Ponca Dan this one deserves the full treatment.
Won't work, will cause chaos anyway...
MODERN MONETARY THEORY is drawing a crowd,
writes Brian Maher in The Daily Reckoning.
Its drummers claim MMT is a powerful tool to invigorate the American economy, sitting needlessly idle.
They further claim it can fund ambitious social programs – all without raids upon the taxpayer.
And, if interest rates are shackled down, without blasting the deficit.
The printing press will supply the money.
If inflation begins to menace, that is evidence the economy throbs at full capacity.
The tax man will then round up the excess cash...and jam inflation back in its cage.
The Treasury – not the Federal Reserve – will essentially boss the economy.
We simplify the business some – and not all MMT-ers speak as one.
We nonetheless believe we have drawn a serviceable sketch.
But can MMT meet its advertising?
We first note that Modern Monetary Theory goes under a false label.
It is not particularly modern.
MMT has a grandfather in what is called the "Chartalism" school of the early 1900s.
Chartalism was an assault against the gold standard.
But let it pass for now.
We now turn to MMT's central claims that:
- It is a spring of broadly shared prosperity, and...
- It can deal with any inflationary menace it sets loose.
Not at all what MMTs claims are. MMT is not normative it is a description of how sovereign monetary regimes like the US's work.
The central claim is that budgetary constraints are real resources and not monetary.
First point 1...
Our premise is short. And it is sweet..."like the old woman's dance."
Money measures wealth – it does not create it.
You know what creates wealth? Full employment and full utilization of real resources, which only a system based on an understanding of MMT can stably achieve.
Money no more creates wealth than yardsticks create yards.
Consider the thought experiment of 18th-century philosopher David Hume...
Imagine a benevolent fairy slips money into all the nation's pockets overnight...and doubles the money supply.
Is this nation doubly rich?
If only it were.
The money supply has been doubled. But no additional goods have entered existence.
The new money will simply chase existing goods.
We can therefore expect prices to approximately double.
The late economist Murray Rothbard:
"What makes us rich is an abundance of goods, and what limits that abundance is a scarcity of resources: namely land, labor and capital. Multiplying coin will not whisk these resources into being. We may feel twice as rich for the moment, but clearly all we are doing is diluting the money supply. As the public rushes out to spend its newfound wealth, prices will, very roughly, double – or at least rise until the demand is satisfied, and money no longer bids against itself for the existing goods."
MMT may fill the pockets of the unemployed. It may bring health insurance to the uninsured.
But it cannot increase the stock of hamburgers, computers, doctors or hospital beds.
It will only raise their prices.
If prosperity sprang from the printing press, Venezuela would be rich beyond all avarice.
Money is everywhere, like an infinitely aggressive virus.
Yet life's bare essentials are out of reach for many...and the storefronts gape empty.
If MMT was "just give everyone double the money and they will be double rich" this would be an outstanding retort. Since that's not the case it come off as just a lazy or intentional misunderstanding.
And does a blitz of money equal full employment?
The IMF informs us Venezuela's December unemployment rate was 33%.
The same IMF projects a 40% rate by year's end.
Meantime, it projects the nation's inflation rate will scale 10,000,000% this year.
Weimar Germany is a Switzerland next to it.
In summary...money is not wealth.
Venezuelan debt is in foreign currency, they target a fixed exchange rate. They are not MMT.
Explains economist Joseph Salerno:
"Not only is [MMT] a recipe for massive inflation but it will also cause chronic depression...The newly printed money will not cause an initial economywide boom because it will not be injected through credit markets driving down interest rates and stimulating investment.
This guy is really mistaken, like embarrassingly so for a so called economist. The newly printed money almost immediately hits the banking sector in the form of deposits creating banking reserves in excess reserve requirements, this will actually drive interest rates to zero unless the central bank intervenes, which they do in order to keep interest at their target.
"Rather it will go directly into the Treasury, allowing the government to immediately increase its spending on welfare programs, guaranteed-job programs, the 'Green New Deal' and wasted 'investment in infrastructure'. It will thus siphon off labor and other resources from productive investment...reducing genuine savings and capital accumulation."
See above. MMT does not prescribe any of those programs. They are not intrinsic to MMT. This argument is just a libertarian argument against government masquerading as a MMT critique.
All debt-based consumption steals from the future to gratify the present. It is tomorrow's consumption pulled forward. And it leaves the future empty.
How is that possible? How we consume today items produced in the future? It is nonsensical.
MMT lives for today. It signs a perpetual check against an overdrawn future.
Mark Jeftovic of the Guerrilla Capitalism blog:
"Think of an MMT crisis as an economic black hole sucking all value from further and further future generations into a gravitational vortex of the present moment, where all value collapses in on itself and disappears forever."
Same nonsense more flowery language.
But let us proceed to MMT's second claim...
Can MMT put down the inflation it spawns?
We remind you that under MMT, taxes would soak up the excess money supply. This is its chief anti-inflation mechanism.
Chief but not only mechanism. There is also:
Central bank policy rates
Government price setting via consumption
Government price setting via fees.
Inflation automatically reduces government expenditure via decreasing the real value of nominal commitments.
But who runs tax policy?
The Congress of the United States.
Imagine MMT assumes force of law. Imagine further that it yields a vast inflation with no corresponding growth.
Is it your belief that Congress would raise taxes on the suffering classes in such a season of need?
Imagine inflation due to excessive demand being a season of need.
The economy would be already at a stall. A tax increase would only sink it into recession – or worse.
This guy doesn't understand what inflation or a recession is. Too much money is chasing too few goods? Sound like an economy operating at full capacity not a recession.
Is not the entire point of MMT to stimulate the economy?
No the point of MMT is to describe reality
But assume the tax hikes go through.
The economy goes upon the skids. But the government must keep the printing press whirring to service the expanding deficit.
This guy never takes a shower because if the water gets too hot he would turn down temperature and freeze to death.
That is, the presses run reveille to taps, seven days of the week.
A dreadful stagflation is the result.
The aforesaid Salerno:
"The recurring increases in taxes will not arrest the inflation, because the government will continue to run fiscal deficits by financing its ever increasing spending with new money. This would be the worst of both worlds: massive inflation proceeding hand in hand with chronic depression."
Depression is the opposite of inflation.
This guy's thermostat doesn't say 70 degrees it say extremely hot hand and hand with extremely cold
Even Paul Krugman – arch-salesman of the Keynesian product line – shakes his head at MMT.
And as one wag describes it, MMT would have us all "sandwiched between hyperinflation and hypertaxation!"
We conclude that MMT is not modern whatsoever...but nearly as ancient as money itself:
MMT is a 21st-century alchemy.
"I can tell you my secret," said the immemorial fraud John Law – "It is to make gold out of paper."
But rather than gold out of paper, his "secret" made paupers out of princes.
Law's Mississippi Bubble wrecked France for an entire generation.
Pry it open, drill down to the bottom...and this is what you will find:
MMT is the eternal quest for the free lunch...water into wine...something for nothing.
MMT is the eternal quest to tell every one they can eat all of the lunch you made instead of throwing 5-20% of it in the trash.
That world has no existence.
But does that mean MMT will never be?
MMT has been reality ever since Nixon floated the dollar, and was before during WWII mobilization
