Ok, I tried this once before and now it looks like another thread has taken off where my last one was left.
What I'm looking for is a formal, thorough, critique of MMT from an Austrian perspective.
Please do not post unless you understand MMT, meaning you have read something like the explanations by Cullen Roche and Warren Mosler.
A decent critique has been done at Seeking Alpha, but it fails by over criticizing in some areas and not going into much of the Austrian concepts I am interested in hearing about, like interest rates and the production structure.
If you know of an article, or are willing to provide your own insight I would very much appreciate it.
When the govt prints new money, tax or no tax, SOMEONE is going to spend it. Whether it be the govt or the pvt sector or a mixture of both, someone is going to spend it. And all the old money in existence is available for spending, too, by someone, be it the govt or the pvt sector, it matters not. So you have more paper money chasing the same amount of goods. This MUST lead to price rises, to a loss of purchasing power. tax or no tax. The tax or lack thereof just determines who is going to spend the money, but it will be spent. That's why it was printed.
So our children will suffer from deficit spending, which just means printing money. And social security checks will be paid ny printed money, but that money wont buy a stick of gum. And so on.
HERE'S WHERE THIS ARGUMENT IS FATALLY FLAWED.
TO UNDERSTAND IT YOU HAVE TO THINK IN REAL TERMS.
'UNDERSPENDING' CAUSES UNEMPLOYMENT AND EXCESS CAPACITY.
PEOPLE NOT SPENDING THEIR INCOME CAN CAUSE UNDERSPENDING UNLESS SOMEONE ELSE SPENDS MORE OF THEIR INCOME. THIS IS NOTHING MORE THAN AN ACCOUNTING IDENTITY.
THINK OF IT THIS WAY- IN THE EXTREME, IF EVERYONE DECIDED NOT TO SPEND ANY OF THEIR INCOME, EVER, THERE WOULD BE NO SALES AND THEREFORE NO JOBS, AND THEREFORE NO INCOME.
(AND, IN THE OTHER EXTREME, IF EVERYONE WANTED TO BUY A CAR AND HAD SUFFICIENT CREDIT TO DO IT, THERE WOULD BE TOO MUCH SPENDING POWER CHASING TOO FEW CARS AND PRICES WOULD SKYROCKET, BUT THAT'S ANOTHER STORY)
SO TODAY, FOR EXAMPLE, PEOPLE AREN'T SPENDING ENOUGH TO CLEAR THE SHELVES OF ALL THAT'S FOR SALE, EVEN WITH ONLY 90% OF THE WORK FORCE EMPLOYED, COMPARED WITH EMPLOYMENT AND OUTPUT OF JUST A FEW YEARS AGO.
AND PEOPLE ARE SAVING A LOT OF $- ABOUT $1 TRILLION A YEAR DOMESTICALLY, LAST I SAW.
SO YOUR POINT IS ABOUT THEIR POTENTIAL SPENDING POWER.
SO LET'S LOOK AT WHETHER GOVT SPENDING MORE THAN ITS INCOME THIS YEAR IS TAKING ANYTHING AWAY FROM THOSE PEOPLE SPENDING LESS THAN THEIR INCOMES THIS YEAR.
AGAIN, LET'S TAKE AN EXTREME EXAMPLE TO MAKE THE POINT. SUPPOSED GOVT. DEFICIT SPENT AND HIRED ALL THE UNEMPLOYED TO SOMETHING.
FOR PURPOSES OF THIS EXAMPLE IT DOESN'T MATTER WHAT THEY DO, THOUGH IN ACTUAL FACT USEFUL OUTPUT WOULD BE A DIRECT BENEFIT AND DOING USELESS THINGS A WASTE OF TIME AND EFFORT AND SOME AMOUNT OF REAL RESOURCES AS WELL MOST LIKELY.
AND SUPPOSE THOSE PEOPLE SAVED ALL OF THEIR INCOME AS WELL AND DIDN'T SPEND ANY OF IT.
SO THE QUESTION NOW IS, IS THAT NEW SAVINGS CREATED BY DEFICIT SPENDING/PRINTING MONEY (WHICH IN REAL LIFE WOULD HAPPEN TO BE HELD IN THE FORM OF TSY SECURITIES, BUT FOR THIS EXAMPLE IT DOESN'T MATTER) SOMEHOW TAKING ANYTHING REAL AWAY FROM ALL THE PEOPLE WHO NOW HAVE SAVINGS?
THE ANSWER IS NO. WHAT MATTERS IS WHAT CAN BE BOUGHT IN THE FUTURE (AND AT WHAT PRICE) SHOULD THEY WANT TO SPEND THEIR SAVINGS.
THE FACT THAT MAYBE 10 MILLION PEOPLE DID SOMETHING USELESS IN THE PRIOR YEAR DOESN'T HELP ANYTHING- USEFUL OUTPUT WOULD HAVE BEEN MUCH BETTER FOR ALL- BUT COMPARED TO BEING UNEMPLOYED IT DIDN'T CHANGE THE GOODS AND SERVICES THAT WERE FOR SALE THAT YEAR.
AND AS FOR THE NEXT YEAR, IF SPENDING PICKS UP AS PEOPLE START SPENDING THEIR SAVINGS, WHAT THEY CAN BUY WITH THAT SAVINGS IS ONLY WHAT THE ECONOMY IS CAPABLE OF PRODUCING. AND WHAT GOVT DID THE PRIOR YEAR DIDN'T CHANGE WHAT PEOPLE COULD PRODUCE THIS YEAR IF THE ORDERS WERE THERE. (AT LEAST IN THIS EXAMPLE)
TRUE VALUE AVAILABLE FOR PURCHASE IN THE FUTURE IS ALWAYS LIMITED BY WHAT CAN BE PRODUCED IN THE FUTURE WITH EVERYONE WORKING FLAT OUT.
AND THAT'S NOT ONLY THE MOST ANYONE CAN GET NO MATTER HOW MUCH SAVINGS THEY HAVE OR WHAT THE MONETARY ARRANGEMENTS ARE, IT'S ALSO WHAT CAN BE HAD BY ALL EVEN WITH NO SAVINGS (THOUGH NOT WHILE TODAY'S LEADERS ARE IN POWER AS THEY HAVE NO IDEA WITH REGARDS TO MONETARY OPERATIONS, AS THEY CONTINUOUSLY REVEAL ON A DAILY BASIS.)
I LIKE TO SAY IT THIS WAY:
FOR ANY GIVE SIZE GOVT, FEDERAL TAXES CAN BE SET AT THE RIGHT LEVEL SUCH THAT WE ARE LEFT WITH THE RIGHT AMOUNT OF SPENDING POWER TO BUY WHATEVER WE CAN PRODUCE THAT YEAR AT FULL EMPLOYMENT, PLUS WHATEVER THE REST OF THE WORLD WANTS TO SEND US.
Call it what you will, be the paperwork what it may be, borrowing money from the Chinese means they will one day ask for it back.
THIS IS HOW IT WORKS, AND EVERYONE IN FED MONETARY OPERATIONS KNOWS IT
CHINA GETS THEIR DOLLARS BY SELLING US THINGS.
THEY GET A CREDIT IN THEIR FED RESERVE ACCOUNT.
WHEN THEY BUY TSY SECS, CALLED 'LENDING US MONEY',
THE FED DEBITS CHINA'S FED RESERVE ACCOUNT AND CREDITS CHINA'S FED SECURITIES ACCOUNT.
WE CALL FED RESERVE ACCOUNT BALANCES 'MONEY' AND FED SECURITIES ACCOUNT BALANCES 'DEBT'
THAT'S NOT 'WRONG' AS WE CAN CALL THIS STUFF ANYTHING WE WANT, BUT IT'S NOT WHAT PEOPLE IMAGINE WHEN THEY SAY WE ARE BORROWING FROM CHINA. ALL THAT HAPPENS IS CHINA'S BALANCE SHIFTS FROM ONE FED ACCOUNT TO ANOTHER.
WHEN WE PAY BACK CHINA, WHICH PARTIALLY HAPPENS EVERY WEEK, THE FED SIMPLY SHIFTS THOSE DOLLARS FROM CHINA'S FED SECURITIES ACCOUNT TO CHINA'S FED RESERVE ACCOUNT. THAT'S IT. NO CHECKS FROM THE GRAND CHILDREN INVOLVED. THERE'S NOTHING MORE TO 'PAYING BACK CHINA' OR PAYING BACK ANYONE ELSE AS FAR AS THE FEDERAL GOVT IS CONCERNED WITH REGARDS TO US DOLLARS. THERE'S JUST NOTHING MORE TO IT. THE DOLLARS JUST DON'T EXIST ANYWHERE OTHER THAN THE FED'S SPREAD SHEET.
IF CHINA SPENDS IT DOLLARS, THE FED SIMPLY SHIFTS THEM FROM CHINA'S FED RESERVE ACCOUNT TO THE OTHER GUY'S FED RESERVE ACCOUNT, OR TO HIS BANK'S FED RESERVE ACCOUNT.
(ONLY USING CAPS TO DISTINGUISH THE VARIOUS TEXTS)
www.moslereconomics.com
I more than appreciate the moral aspect.
I've been fighting govt. my entire life.
I have an inherent aversion to all 'rules and regulations' in general.
I see govt. only for public infrastrure for further public purpose.
And I also recognize that competitive markets work only within some kind of institutional structure, including a legal system, etc.
Note that all of my proposals on my website are market based and minimize the role of govt.
I also don't see any way to provision govt. other than coersion.
Voluntary doesn't cut it, best I can tell.
Historically, looks like the other choices are command economies, which seem a whole lot worse to me.
Kristjan:No they are not. I can issue money and if It's not enforced by some kind of law you are not going to accept It as a payment. Do you want to try? I will buy your house with my promissory note and that's a final payment!!!
Money first emerged in the market, not in the state. Laws and force are not necessary to establish a medium of exchange.
Warren, when you post in all caps, that is considered shouting, and its a big turnoff to reading.
warrenmosler:I more than appreciate the moral aspect. I see govt. only for public infrastrure for further public purpose. And I also recognize that competitive markets work only within some kind of institutional structure, including a legal system, etc. Note that all of my proposals on my website are market based and minimize the role of govt. I also don't see any way to provision govt. other than coersion. Voluntary doesn't cut it, best I can tell. Historically, looks like the other choices are command economies, which seem a whole lot worse to me.
This ^^ is pretty confused stuff Warren. You understand the moral argument, but you think government by coercion is necessary.
Maybe you should check your premises, because it's hard for you to be a libertarian if you support public goods provisioned with threats of violence.
I have an immediate aversion to rules and regulations in general.
I only reluctantly see value to some public infrastructure.
I see entrepreneurship without representative govt. a warlord society like Somalia seems to be.
There are competitive markets, but no free markets, as any market of consequence requires at least some institutional structure to function within.
And any govt. needs to somehow be provisioned.
warrenmosler:I have an immediate aversion to rules and regulations in general.
That doesn't make you a libertarian.
warrenmosler:I only reluctantly see value to some public infrastructure.
Your reluctance doesn't make you a libertarian.
warrenmosler:I see entrepreneurship without representative govt. a warlord society like Somalia seems to be.
Surely you are aware of the thousands of examples of entrepreneurship without representative government that does not result in warlord societies?
warrenmosler:There are competitive markets, but no free markets, as any market of consequence requires at least some institutional structure to function within.
Can you prove this assertion?
warrenmosler:And any govt. needs to somehow be provisioned.
Which you acknowledge is done by violence.
Seems to me you're pro-state, pro-violence, pro-regulation. Oh sure, you're reluctant about it, but you're simply making ends justify the means arguments (based upon what many of us would consider a very flawed understanding of the means).
I'm glad you asked. At this very moment, there is a finite amount of dollars in the world. We can add up all possible forms this money takes, coins, paper, digital, in all the wallets and bank accounts the world over, and that is the current money supply at this moment. Any time that money changes hands, even if it from the fed to a grocery store or a bank, it is not printing money, it is merely shuffling around existing money.
Yes, you can add up all the dollar denominated financial assets, which is what you seem to be doing. Some people count some of them as money, some count all of them. You can carve out any monetary aggregate you want.
But no matter how you slice it, the net financial dollar denominated assets of the world necessarily add up to cumulative US govt. deficit spending and are in the form of either cash in circulation, fed reserve balances, or tsy secs outstanding.
All the rest are 'loan/deposit pairs' as every bank account has a corresponding loan that created it, every piece of commercial paper held is also a corporate liability, etc. etc.
But the fed can decide that all the money it has is not enough for its needs.
But the Fed doesn't have or not have any dollars. It's the score keeper. When it spends it just changes numbers in someone's fed account, and doesn't have any fewer dollars. It had none before it spent and after it spent. The same as the stadium doesn't use up its points when it gives you 3 points for kicking a field goal.
What you might (correclty) say is that when it spends without reducing someone else's balances, it's adding dollar net financial assets to the economy, which is an inflationary bias vs not doing that spending.
And when it reduces someone else's balance (call that unprinting money?) such as to 'collect' taxes, it's removing dollar net financial assets from the economy which is a deflationary bias.
We saw above that, if goods are produced at a faster rate than money, prices will fall. With a constant supply of money, wages would remain the same while prices fell, because the supply of goods would increase while the supply of workers would not. But even when prices rise due to money being created faster than goods, prices still fall in real terms, because wages rise faster than prices. In either scenario, if productivity and output are increasing, goods get cheaper in real terms.
Agreed! Increasing productivity is what makes us wealthier over time.
it only tells us that if (even real) GDP is rising, the money supply must be increasing,
maybe, depends on the definition of 'money supply' which is tricky at best. all attempt to quantify this that I've seen have failed.
taxes remove people's spending power. if the govt taxed all your dollars away, what would happen to your spending? if they stopped taxing so many of your dollars away, as I've been proposing, what would happen to your spending?
It removes the private sectors spending power,
Agreed, and exactly my point about taxes.
but it increases the govts spending power by the exact same amount.
Operationally, no, as actual govt spending- the crediting of bank accounts by the Fed- is not operationally constrained by revenues.
The constraints are political only.
All tax money is spent. So taxes are not deflationary.
Isn't that the same as saying the taxing is deflationary- call it 'unprinting money' and the spending inflationary- call it 'printing money'?
And, as an aside, govt taxing and spending, even if equal in amount, can be highly inflationary depending on they specifics of the spending and taxing
Taxes certainly influence unemployment, but I don't see how there can be an exact amount of taxation that will acheive full employment when many other factors are out there that cause unemployment. Minimum wage, unions, regulations, all contribute [together with taxes, certainly] to unemployment.
Yes, those other things matter a lot, especially for efficiency and the all important productivity.
But as for unemployment, what they can do is alter the level of taxes that will correspond to full employment
And what's missing from this discussion board is the fact that the monetary system we currently have, like it or not, is a public monopoly, and nothing more than an accounting system, and is therefore fairly easy to analyze. It's just a bunch of debits and credits as I've been describing.
So I'd like to just once hear a politician say, we have to bring down the deficit or inflation will go to x% over the next 20 years, or something like that.
And not the garbage from the likes of Paul Ryan, with President Obama agreeing, when he said the US could be the next Greece and we're at risk of getting cut off by the markets, and all that nonesense.
Or kowtowing to China on human rights and nuclear weapons in Korea because we think they are our bankers and we need their dollars to be able to spend.
Warren, what is the difference between economics and accounting?
Accounting is after the fact record keeping of what we do.
It's score keeping.
Economics is the study of economic activity- the production and consumption of real goods and services, and all that goes with it?
Unfortunately we don't seem to understand either, and allow our options to be limited by inapplicable self imposed 'accounting rules'
So, for example, we have millions of unemployed people trying to be able to go to work at existing businesses, factories, etc. and utilized available resources to produce and consume real goods and services, but can't because of accounting restrictions govt. has imposed on itself through it's various processes.
warrenmosler: Economics is the study of economic activity- the production and consumption of real goods and services, and all that goes with it?
If it's the study of real goods and services then why the unecessary focus on monetary accounting(As if it held any real weight)? Economics explores the movement of real resources, not necessarily the monetary units that represent them.
warrenmosler:So, for example, we have millions of unemployed people trying to be able to go to work at existing businesses, factories, etc. and utilized available resources to produce and consume real goods and services, but can't because of accounting restrictions govt. has imposed on itself through it's various processes.
They could always try doing push-ups, instead. Banks could simply pay them for doing that by changing their bank account values upwards (accounting entries). Who needs government when we could just solve unemloyment on our own? All we need is to think harder, and be more innovative.
Z.
The banks are designated agents of govt.
no one in the private sector wants to hire them, because sales aren't high enough to justify new hires, because total private (and public) spending is insufficient, which is why they are unemployed.
such is it today, and hence i'm calling for a full fica suspension to restore sales and employment
No they are not. I can issue money and if It's not enforced by some kind of law you are not going to accept It as a payment. Do you want to try? I will buy your house with my promissory note and that's a final payment!!!
Non sequitur.
I will accept your money if it's liquid, i.e., if i can readily exchange it on the market for other goods and services that i truly desire. Banks create their own money, which i readily accept, even though I'm not legally forced to. Prisoners accept cigarettes as a means of payment even though they're not legally forced to. Germans, during their hyperinflation, also used cigarettes as money when it was actually illegal to do so.
What's your point?
If money is demanded to pay taxes, rather than to facilitate exchange, then there should be a relationship between tax rates and the purchasing power of money. No such relationship exists. You can have extreme inflation with high tax rates, and you can have extreme deflation with low tax rates.
Money Itself doesn't create inflation. The government can print money and you could put It under your matress, there is not going to be inflation.
True, but this doesn't support your argument in anyway whatever. Inflation is defined as an increase in the supply of money beyond the demand for cash holdings. If you wish to hold more cash, and if the supply of money rises just enough to satiate this elevated demand, then it is not inflationary.
It's the flows that matter, the spending part of It. In order to create demand-pull inflation the demand has to ecxeed economy's capacity to produce.
No it doesn't. Again, it just has to rise beyond the demand for cash holdings. You can have high rates of inflation when the economy is producing far below capacity. In fact, this condition characterized an entire decade here in the States and in the U.K (it's occurring right now). There have been inflationary depressions.
The government can utilize those resources for the public purpose.
Of course it can, but what are the effects of such a policy?
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
Here is feedback on Chartalism / MMT by an Austrian economist David Prychitko:
http://www.coordinationproblem.org/2009/09/big-government-as-the-employer-of-last-resort.html
Leaving the word 'money' aside,
Austrians should be able to recognize a monopoly when they see it.
Especially a public monopoly, and a simple one at that.
Isn't the currency called the US dollar a public monopoly?
That's my starting point.