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The Republican party is generally claimed to be the party of fiscal responsibility. Note the term "claimed" here; I do not think the record of Republican governance proves this claim at all well, but nonetheless the default expectation seems persistent. When I was younger, this was certainly a selling-point of the party to me, and I voted for Bush II in the hope that he'd get government spending under control. Then 9/11 happened, and he wasted trillions wandering our military through the middle east.
Now the debt is very bad, and people are once more raising the banner of Fiscal Responsibility. Is it in Republicans' interest to enforce "fiscal responsibility", and if so, how? If we were to seriously cut spending and raise taxes, as people claim the fiscal situation demands, this would almost certainly cost us the next election. In the best possible case that I can see, we would be expending our political power to create stable economic conditions for our opponents to then rule. The more likely case would be us expending our political power to ameliorate spending that our opponents increase to gain power for themselves, resulting in a much shakier economy and our complete political irrelevance.
Why not offer the Fiscal Responsibility mantel to the Democrats? The economy is very complicated after all, and they are at this point clearly the party of Expert Opinion: who better to determine and implement the hard-nosed measures necessary to right our economic vessel? When I was younger, the obvious rejoinder would have been that they would do a bad job of it and disaster would result, but it seems to me that we have not done all that much better, and disaster seems likely in any case. If disaster cannot be meaningfully avoided, then why expend limited resources demanded by a serious political conflict on an unfixable resource-sink of a problem? What's the actual plan, here?
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
MMT is a relatively accurate model of how modern Western monetary policy works. But have you sit down for a second and asked yourself if that's a good thing that it works like that or not?
Because if you did not, I don't think you're equipped to engage with its actual opponents.
Does the State having control over the rate of interest incentivize good or bad investments? What's a good rate of inflation and who does that good rate benefit and harm? And most importantly, what happens to all this the day that people stop buying US debt no questions asked?
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.
Frankly, you just sound like a tits and beer liberal, if you're not mainlining Mises to the degree that it affects your metaphysical outlook, you're not really doing a libertarianism in my opinion. But that's a fine and reasonable position. I was once just such.
"It says here in this history book that luckily, the good guys have won every single time. What are the odds?”
I notice you're stalling on answering the question, and trying to get into procedural matters. Nobody gives a shit what the US' opinion of their own system is, they give a shit about the real economic effect of US debt being toilet paper.
Moving the ball is not making it disappear. I too can borrow to myself infinitely in made up me-bucks. But in the scenario where US debt is no longer the world's reserve currency, that doesn't translate into any ability to buy goods.
"Primary dealers" of monopoly money can surely not fail in delivering it to the US government, but how exactly does that translate into food rations for GI?
Not sure you're following the point, that was saying that we have a goofy system precisely because different people have been trading off who wins & loses all the time. Especially in the 19th century the winners didn't exactly know what they were doing (constant boom & bust cycles with many severe depressions).
The government prints up some IOUs called treasury securities, and swaps them for some other government IOUs called central bank reserves, in a primary dealer auction completely unencumbered by "people choosing to buy debt". Then they use those IOUs (widely called 'money') to spend and/or give to people out in the economy, who are willing to trade goods & services for those IOUs. These government IOUs are valuable because they're the only way to settle your taxes that the government declared that you owe.
If that sounded like gibberish to you, well I already said most people don't understand the monetary system and never learned about it. If you think there's "a" world reserve currency conferring special status to a single country, that does explain where you're at, but the basic logic I just laid out also applies to other countries that issue their own currency.
What if people refuse to use your currency to trade goods and services? What if they tell you to fuck off when you ask them to pay you your own fun bucks? And I'm not just talking about Americans that you have over the barrel of your gun. I'm talking about the rest of the world.
This entire scenario is specifically about what happens when your power to enforce the privilege of exchanging debt for ressources ends.
What happens when US treasuries are no longer viewed as the most risk free investment vehicle in the world and are replaced by something else and demand craters?
The answer is usually that you'll have to dip into foreign currency reserves or sell hard assets, but what do you do when you run out?
What if I start paying your military men in the new harder currency to loot your country?
Money is debt. So that would be inflation, which was definitely covered from the start. That is absolutely the relevant constraint on government deficit spending.
As far as the exchange rate goes: in the very worst case scenario of your exchange rate suffering, you can always at least import as much as you export. That's true whether you even have your own currency or not. But if you have a currency that foreigners are willing to save in (a world 'reserve currency', which basically all currencies are to different degrees), that just allows you the luxury of importing even more than you export (not necessary, but can be nice, although then your exporter businesses might start bitching about your country's 'trade deficit', so it's not all roses).
As I tried explaining procedurally above, it doesn't matter a single iota whether there's any market demand for treasuries. That's the charade part of it. The government effectively is just printing money as they deficit spend, and they always have been. They print the money, they set how much interest money pays (if any), and we have to get the government's money regardless of anything, in order to pay taxes.
If the king wants something done, he levies a tax on the subjects. Then he prints up some tally sticks, and pays them out to people to do the thing. Then they pay their tax, and he burns the tally sticks. Same with colonial american paper money: levy a tax, print up some stacks, get the work done, then shred the money as it gets paid back in taxes.
So you're just going to repeat back MMT to me as if I haven't read Tcherneva and never heard of chartalism? Come on, at least engage with the idea of a debt crisis. Do you really think everyone from Louis XVI to Hindenburg was too stupid to realize they could just raise taxes to lower inflation? The political expediency of reasonable policy matters, and all I see from MMT proponents is a total faith in the impossibility of default or hyperinflation.
I'd like you to at least acknowledge recent history, seeing as though your model is supposed to model it.
This just isn't true. I've actually we lived in countries where that wasn't true. Getting your state looted by foreign creditors is a real thing that really happens to people. Ask any Russian.
At some point people just start demanding real collateral. How does MMT explain the Pepsi fleet exactly?
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