[amrocha]

Ok, I’ll explain it in a few short sentences.

Assume you have a new country with no money. How does anything get done? The central bank needs to issue capital that the government then allocates first.

Eventually this money makes it down to the citizens of the country who spend it. Then the government can tax that money, and that gives it non-inflationary spending room to reallocate those resources.

For example, there’s a car company that’s using up most of the country’s steel supply. But the government wants to shift the country’s manufacturing from cars to other green industries. What the government can do is tax the car company so that it’s not able to use up as much steel, which frees up resources for other industries to utilize.

The same goes for people, since people are a country’s most important resource. Through taxation the government can influence the resource allocation of the country. That doesn’t mean that the government can’t spend without taxes though.

If you want to learn more there’s plenty of resources out there, you can start with Keynes, skip anything from chicago, move on to MMT for the latest theoretical thought.

[imgabe]

> Then the government can tax that money, and that gives it non-inflationary spending room to reallocate those resources.

Hmm, why might it be important to have a non-inflationary means of spending? I wonder. Of course, the government can print money. They can't just print all the money they want forever with no consequences.

> For example, there’s a car company that’s using up most of the country’s steel supply. But the government wants to shift the country’s manufacturing from cars to other green industries.

A car company is not "using up" the steel supply. They are meeting consumer demand for cars. If consumers found green technologies more useful than cars, they would buy that instead, then the green technology companies would be able to outbid the car companies for steel and they would buy it. If they aren't it's because people find cars more useful than whatever "green technologies" are.

Also, if there's a high demand for steel, new steel suppliers can enter the market and increase the supply of steel. There's no need for the government to manage this and it's generally harmful for them to do so, since they are allocating resources away from something people have demonstrated they find useful and towards something they don't find useful. This is not optimal. We should want the resources to go where they are most useful and valued, not where some bureaucrat decides he or she likes them to go.

[amrocha]

Oh gotcha, you’re one of the deregulation people. I’m guessing you also think drivers licenses are unnecessary?

[tptacek]

I do not think "skipping to MMT" is the right plan for understanding mainstream economics, or any kind of economic theory likely to govern decisionmaking in the near future. I think some of the core ideas in MMT took a real bruising over the last couple years.

[kasey_junk]

I’d love to hear which ones. I think economicists are going to be arguing this for 100 years but I, as an interested layman, see a lot of evidence _for_ MMT in recent years.

[tptacek]

You know I'm not an economist, and I'm just going off of nerding out on AskEconomics and BadEconomics (and bookmarks from when this was a live issue a couple years ago). But mostly my argument would be built around how burnt the Biden administration was by the run-up in inflation (which I'm sure is a mix of supply chain and fiscal stuff). Conservative opponents of MMT predict hyperinflation, but I think we've learned that making a 12-pack of Diet Coke $1 more expensive is enough to trigger regime change; that's what we'll get instead of hyperinflation, but either of those outcomes breaks MMT as a policy tool.

Which has implications --- beyond political/policy --- for MMT, in that MMT is (if I understand this bit) built in part on the premise that increased government spending won't increase expectations of future inflation (which needs to be the case in order to use control of the money supply to cover debt service).

Mostly though I'd just make two dumb arguments:

* Economists do not seem to like MMT ("not even a theory; what does it predict?")

* MMT was for a time part of the branding behind Biden's proposed and actual spending, which did not go well politically.

I hope I'm wrong in some lurid fun way you're going to spell out for me. :)

[kasey_junk]

I’m again not an economist nor someone who reads a lot of Reddit. But economists don’t dislike mmt, they invented it after all. Economists are as mixed and varied in their beliefs as priests!

But my main contention is that we had a ton of loose monetary policy for nearly 2 decades with no major inflationary issues.

Then we had a short supply chain shock and a minor catch up in real income and boom inflation. That’s fairly compelling to me.

[tptacek]

Yeah I think most of my argument is political, though I think I'm on reasonably steady ground saying that MMT isn't mainstream. We will at some point become irritating enough to lure actual economists in here to dunk on us.

[amrocha]

I can see the political argument against it, but at the end of the day I think that’s a marketing issue. Japan vehemently denies that any allegations of using MMT, but MMT has been very good at predicting japanese economic outcomes.

It’s definitely not mainstream though, I agree with you there, but I would argue that that’s because there’s a lot of people who would have to admit they were wrong for decades if MMT was accepted.

[dctoedt]

My understanding of MMT (unburdened by any formal econ training) is that government spending financed by debt in that government's own currency is OK if and only if the society has — or can quickly enough build — sufficient productive capacity to handle the increased demand that will be caused by the increase in the money supply. I found Dr. Stephanie Kelton's book The Deficit Myth to be a very-accessible explanation that made intuitive sense (which of course is always dangerous).

The perhaps-facile analogy is pump-priming, a.k.a. fiscal stimulus, summed up in the old Kingston Trio song Desert Pete: You come across a hand-operated water pump in a well in the desert (hah!), with a bottle full of water sitting there, and a note explaining: You can "borrow" the water and use it to prime the pump; once you get the pump going: "Drink all the water you can hold, wash your face, cool your feet | Leave the bottle full for others | Thank you kindly, Desert Pete."

But that only works if the pump is working and has sufficient "raw material" (water in the well). And if you drink most of the bottle of water (borrowing for consumption instead of for boosting productive capacity), then the pump won't draw water, and you'll angrily claim that priming it doesn't work. As Desert Pete warned, "Now there's just enough to prime it with, so don't you go drinkin' first. Just pour it in and pump like mad and, buddy, you'll quench your thirst."

The lack of acceptance of MMT among mainstream economists is of course a red flag. But then in medicine, Marshall and Warren asserted — correctly — that many common stomach ulcers were caused by Helicobacter pylori bacteria and could readily be cured with cheap antibiotics instead of with major surgery. They were scorned by mainstream physicians and surgeons protecting vested interests. And eventually they were awarded the Nobel Prize in Medicine.

So lack of acceptance isn't dispositive; as I read somewhere but can't find online, old economics ideas don't die out until old economists do. (Or maybe it was physicists?)

[0] https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy...

[1] https://genius.com/The-kingston-trio-desert-pete-lyrics

[tptacek]

Kasey, did you read Kelton too, or is DC the only person with an opinion so informed?

[kasey_junk]

I didn’t. But I did add the whole Kingston Trio “Capital Years” to my iTunes library.

[amrocha]

I might be wrong, but my impression is that MMT has been pretty good at predicting economic outcomes.

The main reason I suggested it is because MMT is the only innovation happening in economics, and understanding the core concepts has been very helpful to me.

The only other game in town is synthesis, which has been a dead end for decades and has very poor real world predictive power.