In The Nation, Atossa Araxia Abrahamian writes,
Inflation, MMT’s proponents contend, can be controlled through taxation, and only becomes a problem at full employment—and we’re a long way off from that, particularly if we include people who have given up looking for jobs or aren’t working as much as they’d like to among the officially “unemployed.” The point is that, once you shake off notions of artificial scarcity, MMT’s possibilities are endless. The state can guarantee a job to anyone who wants one, lowering unemployment and competing with the private sector for workers, raising standards and wages across the board.
Pointer from Tyler Cowen. MMT stands for “modern monetary theory,” which is the doctrine that because the government prints money, it can spend whatever it wants. I would accept this, but with a caveat. I would say
the government can spend whatever it wants. . .until it can’t.
This changes everything, because the prospect of reaching the point where “it can’t” some time in the future constrains what is prudent to do today.
To me, the hyperinflation in Venezuela exemplifies what happens when a country reaches the “it can’t” point. The country is not at full employment. But the government can’t seem to spend its way out of difficulty. Somebody should ask these MMT rock stars about the Venezuela example.
IMO we should make a distinction between the US government and its dollar and the Venezuelan monetary system which pegged to the American dollar.
Why would this distinction matter? In practice it hasn’t been pegged to the dollar as the bolivar has devalued immensely.
Because MMT doesn’t work unless the country controls its own currency, For example, it would work for the U.K., but not Greece (because of the Euro).
But Venezuela does control its own currency, the peg is a voluntary effort, and it has never restricted them from printing. Greece is legally hindered from printing more Euros, a currency peg does not automatically hinder extra printing and in terms of practical effects did not hinder Venezuela.
It hasn’t been pegged to the dollar. If it had been, the economic catastrophe would have been less.
MMT is literally true, the government can print any nominal amount of money that it wants. Beyond that it has nothing to tell us about how the economy will react or the goods and services that the currency will be able to purchase.
Isn’t Venezuela an exception here and real issues are:
1) Throwing out expert capitalist from oil drilling is bad. Oil drilling takes lots of capital and expertise to thrive.
2) Long term price controls on most products fail
3) Middle class class capitalist (I think you call them Mini-mall entrepreneurs) need to exist.
The basic reality is any government Keynesian theory or MMT has limitations on the effect of the economy. If Obama got a higher deficit spending in 2009, the unemployment might have only reached ~9% versus 10% as the recession was that baked in 2009. (And the housing supply folks forget how many empty houses there were in 2009.)
The MMT crowd has good points though arguing that the failure of 1.6% versus 2.0 core inflation hits me as decimal stuff on an large economy.
And if Obama had more deficit spending the UE rate might have been worse, or taken longer to recover!
The “might haves” are innumerable, but pointing to the oil industry as an issue in Venezuala highlights a major flaw with MMT- clearly printing cannot overcome structural economic issues. If it turns out that money isn’t super duper neutral, and money can’t break real structural problems then the only option left is that printing will be adding to problems.
Valenzuela should have viewed Norway or Alaska of a way increase government revenues with oil. Instead of owning the means of production, a tax/skim tactics work better.
But that wouldn’t be real, MORAL socialism. It would be working with the capitalists. Dealing with the devil. “For what is a man profited, if he shall gain the whole world, and lose his own soul?” (Mathew 16:26 KJV)
If the Bolivarians were only interested in maximizing revenue from oil, that would be economism, and we know how Pope Francis feels about economics.
All failures of socialism are exceptions
Is there a reason that economists talk so much about money and policy without thinking about how such things impact human behaviour and the deployment of real resources? Or is it just understood that is what they are talking about? If so, I think that it should go without saying that MMT’ers are just saying that the government can print however much money that it wants to, not that printing money doesn’t have an impact on the deployment of real resources or have any impact on people’s behaviour.
I guess that problem with economist not being explicit that what they are really interested in is human behavior and real resources is that when lay people start to try and understand economics, they don’t realize that economist all have a tacit understanding that what they are really arguing about are behavior and real, physical objects, not abstractions. So people then think that money has some real value beyond whatever impact is has on behavior or what real resources it can command, and then think that the government, since it print money, can also print real value. You can certainly argue that the government spending more money on this or that would create real value in terms of behavior and real resources, but that seems a little more sophisticated than some proponents of MMT.
In days of Soviet Union, a standard means of finance was printing money. Inflation was controlled by means of rigid price controls — and those created shortages and lines of people trying to buy goods that weren’t available. With the death of the SU, several of the newly independent countries tried the same game of money printing but without the price controls and — surprise — got triple digit and higher levels of inflation and lots of misery in the population. And they were far from full employment. So, sure, governments can print money to finance spending but the resulting impacts on the population will be devastating.
The MMT position is awfully over-simplified to just the bumper sticker of “print money” – as I understand it, the thrust is more that real resources are the true constraint, not money – and that the government can print money as needed, it does not have to borrow/tax first in order to spend. In a charitable reading, go beyond the bumper sticker! While it seems a little too easy to point the finger at Venezuela these days, it does seem useful to think about what has gone wrong there and understand the real constraints that money printing alone can’t solve.
If I get the gist of it, big “if” there, MMT is simply the quantity theory of money in the long term which is that the general price level of goods and services is directly proportional to the amount of money in circulation, or money supply. They further believe that reducing the money supply can control inflation I don’t think that anyone would disagree with those fundamentals.
It appears that their proposal to print lots more money to pay people to work would require an equivalent increase in taxes to keep the money supply stable.
Obviously no on would work if it meant simply that you get a paystub saying you have been paid $1,000 and that your income tax withholding is also $1,000.
The taxes would instead be, from what I can gather reading MMT blogs, imposed upon “the wealthy.” As far as I can tell MMT taxation is not particulary well developed, but I could be wrong. Most of what I read says that the rich would pay the taxes. Possibly through a combination of income and accumulated weath taxes. Or perhaps some, under Tyler Cowen’s magic spell, are considering Georgist land taxes. I have read one MMT proponent who would eliminate corporate taxation in favor of unspecified taxes on “the rich.”
I think the real weakness in MMT then, is whatever the tradeoffs are that are involved in whatever taxation system is actually used. “Soak the rich” tax policies tend to encourage the exit of the wealthy to more hospitable tax regimes, discourage investment, encourage black markets and off-the-books stores of value. To the extent that MMT proponents can specify how a better taxation system would work, they could at least be heard out.
I have yet to see anything new about MMT. Copernicus’s 1526 treatise on money pretty much lays it all out: “we see countries that have good money flourishing most of all, and those with poor money declining and perishing… … It is also well known that wherever cheap money is in use, the practice of the better arts and human talents is neglected through laziness, lack of interest and a kind of cowardly idleness, and there is no abundance of anything.”
Whether taxation weilded as a whip is enough to overcome these natural tendencies is doubtful but who knows, maybe it will be with the right set of tweaks. And experience also teaches us that government spending is rarely if ever in the public interest, but who knows, maybe a government will come along that will be as virtuous as it imagines itself to be.
Using Venezuela as an example doesn’t work with people who can’t spell “Weimar.”
I know this because I spent some time on a LinkedIn group asking about it. Like Marxism, it just hasn’t been done right.
“Taxes to control inflation” — this is interesting, and somewhat true. Minting a trillion $ coin and keeping it on deposit was a fun thought experiment / fantasy.
“currency-issuing governments could (and, depending on how you lean politically, should) spend as much as they need to in order to guarantee full employment and other social goods. ”
When gov’t is allowed to spend all it wants on “other social goods”, too much of these end up in the private pockets of gov’t decision makers (see China’s billionaires, as well as Venezuela).
Let’s rephrase it:
currency-issuing governments could spend as much as they need to in order to guarantee full bank accounts of gov’t leaders, while promising other social goods.
There are limited real assets, like gold, cars, buildings, jewels. The full bank accounts mean the people get “money promises”, while the corrupt pols get real assets — and the production of real assets is reduced. No incentives to do the hard work.
“we can design a system to support and tighten the labor market and let people opt out of shitty jobs. ”
This is the real failure — most jobs where work gets done are somewhat lousy. (In fact, I’m cheating on my real work by blogging now; more fun than the boring / shitty work that I get paid for.)
I actually do support the full employment possibility / gov’t as employer of last resort — but not all the “other social goods”.
Here’s a related, alternative thought: the US growth of 3%, plus 2% of “inflation” should mean we could have a 0% tax economy and just have the gov’t print money up to 5% of the prior year’s GDP.
This could be stable, but would fail to get all the benefits the big spenders want.
Real money value is that of a medium which converts prices of bread and food into wages paid. Not all “hours worked” are worth the same.
There’s no “fair” way to resolve this, but there ARE “peaceful” ways. Peace is not always fair; reality is not fair. Humans cannot even agree on what “fair” is (ugly or hot or not?). Humans CAN choose to have a huge amount of relative peace.
(Private property and contract enforcement require force against those who steal / commit fraud — such force used is not absolutely peaceful, but it is relatively peaceful)