[signalfish]

Directly related is "Modern Monetary Theory" or MMT. Here's a 24 minute explainer from NPR, Planet Money.

https://www.npr.org/2021/01/20/958854717/modern-monetary-the...

And a brief explainer from The Conversation

https://theconversation.com/modern-monetary-theory-the-rise-...

Also known by its detractors as "Magic Money Tree." One of those detractors is of course the Adam Smith Institute.

https://www.adamsmith.org/research/the-magic-money-tree-the-...

I thought I remembered Freakonomics doing a fairly in-depth discussion on this, but I can't find it. Maybe I mis-remember.

[lukifer]

I've been deep diving on MMT lately (per Rohan Gray, Stephanie Kelton, and L. Randall Wray); while I'm not entirely convinced, one thing that's surprised me is that it's less prescriptive than is oft assumed from its elevator pitch, and is much more focused on accurately describing what states do already. The claim is not that we can starting printing money willy-nilly without consequences; it's that we do that already, and we can be smarter about it if we're honest about that fact.

A couple other interesting outgrowths from that premise:

- the Federal Jobs Guarantee concept, which in addition to any positive externalities of putting the under-employed to work, also pegs the value of the dollar to labor (@$15/hr, $1=4min), while also providing a negotiating BATNA for the working class with their private employers.

- Because money is printed into existence, rather than an empty ritual of collecting revenue before spending it, taxation exists only for money to exit the system, reducing inflation and creating demand for dollars; tax payments aren't used to pay for anything, and are effectively burned. Kelton also makes an interesting point: rather than taxes being a "necessary evil" policy to pay for some other good, they can actually be reconstrued as positive goods in and of themselves: to price externalities (pollution tax) or discourage behavior (sin tax), etc.

The strongest argument against MMT, regardless of its theoretical merits, is simply the practical one: that Congress already perpetrates vast quantities of graft and fiscal short-sightedness, and it's unwise to trust such a transparently corrupt and dysfunctional institution with additional leeway for limitless spending.

[Gibbon1]

> rather than taxes being a "necessary evil" policy to pay for some other good, they can actually be reconstrued as positive goods in and of themselves: to price externalities (pollution tax) or discourage behavior (sin tax), etc.

You can think of the very high marginal income taxes prior to Reagan, even higher prior to JFK as 'sin taxes'. People opposed to high marginal tax rates like to point out that those high taxes didn't produce more revenue. But MMT thoery would tell you revenue was never the point. The point was to discourage people with the power to divert money into their own pockets from doing so.

[mikewarot]

It's not really an economic question, it's one of politics, intimidation, and a global empire.

The "magic money tree" is backed by the full force of the United States. Heads of state who have suggested alternatives found themselves confronted with a sweeping range of responses, starting with bribes, then coercion, sanctions, and if those fail, hiding in a hole from US forces.

There's nothing magic, nor mysterious about it. We're the only ones (right now) with the system in place to hold the rest of the world hostage. When those in charge press their luck too far, or if by accident they let an idiot run the place for 4 years, that grip on things could loosen, and eventually our position could collapse.

When that happens, we'll be forced to use money from someone else's "magic money tree". Having to export hard currency instead of magic money, would cause prices on all things imported to double or worse in a few years or less.

The only real question is how many % of the value of the dollar when spent as an export is real, and how much is the "global reserve currency" status. I suspect it used to be %20 real, and lately it's more like 50% as our leaders fumble the ball too much for the rest of the world's liking.

[AnimalMuppet]

Does MMT work if you're not the reserve currency? (Honest question; I don't know enough about the theory to say.)

But it is really an economic question. What will be the results if you run your economy this way? What will be the results if you do so as the reserve currency, and what will be the results if you do so when you're not?

[sdenton4]

MMT works so long as you've got the ability to conjure your own money. (Eg, not on the Euro, or a currency pegged to another currency.)

The idea is that you create money to pay for things, and then pull back excess money through taxes. (As opposed to pulling in money through taxes, using it to pay for things, and whining that you don't have enough.) So it 'works' as long as you have your own independent national currency.

Another mind flip: the scarce resource isn't money - it can always be generated - but labor. Inflation starts when there's a labor shortage, because up to that point you can just employ more people to meet demands.

[spurgu]

Another mind flip: the scarce resource isn't labor - but energy.

Edit: A gallon of oil is equivalent to roughly 400 hours of human labor. Manual work is nothing compared to the energy contained in fossil fuels (or external energy sources in general). An argument could be made that the economy is in decline due to this, that the sources of fossil fuels are getting more expensive. Most of the cheap sources have been used up already. There is still a lot of oil left, but it's a lot more expensive (offshore, fracking) to extract than it used to, and it's getting worse.

[platz]

Mark Blyth on MMT:

https://youtu.be/2ONGvkAoOI0?t=1550

- it only applies to the US

- depends on having a hegemonic currency (i.e. everyone else earns in your currency and has to convert it, so that you can run a deficit and others supply the capital to fill it)

- contingent on control of the house, senate, and presidency, for about 3 terms in a row, to do all the things you want to do (in the MMT program)

- though sure, we could spend more on stuff we care about; we're not at "capacity" yet.

- you've already got a bond market in the US... why do do we need to re-invent everything in the world when the bond market allows you to already do it?

- hardly any other country actually sets their own monetary policy because the dollar is so dominant. When the fed goes up or down, it's effect is global.

- since every country has to import, if you print a lot of money, you'll get inflation through exchange rates & the import channel

Haven't listened to this one yet: https://youtu.be/NfKiW0Gfn04

[drivebycomment]

What do you mean by "economy is in decline" ? And, on what basis do you claim fossil fuel is getting more expensive ? The oil price hasn't gone up significantly over the past decades. The cost of electricity, adjusted for inflation, hasn't gone up.

[spurgu]

There are many ways GDP is being "padded" (by excluding certain liabilities for example), things like unemployment numbers as well. The "true" economy has been stagnating or in a downward trend for at least a decade already.

And the actual cost (EROI) of extracting fossil fuels isn't necessarily (directly) tied to consumer prices.

[imtringued]

Renewable energy is cheaper, so cheap that some people on HN sarcastically suggested to use renewable energy to extract oil from tar sands.

[chii]

> you create money to pay for things

only your own citizens would accept this money, and if the citizenry cannot "create things" (for example, the country does not have the capital investment to have created machinary/automation or infrastructure), this printing of money is meaningless. MMT is crackpot theory that is lacking imho.

[sdenton4]

Well, you've basically just argued against fiat currency, not MMT specifically. So, shrug emoji?

[qnt]

MMT has nothing to do with any kind reserve currency status. The primary mistake most people make with MMT (and one which is continually enforced by both sides of the political media), is that they think it is a policy choice, or a "kind of thing a government does".

If nothing else, please takeaway that MMT is a _framework for economic analysis_. You can apply it to any economy, you can use it to look at any policy decision, and you can work with this tool if you're a conservative or progressive. I find a lot of value in using it to understand China, Japan, emerging markets, economic history, etc.

With relation to the original topic, the answer through an MMT lens is very simple. Nominally, there's no limit.

A cornerstone idea of MMT is that a currency issuer can always purchase anything for sale in the currency that it has a monopoly over. Examples of these monetary sovereigns include the US, the UK, Japan, Australia, China. It does not include the EU, or most emerging markets (who effectively use another government's currency).

The implication of this is that a monetary sovereign government has no binding constraints on the amount of debt it can issue (it can of course issue debt to itself if no-one else is around to buy it, i.e. Treasury -> Central Bank).

Now that's not to say that government borrowing has no real limits. The most useful constraints to look at are real resource constraints (possible supply of goods and services), and external constraints (do you need to pay something in a currency you can't control?). If the government is purchasing more goods or services than the resource constraints are available to supply, you'll see an appreciation of prices (inflation).

Simply creating more dollars doesn't lead to inflation. Fiat currencies are just units of account (think score points), not some kind of commodity. Japan's money supply has quintupled since 1990 to 2020 (from memory), while the consumer price index has been roughly flat, and the USD/JPY exchange rate has been roughly rangebound (wide range, but not a monotonic increase like one would expect if using intuition )

Rushed for time, but happy to discuss/debate points of contention.

[jackcosgrove]

It's supposed to work for any monetary sovereign, not just the reserve currency.

> What will be the results if you run your economy this way?

The old Daily Show (with Craig Kilborn) used to have a bit where they would announce weekly box office totals denominated in Turkish lira. The numbers were absurdly large.

[colinmhayes]

MMT doesn't even really work when you are the reserve currency. It's psuedoscience. It absolutely doesn't work when you aren't the reserve currency.