Austrian, market monetarist and MMT economics

[Gumby]

Re: Big depressions always happened after the govt. had a surplus.

Hardly. Between all the numbers of an economist's spreadsheet real history is going on. There are world events that happen constantly that can trigger severe recessions with govt. spending or not. The tech bust of 2000-2002 and the mirage "surplus" (which was never a "surplus" because the government doesn't count their unfunded liabilities) was borne out of a small group of people creating the WWW to ride on the Internet and turning it into a huge idea. It had nothing to do with government monetary policies. Correlation does not equal causation.

And yet, a pattern has emerged...

With one brief exception, the federal government has been in debt every year since 1776. In January 1835, for the first and only time in U.S. history, the public debt was retired, and a budget surplus was maintained for the next two years in order to accumulate what Treasury Secretary Levi Woodbury called “a fund to meet future deficits.”? In 1837 the economy collapsed into a deep depression that drove the budget into deficit, and the federal government has been in debt ever since. Since 1776 there have been exactly seven periods of substantial budget surpluses and significant reduction of the debt. From 1817 to 1821 the national debt fell by 29 percent; from 1823 to 1836 it was eliminated (Jackson’s efforts); from 1852 to 1857 it fell by 59 percent, from 1867 to 1873 by 27 percent, from 1880 to 1893 by more than 50 percent, and from 1920 to 1930 by about a third. Of course, the last time we ran a budget surplus was during the Clinton years. I do not know any household that has been able to run budget deficits for approximately 190 out of the past 230-odd years, and to accumulate debt virtually nonstop since 1837.

The United States has also experienced six periods of depression. The depressions began in 1819, 1837, 1857, 1873, 1893, and 1929. (Do you see any pattern? Take a look at the dates listed above.) With the exception of the Clinton surpluses, every significant reduction of the outstanding debt has been followed by a depression, and every depression has been preceded by significant debt reduction. The Clinton surplus was followed by the Bush recession, a speculative euphoria, and then the collapse in which we now find ourselves. The jury is still out on whether we might manage to work this up to yet another great depression. While we cannot rule out coincidences, seven surpluses followed by six and a half depressions (with some possibility for making it the perfect seven) should raise some eyebrows. And, by the way, our less serious downturns have almost always been preceded by reductions of federal budget deficits. I don’t know of any case of a national depression caused by a household budget surplus.

Source: L Randall Wray: The Federal Budget is NOT like a Household Budget: Here’s Why

I don't know much about MMT economics so far. But I see a series of articles forming in my head to refute a bunch of this stuff.

Looking forward to it. I hope you'll take the time to seriously explore it. Keep in mind that MMT is not really about the theoretical prescriptions (such as the Job Guarantee or taxation methods) — which are still up for debate. The fundamentals of MMT are about accurately describing how the monetary system operates.

[moda0306]

Craigr,

Over some times you would be right and the price would swing that way.  Other times it will go hard in the other direction.

The fact is that cash and the interest it can provide from a bank much more closely follows the value of the average basket of goods in the economy than gold does.  People want a stable store of value... -1% thru -3% loss to inflation every year is much better than wondering whether gold might jump 20% or lose 20% in relation to the price of a car... and if you look at history this is often the case.

You seem to be trying to go all gold bug on us... but as a PP'er you should know that gold can lose massive real value over short and even long periods of time.  Luckily, this is a time we expect other PP assets to do well.

As stone points out, a lack of a gold tax in GB doesn't create this world that you imagine.  I find saving in gold, not transacting in it, to be a much more efficient way to protect myself against debasement, long-term.  I don't understand this obsession with not only allowing free transacting in gold, but thinking it would take our nation by storm.

[moda0306]

I don’t know of any case of a national depression caused by a household budget surplus.

That's such a great way to end that piece, Gumby.  Without gold in the monetary system, our dollars and our bonds, equally, exist as assets on the balance sheets of American households, with no corresponding liability in the general sense of the word.  The liability could be considered our government's ability to tax, or our economy's ability to continue to be as productive tomorrow as it was yesterday, but by no means are these liabilities in the typical sense of the word.

Taking foreign trade out of the equation for a second, our private sector financial balance sheets are only net positive to the degree that we print those assets into existince.  We all can't save our way into prosperity, and our gov't most definitely can't do it, unless we resort to bartaring.

People have skills going unused.  So do other people.  Both could use each others skills, but don't purchase them because nobody's purchasing their's.  Proper fiscal/monetary management isn't a free lunch.  It's allowing the butcher and the baker to more efficiently meet in confidence and exchange their services so they can both have a delicious ruben sandwich for lunch that they both worked hard to contribute to.

[craigr]

You seem to be trying to go all gold bug on us... but as a PP'er you should know that gold can lose massive real value over short and even long periods of time.  Luckily, this is a time we expect other PP assets to do well.

Not going gold bug at all, just pointing out what history shows of the US Dollar largely following a gold standard vs. not doing so. The first 130 or so years since the founding of the country the cost of living was basically flat thanks to being linked to gold. It was only after the gold standard was eliminated that inflation was allowed to start chipping away and the illusion began that gold is volatile. Gold is not volatile. We had a fixed price gold standard for much of the 19th and into the 20th century. This included the war of 1812 where Britain tried to take back over, a Civil War, various other serious skirmishes domestically and overseas, WWI and into the Great Depression. The so-called instability after 1836 was because that was the year the second bank of the US charter ended and there was a ton of political maneuvering going on prior that really distorted the economy.

I now bring out the standard chart of the living index going back to 1800. At what point does it appear things got unstable? Was it before the gold standard ended or after?

I don't understand this obsession with not only allowing free transacting in gold, but thinking it would take our nation by storm.

Again for the first century gold convertible notes and actual specie was what was used by and large. Yet the country was imminently successful and it powered the industrial revolution. The idea that a fiat currency (or central bank) is needed to bring about prosperity flies in the face of prior history.

Gold standards have their issues, but they pale in comparison to the alternatives.

[Gumby]

I now bring out the standard chart of the living index going back to 1800. At what point does it appear things got unstable? Was it before the gold standard ended or after?

The cumulative chart is misleading since doubling becomes parabolic on a linear scale. The doubling between 1940-1950 or 1968-1978 or 1980-1990 is no different than the doubling between 1910 to 1920 — yet the recent doublings looks enormous on that chart.

The real data of annual CPI changes can be found here:

http://www.minneapolisfed.org/community ... st1800.cfm

Annual changes in CPI have been relatively stable since the 1800s.

Or shown another way...

[align=center][/align]

[moda0306]

I think there are 2 major reasons that the gold standard didn't do much damage in the 19th century, and they're tightly linked, but this is something I still have to do more research on:

1) There was plenty of gold left to mine in the world.

2) A lot of that was in the U.S. out west, giving us plenty of work to do and wealth to realize when recessions came by pulling more money out of the earth.

This would be the modern day equivalent of Ben Bernanke hiring millions of men to dig ditches (mines) and pay them money for it... fresh money.  It increases the money supply and gives people work (though in my example it'd be make-work).

We don't live in anywhere close to the same world as we did in the 1800's.  We can't just dig our way to a greater money supply (at least not enough), thereby making it much more difficult to realize our full potential with real services and goods that we know how to make.

I honestly think this is the answer, but I've only seen a couple articles touch on this... I think this is one area that the anti-gold-standardites like myself have to better answer.  But, to point out, Gumby's example of surpluses and depressions is pretty intriguing, so the 1800's isn't without some fodder for us as well.

Further, Craig, how can you say gold isn't volatile?  From 1981 until 2002 Gold lost massive real value.. That's over 20 years of what ranged between 10% inflation and moderately low inflation... and it's the most volatile asset in the PP.  More appropriate to the term volatile, gold lost over 30% of its value in 1981, a year of 10%+ inflation.

[craigr]

Further, Craig, how can you say gold isn't volatile?  From 1981 until 2002 Gold lost massive real value.. That's over 20 years of what ranged between 10% inflation and moderately low inflation... and it's the most volatile asset in the PP.  More appropriate to the term volatile, gold lost over 30% of its value in 1981, a year of 10%+ inflation.

Gold markets were responding to the massive inflation of the 1970s. Primes rates were over 20%! It was not unreasonable for the markets to react in such a volatile way. Gold was doing what it always does with currencies on the verge of extremely bad inflation.

I can't continue this conversation any more today. I will just end by saying that if the gold standard is not a threat, then legalize it as competition fully. Not what we have today. Make it real money again as it was at the turn of last century and let it loose and we can see what happens.

But since there is no way that is going to be allowed to happen, we can only speculate. All the while talking about what a horrible thing a gold standard was while hobbling it at every turn so it has no possibly way of being seen as competitive to the paper dollar. It's like declaring victory in the 100m dash in the Olympics when all the other runners have heavy weights attached to their ankles. Then when they mention the disadvantage, the critics retort that it wouldn't matter if they removed the weights they'd still lose. Yet when challenged to remove the weights and see what happens, the critics come up with some other excuse to leave things as they are. It's a no-win situation.

[Lone Wolf]

Again for the first century gold convertible notes and actual specie was what was used by and large. Yet the country was imminently successful and it powered the industrial revolution. The idea that a fiat currency (or central bank) is needed to bring about prosperity flies in the face of prior history.

Note, also, clear net deflation from 1800 until the 1910's (the outbreak of World War I and the establishment of the Federal Reserve.)  In other words, gently falling prices, a natural side effect of increased productivity and efficiency under an honest currency.

Originally, the Gold Standard served a very useful purpose in disciplining government spending.  Its downfall, though, was that it proved to be just one more promise whose terms can be changed at will.  It wasn't so effective once men like FDR and Nixon realized that they could devalue the dollar or junk the Gold Standard entirely any time it was politically expedient to do so.

[craigr]

Or shown another way...

[align=center][/align]

You just made my point. There was no inflation the first 130 years. From 1870 to about 1910 on that chart the CPI is flat (actually slight deflation). It was only after the gold standard ended that the price became "volatile". If gold was so volatile in price, why would the CPI be flat or even slightly negative the first 100+ years and suddenly explode upward? There was a change and that change was the breaking of the gold standard. There is no other explanation! Gold is not volatile. It's the paper money equivalent that is volatile.

[Gumby]

You just made my point. There was no inflation the first 130 years. From 1870 to about 1910 on that chart the CPI is flat (actually slight deflation). It was only after the gold standard ended that the price became "volatile". If gold was so volatile in price, why would the CPI be flat or even slightly negative the first 100+ years and suddenly explode upward? There was a change and that change was the breaking of the gold standard. There is no other explanation!

There was no need to use a linear chart to make your point — it distorts reality.

As LW points out, you're comparing the post-gold standard era to periods of deflation. Would you rather we lived in a world where deflation was constantly lurking? Why take a loan out for anything (a home, or a business) if it's just going to be cheaper if you wait another year or two? You'd have a nominal loss, plus interest payments!

[moda0306]

Gumby,

I still think it's our (MMT'ers and anti-gold standard folks) to explain how we could have a century of prosperity under the gold standard.... deflation the whole way.

I think it was as simple as being able to mine more of it... so instead of fed/treasury actions we had "folks heading west."  Same result.... money supply grew with the economy.  Of course, we generated some inflation in 20th century that they didn't in the 19th.

Do you have any input on this?

Our argument that MMT & fiat currencies are appropriate kind of depends on being able to debunk gold as a proper currency, and we have 100 years trying to tell us otherwise.

[Gumby]

I still think it's our (MMT'ers and anti-gold standard folks) to explain how we could have a century of prosperity under the gold standard.... deflation the whole way.

I kind of feel like you're missing a few words from your first sentence, so I'm not sure I understand the question. But, yes, the money supply should grow with the economy. If you have more population and more houses and more food...you need more money supply if you want to keep prices stable. Ideally inflation should be low. But, I fail to see how negative inflation (deflation) would be useful.

I believe that gold is a useful form of money, but it's limitations are what cause governments to capitulate it when more money is needed and it can't be mined fast enough.

And if you look back at the CPI since 1800, almost all of the spikes in the CPI correspond with war financing.

[craigr]

You just made my point. There was no inflation the first 130 years. From 1870 to about 1910 on that chart the CPI is flat (actually slight deflation). It was only after the gold standard ended that the price became "volatile". If gold was so volatile in price, why would the CPI be flat or even slightly negative the first 100+ years and suddenly explode upward? There was a change and that change was the breaking of the gold standard. There is no other explanation!

There was no need to use a linear chart to make your point — it distorts reality.

It doesn't matter if it's on a linear or log chart. The effect is the same. The dollar has sunk in value something like 95% since 1913. There is no chart that will make that look good.  ;D

As LW points out, you're comparing the post-gold standard era to periods of deflation. Would you rather we lived in a world where deflation was constantly lurking? Why take a loan out for anything (a home, or a business) if it's just going to be cheaper if you wait another year or two? You'd have a nominal loss, plus interest payments!

I don't have time to put those numbers into a spreadsheet, but last time I did I seem to recall deflation from 1800-1913 was something like -0.50% CAGR. That's peanuts! Each year a saved dollar was worth 0.50% more. This is not nearly as bad as an unpredictable inflation environment where real purchasing power is destroyed each year by on average -4.4% since we finally killed the gold standard in 1971.

[moda0306]

Gumby,

I guess I agree, but if we're going to be thorough we should look at the 1800's and dig into how they could have been prosperous without our favored fiat currency... did we do better because we had gold to mine??  Our own helecopter drop earned by the sweat of our citizens?

I agree that craigr and LW need to answer this: If we only have so much gold, how do we expand the money supply (without private credit, creating a liability for every asset) that can grow with the economy?

If we've mined most of the gold we have, we're really putting ourselves in a tough spot.

Inflation is hardly the worst evil in the world.  It's the misallocation of resources and economic uncertainty that can stifle productivity that makes inflation bad... not simply the fact that there's more money in the economy.  I actually think our government has done far fewer evil things since 1913, and especially since 1971, than we had done before those times.  We give goverments the power to tax, spend, and wage war... they've done this in absolutely gruesome ways under gold standard regimes... regimes that have collapsed.

I think we should use other handcuffs to limi our government's abusive power.

[Gumby]

It doesn't matter if it's on a linear or log chart. The effect is the same. The dollar has sunk in value something like 95% since 1913. There is no chart that will make that look good.  ;D

But what's your point? Do you really wish an ice cream cone were a nickel? Your bank account would also be 95% smaller. It's not like we're all suffering buying $1.99 ice cream cones.

As LW points out, you're comparing the post-gold standard era to periods of deflation. Would you rather we lived in a world where deflation was constantly lurking? Why take a loan out for anything (a home, or a business) if it's just going to be cheaper if you wait another year or two? You'd have a nominal loss, plus interest payments!

I don't have time to put those numbers into a spreadsheet, but last time I did I seem to recall deflation from 1800-1913 was something like -0.54% CAGR. That's peanuts! Each year a saved dollar was worth 0.50% more. This is not nearly as bad as an unpredictable inflation environment where real purchasing power is destroyed each year by on average -4.4% since we finally killed the gold standard in 1971.

On average, over a 113 year period, things were fine. We know this because our country has been kicking ass for 235 years. But consider the CPI over the following ten year period...

1815  -12.7%
1816  -7.3%
1817  -5.9%
1818  -4.2%
1819  0.0%
1820  -8.7%
1821  -4.8%
1822  0.0%
1823  -10.0%
1824  -8.3%

That's sooo not cool for those of us who took out a loan to purchase a new log cabin and a turbo mule-pulled carriage in 1814. I think most people would have preferred 3-4% nominal returns on their purchases over that period.

[Gumby]

I guess I agree, but if we're going to be thorough we should look at the 1800's and dig into how they could have been prosperous without our favored fiat currency... did we do better because we had gold to mine??  Our own helecopter drop earned by the sweat of our citizens?

I'm certainly not an expert on the gold-standard era, but my understanding of a gold-standard backed currency is that it's no different than a pegged currency. It works fine, until it doesn't, and then the peg is broken.

The US government held on to the peg as long as it could, and then broke the gold standard because it was too restraining. This wasn't some odd anomaly — every government broke away from the gold standard. They all came to the same conclusion. The world did not end. Prosperity thrived.

[moda0306]

Gumby,

What do you think of this.... we judge gold based on its price, not based on the return we can/could reap off lending it to others.  Therefore we feel justified in comparing it to the dollar, evenly.

However, treasuries, since 1971, are 100% free of default risk and are liquid... we're funding nothing... simply being subject to a monetary tool.

Since in a non-fiat-currency world, nothing like that exists, I think we have to make a special case for "the dollar" since 1971.  I think instead of simply looking at what the dollar itself has done since 1971, we should look at what the dollar was at adjusted for interest (after-tax) paid on 1 month treasuries.

I mean there's literally almost zero opportunity cost, and since the short-term bonds were in essence funding nothing, the government was simply allowing a handy return to be made on "saved" dollars in their "treasury savings account."

This would probably give a much more accurate depiction of the plight of the dollar-holder... it's all this fiat system backed by tax collections anyway.  Any interest paid by a default-risk-free entity (even according to HB these were free of default risk) should factor into the equation and should calm Craigr's chart to a huge degree.

Harry Brown has all but agreed with this description of short-term treasury bonds... that they're free of default risk and very liquid.  Since there's nothing like that in "gold-standard world," we can likely be justified in comparing gold not to "the dollar," but to the dollar adjusted for after-tax interest on short-term treasuries.

[Gumby]

What do you think of this.... we judge gold based on its price, not based on the return we can/could reap off lending it to others.  Therefore we feel justified in comparing it to the dollar, evenly.

However, treasuries, since 1971, are 100% free of default risk and are liquid... we're funding nothing... simply being subject to a monetary tool.

Since in a non-fiat-currency world, nothing like that exists, I think we have to make a special case for "the dollar" since 1971.  I think instead of simply looking at what the dollar itself has done since 1971, we should look at what the dollar was at adjusted for interest (after-tax) paid on 1 month treasuries.

I mean there's literally almost zero opportunity cost, and since the short-term bonds were in essence funding nothing, the government was simply allowing a handy return to be made on "saved" dollars in their "treasury savings account."

This would probably give a much more accurate depiction of the plight of the dollar-holder... it's all this fiat system backed by tax collections anyway.  Any interest paid by a default-risk-free entity (even according to HB) should factor into the equation and should calm Craigr's chart to a huge degree.

Good point. HB has often said that most people's savings would have done fine if they just stuck all their money in a bank account. Not as good as a PP of course, but good enough. If the exponential cumulative growth of the CPI was so horribly damaging that wouldn't be true.

[moda0306]

Gumby,

Yes.  I think we have to view what I'll call the "risk-free" rate (yes, I know they still carry a risk) on 1 month treasuries to be an addition to any reasonable dollar-holder's return.

If you come up with a fiat currency that generates (gasp) 5% inflation, but pay out 5% in interest, all a citizen has lost are the taxes on the money they've saved.  They've risked nothing they weren't risking by holding the currency alone.  You, as an issuer of currency, unlike any player in a gold-based market, are completely free of any default risk, so your interest rate is free icing on admittedly debased cake.  Therefore, no reasonable citizen could complain that their money had lost 5% that year... you gave them every opportunity to earn that 5% back in interest by taking zero risk that they weren't already taking.

All in all, inflation is over-hyped as a problem.  Unemployment, however, points to much larger problems in our economy.  Problems of real potential going to utter waste... not whether an ice cream cone costs $1.99 vs $1.96 at the end of the year.  I'm not suggesting we prepare for an Alien attack a la Krugman (slight misquote), but I think we need to give the butcher and the baker the tools with which they can easily find each other and make that ruben sandwich.  Those tools are called net financial assets, and are caused by deficit spending.

[Gumby]

If you come up with a fiat currency that generates (gasp) 5% inflation, but pay out 5% in interest, all a citizen has lost are the taxes on the money they've saved.  They've risked nothing they weren't risking by holding the currency alone.  You, as an issuer of currency, unlike any player in a gold-based market, are completely free of any default risk, so your interest rate is free icing on admittedly debased cake.  Therefore, no reasonable citizen could complain that their money had lost 5% that year... you gave them every opportunity to earn that 5% back in interest by taking zero risk that they weren't already taking.

Yes. Agreed.

All in all, inflation is over-hyped as a problem.  Unemployment, however, points to much larger problems in our economy.  Problems of real potential going to utter waste... not whether an ice cream cone costs $1.99 vs $1.96 at the end of the year.  I'm not suggesting we prepare for an Alien attack a la Krugman (slight misquote), but I think we need to give the butcher and the baker the tools with which they can easily find each other and make that ruben sandwich.  Those tools are called net financial assets, and are caused by deficit spending.

Yes.

...And it's worth mentioning the quote that adorns the upper-right-hand-corner of Warren Mosler's blog, highlighted in red letters:

[align=center]The funds to pay taxes and buy government securities come from government spending.[/align]

Makes a nice tattoo. Such a true statement, but few people ever seem to grasp that concept. Took me a long time fully understand it so I completely relate to the difficulty one can have digesting MMT.

[moda0306]

Oh my God... the idea of getting that as a tattoo is one of the most wonderful things I've ever heard... and simultaneously the most hideously nerdy.

I'd love to hear somebody try to rebut that statement, though, because that's what MMT get's to the crux of.

In a gold standard people have to understand that in spite of all the pieces of paper that confuse the issue, gold is the currency, and government is one user of that currency.  Implied in the "use" of that currency is issuing notes that are exchangable for it, borrowing it, spending it, and taxing it... even if those last three functions are done with the aforementioned notes.  Gold is the currency.  Government is simply using and building promises around it.  Technically the paper currency is seperate from the gold itself, but realistically it all implies a promise to pay by the government using gold as a store of value and medium of exchange.

The government doesn't have to spend gold in order to collect it... it already exists and is valuable to people.

In a fiat system, the government is the issuer of the currency.  It's up to their taxing/spending combo in a productive economy to make that currency valuable and functional.  This currency has to be "issued" before it can be collected.  There's nothing out there of value that the government will accept in its place.

It's 10x easier to understand if you imagine a newly-formed society, and not walk through the steps of going off the gold standard.

[Gumby]

So... I think at this point the fundamentals of MMT — which are nothing more than operational facts about the monetary system — are pretty much indisputable: The government issues money into the private sector (and taxes it out of the private sector) and ever since 1971 a Treasury Bond has been just a relic of the gold-standard era — now nothing more than a risk-free government savings-account certificate, yada yada yada.

What is disputable are the theoretical prescriptive components of MMT to control and prevent inflation. Many prominent MMTers tend to believe in a "Job Guarantee" (JG) as a way to automatically control government spending and prevent inflation.

Here's what Warren Mosler has prescribed in his book:

Using a Labor Buffer Stock to let Markets Decide the Optimum Deficit

To optimize output, substantially reduce unemployment, promote price stability and use market forces to immediately promote health-care insurance nationally, the government can offer an $8 per hour job to anyone willing and able to work that includes full federal health-care benefits. To execute this program, the government can first inform its existing agencies that anyone hired at $8 per hour "doesn't count" for annual budget expenditures. Additionally, these agencies can advertise their need for $8 per hour employees with the local government unemployment office, where anyone willing and able to work can be dispatched to the available job openings. This job will include full benefits, including health care, vacation, etc. These positions will form a national labor "buffer stock" in the sense that it will be expected that these employees will be prone to being hired away by the private sector when the economy improves. As a buffer stock program, this is highly countercyclical anti-inflationary in a recovery, and anti-deflationary in a slowdown. Furthermore, it allows the market to determine the government deficit, which automatically sets it at a near "neutral" level. In addition to the direct benefits of more output from more workers, the indirect benefits of full employment should be very high as well. These include increased family coherence, reduced domestic violence, less crime, and reduced incarcerations. In particular, teen and minority employment should increase dramatically, hopefully, substantially reducing the current costly levels of unemployment.

Source: Seven Deadly Innocent Frauds of Economic Policy

It's important to understand that the Job Guarantee is not an essential component of MMT — the JG is just one theoretical prescription that has been debated amongst MMTers since MMT was invented in the 1940s. The Job Guarantee is just one policy option that appeals to some MMTers. The JG has nothing to do with MMTs factual fundamentals about the fiat monetary system.

Recently, Warren Mosler has explained that the JG is not central to MMT, saying:

"You all are making way too much out of the jg.  it comes down to this:

with 'state currency' there necessarily is, always has been, is, always will be a buffer stock policy.

Call that the mmt insight if you wish.  so it comes down to 'pick one'-

• gold
• fx
• unemployment
• employed/jg/elr
• wheat
• whatever!

I pick 'employed/jg/elr as it works best as a buffer stock based on any/all criteria for a buffer stock.

so yes, it's an option. you are free to pick one of the others."

In other words, every monetary system must have a buffer stock policy, to control inflation. Supporters of the gold standard prefer Gold as their buffer stock policy. The Swiss currently prefer a foreign exchange buffer stock policy (by pegging to the Euro).

Mosler prefers the employment buffer stock, as he explains above, because he thinks its the most beneficial to society and tries to maximize output and productivity.

And our very own Stone prefers an asset buffer stock policy.

Whether you believe in a gold buffer stock policy, an asset buffer stock policy or a JG buffer stock policy is really a matter of personal preference — the policies are all based on unproven theories. All of those policies are just trying to limit the amount of sovereign paper certificates being printed, to prevent inflation.

Even if the JG turns out to be total crap, it doesn't diminish the fundamentals of MMT, which simply describes the operational realities of our monetary system.

[AdamA]

Would you rather we lived in a world where deflation was constantly lurking? Why take a loan out for anything (a home, or a business) if it's just going to be cheaper if you wait another year or two? You'd have a nominal loss, plus interest payments!

But is that how it actually happens?  Look at the electronics market.  I know that a television will be cheaper if I wait a year, but I don't wait to buy it. 

[Gumby]

Would you rather we lived in a world where deflation was constantly lurking? Why take a loan out for anything (a home, or a business) if it's just going to be cheaper if you wait another year or two? You'd have a nominal loss, plus interest payments!

But is that how it actually happens?  Look at the electronics market.  I know that a television will be cheaper if I wait a year, but I don't wait to buy it.

It's different with buying a home and deflation everywhere.

See: NYT: Japan Goes From Dynamic to Disheartened

The downsizing of Japan’s ambitions can be seen on the streets of Tokyo, where concrete “microhouses”? have become popular among younger Japanese who cannot afford even the famously cramped housing of their parents, or lack the job security to take out a traditional multidecade loan.

These matchbox-size homes stand on plots of land barely large enough to park a sport utility vehicle, yet have three stories of closet-size bedrooms, suitcase-size closets and a tiny kitchen that properly belongs on a submarine.

“This is how to own a house even when you are uneasy about the future,”? said Kimiyo Kondo, general manager at Zaus, a Tokyo-based company that builds micro houses.

...

The decline has been painful for the Japanese, with companies and individuals like Masato having lost the equivalent of trillions of dollars in the stock market, which is now just a quarter of its value in 1989, and in real estate, where the average price of a home is the same as it was in 1983.

...

As living standards in this still wealthy nation slowly erode, a new frugality is apparent among a generation of young Japanese, who have known nothing but economic stagnation and deflation. They refuse to buy big-ticket items like cars or televisions, and fewer choose to study abroad in America.

...

The classic explanation of the evils of deflation is that it makes individuals and businesses less willing to use money, because the rational way to act when prices are falling is to hold onto cash, which gains in value. But in Japan, nearly a generation of deflation has had a much deeper effect, subconsciously coloring how the Japanese view the world. It has bred a deep pessimism about the future and a fear of taking risks that make people instinctively reluctant to spend or invest, driving down demand — and prices — even further.

...

Hisakazu Matsuda, president of Japan Consumer Marketing Research Institute, who has written several books on Japanese consumers, has a different name for Japanese in their 20s; he calls them the consumption-haters. He estimates that by the time this generation hits their 60s, their habits of frugality will have cost the Japanese economy $420 billion in lost consumption.

“There is no other generation like this in the world,”? Mr. Matsuda said. “These guys think it’s stupid to spend.”?

...

Deflation has also affected businesspeople by forcing them to invent new ways to survive in an economy where prices and profits only go down, not up.

Yoshinori Kaiami was a real estate agent in Osaka, where, like the rest of Japan, land prices have been falling for most of the past 19 years. Mr. Kaiami said business was tough. There were few buyers in a market that was virtually guaranteed to produce losses, and few sellers, because most homeowners were saddled with loans that were worth more than their homes.

Some years ago, he came up with an idea to break the gridlock. He created a company that guides homeowners through an elaborate legal subterfuge in which they erase the original loan by declaring personal bankruptcy, but continue to live in their home by “selling”? it to a relative, who takes out a smaller loan to pay its greatly reduced price.

“If we only had inflation again, this sort of business would not be necessary,”? said Mr. Kaiami, referring to the rising prices that are the opposite of deflation. “I feel like I’ve been waiting for 20 years for inflation to come back.”?

One of his customers was Masato, the small-business owner, who sold his four-bedroom condo to a relative for about $185,000, 15 years after buying it for a bit more than $500,000. He said he was still deliberating about whether to expunge the $110,000 he still owed his bank by declaring personal bankruptcy.

Economists said one reason deflation became self-perpetuating was that it pushed companies and people like Masato to survive by cutting costs and selling what they already owned, instead of buying new goods or investing.

“Deflation destroys the risk-taking that capitalist economies need in order to grow,”? said Shumpei Takemori, an economist at Keio University in Tokyo. “Creative destruction is replaced with what is just destructive destruction.”?

Source: NYT: Japan Goes From Dynamic to Disheartened

Doesn't sound like fun to me.

[AdamA]

At the risk of derailing your discussion, would one of you guys mind explaining (to a guy with a limited understanding of economics) what the difference between MMT and Keynesianism is?