it's about libertarian/anarchist/decentralization vs Centralised governance.

Unfortunately, you are coming across as very closed minded with same old tired arguments that were laid against bitcoin from inception, because the general population has a poor grasp of what it really is.

Have a read of this, it's a bit dated but it's still good, if you want to have a better understanding of what bitcoin is: https://www.coindesk.com/nobody-understands-bitcoin-thats-ok

You seem to have no familuarity with software or computer science, and you're intentionally ignoring and evading addressing the issue with the Bitcoin bugs and hacks on BTC client wallet software, which keeps having bugs/hacks in the protocol itself allowing more free Bitcoins to be generated by hackers:


  CVE-2010-5141 remote attack can spend anyone's balance 

  CVE-2010-5139 On 15 August 2010 over 184 billion bitcoins were generated 
  in a transaction, and sent to two addresses on the 

  CVE-2012-2459 2012-05-14 This could be used to fork the 
  blockchain, including deep double-spend attacks. 

  CVE-2013-3219 Attacker can double-spend with 1 confirmation

  CVE-2018-17144 Multiple double spend bugs allowing a user
  to send more funds then available in wallet balance. 
This book offers a more comprehensive and detailed insight into the history and technical details of Bitcoin and the history of those involved within "the Blockchain community": https://davidgerard.co.uk/blockchain/book/

If you look at the previous comments you keep ignoring the specific points explained against why your claims are disingenuous and naive and repeating the same tired marketing falsehoods in your attempt to convince rubes into buying database software which may very likely become obsolete at any moment in the immediate future. Why would you want to store your "money" in a fragile software system with no protection or safeguards? At least with gold, you won't have someone on the other side of the world capable of breaking into your house remotely and stealing your savings.

Here's a recent research paper analysis on Bitcoin and the lightening network:




No one is under the illusion that Bitcoin is not a human written piece of software. However, the network has a an incredible uptime of 99.9832335764 % since jan 2009 (http://bitcoinuptime.com/)

Yes, of course. Like all software Bitcoin has bugs, however, none of Bitcoin's bugs has been catastrophic, or else it would have collapsed to $0 and stayed there. The odds of catastrophic bugs still exist but with the most development moved to layer 2, it's hard to see any more changes coming to the core software for the foreseeable future.

I'm not saying Bitcoin is perfect and it has many problems. However, the problems you bring up are mostly incorrect.

* Mining centralization is an issue. Due to the fact that Mining hardware is currently produced mainly by 1 company. Hopefully, simple economics will change that and larger companies will start making dedicated mining chips.

* On chain transaction costs. If the number of transactions on BTC spikes, the fees will also skyrocket. LN is the solution to this problem but the network is still in development.

* Confidential transactions (CT) and fungibility. Currently, Bitcoin is not fungible and you must go through several steps in order to clear coin's history. Gold is fungible and so is cash. However Bitcoin devs have been working on CT for some time now and hopefully, we might see an implementation this year and pushed on to the network within the next 2 years.

* Push of centralization. Everything naturally trends towards centralization. A centralized bitcoin is useless, no matter how secure the chain is or how stable the software is. The community must reject all centralization efforts so BTC can keep its value

To your point that if a catastrophic bug is discovered which enables double spend and/or inflation, the Ethereum community showed that it is possible to hard fork and reverse the chain given unanimous approval by all factions of the network. So if you wake up one day and the network has collapsed due to some bug in Bitcoin Core then Bitcoin's governance system will kick in to save the network.

To your point that you think i'm "scamming" you. I couldn't care less if you bought Bitcoin or not, that's the beauty of Bitcoin. No one is forced to use it and no one really cares about what anyone thinks. You can sit there and call everyone a scammer, you can sit there and point out all the problems it has (Like anything man-made is perfect), people can write all the research paper they want about how it will fail HOWEVER, The reality is that the Bitcoin network and ecosystem is thriving and has survived incredible obstacles. The fact that you've pointed out at all the past issues and the fact that it has overcome just says that Bitcoin works!

Have a good day sir :)

Why would someone choose a US 30 year bond as a long term investment with the government having the explicit intention to go massively over its budget?

The more a government borrows through bond issuance, the more it has to borrow later to service the debt they didn’t pay for before. Eventually this runs away to the point where there are not enough buyers for all of the debt issuance at reasonable interest rates so the borrowing costs sky rocket. This means even more debt has to be issued to service that debt... you see where this is going.

A country’s spending is capped by it’s ability to find borrowers of its bonds. Given that normal tax rates aren’t covering the spending, it’s not likely that even 100% tax rates would be enough revenue to offset these scenarios.

Do MMT proponents just advocate literally printing money that is never tied to an instrument to be paid back?

> Do MMT proponents just advocate literally printing money that is never tied to an instrument to be paid back?

They don't see any problem with that, and they have some evidence to support the idea.

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