This weekly roundup thread is intended for all culture war posts. 'Culture war' is vaguely defined, but it basically means controversial issues that fall along set tribal lines. Arguments over culture war issues generate a lot of heat and little light, and few deeply entrenched people ever change their minds. This thread is for voicing opinions and analyzing the state of the discussion while trying to optimize for light over heat.
Optimistically, we think that engaging with people you disagree with is worth your time, and so is being nice! Pessimistically, there are many dynamics that can lead discussions on Culture War topics to become unproductive. There's a human tendency to divide along tribal lines, praising your ingroup and vilifying your outgroup - and if you think you find it easy to criticize your ingroup, then it may be that your outgroup is not who you think it is. Extremists with opposing positions can feed off each other, highlighting each other's worst points to justify their own angry rhetoric, which becomes in turn a new example of bad behavior for the other side to highlight.
We would like to avoid these negative dynamics. Accordingly, we ask that you do not use this thread for waging the Culture War. Examples of waging the Culture War:
-
Shaming.
-
Attempting to 'build consensus' or enforce ideological conformity.
-
Making sweeping generalizations to vilify a group you dislike.
-
Recruiting for a cause.
-
Posting links that could be summarized as 'Boo outgroup!' Basically, if your content is 'Can you believe what Those People did this week?' then you should either refrain from posting, or do some very patient work to contextualize and/or steel-man the relevant viewpoint.
In general, you should argue to understand, not to win. This thread is not territory to be claimed by one group or another; indeed, the aim is to have many different viewpoints represented here. Thus, we also ask that you follow some guidelines:
-
Speak plainly. Avoid sarcasm and mockery. When disagreeing with someone, state your objections explicitly.
-
Be as precise and charitable as you can. Don't paraphrase unflatteringly.
-
Don't imply that someone said something they did not say, even if you think it follows from what they said.
-
Write like everyone is reading and you want them to be included in the discussion.
On an ad hoc basis, the mods will try to compile a list of the best posts/comments from the previous week, posted in Quality Contribution threads and archived at /r/TheThread. You may nominate a comment for this list by clicking on 'report' at the bottom of the post and typing 'Actually a quality contribution' as the report reason.
Jump in the discussion.
No email address required.
Notes -
Yep fair enough, my initial 2nd paragraph was kind of declaring things outside the point of the rest of it. That was trying to punch up what people might 'know' which I think are incontrovertible, without going into subjective policy implications.
Having some amount of taxes is what gives the currency an initial anchor value. Those taxes being levied broadly and reoccurring every year is what makes the money universally accepted and used even in the private economy. The currency is an IOU where the only thing 'owed' upon redemption is tax relief. If you levy no taxes, then inflation definitely will regulate the value automatically to the desired savings amount of 0 (give or take some inertia).
The only thing unique to government is the ability to levy taxes (backed up by force). That's what allows them to indefinitely print up IOUs that promise to pay nothing but an abstract amount of value in a unit of measurement they make up, and people will still line up to earn those IOUs (working in the army or wherever).
The generalized logic is: "you will always value your creditor's own debt". Because you can cancel out the debts with each other. The government can decree that it's a universal creditor to everyone (everyone owes taxes, abstract amounts of value payable in nothing). Thus enabling it to actually simultaneously be a universal debtor to everyone (issuing IOUs far exceeding the tax liabilities, if people are willing to save some for a rainy day).
You can write any number of IOUs that say "I owe the bearer of this note 1 apple", and use that new money to pay for things. Maybe only people in your neighborhood will accept it (also helps if they know you have an apple tree in your yard, and that there aren't too many outstanding notes to enable a run on your apples). If you write "I owe the bearer of this note $1", then some people (particularly banks) may accept it as valuable if they trust your creditworthiness. Your deficit is indeed definitely everyone else's surplus, if splitting the economy into those 2 sectors is useful to any analysis. So we (in the non-Lykurg sector of the economy) do benefit. The only problem is you run out of creditworthiness before we get very stimulated.
Well, would you be happy holding millions/billions in checking/saving/bond accounts, or would you be tempted at some point to start buying stocks, yachts, and islands instead? It seems that most people tend to have savings targets to hit, after which they feel more free to spend any excess income. And their preferred asset allocation of savings maxes out at some desired amount of monetary savings.
But indeed, the government deficit could certainly be eleventy zillion dollars, if it were to end up in someone's account that has an infinite savings desire who wouldn't touch it. In the MV=PQ identity, that would be money increasing but velocity falling off a cliff, causing no effect on output or price level.
And I didn't say that there's no reason to want to shrink the government deficit, just that it does take an explanation. I could say that I do want to shrink the non-government surplus in hypothetical situations, if we're having obnoxious levels of inflation, maybe caused by too much government spending being indexed against the price level (causing a positive feedback loop that prevents automatic stabilization).
Finally, we indeed have basically never had much demand-pull inflation in the modern era of democracies with proper central banks using fiat currency (since the early 20th century at least). The bouts of inflation are usually better explained as cost-push, often from energy price shocks. The central bankers take credit for being wizards and steering the economies well, but it's probably those fiscal automatic stabilizers doing the work.
Ill note that you still havent explained why too much inflation is bad, or how we would know what "too much" is.
Transitioning out of just questions, I agree that the taxes give value to the IOUs, but I dont think the made up unit gives you all that much long-term. You can inflate away your debt, but expectations of inflation are built into the interest rate you are offered. Unless you can somehow inflate above expectations indefinitely, in the long term you need to tax back what you borrowed plus interest in real terms. There is no reason to borrow unless your position as the government gives you investment opportunities above market returns, youd just pay interest for no good reason.
I assume you're not asking for the various downsides of inflation in general and why people find it annoying when it's above some small amount like 1-2%? My original statement was that people should have the properly oriented mindset, where the problem of 'too much government debt' is along the lines of 'too much of a good thing'. The 'good thing' here is the money in the private sector, not inflation, if that was the confusion. This is all in contrast to most peoples' gut notion that "deficit" and "debt" sound negative and bad and worth minimizing on their own.
You don't think the US making up their own 'dollar' unit of measurement is too important? You must be on some kind of galactic time scale here for what long term means. This is surely one of the most important things about being a sovereign nation, creating and issuing your own currency.
Again, maybe I'm not thinking long term enough. But in the US, we went into millions, then billions, now trillions. Should we find the tens of trillions a special number, such that we wouldn't expect to see quadrillions? When and why would they ever need to 'tax back' this amount? The IOUs just roll over indefinitely.
Yeah once you recognize that all money is just transferable credit, you will notice that there is basically no economic difference between central bank reserves and treasury securities. So rather than one being 'money' and the other being 'borrowing', they are actually not 'borrowing' at all. They are just creating money in different forms. This fact has dawned on people like Larry Summers a decade after central bank reserves started paying interest just like treasury securities.
As for paying interest, it's purely a policy choice to pay anything other than 0% on any of these IOUs. It's a government subsidy to savers: they will give you more money for having money. There are various macroeconomic effects for any chosen rate. Currently the policymakers in charge think choosing to pay a higher interest rate is on balance more constrictive than stimulative, and think that low rates are on balance more stimulative.
Im asking for some kind of real economic cost; "Its annoying when the prices are different than I remember" doesnt count, no.
If you dont pay enough interest, people will stop lending you money.
Well, you said that the difference between me and the state is that the state can tax. If it doesnt actually need to do that, then whats the difference? Why cant I have ever-increasing amounts of debt that I service by taking on new debt?
What youre proposing here is "The Ponzi scheme that actually works". Because Ponzi schemes do work so long as the investors dont take out their money, ie stop letting you roll over your debt.
You could look it up, it's not my argument. It's good enough for me that most people hate it, so let's avoid it. It's fun when nickels are worth picking up off the ground and can get you a coke.
When you have your own currency and central bank, people don't 'lend' you your own money at all. You can print up IOUs and tell people they pay 0% or 150%, up to you if you want to subsidize savings.
I said the government levies 'some' taxes every year, reoccurring indefinitely, broadly on everyone. That provides a perpetual anchor value for the government's debt, understood universally, even though the amount outstanding can continue to rise (if people want to keep accumulating it for the future, for a rainy day, to pass down to their kids, whatever).
That doesn't imply anything about somehow taxing it all back and paying it all off or whatever, at some unspecified jubilee judgement day where we have to unwind everything.
I mean, thats some reasons, but when weighed against "prosperity beyond what anyone can imagine" they dont weigh especially strongly. Could you at least link it? MMT has lots of cranks that will be dismissed as not representative.
I also have 'some' income outside taking on debt. I can commit to spending part of it on buying back my own IOUs/debt service in the future. Indeed, my nominal income increases with inflation and economic growth, so this is in many ways like a relative tax. Also assume I live forever. Now can I blow up my debt to infinity? Propably not; propably there is some mechanism tieing the debt amount to the size of the tax base/income, but what?
So, I actually agree that, with fixed expenditures and relative taxes, you can just print money to make up the deficit and it will stabilise eventually. Youll have inflated down the expenditures so that they are covered by the taxes. But this will have reduced the real amount of the expenditures. What is the benefit of doing this over just cutting the expenditures to meet the income?
Indeed, you never have to actually go down to zero debt. But the debt is nonetheless tied to the ability to do that. It can not grow without limits in real terms. Consider: in your view printed cash and government debt are interchangable. So lets say we only print money. Then unlimited real growth of debt would mean unlimited real growth of GDP, or an unlimited willingness of people to sit on cash and never spend it. Neither is realistic.
This question of an "end date" where you unwind everything or absence thereof is in fact very interesting and fruitful to think about more broadly, because it leads to a lot of changes in economics, and Im not sure you understand this in a "settled science" way (else you would have likely lead with that, because thats the only point where your assumptions may differ from classical). For example, imagine you have no time prefencence and an investment that will keep yielding 10%/year indefinitely. What is the optimal amount to withdraw each year? For any given percentage, half of that is better in the long term... but 0 provides no utility at all.
OK so you were asking "why inflation is bad" from an MMT perspective? I don't know that there is any unique take, it's not part of it. MMT is a description of how money, banking, and government finance actually works.
If you wanted a pitch about how inflation 'isn't really bad', then sorry, that's not part of it. I added my own spin about how inflation is obviously a dynamic self-correcting mechanism for too much savings, and that the only way you get accidental persistent or accelerating inflation rather than it being a relief valve is when too much spending is indexed to the price level (maybe some part of the problem they had in the '60s).
Mosler's "prosperity beyond what anyone can imagine" is referring to perpetual full employment in a productive capitalist system. That was in 2012 where they were looking at the massive "output gap" of where GDP was going before the recession and how far it got knocked off trend by heavy unemployment -- just a complete waste of human potential.
The tax isn't just an income flow. It's forcing everyone into a debt relationship with you, where if they don't pay, you will put them in jail using force. In the past, authorities may have used fees, fines, tithes, sanctions, whatever. If in your hypothetical, you could live forever, and you could force people into paying some amount of your own IOUs back to you or else you will credibly use some level of violence against them, then certainly they will find out what they have to do to get enough of your IOUs, and maybe even some extra if they want to save some or trade them with others.
It's just the amount that people are willing to have as savings. The government's debt is the non-government's net money supply ('net', because the private sector can also expand the money supply with their own debt & credit, but that all nets to 0 as a whole).
If you incentivize savings, like with pension funds or whatever, maybe your country will have a higher aggregate savings desire, and your government debt will have to be larger in order to maintain full employment. If you instead have a culture and policy where people live comfortable retirements without requiring any personal savings somehow, then maybe there would be extremely low government debt. If you're Japan, and the population has a very low participation in the stock market after the '90s, then the government debt & deficit are likely going to be huge to satisfy the desire to save money. New money being pumped in will quickly fall out of circulation and end up inert in someone's retirement savings account.
The government doesn't need to care about the size or whether it's growing or falling. That's all value-free, neither good nor bad. It's not like the desire is to see how large the debt can grow. Private savings are a 'leakage' from the economy, like net imports. The government has to step in to make up for that if you want to stop the paradox of thrift and keep the productive economy running at full effectiveness.
Yep. That's why once you understand how it works, the basic outlook changes from thinking about "sound finance" (thinking there's a budget constraint that has to be balanced either short term or over some longer cycle, and thinking that monetary policy of tweaking the interest rate and composition of savings is the main policy tool) to "functional finance" (seeing unemployment as evidence of too small of a deficit, and demand-pull inflation as evidence of too large of a deficit, where fiscal policy of taxing and spending is the main policy tool and monetary policy not mattering much).
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.
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link