A 600-Page Textbook About Modern Monetary Theory Has Sold Out(bloomberg.com)
bloomberg.com
A 600-Page Textbook About Modern Monetary Theory Has Sold Out
https://www.bloomberg.com/news/articles/2019-05-31/a-600-page-textbook-about-modern-monetary-theory-has-sold-out
67 comments
This sounds exactly like how communist economy used to work in Poland before 1989: Governing communist party claimed to represent the common people, so we had government-mandated full employment - state-owned companies (the only kind there was) were employing people, whether they actually needed them or not. To finance that, government would print money, causing hyperinflation.
Net result was: everyone had a job, everyone had a high (in nominal value) salary, but the money we had was worthles - you couldn't actually buy anything with it, because the store shelves were empty. Government had to ration all consumer goods, by introducing stamps (similar to foods stamps in the US).
It is funny to see communism making its great comeback :)
Net result was: everyone had a job, everyone had a high (in nominal value) salary, but the money we had was worthles - you couldn't actually buy anything with it, because the store shelves were empty. Government had to ration all consumer goods, by introducing stamps (similar to foods stamps in the US).
It is funny to see communism making its great comeback :)
This will be extremely interesting and fascinating to see, and as a student of economics I hope we get to see these policies in action.
Mainly because, I feel there are very few data points to draw conclusions on how this will turn out.
Mainly because, I feel there are very few data points to draw conclusions on how this will turn out.
why downvotes? this is exactly how government-run economy works. i experienced it in USSR. if people think that by naming it MMT and dressing it in pseudo-theoretical jargon will somehow make it work - good luck with that. it is fascinating to watch how bastion of freedom is falling for this shit.
You don't have to worry about rich people if all money is worthless I guess.
The podcast Why is this Happening? had a great episode about MMT earlier this month: https://www.stitcher.com/podcast/msnbc/why-is-this-happening...
Isn't MMT just a convenient way to make tax less progressive or more equal?
So, like, have government spend money on whatever programs it wants, and issue enough bonds and collect enough taxes to keep inflation in check? It’s what we’ve been doing all along. Where is the novelty?
MMT going mainstream is valuable because it's charging the conversation about what we really should be worried about in terms of fiscal policy. And the answer is inflation, if you want to know why we are still adding 200,000 jobs a year 10 years into our economic recovery it's because the Fed was too scared of inflation to signal that long term interest rates would remain low. The Fed should probably raise their target interest rate, especially if we are going to invest in green technology to mitigate climate change.
I think it is helpful that the narrative is changing away from household debt model (gotta pay our bills) to a fiat model (we can always pay high debt owed in our currency, but we risk inflation).
Please let me know where I bugger this.
New money is either created through Federal fiscal spending or through loans (e.g., businesses). Because there is only so much monetary space in an economy beyond which inflation occurs, policies must choose between a mixture of fiscal spending (public works) and loans (private sector).
1. The prototypical fiscal conservative position is low taxes & low spending.
2. The prototypical fiscal liberal position is high taxes & high spending.
Each of these policies can provide roughly the same monetary space for money creation through new loans, but can incur different problems (e.g. over/under regulation, over/under provision of services).
3. A low taxes & high spend policy could push on inflation, pushing out money creation via loans if maintaining inflation target (via raising interest rate).
4. A high tax & low spend policy could pull deflation, driving money creation via loans if maintaining inflation target (via lowering interest rate (but will there be customers?)).
But none of this has to do with the "federal deficit is bankrupting us" arguments that have plagued our policy discussions. The shift in framing by MMT allows us to move away from debt towards how to most productively use new money creation. Some believe public works are productive. Some believe that businesses are most ready to use new money productively. hy does productivity matter? Apparently, from what I gather, when new money is used productively (creates value) it is less likely to be inflationary, perhaps because it creates new products and services instead of just driving demand. And the shift in focus allows us to focus on answering the important questions about how much money can be pumped into the economy (and to whom) before we see significant inflation, and relatedly, what are the real drivers of inflation. For example, money creation can create too many dollars chasing too few goods, but if there is an excess in supply/supply capacity, then you won't see inflation until there is an equilibrium. I suspect that our economy can run a lot hotter before we see a lot of inflation outside of housing, non-competitive markets, and healthcare.
I'm just a guy that has read a few blogs on monetary policy. I'm probably wrong on a bunch of levels.
Please let me know where I bugger this.
New money is either created through Federal fiscal spending or through loans (e.g., businesses). Because there is only so much monetary space in an economy beyond which inflation occurs, policies must choose between a mixture of fiscal spending (public works) and loans (private sector).
1. The prototypical fiscal conservative position is low taxes & low spending.
2. The prototypical fiscal liberal position is high taxes & high spending.
Each of these policies can provide roughly the same monetary space for money creation through new loans, but can incur different problems (e.g. over/under regulation, over/under provision of services).
3. A low taxes & high spend policy could push on inflation, pushing out money creation via loans if maintaining inflation target (via raising interest rate).
4. A high tax & low spend policy could pull deflation, driving money creation via loans if maintaining inflation target (via lowering interest rate (but will there be customers?)).
But none of this has to do with the "federal deficit is bankrupting us" arguments that have plagued our policy discussions. The shift in framing by MMT allows us to move away from debt towards how to most productively use new money creation. Some believe public works are productive. Some believe that businesses are most ready to use new money productively. hy does productivity matter? Apparently, from what I gather, when new money is used productively (creates value) it is less likely to be inflationary, perhaps because it creates new products and services instead of just driving demand. And the shift in focus allows us to focus on answering the important questions about how much money can be pumped into the economy (and to whom) before we see significant inflation, and relatedly, what are the real drivers of inflation. For example, money creation can create too many dollars chasing too few goods, but if there is an excess in supply/supply capacity, then you won't see inflation until there is an equilibrium. I suspect that our economy can run a lot hotter before we see a lot of inflation outside of housing, non-competitive markets, and healthcare.
I'm just a guy that has read a few blogs on monetary policy. I'm probably wrong on a bunch of levels.
Inflation moves money from the rich (who have assets) to the poor (who have debt). Can't have that...
If you hold dollars, then indeed inflation will tax it away. But if you hold assets that are not denominated in dollars (like real estate, stocks, etc.), then inflation does not tax it away.
Rich people in general know about inflation and invest in things not affected by it.
Rich people in general know about inflation and invest in things not affected by it.
Not at all. Inflation increases asset values in most classes and if anything rich are the main beneficiary of the inflation. For example, a rich person will typically borrow $1M against his other assets to buy a condo at 3%. Inflation makes that condo $2M but you are still paying 3% on original pricing. Your networth just increased on inflation-adjusted basis.
On the other hand deflation negatively impacts rich people. Vast majority of income for many rich people is passive income. Deflation makes it miniscule while at the same time empowering poor people to aquire capital at negligible cost.
On the other hand deflation negatively impacts rich people. Vast majority of income for many rich people is passive income. Deflation makes it miniscule while at the same time empowering poor people to aquire capital at negligible cost.
A lot of assets of rich people are protected against inflation. Real estate, stocks, art protect against inflation much better than the cash in the savings account earning <1%.
Well also the existence of inflation creates the need for the middle class to participate in low buy-in/aggregatable liquid inflation-proof asset classes. This has largely been fulfilled with stocks and stock-backed mutual funds, which means that inflation drives the middle class to finance the risky business adventures of the wealthy.
It also hurts people who have more cash assets more than those who have the ability/knowledge to invest their savings is stocks (which typically adjust for inflation).
i.e. the few middle/upper middle class people who choose to live within their means, keep a rainy day fund, save for a vacation instead of putting it on a card, etc.
I guess I'll just hoard ammo and gold bars instead of building savings. At any given time at least one of those is in high demand.
I guess I'll just hoard ammo and gold bars instead of building savings. At any given time at least one of those is in high demand.
> i.e. the few middle/upper middle class people who choose to live within their means, keep a rainy day fund, save for a vacation instead of putting it on a card, etc.
You're describing someone that's good at managing money, which runs counter to the idea of having a big pile of uninvested cash.
You're describing someone that's good at managing money, which runs counter to the idea of having a big pile of uninvested cash.
I'm describing someone who values stability and liquidity over returns.
Is there any circumstance where you need more than a couple month's income to be in liquid form, without notice? Inflation doesn't have a major impact until you're building up huge amounts.
And if you would ever actually consider gold for stability, stocks should be no problem at all.
And if you would ever actually consider gold for stability, stocks should be no problem at all.
Those same people should be saving towards a pension, which should be invested in the stock market.
Cash nearly always loses to inflation, that's why you're only supposed to keep medium/short term money in the bank, longer term saving should be done elsewhere.
Cash nearly always loses to inflation, that's why you're only supposed to keep medium/short term money in the bank, longer term saving should be done elsewhere.
Not exactly.
Most (all?) rich people will leverage their capital by purchasing assets with debt. The value of the assets increase with inflation while the debts typically decrease (both in real terms and as they are paid down).
Now, this works for the middle-class homeowner too by increasing the value of their largest asset: primary residence. However, wages typically won't keep pace with higher rates of inflation.
I would argue that the total amount of debt doesn't really matter to most working-class people, it's actually the monthly payment. Most are constantly comparing their monthly take-home pay to their obligations and looking for additional opportunities to consume.
Most (all?) rich people will leverage their capital by purchasing assets with debt. The value of the assets increase with inflation while the debts typically decrease (both in real terms and as they are paid down).
Now, this works for the middle-class homeowner too by increasing the value of their largest asset: primary residence. However, wages typically won't keep pace with higher rates of inflation.
I would argue that the total amount of debt doesn't really matter to most working-class people, it's actually the monthly payment. Most are constantly comparing their monthly take-home pay to their obligations and looking for additional opportunities to consume.
Doesn't inflation also trigger interest rate increases? That's not good for payers of variable rate loans (mainly low credit and poor).
And doesn't the price of assets increase in lockstep with inflation? Those holding cash and bonds are the ones getting pinched during inflation.
And doesn't the price of assets increase in lockstep with inflation? Those holding cash and bonds are the ones getting pinched during inflation.
What do you mean "trigger". The interest rates that the Federal Reserve sets are done "manually". They don't rise and fall based on the supply or demand for money. If inflation (as measured by the Fed) increases and the Fed wants to lower it, they can decide to raise interest rates but it doesn't happen automatically.
According to this article [0], the Fed controls two of the three most important interest rates in the U.S. But if you look at their chart, all three rates have followed each other very closely since 2000. Although the Fed doesn't control the prime rate it seems that the prime rate doesn't deviate from what the Fed is doing very much.
[0] https://www.thebalance.com/what-interest-rates-does-the-fede...
According to this article [0], the Fed controls two of the three most important interest rates in the U.S. But if you look at their chart, all three rates have followed each other very closely since 2000. Although the Fed doesn't control the prime rate it seems that the prime rate doesn't deviate from what the Fed is doing very much.
[0] https://www.thebalance.com/what-interest-rates-does-the-fede...
> What do you mean "trigger".
> If inflation (as measured by the Fed) increases and the Fed wants to lower it, they can decide to raise interest rates but it doesn't happen automatically.
That's what I meant.
> If inflation (as measured by the Fed) increases and the Fed wants to lower it, they can decide to raise interest rates but it doesn't happen automatically.
That's what I meant.
I read the "trigger" as "tends to lead to"
Yes and if there are any weaknesses around ARM loans left in the financial markets it could trigger another debt crisis when not careful.
Inflation moves money from citizens (who have X amount of money) to the government (who can print money).
I'm surprised at view of inflation here. Inflation moves money from the future generation to the current generation. When you are printing money, you are in effect borrowing from future yourself (or your descendants).
This is one of the most magical modern things you can do with debt. Previously in human history, you can borrow money to others to create wealth which was then translated into more money. This was an extra-ordinarily powerful concept we called "debt". Now we can borrow from future ourselves! No one knows how this will pan out.
This is one of the most magical modern things you can do with debt. Previously in human history, you can borrow money to others to create wealth which was then translated into more money. This was an extra-ordinarily powerful concept we called "debt". Now we can borrow from future ourselves! No one knows how this will pan out.
See "Debt, The First 5000 Years". The concept of IOUs (inflation) isn't new at all.
Money will be taxed from citizens no matter what. The question is whether inflation is better or worse than the alternatives.
the good news is that if we use inflation, most citizens won't complain because they think it's because of "capitalism".
Only the citizens who like to keep inert piles of cash buried in their back yard.
You say that as if there's something wrong with that.
It can be.
Look at bitcoin, its value is expected to go up, so owners never use it, they don't even feel the need to put it in a bank account to hedge against inflation, because the likelihood is there'll be the opposite, deflation (because theres a fixed number of coins that can be made). So now you have all this cash sitting there doing nothing. Not being lent to businesses, so they can grow, or invent hover boots or what ever, it's not being put in a bank, so they can lend it to someone to buy a house.
It just gums the system up, the haves accrue more by doing literally nothing. The have nots have no opportunity to improve their lot, or the lot of the haves.
Look at bitcoin, its value is expected to go up, so owners never use it, they don't even feel the need to put it in a bank account to hedge against inflation, because the likelihood is there'll be the opposite, deflation (because theres a fixed number of coins that can be made). So now you have all this cash sitting there doing nothing. Not being lent to businesses, so they can grow, or invent hover boots or what ever, it's not being put in a bank, so they can lend it to someone to buy a house.
It just gums the system up, the haves accrue more by doing literally nothing. The have nots have no opportunity to improve their lot, or the lot of the haves.
I don't think the things you're saying are really accurate. Bitcoin isn't used very much for payments because it isn't easy to use it for payments. The scaling technology to enable it is in development but not good enough yet. Once payments hit a certain critical level, the network slows. Lots of people spend Bitcoin when they can.
Additionally, lending and borrowing is becoming a really popular application for crypto. You should take a look into things like Compound, Dharma, dYdX, nuo, BlockFi, and others. [1] Decentralized lending + borrowing with collateral is super hot, with amazing interest rates. On dYdX right now you can get a 6.2% APY on USDC, which is a stablecoin pegged to the US dollar. My bank savings account only gives me 2.2%. That's a 2.8X multiplier on the best bank rate available right now. And not on a volatile asset - a pegged-to-USD asset.
It's actually practical - more practical than traditional finance - if your goal is to save via compound interest. The idea that crypto is sitting around doing nothing isn't accurate at all.
But besides all that, the idea that "money sitting there doing nothing" is bad is wrong anyway, since the money that "does something" becomes worth more. This argument confuses numbers for value. Economic output doesn't care about how we quantify it, it cares about resource allocation. The value of our flappy paper tabs changes to reflect economic activity and its own scarcity in the economy, not vice-versa.
[1] defipulse.com
Additionally, lending and borrowing is becoming a really popular application for crypto. You should take a look into things like Compound, Dharma, dYdX, nuo, BlockFi, and others. [1] Decentralized lending + borrowing with collateral is super hot, with amazing interest rates. On dYdX right now you can get a 6.2% APY on USDC, which is a stablecoin pegged to the US dollar. My bank savings account only gives me 2.2%. That's a 2.8X multiplier on the best bank rate available right now. And not on a volatile asset - a pegged-to-USD asset.
It's actually practical - more practical than traditional finance - if your goal is to save via compound interest. The idea that crypto is sitting around doing nothing isn't accurate at all.
But besides all that, the idea that "money sitting there doing nothing" is bad is wrong anyway, since the money that "does something" becomes worth more. This argument confuses numbers for value. Economic output doesn't care about how we quantify it, it cares about resource allocation. The value of our flappy paper tabs changes to reflect economic activity and its own scarcity in the economy, not vice-versa.
[1] defipulse.com
I picked on bitcoin because there will only ever be a limited number of coins, I could just have easily picked on gold. This is in contrast to the USD, where more can be printed bringing about inflation.
Money that "does something" ie gets lent to businesses to expand, or to people to buy houses is being allocated, its being allocated to something productive, whereas under the mattress isn't. Under the mattress isn't economic activity, lending it out is, or can encourage it at least.
Money that "does something" ie gets lent to businesses to expand, or to people to buy houses is being allocated, its being allocated to something productive, whereas under the mattress isn't. Under the mattress isn't economic activity, lending it out is, or can encourage it at least.
Every transaction with Bitcoin is subject to capital gains tax. There is a penalty for using it to purchase things. It's a little silly to try to explain why people don't "use" Bitcoin and skip over that fact.
capital gains tax is paid on capital gains (you've made money!!!). If a gain hasn't been made, theres no tax to pay. And anyway assuming you plan on spending your money some time before you die you're not going to be able to avoid the tax so why should it put you off spending that bitcoin?
Plus in my jurisdiction I get a capital gains allowance, so its better to spend the bitcoin now and make full use of each years allowance, than save it up for whenever.
Plus in my jurisdiction I get a capital gains allowance, so its better to spend the bitcoin now and make full use of each years allowance, than save it up for whenever.
There is a position that such an approach stifles growth as that money is not available for investment in a company
If it in effect doesn't exist, then the rest of the money in circulation is worth more due to its scarcity being increased. Net economic activity is thus unaffected.
I've always seen this as an over-simplification that leads down an incorrect path of thinking. It "doesn't exist" if you think the only thing that has an effect on the economy is the number of dollars in circulation at a given instant. A person that has money saved may behave differently in the economy vs that same person with no money saved. They may buy different things or take bigger financial risks with the money they are spending.
I agree, but I don't think that was the issue being discussed.
That money is also out of circulation, so not contributing to inflation. The government will print (or create through interest rate adjustments) the same amount as it pursues an interest rate target.
The fed does target an inflation rate greater than 0, though.
I doubt that inflation offsets the cost of the compound interest paid.
Why is this mindcanon? The rich are very much in debt... the "poorest" member of the US house of representatives is something like 15 million dollars in debt, and Donald Trump reportedly is 300M dollars in debt to Deutche Bank. Financial instruments that only the rich have access to (shorts, puts, ETFs) rely on freely available low interest debt to exist in a efficient fashion.
Moreover, when the poor are in debt, assuming they have access to some sort of formal or informal banking services, which many do not, they're usually in debt at short term high interest rates (think low double digits in the case of credit cards for the lower middle class down to 20-30% per annum rates for lending shops for near-poverty and below), which are basically unaffected by nominal debt burden effects of inflation.
If you're spending 90% of your income on day to day needs and there's 1% inflation, that's a ~10% decrease in your margin of survival. If you're spending 20% of your income on day to day needs that's ~1% decrease in your margin of survival.
Now, of course "wages keep up with inflation" or something like that. Except, they don't: (https://www.epi.org/productivity-pay-gap/ - bonus: the divergence kicks in right after nixon closed the gold window), and even if they did, the model that inflation is a policy strategy for correct for sticky wages (https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...) goes out the window.
Inflation exists to silently steal from the poor to give to the rich.
Moreover, when the poor are in debt, assuming they have access to some sort of formal or informal banking services, which many do not, they're usually in debt at short term high interest rates (think low double digits in the case of credit cards for the lower middle class down to 20-30% per annum rates for lending shops for near-poverty and below), which are basically unaffected by nominal debt burden effects of inflation.
If you're spending 90% of your income on day to day needs and there's 1% inflation, that's a ~10% decrease in your margin of survival. If you're spending 20% of your income on day to day needs that's ~1% decrease in your margin of survival.
Now, of course "wages keep up with inflation" or something like that. Except, they don't: (https://www.epi.org/productivity-pay-gap/ - bonus: the divergence kicks in right after nixon closed the gold window), and even if they did, the model that inflation is a policy strategy for correct for sticky wages (https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...) goes out the window.
Inflation exists to silently steal from the poor to give to the rich.
"wages keep up with inflation" or something like that. Except, they don't"
Your link talks about wages not keeping up with productivity, not inflation.
Wages have most definitely grown faster than inflation over the past 50 years.
Your link talks about wages not keeping up with productivity, not inflation.
Wages have most definitely grown faster than inflation over the past 50 years.
Pew Research on this topic: "But in real, inflation-adjusted terms, the median has barely budged over that period: That $232 in 1979 had the same purchasing power as $840 in today’s dollars.
Wage increases in the U.S. rise to the top earners
Meanwhile, wage gains have gone largely to the highest earners."
https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
Financial instruments that only the rich have access to (shorts, puts, ETFs)
It is a kind of crazy cult - believing that more money simply solves problems, and that we should have full employment. There's extensive historical record on governments going drastically for full employment:
https://news.ycombinator.com/item?id=20065380
That being said, MMT is also similar to what Japan has done, and it caused neither recession nor growth there. I mean the Japanese central bank owns even equity ETFs, it's kind of insane. And still no results, which is even more insane:
https://www.economist.com/special-report/2018/10/11/what-to-...
https://news.ycombinator.com/item?id=20065380
That being said, MMT is also similar to what Japan has done, and it caused neither recession nor growth there. I mean the Japanese central bank owns even equity ETFs, it's kind of insane. And still no results, which is even more insane:
https://www.economist.com/special-report/2018/10/11/what-to-...
Reminds me of when Piketty's "Capital" was sold out everywhere. I was one of many people who bought it due to the hype. Apparently I was also one of many people who never read it:
https://www.huffpost.com/entry/piketty-book-no-one-read_n_55...
MMT is very "in" right now but most people won't finish a 600pg novel, let alone a texbook.
MMT is very "in" right now but most people won't finish a 600pg novel, let alone a texbook.
You should actually read Capital, if only for the interesting data series he collected there.
> MMT argues that governments in control of their own currencies, like the U.S. and Japan, aren’t constrained in the ways standard economics says they are. They may risk stoking inflation or running out of resources if they spend too much -- but they can’t go broke.
I'm a bit confused. My impression is that this is overwhelmingly the dominant view in mainstream political discourse. My impression is that, at least in the United States, it's considered fairly radical to talk seriously about significant spending cuts, balancing the budget, or even having the slightest concern at all about budget deficits or national debt.
I'm a bit confused. My impression is that this is overwhelmingly the dominant view in mainstream political discourse. My impression is that, at least in the United States, it's considered fairly radical to talk seriously about significant spending cuts, balancing the budget, or even having the slightest concern at all about budget deficits or national debt.
I think talking about spending cuts and balancing the budget were pretty common not too long ago. It was a big part of Paul Ryan's speaker-ship.[0]
Republicans (and some democrats) have used "balancing the budget" rhetoric, to justify cutting or refusing to expand wellware and social safety net programs. This has died down once they got into power because no one actually want to balance the budget (cutting military spending is not exactly a hit in republican strongholds).[1]
So in a way you are right, no one is _seriously_ talking about balancing the budget, but people certainly were talking about it.
[0] https://en.wikipedia.org/wiki/The_Path_to_Prosperity [1] https://www.vox.com/policy-and-politics/2018/12/10/17929460/...
Republicans (and some democrats) have used "balancing the budget" rhetoric, to justify cutting or refusing to expand wellware and social safety net programs. This has died down once they got into power because no one actually want to balance the budget (cutting military spending is not exactly a hit in republican strongholds).[1]
So in a way you are right, no one is _seriously_ talking about balancing the budget, but people certainly were talking about it.
[0] https://en.wikipedia.org/wiki/The_Path_to_Prosperity [1] https://www.vox.com/policy-and-politics/2018/12/10/17929460/...
My understanding is the most people in the USA (and their elected representatives) are totally in favor of budget cuts; they just don’t agree on exactly what to cut. Some liberals may want to reduce military spending and some conservatives may want to reduce social spending. As a compromise, both parties usually agree to increase spending on both.
These are the things I've heard over and over and over in political discourse. Federal deficit clocks! omg China is owns us, We are gonna be bankrupt! All these are household budget ideas that do not fit with a fiat currency and debt denominated in your own currency.
Economics? Politics? le gasp Religion?!?
Society says go find an echo-chamber and don't bother anyone. ¯\_(ツ)_/¯
Society says go find an echo-chamber and don't bother anyone. ¯\_(ツ)_/¯
I'm torn between whether this is 'good' because people are learning about seignorage and taxation through fresh eyes because everything is called something different, or if it's bad because it's an insane cult
I'm sure there's a good point underlying this but could you please follow the site guidelines and not be snarky on HN?
https://news.ycombinator.com/newsguidelines.html
https://news.ycombinator.com/newsguidelines.html
The Wikipedia article seems far more useful:
https://en.wikipedia.org/wiki/Modern_Monetary_Theory
To quote the intro:
"MMT advocates argue that the government should use fiscal policy to achieve full employment, creating new money to fund government purchases. The primary risk once the economy reaches full employment is inflation, which can be addressed by raising taxes and issuing bonds, to remove excess money from the system.[3] MMT is controversial, with active debate[4] about its policy effectiveness and risks."