[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.

[kelseyfrog]

Thank you. I learned a lot!

[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?

[VirusNewbie]

Are you seriously asking what reducing the money supply has to do with deflation?

[hgomersall]

Friedman was a charlatan and monetarism was trivially debunked when he came up with it. The 60 years since have not been any more kind to it. Don't confuse stocks with flows. The whole idea of money supply as a useful metric needs to be put to bed; one would have thought the 13 years post GFC would have made that apparent.

(Of course, the Austrians have a peculiar notion that inflation can by definition only be considered as such if it's associated with increased money supply. Another reason to ignore them completely)

[VirusNewbie]

Huh. So if I understand correctly, if we halved the money supply tomorrow, the price of everything would stay the same?