Modern Monetary Theory

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discovolante
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Modern Monetary Theory

Post by discovolante » Mon Aug 23, 2021 5:10 pm

Alright, I've just finished reading The Deficit Myth by Stephanie Kelton, about Modern Monetary Theory (MMT). Obviously it's a trade book rather than a Serious Academic Text and therefore has an idea to sell to unwary layfolk like me but I thought it would be worth a read.

So I'm guessing that on this forum there is a mixture of many people who know much, much more about economics than I do (although if you think you're one of those people it doesn't necessarily mean you are), and possibly even people who know less than me, although I imagine they are very few and far between. So I'll try and briefly outline the content of the book/theory for those not already in the know, and some of the criticisms of MMT and then well, knock yourselves out I suppose.

The primary idea behind MMT and The Deficit Myth is that countries with high monetary sovereignty - i.e. the power to issue their own fiat currency (so the US, UK, Japan etc but not Eurozone countries, countries whose currency exchange rate is pegged to the dollar etc) do not need to worry about public spending and deficits because they can just print their own money to pay for whatever they want, with no obligation to pay it back, and the only thing they need to worry about is inflation. MMT also proposes a Job Guarantee Program that guarantees work to anyone who is unemployed and seeking work and which pays a reasonable wage ($15/hour is proposed), which in turn it argues acts as a de facto national minimum wage. I was going to briefly outline the chapters in the book but yikes it's half 5 and I've got other stuff to do this afternoon, so I can save that for later. But it touches on national debt, interest rates, international trade, employment and inflation, welfare etc. If there are replies to this thread that suggest people aren't aware of what MMT proposes in these areas I might do a brief summary of what it says but not now.

So it's one of those ideas that's very attractive and if you accept it entirely it can feel like having the rug pulled from under your feet: even progressive socialists talk about paying for expensive government programs by increasing taxation of the rich etc, whereas MMT says you don't really need to worry about paying for it at all, and instead should focus on what you are actually paying for (it suggests that the jobs guarantee program should be focused on a care economy, for example).

So obviously there has been a fair bit of criticism of it. I have to say that most of the criticism I've read seems to be centred around a peevishness (sometimes poorly veiled, sometimes not) that a lot of what MMT proposes isn't actually that different to what a lot of other mainstream economists have been arguing for anyway, it just does it in a much more flamboyant, 'rock star' way.

MMT.jpg
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Which is fair enough to an extent, and there is a fairly strong whiff of 'here's a secret that 'they' are too scared to tell you about!!!!11!!11' in Kelton's book, but it's maybe a bit petty too. One of the main problems though is that it does seem to skim over the problem of actually controlling inflation. Many or maybe even most mainstream economists today might agree that runaway inflation (in countries like the US, UK etc) is not a major concern right now but if you are going to drastically alter an economic and political system it seems reasonable to ask how it would work in different situations. Kelton seems to suggest that a big part of the solution is putting control of inflation primarily in politician's hands rather than the central banks', so that fiscal policy decisions are required to take inflation into account, but I'm not sure why they would necessarily be any good at doing that. So in that sense it does appear to be replacing one problem with another - although I'm not sure that any proposed solution to the situation we are currently in should necessarily be entirely foolproof. And in general it does seem to take the kind of mechanical 'pull x lever and y will happen' view of economics that has often put me off whenever I've tried to read up on any other economic theory.

Paul Krugman has some complaints about it here: https://www.nytimes.com/2019/02/25/opin ... nkish.html although the 'other things equal' above Figure 1 appears to be doing a lot of work, at least to my untrained eye...

There is also a long article in Jacobin which I have to admit I've only briefly skimmed: https://jacobinmag.com/2019/02/modern-m ... nt-helping - its main criticisms seem to be: MMT isn't left wing enough - personally I don't think that's a bad thing at all. Yes its propositions don't automatically lead to some socialist utopia but they don't claim to and accepting the flexibility there potentially leaves it open to broader support. Next: something something Hitler - OK the inflation argument again, except Godwinned. It also points out that MMT is only really applicable to rich countries with strong monetary sovereignty and I think says something along the lines that MMT proponents appear to lecture against foreign borrowing. Well that's true, they do, and it is a legitimate limitation of the theory, although it's not entirely clear why that's the fault of its proponents. Kelton raises this and points out the inherent unfairness and power imbalance of rich countries and poorer ones with weaker/less independent currencies who rely on the US dollar and as a result are forced into debt. She makes some policy proposals to address that, although they are probably a bit of a pipe dream (Marla Dukharan: https://marladukharan.com/ a Caribbean economist, is pretty scathing of the 'trickle down' promises of MMT, and I also realise that I'm contradicting my 'doesn't really matter how left wing it is' comment).

The Jacobin article also criticises online MMTers who it seems to me seem to be in the same sort of ballpark as Bitcoiners - here is the magic solution, anyone who disagrees has no idea what they're talking about - again probably fair enough to criticise them and it does perhaps say something about the way MMT is communicated to the public that there appears to be a community of people who think like that - anything like that gets a bit culty is potentially problematic, I suppose.

But anyway, I thought I'd start this thread, partly inspired by EPD's 'Economics for Idiots' thread a few months back, because it seems like a bit of a springboard for discussion. Proper serious economists might roll their eyes but hey this topic has become a bit mainstream recently so seems fair enough to discuss it.
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Re: Modern Monetary Theory

Post by insignificant » Mon Aug 23, 2021 6:05 pm

Thanks for this

I'm confused about it too (and I don't think my ancient economics education helps), and the gaslighting that goes on with Bitcoin etc. has often made me reluctant to admit to any scepticism

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Re: Modern Monetary Theory

Post by discovolante » Mon Aug 23, 2021 6:53 pm

Hm it's not that I disagree with it as such - I mentioned briefly that I don't think an idea should be written off just because it has problems, especially when the status quo has extremely big problems of its own. And to my untrained eye it does look as if in economies like ours the public have been swindled for a fairly long time, perhaps partly because of a long hangover from when the gold standard actually existed, and partly from the 70s, but I also appreciate that there are probably complexities that I'm unaware of. And for all that Kelton's book reiterates that it isn't a 'free lunch', I think it still skims over some of the bigger questions about how it would supposedly work in practice, and I'm not sure that they've been fully addressed elsewhere. And no doubt the timing of it entering the popular consciousness isn't entirely a coincidence either, what with covid and climate change and all the issues that arise from those problems; it makes a book like that very publishable.
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Re: Modern Monetary Theory

Post by Woodchopper » Mon Aug 23, 2021 8:04 pm

How would MMT relate to quantitative easing?

The UK has created circa £895 billion and used it to buy back bonds.

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Re: Modern Monetary Theory

Post by discovolante » Mon Aug 23, 2021 9:01 pm

There's a pretty high chance I'm misunderstanding your question, and if so then it's most likely my fault, so sorry. I would say the main difference is that the focus on MMT is fiscal, not monetary policy - in that yes it is about money creation but with the rationale behind that being to allow the government to spend in a targeted way - this could sometimes just be giving people cash directly a la Biden (and Trump I guess, blergh) or it could be investment in particular areas e.g. healthcare, climate ​and so on. I think MMTers may be critical of a system that effectively encourages debt without there being some regulation of that debt. I have to admit I feel like this is where MMT gets a bit blurry because it presents itself as merely a description of how money works (in certain conditions, and apart from the jobs guarantee program) but sells itself as a way to allow for increased government spending rather than just simply creating more money in the economy and allowing it to do its own thing, although it also makes a lot out of the fact that government spending is effectively also putting money into the private sector. Stephanie Kelton does discuss interest rates, government debt and so on as well but I'd have to go back and look at it again because I stopped reading the book for a few weeks before picking it up again recently and have forgotten details!

ETA and a difference between the Bank of England doing stuff and politicians doing stuff is that politicians do it to get elected and government spending is seen as bad so they can't do it etc etc...you might get the odd headline about the BoE now and then but it's nowhere near as dominant as day to day politics.
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Re: Modern Monetary Theory

Post by bjn » Mon Aug 23, 2021 9:22 pm

Woodchopper wrote:
Mon Aug 23, 2021 8:04 pm
How would MMT relate to quantitative easing?

The UK has created circa £895 billion and used it to buy back bonds.
<BJN weighs in with near zero knowledge>
Isn’t the problem with QE that it injects the printed money into the wrong parts of the system? If that money was spent on this such things as infrastructure, home insulation grants, much needed public capital works etc… it would have a better impact on the real economy and we’d get useful stuff as well.

Instead QE has injected money into financial institutions who use it to game the system (because that is what they do for a living), and has directly led to inflation, but in financial assets rather than consumer items. The reason the FTSE and NASDAQ have gained so much is all that QE money sloshing around looking for somewhere to be spent.

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Re: Modern Monetary Theory

Post by jdc » Mon Aug 23, 2021 9:41 pm

Woodchopper wrote:
Mon Aug 23, 2021 8:04 pm
How would MMT relate to quantitative easing?

The UK has created circa £895 billion and used it to buy back bonds.
I have no idea, but I wanted to join in so...
MMT economists also say quantitative easing is unlikely to have the effects that its advocates hope for.[66] Under MMT, QE – the purchasing of government debt by central banks – is simply an asset swap, exchanging interest-bearing dollars for non-interest-bearing dollars. The net result of this procedure is not to inject new investment into the real economy, but instead to drive up asset prices, shifting money from government bonds into other assets such as equities, which enhances economic inequality. The Bank of England's analysis of QE confirms that it has disproportionately benefited the wealthiest.[67]

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Re: Modern Monetary Theory

Post by nekomatic » Tue Aug 24, 2021 9:34 am

On first inspection (and I haven’t read much about it yet beyond what you’ve posted, but I would like to) this does sound like redistributive taxation by another name, only instead of explicitly taking money away from people you just devalue the money they have by a bit. It’s probably a bit easier to administer and more transparent than taxation because the default position is everyone loses the same percentage unless something is explicitly redistributed to them, rather than each type of tax being subject to argument over rates, exceptions, allowances and all that. I’m not sure why we would expect politicians to administer it any more carefully and thoughtfully than they administer anything else though.

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Re: Modern Monetary Theory

Post by dyqik » Tue Aug 24, 2021 2:17 pm

On first thought, I suspect that some of benefits of MMT that seem like more of a reach may rely on everyone buying in to it, while people like Krugman are thinking about what happens when no one believes in it (or thinking about what role confidence in the underlying system plays - as opposed to confidence in your particular interests in the system).

In political reality, I suspect that transitioning to MMT would take generations, because at least one political party and their press machine will be banging on about national debt and inflation. As they are already as soon as the other side proposes spending money to build the economy (while they propose to cut taxes because debt and inflation doesn't matter then). You'd need a complete turnover in the politicians and press due to age before that would subside.

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Re: Modern Monetary Theory

Post by monkey » Tue Aug 24, 2021 2:33 pm

As far as I can tell, it's just taking something that happens all the time - governments creating money - and saying it's this one weird trick to get to economic paradise. But all the suggested policies seem to me to be things that you do not need a new economic theory for. As far as I can tell, they are Keynesians who look at things differently, but ultimately end up with the same result (deficit spend in bad times, tax in the good). I have had conversations with MMTers, and have asked "how is this really different to Keynes?" and never got a straight/good answer, just a link to some blog or other that doesn't answer the question at best. I suppose they differ from many mainstream economists in that they are not fussed by the size of a deficit, but then even institutions like the IMF are coming round to the idea that large deficits might not be as bad as they thought, and they are not run by MMTers.

As far as policy goes, I'm pretty sure it's going to be easier to keep a check on inflation with interest rates than taxes, because while people complain when you change the interest rate, they complain more when you raise taxes, sometimes even when those tax rises don't apply to them (see inheritance tax, for example). So there seem to be obvious political problems to implementing their ideas that they don't seem to talk about.
discovolante wrote:
Mon Aug 23, 2021 5:10 pm
The Jacobin article also criticises online MMTers who it seems to me seem to be in the same sort of ballpark as Bitcoiners - here is the magic solution, anyone who disagrees has no idea what they're talking about - again probably fair enough to criticise them and it does perhaps say something about the way MMT is communicated to the public that there appears to be a community of people who think like that - anything like that gets a bit culty is potentially problematic, I suppose.
Most of the MMTers I have talked to have been fine when you question the theory, but I have found that they bring it up All. The. Time., which is also a bit culty. They also seem to take things to the extreme - I talked to one who thought Jeremy Corbyn was pro austerity because Labour had a fiscal rule in their manifesto.

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Re: Modern Monetary Theory

Post by IvanV » Tue Aug 24, 2021 3:51 pm

An economist writes...

I would suggest most people have better things to do with their life than explore MMT, unless they are perhaps put in the position of trying to prevent some particularly daft policy that has been justified by it.

MMT is about as popular with mainstream economists as creationism is with mainstream geologists, in the sense that in a recent survey of leading economists, 0% lent it any credence. But it is not in the same extreme category of wrongness. It lacks that fundamental and obvious flaw on the basis of which everything must be completely wrong.

It takes a bunch of standard ideas, perceives them in a slightly out of focus way, chucks them in a bag and mixes them up. And then you stick your hand in and pull a few things out until you find a few things you like and stick them together. It's the kind economics/science that various against-the-mainstream movements employ when the mainstream science is inconvenient for their political aims.

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Re: Modern Monetary Theory

Post by Millennie Al » Wed Aug 25, 2021 12:49 am

A theory says that you can have whatever you want and not worry about paying for it. Do we really need to study it to spot the flaw, or just classify it with the perpetual motion machines?

As far as I can tell it says something like this:

The old theories say that govenments can do this:
  1. Borrow money
  2. Spend as desired
  3. Print money
  4. Use the printed money to pay off the loan
  5. Get rampant inflation from printing money
while MMT says:
  1. Print money
  2. Spend as desired
  3. Get rampant inflation from printing money
I'm not sure it adds anything useful.

From Modern Monetary Theory Isn’t Helping mentioned above:
Two founding documents of MMT both came out in 1998: Wray’s book Understanding Modern Money and Kelton’s paper “Can Taxes and Bonds Finance Government Spending?” Both argue for several points that remain central to MMT today: governments designate the one official currency for a country by accepting only that unit for the payment of taxes.
but this central point isn't true. You can pay HMRC other than in sterling - see https://wedlakebell.com/could-your-art- ... -tax-bill/ though obviously this doesn't work for routine payments.
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Re: Modern Monetary Theory

Post by discovolante » Wed Aug 25, 2021 9:09 pm

nekomatic wrote:
Tue Aug 24, 2021 9:34 am
On first inspection (and I haven’t read much about it yet beyond what you’ve posted, but I would like to) this does sound like redistributive taxation by another name, only instead of explicitly taking money away from people you just devalue the money they have by a bit. It’s probably a bit easier to administer and more transparent than taxation because the default position is everyone loses the same percentage unless something is explicitly redistributed to them, rather than each type of tax being subject to argument over rates, exceptions, allowances and all that. I’m not sure why we would expect politicians to administer it any more carefully and thoughtfully than they administer anything else though.
Hm, I'm not sure about that. I don't think the idea is to devalue money, for one thing. It's a big oversimplification I suppose but the idea I believe is that inflation will occur if the economy is running above and beyond full capacity i.e. full employment, but as long as the economy is running below that level then you don't end up with a devalued currency (yes there are other things that can drive inflation, etc). That aside I don't think the purpose of what you're describing is about redistribution at all. MMTers seem to be in favour of actual taxation as a redistributive mechanism, but don't think it's necessary to pay for things that governments think will help the economy - in currency-issuing countries - because the country creates its own money so it can just continue to do so until inflation becomes an issue. But yes I agree that just assuming politicians will apply it wisely is a bit risky.
dyqik wrote:
Tue Aug 24, 2021 2:17 pm
On first thought, I suspect that some of benefits of MMT that seem like more of a reach may rely on everyone buying in to it, while people like Krugman are thinking about what happens when no one believes in it (or thinking about what role confidence in the underlying system plays - as opposed to confidence in your particular interests in the system).

In political reality, I suspect that transitioning to MMT would take generations, because at least one political party and their press machine will be banging on about national debt and inflation. As they are already as soon as the other side proposes spending money to build the economy (while they propose to cut taxes because debt and inflation doesn't matter then). You'd need a complete turnover in the politicians and press due to age before that would subside.
Yeah I agree, I think any kind of shift in political perspective is likely to be broadly generational (I think there are discussions about this in other areas too). I just happened to come across a podcast after I started this thread, about complexity economics where it was mentioned in passing that significant ideas in economics tend to take about 30-40 years to take hold...possibly some don't take hold because they are no good or majorly flawed, but that does also sound like quite a similar period of time as someone's career, or at least the influential part of it. Although generally speaking I don't think that's necessarily to say that the new ideas are 'better'; people may be holding onto old ideas for good reasons that the newcomers may not have experienced. And I am sure there are plenty of economists who would be pretty pissed off at such a broad generalisation anyway...
monkey wrote:
Tue Aug 24, 2021 2:33 pm
As far as I can tell, it's just taking something that happens all the time - governments creating money - and saying it's this one weird trick to get to economic paradise. But all the suggested policies seem to me to be things that you do not need a new economic theory for. As far as I can tell, they are Keynesians who look at things differently, but ultimately end up with the same result (deficit spend in bad times, tax in the good). I have had conversations with MMTers, and have asked "how is this really different to Keynes?" and never got a straight/good answer, just a link to some blog or other that doesn't answer the question at best. I suppose they differ from many mainstream economists in that they are not fussed by the size of a deficit, but then even institutions like the IMF are coming round to the idea that large deficits might not be as bad as they thought, and they are not run by MMTers.

As far as policy goes, I'm pretty sure it's going to be easier to keep a check on inflation with interest rates than taxes, because while people complain when you change the interest rate, they complain more when you raise taxes, sometimes even when those tax rises don't apply to them (see inheritance tax, for example). So there seem to be obvious political problems to implementing their ideas that they don't seem to talk about.
Yeah I have to admit it did seem to come across a bit as Keynesianism with a fancy bow on it, roughly, although I'm no expert in Keynesianism either. Although I think there is a different emphasis on the general 'deficit spend in bad times, tax in the good' approach because that still implies that the deficit has to be kept under control to some extent, it's just that recessions/depressions aren't the time to be worrying about it. MMT also has the job guarantee scheme, and I'm afraid I couldn't off the top of my head say if MMT's arguments around government debt, trade surpluses/deficits etc are different to arguments that've been made previously.
discovolante wrote:
Mon Aug 23, 2021 5:10 pm
The Jacobin article also criticises online MMTers who it seems to me seem to be in the same sort of ballpark as Bitcoiners - here is the magic solution, anyone who disagrees has no idea what they're talking about - again probably fair enough to criticise them and it does perhaps say something about the way MMT is communicated to the public that there appears to be a community of people who think like that - anything like that gets a bit culty is potentially problematic, I suppose.
Most of the MMTers I have talked to have been fine when you question the theory, but I have found that they bring it up All. The. Time., which is also a bit culty. They also seem to take things to the extreme - I talked to one who thought Jeremy Corbyn was pro austerity because Labour had a fiscal rule in their manifesto.
Heh oh dear. Although to be fair if you are totally sold on it, it's quite easy to understand why you might want to go on about it a lot, because in the current state of affairs there is literally no reason not to go on massive spending spree and invest in absolutely everything that is getting run into the ground at the moment, increase welfare payments etc, to the point where it's almost a moral imperative. So I can probably understand why they would do that, even if it is annoying.
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Re: Modern Monetary Theory

Post by lpm » Wed Aug 25, 2021 10:01 pm

I must have tried a hundred times to get people to think about resources instead of money.

Given up now.

But surely everyone can see that money doesn't get you lorry drivers. The govt can print £20 notes or QE money into the financial sector or do MMT - but not a single extra driver springs into existence.

You have to get people to stop doing A or B and train them up in doing C instead. Eventually you get more C, nurses say, or lorry drivers, or installers of EV chargers, or vaccine makers. But you get less A and B.

There are limited numbers of active workers, and a worker can't simultaneously pour your fancy coffee, make TV shows, care for your grandma, build a rail line and install fibre optic broadband. Choose.

MMT is perfectly valid. The government doesn't have to worry about paying for anything. But it does need to worry about resourcing anything.
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Re: Modern Monetary Theory

Post by discovolante » Wed Aug 25, 2021 10:10 pm

In fairness, that is exactly what Stephanie Kelton advocates for at the end of the book. I think she (along with others) got Bernie Sanders to say the same thing. Stop worrying about monetary deficits and focus on resourcing things properly. Although that is obviously more of a political standpoint than an economic one.
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Re: Modern Monetary Theory

Post by monkey » Wed Aug 25, 2021 10:37 pm

discovolante wrote:
Wed Aug 25, 2021 9:09 pm
... Although I think there is a different emphasis on the general 'deficit spend in bad times, tax in the good' approach because that still implies that the deficit has to be kept under control to some extent, it's just that recessions/depressions aren't the time to be worrying about it...
Well the MMTers say you should control inflation with taxation don't they? And inflation can be a result of too much aggregate demand, which is what concerns Keynesians the most (as far as I know). It's that sort of thing why I think they are just Keynesians. They get the same result from looking at pretty much the same thing, but they tell you it's different because they are looking at it from over there.

I suspect you know more about it than I do though, you've picked up a book about it and everything. All I've done is read a few articles and blogs, and asked a few people questions.

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Re: Modern Monetary Theory

Post by discovolante » Thu Aug 26, 2021 7:36 pm

monkey wrote:
Wed Aug 25, 2021 10:37 pm
discovolante wrote:
Wed Aug 25, 2021 9:09 pm
... Although I think there is a different emphasis on the general 'deficit spend in bad times, tax in the good' approach because that still implies that the deficit has to be kept under control to some extent, it's just that recessions/depressions aren't the time to be worrying about it...
Well the MMTers say you should control inflation with taxation don't they? And inflation can be a result of too much aggregate demand, which is what concerns Keynesians the most (as far as I know). It's that sort of thing why I think they are just Keynesians. They get the same result from looking at pretty much the same thing, but they tell you it's different because they are looking at it from over there.

I suspect you know more about it than I do though, you've picked up a book about it and everything. All I've done is read a few articles and blogs, and asked a few people questions.
Hehe sorry I was a bit lazy/sneaky there in my last post because I deliberately avoided explicitly linking deficit concerns to Keynesianism and just called it 'the general approach', because I couldn't be bothered to look into it properly at the time :P :oops: to be honest, I'm not sure I know enough about Keynes to answer that properly. I've read up on a bit of his monetary stuff but I'm going to have to work a bit harder to do any kind of proper comparison. Which I can't be bothered to do right now either, but that kind of thing is also part of the reason I started this thread, so I might give it a shot at some point. Sorry for such a disappointing reply!
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Re: Modern Monetary Theory

Post by IvanV » Thu Aug 26, 2021 9:15 pm

lpm wrote:
Wed Aug 25, 2021 10:01 pm
I must have tried a hundred times to get people to think about resources instead of money.

Given up now.

But surely everyone can see that money doesn't get you lorry drivers. The govt can print £20 notes or QE money into the financial sector or do MMT - but not a single extra driver springs into existence.

You have to get people to stop doing A or B and train them up in doing C instead. Eventually you get more C, nurses say, or lorry drivers, or installers of EV chargers, or vaccine makers. But you get less A and B.

There are limited numbers of active workers, and a worker can't simultaneously pour your fancy coffee, make TV shows, care for your grandma, build a rail line and install fibre optic broadband. Choose.

MMT is perfectly valid. The government doesn't have to worry about paying for anything. But it does need to worry about resourcing anything.
Very sane thoughts.

Though actually there is a bit more to money than meets the eye. Consider a liquidity crisis. Resources are not going to the right places because of a shortage of money. You can certainly do money badly, and then suffer damage from it. And doing money well is difficult. We try and then we keep getting these financial crises, when we bail out the banks because it would be worse not to. So it doesn't quite do to say money is irrelevant. Or it's obvious and easy and what are we worrying about. International trade would never have taken off like it did without those mediaeval Italian bankers creating a suitable form of international money.

Money is much misunderstood. What is money is rarely even considered in economics courses, even if you do the monetary theory option.

For some enlightenment, I can strongly recommend Felix Martin's 'Money: The Unauthorized Biography". It's a book for the lay reader. Even The Graun liked it. When you learn how even large immovable stones can act satisfactorily as money, even though they stay where they are when you spend them, you realise that probably you didn't understand how money worked properly. And just in case you want a preview of the bit about big immovable stones acting as money.

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Re: Modern Monetary Theory

Post by Millennie Al » Fri Aug 27, 2021 1:10 am

IvanV wrote:
Thu Aug 26, 2021 9:15 pm
Money is much misunderstood. What is money is rarely even considered in economics courses, even if you do the monetary theory option.
Money is a promise of value. It's written on Band of England notes: "I promise to pay the bearer...". The strange thing is that for many types of money, there isn't anyone making the promise - it has just arisen out of history. And for money which has a known promisor, the promise has been broken and replaced with one which has no promisor.
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Re: Modern Monetary Theory

Post by lpm » Fri Aug 27, 2021 2:38 pm

IvanV wrote:
Thu Aug 26, 2021 9:15 pm
lpm wrote:
Wed Aug 25, 2021 10:01 pm
I must have tried a hundred times to get people to think about resources instead of money.

Given up now.

But surely everyone can see that money doesn't get you lorry drivers. The govt can print £20 notes or QE money into the financial sector or do MMT - but not a single extra driver springs into existence.

You have to get people to stop doing A or B and train them up in doing C instead. Eventually you get more C, nurses say, or lorry drivers, or installers of EV chargers, or vaccine makers. But you get less A and B.

There are limited numbers of active workers, and a worker can't simultaneously pour your fancy coffee, make TV shows, care for your grandma, build a rail line and install fibre optic broadband. Choose.

MMT is perfectly valid. The government doesn't have to worry about paying for anything. But it does need to worry about resourcing anything.
Very sane thoughts.

Though actually there is a bit more to money than meets the eye. Consider a liquidity crisis. Resources are not going to the right places because of a shortage of money. You can certainly do money badly, and then suffer damage from it. And doing money well is difficult. We try and then we keep getting these financial crises, when we bail out the banks because it would be worse not to. So it doesn't quite do to say money is irrelevant. Or it's obvious and easy and what are we worrying about. International trade would never have taken off like it did without those mediaeval Italian bankers creating a suitable form of international money.

Money is much misunderstood. What is money is rarely even considered in economics courses, even if you do the monetary theory option.

For some enlightenment, I can strongly recommend Felix Martin's 'Money: The Unauthorized Biography". It's a book for the lay reader. Even The Graun liked it. When you learn how even large immovable stones can act satisfactorily as money, even though they stay where they are when you spend them, you realise that probably you didn't understand how money worked properly. And just in case you want a preview of the bit about big immovable stones acting as money.
Amazing!

Goldfinger was on telly the other day and I caught the end of it after watching something else. Goldfinger intends to contaminate Fort Knox with a dirty bomb, making it radioactive "for 57 years", at which point in somehow becomes unradioactive. He believes loss of accessibility to the gold will wreck western economies and cause his own gold stockpile to soar in value.

Happily the movie was made in 1964 so 57 years takes us to 2021. The gold in Fort Knox has just become unradioactive again.

Of course, during the past 57 years none of the gold in Fort Knox has moved anyway. It's not like the gold has been used for anything useful like electronics. They might transfer a block or two from the UK pile to the France pile but physical portability is irrelevant, same as the Rai stones.

The economics is very different from how Goldfinger imagined.
What ever happened to that Trump guy, you know, the one who was president for a bit?

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Re: Modern Monetary Theory

Post by basementer » Fri Aug 27, 2021 4:18 pm

There's a short essay by Larry Niven in which he suggests deliberately making the coinage radioactive, which would encourage people to spend rather than hoard and thus stimulate the economy.
Wondering where the 57 years in Goldfinger had been pulled from, I stumbled across the fact that bismuth has a half-life estimated at 2E19 years. As you were.
Money is just a substitute for luck anyway. - Tom Siddell

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Re: Modern Monetary Theory

Post by IvanV » Fri Aug 27, 2021 4:19 pm

Millennie Al wrote:
Fri Aug 27, 2021 1:10 am
IvanV wrote:
Thu Aug 26, 2021 9:15 pm
Money is much misunderstood. What is money is rarely even considered in economics courses, even if you do the monetary theory option.
Money is a promise of value. It's written on Band of England notes: "I promise to pay the bearer...". The strange thing is that for many types of money, there isn't anyone making the promise - it has just arisen out of history. And for money which has a known promisor, the promise has been broken and replaced with one which has no promisor.
Another way of putting it, that may help, is that it is an IOU note. British bank notes are relatively unusual in that particular statement of it. The US dollar notes say "This note is legal tender for all debts, private and public", and the Canadian dollar notes say something simiar. The Euro, the Swiss Franc, the Swedish Krona, the Brazilian Real, these say nothing of that nature at all. And most money is not in the form of notes at all, but merely recorded in bank accounts.

"Fiat money" is the name for kind of printed money modern states issue, from Latin "fiat", which means "let there be", as in Genesis "fiat lux", "let there be light". What the US and Canadian dollars say better explains the sense in which fiat money is an IOU. If you have a public debt, ie, you owe the public authorities money, you can pay it by handing back to them their IOU notes. A set-off transaction. At that point, they redeem the IOU. Although it is not actually written on a Euro note or a Swiss Franc, ultimately these notes are tender to pay public debts in their countries of use.

Other kinds of IOU notes can act as money. During the Irish bank strikes of 1966-76, cash came into short supply. So people wrote cheques, but the recipients were unable to bank them. Rather than write cheques in excess of what your bank account contained, people started to use the cheques they had received as money. They looked at who had written the original cheque, to judge whether they were likely good for it. This was especially effective in smaller communities where people knew each other and could judge each others creditworthyness. When banks reopened, cheques from known creditworthy individuals often showed a long list of endorsements on the back as they were repeatedly handed on as money.

WIthout the possibility of redemption, notes wither away to nothing and it can be argued aren't actually money at all. Consider the provincial notes that have from time to time been printed by Argentinean provinces. I encountered them when cycling around Argentina in 1998, particularly in the more impecunious provinces of the NW, though I understand Provincia de Buenos Aires which includes half the population of Argentina has issued them from time to tiem. This wasduring the 1998-2002 Argentinean Great Depression, which includes the IMF's refusal to make a fourth bailout, and consequent debt default in December 2001. Several of the provinces ran out of cash, were unable to borrow to cover their liabilities, and so were unable to pay wages to their staff, etc. So several of them printed their own notes. These provincial notes are known as "bonos", which is Spanish for "bonds". But you could not use them to pay your local taxes, utility bills, or any other official debt. Not even the issuer would take them back. Inevitably their value withered away to zero, as people reappraised the likelihood of them ever being redeemed. An IOU isn't worth anything when the promissor reneges.

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Re: Modern Monetary Theory

Post by basementer » Fri Aug 27, 2021 4:31 pm

Likewise Kiwi banknotes currently sport the text "This note is legal tender for (x) dollars".
Money is just a substitute for luck anyway. - Tom Siddell

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Re: Modern Monetary Theory

Post by monkey » Fri Aug 27, 2021 4:55 pm

IvanV wrote:
Fri Aug 27, 2021 4:19 pm
Millennie Al wrote:
Fri Aug 27, 2021 1:10 am
IvanV wrote:
Thu Aug 26, 2021 9:15 pm
Money is much misunderstood. What is money is rarely even considered in economics courses, even if you do the monetary theory option.
Money is a promise of value. It's written on Band of England notes: "I promise to pay the bearer...". The strange thing is that for many types of money, there isn't anyone making the promise - it has just arisen out of history. And for money which has a known promisor, the promise has been broken and replaced with one which has no promisor.
...what IvanV wrote..
I was going to respond with similar.

I have read the book you posted about, I think - it may have been another on the same topic, I can't remember. It had them stones as an example, anyway. If I didn't misunderstand, money does have value, but the value it has is based on the trust that everyone else (or enough people) also thinks it has the same/very similar value and it will continue to do so. So it's not about any promise, it's about enough people thinking the same way about it. The actual medium, or what it says on it (if anything*) doesn't matter.


*You try writing a promise on a bunch of 1s and 0s on a bank's hard drive :)

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Re: Modern Monetary Theory

Post by Millennie Al » Sat Aug 28, 2021 2:51 am

IvanV wrote:
Fri Aug 27, 2021 4:19 pm
Millennie Al wrote:
Fri Aug 27, 2021 1:10 am
IvanV wrote:
Thu Aug 26, 2021 9:15 pm
Money is much misunderstood. What is money is rarely even considered in economics courses, even if you do the monetary theory option.
Money is a promise of value. It's written on Band of England notes: "I promise to pay the bearer...". The strange thing is that for many types of money, there isn't anyone making the promise - it has just arisen out of history. And for money which has a known promisor, the promise has been broken and replaced with one which has no promisor.
Another way of putting it, that may help, is that it is an IOU note. British bank notes are relatively unusual in that particular statement of it. The US dollar notes say "This note is legal tender for all debts, private and public", and the Canadian dollar notes say something simiar. The Euro, the Swiss Franc, the Swedish Krona, the Brazilian Real, these say nothing of that nature at all. And most money is not in the form of notes at all, but merely recorded in bank accounts.
US notes used to contain an explicit promise. See, for example, https://en.wikipedia.org/wiki/File:US-$ ... 1-Fr.1.jpg which says "The United States promise to pay to the bearer 5 dollars on demand". There were also gold certificates, which were records of gold which were promises to provide the gold on demand - see https://en.wikipedia.org/wiki/Gold_certificate

Then came the Gold Reserve Act in 1934 in which the US confiscated all their citizens gold and broke the promises of gold certificates (in fact, went much further than that in not only refusing to honour the promise to supply gold on demand to a cerficate holder, but also required holders to surrender their certificates). In the light of that, it might be seen as too hypocritical even for the US to again issue notes with explicit promises.

The Bank of England still honours its promise on the notes - though not in the form that would be satisfactory to people 100 years ago - in that if you go to the Bank of England with a note, it will redeem it, but for a replacement note. This is not, however, a worthless promise as it covers notes which are no longer in circulation, have ceased to be legal tender, and are not generally accepted as money. This is not the case for other currencies. For example, Italian lira notes are no longer valid at all, so are only of value to collectors. For example,
https://www.leftovercurrency.com/exchan ... aravaggio/
is an offer of £3 for a note with a face value equivalent to €51.65.
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