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The Fight for the NHS/MMT economics

Discussion in 'off topic' started by ks.234, Oct 26, 2021.

  1. Le Baron

    Le Baron Unbiased advice at reasonable rates

    Yes.
    No. They aren't spending anyone's 'savings'. Or turning it into active money. They effectively just freezing-out purchasing competition. So they can then choose where to direct government spending.

    Not necessarily, because that can shift interest rates up which would also lift the interest payment on new bonds (on the existing ones the payment rate doesn't move). The payment is fixed in any case and printed on the bond certificate, the government has no interest in the movements.

    The model here is essentially sound, though the demand for the government's currency is not subject to market investments, domestic or foreign. It is driven by the fact that only they issue it and that it is the sole required currency for all payments - especially tax.

    It actually always issues the money to pay bond interest. All of it is paid that way. It certainly does not sell more bonds to get money. That contradicts the initial observation that they don't need to borrow their own currency! There is a practically infinite demand for so-called 'debt issue'. The government never defaults on bond interest payments, that would be saying they are in debt to themselves. The 'debt' is pure nomenclature, not an actual debt since the operations take place entirely within the central bank.
     
  2. laughingboy

    laughingboy pfm Member

    Thanks. But, given the fact that the government is definitely going to spend whereas there was no certainty that the bond buyer was going to, is there not an element of increasing the velocity of money? That's what I was trying to express. There is the same amount of money in the economy, but the government spending ensures that it is circulating. Am I wrong here?
    Yes, I see. Any increase in ease of repayment because of inflation may mean that the government is likely to have to issue bigger bonds next time. Thanks, that's helpful.
    Yes, that's the MMT view. I was trying to describe the mainstream view, and subtly suggest that it can't be fully correct. And I ended up writing sentences that contradict the previous sentence. Ah well, we all have our limits:D. Anyway, your corrections have made it clear: it is truer to say that the government is in control of its currency than it is to say that the government is at the whim of the market.
     
    Le Baron likes this.
  3. Le Baron

    Le Baron Unbiased advice at reasonable rates

    'Velocity of circulation' as it's called occurs when two parties spend and we assume a fixed money supply. When a bond is sold that amount is essentially 'frozen' to put it out of contest. Mr Bond-Buyer gets it back later when the bond matures. The money supply isn't fixed, it is managed.

    There's a rather long discussion to be had about Quantity Theory of money and price determination, but maybe it's best to hit that if/when it arises.
    Though only in line with the rather small interest increases, which they can meet. The real consideration to note is that bond sales are really just a historical habit which has come to serve rather useless purposes for the economy as whole. As such they could be eliminated.[/QUOTE]
     
  4. ks.234

    ks.234 pfm Member

    Is it not the case that both government and markets operate at the whim of monetarist/neoliberal ideology? One in which government and markets form part of the same hardware. As such, neither are driven by whim, but blind faith in the amorality of accountancy. All that matters is making the numbers add up and if you go spending money on public bleedin’ services that will add up to lesser numbers for us….
     
  5. Dave***t

    Dave***t Revolutionary relativist

    Appreciate the responses, folks. Will digest when heat induced brain fog has lifted.
     
  6. lawrence001

    lawrence001 pfm Member

    Going back to the first post, particularly the line "Do we have inflation?" is this quote now discredited?
     
  7. ks.234

    ks.234 pfm Member

    No. The monetarist argument says that any government spending necessarily causes inflation, the point being that the inflation we are experiencing today has nothing to do with government spending and government spending in the past has no necessary connection to inflation
     
  8. Le Baron

    Le Baron Unbiased advice at reasonable rates

    Apart from the spending during Covid on top of mothballed/reduced activity since a lot were initially transfer payments to pay rents and the like; then dropping into a production slump afterwards. It's important to remember how the media and pop economists want to measure inflation and how it is really measured; also the panic the monetarists get into if there isn't 'zero inflation', despite it being a sign of activity to be addressed. And when it comes to addressing it their solution is to shrink activity or more commonly shrink it in the worst places. They won't even tax where a lot of that spending ended up anyway.

    The economic policy is junk, so it's ability to address anything will likewise be junk. However, we should forget crying about inflation, the error they make is to contract, looking at imaginary 'debt' mountains while stuff needs to be done, when there are people to do it and the financial means exists to employ them.
     
    Sue Pertwee-Tyr and ks.234 like this.
  9. mandryka

    mandryka pfm Member




    I don't see where they're dealing with the point that I raised -- that no policy decisions follow from MMT, though a certain sort of argument against spending is debunked by it.
     
    lawrence001 likes this.
  10. lawrence001

    lawrence001 pfm Member

    True I've seen a number of references in the other threads where phrases like "optimise output" are mentioned but it still seems mean optimise according to the poster's own objective function. So MMT as has been described gives a framework but some people have been trying to twist words it to imply it defines a policy.
     
  11. mandryka

    mandryka pfm Member

    Well Truss, for example, seems to want to spend to maximise growth. Is maximise growth the same as optimise output?
     
  12. Seeker_UK

    Seeker_UK Feelin' nearly faded as my jeans

    "Maximise growth" = grow (the economy) as much as possible. ie no limits on inputs.

    "Optimise Output" = change (national) outputs, to make maximum benefit. ie with or without growth in the economy.
     
    mandryka likes this.
  13. Jim Audiomisc

    Jim Audiomisc pfm Member

    Only just noticed the revivial of this thread. Prompted to add at a tangent:

    I've been re-reading some of J. K. Galbraith's books. Makes me wish more people had read them, and were reading them now. They remain relevant as a superbly written dissection of standard economics and its delusions. Wit and wisdom. Even the cover blurbs on some from decades ago seem stunning relevant to current failings. I just wish more modern economists could write so well... and had a clue.

    But then I wish someone had a good copy of the old TV programs he did for the BBC and broadcast them again. The best I've been able to find on YT are excellent content, but with awful sound and video. Clearly made on poor videorecorders and have deteriorated badly.
     
  14. mandryka

    mandryka pfm Member

    Thanks -- the bit I put in bold I hadn't seen. I thought she was claiming she'd cut tax rates without cutting spending, basically funding it out of the (delayed) increased tax take from increased growth resulting from the spending. Is that not something MMT thinks makes sense?
     
  15. lawrence001

    lawrence001 pfm Member

    That's your view of the optimum output but it's not Liz Truss' optimum.

    Edit: Liz might agree with some of the second case (but not without growth) as she may think maximising output gives maximum benefit by definition.
     
  16. ks.234

    ks.234 pfm Member

    I think it’s important to distinguish two different outlooks. One is that government spending works like a household in that just like a household, government needs an income in order to spend. Hence we have Truss et al saying that in order to spend, government has to borrow or tax. In other words the income needed for government spending has to come from a tax take or extra borrowing.

    Therefore if Truss talks about tax cuts, there has to be a corresponding increase in borrowing, or more cuts to public spending.

    Likewise if Labour talks about raising public spending, there has to be a corresponding increase in taxation or borrowing.

    Truss and and Sunak are now trying to pin extra spending onto future growth and creating a larger tax uptake from a larger taxable base, which I think is where the Optimise Output thing is coming from. But there obvious questions about this as it depends on the success of the economic model that predicts that cuts to public services will create more money for business which will create more growth. The problem being that this model is what has been in operation for half a century and it just has not worked and is the cause of where we are now and doing the same thing over and over and expecting different results is madness. It is also a model that uses unemployment as a buffer stock against inflation. There is an obvious problem with controlling inflation with unemployment and low wages, in that it shrinks the tax base from which Truss and Sunak plan to fund extra spending.

    MMT on the other hand starts off from the observation that a government such as ours that is a sovereign currency issuer, cannot run out of the thing it issues. Money is created by government and tax happens later. It does not flow back into spending, spending is not dependant on tax. Income is not the constrain on spending that Monetarism claims, it can’t be. There are other constraints on government spending and inflation still has to be controlled, by income from borrowing or tax is not a constrain on our government spending.

    While there are many implications that follow from the MMT observation of money flow, the only policy that MMT describes is a Job Guarantee which will provide real full employments as a buffer stock against inflation, rather than monetarism which is using unemployment as a buffer stock.
     
    Klassik likes this.
  17. Seeker_UK

    Seeker_UK Feelin' nearly faded as my jeans

    I can't comment on how Liz Truss may or may not align with the English language :)
     
  18. ks.234

    ks.234 pfm Member

    I would argue that Truss and Sunak very much do align with the English language, it is an alignment with the language of the household economic model that resonates very clearly with very many people, despite being bollocks.
     
    IanW likes this.
  19. mandryka

    mandryka pfm Member


    Thanks for writing this. I want to think about it, I'll be back with my response soon, hopefully.
     
    ks.234 likes this.
  20. matthewr

    matthewr spɹɐʍʞɔɐq spɹoɔǝɹ ɹnoʎ sʎɐld

    At the start of this I will point out that I have no interest in discussing MMT mostly because, as I have already stated, I have been around this loop a few times over the years and it always seems to get bogged down in the very loose semantics. Semantics which seem to stop it from being a useful discussion outside of academic circles and instead lead to bad natured squabbling.

    In the wider public sphere we always seem to end up with it either saying not very much beyond Keynes who famously said "Anything we can do, we can afford" or saying something that mostly just serves to provided the largest possible attack surface for those we might describe using the N word.

    That Keynes quote, I note, was from about 60 years ago because as is often pointed out the thing that is modern in MMT is the money not the theory and the "Magic Money Tree" is not some radical, barely supported theory but (broadly) accepted as how modern economies work for about 60 or 70 years. There are people who don't accept these ideas but invariably their bad faith basis is hidden under a wafer thin veneer.

    Anyway, all I have for you is some links which I hope provide some good reading on this and the wider subject.

    ---

    First, this is a few years old now but remains a good introduction to MMT and places it in the context of the various bits of earlier economics from which it sprung and explains these in easy to understand English -- and one of MMT's biggest problems ISTM is that there is nobody who can advocate for it without either confusing everyone or making it sound like magic:

    https://creditwritedowns.com/2019/03/mmt-for-dummies.html

    Adam Tooze is really a historian rather than an economist, but he is an excellent read on many subjects and his views on MMT are well worth reading. As ever he will challenge your thinking and provide insight no matter what your previous views on the subject.

    Here he is on Keynes and his relevance given how COVID changed everything. Like everyone he is selling his book but generally his books are worth reading.

    https://adamtooze.substack.com/p/chartbook-on-shutdown-keynes-and

    And here he is on Krugman when reviewing Krugman's book. He's right, of course, to be critical of Krugman although I do think Krugman is important for his public advocacy of Keynesian ideas in the wake of both the 2008 GFC and Covid.

    https://www.lrb.co.uk/the-paper/v43/n08/adam-tooze/the-gatekeeper

    He also did write a book on COVID which Krugman reviews here:

    https://www.nybooks.com/articles/2022/03/10/covids-economic-mutations-krugman/ (soft paywall)

    The reason I mention COVID and the GFC of course is because if anything resets thinking about spending and deficits and all that it's the real world experiments we have had in the face of unprecedented disasters. I note we have managed to deal with these events and before that WWII without also needing to persuade everyone to accept MMT.

    And if you really want to get into the weeds, Tooze also has a fascinating article on Putin and MMT here:

    https://adamtooze.substack.com/p/chartbook-91-what-if-putins-war-regime

    From a leftist perspective Dissent magazine had a three part discussion on these issues here:

    https://www.dissentmagazine.org/article/the-tax-trap
    https://www.dissentmagazine.org/online_articles/the-mmt-trap-a-response-to-daniel-wortel-london
    https://www.dissentmagazine.org/online_articles/a-reply-to-aashna-desai

    Finally, an argument against MMT from James Meadway (adviser to John McDonnell) which gets, perhaps, closest to my views. He argues (broadly and in part) that the difficult part is not the economics but the politics and MMT makes the politics a lot harder for at best a marginal economic gain.

    https://tribunemag.co.uk/2019/06/against-modern-monetary-theory

    Again I stress none of this is meant to be me arguing a case as a much as providing some reading for anyone who wants to progress their understanding and clarify their views on these issues.
     

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