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I understand that it sounds that way, but I dont think you believe that. Its just that I have not see how there is a benefit, and theres clearly supposed to be one, and getting to fund things with debt would be a candidate. So far, youve shown that just printing the deficit gets you the same effect as cutting expenditures to balance the budget, with some inflation along the way. I dont see the advantage in doing this. Now youve suggested a candidate for an advantage - you get to achieve full employment, either where the conventional method wouldnt, or in a better way. What are the details of that?
For one, you suggest seeing unemployment as evidence of too small a deficit. But in the previous model, there is no ongoing deficit in the equilibrium youre inflating towards. Secondly, the necessary expenditures to achieve full employment would likely be relative ones. And in what way is the equilibrium of your strategy better than just spending enough for full employment, and raising taxes to balance the budget?
Not entirely related to the rest, but conventional theory is that borrowing is less inflationary than money printing. Do you disagree?
Definitely, primarily because the separation is just incoherent.
In the conventional view, you call central bank reserve account balances "money" which is evidence of "printing", while you call treasury t-bills "debt" which are evidence of "borrowing". But they are both are just government liabilities which promise to pay nothing in redemption other than other government liabilities, and which pay the policy rate of interest. To make it funnier, these are literally both types of accounts that the central bank runs on their books, because the Fed does the banking on behalf of the Treasury. You can call them checking & savings accounts at the government bank, although they pay the same interest, and you can freely swap between these accounts (you're never 'stuck' holding them). To call only one of these accounts "money" takes a special kind of incoherence.
Physical paper/coin money cash is just a bearer receipt version of the electronic reserves. That's the only government money that doesn't pay interest now, as a tiny fraction of the money supply, held for some types of convenience.
The MMT people often try to be more precise and avoid the word 'money' because it can lead to confusion sometimes, but I just plow ahead and risk it. The clear definition of money from what we use now and even throughout history is "transferable credit". So we can just talk about money as IOUs. Someone issued a financial liability, which someone else gets to hold as their financial asset. A bank balance is your valuable asset because it's the bank's debt. A reserve account balance is the bank's valuable asset because it's the central bank's debt. A $5 bill is your asset because it's the central bank's liability. Always credit-debt relationships, the issuer owing the holder.
So I'm perfectly happy to call the outstanding reserve balances part of the "government debt", just like I call treasury bonds/bills/securities "money". These are all both money and debt.
So issuing/printing new reserves or issuing/printing new t-bills, which are nearly perfect equivalents, no, they would not have different inflationary impacts. The size of the government deficit is the size of the amount of money being printed, and it always has been.
Many mainstream economists like Summers & Krugman got to this a bit late, in the 2010's, when they reconsidered that 0% government debt instruments were essentially 'money'. So they started reconsidering what they thought they knew about 'monetizing the government debt' and QE, etc. I'm not sure if they ever caught up to the fact that in 2008, central banks switched to paying interest on reserves directly, making 'money' look just like securities even when we're not in a 0% interest environment.
I'm sorry I couldn't really parse what you were saying in these 2 paragraphs. That balancing the budget was the same as running a deficit, or somehow it had the same outcome in a particular way?
Well if anyone is ever saving money, then by identity someone else must be dis-saving an equivalent amount (running down prior savings, or just issuing debt). Because it's all zero sum. In aggregate, what we find is that people like to accumulate monetary savings over time (even with populations that aren't growing I think). So unless your hypothetical has some way to stop that, that saving is a leakage in aggregate demand which will not let you get to full employment without the government being in deficit to supply the desired savings. A government balanced budget means they are draining out exactly as much money as they're injecting in to the economy.
Im not entirely on board with treating a simple dollar bill as an IOU. I understand your point about it gaining value from being usable for future taxes, but the bill does not, at the point of issuing, create any obligation for the future. "I owe you tax relief, the amount and whether thats relevant at all to be decided, by me." is not a financial instrument, because thats true of everything. Nothing prevents me from demanding taxes in yuan (or kilos obsidian, or literally whatever) instead of dollar tomorrow, so how are dollars my debt, and yuan arent?
Other question: If the government borrowed in a foreign currency or gold rather than dollars, would that be inflationary?
I also notice that you never say whether somethings is in nominal or real terms, whats up with that?
This might be the crux. If people want monetary savings to keep increasing in real terms, that would mean theyre willing to work for more than theyll consume, indefinitely. Thats certainly a disagreement with the classical model, but its not really over something monetary. In that case, I can see how you can grow the economy by just spending the money they dont. A few remaining disagreements:
First, I dont think this leads to full employment necessarily. Firstly, because while more demand can be expected to increase employment, but there neednt be any finite amount of it where employment becomes full. Secondly, because the willingness to increase real saving per unit of time is propably limited, and drawing on that full amount might not be enough for whatever you want to do.
Second, even if savings increase over the long term, there will be fluctuations. If a lot of people suddenly want to spend money that youve already spent for them, what happens?
Last, people want savings, but why would they want dollar denominated savings over non-monetary assets? If people just buy index instead of sitting on money, does that already do what you want to do?
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