Governments are Not Households

[craigr]

"Governments are Not Households"

That's true. Because most households can't do deficit spending and engage in endless war, spy on people without cause, militarize the police, make millions reliant on government handouts, and require everyone get their crotch fondled at airports.

However government spending does exactly those things and worse.

So when I read their arguments that spending doesn't matter from an economics perspective, I'm just not sure the MMTers really appreciate what giving a government access to unlimited funds really means. It almost certainly means less freedom, more spying, more death and more ways to torment citizens every day with the regulation and compliance nanny state. Government is horrible at allocating capital and often does it for nefarious reasons to protect itself.

[Pointedstick]

That's kind of the problem, isn't it? I don't think that MMR/MMT are wrong about the operational realities, but MMTers especially seem to have this unrealistically rosy view of just what government is able to accomplish. They're smart, but they fall into the classic trap of wanting government to do what they think is right, seemingly unaware that government will instead usually do what gives itself more power and control.

In the real world, all the money that people always expect to be spent on roads, bridges, schools and hospitals always mysteriously goes instead to weapons manufacturers, police armament funds, bigger prisons, valueless pet projects, subsidies for people to engage in destructive behavior, subsidies for favored industries, and the pockets of well-connected businessmen.

[melveyr]

Ignoring political difference, the accounting identities brought up by MMT/MMR do matter. Randall Wray's new book is very enlightening in this regard and although I am only a third of the way through, I have not detected a distracting political bias.

Whether you are pursuing a Randian Utopia or a Socialist Utopia, misunderstanding the accounting identities will prevent you from achieving your goals. Whenever the words "increasing spending" come from a MMTers lips just substitute "tax cut" to accomodate your political beliefs. Their main findings are about the mechanics of deficits, so these mental substitutions do not change the findings of their work.

[craigr]

Most succinct criticism I've read of MMT yet:

"Economics is not accounting."

Amen! There are huge unintended consequences that have/ will come out of deficit spending. There is no way around the structural problem of the idea which is founded in human nature and the use of unrestricted power.

[melveyr]

Most succinct criticism I've read of MMT yet:

"Economics is not accounting."

Amen! There are huge unintended consequences that have/ will come out of deficit spending. There is no way around the structural problem of the idea which is founded in human nature and the use of unrestricted power.

Accounting is really just a tool for measuring stocks/flows. It is a tool that acknowledges that everything comes from somewhere. Everything that flows into an account flowed out of another account. The measure of any account is the cumulative sum of flows into that account. If this isn't seen as a useful tool for economics I think that says more about the dismal state of modern economics than the worth of accounting.

[craigr]

Accounting is really just a tool for measuring stocks/flows. It is a tool that acknowledges that everything comes from somewhere. Everything that flows into an account flowed out of another account. The measure of any account is the cumulative sum of flows into that account. If this isn't seen as a useful tool for economics I think that says more about the dismal state of modern economics than the worth of accounting.

The point is that the MMT ideas revolve around balance sheet arguments, etc. They don't consider the fact that government going into an additional $1B deficit is going to use that money to, perhaps, buy armored personal carriers for local police. Or install body scanners at all airports. Or enhance automated wiretapping technologies. Etc.

So it doesn't matter to me how the numbers are being pushed around. It only matters to me that the guy feeling up my crotch at the airport after I refuse to go through a body scanner are both being enabled by the accounting magic.

The whole idea of deficit spending may be tolerable if the funds were being used for good purposes, but that's just not what happens when handed to the government in most cases. Again, if it was the Red Cross deficit spending without repercussions I'd be less concerned. Then again, the Red Cross isn't firing Hell Fire missiles into third-world villages to spread democracy with those funds either.

[stone]

Like Melvyr, I also thought that Mosler always makes the point that MMT is not about big government. He says that the size of government is a political choice. He says you could be a full on MMT follower and yet want a very minimal government. 
Personally I think that the MMT description of how fiat money works seems spot on but I don't think that deficit spending is a good idea. I guess though that I want a balanced budget due to an asset tax whilst Craigr seems to want  deflation Perhaps a deflation might winnow out wastefull inefficient companies or whatever but I worry that it might cause massive waste through unemployment, half finished projects etc.

[craigr]

He says that the size of government is a political choice.

I don't have much more to add. I'll just say this based on what I've seen of MMT so far.

Basically it makes the same bad assumptions that Karl Marx does about humans. That is that they act for the interests of everyone equally and fairly and never want to use power maliciously. It also assumes there are no emotions like greed, envy, avarice, sloth, etc.

So at the very basics the assumptions are wrong and will break. Doesn't matter how benevolent they may be. Government is not going to remain small, and never has remained small, when allowed to spend without constraints. That was the whole point of wanting gold standards from the beginning in many cases with the founders. Deny the beast resources and it will remain under control.

In a way, I just think that MMT is communism for economists. In practice the results will be terrible no matter how good the intentions may be.

[clacy]

MMT'ers, Keynesians, Austrians all forget the human element of power, greed, control, fear.  From what I've read on all of these monetary schools of thought, in a bubble or perfect world they would all probably work well.  

As Harry Browne pointed out however, economics is not a science because you're always going to have the human element and people can and do change their emotions on a moments notice.  

MMT, IMO sounds too good to be true.  Usually when something sounds too good, it almost always is.

[MediumTex]

MMT, IMO sounds too good to be true.  Usually when something sounds too good, it almost always is.

I think that a MMT enthusiast would say that MMT is simply a description of the reality of a post-gold standard monetary system.  It doesn't contain a set of policy recommendations.  It just explains the actual nature of the current framework that is in place.

In a sense, I think it's because the MMT explanation makes sense that the current monetary system is so fragile from a long term perspective.

I don't think that there is anything in MMT that says that inflation won't destroy the system if policymakers aren't careful, and since we know that over longer periods policymakers are never careful, MMT may actually just be a subtle premortem obituary for every monetary system that is based on MMT principles.

[notsheigetz]

Preach it Bro! When you gonna follow Harry's lead again and run for president?

"Governments are Not Households"

That's true. Because most households can't do deficit spending and engage in endless war, spy on people without cause, militarize the police, make millions reliant on government handouts, and require everyone get their crotch fondled at airports.

However government spending does exactly those things and worse.

So when I read their arguments that spending doesn't matter from an economics perspective, I'm just not sure the MMTers really appreciate what giving a government access to unlimited funds really means. It almost certainly means less freedom, more spying, more death and more ways to torment citizens every day with the regulation and compliance nanny state. Government is horrible at allocating capital and often does it for nefarious reasons to protect itself.

[moda0306]

I'm amazed at the assumptions that MMT/MMR are basically saying the gov't can run wild on us with no economic or social consequence.  The only thing they're asserting on that front is that it's not a budgetary constraint.  Said another way, the government isn't going to get in a debt/interest-rate/default-risk spiral any more than a referee will get called for delay of game.

Once we take solvency issues off the table, one has to ask themselves 1) what kind of bad things can come as a result of a government without that constraint, and 2) how will problems manifest themselves if they can't via the market setting of interest rates on our debt.

This is where the debate gets fun, and i know where most MMT/MMR guys fall on this, but I see no reason to assume MMR bunk just because they don't think solvency constraints apply to the US.

When it comes to the effects of deficit spending and "artificially" low interest rates, I think one simply has to acknowledge certain macroeconomic realities in a monetized economy.  This means realizing that interest rates and inflation are a functions of supply and demand for loanable funds, which are mainly a function of growth in the real economy, or more specifically, how well we're using our current productive capacity.  Mainly, if nobody else is going to consume or borrow due to too much consumer debt, our government can easily do so in the mean time with few traditional constraints coming to bare (inflation or capital flight).  Why?  Simply because our economy is structurally predisposed to be in dire need of money and demand, not high interest rates and supply-side incentives.

Of course, one can disagree with all that and still be MMR.  The question then becomes, if solvency isn't the constraint, what is, and if our government is really behaving as badly as some say be spending so much, how is it manifesting itself, or how will it manifest itself, and when.

Enough of the Bolsheviks accusations.  I know it raises some uncomfortable questions, but is it really so insane to think that a currency issuer can't default on its debt, or maybe even that once you become a currency issuer, debt and taxes actually have a very different role than they used to?

Hope you fellas had a great weekend.

[Gumby]

I think that a MMT enthusiast would say that MMT is simply a description of the reality of a post-gold standard monetary system.  It doesn't contain a set of policy recommendations.  It just explains the actual nature of the current framework that is in place.

Well, not exactly. It seems everyone here is confusing MMR with MMT. And I confess that I've made this mistake myself in the past.

MMT says... here are the operational realities as to why there are no constraints in a post-gold standard monetary system and here is a nifty theoretical "Job Guarantee" social program to determine how much money we should spend and not a penny more. In other words, MMT has a descriptive side of the operational realities and a highly theoretical/political side of how to optimize those operational realities.

MMR says... here are the operational realities as to why there are no constraints in a post-gold standard monetary system and may the force be with you.

MMR was spawned from the descriptive side of MMT — from those who were turned off by MMT's theoretical prescriptions. MMR also explains what tools a society has available to attempt to regulate inflation and deflation but offers no theoretical policies. MMR can be used by conservatives, liberals, libertarians or independents, to form their own political and theoretical policies. At the moment, MMR is mostly used by Wall Street investors to forecast Macro fiat environments — and it does an excellent job of that (i.e. forecasting the "fiscal cliff" or the next "ratings downgrade").

Please, everyone, stop confusing the two or referring to them as if they are the same thing. They are not. The operational realities as described by MMR and MMT are highly factual — nothing more than a description of how broad money (Treasury bonds and cash) is created and moves through our banking system and private/foreign sector. But, the theoretical solutions proposed by MMT are untested and very political.

[l82start]

it seems a bit of a cop out to say we are just describing operational reality's, in a system operated by highly fallible humans without acknowledging the reality's of human nature.

i cant punch holes in the "factual"  side of MMR partly because it seems to be factual, and possibly because i don't have the head for economics some here posses.  but it seems to me no matter what the operational reality's of a candy store are, something has to go wrong if you can only hire a fat kid with no self control to sit behind the front desk,

 

[Gumby]

it seems to me no matter what the operational reality's of a candy store are, something has to go wrong if you can only hire a fat kid with no self control to sit behind the front desk,

I fail to see your point. What you say is true of any economic framework.

For instance, just because Austrians are so "conservative" with their recommendations on how a government should spend money doesn't mean that politicians will have the self control to follow those conservative recommendations. Big deal.

So, to say this is a "cop out" is largely irrelevant since obviously no politician has the willpower to follow any economic framework.

I'd much rather understand our post-gold standard monetary system than misinterpret it with obsolete gold standard constraints. Yes, we all agree that politicians tend to cause inflation. MMR tells you how they can do it and how they can't. There's nothing wrong with having that knowledge.

[l82start]

perhaps the problem is the language? to me it seems the descriptions of the operational reality's sound just like the language used by keynesians and statists to promote top down government control of everything, a way of saying it doesn't matter that the fat kid is in charge of the candy shop no matter how much he eats he is in charge of a store that can always make more candy, it may be operationally true that he can make more candy but is it true that we can afford to have a system with no restraints?  

i follow the MMR discussions and read the links when i can, i don't disagree with having a accurate understanding and description of the workings of a post gold standard system but it still seems like MMR is missing a big piece of the picture and MMT's descriptive side is leaning statist.

 

MMR can be used by conservatives, liberals, libertarians or independents, to form their own political and theoretical policies.

i would love to hear the libertarian MMR theoretical policy i have trouble envisioning how the two can coexist.

[Xan]

i would love to hear the libertarian MMR theoretical policy i have trouble envisioning how the two can coexist.

Perhaps I'm wrong, but I believe that MMR has no policy recommendations; it is simply descriptive.  It's perfectly consistent to be a libertarian and to believe MMR is correct.

[Pointedstick]

i would love to hear the libertarian MMR theoretical policy i have trouble envisioning how the two can coexist.

As Xan said, I don't think they're contradictory. I'm a MMR-understanding libertarian and I can confirm that it doesn't make me want a bigger government. It does however make me not want the federal government to balance the budget!  I still want less government intervention, lower taxes, an end to foreign militarism... none of that is in any way contradicted by understanding that a fiat currency issuer can't default unless it wants to and its only constraint is inflation (didn't us libertarians already believe that anyway?)

[l82start]

i did get that MMR is not making policy recommendations and as i mentioned before i cant punch any holes in the factual side of MMR, it was suggested in the post i quoted that it could be used by libertarians to create their own policy's based on it... what those policy's would be is where i am struggling.

  i could easily be missing something here.....  but if fiat monetary systems need debt and government spending to create money, then if you limit government you limit the economy??
or perhaps the MMR libertarian recommendation is helicopter drops?

[MachineGhost]

  i could easily be missing something here.....   but if fiat monetary systems need debt and government spending to create money, then if you limit government you limit the economy??
or perhaps the MMR libertarian recommendation is helicopter drops?

Libertarians aren't anarchists or non-statists, so its perfectly compatible for government to have a coercive monopoly on currency issuance.  I think a Citizen's Dividend would be a very effectuve way of spreading the currency around instead of "trickle down".

[melveyr]

Basically if you understand MMR/MMT, you look at the unemployment line and conclude that we are overtaxed relative to the size of our government.

Now, if you are a liberal you might take this as a sign to increase the size of government. If you are a conservative you might decide to take the opportunity to cut taxes. You could also (liberally) conclude to raise taxes but more dramatically increase the size of government. Or you could (conservatively) conclude to decrease the size of government but more dramatically decrease the tax burden.

Regardless of your political beliefs, the unemployment rate tells you that the size of the budget deficit is too small, it is a political choice on how you choose to widen it. When inflation becomes a concern you reverse course, making political choices to pursue a budget surplus.

Now this is all given our current monetary framework. If you don't like it then we can (hypothetically) change it through pressure on congress; that is a political choice as well. But, MMT/MMR seek to describe our monetary system as it exists today.

If you are a libertarian saying that MMR can't be right just because you don't like the implications, it is like saying that the thug beating you up in the ally can't possibly have a knife in his pocket. Just because the state is your perceived enemy doesn't mean that it is weak. It might have powers that you have yet to understand.

[stone]

Melvyr

Basically if you understand MMR/MMT, you look at the unemployment line and conclude that we are overtaxed relative to the size of our government.

You must admit that the type of tax has just as much effect as the amount of tax. Leaving unrealized capital gains untaxed has totally different effects from reducing payroll taxes. Giving $10k to someone who immediately spends it on treasury bonds is totally  different to giving it to someone who immediately spends it starting up a hotdog stall or whatever.

[Xan]

I think the other thing that is tempting is to assume that MMR is an endorsement of the current system.  A "libertarian" approach to MMR could be to use it to point out that the current monetary regime is fundamentally flawed and should be replaced with something else.

[l82start]

If you are a libertarian saying that MMR can't be right just because you don't like the implications, it is like saying that the thug beating you up in the ally can't possibly have a knife in his pocket. Just because the state is your perceived enemy doesn't mean that it is weak. It might have powers that you have yet to understand.

i don't think i am denying that MMR is an accurate description of the system we have, i think its more like it cant be considered a sensible monetary system because the thug in the ally is not only requierd to have a knife but obligated to continually increase the size and power of the weapon he carry's.

i am far from having a deep understanding of monetary systems and economics, i have "at best" a broad stroke understanding of all the ins and outs of how these things work and interact. maybe there is a way to put checks and balances on the need to perpetually expand debt and the size of government/government spending that fits with the operational reality's MMR describes or maybe we need to "(hypothetically) change it through pressure on congress" i am not convinced we can continue down the path we are on but i cant say that i have heard a convincing alternative either (even gold standard monetary systems have faults and down sides)

[Pointedstick]

If you are a libertarian saying that MMR can't be right just because you don't like the implications, it is like saying that the thug beating you up in the ally can't possibly have a knife in his pocket. Just because the state is your perceived enemy doesn't mean that it is weak. It might have powers that you have yet to understand.

i don't think i am denying that MMR is an accurate description of the system we have, i think its more like it cant be considered a sensible monetary system because the thug in the ally is not only requierd to have a knife but obligated to continually increase the size and power of the weapon he carry's.

MMR isn't a monetary system. It is a description of a monetary system than I and many others here agree with you in believing is ultimately fatally flawed. Understanding it isn't endorsing it!