Good news! Biden says to hell with deficits!

jimmurphy said:

Mexico and Argentina are sovereign nations with their own currency.

maybe they're afraid to because of too many adults.


buried amidst all of this is the fact that Biden's proposal also calls for an increase in the min wage to $15.

and it's hardly raising a stink.


From your article:

“So it can keep control of both (low) interest rates—as long as it faces no inflation problems domestically—and the exchange rate.”

That is the big qualification that neither of us can quantify or agree upon.


What is that point?

I don’t know and neither do you.

I’d prefer to avoid runaway inflation.

I’m out. 


drummerboy said:

The fact that you ask that question means you know even less about MMT than I do, so maybe you shouldn't be trashing it until you understand it better.

just sayin'

...

This is the central tenet of MMT, from which everything else flows.

I don't believe Mexico or Argentina meet this criteria, though I could be wrong.

Sunday funnies. 


given that we've had 12 years of substantial deficit spending, and we haven't seen skyrocketing interest rates or runaway inflation (in fact both have stayed very low), why should we expect that THIS TIME deficit spending will trash the economy?  In the midst of the nation's most dire crisis of our lifetimes, why would we decide not to help people whose economic lives are being ruined by a pandemic beyond their control?  It seems pretty cruel to me for people to advocate austerity in the middle of this pandemic.  Let's get to the other side of it and then have those discussions about deficit spending.


Nobody advocated austerity.


jimmurphy said:

From your article:

“So it can keep control of both (low) interest rates—as long as it faces no inflation problems domestically—and the exchange rate.”

That is the big qualification that neither of us can quantify or agree upon.


What is that point?

I don’t know and neither do you.

I’d prefer to avoid runaway inflation.

I’m out. 

You know, MMT economists do try to figure out if the economy has enough excess capacity so that more spending does not lead to excessive inflation or too high interest rates.

It's not like they're shooting in the dark here, hoping for the best.


jimmurphy said:

Nobody advocated austerity.

 so you're in favor of spending whatever Biden is proposing? I guess I misunderstood the point you've been trying to make. 


ml1 said:

 so you're in favor of spending whatever Biden is proposing? I guess I misunderstood the point you've been trying to make. 

Does this help?

jimmurphy said:

While I absolutely agree with the sentiments behind many of these posts and the wisdom of borrowing and investing during times of low interest rate (i.e. periods of insufficient demand), ask yourselves this. If deficits don’t matter at all, why do we collect taxes? Why not just print money?

Or this?

jimmurphy said:

General point. Deficits do matter. We can’t ignore basic laws of economics because it conveniently supports our progressive desires.

Maybe this:

jimmurphy said:

Edited to add: And again, it was the thread title that really pushed my buttons..........

(Ellipses added in remembrance of Author)

Clarifying or not, those comments and the rest didn’t suggest to me an austerity/Bidenomics either/or choice.


Here's a video that explains MMT - good or bad. I think it's an excellent explainer, particularly when it gets into the discussions of "Is government debt sustainable" at 7:35, the relation between debt and inflation at 10:25, fighting inflation at 12:25, capacity utilization, and objections at 19:30. 


jimmurphy said:

Certainly good points Dave and ml1. No doubt there are those who will get checks and do what was intended - spend the money to support the economy. I guess my biggest issue was with the thread title - to hell with deficits. There are absolutely times to spend in deficit. Now *is* one of those times. But deficits do matter which I know you two at least understand.

My point is that I ‘d rather it go to worthy causes rather than those who don’t need it. Fight harder to support state and local government. Be more generous to the unemployed. Work out the bugs in the PPP. Hell, spend more if it is justified and will be an investment.

 Read the last sentence carefully.


jimmurphy said:

General point. Deficits do matter. We can’t ignore basic laws of economics because it conveniently supports our progressive desires.


2 questions:

why do deficits matter?

what "basic laws of economics" are being ignored?


When they crowd out private consumption

Supply and demand

I will not be addressing this topic again this evening.
I’ve got a football game to watch.


I sure wouldn’t mind a Brady deficit. Go, Brees.


crowding out is not a basic law. If it was, we would have had rising interest rates over the last 13 years as our debt increased. We haven't, so where does that leave the "law"?  It doesn't seem to describe reality very well.

Not sure how supply and demand is being ignored. That's pretty broad.


DaveSchmidt said:

I sure wouldn’t mind a Brady deficit. Go, Brees.

 Who dat?!!!


Drew Brees, Saints QB.  A play on the Brady Plan  (Tom Brady, not Nicholas Brady.)



cramer said:

Drew Brees, Saints QB.  A play on the Brady Plan  (Tom Brady, not Nicholas Brady.)

@cramer

 
https://www.si.com/nfl/2019/01/14/who-dat-chant-explained-new-orleans-saints-aaron-neville-topcats

grin


jimmurphy said:

 Read the last sentence carefully.

 I see now. But I'm not getting why you keep emphasizing that deficits matter. Maybe sometimes they don't given what you say you're supporting at this time during the pandemic.



drummerboy said:


DaveSchmidt said:

jimmurphy said:

Why can’t Mexico just print money? Or Argentina?

From PVW’s posts, I gather the answer to that one would be along the lines of, as he summed it up, “the constraints are actually the productive capacity of the economy, not the debt or deficit per se.”

The fact that you ask that question means you know even less about MMT than I do, so maybe you shouldn't be trashing it until you understand it better.

just sayin'

The constraints that Dave mentions only come into play if a country can employ MMT policies in the first place, as explained below.

Modern Monetary Theory (MMT) is a heterodox macroeconomic framework that says monetarily sovereign countries like the U.S., U.K., Japan, and Canada, which spend, tax, and borrow in a fiat currency they fully control, are not operationally constrained by revenues when it comes to federal government spending.

This is the central tenet of MMT, from which everything else flows.

I don't believe Mexico or Argentina meet this criteria, though I could be wrong.

 I'm not sure that's accurate? From the interview I cited again, "I think MMT works everywhere. I, because its a descriptive framework so I can use it. You know, as I say in the book over and over again, MMT is a LENS. MMT is about giving us a better clearer picture of where the limits of how the monetary system works ... MMT works a no matter where we apply it, we're just helping to explain why the policy space is larger in some countries and diminished and others by virtue of decisions that governments have made to borrow in foreign currency, fix their exchange rates or whatever"

So MMT, in Keltons' view, isn't a set of policies you employ or not, but rather a way of analyzing policies.

Thanks jimmurphy for those contrasting links, too.

I'm adding The Deficit Myth to my reading list. Among the things I'm looking forward to in the post-Trump era is more cultural and intellectual breathing space. I don't remember exactly where I read this, but back in 2016 or 2017 I read an article noting that one of the features of authoritarianism is that national life increasingly becomes centered on and defined by the authoritarian leader. While Trump ultimately failed in realizing the full extend of his authoritarian impulses, that observation feels very true -- there was definitely less talk about policy or ideas or anything besides Donald Trump. It'll be nice to get drawn into arguments over, say, the national debt, rather than whatever the latest presidential tweet was about.


You're not sure what's accurate?


drummerboy said:

You're not sure what's accurate?

 That it makes sense to talk about MMT policies, as in "the constraints that Dave mentions only come into play if a country can employ MMT policies in the first place." At least as I understand Kelton, MMT isn't a set of policies.


That sounds like a semantic point. MMT opens up policy options not available under the traditional mindset.

e.g. spending money unconstrained by traditional notions of the deficit is certainly a policy. Isn't it?

I agree that MMT "isn't a set of policies". It's a theory of government economics. But it leads to specific policy options. 


drummerboy said:

That sounds like a semantic point. MMT opens up policy options not available under the traditional mindset.

e.g. spending money unconstrained by traditional notions of the deficit is certainly a policy. Isn't it?

I agree that MMT "isn't a set of policies". It's a theory of government economics. But it leads to specific policy options. 

 I think it's more than semantic -- seems kind of like saying that quantum physics allows for interactions of matter that can't happen in classical physic, which isn't right. It's a framework that allows for different explanations and insights. You can engage in a policy of deficit spending referencing a purely Keynesian framework, or even with no explicit framework at all. MMT offers itself as a way of explaining what's actually happening when you enact a policy, it's not the policy itself. And it'll be helpful, or not, to the extent that it can provide clarity of understanding and guidance to policy makers.

I really do want to read Kelton's book now, but so far to me what's interesting about MMT is how it defines the constraints of an economic system differently that we traditionally hear them. I think we're ripe for new ways of understanding economics -- the fact that many economies have for several years now kept interest rates very low, or even negative, and not had the kind of inflation other frameworks predict is an empirical observation asking for better explanations than we've had.

"Deficits don't matter" strikes me as probably not being an accurate takeaway. "Deficits matter in this way, and not in this other way they're generally talked about" seems closer to the mark. What a deficit actually means, and how it then matters, would be a question that'll maybe be clearer to me after I read Kelton's book.


My thread title was never meant to be an absolute. Of course, at some point, deficits (or more accurately, government debt) matters.

But we're not at that point, so they don't matter right now.


PVW said:

drummerboy said:


I really do want to read Kelton's book now, but so far to me what's interesting about MMT is how it defines the constraints of an economic system differently that we traditionally hear them. I think we're ripe for new ways of understanding economics -- the fact that many economies have for several years now kept interest rates very low, or even negative, and not had the kind of inflation other frameworks predict is an empirical observation asking for better explanations than we've had.

"Deficits don't matter" strikes me as probably not being an accurate takeaway. "Deficits matter in this way, and not in this other way they're generally talked about" seems closer to the mark. What a deficit actually means, and how it then matters, would be a question that'll maybe be clearer to me after I read Kelton's book.

A couple of good articles about why inflation has been so low for so many years:  

https://econofact.org/why-is-inflation-so-low

https://www.marketplace.org/2019/12/13/why-is-inflation-still-so-low/

The problem that I have with MMT is  that it replaces the monetary authority (the Federal Reserve, which is independent) with the fiscal authority (Congress, which is elected and beholden to special interest groups) as the body which curbs inflation if it ever rises to a rate that is too high. 

We have had an extended period of low inflation. If inflation were to rise to a rate that is deemed too high (and under MMT, I'm not sure who makes that decision ) can we be certain that Congress will have the independence to raise taxes in order to decrease demand? Or if it's not demand that causes inflation but the actions of corporations say, that raise prices to increae their profits, can we be certain that Congress, or POTUS) will enact regulations to roll back those actions?  

I don't have any problem with incurring deficits per se, and in fact we've had them for many years. But we don't need an explanation of MMT in order to understand why they don't matter, under the current climate of historcially low interest rates and inflation.  Kennedy said we can print all the money we need, as did Greenspan. 


cramer said:


The problem that I have with MMT is  that it replaces the monetary authority (the Federal Reserve, which is independent) with the fiscal authority (Congress, which is elected and beholden to special interest groups) as the body which curbs inflation if it ever rises to a rate that is too high.

 I have a lot of skepticism around that as well -- which I think I also expressed on DB's "Let's learn about MMT" thread. I'm a bit unclear on whether MMT actually says you should replace monetary authority with fiscal authority, or whether that's just a policy choice many proponents of MMT advocate for (which, again, I think is more than just a semantic difference. An analytical framework can have value apart from the preferences of those who have developed and support it). I'm also still fuzzy on how MMT is really different from more traditional Keynesian economics, but that's why I'll have to read Dr. Kelton's book.


Also, a quote I like that seems it can fit here in a discussion of economics:

"All models are wrong, but some are useful"


I don't understand these comments about replacing the Fed as the monetary authority.

The Fed does not go away - their role remains essentially the same.


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