[trthomps]

I just finished the book "The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy" by Stephanie Kelton. Highly recommend to anyone who hasn't heard of MMT and wants a good intro with examples of how MMT could help today.

[mdorazio]

I encourage you to at least read some criticism of her thinking as well and form your own conclusions. She definitely has an agenda to push and tends to ignore some legitimate concerns. [1] is a decent summary.

[1] https://www.wsj.com/articles/the-deficit-myth-review-years-o...

[RobertoG]

A good lecture by her (video):

https://www.youtube.com/watch?v=WS9nP-BKa3M

[mdorazio]

This lecture was frustrating as hell to watch because she only addressed the concerns of naive critics of deficits who don't really understand how monetary policy works. She did basically nothing to address the concerns of people more versed in the topic, such as:

- What happens when your deficit gets so high that it's obvious to the people buying treasuries you can't pay the interest they expect without massive inflation? - How do you explain away stagflation from the 70s without being concerned about repeating it?

Basically, deficit spending is fantastic for as long as you can get away with it. The question is at what point will you no longer be able to get away with it? 10 years? 20? 100? No one knows. But at some point the interest burden of the debt itself requires more monetary expansion than purchasers of treasuries are willing to accept (inflation is the enemy of fixed interest assets), and then you have a problem. The US recently doesn't have this problem because of its dominant economic and military position in the world (as well as the petro dollar/default currency status), but what happens when those things cease to be true?

Those are the concerns I wanted Stephanie to at least pay lip service to, but she conveniently didn't even mention them.

[RobertoG]

>>"Those are the concerns I wanted Stephanie to at least pay lip service to, but she conveniently didn't even mention them. "

She, and other MMT proponents, do it in other places. Obviously this was only an introduction. If you are really interested there is now a full textbook [1].

Your questions make me think that you don't understand the basic of what MMT is saying.

>>"[..]deficit gets so high that it's obvious to the people buying treasuries you can't pay the interest"

All the point of MMT is that governments that use its own floating currency don't need anybody do finance them. They could just spend without selling any treasuries. The only limit to that spending is inflationary and selling treasuries don't reduce the danger of inflation. This is not a belief, it's just a description of how the system works today.

For instance, now all the main governments in the world are applying stimulus at the same time. Where is the money coming from? Where is the inflation in Japan? And where the Yens from the increase in the Japanese public debt in the last 30 years come from?

>>"explain away stagflation from the 70s"

Frequently, problems of inflation comes from supply problems. Anyway looking to the QE programs, the current stimulus programs or Japan the last 30 years, should be obvious, by now, that monetarism is a fallacy.

That doesn't mean that you can't spend too much in the economy, but there are frequently other causes. In the 70's you have oil crisis, the Vietnam war, etc..

"[..] at some point the interest burden of the debt itself requires more monetary expansion "

A government with its own currency don't need to keep the fallacy of selling debt to "the markets", but if they choose to do it, and the debt is owned by the Central Bank, the money of the interest goes back to the government.

[1].- http://bilbo.economicoutlook.net/blog/?page_id=33139

[mdorazio]

I started reading the book you linked shortly after it came out and gave up because of how shallow all the reasoning was. I think you and most MMT proponents don't understand that the concerns are long-term and deal with knock-on effects, not limited to what is happening right now, and that having your own fiat currency is not a magic wand that you can use to wave away problems with no repercussions.

Gregory Mankiw, an economist at Harvard, voices my criticisms with the book better than I can: [1]

I think it's funny that you point to Japan as a counterexample here. The reason Japan doesn't have high inflation is because the Bank of Japan refused to print money for 20 years[2]. If it did when other countries did not, inflation would be high.

To your next point, you kind of answer it yourself. Why is there no inflation when all the main governments of the world are applying stimulus at the same time? Well, first, because they're all doing it at the same time. As soon as you remove that fact, the situation changes entirely because the economy (and currency/bond markets!) are global, not local. And second, because demand is historically low due to a pandemic. Again, when you remove that fact, everything changes.

On stagflation, I think you are misinformed about what causes/caused it. [3] is a good summary: federal interference in supply + printing money. If that sounds a lot like what MMT proposes as a magic wand, it's because it is.

Finally, I think it's important to distinguish that many critics of MMT, myself included, don't disagree with the marketing-friendly premise that debt spending can be a good thing. We disagree with the idea that it's an unlimited tool with zero repercussions. At some point there is a reckoning - either unsustainable inflation (like 1970s US) or effectively dead economic growth (like Japan) depending on how the central bank reacts. We should be concerned about these things and take steps to make sure that the time of reckoning stays far in the future.

[1] https://scholar.harvard.edu/files/mankiw/files/skeptics_guid...

[2] https://www.ceicdata.com/en/indicator/japan/m2-growth#:~:tex....

[3] https://www.thebalance.com/what-is-stagflation-3305964

[RobertoG]

About the Mankiw criticism, I direct you to the answer from people more knowledgeable that me [1]

About the stagflation I recognize that I have not looking enough into it (yet) to be able to have a meaningful debate.

About Japan, your comment: "the BOJ refused to print money for 20 years" puzzles me. The public debt of Japan is, currently, around 240% of GDP, and around half of it is owned by the BOJ. If that's not your interpretation of "printing money", what is it?

I don't understand neither your comment "[..] no inflation when all the governments of the world [..] at the same time". Are you making a reference to the external sector aspects of inflation?

You say: "[..] debt spending [..] We disagree with the idea that it's an unlimited tool with zero repercussions."

Please, note that MMT doesn't say that. MMT says that excessive deficits can be inflationary in a problematic way, what MMT disagree is that public debt (the accumulate of past deficits) is problematic.

Finally, thanks for engaging in this discussion. It seems to me that it's reasonable that people disagree in policies, because policies come from values and those can be very different. What we should be able to agree is in how the financial system currently works. MMT have some policy proposals but that's not the important thing, the important thing is that the description of how the system works is different and, should be falsifiable. Sometimes, in this kind of exchange, I despair because it seems the other person and I are talking past each other.

I think I found your webpage, would you be willing to continue this exchange by mail? I have some problems understanding what is what the MMT critics don't understand. In the worst case scenario we will finish with a better understanding of the other position.

[1] - http://bilbo.economicoutlook.net/blog/?p=43900 - http://bilbo.economicoutlook.net/blog/?p=43961 - http://bilbo.economicoutlook.net/blog/?p=43997