[dardner]

I have a sense of shame for even entertaining MMT as a serious theory but it is out there. I am somewhat confused about it because some of its proponents are lummoxes or purposely misleading.

It seems to me on certain levels similar to what we could do now, taxation as a means to control inflation/deflation but I don’t know what mechanism would lead to equalization that wouldn’t be arbitrary. It also seems to deal with money as an abstract and woefully ignorant of its value as a commodity especially as it pertains to foreign markets and more devastating to its value as a medium of exchange. I also can’t get my head around what this system would do to savings and investment, if the government can arbitrarily spend money into existence and then tax it back how could savings be remotely safe from devaluation at any given time. I have heard claims that the fed would never need to raise interest rates but who would buy bonds or save in the first place? If that is the case who could invest in the private sector other than the government at which point how could it rationally allocate funds to people? Sounds like pure Bolshevism to me. Have I characterized this correctly in any way?

On the topic of interest rates. If the fed arbitrarily sets the rates what would cause them to increase the rate and if they did would those holding money or bonds be hurt or helped by such action?

If you did away with the fed how would the market set interest rates? Is it just something that would be represented over time?

[jmherbener]

Take a look at this article:

http://mises.org/daily/6402/Nominal-GDP-Targeting-NewFangled-Monetarism-or-OldFashioned-Keynesianism

[aybartlett]

I like to study MMT more than Keynesian economics. The MMT’ers are the most obnoxiously loud of any economic school, so obviously hard to ignore. Their school seems to be based on the equation for GDP…… which is a misleading indicator anyways.

I’m no expert, but here are the obvious points that they make:

-Government spending is good. Sometimes they say “deficits are very necessary”.
-Lower taxes to stimulate growth + the above
-Governments can NOT default on debts if they are denominated in their currency
-Fiat money has never experienced hyperinflation.
-Following the 1st and 2nd rule above will not cause inflation.

Now my turn to point out the obvious flaws in MMT.

1. Gov’t spending could be productive…. but it just proves that it more often than not isn’t. This is b/c of the huge numbers of unproductive employees, among other things. Spending 1 trillion on producing goods vs spending 1 trillion on regulatory agencies draws a clear distinction. When you increase the number of goods in supply, costs go down. When you only increase the velocity of money, costs go up. Depending on gov’t spending is doomed to fail every time. We can spend 1 Billion to build a factory and produce goods….but let’s say the money is in the private sector’s hands. The private sector hires as few employees as possible, and produces as many goods as possible for the 1 Billion. In the hands of the government, they may favor employing as many people as possible, thus producing the goods as inefficiently as possible, (no tools etc). Fewer goods are produced. Society as a whole is poorer.

2. MMT’ers correctly note that taxes should fall, but ignore the similarities between taxation and dilution via printing money. If the private sector has $100 and the government imposes a %50 tax, then half of the purchasing power is now int he government’s hands. If there are $100 in the private sector and the government prints $100, then again the government now has %50 of the purchasing power. They get away with this obvious fallacy b/c people like Stephanie Kelton just say “We just need efficient government spending, of course it would be bad to print money and waste it.” Logic does not follow. Their entire economic theories rely on these ridiculous assumptions.

3. Often you will see an MMT’er tell you that a government can’t default on a debt issued in it’s own currency….. and they ALL literally act as if they are the first person to ever utter this statement. It doesn’t take a lot of common sense to have come to that same conclusion…… and I heard this long before I ever heard of MMT. Greenspan said it explicitly many years ago. The heart of MMT is that people will continue to accept payment in said currency.

4. Mike Norman has uttered this statement. I am not sure if it is true. But even if it is, It wouldn’t mean anything. Almost all of human history money was either barter or paper backed by something tangible….. Having something real to give currency purchasing power does not give it a better chance of becoming hyperinflationary. Most importantly to note, hyperinflation is an option.

Now about interest rates and the fed.

Increasing the interest rate on the bonds will lower the dollar value of the bonds. This represents less willingness to purchase said bonds and the price has to become lower for the market to clear. There is no way around what is coming. Creditors to the government will be wiped out. They can (per above) print money to meet obligations, but the purchasing power promised will not be delivered. Or if sound monetary policy were allowed to persist, the creditors would simply receive partial payment at best….. but paid in dollars of now higher value(still less p. power than promised).

The Fed would increase the rate due to employment reaching 6.5 percent or lower and inflation reaching 2.5 percent or higher (their words). I personally believe that a lot of inflation is already baked in the cake. As Mises said, it sometimes takes years for some goods and services to adjust to the “altered money relation”. If inflation hits 2.5 percent, it could continue to climb even after halting inflationary policy. I believe this to be the true testing point. What will the fed REALLY do? Bernanke and all of the top 3 prospective replacements to his position are anti-deflation zealots. QE will last far longer than they are telling us it will.

If the Fed immediately vanished, we would have a depression in short order. Interest rates would skyrocket.

[jmherbener]

Bob Murphy has been an active critic of MMT. Here’s a sample:

http://mises.org/daily/5260

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