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buswolley writes:
"Is the United States or the EU really too poor to afford to build the things each needs to maintain prosperous nations? Modern Monetary Theory (MMT) posits that America is not too poor in real resources to do the things it needs to do, and now proponents of the theory have adapted the rules of the classic board game Monopoly to demonstrate their case. For those that do not know what modern monetary theory is about, a suitable primer on the topic might be Warren Mosler's Seven Deadly Innocent Frauds of Economy Policy or Diagrams and Dollars, either as a book on Amazon or on-line for free at NewEconomicsPerspectives.org.
While the Modern Monetary Theory perspective tends to elicit disbelief and even rage, I think it is important for any scientist and geek to weigh the evidence carefully, and by doing so understand better about how and why money is created and destroyed."
(Score: 2, Insightful) by Anonymous Coward on Saturday March 01 2014, @08:14PM
TL;DR: MMT is snake oil, wishful thinking, intellectual confusion. Don't believe it.
So I read the links. And now I am seriously concerned that people may believe this stuff.
The central idea behind MMT comes down to the flexibility of pure fiat money, unbacked by any asset or process. Need more? Print more. Or change the numbers electronically. Whatever it takes. Money is just fluff and electrons. There are no real consequences to doing this.
Let's use the dollar as an example.
If Uncle Sam decides to just print (either virtual or real) money to make payments, you end up with more dollars running around. Why? Because money is a fungible commodity. One dollar is just as good as any other dollar, and with a few of them you can buy a cup of coffee. This is just the same as one cup of unpalatable Starbucks burned coffee water being the same as another. They are both commodities, and both are fungible commodities.
As with any other commodity, the law of supply and demand dictates its relative value. Please note: relative value. This is important, because the value of any commodity is contextually based. If you're drowning, more water doesn't help. If you're in a desert, more water is probably a good thing. If you're walking through a market, looking for pumpkins, presumably you value those pumpkins more than the dollars in your wallet, and the vendor values the dollars more than the pumpkins in his stock, at the given price. This is why a deal is possible.
If you have a bazillion dollars and a hankering for pumpkin pie, you might shower the vendor with dollars. If the vendor is pleading with someone to take the pumpkin off his hands, he might accept a couple of pennies, or even offer it gratis.
It's the same with dollars. What happens when you have an ocean of dollars flooding the market? Just the same as with a bumper crop of corn - the bottom drops out (ceteris paribus - ignoring subsidies and price floors). What exacerbates it is that what makes a dollar less resilient than corn (which in the worst case can at least be stored, or composted, or used to make art, or fermented for corn whiskey) is that the only value a dollar has is the trust that tomorrow it can be used to make a purchase of meaningful value. If that trust is lacking, because of price fluctuations or rumblings in society which make intrinsically valuable commodities more desirable, the marginal value of additional dollars drops like a rock. Then you get the Zimbabwe experience.
Why does this matter?
Because the strategy recommended by MMT amounts to flooding the market with fiat money. It disclaims meaningful disincentives for money creation.
The other side of the problem is that money has one function which it has essentially taken over from other commodities. It is a unit of account. It is a measure of debt, credit, and accumulated capital. If the bottom drops out of the dollar market, any accounts measured in dollars become valueless. However if one maintains the value of a dollar by managing its scarcity (i.e. not just printing as much as Uncle Sam wants to spend in any given day) the repayment of debts most certainly does restrict capital accumulation. Claiming that the burdens of the future aren't burdens at all, and have no bearing on the economic conduct of future participants can only be true if future debts are discounted at very high rates - which coincidentally (no, it's not coincidence at all) is exactly what you'd get in a very high inflation environment.
Seriously, MMT is bad news. It only works if you forget that every altered item in the chain of monetary activity alters something else down the line. Any individual part works fine - until you actually look at the consequences. The fact that the words "MODERN" and "THEORY" are in the name don't make it true.
(Score: 2) by buswolley on Saturday March 01 2014, @08:42PM
Your post is very long but it can be simply summarized as 'inflation', or rather 'hyper inflation.'
Your concerns about hyperinflation are valid, however you misunderstand MMT's perspective.
MMT might say something like this: The real constraint to the federal government's spending is inflation. The imaginary constraints are insolvency, which cannot happen with debts made in a fiat's currency.
So, indeed. Let us talk about inflation. Let us not talk about government debts and deficits (which just means more money in the private economy anyway.
Take a look at this:r rent-inflation-rates/ [usinflatio...ulator.com]
http://www.usinflationcalculator.com/inflation/cu
In the economic crash of 5 years ago the inflation rate fell dramatically. There were things to buy, but not enough dollars to buy them with. Then the fiscal stimulus package injected money into the economy and inflation rates went above the target 2% inflation rate, and then when the stimulus ended and some austerity bills were signed into law, inflation rates fell to lower than the Fed's 2% target. Currently, we need more dollars in the economy to get to that target, which is a decent rate for growth, however congress won't pass anymore stimulus. This is over simplified narrative of course.
I believe that the MMT perspective goes like this. We should target 0% unemployment, because in real terms it does not make sense to let people who want to be productive sit idle when there is plenty of real resources available and the only lack is dollars flowing in the economy.
subicular junctures
(Score: 2) by buswolley on Saturday March 01 2014, @08:44PM
I made the are/is grammar mistake. eek
subicular junctures
(Score: 0) by Anonymous Coward on Saturday March 01 2014, @09:43PM
That misses the point of the functional role of money, but sure, inflation is one of the concerns so you're not completely off base. It also misses the point of the concern that the multiple processes involved in the role of money are in fact feedback processes which cannot be viewed in isolation.
OK, I await enlightenment ...
Yeah, I got this part of the MMT perspective from the outset. The problem is that there's a flaw in this perspective. Explanation follows: While it may be true that in the absence of any contextually significant factors, insolvency is impossible for the issuer of a fiat currency, the price for that immunity from insolvency is a money supply which is not linked to commodity supply and demand considerations, but simply to government expenditures regardless of their form and the effects they may have on other spending and investment decisions. While this can be construed as only being an inflation constraint, and to some extent this is a part of the truth, the fact also is that such aggressive market transactions by the government affect production activities in the market. For example, if the government decides one day that what the country needs is a truly gargantuan supply of ball bearings, it will effectively displace other production, regardless of its value to the populace at large, in favour of ball bearings because now ball bearings are the unlimited money crank which the government wants producers winding. The opportunity costs are substantial, even disregarding any inflationary push. This is actually closely analogous to the way that the government actively pushed for a hot housing market - when the correction came, it was ugly, and in the interim the distortionary effects were pretty severe as well.
A large part of my earlier post was actually pointing out that "more money in the private economy" isn't an unalloyed, unconditional, context-free benefit, so ignoring that point kneecaps analysis of the objections.
Yes, partly because it ignores the political fact that a very large number of people sent their representatives to DC precisely to rein in spending. Right or wrong (and there are arguments on both sides) those representatives (mostly) faithfully discharged that duty and fought tooth and nail to put a brake on spending as their constituents required. This means that while it might be all very well to point out that the government theoretically could just unchain the (virtual) presses and print all the money it wants, in practice it's quite hard to get to that point because not everyone agrees.
Again, I got this part of the MMT perspective early on, and it drastically oversimplifies two major problems. The first is that 0% unemployment presupposes that the standing offers for all possible employment hours are such as to offer every worker in every field adequate recompense to overcome all converse preferences whatsoever, and yet that the costs to businesses for hiring these people are somehow lower, regardless of how basic the labour, than the equivalent costs in terms of automation or alternative business strategy implementations - either that or that the government is constantly slurping up all available labour at rates which people find compelling. Bear in mind that the market participation rate for labour is contingent on price and conditions. Remember those farmers in Georgia who couldn't find people to bring in the harvest at any kind of realistic price after the immigration crackdown? That's a microeconomic example of full employment. Anyone who wanted a job harvesting fields for the price on offer could get one - but it was not a good state of affairs. And this leads me to the other major problem; the mere availability of money qua money does not guarantee an allocation of resources which permits any given person to do anything productive - all the more so if inflation is biting. This works on multiple levels. For example, if you want a job as a mechanic, and there are already mechanics doing all the car repair which there is to be done, the net demand for your mechanical services is nil. Even if your argument is that the government should print money to retrain a mechanic as a steam fitter, that relates to the correction of misallocation of resources. The problem is that friction in the real economy guarantees some degree of misallocation at any given time. This is a roundabout way of getting to the point that dollars themselves can also be misallocated as far as the economy is concerned. More dollars don't fix anything - more dollars in the right place at the right time may fix some things but a large part of the problem is getting the dollars there, rather than just turning up the speed on the money presses.
So, no. While I appreciate the seriousness of your response, and while I appreciate the sincerity of the people who may be proposing MMT seriously, and while I even appreciate the sincerity with which they see problems in the status quo, their proposals are fraught with all manner of practical concerns. I can't recommend it, and I still hope that people aren't taken in by it.
(Score: 2) by buswolley on Saturday March 01 2014, @10:28PM
Thanks for your thoughtful post AC. I will first note that this is not a conversation of the usual type: oh no China is going to own us! :)
I summarized your AC original post as inflation because uncontrolled inflation undermines many functional aspects of currency; for example the balance between maintaining value over time vs maintaining growth. Inflation devalues savings, and it devalues the debts that have been issued. This can be a boon for the debtor but can severely disrupt the system.
I agree that unrestrained government spending can cause inflation, and I further agree that an unrestrained government spending can incur a large opportunity cost in the private sector if those spending priorities are allocated poorly. I also fear a government that could crowd out all private enterprise. However this latter is mostly a danger (maybe) when there are both a very high tax rate and very high fiat spending. In this case, since money is destroyed by taxes so quickly all economic activity chases Federal spending directly. Low taxes and low spending leaves little growth and little government power. With low taxes and high levels of spending targeted as near zero unemployment via a job guarantee buffer stock, I do not yet see how government is crowding out the private sector from achieving non-government priorities because the low tax rate keep the money in the private sector. After the initial spending into the economy, that money will continue to flow through the economy, and businesses will chase that money.
Now I admit, I am not a trained economist, so perhaps I am fooled by things simple for others to see. But the logic of fiat currency, at the minimum, destroys the usual rhetoric about debts and deficits. Ultimately that cannot be a bad thing.
I am curious. What do you think of the Modern Monetary Realism perspective?
Also let us be clear. If I understand correctly, congress has authorized banks to create money via loans to the private sector. This is happening now. The government has ultimate monopoly on fiat currency creation has the power to create money directly if it so wished. Thus the whole debate aught to shift to a debate about whether money creation should be wholly private, wholly Federal, or a mix of private and Federal. I think that it should be the latter as each are better equipped to respond to different threats to a healthy economy and nation.
subicular junctures
(Score: 0) by Anonymous Coward on Sunday March 02 2014, @12:10AM
No problem. And it's worth noting that while China was never going to own the US, it's also true that China decided that owning the US is a bad deal. (I'm summarising their decisions with respect to US debt in the light of instability prospects, imbalancing effects on current account deficits, prospects of currency revaluations (theirs) and diversification.)
But all of that matters precisely because of the unchanged function of money regardless of its value: that of a unit of account. In fact, it's because it's a unit of account that savings and financial assets are vulnerable to inflation.
This next segment I will go through in small parts, because it's messy to untangle.
So far, so good.
Pragmatically, it really can't, except by regulation. Why? Because people will continue to serve each other's needs regardless of what the government wants as long as there's a return. The higher the burden, the larger the black market and the more destructive of government control the situation is. Prohibition and the War on Drugs are microeconomic examples, and the old USSR is a macroeconomic example. If you try to tax what people want out of existence, they smuggle it. If you ban it, they make it in the black market. If you ban private commerce entirely, you probably fail and you certainly foment vast human misery. The answer to that is to guard civil liberties, of which private enterprise should be regarded as one.
The problem in this scenario is one of relevance. If the only buyer for what I do is the government, and the only purpose for the sale is to gather money which is paid to the government, where's my motivation to participate? I'd rather deal in barter, or a potlatch style economy and have no usefully measurable taxable income which does me no good anyway. And if that is banned or choked by regulation, I'll sit in a corner and compose poetry because what motivates me to do anything else? This is the dilemma, or something very close to it, which is created for many third world farmers who flooded out by well-meaning food donations. They know they'll be fed, so subsistence isn't much of a driver. Working the land is punishingly hard work, so if they don't have to farm they won't - so they stop farming. This is a real example, and so destructive that the very concept of food aid is under heavy fire.
It's not at all clear that the low growth is a certain thing - in fact, provided a reasonably free field and a chance to accumulate meaningful capital, people will generally work like dogs to better their own lot. There's a fair amount of evidence to suggest that private expenditure is in fact more efficient than government expenditure at wealth creation.
Again, you're looking at the money to the exclusion of other elements in the economy, which is probably why you don't see the distortionary effects. First, if there is large government expenditure but low taxes, you're either extracting capital via a bond structure, thus reducing your short term money supply and choking the supply of capital to enterprise, or you're printing money and essentially reducing the reward for financial success by guaranteeing inflation down the line. But even assuming neither of those is true because you're spending an accumulated rainy day fund of some sort, you're raising the cost of labour in the market and introducing inelasticity. Slice it how you like it, but some element of this pattern is affecting one or more of access to labour, capital and given the twisted priorities behind government employment of last resort as a universal, you're probably not getting value for money in terms of what the government employees are giving you anyway, thereby reducing net productivity even though you have nominal full employment. The mere fact that there are low taxes in the abstract doesn't mean much if the capital held is withdrawn via bonds or devalued by inflation.
It's not clear that the spending continues infinitely (in fact in reality it's crystal clear that it doesn't) and businesses will only chase money which is worth their time and effort. There are actually businesses which use durable commodities as hedges against inflation and currency fluctuations and this is standard practice.
It turns out that debt does matter, interest payments do matter, and deficits (current account as well as budget) do matter. While I agree that the rhetoric is often a little hysterical, it's not entirely divorced from reality. Moreover, the logic of fiat currency actually supports concerns about debts and deficits when you look at longer term consequences and the degree to which these systems are interconnected. Sorry, Modern Monetary Theory doesn't rescue the theory of consequence-free government spending.
It strikes me, frankly, as people who realised that MMT doesn't get it all right, but don't really want to give up their vague optimism that somewhere, somehow, if they look long enough, they will find a free lunch. I have yet to see a cogent explanation of what MMR actually is, because it's largely defined as all the parts of MMT they don't adhere to. This is not helpful.
This is more or less correct. A more accurate statement might be to the effect that congress permits it up to a point, but has banned reserveless banking. It's actually even more complicated than that, but you're not really wrong.
This is not as true as a lot of people would love to think. The government would love to have total control over fiat currency supply manipulation, but those darned general public people keep misbehaving themselves in complex ways. The government is constantly chasing a mirage, in terms of money supply control, and its actual powers are very blunt, heavy instruments. Also, the less convenient money is, the more people turn to alternative means. For example, in much of the rural regions of the USA, guns and ammunition are as good as money.
It already is. Most people just don't understand that.
(Score: 1) by MichaelDavidCrawford on Saturday March 01 2014, @09:40PM
I hasten to agree that an anonymous medium of exchange, that is not controlled nor trackable by any government, and that does not have transaction fees, is very much A Good Thing.
What I cannot fathom is just WHY anyone agrees that a BitCoin has any value at all.
I mean at least with paper money, you could burn it to keep warm on a cold night.
I have the same problem with gold. It does have many industrial uses, such as my former wedding ring serving as a not brass but gold knuckle on the middle finger of my right hand. It's phenomenally ductile, so you can draw very fine wire, make gold leaf in your garage by lightly hammering it between two sheets of leather.
But why is it worth, last time I actually checked, thirteen hundred dollars per ounce? It's not like you can eat the stuff.
All of this is why I tend not to hang on to actual money for very long at all. It's not that I blow it all on hats, but any time I accumulate much money, I use it to purchase something of real lasting value, such as a technical book that can teach me a new job skill.
Again that's why I don't buy eBooks. If I'm busted flat, I could always sell some of my technical books.
Google should yield insight... here we go:
If you don't already read Graham's essays, I heartily recommend them. He is an excellent writer and very insightful.
He makes the point that while money can be used to purchase wealth, it is not actual wealth in and of itself.
Wealth would be food, clothing, heating or cooling of your home, medical care, transportation and the like.
If you create a lot of real wealth, everyone is going to want to exchange their money for your wealth but you would do well not to forget that money is not wealth.
It happens that I am busted flat and don't particularly care. I have enough to eat, a place to sleep, a real nice Retina Display MacBook Pro loaded to the gills with development tools and music.
But it matters to me a great deal to create wealth. However I give it away for free. At one time I earned considerable money through AdSense pay-per-click advertising, but now I earn nothing. Let me find a good example for you...
"We can stress-test hardware by injecting errors into, say, automobiles. Slam a crash-test dummy laden car into the rear end of a Ford Pinto."
It happens that the last week or so that I've been working on the greatest wealth creation technique I have ever stumbled across. It's quite tedious and a lot of hard work, but only costs me a couple pike's place roasts each day, so I can use their nice wifi.
Find out whether a publicly-traded company might own a high-tech recruiting agency. Most are small and independently operated, but some are huge multinationals like Kelly IT Resources, Manpower Professional and Oxford Global Resources.
For example Oxford is wholly-owned by On Assignment. On Assignment is publicly traded; if I understand they do all kinds of staffing services whereas Oxford only does the software business.
Now go look at the Yahoo News graphs of their stock price over as long a time into the past as Yahoo provides.
You will find that these companies do the best when the economy as a whole is doing the worst. For example On Assignment's stock skyrocketed during the 2008 subprime real estate meltdown.
Further, each company spends the vast majority of its gross profit on sales.
That is, they employ commissioned salespeople to find sales leads. For example my friend Murray made the mistake of listing all of his references on his resume, then uploading it to all the job boards. They very next day, Murray's manager got dozens of calls from recruiters, to ask if he'd like a new job.
They also spend all that sales expense to hunt down resumes like mine [warplife.com], then avoid ever telling hiring managers that my resume is freely available on my site, or that I regularly post it on craigslist.
No, if a recruiter places me, and I earn a hundred grand as is typical for what I do around Portland, Oregen, then the hiring manager can expect to pay thirty grand in commissions, if I am still on the job after three months. If I work an hourly contract, then they typically pay thirty percent the entire time I am employed by the agency!
It can be a lot more, but one rarely finds out because the client is contractually obligated not to discuss the agency fees with the candidates they place. However sometimes one does find out, as did the poor fucker on alt.computer.consultants.moderated, who felt quite good about earning thirty dollars per hour, only to discover that his agency was billing the client ninety!
Nowadays it is damn near impossible to find any work at all, of any sort, even entry level "script monkey" qa or first-tier tech support, without going through an agency.
That's not what headhunters or for, M'Kay.
That the labor price of any software or electronic product is thirty percent recruiter commissions nowadays, is known as Rent-Seeking Behavior.
Suppose you are a landlord where housing is scarce, like new york or san francisco. The responsible thing to do would be to use your profit to build more apartments, or at least keep up with building maintenance.
But scarce housing leads to rent-seeking; that is, rather than doing right by your tenants, you keep jacking up the rent they pay, without creating any actual wealth.
I have a secret plan for the headhunter rent-seeking.
I don't exactly object to rent-seeking, but I do object to being spammed mercilessly by recruiters who don't even bother to read my resume, such as the joker who wanted to place me in a C++ security job with Symantec a while back. With fourteen years of C++ experience, lots of reverse engineering work, I am eminently qualified for such a job.
"I'm sorry, but I can't submit you unless you have some experience with C++. I don't see any on your resume."
WUT?
I didn't exactly ask him if he was on shrooms, but I wanted to.
I finally figured out why he said that when I read the advice that one should keep one's resume down to one single page if one wanted to have any hope of finding a job, this because the average resume gets, uh, "read" for only six fucking seconds!
My resume is seven pages long, and very carefully edited for brevity. Yes, Rly.
That makes it hard to find a job, but from time to time someone who needs a seven page employee or consultant, they do really read my whole resume, then they are beating a path to my door. on the advice of a good friend who is a retired HR manager, I did cut my resume down to one page a while back, but then decided the better of it then put back my seven-pager.
I am not quite ready to announce what I am doing, not so much to eliminate the headhunters, but to eliminate their rent-seeking, but I should be ready in ten days to two weeks. Trust me it will get Soylented and Slashdotted and Reddited all over G-d's Creation.
I COULD make lots of money with this plan but I don't want to.
For me a "conversion" - what usually refers to making money off one's eCommerce site - would be to get a job without having to spend three fucking years looking for one, only to be spammed mercilessly by recruiters offering me jobs I could not possibly qualify for:
"Hey! I'd love to come work in London. One of my best friends lives there. Actually I have quite a lot of experience with sub-millisecond precision high-speed trading..." -- that's why we really DO need to Occupy Wall Street, my bad - "will Bloomburg sponsor me for a United Kingdom work permit?"
In the US that would be an H1-B. My ex sponsored me for a Canadian work visa when we lived in The Great White North.
So the recruiter asks bloomberg.
"Sorry, no, they won't sponsor your visa."
"OK then. Considering that the postal address on my resume is in Portland Oregon, in the United States, why did you solicit me for a permanent job in the UK?"
Recruiters. Can't live with 'em, can't tear their spleens out with rusty entrenching tools.
If you want to know why I wander like this, it's because I have quite a serious sleep disorder. I'll get back to working on My Secret Recruiter Plan now, I promise.
(Score: 0) by Anonymous Coward on Saturday March 01 2014, @09:59PM
One reasons dollars have value is that you have to pay taxes in dollars (and not bitcoins). Bitcoin is not a currency in this sense. It is a commodity.
(Score: 0) by Anonymous Coward on Saturday March 01 2014, @10:05PM
> I hasten to agree that an anonymous medium of exchange, that is not controlled nor trackable by any government, and that
> does not have transaction fees, is very much A Good Thing.
> What I cannot fathom is just WHY anyone agrees that a BitCoin has any value at all.
In a nutshell, because money is codified trust. You trust that someone else with a similar derangement will accept the same token in exchange. If money is commodity backed, this relates to the supposed exchange value of the commodity, but with fiat money it's basically codified trust. This can be backed by a bureaucratic requirement for the use of certain currencies for taxation purposes, or debt repayment conditions being linked to certain currencies, but these still amount to a trust in the notional value of the currency at hand to some recipient - that the recipient is institutional rather than personal in nature doesn't really affect the situation.
> I mean at least with paper money, you could burn it to keep warm on a cold night.
Low value, but not nil.
> I have the same problem with gold. It does have many industrial uses, such as my former wedding ring serving as a not
> brass but gold knuckle on the middle finger of my right hand. It's phenomenally ductile, so you can draw very fine wire,
> make gold leaf in your garage by lightly hammering it between two sheets of leather.
> But why is it worth, last time I actually checked, thirteen hundred dollars per ounce? It's not like you can eat the stuff.
Again, trust - although as a commodity its nonfiscal value is above nil.
> All of this is why I tend not to hang on to actual money for very long at all. It's not that I blow it all on hats, but
> any time I accumulate much money, I use it to purchase something of real lasting value, such as a technical book that can
> teach me a new job skill.
Fair enough, but bear in mind liquidity preference and reasons for it. Your position is not unique, but not unassailable in a modern economy either.
As for the rest of your post, countercyclical investment is a well known strategy and there have been books upon books written on the topic.
(Score: 2) by buswolley on Saturday March 01 2014, @10:30PM
Bitcoin is about a joint agreement that a thing has value.
The U.S. dollar is different because the government creates demand for dollars through compulsion. You must pay taxes in dollars, and thus must have dollars. Therefore, people start with a debt of dollars, and try to find ways to get dollars to pay that debt off in dollars.
subicular junctures
(Score: 0) by Anonymous Coward on Sunday March 02 2014, @12:49AM
Not quite. It is a consensus that a thing has value, but it's not a prearranged guarantee that it has value. The value of the thing itself is actually rather ephemeral and subject to the vagaries of circumstances. The value is most certainly not inherent to the conditions of its existence.
The zimbabwean dollar was different because the government created demand for it through compulsion. Oh, wait ... when people decided that its chief value was as toilet paper, all the government's compulsions amounted to a wish and a prayer. Money really does depend on trust, and when that trust fails for whichever reason, the money loses its value. This applies to previous debasements of commodity backed currencies, but is particularly spectacular in the case of fiat money.
One of the weakest points of MMT (and as far as I can tell, MMR) is the insistence that the compulsion of government is some kind of guarantee of the value of money. This just does not square with observed reality in country after country which ignores these facts. Argentina is another recent example, and if you want to see the evidence of that fact, examine the tension between the official and black market values of dollars in that country.
(Score: 2) by buswolley on Monday March 03 2014, @03:40AM
Compulsion by the government does provide value for a currency. However, we can all agree it is not the only thing that determines the value of a currency. Moving on. In all the cases I am aware of, historical hyperinflation has not caused by printing of money alone, but by externalities that severely limit the ability to meet increased demand (e.g. war, corruption, etc).
subicular junctures
(Score: 0) by Anonymous Coward on Thursday March 13 2014, @12:18AM
Sure. Up to a point. But then the value of money is not as a medium of exchange but as a means of pacifying force majeure. If everyone plays nice, and the currency is all stable and doesn't introduce major uncertainty, it may be used as a medium of exchange, but when the government starts playing games with the currency, it stops being a medium of exchange and people look for another.
The funny thing is that printing of money in ludicrous quantities tends to go along with other negatives. Why? Because it's a final, despairing gurgle of a system flushing itself down the toilet. Why? Because there's no plausible reason to do it except in desperation. Why not? Because it is so damaging. Why?
Because printing really large amounts of money essentially creates a flood of your fungible commodity (money) on the market in which the demand for money is limited by the law of supply and demand, just as it is for all other commodities. If every person in the USA has a barn full of greenbacks, their net value is basically nil regardless of how corrupt or embattled he government is or is not. They're firewood. Mulch. Confetti. Walk along with a wheelbarrow load of money? The wheelbarrow is the thing worth stealing. A bucket full of money? Unless it's -50F in North Dakota and you're short of firewood, the bucket is what is worth stealing.
So why is this really damaging to the government? Because now their currency can't convince anyone to lift a finger for them practically regardless of how much they print, and because their bond market is essentially moribund because nobody thinks the government's debts are worth a wet fart after inflation is calculated in - which is incidentally how the government in MMT is supposedly (OK, that and taxes) removing money from the system. You've also just impoverished every financial asset holder, clobbering the movement of capital which keeps your system's investment alive - and remember before you start shouting about government investment, that the government's investment has just devalued to wishes and dreams because it's counted in the exact same currency everyone has a barn full of.
No, you can't dismiss hyperinflation as a possibility only when the government is under stress. It's just that government which aren't that stressed usually have too much good sense to play that sort of stupid game, because they can see how one thing leads to another and another until their money is basically toilet paper with the faces of dead politicians.
Is there a way of understanding this differently? Yes.
Money isn't just a medium of exchange. Money is a measure of stored value, but that is the part which doesn't depend on government fiat so much as supply and demand. Every time the printing presses run faster than shredders, by more than the economy's growth, the supply is outstripping the demand. What happens then? A commodity loses some of its marginal value in the market. Result: everyone who chose that commodity to represent their stored value is out a percentage of that stored value. If you attach any worth at all to the role of capital in the market, in the form of financial assets (such as, say, a loan), you should not want those presses to run too hot, because they can really mess up your economy.
(Score: 2) by buswolley on Thursday March 13 2014, @12:50AM
If a government passed a law, "pay 10 electro-clams per annum in taxes or you die" then you better believe that there will be demand for electro-clams, and those electro-clams will serve as a medium for exchange in the economy because it will be highly valued. If the government created many many more electro-clams relative to what is needed to satisfy the tax, then electro-clams will be devalued because everyone and their monkey can come up with 10 electro-clams. If however, the tax rate were to go up (100 electro-clams per annum or death), then there will be a resurgence of value because few people want to die, and things that have value serve as a medium of exchange.
Therefore, (low tax,low spend) and (high tax, high spend) have similar effects of stabilizing the value of electro-clams. High tax and low spend leads to deflation, and low tax and high spend lead to inflation.
We get it.
The question is different. The question is how much of differential can we have without massive inflation. MMT argues that 100% employment is the optimal target via a buffer job guarantee, so long as there is useful things to do with that labor, and this latter question depends on the availability or limitations of real resources.
subicular junctures
(Score: 0) by Anonymous Coward on Thursday March 13 2014, @06:23AM
TL;DR: TANSTAAFL. Economies are feedback loops. 100% employment is a mirage, and trying to reach it is inherently inflationary.
[Snip thought experiment about capital punishment motivating monetary activity, rather than naked revolution born of desperation.]
No, it's worse than that, because tax and spend aren't the only factors which determine money supply or money valuation - they are prominent factors, but their very prominence is strictly relative to their relation to the rest of the economy. A billion dollars in the US is a lot of money, but a billion more or less being spent on a given day is a blip on a graph. A billion US dollars being spent on a given day in the Central African Republic is way out of proportion to the rest of the economy, and is practically guaranteed to be massively destabilising.
And it gets yet worse than that, because now you have to factor in other matters, such as the average velocity of money in your system, which affects the money supply and is heavily affected itself by the psychology of the people spending and investing it. Confident people spend more, optimistic people invest more, and confident, optimistic people can create so much activity that the net creation of money apparent in the system dwarfs what the poor, sweating bastards in a central bank can easily throw around without giving the impression of being reckless. Scared people hang on to their money. Pessimistic people squirrel their cash away in low growth, high security investments in the hopes of not losing it all. The effects of human mood swings on a national scale are amazing, but quite measurable (at least within a fair degree of confidence).
Oh, but wait, it gets worse. Not only are you dealing with relative monetary values and the moodiness of your market participants, you're also dealing with the decisions of banks which can be quite separate from the market at large. Remember the indignation about all the banks who supposedly weren't lending all the money they'd been given, supposedly to lend? And how many of those exact same banks had been threatened with dire consequences if they didn't up their reserve ratios? Those bankers had quite rationally decided that the thing to do with more cash on hand was to keep it, so as to meet statutory and regulatory requirements, which are decided by politicians and their appointed lackeys, who are in turn motivated by what they think the voters want to hear.
Oh, it gets yet worse because we have a feedback loop. Indignant politicians baying for the blood of anybody who looks as if they might work in a bank make people nervous and pessimistic, which turns back around and affects their spending and investment habits, which affects the economic activity levels and the effective money supply as well as the reserve levels on hand in the banks which affect the bankers' decisions, which affect ....
OK, now we get to the meat of the matter. You want to find out just how much you can juice the system without the wheels coming off. Fortunately, I have a quick, easy answer which covers all situations:
It depends.
It depends on economic activity levels. It depends on mass psychology. It depends on the weather. It depends on commodity price activity in other countries over which the government has effectively no authority whatseover. It depends on ups and downs in the birth rate. It depends on so many things that it frustrates attempts to list them all, and consequently policy makers and rate setters are driven to broad rules of thumb in an effort to get their arms around it all.
So what's wrong with MMT's rule of thumb, aiming for 100% unemployment?
First, despite it being an actual number, it's not precise. No, really, it's not precise at all. What does 100% employment look like? Since entrants to the labour market make choices based on what's available, the very act of employing more people makes more people consider employment. On the other hand, what if there are lots and lots of jobs available picking cotton in Alabama, but nobody wants to do them? You have a lot of cotton sitting in fields, and a lot of people sitting on porches. It's still 100% employment by some measures because there are jobs unfilled, and everyone who isn't working has taken a look at the market and decided to abstain.
And who, to use your turn of phrase, decides what is a useful application of that labour? Is it justifiable to have ten thousand sweating men with picks and shovels digging a canal when you could have a team of twenty, foremen included, doing it faster and more safely with heavy machinery? If you just want people earning a wage, and doing something which on some nebulous level might have some kind of benefit to someone, then sure. But what if people refuse to do that work? Do you declare 100% employment for all workers in the market? Do you cut off all their benefits because they're obviously malingering? What if you have a sudden bloom in small business activity and they suddenly find that it's really hard for them to hire the people they need to grow because there is no meaningful buffer available in the market? What if we have demographic and work habit shifts, and the typical retirement age moves to 75?
Again, labour is a market. Just as you should be suspicious of a turnip market in which every turnip is frantically snatched off the shelves by panting, wrestling shoppers, you should be suspicious of a labour market in which every teenager with bad breath and a marijuana habit to support gets a job offer just for showing up.
Moreover, the whole thing raises the question of why you're not just handing out benefits to the unemployed, rather than making busywork for them all? It costs money to move all these people through their commute, it costs money to get them trained and equipped and supervised. It costs money to plan what they're doing, and pay for the electricity in the office buildings and all that stuff. It's arguably more valuable to have them on tap, if they're not actively engaged in training, waiting for jobs to materialise which they will snatch up as soon as they are available.
But the MMT crowd would have us all believe that the right thing to do is print enough money to motivate all the employable people to do whatever stultifying work has been decided, under conditions where the workers have no real fear of being fired because the government actively wants them there, doing that thing. Not only is this a recipe for boondoggles of truly gargantuan proportions, not only is it vastly destabilising to the market in available labour, not only does it crowd potential employers out of the market, but by so doing it actively motivates a move away from labour and towards capital expenditure in the preferences of businesses.
Why? Because if you can't easily get the guy you want in the door at a plausible price, it's easier to ask if more machinery will let you get it done with the people you have around.
But wait, didn't FDR get away with it, in the thirties? Wasn't that great? Well, not quite.
First, it was generally voluntary. Granted, maybe that's part of your plan.
Second, there was a fair amount of corruption and featherbedding involved in that.
Third, the times were quite deflationary and he was trying to pull the country out of that, so under the circumstances the monetary harm was allayed.
Fourth, even then he didn't reach 100% employment.
Fifth, the markets in general were hugely distorted, and FDR kept monkeying with them using things like price and production controls and sweetheart deals with unions he felt he could trust to work with him.
Sixth and possibly most important, FDR was not dealing with pure fiat money. It was commodity backed, which is not what MMT is about at all so it's not a viable comparison in the first place.
But let's seriously consider what you're proposing here: your presumable policy prescription, on the assumption that you want your taxes and spending to be roughly on par because you don't want too much inflation or deflation, will be to tax the productive population at large, and pay the otherwise indigent who you have now employed en masse as an employer of last resort. This is a transfer.
I know, I know, according to the Great Writ of MMT, it's not a transfer because taxes are a meaningless black hole and spending is a meaningless cornucopia, but the actual net effect when you are linking the two to each other because of monetary effects is that you are effecting a transfer via the government. X money goes in. Within a few percentage points of X comes out, in a different direction. That's a transfer.
You are now taxing all the nongovernment employment side to pay for all the government employment side, but most critically, you are taxing them to get things which are being explicitly inefficiently provided, and you're screwing up the labour market to boot, in a fashion which squeezes the taxably productive part of the population into a smaller and smaller population. Why? Because you're surely not paying your last resort government employees enough to meaningfully tax them. Everyone else is breaking their necks trying to make enough money to pay taxes, and the ones who drop out of that rat race ... turn to the government for their employment, and get replaced in the productive side by automation, at least to some degree, and with every advance in technology that accelerates.
Not only is this a terrible way of motivating precisely the wrong outcomes, you've also created a situation ripe for subversion of the process. Payment in kind will increase. You'll have out-and-out barter economies jumping up just so that people can find some way of reducing their nominal, taxable income (or purchases). Why are they so motivated? Because you've just created a pretty much guarantee of a high tax/high spend style of government which will accelerate to progressively higher taxation and spending. Why didn't FDR end up there? Lots of reasons, relating partly to his problems with the courts, and partly to the way that WWII turned things around. His works programs just never got to that point.
So how do you break this cycle?
You have to step back from the full employment backing guarantee. Any time you promise all comers a job which is actually worth having, and you don't finance it with debts and deficits, you're guaranteeing high (and probably accelerating) tax rates. If you are pushing it up with debts and deficits, you're pushing inflation.
You can get away with welfare transfers up to a point because they at least interfere less with the labour market, and also increase the demand side for private sector activities on behalf of the government since the government isn't getting things done on the backs of tens of thousands of men with shovels.
In the end, the rule still is what Margeret Thatcher said years ago: If you try to buck the market, the market will buck you. MMT looks plausible until you understand the consequences of everything feeding back into everything else.
(Score: 2) by buswolley on Friday March 14 2014, @12:35AM
This is an interesting conversation, although your arguments are not quite convincing.
But let me dispense with the jobs guarantee because it is something that, to my mind, lead to an over empowerment of government. Does this surprise you? No the jobs guarantee gives too much power to government in this way. If government raises the wage that it will pay as an alternative source of employment, private industry will have to raise their wages payed. For example, if the government decides to raise the minimum wage payed to 10,000 per hour private sector could not compete, and there will be, at least initially, a government take over of the labor force. Moreover, there would be a massive change in the balance of political power, if we can agree that money = political power. Eventually, the economy might adjust and private employers would be able to pay more than the guaranteed government job. However, all the government would need to do is to keep the pay rate growth above the rate of productivity.
Instead, I currently prefer a form of helicopter drop. Yes this is maligned. Let's call it a civil inheritance for having a strong nation. Each is born with an equal inheritance sum of money (untouchable by parents), and given at some later legal age. Why do I prefer an inheritance rather than a jobs guarantee? First, once given it is no longer in government control. In many ways this is born of a libertarian ideal. Do what you can with the gift using your own abilities. A little start up money giving both space and time to be entrepreneurs. The lazy will be lazy of course, but nothing will change that. But the children of the lazy get that enhanced chance.
subicular junctures
(Score: 0) by Anonymous Coward on Saturday March 15 2014, @07:40PM
If you have specific questions I'll do my best to give you specific responses.
Nope. The measure of tolerable rates of government intervention is a serious question in the fields of political and behavioural economics, so your surmise isn't outlandish.
Well, Chairman Mao said that political power grows from the barrel of a gun, but money is certainly a proxy for certain elements, so I'll go along with your approach here. Yes, the government's fiat money backing fiat employment is massively destabilising (and inflationary, because of its role in the supply and demand for money).
So, if I understand what you mean, it would be something like every 25 year old getting a lump sum without any particular preconditions.
Effectively just another government transfer. Arguably most of that cash would be squandered quickly, so it would amount to a fairly conventional enforced reduction in saving (by removing money from the hands of those with it, who would otherwise have saved some proportion) and increase in expenditures (minus the frictional costs of tax administration) because it's pretty much a cinch that most 25 year olds will see that money evaporate pretty darned quickly.
And since it happens pretty much every year (because a new cohort reaches 25 years of age, or whatever age you pick) it just turns into a regular money churn, with the government machinery picking up a percentage every year. Honestly, it's kind of anti-libertarian.
Alternatively, if you're back to the money-printing option, it turns out every bit as inflationary as any other money-printing option.
(Score: 0) by Anonymous Coward on Monday March 17 2014, @11:39PM
I married libertarians to popular fiscal policy.
Libertarians are fond of contracts.
Advance a loan to each citizen with interest. Payment is due in 10,000 years. If you are of legal age you can sign and get the citizen loan. Winners will be productive. The others' demand push will provide the grit for each winner. Old growth forest is important, but the Forest dies without new saplings.
(Score: 0) by Anonymous Coward on Sunday March 23 2014, @11:29PM
The contracts have, in contractarian philosophy, to be actually enforceable and plausible and to otherwise contain no invalidating terms.
I can't see any contractarian going for this. If you consider the debt to be a transferrable asset, which is typical, then you're still not avoiding theoretically plausible, crippling debt (or complete devaluation to the point of meaninglessness, through inflation). In regimes in which debts and assets get sorted out in probate planning, you're just applying some kind of penalty to the estate. And what about bankruptcies?
Short answer, this is at best a meaningless helicopter drop of money with a veneer of respectability of no substantial value. Alternatively, the government is just buying perpetuities as a masked way of raising taxes.
If I were in such a regime? I'd either assess it and find it to be insane, and ride that pony into the ground, or run screaming. I see no way of guaranteeing a balanced outcome.
(Score: 1) by Yow on Sunday March 02 2014, @02:47AM
Oh. Em. Gee. LONG