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Old 07-07-2019, 09:39 AM
 
Location: Michigan, Maryland-born
38 posts, read 8,242 times
Reputation: 115

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This is a sincere question and I am not trying to make an economic or political statement.

My teacher a couple weeks before graduation was talking about something called "Modern Monetary Theory" and how it is established fact, but how politicians deny it for political reasons to reduce spending...due to debt...on political programs they don't want. When the debt isn't a big deal and we could help more people....

I wasn't smart enough to follow everything she was saying....and I would get hung up on not comprehending a little point and then think about that....only to miss the next point while thinking on the past point...geesh.

But anyways.....

My teacher, she used this to help explain the Modern Monetary Theory....

https://twitter.com/stephaniekelton/...068706?lang=en

"The carpenter can't run out of inches
The stadium can't run out of points
The airline can't run out of FF miles
And the USA can't run out of dollars"


I tried to ask my teacher some questions and she kind of shut me down, so I would like someone to explain it to me in better detail of possible.

The first two examples with the carpenter and the stadium seem like measurements that is comparing apples to oranges so to say with money creation. An inch doesn't fluctuate in value nor does a goal. It is a standard. Money can fluctuate as we have learned about inflation and even something called deflation.

The third example seems impossible. An airline could run out of frequent flier miles. If they give away too many, say 5 free miles for every mile traveled......they wouldn't make a profit and would go out of business. Well charge 5 times more right.....less middle income people would fly even with the free miles..... Once out of business you would run out of frequent flier miles......right???!

The fourth example is also not true in my mind. If the USA decided to create a quadrillion dollar bill and give everybody in the country one...every month....wouldn't that destroy the value of a dollar....think high inflation.... to the point where it would need to reset to a new unit of currency and nobody would want to invest in units of dollars essentially killing the dollar and therefore running out of them with bad economic consequences?


I realize that my teacher and Dr. Stephanie Kelton are far more intelligent than me so I am missing something, but my teacher kind of brushed off then shutdown my questions so I was hoping for someone to explain it to me in simple terms.

Please be kind, I likely know less than all of you on this issue.
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Old 07-07-2019, 10:05 AM
 
Location: NE Mississippi
13,686 posts, read 8,589,783 times
Reputation: 19898
In order for me to become wealthier, I do not need to take anyone else's wealth away from them.
I could buy stock in a company that does well. That way by stock may appreciate and in time I may become very wealthy - but at no one's expense.


Take the case of Walmart. If I had recognized Walmart's potential in 1985 and bought $50,000 worth of Walmart stock, I could have begun to withdraw my original investment out every year, and as far as I can see I would withdraw $50,000 per year for as long as I live.
(You would have a total of $15M that has never been taxed)


I became very wealthy. And took no one's money.


The above example will show how growth of the US system is EVERYTHING. If there were no growth the whole system would collapse. So what seems like a huge debt today, becomes a small debt in the future.
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Old 07-07-2019, 10:17 AM
 
542 posts, read 623,493 times
Reputation: 800
Quote:
Originally Posted by QuakerBaker View Post
This is a sincere question and I am not trying to make an economic or political statement.

My teacher a couple weeks before graduation was talking about something called "Modern Monetary Theory" and how it is established fact, but how politicians deny it for political reasons to reduce spending...due to debt...on political programs they don't want. When the debt isn't a big deal and we could help more people....

I wasn't smart enough to follow everything she was saying....and I would get hung up on not comprehending a little point and then think about that....only to miss the next point while thinking on the past point...geesh.

But anyways.....

My teacher, she used this to help explain the Modern Monetary Theory....

https://twitter.com/stephaniekelton/...068706?lang=en

"The carpenter can't run out of inches
The stadium can't run out of points
The airline can't run out of FF miles
And the USA can't run out of dollars"


I tried to ask my teacher some questions and she kind of shut me down, so I would like someone to explain it to me in better detail of possible.

The first two examples with the carpenter and the stadium seem like measurements that is comparing apples to oranges so to say with money creation. An inch doesn't fluctuate in value nor does a goal. It is a standard. Money can fluctuate as we have learned about inflation and even something called deflation.

The third example seems impossible. An airline could run out of frequent flier miles. If they give away too many, say 5 free miles for every mile traveled......they wouldn't make a profit and would go out of business. Well charge 5 times more right.....less middle income people would fly even with the free miles..... Once out of business you would run out of frequent flier miles......right???!

The fourth example is also not true in my mind. If the USA decided to create a quadrillion dollar bill and give everybody in the country one...every month....wouldn't that destroy the value of a dollar....think high inflation.... to the point where it would need to reset to a new unit of currency and nobody would want to invest in units of dollars essentially killing the dollar and therefore running out of them with bad economic consequences?


I realize that my teacher and Dr. Stephanie Kelton are far more intelligent than me so I am missing something, but my teacher kind of brushed off then shutdown my questions so I was hoping for someone to explain it to me in simple terms.

Please be kind, I likely know less than all of you on this issue.

Basically our government can't go broke because we print our own currency and it has no impact on your ability to become rich (the national debt).

We had tax cuts in 2017 with a little over a trillion dollars added to the economy. The government could have spent that same trillion into the economy for infrastructure, etc. Same end result for the economy but most people are not smart enough to realize it. The deficit was the same in the end.
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Old 07-07-2019, 10:27 AM
 
8,888 posts, read 3,939,487 times
Reputation: 1726
Quote:
Originally Posted by QuakerBaker View Post
This is a sincere question and I am not trying to make an economic or political statement.

My teacher a couple weeks before graduation was talking about something called "Modern Monetary Theory" and how it is established fact, but how politicians deny it for political reasons to reduce spending...due to debt...on political programs they don't want. When the debt isn't a big deal and we could help more people....

I wasn't smart enough to follow everything she was saying....and I would get hung up on not comprehending a little point and then think about that....only to miss the next point while thinking on the past point...geesh.

But anyways.....

My teacher, she used this to help explain the Modern Monetary Theory....

https://twitter.com/stephaniekelton/...068706?lang=en

"The carpenter can't run out of inches
The stadium can't run out of points
The airline can't run out of FF miles
And the USA can't run out of dollars"


I tried to ask my teacher some questions and she kind of shut me down, so I would like someone to explain it to me in better detail of possible.

The first two examples with the carpenter and the stadium seem like measurements that is comparing apples to oranges so to say with money creation. An inch doesn't fluctuate in value nor does a goal. It is a standard. Money can fluctuate as we have learned about inflation and even something called deflation.

The third example seems impossible. An airline could run out of frequent flier miles. If they give away too many, say 5 free miles for every mile traveled......they wouldn't make a profit and would go out of business. Well charge 5 times more right.....less middle income people would fly even with the free miles..... Once out of business you would run out of frequent flier miles......right???!

The fourth example is also not true in my mind. If the USA decided to create a quadrillion dollar bill and give everybody in the country one...every month....wouldn't that destroy the value of a dollar....think high inflation.... to the point where it would need to reset to a new unit of currency and nobody would want to invest in units of dollars essentially killing the dollar and therefore running out of them with bad economic consequences?


I realize that my teacher and Dr. Stephanie Kelton are far more intelligent than me so I am missing something, but my teacher kind of brushed off then shutdown my questions so I was hoping for someone to explain it to me in simple terms.

Please be kind, I likely know less than all of you on this issue.
I've been studying modern money for many years now, and MMT explains quite a bit about our money, our money creation systems and processes. And how, why and where the USD and our economy have gone and are going.

It took me a few years to get my mind around the fact that at the Federal level a dollar is like a point on a scoreboard. It is not necessarily a physical thing. Especially in our modern days of electronic money. So the stadium analogy is a good one IMO.

The airlines and FF miles are also OK. Because if they create too many FF miles the system internally inflates and could become useless, as does a hyperinflated currency. Half the battle there is realizing how a USD and a FF mile are similar in a fiat sense. The airline is not inhernetly limited, nor is the Federal Gov't with their respective fiats.

The fourth example is a strawman. No one is asking for exhorbitant hand outs of USD's. The idea with modern money is that our USD is fiat and can be created in quantities necessary and desired by we the people. Within useful reason. i.e. HC, infrastructure, education, defense.

My recommendation as a start is for you to do a search and read Warren Mosler's stuff. And then Cullen Roche. Read about the Trillion Dollar Platinum Proof coin.

This I found to be the best starter book:
https://www.google.com/search?q=Unde...0zAYUQ-BYILjAW
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Old 07-07-2019, 10:36 AM
 
2,240 posts, read 553,474 times
Reputation: 3905
I would say MMT is baloney, but that would be an insult to cold cuts.

I usually like to read original sources on things such as MMT, but there is scant evidence of economic thought and zero evidence of quantitative analysis using actual data. There have been no scholarly articles published in Peer-Reviewed Academic Journals - the gold standard of thought on any topic, economic or otherwise.

From the summaries I have read, some of the central propositions of MMT draw a false conclusion from two somewhat sensible premises:

  • Countries that print their own currencies do not have to default on excessive debts. They can always print more money to pay off debts. That is true.
  • Inflation in the end can and can be controlled by raising taxes or cutting spending, sufficiently to soak up such printed (non-interest-bearing) money. Mostly true.

It does not follow that the US need not worry about deficits, and may happily borrow tens of trillions to finance all sorts of spending. Borrow $50 trillion or so. When bondholders revolt, print money to pay off the bonds. When this results in inflation, raise taxes to soak up the money. OK, but this latter step is exactly raising taxes to pay off the bonds. Moreover, if bondholders see that the plan is to pay off bonds with printed money, they refuse to buy or roll over bonds in the first place and the inflation can happen right away.

Your teacher exhibits a common confusion between (a) today's money and (b) the new money that pays off debt. It would only take $1.5 trillion in extra taxes or lower spending to retire all the current currency (non-interest bearing government debt) outstanding. But that's not the task after the great bond bailout. Then we have to raise taxes or cut spending by, in my example, the $50 trillion printed to pay off the bonds. Large debts are either paid or defaulted, and inflation is the same thing economically as default. Period.

There is also a different and interesting train of thought, exemplified by recent writings by Larry Summers and Olivier Blanchard, that the current low interest rate environment might allow for somewhat, but not unlimited, extra borrowing. Those ideas are completely different analytically from MMT.
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Old 07-07-2019, 11:08 AM
 
2,240 posts, read 553,474 times
Reputation: 3905
Leading economists were recently asked two comment on two central ideas of MMT:

Question A: Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt.

Here are their answers:





**********

Here's the 2nd idea asked of the economists:

Question B: Countries that borrow in their own currency can finance as much real government spending as they want by creating money.

Here's how they replied.



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Old 07-07-2019, 11:44 AM
 
2,240 posts, read 553,474 times
Reputation: 3905
Most economic theories are collections of mathematical models. If you want to know what the theory says, you can parse out the models and see for yourself. MMT is different. There are many wordy explainers and videos that will explain some of the concepts behind MMT, or tell you some of MMT's policy recommendations. But that's different than having a formal model of the economy.

There is no formal MMT model of the economy. If there were, economists could compare the model with quantitative data to see whether the model holds or fails. If there were a formal MMT model, it could make testable predictions.
  • There are no MMT articles in major peer-reviewed academic journals.
  • There are essentially no MMT articles at major professional conferences, such as the American Economic Association meetings.
  • There are no academic MMT articles in the major working paper series.
  • There are no MMT books from university presses.

There are no MMT books from university presses.

So where does MMT live? It is almost entirely a creature of tweets, blog posts, youtube videos, and so on. That isn't academic inquiry.

Still... might it be right anyway? After all, "The absence of evidence does not imply the evidence of absence."

Monetary economics (regular monetary theory, not MMT) is a well established field, and this range of ideas -- the nature of money, the tax backing of money, the interaction of monetary and fiscal policy, government budget constraints and so on -- is well within the range that current intellectual institutions debate knowledgeably. The fraction of good, solid, ready-for-policy ideas of that come outside the scientific mainstream via tweets & blog posts is vanishingly small, and the fraction of crackpot junk science there is pretty large.

There is a lot of mileage that must be covered before a somewhat radical idea such as MMT is ready for policy evaluation. MMT certainly isn't ready for prime time, and on its current vector it probably never will be. But that might not be the point of MMT. MMT, rather than being an economic theory, at current seems to be a political rallying cry analogous to the 1920s political slogan "A Chicken in Every Pot."

Well, here is one working paper that seems to examine MMT:

Modern Monetary Theory: Cautionary Tales from Latin America

By Sebastian Edwards, Henry Ford II Distinguished Professor of International Economics, Anderson Graduate School of Management, UCLA

Economics Working Paper 19106

April 25, 2019

Quote:
According to Modern Monetary Theory (MMT) it is possible to use expansive monetary policy – money creation by the central bank (i.e. the Federal Reserve) – to finance large fiscal deficits that will ensure full employment and good jobs for everyone, through a “jobs guarantee” program. In this paper I analyze some of Latin America’s historical episodes with MMT-type policies (Chile, Peru. Argentina, and Venezuela). The analysis uses the framework developed by Dornbusch and Edwards (1990, 1991) for studying macroeconomic populism. The four experiments studied in this paper ended up badly,with runaway inflation, huge currency devaluations, and precipitous real wage declines.These experiences offer a cautionary tale for MMT enthusiasts.
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Old 07-07-2019, 12:10 PM
 
8,888 posts, read 3,939,487 times
Reputation: 1726
Quote:
Originally Posted by RationalExpectations View Post

Question A: Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt.

Of course one can 'worry'. That is relative.

But what if your people are enduring famine or plague, or in danger of imminent physical destruction from war?

MMT says that you can create all the money that you need to combat these, being limited by resources not currency/fiat. MMT also suggests that under the right circumstances and for the right reasons, we could create this money de novo and without the associated debt. Sure inflation might be more likely.

Quote:
Originally Posted by RationalExpectations View Post

Question B: Countries that borrow in their own currency can finance as much real government spending as they want by creating money.
'As much' is relative, essentially a strawman taken at the highest of ends. MMT doesn't support creating too much money without good reason. MMT of course agrees that can lead to too much inflation.
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Old 07-07-2019, 12:38 PM
 
2,240 posts, read 553,474 times
Reputation: 3905
Quote:
Originally Posted by Hoonose View Post
But what if your people are enduring famine or plague, or in danger of imminent physical destruction from war?
Fortunately, that doesn't apply to the USA, does it?

Quote:
Originally Posted by Hoonose View Post
MMT says...
Until someone can provide a coherent mathematical of what MMT says, it really doesn't say anything, does it/ Or, alternatively, it says everything, right?

In fact, because there are no coherent models of MMT, expressed in mathematics, the only way to know what MMT actually means is to Climb the Mountain and Ask The Gurus.

That's not economic science. That's campaign sloganeering. There is a difference.

Quote:
Originally Posted by Hoonose View Post
MMT doesn't support...
There is no way to know what a model of MMT supports or doesn't support because there are no coherent mathematical models. There are plenty of words in tweets and blog posts which are vague and sometimes self-contradictory.

That's not economic science. That campaign sloganeering. There is a difference.

Quote:
Originally Posted by Hoonose View Post
MMT of course agrees that ...
There is no way to know what a model of MMT agrees with or doesn't agree with because there are no coherent mathematical models. There are plenty of words in tweets and blog posts which are vague and sometimes self-contradictory.

That's not economic science. That campaign sloganeering. There is a difference.

****


Even left-wing economist Paul Krugman said MMT supporters

Quote:
“tend to be unclear about what exactly their differences with conventional views are, and also have a strong habit of dismissing out of hand any attempt to make sense of what they’re saying."
https://www.nytimes.com/2019/02/12/o...8;wonkish.html
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Old 07-07-2019, 02:04 PM
 
Location: NE Mississippi
13,686 posts, read 8,589,783 times
Reputation: 19898
If the economy grows from $15.6T to $18.6T in a 10 year period (2008 - 2018) and no money was printed, would that not be disastrous for the value of the currency?

In 2008 there was $1.6T in circulation and now there is $1.7T in circulation.
So on the face of it, all this "they are printing too much money" conversation looks like pure nonsense. $1.7T circulating to support a $18.6T economy seems to work about right.
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