MMT is a lens with which to understand how many works
in countries where the government issues its own currency...
government spending is not financed by taxpayer money
limit to government spending is not the size of the deficit, but that spending faster than the growth of the "real economy" results in inflation
myths
federal government has to collect enough taxes to finance its operations
nope, the government prints money to pay for spending (and destroys money via taxes to limit inflation)
deficits are evidence of overspending
nope, inflation is (and unemployment)
deficits burden future generations
nope, issuing debt equal to deficits is a choice to provide savings opportunities; money can be printed to pay off those "debts"
deficits crowd out private investment
nope, in fact, government deficits mean private-sector surpluses
deficits make countries dependent on foreign countries
nope, a trade deficit is a "stuff" surplus
entitlements (welfare, pensions, etc.) will lead to a financial crisis
nope, government can always pay; but we must carefully monitor and invest in our real capacity to provide those services (doctors, nurses, etc.)
climate change, pandemics, demographic changes are all real threats to economic capacity (ie. they will cause inflation), so investing now to counter them (and risk some controlled inflation, and potentially increase economic capacity) is a better strategy
directly addresses unemployment and economic capacity
(compared to interest rate changes, infrastructure investment)
continuous and automatic (no need to pass new budgets each time economy fluctuates)
allows to take advantage of free trade, while insulating workers from supply/demand shifts ("trade shocks")
artificial limits like the "debt ceiling" and concerns about whether a bill would increase the deficit should instead be limits and concerned about impacts on inflation
in times when inflation is very low, there is more leeway
if the spending is likely to build economic capacity, need less offsets
the deficit is just a measure of how many dollars the federal government has added to people's pockets without subtracting (taxing) them away
"debt clock" ~= "savings clock"
deficit is a track record of a government's net interventionism
what would happen if a central bank bought out all outstanding government debt (treasury bonds)?
not much, it's just replacing one type of bill (interest bearing bond) with another (non interest bearing cash)
if anything, removing the opportunity to make interest would hurt the private sector
the government doesn't have to issue bonds equal to the deficit, they just choose to
because they provide the central bank a mechanism (interest rates) to influence inflation
and, offering a safe investment for people is aa good thing
fiscal surpluses suck money out of the economy
and move deficits onto the private sector (accumulation of high interest debt)
godley model
government balance + non-government balance = 0
government deficit = non-government surplus
monetary sovereignty requires:
ability to issue own fiat currency
which is not pegged to a certain exchange rate
refrain from borrowing foreign currencies
(not rely heavily on imports for fundamentals - food, water, energy)
re: entitlements (welfare, social security, medicare)
government can pay for them (as long as there aren't artificial restrictions preventing doing so)
but, (once again), the main concern shouldn't be "can we pay for them", or "can we balance the books", but: "will the real economy have the capacity to meet future needs at the levels we want"
ex. will we have enough doctors and nurses to maintain quality of healthcare given change in demographics
"senseless prudence and caution around deficit spending"
the deficits that matter (in the US):
jobs
savings
health-care
education
infrastructure (including housing)
climate
democracy
"Coming up with the money is the easy part. The real challenge lies in managing your available resources - labor, equipment, technology, natural resources, and so on - so that inflation does not accelerate."
my thoughts:
what matters is: well-being of all people, real economic capacity, justice
the "debt ceiling" is misinformed, but, is now "captured" by the political process
ie. it remains b/c it is useful to the opposition as a way of extracting concessions from the politicians in power
bitcoin fans bemoan the 1970 decision to leave the golf standard and create fiat money, and quantitative easing of post-2008
but, the MMT world is beautiful, it provides a powerful tool for governments to be effective
eventually, "fiat currency" it may be seen as one of the major enabling technologies of humanities progress
b/c deflation is "bad", after a period of high inflation, can only have low inflation (but always inflation)
there is a "real economy", with certain capacity (though, we can only model it)
and there is a "real employment capacity", ie. not all unemployment is slack, people may need relocation / training (which takes time and money)
if to keep the economy healthy and inflation low some unemployment is inevitable, then, "welfare" for the unemployed is eminently fair
particularly since central banks aren't aiming for 0 unemployment
"the Fed uses unemployed human beings as its primary weapon against inflation" p52
as economy gets better at training / re-training, the "necessary" amount of unemployment decreases
but, central banks are limited in what they can do (affect loans)
but, congress isn't
a certain economy negative feedback loop
some people get rich (assets increase), become content, work less, decrease economic capacity, increase inflation, decreasing people's assets...
are new forms of consumption (ex. tiktok, new movies) increasing economic capacity?
a guaranteed job at "minimum wage" would negate the need for an enforced minimum wage
what's so bad about moderate inflation anyway?
if prices are rising because people have more money and are willing to pay more, then it's neutral
the numbers don't really matter, they aren't real
but people's well-being, and the economy's ability to provide for that well-being are real
the further away a government is from the "printing press" (ex. municipal governments), the harder it is for it to be effective
the division of powers between levels of government means certain portfolio items are more fragile
ex. housing in Canada is a municipal affair, but if it was federal, the federal government would have much more power at its disposal
and because housing is a huge component of the consumer price index, housing inflation has a disproportionate impact on net inflation
and since "inflation management" is a federal responsibility, they should play a role (or take over) the housing portfolio
or ideally, re-frame the division of powers, such that "everything" is ultimately the federal governments responsibility, but they delegate administration of some portfolios to lower governments (but reserve the right to step in as necessary)
in Canada, exclusive powers have been granted to provincial governments in the constitution
exclusive is IMO bad, inflexible
enshrined-in-constitution is also inflexible
what I may be saying here is "federations are sub-optimal"
it's more accurate to think of a government with a sovereign currency "in reverse" of "household budget"
government deficit = okay, because money net given to society
government surplus = government sucking money out of the economy
like bank accounting, where credits / debits are reversed from normal companies
conventional thinking treats money-printing governments similarly to companies, households, and local government, but they are not, they are on "opposite sides of the table"
inflation can be a good thing, because it signals an increase in demand (and an increase in the capacity to pay for those goods/services), and so, provides incentives for suppliers/investors/entrepreneurs to compete in that area
as quinoa, coffee, avocados, etc. became popular, demand grew and so did prices
but this motivated farmers to shift their land use toward higher paying crops
eventually, increasing the supply (and the "real economy" - ie. economic capacity to provide a good that's grown in demand), and lowering the costs
part of why "the deficit myth" survives is likely because of "measurement bias"
it's easier for economists/pundits/politicians to see and worry about the deficit and costs of pensions, medicare etc., than to predict inflation, or predict the capacity of the real economy to provide health services
governments shouldn't worry too much about temporary increases to inflation
those goods that are increasing in price should eventually decrease as private sector reallocates / increases its resources in supplying that good
BUT, if certain things consistently rise in price, then fiscal policy should tackle them directly
~ cost disease
ex. housing, education, health-care
fiscal policy that targets the poor (ex. UBI), without increases taxes, would result in inflation, and particularly of goods that those in poverty lack - quality housing, quality food
if say, the UBI were pegged to a basket-of-fundamental-goods, and those goods inflated, there would be a positive feedback loop
but at some point it must end
private sector would be motivated to improve and compete more for these goods
overall, it seems like it would be a democratic rebalancing of what is valuable to the people
"if we can't bring the rich down, we'll raise everyone else up"
I could see someone in the future, looking back, thinking how "keeping interest rates too low was holding back so many economies"