LateMechanic
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User ID: 1841
MMT is propably not a popular position here.
That is definitely the case, but I would be surprised if anyone could do the t-accounts for various government & banking accounting operations and actually put the liabilities & assets on the correct sides, etc. Even most economists mess it up completely. It's just not something most people learn or care about. My guess was definitely about US officials and how their actions may be explained by their private knowledge, rather than an estimation about our forum members' beliefs.
The rest is the same thing in different words. And as for that.
Identities are a basic check to make sure you're not getting something totally wrong. If you think the government deficit is a bad thing that should be reduced, you have to explain why you think that of the non-government surplus as well. It is quite literally the same thing. As Kelton said in that presentation, people goof up on this all the time. The WSJ in the late clinton years proudly proclaiming in one column "isn't this wonderful? This is the longest sustained budget surplus since 1929!" while the next column over is hand-wringing "this is very worrying, the private sector savings are plummeting!".
Why is inflation correcting it?
When collectively the private sector has more monetary savings than we want, we will value money less and increasingly try to spend it away - the hot potato effect. Prices will get bid up high enough from this economic activity (falling value of a dollar) until we have the correct/desired amount of savings again. Or before that, the increased economic activity will cause the excess monetary savings to get shed off in increased tax payments (monetary destruction, IOUs returning to their issuer).
So taxes being set at rates instead of flat amounts is therefore one of our main automatic stabilizer policies (the other being safety net spending): the government deficit automatically shrinks & grows depending on the state of the economy. Demand-pull inflation is the final relief valve after that, re-valuing money downward until we have the amount we want.
LateMechanic
7d ago
I've said this before, but I'm pretty sure a lot of members of congress have learned at least some MMT stuff about banking & government finance accounting. They pretty much all still use the deficit, debt, and fear of large numbers as rhetorical weapons against their opponents when out of power. But we seem to see fewer people than ever signing up for the mistaken sucker play of being in power and actually crashing the economy with austerity. Maybe more senators than house members understand the reality; surely more democrats than republicans have been incentivized; and definitely more congressional aides and rank&file treasury/fed people know how the financial plumbing works compared to elected & appointed officials (but in the US in particular, these types seem to effectively be able to get the word out to stop politicians from wrecking things usually). This time around, Trump even potentially had Elon as a perfect fall guy to take any blame, if Trump actually wanted to cut the deficit (luckily he didn't).
To be economically literate, one would have to know that saying the government deficit should be cut is identical to saying the non-government surplus should be cut. Or that the government's debt is not "our" debt, it's our asset: the government is just a balance sheet entity we made up, which we use to emit IOUs that we (the actual people) get to hold & use. It's much more akin to a scorekeeper, tracking the points everyone has. The national debt is essentially the net money supply, and that money is being created by running a deficit (constantly for hundreds of years, with no reason to stop if the people keep wanting to accumulate monetary savings). Government deficit & debt are good things, and the only problem is along the lines of 'too much of a good thing' (inflation, which is the self-correction mechanism).
I think MMT was especially catching on amongst politicians around like 2018-2019. The inflation of 2022 probably put it on the backburner for awhile. But even back in 2012, here they are talking about how a load of congress members understand things but just can't say anything publicly: https://youtube.com/watch?v=ba8XdDqZ-Jg&t=1h4m25s
Moderator: Can you answer the question of why does the system not adopt what you're saying?
Mosler: Yeah so last year we had the debt ceiling drama. Remember that last summer? And right after the State of the Union, Paul Ryan got up and said 'Look the US could be the next Greece, we're going to be on our knees to the IMF, interest rates are going to spike, we might get downgraded, we might default, we have to take $1 trillion out of the deficit, and we're not going to vote for the debt ceiling increase unless we do that'. And Obama actually agreed! The president agreed, and he had a plan to take 6 trillion out, but they didn't like what each other was doing, they got right down to the wire, they kicked the can down the road with a compromise... Interest rates had gone up in anticipation of something terrible happening, the stock market was crashing, and we got downgraded by S&P... And what happened? Okay, interest rates went down instead of up. 3-month treasury bills were going through at 0%. Everybody was like 'what's going on, how is this possible?' No move on the deficit, we're up over 16 trillion...and, you know this is supposed to be the end of the world. And then suddenly it started sort of coming out: you had Alan Greenspan come out and say 'well you know, we print our own money'. And Warren Buffett came on and said 'we're 4A not 3A, because the Federal Reserve prints the money'.
So I compare this to the War of 1812 and the Battle of New Orleans. The Battle of New Orleans was fought after the war was over. So what's happened is that moment when they came out realized that we weren't going to be the next Greece...okay the US was not going to be at its knees, that deficits don't drive interest rates up (and there's absolutely no reason to think they would when you understand monetary operations--they never do)... the war was over! Okay, we had won the war. The reason for deficit reduction was gone. It disappeared. All the reasons that, you know, Ryan and Obama..."we've run out of money", all these things were over! Okay, but they kept fighting the war anyway! And it's kind of the strangest thing. They just started pushing ahead with, 'okay, now we got to do it towards the end of the year...'. And nobody talked about Greece for a while, and then now all of a sudden in the last few months you're starting to hear Greece sneak into it again. Okay, that war is over, you're right, it should be over! Okay we know that deficits don't cause any default risks, they don't cause interest rates to go up, they don't cause any of that. Now, they might cause inflation, if we overspend. But let me say two things on that.
Japan's been trying to inflate as hard as it can for 20 years, and hasn't managed to get out of deflation. The Federal Reserve has been trying to inflate with everything it's got, every trick in the book, every tool it can imagine, for four years and hasn't done it, it's utterly failed. It's not that easy. I've been writing for years that central banks cannot cause inflation no matter what they do. And I think we've seen that proven out. So #1, inflation is not that easy. (The causes of these other things were all special circumstances, all the hyperinflations I won't get into that). But if there is any reason to think that we do need deficit reduction, that we should cut spending or raise taxes, it has to be inflation. Because none of the other things are a factor. So let's look at our inflation forecast: there isn't one analyst out there who has a reputation to defend that's forecasting any kind of inflation. The treasury index bonds, 30-years, are forecasting very very low inflation. There's not a single inflation forecast out there.
So I talked to representative, what's his name, Hollen--he's on the deficit reduction committee from Virginia, he's a progressive Democrat. I said "okay the war is over, why are you pushing for cuts in social security, cuts in Medicare? Isn't the burden of proof on the other side to tell you that we have to cut or else is going to be inflation? Maybe they have to do a little research, and prove to you that there could could be inflation and therefore we have to cut Social Security and Medicare? Because there's certainly no forecast out there. Why are you just voluntarily (the left, the Progressive Democrats) out there proposing these cuts?" He goes, "well, it's a pretty large number and I think we need to do something about it." It's like 'What??'
Okay there's something very wrong with the political process. And I think what's happened is they become victims of their own propaganda. They've gotten it so instilled in people that we have to do something about the deficit, they can't even begin to talk otherwise. Even though they know the war is over, even though they know they've lost any possible reason for it, even though they know the burden of proof is on the other side now to show that spending needs to be cut or taxes need to be raised for some reason... The polls show and the reactions show that if they come out and aren't for deficit reduction, they get laughed off the stage and they they lose their spot. So this is the the Battle of New Orleans being fought after the war is over because people don't realize the war is over. So even though the policy members might know that, they're dealing with a population that doesn't know...and is just an economic disaster, a real tragedy.
Let me say one more thing about taxes, if I can, and the size of government because I want to make this entirely apolitical (which it should be). The size of government is a political question. How many teachers do we want in the classrooms, how many soldiers do we want in the army -- if you take too many there'll be nobody left to grow the food and we're going to starve, if you take too few we're going to lose the war. These are all political decisions of what resources we want to move from the private sector to the public sector. And you'll have differences of opinion: some people think we need more government, some people think we want less government. But once we've settled politically on the right size government, then there is an appropriate level of taxes that allows the right size deficit, so we have the right amount of savings, to offset our pension needs and stay at full employment. So given that the size of the government is a political decision that shouldn't be based on whether the economy is good or bad -- 'we need a a legal system, how many judges and clerks do we need?' Well you know if there's a 10year wait, maybe we need more. If they're calling you up asking you to see 'why don't you go out and sue somebody, we have people waiting around to have a trial', maybe we've got too many of them. See, you've got to come up with the right size legal system and everything else.
But once you've done that, taxes are the thermostat on the wall. If the economy is ice cold and unemployment's high: you're taking too much money out for the size government we have, and you need lower taxes for that size government. If on the other hand it's overheating, there's too much spending, and prices are going up too fast, and unemployment is too low (whatever that means): then taxes have to be raised because for the size government we have, taxes aren't high enough (we're not taking enough money out). So for this right size government, taxes are the thermostat on the wall. They're not there to balance a budget, to bring in money. We're just changing numbers down, we're changing numbers up. The deficit is a residual. You find out afterwards if it was a right size deficit by counting the bodies in the unemployment line. Not by worrying about 'paying it back' or 'becoming Greece' and all that nonsense -- there is no such thing.
So your question now is "why can't the political process get us there?" And now that you know all this, I'm going to ask you for the answer. Because it's becoming more of a mystery every day. Because the more people I know who know the right answer.... you know, it's almost like the less willing they are. I talked for hours to Senator Blumenthal who read my book Seven Deadly Innocent Frauds (you get it free online, it's an easy read). And he gets the whole thing and he won't do anything -- just sits there. Same with Lieberman from Connecticut (I ran for Senate from Connecticut a couple years ago). Talked to these people, I talked to Hollen, I talked to all kinds of people over the years... and they're not going to be the ones to move us off the dime on this. We've got the academic community starting to get some of the right answers and through the blogs. And it's called mmt: modern monetary theory (somebody gave it a name, wouldn't be the name we chose). It's been expanding rapidly. But it's not there yet: that the only thing between us and full employment and prosperity beyond what anyone can imagine, is the space between our ears. There's nothing else in the way right now: there's no food shortage, there's no shortage of housing, we have surpluses of everything.
Kelton: Warren, remember. I won't say who it was, but Warren and I met with a member of Congress together. And we went through all of this with this person, and when we got done, this person looked at us and said "I can't say that". Not "I don't believe that", "I disagree with that", "you're wrong", "you're crazy" -- "I can't say that"! We have to make it increasingly safe for these folks to say that, to take these positions. And wasn't it FDR who said 'I can't do things, you have to make me do things'.
Mosler: And this is pro-agenda for all of them. The Republicans would love to cut taxes and not have to cut spending. They could agree to that. But they can't...if they cut taxes, they've got to cut spending even more because they think they have to balance the budget, so they don't even do their own tax cuts. Democrats would like to increase spending.
LateMechanic
9d ago
Remember that weird moment when Colbert announced that Comey had been fired by Trump? The audience cheered, before being corrected by Colbert that Comey was now a good guy and was to be lionized if you're anti-Trump (the updated narrative which went on for the next month or so in the media).
So it potentially helps Elon to some extent, to make a more dramatic break from Trump with big WWF promos cut from both of them. It depends on how the media plays it, but this could be the same kind of whiplash that erases a fair amount of elon derangement among democrats and lets him slip out of washington with a bit more independent posture intact.
LateMechanic
23d ago
There's a clear different memetic impact depending on whether people mentally bucketed covid as 'a new potentially-deadly virus' or 'a new strain of the flu', so that was always an important territory to fight over.
LateMechanic
1mo ago
Similar to how the best way to use Reddit is to find actually smart people and then follow their entire post histories.
I used to do that, but my mistake was thinking SlateStarCodex must have been some MMO people were playing like Eve Online or something, so I skipped past those posts, and ended up finding the motte group way later than I should have.
LateMechanic
1mo ago
Yeah my experience whether on or off keto was that sucralose & sugar alcohols didn't disrupt my hunger/satiation. And I thought as of maybe 10+ years ago, the story was that while each of the artificial sweeteners have slightly different results with different people, they all had extremely low metabolic response compared to dietary carbs in general. The idea of your body being 'tricked' into producing a flood of insulin by the apparent encountered sweetness seems like some kind of psychological intuition that some people may find useful, but that wasn't backed by evidence.
And it's crazy to hear dentists saying 'luckily you're not a soda drinker' when looking at perfect teeth, whenever I'm drinking an impressively expensive amount of energy drinks instead of coffee.
LateMechanic
1mo ago
Interesting, thanks. Yeah the wiki article on Reconstruction era referred to "the legal, social, and political challenges of the abolition of slavery and the reintegration of the eleven former Confederate States into the United States" and various laws & amendments being passed nationally, which sounded like what I remembered. But what stood out was looking up what marked the end, the supposed compromise of 1877, simply being when federal troops were pulled out (so it was all an 'era' characterized by gunpoint).
Union imposed governments were incompetent, corrupt, and full of radicals who didn’t particularly care how their ideas worked in practice.
That's the wild part to me, which I somehow never learned or got through osmosis. I always had the connotation of 'carpetbagger' as economic opportunist, northern capitalists coming down to make a buck, a la 'shock doctrine'. Never knew that apparently northern white & black republicans literally went south and became congressmen & governors for a decade. The people who would actually pack up and move to a southern city to try to run/organize politics and government -- that's a mindset I'd also like to see portrayed from the flipside. If it was something other than a naked power grab, I could imagine it positively portrayed as a moral SJW angle, a 'doing my part' missionary flavor, or a more general entrepreneurial spirit.
Much less is known about the first wave of the klan but vigilantism has a long history in the south
I was wondering if maybe in the initial wave they were trying to imitate the crusades with the outfits and talk of wizards & knights. Then the revival in the 20s after this movie came out seems a lot more like a fanclub secret society, either larping or wanting more agency of 'you can just do stuff'. Admittedly, the movie poster artwork does look fairly badass, and makes me want to play dark souls or something.
LateMechanic
1mo ago
I just watched The Birth of a Nation (1915). Despite having a shredded attention span for movies typically, I found it pretty compelling and surprisingly watched it in just a few sittings (same thing I found with the Napoleon silent epic from the 1920s which was even longer). Just great expressive acting, scored well, with a story that flowed at a solid pace (and from a perspective that I can imagine inhabiting, but hadn't seen before). And I can guess how especially impressive some of it was for the time. Though the actors playing mulatto characters were maybe hamming it up too much as the villains, and seemed like they thought they were in a different movie (or maybe the director really wanted to sell that angle).
Given our forum members here, does anyone know of any heterodox witchy takes about the KKK? Are most people fairly accurate in seeing them as shallow dumb racist terrorists, lashing out while hiding their identities in cowardice? Or is that more like history being written by winners, where there was actually more to engage with, some higher theory of mind, like what this movie is trying to portray (revenge, fighting back, or maybe even beyond that)? Back in the day I had the basic high school AP US history, but apparently everything between the civil war and the great depression didn't make a lasting impression, because I find myself really not knowing anything about reconstruction, 'radical republicans', etc. In general I find that time period pretty interesting & appealing, with Monet impressionism, Dostoevsky & Arthur Conan Doyle books, and post-civil-war-set Westerns being most interesting. Just have no idea about the US South vs North around then I guess.
Or failing that, does anyone have any movie recommendations in any similar vein? I used to think of silent movies being mostly slapstick comedies which weren't even that funny, but these two epics I mentioned were great. Or related to this movie in other ways, I tried watching Gone With the Wind and Triumph of the Will, but got bored of both after 10-20 minutes (will give them another shot at some point). The 2012 spielberg Lincoln movie was great too, for DDL acting, and it seems like the Tommy Lee Jones character was rehabilitating the similar character in Birth.
I'd sum this up in going back to the fundamental equation he presented: [(M-X) = (I-S) + (G-T)].
These NIPA I & S terms are probably some of the more pointlessly confusing things in macro econ. The whole thing is an identity because it starts with the basic concept: someone's spending ≡ someone's income, and then slices & dices that in various ways. The 'S' is not any colloquial version of savings, like your money in a bank account. It's "gross saving", which is a really bizarre terminology for income. Meanwhile in the usual national accounts equation, they cancel out the consumption spending & consumption income parts. So it ends up as I being non-consumption spending, and S being non-consumption income. (So even if you know this is 'spending' and 'income', the letters are literally flipped...very helpful).
In financial terms, (S-I) is the domestic private sector financial surplus. Green on this sectoral balances chart. (G-T) in red, the government deficit, is pretty clearly the 'source' of both the private sector surplus and the foreign sector financial surplus (M-X) (blue). So arranged more usefully, (G-T) ≡ (S-I) + (M-X). The foreign sector and the domestic private sector both want to earn more dollars than they spend, so the government ends up spending more dollars than they earn (aka net issuing new IOUs in the form of USD reserves/bonds/bills/notes/coins/whatever, which our households/businesses and the chinese both want to get our hands on).
I couldn't say what level of confusion Cochrane was on there, when he insinuated that the source of the government's deficit is partially the foreign sector's surplus. So in that chart, we're suggesting that if the blue goes to zero, our government won't be able to be in such a deficit? That's certainly a take. It just won't need or be forced to run such a deficit, and/or our green part of that chart will gobble up the extra dollars.
Tariffs are not likely to fix any of this. If we cut off all net trade, as the current tariffs seem to aim to do, this process will have to come to an end.
But how? The US will no longer be able to finance $1.3 trillion budget deficits from foreigners, and will have to do it from domestic savings. Or, it will have to cut $1.3 trillion of spending, or raise $1.3 trillion of durable tax revenue. Interest rates will spike, and that’s the point. Higher interest rates encourage domestic saving, and discourage budget deficits and corporate investment, to bring investment plus government spending back in line with savings.
Just more confusion from Cochrane coming from the NIPA "saving" term. It would sound pretty stupid if he got this right, and properly wrote "without foreigners having large net incomes, we'll have to finance the government deficit by our domestic private sector accepting larger net incomes". Homer Simpson indeed there.
edit a few hours later: I guess I was typical-minding and literally forgot that some people might be using a 'loanable funds' framework of how money and credit could be imagined to work (as if they're finite goods), such that deficit spending requires being 'financed' by borrowing someone else's pre-existing 'savings' that they're willing to lend. The chain of logic where current accounts deficits disappearing leads to problems is still confused in multiple ways, but I guess it wasn't necessarily a confusion just from the national accounts 'S' term.
Even after the market didn't 'plummet' and just went sideways monday & tuesday, some basic news aggregators like yahoo news (don't ask, I'm masochistic and want to see what is being pushed to normie boomers) kept that Reuters article about futures from sunday on the front page for days, just because the headline was so juicy for them as anti-trump fuel, and it seemed like it was applicable at any point in time. People have given some reasonable pushback and alternative explanations, but you're also not wrong here.
And why does this require price effects, demand elasticity, and asterisks in the formula?
I don't think it does. The substack you linked posited that trump's team are smooth-brains because they canceled out those potential elasticity terms, and are literally just setting tariffs based on the pure trade deficit.
Why must it be currency devaluation, rather than comparative advantage?
Well the currency saving aspect is what makes it not really a truly free floating exchange rate (whether their intentions are to manipulate or not). It can be a bit messier in the real world, but the pure logical premise of a floating exchange rate is that if one side is exporting more than the other, then their currency is going to appreciate (more buy-pressure on their currency in the foreign exchange market and more sell-pressure on the net-importing country's currency). And eventually that prices their exports out of competitiveness, and/or makes the import-country's exports such a value that they start to out-compete, until the imbalance disappears.
Just googling for a basic source, here's an old paper from 1982 that explains the logic & evidence pretty well:
The great advantage of floating exchange rates is that the exchange rate adjusts to equilibrate a country's balance of payments. Domestic economic policy can be used to promote full employment or to maintain stable prices.
[...]
An appreciation of the U.S. dollar puts U.S. exporters at a disadvantage in world markets and forces domestic producers to compete with cheaper imports. In 1971, for the first time since 1873, the United States had a merchandise-trade deficit. Since 1971, the merchandise-trade balance has been in surplus in only 2 years. Despite the large recent deficits, the U.S. current-account balance has tended to fluctuate around zero, because of the strong performance of the services account.
[...]
Under fixed exchange rates, reserve assets and government bonds are used to finance balance-of-payments deficits. In the case of a deficit, such financing can go on only as long as the reserve assets last or as long as foreign countries are willing to accept the IOU's of the deficit country. In the case of a surplus, such financing can go on as long as the surplus nation is willing to accumulate reserve assets and claims on foreign countries.
I would think it to be impossible to run sustained trade surpluses against another country, without simultaneously saving in their foreign currency. But I'd be interested if I'm wrong in that.
LateMechanic
2mo ago
And what's the deal with "Critical Trade Theory?" Are trade deficits a good way to measure non-tariff trade barriers?
The premise must be that it's not really possible to calculate 'average' tariff levels, or the counterfactual amount of trade reduced by tariffs, as people were discussing here in a thread a few days ago. So they're just agnostically looking at the trade deficit level, and saying, if we have free floating exchange rates as the supposed global order post-bretton woods, this is supposed to (roughly) balance out naturally over time to equilibrate everyone's imports and exports. When a country sells more to the US than it buys from the US, that should push up their currency's value and push down the dollar, until the exports/imports from each are competitive with each other again.
If that trade balance doesn't (roughly) happen, it must be because the net-exporting country is devaluing their own currency against that of the net-importer country, by earning/buying the other currency and sitting on it. The positive ways of describing this are like "switzerland is fortifying their stockpile of foreign reserves as part of their monetary policy plan", or more neutrally "china is adjusting their target USD peg". The negative description would be "currency manipulation", which is what the trump team wrote in fine print on their big mathy chart that's being goofed on. Foreign holdings (may be a better chart somewhere) of USD reserves & treasuries is not the naive gut explanation "peasants lending money to the US", it's rather them buying & saving in our currency which happens to push on the exchange rate and make their exports more competitive in the US.
At the macro level, in 'real' terms of trade: your pile of goods & services that your country gets to enjoy are everything your domestic economy can create, plus everything you can import, minus anything you have to export. Exports are a real cost, where your country takes time/effort/materials to make something that someone else gets to enjoy. So we should all hope to be so lucky that anyone targets our country for their currency devaluing, allowing us to import more without paying for it with real exports. But that's at the macro national level. There are real losers on the micro level, like anyone trying to run an export business (who doesn't care at all who they sell their products to). Exporters can be very powerful & politically dominant in other countries, and maybe that's where we find Trump now, influenced by manufacturing business leaders (or trying to court/help their workers). Then there are also other potential motivations for going against the obvious economic benefit of maximizing import value, like the intangible value of maintaining a national manufacturing capability.
LateMechanic
2mo ago
The US receives tons if money licensing IP that doesn’t show up in trade.
Are you sure that's not classified in the accounting as an export? There are tons of "invisible trade" services that are properly tracked as exports, like local tourism.
LateMechanic
2mo ago
Yeah it's not that foreign governments / central banks buying the currency counts for imports/exports. It's just that that's the required action to counteract the natural sell-pressure on the net-importer currency and the buy-pressure on the net-exporter currency, which would otherwise cause the exchange rate to move and would eventually end up evening out the imports & exports, dynamically.
So I believe the agency is pretty much all on the side of the trade surplus nation/currency, because anyone can issue their own currency and buy foreign reserves (which will be called 'establishing/maintaining an exchange rate peg' if formally acknowledged). No one can really force themselves into the trade deficit side.
LateMechanic
2mo ago
Presumably with free floating exchange rates, trade should end up roughly balanced between all currencies, right? So even if the country doesn't buy enough american goods, they would at least trade the USD back into their own currency, making theirs more valuable and therefore less competitive over time, until trade balances.
I think the only way to get persistent trade surpluses is when one country is saving in the other's currency (earning or buying their currency, and then just sitting on it). Some small amount of that will happen dynamically, particularly for desired stable currencies. But any country actually trying to pursue serious export-led growth will have to actually continually buy up foreign reserves and sit on them. That was definitely the case with Japan, and then China; I'm not sure about Switzerland/Israel/Singapore.
And thus, any kind of not letting the currency truly float (with a declared or de facto peg), is maybe what Trump had in fine print as 'or otherwise from currency manipulation', on his chart.
Meanwhile personally, I'm on the side that thinks other countries working hard to make stuff to send to us, in exchange for dollars that they can't spend, is on balance a strongly desirable position for us (as long as we can find jobs for people to do other than manufacturing). But yeah this has always been trump's ideology, that trade deficit = getting ripped off.
LateMechanic
3mo ago
They are choosing to set the interest rate above 0%, to subsidize savings by giving money to people who have money. Interest is just another type of deficit spending. On balance I agree with the view that it's probably a pretty dumb idea to do that subsidy spending. But the current macro regime still thinks that higher interest rates are anti-inflationary (even with large debt-to-gdp, which doesn't seem to have been worked into their models), and they want to have the ability in the future to drop rates (because they still think that's stimulative).
LateMechanic
3mo ago
Every citizen is ultimately on the hook for the government's debts in one way or another.
I'm pretty sure they were also saying 200 years ago "our grandchildren are going to be burdened by paying off this debt!" Somehow the bill hasn't come due yet, but maybe our grandkids will finally be the time? Seems a bit more likely that people should solve their cognitive dissonance on this stuff by realizing they don't quite understand money, accounting, banking, and government finance as much as they thought they did.
"The fiscal crisis is about to destroy this country, the government deficit is about to hit $10 million $2 billion $90 billion $1 trillion $50 quadrillion"
Particularly if anyone finds themself like Elon saying 'what, the total worldwide debt is $100 trillion...lol who do we owe it to, Jupiter??', surely there must be some sense of 'maybe I just don't understand this fully'.
If you find it desirable, why not cut the middleman and increase corporate surplus by donating your money to a corporation directly?
If I had the power of broad taxation where the only thing I accept in payment is my own IOUs back to me, then: my IOUs would be perpetually valuable, people would probably want to save some extra for a rainy day / retirement, and I would indeed (have to) satisfy their savings desires by spending & giving them out (hopefully in reasonable ways).
LateMechanic
3mo ago
Yes, in order for the private sector as a whole to be a net creditor, the government must be a net debtor, but that's meaningless. There's no reason we should care about the private sector being a net creditor.
Well I agree that it's not like a rule of the universe that the private sector must always need or want to be in perpetual surplus, accumulating monetary savings. It just happens to be how people have acted, in the US in the past few centuries at least.
In the US's history, there have been 6 periods where the government went significantly into surplus, with the private sector being significantly in deficit. Those ended in the 6 depressions in the country's history:
- 1817-21: In five years, the national debt was reduced by 29 percent, to $90 million. A depression began in 1819.
- 1823-36: In 14 years, the debt was reduced by 99.7 percent, to $38,000. A depression began in 1837.
- 1852-57: In six years, the debt was reduced by 59 percent, to $28.7 million. A depression began in 1857.
- 1867-73: In seven years, the debt was reduced by 27 percent, to $2.2 billion. A depression began in 1873.
- 1880-93: In 14 years, the debt was reduced by 57 percent, to $1 billion. A depression began in 1893.
- 1920-30: In 11 years, the debt was reduced by 36 percent, to $16.2 billion. A depression began in 1929.
And it seems pretty understandable logically, that people like accumulating net savings over time.
In more recent history, the private sector going into financial deficit (some combination of spending down savings and increasing private debt) in the late '90s and mid '00s ended with a massive recession. Your contention that non-financial physical asset wealth was fine didn't seem to stop that resulting recession.
It's true that if government doesn't run deficits private investors can't invest in government bonds, but they can buy private bonds or invest in equities.
It's not even about the actual financial savings instruments being available, because we have banks with infinitely flexible balance sheets (indeed, the current monetary policy regime is simply paying interest on reserve balances directly, so treasury securities are a pointless vestigial leftover). It's more about the flows of spending: someone's spending is someone else's income.
The government borrowing [...] adds to the burden of private borrowers by driving up interest rates
If there's enough demand for government bonds that government can borrow at rates low enough
For a government that uses their own currency and has their own central bank, the base interest rate is a simple policy tool set wherever you want -- it's not subject to market forces.
Under no circumstances should the government borrow 6% of GDP at 4% interest at the peak of the business cycle in order to subsidize middle-class consumption.
Totally agreed, as they should drop the interest rate much closer to 0-1% and leave it there. Interest income is just deficit spending in a mostly-pointless, regressive way.
LateMechanic
3mo ago
It's not our debt, it's just the government as a balance sheet entity which is issuing IOUs that we (the actual people/households/firms) get to hold as assets. As for people/firms 'buying bonds': at that point it's just an asset swap between different types of interchangeable government IOUs (reserves, notes, coins, bonds, etc).
Anyone benefiting from the government spending more money into the economy than it drains back out in taxes is taking part in the aggregate private sector surplus. The rich undoubtedly are benefiting from the government deficit, but the evidence isn't that they're holding their savings in the form of bonds at the end of the day. (The government could set the interest rate at 0% permanently, and would still use the deficit to inject savings into the private sector.)
LateMechanic
3mo ago
In a way, this realization is liberating. It puts you at peace. You understand that the problem will never be solved until a fiscal crisis occurs.
And the next step, for even more complete inner peace that lets you sleep like a baby at night: realizing that the government's deficit is the private sector's surplus, which most people find desirable and wouldn't want to cut. That's why we run government deficits for centuries, because the private sector likes accumulating net savings over time.
I think we're still in mistake theory territory with some true believers like Musk who thinks government debt is "our" collective debt, which would somehow be an existential problem soon. But unless things really ramp up dramatically with DOGE with congress's backing, it's currently still thankfully mostly beating up the ideological opponents with the current small cuts.
LateMechanic
3mo ago
I would have recommended glenn greenwald (System Update), max blumenthal & aaron mate (The Grayzone), and matt taibbi (Racket News) as leftist journalists with good video/audio backlogs. But that may not be what you're looking for here, as these are the types who feel the modern left moved away from them over the last 10 years, and don't necessarily have many takes that the motte disagrees with. So it's largely critical of israel/neocons/neoliberals, and often defenses of trump against the establishment.
The 'vibe shift' also changed the equation somewhat. Some unabashed american chauvinism from an outside 'mirer in the mid biden years feels like a breath of fresh air, leaving many people saying 'you've got better spirit than a lot of my actual neighbors, hope to see you here soon bro'. Or at least respecting the contrarian take (especially framed as an argument with a more cosmopolitan/europhile girlfriend).
But right now and for the past few months, practically every day has already felt like christmas to an american chauvinist. So there's no longer much feeling of thirsty drought of that kind of spirit -- making it exactly the wrong time to air any kind of annoyed entitlement over the changes from the shift, based on taking the previous sentiments for granted. That exposes the cracks in the 'more american than actual americans' fantasy.
LateMechanic
7mo ago
https://www.donaldjtrump.com/agenda47/president-donald-j-trump-free-speech-policy-initiative So it's from Dec 2022, during the twitter files? Part of what seems strange is that he's aged appreciably since then, particularly after the shooting. Biden from 2-3 years ago also practically seems like AI when you're used to seeing him now.
LateMechanic
7mo ago
Remember how it felt in July, that this was basically a guaranteed lost election cycle for the democrats, and the main question was who would step up and take it? (to save the downballot races from utter landslide territory if they left Biden in) Everyone at that time was looking past Kamala, as an obvious bad choice, and speculating about Newsom or other up-and-coming talent. But then there was the specter that looking past her would be a perpetual thorn in their side, where Kamala could always be on the outside saying 'told you so', 'my turn', or playing identity cards, fracturing support with stepped-on toes and 'what if' cases.
So it seemed that for the Obamas & party leadership, letting Kamala take this (likely) loss served to clear out Biden, Kamala, and Trump, all in one fell swoop, from the next 2028 cycle. I don't think it was quite at the level of the 'Harris as Jobber' argument -- they would still try to push her to victory. But her loss isn't necessarily theirs, and helps their future prospects in some ways.
MMT is mainly about describing how fiscal policy and money itself works, and it apparently has been essentially the same throughout human history. The word 'modern' was a joke from a Keynes quote about "the past 4000 years, at least". Mesopotamian temple accounts, European tally-sticks, various stamped coins, etc. Always money being transferable credit, and dominated by credit from the authority of the day. It's how you would bootstrap a monetary economy into existence, whether you're talking about a hippie commune, a Lost desert island situation, or a new nation, without relying on any circular reasoning "lets call this seashell money: I value it, because someone else will value it, because someone else...". Using the authority's power of taxation (and power to punish/expel those who don't pay) to give value to money is an imposition, but it appears to be the least barbaric method for organizing society we've come up with so far.
Monetary policy as the business of setting interest rates, isn't of that much concern to me. I think they've landed on basically sane goals of desiring slight inflation over time, and a policy regime of simply paying interest on reserves to set the base interest rate (much better than the pre-2008 system of open market operations). I would like to see them just set the interest rate at 0-1% and leave it there forever, as I don't think there's good evidence that it controls inflation or the economy like they wish it did, and I think interest payments are maybe some of the worst government spending.
I was basically a libertarian before I learned MMT and became a normie, although I never really had that core furious uncomfortability that someone else's decisions can affect 'my money', which seems to really animate some people in these questions you're raising.
The whole current system especially in the US is downstream of hundreds of years of business interests, ideological libertarians, and others clashing over precisely the kind of political questions you listed. The core economic logic is actually extremely simple, but there are a million self-imposed constraints, strange terminology, and extra steps between it all (leftover from the gold-standard era mainly, but it's been through a lot).
It's almost purely a charade that they pretend the market has a role in buying US debt. 'Almost', because they currently do like to take the temperature of market predictions on longer-term securities, and let those rates up the yield curve fluctuate with market sentiment. It's a self-imposed constraint that the treasury and central bank are separated, a self-imposed constraint that the treasury can't go into infinite overdraft on their account, a self-imposed constraint that they can't directly swap liabilities with each other, etc. After WW2 when they re-imposed that last constraint, the Fed chair Eccles told congress exactly that the market plays no real role and that it was a charade, but they re-imposed the pretend restriction anyway for the optics.
The current system of maneuvering around the laws in the US is that the central bank contracts commercial banks as 'primary dealers' who have an obligation to make sure every treasury bond issuance goes off perfectly without a hitch at the chosen policy rate. No bond vigilantes get a say in the process.
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