MMT

[urge]

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Modern Monetary Theory.

Anyone heard of it before Bernie Sanders and Ocasio-Cortez?

I thought is was ridiculous the first few times I heard of it but after having looked into it I cannot find any holes.

Help me find some holes please.


Good primer:

 

[Mman]

it's interesting ideas IMHO, but there are plenty of holes in it. Much of what they imply is merely theoretical and you'd have to be kinda crazy to go fully into it because if it didn't work out you'd be screwed.

 

[DM27]

There are a few good podcasts out there that talk about this. NPR Planet Money has one and I believe Freakonomics does as well.

 

[urge]

There are a few good podcasts out there that talk about this. NPR Planet Money has one and I believe Freakonomics does as well.

Listened to the Planet Money one. Too superficial to be of value. Would not recommend listening.

Can’t find a Freakonomics one.

 

[urge]

it's interesting ideas IMHO, but there are plenty of holes in it. Much of what they imply is merely theoretical and you'd have to be kinda crazy to go fully into it because if it didn't work out you'd be screwed.

Plenty of holes such as?

 

[puahate]

I actually listened to a talk about this by the NSER

 

[Mman]

Plenty of holes such as?

they get kinda nebulous on "government" and the importance of the independence of central banks and separation from the treasury and what would actually happy with currency and inflation if the central bank was seen as a political tool.

 

[urge]

they get kinda nebulous on "government" and the importance of the independence of central banks and separation from the treasury and what would actually happy with currency and inflation if the central bank was seen as a political tool.

Those are points you don't like, or don't understand yet, not holes.

I can't find anything wrong with the "theory" whether we like it or not.

 

[Mman]

Those are points you don't like, or don't understand yet, not holes.

I can't find anything wrong with the "theory" whether we like it or not.

they believe that high inflation and high unemployment can't go together, yet the 1970s would disagree.


I actually LOVE the idea of MMT as an interesting thought experiment. It just has holes in it and makes some massive leaps of faith.

 

[urge]

they believe that high inflation and high unemployment can't go together, yet the 1970s would disagree.


I actually LOVE the idea of MMT as an interesting thought experiment. It just has holes in it and makes some massive leaps of faith.

I'm not sure that proves or disproves any theory.

MMT would argue that you could print enough money to employ everyone cutting grass with small scissors rather than lawnmowers.

Inflation might be 2 million % though

 

[Mman]

I'm not sure that proves or disproves any theory.

MMT would argue that you could print enough money to employ everyone cutting grass with small scissors rather than lawnmowers.

Inflation might be 2 million % though

MMT is an interesting thought exercise, I just think it does not provide usable ways to make policy decisions in the real world.

The idea that you could just print enough money to pay people to do whatever (such as cut the grass with scissors) is correct according to them, acknowledging you would have insane inflation. But I think the best evidence suggests that in such an inflationary environment you actually could not print enough money because people would demand even rapider pay raises. You'd get diminishing returns for each extra dollar printed and it would not keep pace with the inflation generated. In essence, actual inflation would be actually generated by expectations and not be simply tied to increasing the monetary supply.

 

[urge]

MMT is an interesting thought exercise, I just think it does not provide usable ways to make policy decisions in the real world.

The idea that you could just print enough money to pay people to do whatever (such as cut the grass with scissors) is correct according to them, acknowledging you would have insane inflation. But I think the best evidence suggests that in such an inflationary environment you actually could not print enough money because people would demand even rapider pay raises. You'd get diminishing returns for each extra dollar printed and it would not keep pace with the inflation generated. In essence, actual inflation would be actually generated by expectations and not be simply tied to increasing the monetary supply.

But they also say you can make the tax 99% to control inflation if needed.

You could be making 1 million cutting grass but you need to pay 99% in tax. You arw only left with 10k. That will put a stop on inflation right away.

MMT just argues that unemployment, inflation, and taxes are political decisions more than economic ones.

My point is that their arguments are sound. However, I agree if it gets embraced by politicians we are 100% guaranteed that they will screw everything up once they know they are in full control of everything.

 

[pgg]

You could be making 1 million cutting grass but you need to pay 99% in tax. You arw only left with 10k. That will put a stop on inflation right away.

This sounds like MMT is an argument for a universal basic income. There's really no difference between paying someone to do useless work, and paying them to do nothing.

So maybe one way to test this MMT theory is to see how UBI works out in practice ... not theory.

 

[d9sccr]

I'd suggest that an economic theory valued by Bernie (lived off taxpayers his entire life while supporting USSR, Venezuela, Cuba, and even the Nordic countries that are starting to face a reckoning) and AOC (proven to be economically illiterate several times over in her very young career) is probably not a "solid" idea. Is it any coincidence that they both have introduced or support the two largest entitlement programs to date and now support the only economic theory capable of "footing" those bills?

The idea that you can inflate your way out of bills is ridiculous. Every country relies on imports in some form. You could only continue to import your needs as long as your currency is valued on the world stage. No one is going to trade knowing that what they return in exchange today could be worthless tomorrow, at least not trade in your currency. Same thing goes for bonds.

If this worked, why doesn't Venezuela just print unlimited supplies of money? Or did they try that? This rings early similar to the "that's not the socialism we're talking about" argument being generated by the left at the moment.

 

[puahate]

@wontonsoup can you provide some insight on these two schools of thought? I am just reading on MMT and it's pretty new to me .I respect your opinion of these topics after reading a lot of your responses to economic questions on SDN.

 

[Mman]

MMT just argues that unemployment, inflation, and taxes are political decisions more than economic ones.

My point is that their arguments are sound.

I don't think those arguments are exactly correct and I think there is evidence they are incorrect.

I find it a fascinating thought experiment, but not one supported by evidence.

 

[deleted50478]

I, a non-economist, think the hole in MMT is that inflation will go up with unlimited government spending. At some point the inflation rate gets too high or the debt relative to the size of the economy will get so large that people will lose faith in the ability of currency to hold value.
At that point you’d buy land or gold or euros or pound sterling or bitcoin 😉 or whatever you view as a reliable vehicle to maintain the purchasing power of your wealth. You wouldn’t sell a house, land, or factory or offer dollar-denominated loans for those purchases once the currency is unreliable.
This loss of faith in the currency can happen fast and could destroy the economy . But hey, I’m just a guy with common sense, not an economist who can defy common sense and get something for nothing. It worked for the Weimar Republic, right?

 

[Mman]

I, a non-economist, think the hole in MMT is that inflation will go up with unlimited government spending. At some point the inflation rate gets too high or the debt relative to the size of the economy will get so large that people will lose faith in the ability of currency to hold value.

Venezuela now or Zimbabwe 10 years ago (they had estimated inflation percentage measured in the billions).