Will MMT Economists Finally Get Their Day in the Sun?

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

  1. tommcginnis

    tommcginnis

    Just to add grist here, let's go to Robert Barro (and his friends Milty, Gary, Merty, Jerry, et.al.)

    https://www.journals.uchicago.edu/doi/10.1086/260266

    The first line of the summary reads,
    "The assumption that government bonds are perceived as net wealth by the private sector is crucial in demonstrating real effects of shifts in the stock of public debt."

    The last line of the summary reads,
    "Finally, the existence of uncertainty with respect to individual future tax liabilities implies that public debt issue may increase the overall risk contained in household balance sheets and thereby effectively reduce household wealth."

    Yipes!:wtf:

    So, Barro, et.al. are hardly MMTs or "leftists" at all, but when time and efficiency (read, perhaps, "liquidity") are considered, bonds are an efficient way to utilize future capital for growth. (Huh! Just as going into debt to buy a car to take me to work to make *more* money than currently...) However, there are constraints.....:rolleyes:


    HA! Here's *more* grist!!!
    https://en.wikipedia.org/wiki/Ricardian_equivalence

    Man, I do loves me some Internets.:wtf:

    :D
     
    Last edited: Jun 19, 2018
    #21     Jun 19, 2018
  2. piezoe

    piezoe

    I think you are an economist, and you must be a good one, because I have trouble understanding what you write. Barro must be an extremely good economist, because I can understand nary a word of what he writes.
     
    #22     Jun 20, 2018
  3. piezoe

    piezoe

    I still don't think I gave you an answer nearly as good as your question in post #20 above. I'll keep working on it.

    I want to call your attention to another post regarding MMT and government debt that I hope you'll find interesting food for thought. It is post #10 in the Politics Forum thread: "CBO Warns of Balooning U.S. Debt" started by exGOPer. Perhaps the link below will get you to the thread at least:

    https://www.elitetrader.com/et/threads/cbo-warns-of-ballooning-u-s-debt.322435/
     
    Last edited: Jun 28, 2018
    #23     Jun 28, 2018
  4. ironchef

    ironchef

    I read the entry after you posted it. Didn't quite answer my question though. But thank you for taking the time.

    If I can decouple the nation's GDP from its currency, I could see that if there is leakage, as long as the country that has a positive balance of payment willing to keep sending goods to the other country, the situation could be self adjusting, perhaps with the positive balance country use the MMT currency to buy up assets in the other country so it will become a transfer of assets, for example from Americans to Chinese?
     
    #24     Jul 4, 2018
  5. piezoe

    piezoe

    It probably isn't correct to "decouple" currency from GDP. It seems that in a world of fiat currencies, currency and GDP are inextricably linked. At least that's what the MMT economists say.

    Indeed I realize I did not answer your question that had to do with globalization and foreign trade, and how the MMT economists deal with that. I don't know how it is that the MMT economists reached their conclusion. I know that their conclusion is that taking foreign trade into account has practically no affect on their basic tenets. But that is not an answer. It doesn't explain anything.

    I personally am very strongly in favor of, to the maximum extent possible, very low barriers to trade. When we import or export goods and services, both parties gain something of value, and if the Forex market has correctly, through price discovery, set the relative value of competing currencies, than each party should obtain roughly equal value from the transaction. If China sends us a refrigerator in exchange for dollars, they may buy some U.S. provided service, or manufactured goods in exchange. Alternatively, they may buy U.S. Treasuries, or if Congress permits them, U.S. real estate or businesses. So I don't think a net trade imbalance exists at all. In fact, I think that's impossible, except in the case of coercion of course, as long as the relative values of currencies are close to correct. The idea that there is a net trade imbalance, as long as one considers currency an asset too, just comes from either honest misunderstanding, or dishonest political games. The dollars that China hoards in the form of U.S. Treasuries represent future claims on other dollar priced assets. In other words, dollars are only useful if you can ultimately convert them into a non-currency asset or use them to pay taxes (stay out of jail.) That's fundamentally why in a world of fiat currencies it is the productivity behind the currency that determines its value, and the market will decide what that value is. And it is why we can't decouple GDP from currency.

    The buyer and seller are usually trading different kinds of assets, and the overall picture has to include foreign currency as an asset as well as goods and services. Although, for example, if one party is trading durable goods or real estate and the other a wasting asset, is that something that might have a long term repercussions? I don't know!

    Where Trump has gone ridiculously wrong is by looking at just manufactured items we export, versus what we import. That's of course only a part of the complete picture, but it effectively misleads his base and gets them motivated. Curiously, Trump himself gives no indication that he understands the first thing re foreign trade, so in his mind he may actually believe he isn't misleading his supporters. . When we look at the overall trade picture and include currency changing hands (or its equivalent) one realizes there is no trade imbalance -- their is a refrigerator/car/TV imbalance, a dollar imbalance, and a services imbalance, but overall their is no imbalance.

    Were the U.S. dollar to lose its status as the reserve currency, that could be harmful to the U.S. As it stands now Central banks have an interest in protecting the dollar because the the world is awash in dollars, and they certainly don't want to see their dollar hoards decline in purchasing power. We remain firmly in the drivers seat however. If other nations with dollar hoards see that we are devaluing the dollar, they will certainly try to gain some protection by converting their dollar denominated bonds to U.S. appreciating assets such as real estate. As long as we produce goods and services at a competitive price in proportion to the supply of dollars, we will do just fine.

    Happy Fourth of July, by the way.
     
    Last edited: Jul 4, 2018
    #25     Jul 4, 2018