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"It’s immediately obvious that increasing the money supply and spending the money will result in inflation."

The money supply has almost quadrupled in the last 10 years, yet inflation has been low.

MMT says that spending new money only causes inflation when the money is spent on stuff the private sector is also bidding for. Since that's pretty much everything that the government would want to spend money on, MMT & conventional economics are not in much disagreement here.

"MMT says that the only constraint on spending is inflation, but also turns around and says that you can always print more money. That’s a contradiction."

You can always spend more money, but only if you tax enough back to tame inflation. It's a constraint, not a contradiction.

"Printing more money does not change the real wealth in the economy."

Exactly. MMT doesn't create goods & services out of thin air, but what it does do is unlock idle capacity in the system. If Joe Sixpack is unemployed, he's a resource that the private sector is not utilizing, but he's a drain on society because somebody is paying for his food & shelter. MMT and the jobs guarantee would utilize that resource for good, and it won't affect inflation or the private sector as long as the jobs guarantee wage is at the minimum wage mark.

Caveat: beginner level understanding of MMT




> The money supply has almost quadrupled in the last 10 years, yet inflation has been low.

Explained by "traditional" (e.g., Keynesian) economics already:

* https://en.wikipedia.org/wiki/Zero_lower_bound

When QE was introduced, the US political Right went ape shit talking about inflation. Krugman (for one) predicted it would be fine because of interest rates, citing Japan as an example:

> Everyone knows about the infamous open letter warning Ben Bernanke not to engage in quantitative easing, lest he cause inflation and currency debasement; many are also familiar with the remarkable unwillingness of that letter’s signatories to admit, after more than four years of low inflation and a rising dollar, that they were wrong.

* https://krugman.blogs.nytimes.com/2015/02/12/qe-truthers/

If the private sector is not spending, then the public sector (gov't) should to take up the slack in a lack of demand:

> The problem, of course, is that you can’t cut interest rates below zero (if you try, lenders will just hoard cash.) So the Fed simply can’t do what the rule says it should.

>

> This is why we need a huge fiscal stimulus, unconventional monetary policy, and anything else you can think of to fight this slump. Quite literally, the usual rules no longer apply.

* https://krugman.blogs.nytimes.com/2009/01/17/zero-lower-boun...

There are a finite amount of resources in an economy, and when an "infinite" amount of cash goes after that, you start to big up prices: inflation. I don't think that mainstream (Left-leaning) are against deficit spending to boost the economy; it's just that many of them don't see MMT is adding to what they've already been saying.


>you can’t cut interest rates below zero

Well, he was wrong on that point.

>Crazy as it sounds, several of Europe’s central banks cut interest rates below zero in 2014, and then Japan followed. By mid-2016, some 500 million people in a quarter of the world's economies were living with rates in the red

https://www.bloomberg.com/quicktake/negative-interest-rates


> Well, he was wrong on that point.

He revisits the point:

> We now know that interest rates can, in fact, go negative; those of us who dismissed the possibility by saying that people could simply hold currency were clearly too casual about it.

* https://krugman.blogs.nytimes.com/2015/03/03/how-negative-ca... * https://krugman.blogs.nytimes.com/2015/03/06/the-below-zero-... * https://krugman.blogs.nytimes.com/2016/02/12/the-political-e...

The Great Recession was really an "interesting" time for economists: one usually can't run experiments on macroeconomic theories / hypothesis. :)


What exactly keeps you from implementing a negative interest rate?

I.e. some form of tax on held cash?


Nothing. It’s already been done. Sweden and the ECB used them for a few years.


Okay. I thought that was the case, and frankly, it's the only mechanism that even comes close to making MMT make some sort of sense, since that could act as a monetary black hole... I think.


Inflation only occurs when the printing of money outpaces real value. Real value in the last 10 years has skyrocketed, so it’s not surprising that inflation has not been strongly affected by the increase of money.


Warren Mosler is one of the advisers to our company for over a year now. I had a lot of discussions with him about these kinds of things and I originally reached out to him because we are building a crypto currency platform to allow any community, from a casino or festival, to a city or even a country, to issue its own currency. We are still looking for some Economists with other views to balance out MTA.

So, I can tell you that Warren Mosler at least is formulating the theory a bit differently. He starts with the fact, or the claim, that taxes are the primary driver of demand for a Fiat currency. I argued with him about this point. Economists with other views to balance out MMT.

So, I can tell you that warren Mosler at least is formulating the theory a bit differently. He starts with the fact, or the claim, that taxes are the primary driver of demand for a Fiat currency. I argued with him about this point. But if you except it, then it follows that taxes create a scramble by many participants in the local economy to obtain enough money to pay those taxes. Then the government prints the very money that everyone is scrambling to obtain. Warren Mosler concludes by saying that the government is not constrained in how much debt it can take on because a dollar and a treasury bond for a dollar are just two different types of accounts that exactly balance each other. To me this is ignoring everything outside the system. It’s like saying a bank can leverage its reserves as much as it wants because every loan it gives are just assets and liabilities on different sides of the ledger. MMT always acknowledges inflation matters, but it seems to be lip service.

I have come to describe the macroeconomics of the USA very simply:

1. Every country fights to protect its exports because that’s what lets its citizens import everything they need. Russia will fight to export natural gas. And so on.

2. After Bretton Woods, our chief export is not even Music and IP, it’s DOLLARS. We print them, and for decades everyone arouns the world produced goods and services for us, in exchange for dollars.

3. Our dollars and treasuries are used as reserves by banks. Also we engage in petrodollar warfare. We used to buy oil from Saudis, and now we sell weapons to them for the same money we gave them. And so on.

4. The USA is unique in its immunity to inflation and printing. Most countries cannot sustain such high debt to GDP ratios without their treasuries becoming devalued. USA treasuries may eventually face competition from China etc. but we still have a lot of demand for our export, by the world banks and consumers.

5. Being able to print your own currency and run your own monetary policy is essentially the power to impose a flat tax on your local economic activity. When PIIGS countries had their own currencies, they could finance public parks etc. When they joined the Eurozone, they lost a lot of that power and their public infra got bought by German banks. Greece, the “originator” of DEMO KRATIA (power of the people) lost power to foreign capitalists. People and jobs emigrated, capital flight ensued. This also happens in the USA on a city level (Detroit) and state level (Illinois and Puerto Rico).

6. Conclusion: Having your own money supply allows you many chances to print your way out of debt, and also run monetary policy. That always leads to stronger local communities vs the foreign capitalists. But doing too much causes capital flight and an increase in money velocity, ie devaluation of your local currency from an outside perspective.

7. MMT correctly advocates, like Keynsians, issuing money to pay for infrastructure and Universal Health Insurance / Food / Basic Income. Because it can lead to more real economic activity. It’s like a startup that spends correctly on the things tht make it grow and provide a return on investment. More coins chase more goods and services so there is no inflation. In fact, it attracts real capital to the community. But if there is malinvestment and bad bets, too many of those cause inflation.

8. Inflation isn’t just redistributing from the lenders to the borrowers. It also makes the wage earners who aren’t immediately investing their currency into something else the losers. It makes a hot potato hotter and hurts those who don’t have great wealth management.


> Mosler concludes by saying that the government is not constrained in how much debt it can take on

It seems to me that’s kind of half-a-loaf MMT. Or, to borrow from The Matrix trilogy, it's the spoon-bending level.

Where the full loaf (“there is no spoon”) is: Government is not constrained to take on debt at all to finance an excess of spending the over revenue. The idea that, if the State chooses to create net new tokens in the economy (remember, the key points of MMT is that fiat money is created by the issuing government spending and destroyed by the issuing government recovering it), it must seek the permission of someone with a surplus of existing tokens willing to sacrifice them for a greater number of future tokens, after which the government's pet (but “independent”) token-issuing body will see to the issuance of additional tokens is kind of bonkers, but that seems to be how MMT would view the current relation between fiscal and monetary policy.


When more currency X is issued, the losers are people (including lenders) who are locked into assets denominated in X, if this leads to a devaluation of X relative to other things.

The status of fiat being legal tender for all debts is what makes lenders unable to demand other currencies but they can execute forward contracts of X versus a basket of commodities for example.


What if Joe Sixpack creates more value by being unemployed that by being formally employed? You do understand that some people can destroy value by doing work?


You're talking about in the government employ right? Obviously no commercial enterprise will pay Joe Sixpack to do anything if he can't create value.

So let's say that Joe Sixpack can't get a "real" job. Then society's choices for him are

1. Let him starve to death. Hope that if his alternative is starving then he will reform himself enough to get a job.

2. Give him money with no strings attached (currently various welfare programs, possibly UBI in the future)

3. Give him money but make him work a gov't job where he subtracts value (e.g. he is actively making things worse than if he was just not there)

4. Find some kind of gov't job where he creates less value than he is getting paid but is still creating positive value

If we ignore #1 (because if you believe #1 is always the answer then the rest of the conversation is pointless) then the question is who falls into bucket 3?

My guess is that you have two types of people, people who are not capable of doing productive work (which I'd argue are very, very few) and people who will choose to be unproductive because of the jobs guarantee (they know that they have a job no matter how badly they do it).

So maybe the jobs guarantee should be combined with a UBI with differing levels of support. Provide a UBI which covers basic needs and a jobs guarantee which provides a little more money. There will always be people who want to work just for something to do and there will be people who want to earn the extra money to improve their lifestyle. Then you don't force people into jobs where they create negative value.


I don't see why it has to be a job guarantee. If the government allocates 50000 jobs to correct inflation there is no reason why they can't hire people under any condition but limit the work contracts to 1 year and "fire" unproductive workers and extend the contract to productive workers. It's not like those jobs are supposed to be a life long career. The goal is to help people during the bad years.


Unless joe is making more money by not working than working, that is extremely unlikely.

Making money for all intents and purposes is the definition of creating value.

There are some exceptions, but they usually involve distortion by the government or theft.




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