What about productivity? Why is Simpleland only able to produce one pizza for eternity? If their government spends money wisely — on pizza education and pizza research — you don't think they'll be able to produce two pizzas or five pizzas?doodle wrote:Now, when the government comes in and makes future promises that each of the 4 people is entitled to 1/2 a pizza, it doesn't change the fact that the economy can still only produce 1 pizza. Even if the government doubles the money supply so that each person has enough at previous prices to afford 1/2 a pizza, the economy still only produces one pizza.
MMT merely describes a framework for fiat money. Governments can either spend their endless supply of money wisely (cheese research, pizza sauce technology, pizza education) or they can spend money recklessly (attacking countries rich in pizza sauce, cheese and topping deregulation, or tax cuts to the richest of pizza makers). If they spend money recklessly, inflation can become a very big problem. If they spend money wisely, inflation can remain low, productivity can rise (i.e. more pizzas) and prosperity can have a chance to thrive.
If productivity doesn't increase, for the reasons I outlined above, that's definitely a possibility. But, there's also an international pizza marketplace with other pizzas and pizza supplies for sale if we should run out of pizza or pizza sauce. If those foreign pizza makers are willing to hand over pizza resources and pizza technology in exchange for Simpleland's fiat paper money — that can only be spent on Simpleland pizzas — let them.doodle wrote:They will soon realize that it is impossible to divide one pizza in half between 4 people.
You have a flawed assumption that a larger money supply automatically leads to inflation. That's not necessarily true. Our money supply has been expanding for decades, but inflation is dead in the water. Even Harry Browne said that inflation is not related to the supply of money, but rather the demand for money. In other words, if people are saving their money, or using it to pay down debt, that doesn't lead to inflation. The only time it leads to inflation is when people are saturated with money and they spend it.doodle wrote:This in turn leads to inflation.
This is why disposable income is so closely related to inflation...
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[/align]If people have money to spend — and aren't saving it or paying down debt — then you will likely see inflation. But, MMT shows that the government would need to tax that disposable income (VAT, sales tax, etc) to destroy the excess money supply and prevent inflation. Taxing certain irresponsible things and avoiding taxes in other areas can help guide the spending to more beneficial areas of the economy.
Why exactly does it matter if the interest payments on debt exceed government tax revenues? You haven't explained that. If there's an endless money supply it doesn't matter how much the government has to pay in interest payments. You seem to think that taxes actually pay for things. For all practical purposes, the money you pay in taxes goes into a big trash can (i.e. the money is destroyed). When there's an endless money supply, taxes are just another mechanism to control the money supply.doodle wrote:If the situation continues, interest payments on debt exceed govt tax revenues. At that point govt is forced to monetize debt which has further negative consequences on price stability.
When we were reserve constrained, taxes were very important (lest we'd drain our gold reserves). But, now taxes are just a monetary mechanism. We could have no taxes and the government would still be able to afford to pay its interest and all of its pizza education and pizzacare.... until there was too much disposable income, and then they would have to tax to avoid inflation.
