[mynameishere]

I always wondered if there was a way to effectively "burn" one's entire wealth, creating a small deflationary event that would increase the value of existing dollars. How could one do this? Donate to the Federal Reserve? Or would you literally have to cash everything out and burn it?

[hollerith]

According to my understanding, burning US dollar bills, donating to the Fed (if such a thing is possible) and donating to the Treasury are approximately equivalent in their effects.

What puts a lid on how much money the Fed creates is the desire to keep inflation to reasonable levels, preferably 2% per year. Your burning your cash allows the Fed to create more while adhering to their inflation target. Someone please correct me if I am wrong, but my understanding is that although the Fed decides how much money is created, the Fed is not allowed to keep or to spend newly-created money, but rather must give it to the Treasury (perhaps through some complicated or non-obvious mechanism) which makes it available for the government to spend.

[MobiusHorizons]

At least one way they do this is to buy treasury bonds. It is not clear to me what happens to the interest though .

[sdenton4]

In fact, dragons are important stabilizing influences in dungeon economics. The hoard of gold isn't inflationary until the adventurers liberate it and start buying wands and stuff.

[patwolf]

Reminds me of something I read years ago about how Ultima Online would create "gold sinks", super expensive items that served no purpose other than help remove gold from the economy and prevent inflation.

[endgame]

This is a problem with all kinds of virtual world economies. Players accumulate so much gold that some substitute becomes more useful. Diablo II had the Stone of Jordan, for example.

[koolala]

I guess the trick there is they don't spend it. The money leaves the virtual economy. IRL that's impossible.

[ckemere]

https://en.m.wikipedia.org/wiki/The_KLF

[ChadNauseam]

Couldn't you just not spend or invest the money? I think putting it in a chest and burying it in an unmarked location would be equivalent to burning it.

[willcipriano]

A big part of modern monetary theory is taxing the newly printed money and putting it towards (wasteful) government programs to "burn it" in a sense.

Predictably, politicians who support MMT only did the printing part and skipped that bit once inflation started.

[bialpio]

That does not feel like burning the money, more like propping up the private sector (naively, government's deficit is going to be private sector's surplus if you don't actually reduce the amount of money in circulation).

[VirusNewbie]

How does that burn the money? If the government is spending the money, it's going to federal employees and purchasing good and services from the general economy.

[willcipriano]

That's where the wasteful bit comes in.

If the taxed dollars ended up with say hurricane victims or other struggling Americans, those dollars would chase goods and services domestically driving up the price of those goods.

Now consider if instead you helped fund Israels socialized medicine program or paid off some of Ukraines debt or paid interest to Chinese creditors. Those dollars wouldn't have much effect when it comes to increasing the price of eggs in the US as they are being spent far away in another economy.

A similar effect could occur if the money ended with the wealthy folks, say wealthy owners of private defence contracting firms, as those dollars might chase building a super yacht (inadvertently employing some people but also consuming foreign made materials and labor) instead of trying to rent an apartment in Iowa. Less dollars chasing Iowa apartments, considering supply and demand, lower prices, lower CPI.

Take dollars from the middle class who will drive up the cost of the American dream and instead give them to people who will drive up the price of luxury goods.

It's never explained this clearly beacuse people would riot, but with this framework the choices of government in the last few decades or so suddenly makes more sense.

(I don't endorse MMT)

[hgomersall]

I'm yet to meet anyone that actually understands MMT and doesn't endorse it. You might be the first, but I doubt it. Which bit of MMT do you have trouble with?

[willcipriano]

The political will only exists to do money printing part in practice. The rest is a pipe dream.

[hgomersall]

So no, you don't understand it?

[kelseyfrog]

It helps to conceptualize the circuit of money as it flows from government(G) to the private sector(P) back to the government as G-P-G. The outlays(G-P) and receipts(P-G) can both be increased or decreased to affect aggregate demand. MMT's view is that inflation can be a result of aggregate demand outstripping economic capacity, though not the only one. Supply-side constraints, resource shortages, or structural bottlenecks can also lead to inflation.

MMT emphasizes that taxation (P-G) is not necessary to "fund" government spending. Instead, taxation primarily serves to control inflation and create a demand for the currency. Taxation creates a value for the currency since taxes are payable only in the government's currency.

When we hold the P-G-P view of government spending, we assume it operates like a household - that a government has to collect taxes before spending and this is viewed by MMTheorists as an antiquated perspective. The misconceptions of "The government as a household" were based on the gold standard or fixed exchange rate systems, which since 1971 no longer apply.

[hgomersall]

Please everyone read this comment. Any disagreements should come with relevant references showing how it's wrong.

An additional point to add is the mechanism by which taxation controls inflation. Tax serves to suppress demand in the private sector, freeing up resources that can then be bought at non-inflated prices. This is why super wealthy people are irrelevant to a sovereign government's ability to spend; their marginal propensity to consume is too low to be seriously impacted by normal levels of taxation. It's also why tax has to be broad base to be useful.

[kelseyfrog]

I will provide a set of example critiques to begin.

MMT alone may not provide sufficient guidance on how to adjust outlays and receipts to manage employment and inflation.

MMT may not be politically feasible. Politicians may not be navigate politically unpopular but economical necessary.

MMT may be domestically sound, but challenging to implement regarding international trade. It may result in devaluing compared to other currencies.

MMT may suggest that interest rates can be kept low indefinitely. It's unclear if this would result in excessive risk taking.

MMT may not be applicable to developing economies.

MMT may work in the short term to manage employment and demand but fail to cultivate long term economic development.

MMT's implication as having a larger governmental impact on investment may crowd out private sector investment.

MMT if implemented could be constrained by international investors. If international investors dislike a policy, it may have domestic implications.

MMT depends on having a government effective enough to implement it. If a government is too dysfunctional, MMT may fail in practice.

[hgomersall]

> MMT alone may not provide sufficient guidance on how to adjust outlays and receipts to manage employment and inflation.

The primary policy prescription of MMT is the job guarantee, which explicitly addresses the question of how to manage employment and inflation. The job guarantee defines the value of the currency, with other spend floating relative to that, whilst simultaneously providing full employment. In any case, the current model is pretty broken in which fiddling with interest rates is assumed to have a direct casual link to both (and depressingly in opposite directions).

> MMT may not be politically feasible. Politicians may not be navigate politically unpopular but economical necessary.

Insomuch as descriptive MMT is what happens in most sovereign currency areas, this is just a problem of communication. You are right that getting the politics correct is both hard and important. I'm not sure the policies will in aggregate be very unpopular though once a non-made-up description of what limits spending is understood better by the population.

> MMT may be domestically sound, but challenging to implement regarding international trade. It may result in devaluing compared to other currencies.

A floating exchange rate is a feature not a bug. Current attempts to maintain a soft peg are deeply damaging domestically for many countries. In any case, countries that are confident in their monetary and fiscal policies and that have a sound economy seem to be more robust than those that try to maintain a soft peg (see Japan).

> MMT may suggest that interest rates can be kept low indefinitely. It's unclear if this would result in excessive risk taking.

Excessive risk taking needs dealing with at the political level with actual laws and regulations. Interest rate policy is a crap tool to deal with such problems.

> MMT may not be applicable to developing economies.

Why not? It explains what their actual constraints are and the risks of taking on foreign debt or pursuing an export led growth strategy etc.

> MMT may work in the short term to manage employment and demand but fail to cultivate long term economic development.

I'm not sure what this has to do with MMT. The post war period with much higher employment and stronger government intervention had much higher growth than the following monetarist/neoliberal era, so perhaps the status quo is the problematic position.

> MMT's implication as having a larger governmental impact on investment may crowd out private sector investment.

Far from crowding out, it crowds in in practice:

https://billmitchell.org/blog/?p=12022

Again, the historical evidence shows when governments stop spending, private investment collapses.

> MMT if implemented could be constrained by international investors. If international investors dislike a policy, it may have domestic implications.

What domestic implications? If you're thinking about direct foreign investment, this is problematic in its own right. It might increase domestic employment and potentially increase local skills, but it is also extractive and drains the nations' equity. This possibly has stronger implications for low income nations that don't have a good education base and well developed industries, but MMT at least makes clear where the trade-offs lie.

> MMT depends on having a government effective enough to implement it. If a government is too dysfunctional, MMT may fail in practice.

True, but then so do all political systems. MMT "failing" is also a strange concept given MMT describes the system since the fall of Bretton Woods. What's remarkable is how stable (notwithstanding the obvious "shocks") the system has been despite most governments operating as though they were still inside the Bretton Woods system.

[VirusNewbie]

Disagreement? Literally nowhere in either of your comments did anyone actually explain how government spending is deflationary.

There is nothing to disagree with, no claims were made!

[kelseyfrog]

Government spending being deflationary is not a claim MMT makes.

> and putting it towards (wasteful) government programs to "burn it" in a sense.

This claim isn't congruent with the idea of MMT.

One way to look at MMT is asking, does our government have to operate like it has a checking account, or can our economy act like an MMORPG economy?

For example, Blizzard has no obligation to collect coin before distributing coin. Blizzard thinks in terms of coin sources and coin sinks and adjusts source and sink policy in response to aggregate demand and player engagement goals.

[hgomersall]

The comment was a response to burning money. What does that have to do with deflation?