Stories
Slash Boxes
Comments

SoylentNews is people

posted by Dopefish on Saturday March 01 2014, @02:30PM   Printer-friendly
from the pass-go-and-collect-$200 dept.

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."

 
This discussion has been archived. No new comments can be posted.
Display Options Threshold/Breakthrough Mark All as Read Mark All as Unread
The Fine Print: The following comments are owned by whoever posted them. We are not responsible for them in any way.
  • (Score: 2) by buswolley on Saturday March 01 2014, @10:30PM

    by buswolley (848) on Saturday March 01 2014, @10:30PM (#9265)

    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
    Starting Score:    1  point
    Karma-Bonus Modifier   +1  

    Total Score:   2  
  • (Score: 0) by Anonymous Coward on Sunday March 02 2014, @12:49AM

    by Anonymous Coward on Sunday March 02 2014, @12:49AM (#9303)

    Bitcoin is about a joint agreement that a thing has value.

    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 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.

    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

      by buswolley (848) on Monday March 03 2014, @03:40AM (#9892)

      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

        by Anonymous Coward on Thursday March 13 2014, @12:18AM (#15632)

        Compulsion by the government does provide value for a currency.

        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.

        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).

        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

          by buswolley (848) on Thursday March 13 2014, @12:50AM (#15640)

          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

            by Anonymous Coward on Thursday March 13 2014, @06:23AM (#15739)

            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.]

            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.

            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 ....

            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.

            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

              by buswolley (848) on Friday March 14 2014, @12:35AM (#16140)

              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

                by Anonymous Coward on Saturday March 15 2014, @07:40PM (#16919)

                This is an interesting conversation, although your arguments are not quite convincing.

                If you have specific questions I'll do my best to give you specific responses.

                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?

                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.

                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.

                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).

                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.

                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

                  by Anonymous Coward on Monday March 17 2014, @11:39PM (#17840)

                  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

                    by Anonymous Coward on Sunday March 23 2014, @11:29PM (#20009)

                    I married libertarians to popular fiscal policy.
                    Libertarians are fond of contracts.

                    The contracts have, in contractarian philosophy, to be actually enforceable and plausible and to otherwise contain no invalidating terms.

                    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.

                    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.