Will MMT Economists Finally Get Their Day in the Sun?

Discussion in 'Economics' started by piezoe, May 18, 2018.

  1. piezoe


    This Bloomberg Headline, "Leading Democrats Are Backing One of the Most Radical Economic Plans in Years," followed by the subheading, "It would also be expensive and disruptive, particularly for business." caught my interest as this is the first time in my memory that a proposal coming straight out of MMT, or Modern Money Theory, has been given any consideration at all let alone serious consideration. It's a noteworthy event on that account.

    Two points of interest here, among many, caught my eye. One is that although the Article is about prominent Democrats backing the proposal, it would seem to be of equal interest to conservative Republicans, since according to MMT economists both unemployment compensation and the minimum wage would be eliminated, while at the same time the amplitude of the business cycle would be decreased and aggregate demand would be increased. The other point has to do with the curious subheading. That seems to be stating a conclusion with the debate having barely begun.

    If interested further, see https://www.bloomberg.com/news/arti...conomic-plan-in-years-and-now-it-s-mainstream. For extensive detail see, for example, L. R. Wray, "Understanding Modern Money, The Key to Full Employment and Price Stability," Edward Elgar Publishing, Inc.; 1998.
  2. tomorton


    How is this useful to me?

    Why is it interesting to you?

    I'm sorry if I'm missing something.
  3. piezoe


    It is my fault not yours.. I posted mainly for those who already know at least something about MMT. I started to post a long introduction which is what would be required for someone not knowing anything about MMT. But then I realized it was going to take me entirely too long. So I deleted, and just posted the bare minimum to let those who are aware of MMT know that the old MMT proposal for the government becoming the employer of last resort, is apparently getting some traction.

    To understand the core ideas behind MMT you have to know a little something about Central Bank and Treasury operations and it isn't stuff that can be learned overnight or without any background in economics or finance. I cited one of the key books on MMT which is an excellent place to start, but only if you have a basic background in economics, and too of course only is you have an interest. According to MMT some of the commonly held ideas about money and monetary policy taught in standard texts is incorrect. I'll give you just one example. In every college text with a section on money and banking you are likely to come across a discussion of what's called the "Money Multiplier." The monetary base is defined (usually) as reserves plus currency. The Multiplier, in the simplest approach, is set equal to the inverse of the required reserve ratio. Suppose the reserve ratio is 10%, so 1/0.10 = 10, the money multiplier is 10. But in reality this is an absurdity because no loan officer checks their Bank's reserve account before making a loan. What happens in reality is that banks decide to loan based on the price of money, i.e., the Fed Funds Rate, and their rate of return on the loan (their asset). The decision is independent of the banks reserve position. If making the loan requires an addition to their reserves they borrow the money at the Fed Funds Rate. In other words, changes in the money supply causes banks Reserve positions and the monetary base to change; not the other way around as the Money Multiplier concept would have it. MMT economists understand this. Bank reserves are supplied on demand. So if the Fed thinks reserves are growing too fast to satisfy their money growth, target rate, the Fed will raise the cost of money. (According to MMT this is an inefficient means of controlling the money growth rate. Another way to say this is that raising interest rates is rather ineffective in slowing demand for money.) It is commonly thought that the Fed can raise reserves, i.e., increase the money supply, by buying Treasuries. But this too is wrong. Any increase in reserves above the requirement will cause the Funds rate to fall toward zero. (They can do this intentionally of course as they did during the financial crisis.) Changes in the money supply cause changes in the monetary base. This is opposite to what convention would say. The MMT economists get this right. The "old school economists" don't. It is nice to see the MMT economists beginning to be taken seriously. They deserve to be paid more attention than they normally receive from old school economists.
    tomorton likes this.
  4. Wealth redistribution.

    Because every leftist economic plan is ultimately wealth redistribution.

    Merit is antithetical to their goals.
    FXbeachbum likes this.
  5. Oh, and I'm in favor of MMT, btw. I don't think we will have a return to sound monetary policy until the debt is normalized. I don't feel there is any way to pay the debt off at this point, and I think that the move towards socialism is so far underway that it is pointless to try to resist it, so I'm for MMT as a way to force all of these issues to a head so they can reach their inevitable conclusion - currency collapse and severe Depression. Only then, after everyone who wanted something for nothing has realized the error of their ways, will we see a rebirth of sound money and merit based capitalism. In short, I think it's time to let the mob destroy itself, and MMT is one of the fastest ways for that to happen, it's the only proposal being pushed forward by the left that decouples government spending from the currency system and allows the unfettered corruption necessary to bring about complete economic collapse.
  6. Are you talking about public or private debt? If you're referring to public debt, MMT doesn't consider government "debt" to be a debt.
  7. Arnie


    My God, the fact that hard core leftists support this tells you all you need to know. So the Govt will give everyone who wants one a job that pays a whopping $15/hr and then leave it up to local officials to say what and where those jobs are? We used to call this "communism".
    Tsing Tao and FXbeachbum like this.
  8. piezoe


    In modern money theory, this is not a concern. Continuous deficits (small) are manageable. But the size of the deficits must be managed properly.

    One might look back to the WPA during the Depression and back even further to Keynes who famously said even if you have to hire people to dig a ditch and fill it back in, do it. Keynes preceeded MMT. (MMT comes out of the adoption of fiat currency in 1971, as opposed to commodity based currency) According to MMT economists, a government should be the Employer of Last Resort (ELR) continuously, regardless of whether the economy is in recession. It fact, a major conclusion from MMT analysis is that the amplitude of the business cycle will be reduced by adoption of an ELR program, i.e., recessions should be shallow. With regard to labor, although there are some similarities between the Keynesian recipe for recession and the MMT proposal, the MMT economists conclude, in contrast to Keynes, that there are continuous economic benefits to arise from government being the employer of last resort (ELR) continuously in both boom times and recession. According to the MMT economists the work done will be beneficial and meaningful and not displace that which could, or would, be done in the private sector.

    I think it takes some basic knowledge of MMT to fairly critique the MMT economist's proposal. There can be little doubt that the proposal has merit and should be seriously considered, because by now it has been thoroughly analyzed. However, as with anything where humans are involved, human fallibility must be recognized as the source of potential problems. Is it possible for such a program to be well and efficiently managed? Probably. But would it be? ? ?
    Last edited: May 19, 2018
  9. Oh I know it doesn't concern them, but that doesn't mean it shouldn't.

    MMT is to a leftist what an all ice cream diet is to a fat person. It may not work, but it lets them do what they've wanted to do all along, so it doesn't really matter if it works or not.
    Tsing Tao and hmcp like this.
  10. Saltynuts


    You read this crap and you just can't imagine people buying into this crap. Communism doesn't work PERIOD. How many more hundreds of millions have to die to show it? Calling it something else won't change that result lol.

    What's even more amazing is that this is not coming up in a bad economy. Not in rough times. This is like when life is good, economy is good, people are making money hand over fist. But some dipshits have to try and be smarter....
    #10     May 19, 2018