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This is where we disagree and where MMT starts to have prescriptive implications. It's not really an economic disagreement, it's a political one about the implications of economic theory.
I believe that MMT provides the perfect framework to justify irresponsible fiscal policy.
For instance, one key insight is that unlike personal debt, state debts are not something that actually has to be repaid in full. This is of course true. Generally destroying such arguments as the idea that taking on debt is spending one's children's money in advance and so forth.
The truth of the matter, as we seem to agree, is that, like regular investment debt, this depends on the ability of the borrower to use the funds to create enough value to outrun interest.
But putting this in the hands of politicians, who are by constitution convinced that all the programs they support are good investments, allows them to argue for infinite amounts of debt, which is not sustainable.
Keynesianism has this same problem: the general idea of manipulating spending to soften the blows of the business cycle can work on paper, but in practice people use it to justify loose policy in times of crisis but never the austerity in times of plenty required for the math to work out.
For macroeconomic theories to be useful tools of policy, they have to be usable by the flawed human beings that make the decisions, otherwise they must remain descriptive tools more appropriate to history than to the future.
I claim that the range of competence you think is wide is not so wide. That it ranges from the mildly irresponsible to the catastrophically incompetent, and that men must be guided by strong signals to avoid debt crises, lest they slowly build catastrophies to leave to their successors such as rulers of the West have been doing since people gave up on ever solving the debt issue in the 90s.
I agree the debt ceiling laws are silly in a sense, but they are at least an attempt to provide such a signal, one that has grown more silly ever since we decided to ignore and abandon the much more serious signals given by the gold standard (which of course had its own share of issues too).
So as you seem to be an advocate of using MMT to formulate policy, I ask what your solution to this problem is, and if you've seriously thought about it. That's what I have been asking since my first comment, thought I suppose unclearly. It's easy to get lost in sidebars in such arguments.
Yeah I think that's a basic different political difference among people who basically know how things work.
Some people have a fear that if you tell policymakers the truth about how money and government finance work, they will spend without limit, on dumber & dumber things, until we reach ruination. As Paul Samuelson put it, the 'superstition that the budget must be balanced' may be a useful bulwark, just like old-fashioned religion used myths to scare people into behaving civilized.
Others have a fear that if you don't tell policymakers the truth about how money and government finance work, you will get increasing amounts of those who start panicking and despairing about things that aren't actually problems (like: "well, it is a big number", or thinking we're on the hook to china or stealing from our grandchildren), and that they will eventually start blowing up the system and destroying the country's economic prosperity for no reason in the worst own-goal ever.
I can appreciate the worry in the first impulse to some extent. Certainly during the uncovering of the USAID stuff, that feels like vindication for people with this worry. So I definitely agree that some smart self-imposed constraints are warranted, like the fact that congress has to make and agree to a formal budget (rather than just running the whole government as a USAID style slush fund).
But I think our experience is that most people really hate inflation. So telling policymakers that the true constraint on overspending is just inflation does not likely end up with them overspending with inflation-indexed UBI of $100k, or removing taxes entirely, or whatever.
So on balance I'm more worried about people despairing about the deficit & debt out of ignorance and thinking 'those sound like negative things, I know how my own personal finances work'. It leads to all kinds of pointless stress, doomerism, making goofy political moves, and maybe eventually serious economic limitations that run counter to building the most prosperous society we can.
The view is that irresponsible fiscal policy is running too small of a deficit and causing part of the population to languish in unemployment, or too large of a deficit and pointlessly inflating away the value of a dollar. And that other common definitions of fiscal responsibility are based on either misunderstanding the system, or intentional deception to tie the hands of untrusted officials.
MMT was ultimately a project to bring back some knowledge that was practically lost over the generations, which helps solve the cognitive dissonance of 'why does the system keep running seemingly fine, isn't it all going wrong and about to collapse?'
So I'm basically of the opinion that people mostly got macroeconomic management down through the 20th century, flawed people as they might be. And in this quarter-century, the US has done the best by far. So I'm signing up on the side of trying to calm down the doomsayers and suggest a reminder that those fears of impending doom were even stronger before, constantly throughout each generation, but maybe stick with 'nothing ever happens' for your own wellbeing until you're sure you're not solving your cognitive dissonance the wrong way.
I think this is all basically reasonable, but I feel it's relevant to point out that people overestimate short term effects and underestimate long term effects.
It's true that nothing ever happens in the sense that actual revolutionary events are incredibly rare. But things do change over the years and decisions can have lasting consequences.
Having some kind of feedback mechanism to prevent debt crisis is necessary, and I think that whilst inflation and its unpopularity is certainly one such mechanism, it doesn't seem like enough to me. I think this disagreement may be the main source of your optimism and of my pessimism.
I guess a test to my evaluation will be France's fate in the next two to five years. Based on the state of her debt and the total unwillingness of politicians to cut anything even in the face of high inflation and interest rates, I predict a Greek like scenario of imposed reform in that timeframe. The US is a different beast because of the specificity of the dollar and general dynamism of its economy, but if even in France nothing ever happens, I'll reevaluate.
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