Modern Monetary Theory: Snake Oil of the 21st Century

MMT is dangerous, but it’s popularity is growing.  MMT fluffs over some incredibly complicated subject matters, making it easy to drag people into the weeds, and MMTers take advantage of this to confuse people.  Their goal is not to win debates, but to prevent the masses of the public from listening to the conversation.  MMT wants you to tune out from facts and reason, so that you will listen to the siren song of ‘free’.  The goal of this editorial is to arm you with the tools to refute MMT, once and for all.

If you have not heard of Modern Monetary Theory (MMT), you have not been paying attention to the left.  MMT is based on the facts that 1) US debt is held in US dollars, and repaid with US dollars, 2) that the US government can print as much money as it needs, and 3) that because taxes are paid in US dollars, taxation can be used to deplete the supply of money, and in doing so, prevent inflation.

That’s actually all true.  US debt is held in US dollars, which the government has the power to print in any amount it wants, and taxes are paid in US dollars so taxes could be used to reduce the supply of money, and prevent inflation.

MMTers will tell you that these three facts are revolutionary, but they are not.  These ‘revolutionary facts’ are nothing more than traditional monetary policy looked at in reverse order.

We are told, traditionally, that government has no money of its own, and so it must tax what it spends.  Deficit spending, we are traditionally told, leads to inflation.  MMT does not change that.  All MMT does is to look at the coin from the other side, looking at spending first and taxation second.  It really does not matter what order you look at spending and taxation as long as government taxes what it spends.  Whether government ‘spends $10,000 into existence’ to fund a project and then taxes you $10,000 to ‘prevent inflation’, or taxes you $10,000 to pay for some project that cost $10,000, the end result is the same – a government project got funded, and you are out $10,000.

In that sense, MMT is a word game, like scrabble.  It changes nothing.

But it confuses everything.

Once MMTers confuse you by reversing the order they look at taxing and spending, they begin to blur the line between growth in the money supply and inflation.  They’ll point to Japan and say, “look at all of the debt in Japan – where is the inflation?”, while ignoring the complex economic circumstances Japan is in.

I’ll answer the question, “where is Japan’s inflation?” and in doing so, I’ll dismantle MMT.

Japan fueled it’s post WWII growth through mercantilism, selling products, often for less than they cost to produce, primarily to the United States.  Japanese companies were paid in US dollars, which need to be converted to Yen before they can be spent on the streets of Tokyo.  In order to convert dollars to Yen, companies need someone willing to trade Yen for dollars, and nobody is going to do that unless they can then spend those dollars somewhere.  Dollars can only be spent in the United States, and so Japan has to buy US goods and services in order to sell products to the United States.  Trade is reciprocal.

Our currency is a bit unique, being the global reserve currency.  Oil is, for example, traded in dollars.  As a result, Japan can buy oil from, say, Saudi Arabia, in US dollars.  But that does not really change anything since then Saudi Arabia has dollars that have to be spent in the United States.  Trade is still reciprocal on a global scale.  Eventually those dollars have to be spent on US goods and services.

Japan did not want trade to be reciprocal, so they looked for anything they could buy in dollars, other than US goods and services.  Their government bought trillions of dollars of US debt.  Japan bought US real estate, particularly cattle farms.  Japan bought buildings and invested in houses.  Japanese people and firms at one point in time owned almost half the state of Hawaii.  Japan bought whatever it could in US dollars, other than US goods and services.

Japan did what used to be called ‘The Old Texas Two Step’: Japanese businesses sold products in America and got paid in dollars, and then their government converted those dollars into Yen.  Japan printed Yen to do that.  Like us, Japan has a debt-based monetary system, where their central bank creates money by buying government debt.  As such, Japan backed the Yen they printed, and the debt they created to print that Yen, in US treasury notes.  This allowed our government to create huge deficits, while also allowing the Japanese people to buy Japanese goods and services rather than American goods and services.

So why hasn’t Japan seen inflation?  Because they can’t see inflation until they begin spending the dollars they are holding on to, in US savings bonds.  That’s bad on both sides of the Pacific, as the dollars they are holding onto in US savings bonds represent money our government already spent.  When Japan sells those savings bonds, we’ll see inflation on both sides of the Pacific.  And it’s not just savings bonds.  Japan also bought property in the united States.  If Japan sells that property, they’ll get dollars that they’ll have to spend.

China, by the way, did the same thing Japan did, but China is larger than Japan and has pushed the envelope even further.  All told, foreign governments hold $6.06 trillion in US debt.  All of that debt represents inflation in both the countries holding US debt, as well as in our economy.

World governments have created the bubble of all bubbles – buying debt held in fiat currencies, to keep money out of circulation, growing entire economies as bubbles, and holding onto ever higher levels of debt, held in foreign denominations, to prevent inflation.  That is why Japan has not seen inflation, and why a lot of other countries have not seen inflation, but it’s a bubble, and when the bubble bursts, the wheels come off.

Inflation is really a very simple concept to understand.  If I have an economy consisting of nothing but four apples and four dollars, how much will each apple cost?  If you said, ‘one dollar,’ you would be correct.  Now, let’s say I keep the number of apples steady, but I double the number of dollars to eight.  How much will each apple cost?  If my economy consists of just dollars and apples, the value of the dollars and apples must always be equal.  If I have eight dollars and four apples, each apple will cost two dollars.  That’s inflation.

Inflation really is that simple.  The size of our economy is measured in dollars, but the actual wealth those dollars represent is the totality of goods and services produced.  If we grow the number of dollars faster than we grow the totality of goods and services produced, we see inflation, and though inflation does not always occur right away (sometimes it takes decades), that is not because inflation is complicated, but because our economy is complicated.

In our example of four apples and eight dollars, let’s say someone starts adding grapes to the economy.  How many grapes are there?  What is the demand for grapes relative to the apples?   Nobody knows, so we go through a period of price discovery to find out.  During that period, the value of apples and grapes will fluctuate.  We may see a recession.  Eventually, prices represent the number of apples and grapes we have, the demand for apples and grapes relative to one another, and the number of dollars in the economy.  Prices stabilize.  Nobody has to know how many apples, grapes, and dollars there are, or what the relative demand of grapes and apples is.  Prices will eventually find the optimal level anyway, all on their own.  Even if all of these variables are constantly changing, as long as the changes are gradual, pricing will always be right behind, adjusting to keep up.  As you add more and more variables, making the economy more and more complex, the exact nature of how inflation works through the economy, and the amount of time it takes, can also become more complex, but the basic dynamics of how inflation works, really is quite simple.

Back to MMT…

The world economy is largely a bubble, created by activist governments who do not understand that the real economy is organic, based on every day people living their every day lives, working jobs to make money, and then using that money to buy the goods and services they need and/or want.  ‘We the people’, and everything we do – that IS the economy.  Everything else is a bubble.

There are some legitimate government services, and to the degree that they are legitimate, spending on them is also part of the organic economy.  To the degree that we need a military, military spending is a part of the organic economy, but Hitler built Germany’s economy in the 1930s almost entirely on a war footing, which was a bubble.  At some point, Hitler either had to stop building a military he did not need (causing the German economy to collapse), or he had to create demand.  As a consequence, even had Hitler not wanted to start World War Two, Germany’s economy would have forced him to.

If we over-spend on police, the need to create demand will force us to over-police, sending more people to jail, creating a prison bubble.  If we spend too much on education, we’ll create a college tuition bubble.  If we spend too much on healthcare, we’ll create a healthcare bubble.

You might notice that I’m bringing up bubbles we already have.  MMT says, “Go ahead and spend the money!  What could happen?!?”  The answer is that bubbles burst, and cause recessions.

Governments have gotten better, over time, at managing bubbles.  They have learned from experience, all kinds of new ways to prop bubbles up larger than ever before, and to keep them going longer than anyone ever before dreamed possible.  That’s only a good thing until they burst, and then we find that government has done nothing more than to create larger recessions than ever before, which they can only ‘fix’ by creating the next bubble, sewing the seeds for the next recession.  Government has not cured the ‘boom and bust cycle’ of free market economies.  They have only made it worse.

Organic growth – everything that drives healthy economies – does not come from government. It comes from you and me.  It comes from real people interacting with each other, freely, in the real world.  MMT does not see that.  To MMT, government spending is the source of everything.  MMT mistakes bubbles with true economic growth.

The problem with bubbles is that they are enticing.  I can remember living in the Grand Rapids area during the 1990s, when Grand Rapids wanted to rebuild it’s decaying economy.  They decided to build primarily on healthcare, and courted a lot of healthcare companies.  But healthcare does not grow an economy.  Healthcare only maintains it.  You don’t go to the doctor to become better than you were before, but to become the same as you were before, and though a breakthrough in medicine that makes it cheaper to be the same as you were before, can free up money for other things (growing the economy), when healthcare grows as a government sponsored bubble, and becomes more expensive rather than less, that may grow Grand Rapids, but it does so at the expense of people living elsewhere.

MMT makes government spending the center of everything, and in doing so, MMT takes everything over.  You want healthcare?  Government will spend you healthcare.  You want food?  Government will spend you food.  You want clothing?  Government will spend you clothing.  You want a car?  Government will spend you a car.

This brings up the worst – perhaps the fatal flaw – in MMT: MMT assumes that wherever you have demand, supply will invariably follow.  This is absurd.  If you tax those who produce to pay for production, why would they continue to produce?  Venezuela can answer that, and you can tell this is true when you hear socialists explain Venezuela – they’ll say that it was a conspiracy of angry capitalists that destroyed Venezuela, by refusing to produce.  Take away the word, ‘conspiracy’, and that is exactly what one would predict – if you destroy the incentive to produce, people will stop producing, and the economy will collapse.  No duh!  Venezuela is the epitome of MMT thinking, carried out to its logical conclusion.  Even while sitting on the world’s largest proven oil reserves, Venezuela could not make it work.

MMT is dangerous, but it’s popularity is growing.  MMT fluffs over some incredibly complicated subject matters, making it easy to drag people into the weeds, and MMTers take advantage of this to confuse people.  Their goal is not to win debates, but to prevent the masses of the public from listening to the conversation.  MMT wants you to tune out from facts and reason, so that you will listen to the siren song of ‘free’.

Those who listen to siren songs crash on the rocks.

EDIT:  In responding to some of the comments below, I ended up writing a second post, that clarifies the exact relationship between debt, inflation, and trade.  What I wrote above fluffs over that relationship, and it’s a complex relationship, so clarifying it became a new post:  http://thedailylibertarian.com/free-trade-without-agreements/.

227 thoughts on “Modern Monetary Theory: Snake Oil of the 21st Century”

  1. The author puts the absurdity of his position on display with the childish assertion that “there are only 4 apples, and there will always only be 4 apples, regardless of how much is invested in apple production”. Perhaps the author also believes that if the government wishes to buy more fighter jets and doubles it’s fighter jet spending, this will simply cause the price of fighter jets to double. For those of us who live in the real world, it us plainly obvious that more fighter jets will be produced and the price of fighter jets will remain similar, of not identical.

    REAL RESOURCES (labor, capital, raw materials) determine what the economy can produce. An artificial scarcity of money can (and usually does) result in the economy producing below capacity – this manifests as unemployment; if there are unemployed laborers, it is manifestly clear that the economy CAN produce more goods and services.

    The author comically describes nominal savings (held by foreign entities) as a “bubble”, and pretends that MMT does not take account of it. Au contraire, MMT is quite aware of the impact of savings, and understands that when spending is deferred (savings) something must fill the void to maintain sufficient demand to keep the economy rolling, or there will be recession. If this savings “bubble” burst (i.e. people suddenly began spending instead of saving) then this very event would drastically reduce the need for deficit spending due to increased private and foreign sector demand.

    It is laudable that the author wishes to understand the empirically sound economics of MMT – he just needs to study harder and dispense with the straw man arguments.

    1. The article seem to have the intent to steer its readers from doing their own research. There are more objective views to be considered. John T. Harvey wrote a book for this purpose called Contending Perspectives in Economics, but I recommend also that readers compare ideas from a variety of blogs on specific issues and/or topics and discern the both the intent, the quality of the argument and the significance of the conclusions to assure themselves that they are gaining contextual accuracy and credibility.

      1. I would never dissuade someone from doing their own research. The intent of the article, rather, is to assist fellow Free Market thinkers in debunking MMT.

        I am a firm believer that someone should research both sides of an argument, and that you should be able to defend the other side of an argument as well as those who believe in it.

        1. Define free market thinkers.
          Define debt in the context of a monetary sovereign issuing its nonconvertible, fiat currency with a flexible exchange rate, and no debt in a foreign currency.
          Explain why the U.S. needs revenue to fund itself.

          1. Free Market Thinkers: Those who believe in free markets.

            Debt: Money owed

            Why US needs revenue to fund itself: It doesn’t, but if it funds itself with the printing press, it will bankrupt it’s populace

        2. I would suggest going to the authors and hearing them out. Stephanie Kelton and Bill Mitchel, Steve Keene, or Steven Hail. Taking cues from uninformed romantacists like your average libertarian is disinformative at best. Find out what it’s all about from the horses mouth. There is no claim to “printing money to prosperity” for one it is a libertarian slur, have no basis in accuracy, but MMTers have advocated replacing the money that leaks out. Why should borrowing to make a banker rich be preferrable. I would rather save to spend on things myself but policies in banking, like interest rates for savings no longer supports that. It is not savvy economics placing burdens of interest on a populace, demonizing sound economic sense to spend for a healthy economy, and brow beating everyone who didn’t pop out if the right pussy with austerity.

          1. I have read a fair amount of MMT authors – difficult as it was to stomach. You’ll notice that I do not attack the core beliefs under MMT. I only attack the application. The problem with MMT isn’t the theory that you can spend what you want and tax to prevent inflation. The problem is that Congress loves to spend and lacks the discipline to tax. When you make people like Bernie Sanders think that he need not worry about inflation, you’ll get hyper spending and hyper inflation.

  2. The author puts the absurdity of his position on display with the childish assertion that “there are only 4 apples, and there will always only be 4 apples, regardless of how much is invested in apple production”. Perhaps the author also believes that if the government wishes to buy more fighter jets and doubles it’s fighter jet spending, this will simply cause the price of fighter jets to double. For those of us who live in the real world, it us plainly obvious that more fighter jets will be produced and the price of fighter jets will remain similar, of not identical.

    That’s a misquote. The author did use a simplistic example of an economy with four apples, but never claimed that any economy is static. THIS is a straw-man argument, unlike the author’s article (more on that later).

    REAL RESOURCES (labor, capital, raw materials) determine what the economy can produce.

    That’s somewhat true, but you leave out that creativity in a free market always finds ways to squeeze more production out of existing resources, and also finds ways to get more resources. It is somewhat funny that you would make this statement right after falsely claiming that the author called the economy static, with four apples. You correctly showed that this would be a silly thing to say, and then you turn around and say it yourself.

    An artificial scarcity of money can (and usually does) result in the economy producing below capacity – this manifests as unemployment; if there are unemployed laborers, it is manifestly clear that the economy CAN produce more goods and services.

    Unemployment (other than transitory) can be caused by a number of things, none of which has anything to do with a ‘scarcity of money’. A reduction in the supply of money is actually usually the CAUSE of unemployment, rather than an effect, as a reduction in the supply of money, relative to the size of the economy, causes deflation, which can cause a recession. There is no such thing as ‘a scarcity of money’, as prices can move in both directions. I suppose in theory, if you had no money, that would create a ‘scarcity’ to the degree that barter is not a very efficient system of trade, by and large, but any supply of money that allows trade without barter is sufficient for an economy. The notion that there can be a ‘scarcity of money’ is absurd – changes in the money supply have effects, but the actual supply of money – prices can adjust to any level.

    The author comically describes nominal savings (held by foreign entities) as a “bubble”, and pretends that MMT does not take account of it.

    That’s another straw-man. The author does not look at savings held by foreign entities as a ‘bubble’. The author only looks at the holding of foreign government debt as a means of avoiding the purchase of goods and services from those foreign nations, as a bubble. It’s a very specific kind of bubble, as the liquidation of those holdings would cause inflation in both the nation holding the debt, and the nation issuing the debt.

    MMT makes no note of this one way or the other, so it would be silly to say that MMT does not take account of it. MMT supporters on the other hand ask where Japan’s inflation is, all the time, so it is accurate to say that MMTers, at least when they ask that question, do not take account of this. I’ll bet none of them have ever even thought about the effect of holding foreign debt as a means to avoid buying foreign products…

    Au contraire, MMT is quite aware of the impact of savings, and understands that when spending is deferred (savings) something must fill the void to maintain sufficient demand to keep the economy rolling, or there will be recession. If this savings “bubble” burst (i.e. people suddenly began spending instead of saving) then this very event would drastically reduce the need for deficit spending due to increased private and foreign sector demand.

    Actually, you are now making the biggest mistake MMTers make, which is to assume that if you have money and demand, you’ll have supply. Production can never be assumed, as people only produce when there is sufficient demand to do so, and you can kill demand through excessive taxation, at any price point. Savings, on the other hand, can also be classified as ‘investment’ – investing in things like factories and capital equipment, which MMTers seem to think magically pop up out of thin air.

    It is laudable that the author wishes to understand the empirically sound economics of MMT – he just needs to study harder and dispense with the straw man arguments.

    The author made no straw man arguments. He seems to understand MMT better than you do, and he accurately described it. You on the other hand made two straw man arguments, as shown above. Also note that there is nothing sound about MMT.

    1. Your critique of Mr Swan’s comments lack. Real resource determines production. Demand comes before supply. Spending occurs before taxation. Deficits create surpluses, so the federal deficit results from the private sector’s desire to save. Money is representative. MMT is solid and can be proven through the accounting. Have a nice day.

      1. Resources DO NOT determine production. Demand DOES NOT always come before supply. Spending DOES NOT have to occur before taxation. Deficits DO NOT always create surpluses. MMT is quack economics.

        1. You need sufficient govt deficits before it can turn a govt surplus …
          Put one of your apples in an empty cupboard then try and take 2 apples out.
          Good Luck !

    2. “creativity in a free market always finds ways to squeeze more production out of existing resources, and also finds ways to get more resources.”

      Creative acquisition of monopolies, creative rent-seeking, creative cost externalisation, creative misleading and deceptive conduct, creative croneyism, creative ponzi schemes, creative cost externalisation, creative oligopoly.

      You don’t like MMT because it makes it known that there can be a democratic response to excesses of creativity.

      1. Alan – How many monopolies can you name that existed for long without direct government assistance? Of those monopolies that existed without direct government assistance (including those that lasted only a short while), how many can you name that were able to use their monopoly position to increase their pricing?

        I’ll help. On the first question, there were two – in all US history. On the second question, the answer is zero.

        You are tipping at windmills.

        I don’t like MMT because it was created to confuse the relationship between government spending (above taxation) and inflation.

        1. Yet another indication that you haven’t invested any substantive study into MMT. Anyone who has gotten it from the horse’s mouth knows that there is not a single MMT theorist fails to hilight the risks of inflation. They are just not as alarmist about it as you, but there is areally ever-present reminders that inflation is the constraint on federal spending.

          You should just stick with “You’ll notice that I do not attack the core beliefs under MMT. I only attack the application.” You are clearly having extreme difficulty separating core principles from application. You should start over and properly express YOUR application of the empirically factual core principles of MMT.

          You are confusing politics for economics and railing against the manner in which certain political factions might apply the principles as if that addresses the core of MMT itself. MMT is apolitical and can be applied however you like. Clearly you would apply it differently than many advocates – that doesn’t “refute MMT”, it simply means you disagree on application.

          1. David – The WHOLE POINT of MMT is to try and separate the direct causal link between growth in the M2 money supply, taxation, and inflation. The WHOLE POINT is to give government an excuse to spend whatever it wants, wherever it wants. Even if I trusted Congress to tax enough to prevent inflation, why the hell would I want government taxing the productive parts of the economy to fund things that are not productive? And don’t tell me that this would not happen, because you can’t tax things that are losing money, and things that are productive don’t need the help.

          2. “David – The WHOLE POINT of MMT is to try and separate the direct causal link between growth in the M2 money supply, taxation, and inflation. The WHOLE POINT is to give government an excuse to spend whatever it wants, wherever it wants.”

            And here you go again fabricating whole cloth. You think anyone is going to believe your claims to have studied and understood MMT when you spew this garbage? Here’s an actual MMT take:

            “the real point MMT is making is that the government’s budget constraint is the wrong constraint—the correct constraint is whether or not a particular budget position will raise inflation beyond an official target rate (say, 2%, which seems to be the choice of most central bankers).” – Scott Fullwiler

            http://neweconomicperspectives.org/2015/01/replacing-budget-constraint-inflation-constraint.html

            It seems clear that you are heavily invested in painting a false image of MMT to suit your narrative.

          3. David – I don’t think you are going to agree with me, but that’s because you are a snake oil salesman who drinks his own snake oil. Believe it or not, but the vast majority of people either have no clue about monetary policy, or they think you are a quack.

          4. “David – I don’t think you are going to agree with me, but that’s because you are a snake oil salesman”

            No, I am not going to agree with you because you are a liar (see above) who deliberately distorts the point of MMT to suit your agenda. Garbage.

          5. “Oh bullshit. I’m not a liar. I have been remarkably consistent.”

            Yes, you have consistently misrepresented MMT to suit your agenda. That makes you a liar.

    3. >> That’s a misquote. The author did use a simplistic example of an economy with four apples, but never claimed that any economy is static. THIS is a straw-man argument, unlike the author’s article (more on that later).

      The author chose a simplistic example that is highly misleading, and did little if any to expand on it to provide anything resembling an accurate picture of the workings of the economy vis-a-vis inflation. He could easily have demonstrated the expansion of economic capacity beyond 4 apples, but opted not to. In the real economy if demand for apples rises, this *may* result in short-term price increases if apple production cannot be easily increased to match demand. However, this would *also* increase apple profitability, sending the market signal to increase apple production. The increased profitability will both encourage new apple investment and fund it. Soon the economy will produce 6, 8, or as many apples as are needed to meet demand.

      Perhaps apple production isn’t so easily expanded. In this case the price increase for apples might be more resilient. If the increased profitability of apples did not translate well into investment and increased production, then the market might gravitate toward product substitution. Perhaps people will respond to higher apple prices by substituting pears, or quince. The market finds its new equilibrium by the most efficient path possible through some combination of investment and substitution.

      The author’s use of the childish apple analogy was not intended to illuminate, but to oversimplify and misdirect. The author most certainly counted on the reader to overlook the potential for economic growth to neutralize or isolate inflation. Let’s not pretend that the author presented anything even remotely resembling a nuanced, comprehensive picture of inflation – after all, he said “Inflation really is that simple”.

      >> >> REAL RESOURCES (labor, capital, raw materials) determine what the economy can produce.

      >> That’s somewhat true, but you leave out that creativity in a free market always finds ways to squeeze more production out of existing resources, and also finds ways to get more resources. It is somewhat funny that you would make this statement right after falsely claiming that the author called the economy static, with four apples. You correctly showed that this would be a silly thing to say, and then you turn around and say it yourself.

      It is the author’s simplistic use of the apple analogy that leaves out the creativity of the free market to squeeze more out of existing resources. That the economy has the ability to do so counters the exaggerated inflation fears.

      >> Unemployment (other than transitory) can be caused by a number of things, none of which has anything to do with a ‘scarcity of money’. A reduction in the supply of money is actually usually the CAUSE of unemployment, rather than an effect, as a reduction in the supply of money, relative to the size of the economy, causes deflation, which can cause a recession. There is no such thing as ‘a scarcity of money’, as prices can move in both directions. I suppose in theory, if you had no money, that would create a ‘scarcity’ to the degree that barter is not a very efficient system of trade, by and large, but any supply of money that allows trade without barter is sufficient for an economy. The notion that there can be a ‘scarcity of money’ is absurd – changes in the money supply have effects, but the actual supply of money – prices can adjust to any level.

      It is much, much easier for prices to move up than down. Thus expecting prices to smoothly reach a new equilibrium during a deflation is misguided. You are absolutely correct that a reduction of the supply of money relative to the size of the economy has a deflationary bias which leads to recession. Clearly austerity is contraindicated, and generally an expansionary position is more appropriate. An exception would be the condition of a substantial trade surplus, which could compensate for the deflationary impact of a federal budget surplus.

      >> >> The author comically describes nominal savings (held by foreign entities) as a “bubble”, and pretends that MMT does not take account of it.

      >> That’s another straw-man. The author does not look at savings held by foreign entities as a ‘bubble’. The author only looks at the holding of foreign government debt as a means of avoiding the purchase of goods and services from those foreign nations, as a bubble. It’s a very specific kind of bubble, as the liquidation of those holdings would cause inflation in both the nation holding the debt, and the nation issuing the debt.

      Did you even read the article? The author clearly states, “World governments have created THE BUBBLE OF ALL BUBBLES – buying debt held in fiat currencies, to keep money out of circulation, growing entire economies as bubbles, and holding onto ever higher levels of debt, held in foreign denominations, to prevent inflation.” The author clearly states that he looks at savings held by foreign entities as a bubble – not a straw-man. This sort of wild-eyed rhetoric is typical.

      As for the implications of liquidation: China (for instance) has two routes for “liquidating” their dollar reserves position. They can sell their treasury securities to other holders of dollar reserves – this does not “cause inflation”, it simply rearranges the holders of dollars. Or they can begin purchasing more US products & assets while exporting less to the US. Flipping the balance of trade with China would induce an economic boom for the US with low unemployment, high profits, high investment, and high GDP. As firms scramble to ramp up production to meet demand they will compete for workers, causing wages to rise (compensating for inflation).

      Ultimately there is nothing “special” about foreign holdings of dollar reserves – savings is savings, no matter where it is held. If the *domestic* sector chooses to run down its savings (or run up its debt) beyond the ability of the economy to meet demand it is no less inflationary than any other spending. Savings and deleveraging are contractionary, dissaving and increased borrowing are expansionary.

      >> MMT makes no note of this one way or the other, so it would be silly to say that MMT does not take account of it. MMT supporters on the other hand ask where Japan’s inflation is, all the time, so it is accurate to say that MMTers, at least when they ask that question, do not take account of this. I’ll bet none of them have ever even thought about the effect of holding foreign debt as a means to avoid buying foreign products…

      MMT *thoroughly* describes the interaction between the foreign and domestic sectors through the lens of the sectoral balances. If funds are leaving the domestic sector to be accumulated as reserves in the foreign sector then this has a contractionary bias that must be compensated for with either public deficit spending (“debt”) or private deficit spending (debt) in order to prevent deflation/recession. When the opposite occurs, the excess funds flowing from the external sector can be sequestered as domestic savings (or used to pay down debts), can be siphoned off with a federal budget surplus (use extreme caution, overdoing this is a ticket to recession), or can simply manifest as inflation if the first two are insufficient.

      If you had invested any legitimate effort into researching MMT you would have discovered the sectoral balances quite quickly, and you are certainly smart enough to understand how it applies to the circumstance you claim MMT “makes no note of”. That you have failed to grasp how the sectoral balances apply to foreign reserve holdings indicates you have probably only “researched” MMT second-hand, cribbing a few MMT “rebuttals” to (mis)inform your position.

      >> Actually, you are now making the biggest mistake MMTers make, which is to assume that if you have money and demand, you’ll have supply. Production can never be assumed, as people only produce when there is sufficient demand to do so, and you can kill demand through excessive taxation, at any price point. Savings, on the other hand, can also be classified as ‘investment’ – investing in things like factories and capital equipment, which MMTers seem to think magically pop up out of thin air.

      MMT makes no such assumptions. Supply may not always be able to increase to meet demand, but supply will NEVER increase absent demand pressures. It is good that you note that “you can kill demand through excessive taxation”, a dynamic MMT hilights extensively. As for investment, it requires demand pressures – no competent businessman will invest in capital expansion without ample demand to signal the productivity of such enterprise. As well, when the federal government takes an expansionary budget position this *increases* (not decreases) the amount of nominal savings available for investment.

      1. I want to thank you. You brought up a number of interesting but complicated issues that I decided to answer by writing my next post! To answer it, I had to look not only at monetary policy and inflation, but also at what happens when you look at monetary policy and inflation comparing different currencies in different countries. The result was a wonderful spring-board to argue in favor of free trade!

        http://thedailylibertarian.com/free-trade-without-agreements/

    1. Marit – We do tax savings already, as capital gains.

      Organic bubbles are not very common, and as such, we don’t really have to worry about them. Bubbles are almost entirely caused by Federal Reserve or Government policies. The stock market bubble in 1929 for example was caused by artificially low interest rates, set by the Fed. Banks borrowed the cheap money and invested it into the stock market, causing a bubble. The housing bubble was caused by government policies regarding ‘fair housing’ that made it illegal to turn people down based on credit alone. You might remember Bill Clinton’s speech in which he said that everyone should be able to own their own home. The policies he put in place to make that possible caused the housing bubble. You avoid bubbles by letting the free market work.

      There is a boom and bust cycle in a free market economy, but each industry has its own boom and bust cycle. For the whole economy to go into a recession all at once, you need a systemic cause, such as a natural disaster, a rapid change in the supply of money, or a government policy that screws things up.

  3. Wallace, you seem to think that all government spending must come from taxation of “organic” money, either now or in the future. This is not at all true. The private sector holds trillions of dollars (and yen, and pounds) as savings, and that savings is in little danger of being “taxed away.” There is no reason why governments need to extinguish their own liabilities, and this does not result in an overhang of actual debt, either, as the government expends no real resources to pay for its own money creation and spending.

    First of all, consider the difficulty (or impossibility) of private sector savings without governments running deficits. If government budgets are balanced and we are running solely on “organic” money (bank-created credit), every dollar saved is a dollar of real debt. If you hold $1000 in your bank account and don’t spend it, somebody else is paying interest on that $1000, all while it does nothing for the economy. THAT is an unsustainable bubble.

    Second, remember that income pays for most of our spending. Taking a $15 trillion economy as an example, we have $15 trillion in income, with which we buy that production. But some people don’t spend all of their income (there is that savings problem again), and this would lead to a decrease in production due to the decrease in demand. Which would only spiral downward. Savings IS going to happen, and you need something to fill the resulting demand gap. This can be accomplished by 1) net spending out of savings (which doesn’t happen), 2) an increase in credit (which only happens when the economy is good and businesses expect higher profits), and 3) government deficit spending. Your solution, by default, is an increase in bank credit, which is just another, far more dangerous, source of a bubble.

    Perhaps you simply don’t understand how governments can create and spend money “without cost,” because you are looking in the wrong place for the cost. The cost isn’t in future taxation, because there is no need for the government to extinguish its liabilities. The cost is in labor and materials; when the government spends, the economy reacts by increasing production, as long as it is able. But the result is a net gain in production. Just like when businesses borrow to increase production and profits, increased commerce results in increased production and increased income. This is sustainable as long as we have the labor, energy, and materials to meet demand. It’s just increased commerce, and most of us understand that increased commerce is a good thing.

    Finally, the case of Venezuela. Venezuela’s economy is overly dependent on oil. They paid for food and other necessities that their own economy didn’t produce with oil income. When the price of oil took a dive, there was not enough income to pay for their food. In this case, government spending didn’t boost their economy, because their economy didn’t have the capacity to meet increased demand – money left the country to buy food. That is simply not the case with the U.S., or Japan, or any other better-developed economy out there.

    You really need to do your homework better before you go writing critiques of other schools of thought.

    1. John – I granted that you can look at money as something that government spends into existence, and you can then use taxation to prevent inflation, so I don’t know why you would accuse me of assuming that government spending must come from ‘organic money’. What I did say is that if government does not tax what it spends, you will eventually get inflation, and that is an accurate statement. If Government Spending > Taxation + Economic Growth, inflation will be the result.

      Government expends no resources to print more money, but it can and does reduce the value of the money earned and spent by the public. Inflation actually works just like a tax.

      The way we create money under the Federal Reserve system, the government must increase its debt to create money. I don’t like that system, but that is our system. That does not mean that the government cannot balance the budget – it only means that the federal reserve would not be able to buy federal bonds directly from the treasury. As for the rest of this statement, it is not hard to imagine a world where government has a balanced budget and we had private sector savings. The market would coordinate time with interest. That is NOT a bubble.

      You are confusing money with wealth. Money is not wealth. Wealth is the totality of goods and services produced. Money is just a measuring system that makes the transfer of real wealth more efficient. We would still produce wealth even if the government did not increase the supply of money, or increased it by having the treasury print physical currency rather than selling savings bonds to the Fed.

      Savings is not a problem, because saved money is spent – just not by the person saving it. If I save money by buying stocks, as an example, then I am providing funds that can go into building new factories, and all other kinds of capital purchasing. Unless I put my money in a mattress or something, investing it rather than spending it does not take it out of circulation at all. I am simply allowing someone else to spend it today, and charging that person interest such that they have to give me more money back in the future. The money is spent whether I spend it myself, or loan it out to someone else in the form of savings and investments.

      I am absolutely not looking in the wrong place when I look for the cost of printing money. When government taxes to pay its bills (or to prevent inflation, as you would put it), in that case the cost is in labor and materials, and when government allows inflation to occur, since inflation works exactly the same way a tax does, the cost is STILL in labor and materials.

      When the government spends, since that money either came from a tax, or is causing inflation – which acts just like a tax – that spending does have a multiplier effect, but so too does private spending, and since government spending comes at the expense of private spending, unless you believe that the multiplier effect of government spending is somehow higher than the multiplier effect of private spending (it is lower – not higher), it actually hurts the economy more than it helps it.

      In the case of Venezuela, oil was a part of the problem, but they became an economy based solely on oil only because they followed MMT thinking and discouraged the production of other goods and services.

      1. Much to correct here.

        Let’s start off with your claim of inflation. Where is this supposed inflation? Why is inflation so low when our deficit spending is relatively high, by historical standards? And how do you explain Japan, who has tried hard to induce inflation, but cannot do it?
        Please – check the data before you make these claims. You spent most of your rebuttal pushing the inflation angle, when this inflation simply does not exist in reality.

        “You are confusing money with wealth.” At no point did I ever refer to wealth. So, congratulations on taking that strawman down.

        You said, “Savings is not a problem,…” This whole paragraph is so completely incorrect that I’m not really sure where to begin. Banking does not work the way you think it works. We have a credit creation banking system – not a financial intermediary system, and not even a fractional reserve system. Banks do not loan out your deposits; rather, loans create deposits. (See http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf ) So, no, the money in your bank account does NOT get loaned out or otherwise used by others. That means there is always some net savings out of income that you still need to account for.

        “…because they followed MMT thinking and discouraged the production of other goods and services.” Please show me ONE SPECK of evidence that Venezuela actively discouraged the production of other goods and services. I think you are talking out of your fanny here.

        In sum, if you can’t demonstrate some significant inflation in the U.S., then your whole argument falls apart like a house of cards. The other mistakes you made are more excusable, but making a claim in the face of contrary evidence is not a very persuasive argument.

          1. I read the editorial, and none of my questions were answered there. That’s why I’m bothering to comment.

            Specifically, I find convoluted explanations/excuses for the lack of observable inflation nothing more than exercises in self-deception. The inflation data is on my side; all you can present in rebuttal is your belief in an unprovable concept. Without data to support your inflation theory, you are basically arguing religion.

            Nor was the banking/savings problem resolved. If you have banking wrong (and you do), everything that builds upon that (mis)understanding will be flawed as well – money creation, capital formation, interest rates, savings, you name it.

          2. I’ll show you how it works in China today. China plays mercantilism by using the dollars they are paid in, to buy US savings bonds rather than US goods and services. Our government then spends money, borrowing to do so, to create those savings bonds. China can then replace the dollars their companies are paid, with Juan, and that Juan can flow into the Chinese economy to purchase Chinese goods and services. Since that grows the Chinese economy, no inflation occurs, but that growth is a bubble, as China still has all of those US savings bonds floating around their central bank, representing purchases that should have been made in the United States rather than China. They can only push the envelope so far before they are forced to start spending dollars, and then the bubble bursts and they fall into the trap Japan is in.

      2. “Since that grows the Chinese economy, no inflation occurs, but that growth is a bubble, as China still has all of those US savings bonds floating around their central bank, representing purchases that should have been made in the United States rather than China.” No inflation occurs because the Chinese economy is able to meet the demand. U.S. bonds have nothing to do with that; they are merely savings. Calling that a bubble is pure conjecture on your part, and isn’t even backed up with logic; it’s backed up by what you think *should* happen (balanced trade). Again, you offer no evidence of inflation, because no evidence exists to back you up.

      3. “They can only push the envelope so far before they are forced to start spending dollars, and then the bubble bursts and they fall into the trap Japan is in.” Nothing is going to force China into spending U.S. dollars. There is no such mechanism. And “pushing the envelope” isn’t an explanation for anything. Explain what this “envelope” is, then back it up with some data. When has holding foreign reserves ever caused domestic inflation?

        And Chinese currency is “yuan,” not “Juan.” These kinds of mistakes don’t lend your theory any credence. One might read that and mistake you for someone who doesn’t understand economics (or MMT) as much as you purport to.

      4. >> …. if government does not tax what it spends, you will eventually get inflation, and that is an accurate statement. If Government Spending > Taxation + Economic Growth, inflation will be the result.

        You just stated two completely different things. First you said that “if government does not tax what it spends, you will eventually get inflation”. Then you said if government spending > taxation + ECONOMIC GROWTH inflation will be the end result. Which is it – government must tax all that it spends, or economic growth offsets inflation?

        >> Government expends no resources to print more money, but it can and does reduce the value of the money earned and spent by the public. Inflation actually works just like a tax.

        When government spends beyond the real economy’s ability to produce it can certainly lead to inflation. However you yourself admit that there is an expectation of growth, and that the money supply needs to expand with the economy to maintain price stability. We must steer between deflation/recession on the one side and inflation/overheating on the other. Your stylized equation of inflation automatically occurring “when G > (T + GDP growth)” is arbitrary and unsupported by anything but your ideology, but at least you accept that a growing economy and a correspondingly growing money supply are not incompatible with price stability.

        Of course when it comes down to it it’s far better to err on the side of inflation. This ensures that the *real* economy is maximizing its production rather than languishing in artificial scarcity to appease inflation fear-mongerers. Inflation does not work “just like a tax”. I know of no taxes that leave debtors better off in respect to their past debts as inflation does. I know of no taxes that effectively “don’t exist” if the economy grows fast enough. Nor is inflation incompatible with rising standards of living, as we saw in the US in the postwar period ’45-70; then we had high inflation but wages grew faster; now we have low inflation but wages grow even slower.

        >> The way we create money under the Federal Reserve system, the government must increase its debt to create money. I don’t like that system, but that is our system. That does not mean that the government cannot balance the budget – it only means that the federal reserve would not be able to buy federal bonds directly from the treasury. As for the rest of this statement, it is not hard to imagine a world where government has a balanced budget and we had private sector savings. The market would coordinate time with interest. That is NOT a bubble.

        MMT shows that there is little macroeconomic difference between the Treasury issuing bonds or issuing currency directly – it is simply a different path to the same place. Either way government issues liabilities (bonds or currency are *both* liabilities of government) and the supply of base money grows.

        If we have a balanced budget the private sector will still have savings, sure – they will just have a “hard cap” and will never grow in aggregate. Why in the context of a growing economy with a growing population and growing productivity would you want a hard cap on nominal savings? You yourself indicated that the money supply should grow alongside the economy (I am ignoring that you can’t seem to decide whether government should tax all it spends, or allow for economic growth).

        You also seem to be implying a “banks as intermediaries” arrangement whereby saving is equilibriated with borrowing via time and interest. This model does not correspond with reality. Banks do not lend out deposits, they create deposits (and matching liabilities) from *nothing* when they lend, and their ability to lend has nothing to do with the amount of their customers’ deposits. There is no equilibrium between saving and borrowing/investment, the only thing that can be said is that if there are more savings (as determined by the federal deficit) then there will be more base funds that can be used for investment.

        >> Savings is not a problem, because saved money is spent – just not by the person saving it. If I save money by buying stocks, as an example, then I am providing funds that can go into building new factories, and all other kinds of capital purchasing. Unless I put my money in a mattress or something, investing it rather than spending it does not take it out of circulation at all. I am simply allowing someone else to spend it today, and charging that person interest such that they have to give me more money back in the future. The money is spent whether I spend it myself, or loan it out to someone else in the form of savings and investments.

        This is categorically false. Banks are not intermediaries between savers and borrowers. Savings are not “lent out” to borrowers. Loans create deposits ex nihilo. This has been confirmed explicitly by the Bank of England, which has “a bit of experience” in this area:

        http://bilbo.economicoutlook.net/blog/?p=31063

        >> When the government spends, since that money either came from a tax, or is causing inflation – which acts just like a tax – that spending does have a multiplier effect, but so too does private spending, and since government spending comes at the expense of private spending, unless you believe that the multiplier effect of government spending is somehow higher than the multiplier effect of private spending (it is lower – not higher), it actually hurts the economy more than it helps it.

        Government *deficit* spending does not come “at the expense of private spending”, and as you affirmed earlier it is “offset by economic growth” (which you keep forgetting when it’s convenient to do so). We can have both apples and oranges, as it were.

        >> In the case of Venezuela, oil was a part of the problem, but they became an economy based solely on oil only because they followed MMT thinking and discouraged the production of other goods and services.

        Describing Venezuela as having “followed MMT thinking” is absurd. For one, if Venezuela followed “MMT thinking” they would depeg their currency from the dollar, float it, and “borrow” only in their domestic currency. The pegged currency alone is a huge part of Venezuela’s current problems… it was fine and dandy to peg to the dollar when their oil exports brought a steady injection of dollars, but now that oil has crashed and Venezuela’s exports no longer bring in a stream of dollars, they must defend their currency reserves by running a *ridiculously* high interest rate.

        As for Venezuela’s oil dependency, it is laughable to pin that even remotely on MMT. That has been the case with Venezuela for decades, through both conservative and liberal administrations. Venezuela refuses to diversify their economy, and now with the astronomical peg-driven interest rates they couldn’t even do so if they wanted – who would invest in “unprofitable” ventures like real capital when they can make a windfall off of bonds?

        A concerted effort to subsidize core industries to ensure there are always import substitutions for basic living essentials would have shielded VZ a good deal from the shifting winds of the oil market. As it stands it will take years for VZ to recover even if they wise up and float their currency.

    2. Venezuela’s problems are the result of deliberate destabilization efforts on the part of the US, just like they did with Chile.’ Take out the interference of imperialist nations, and things will fix themselves.

    3. Some more corrections are in order.

      “Our government then spends money, borrowing to do so, to create those savings bonds.” No, the issuance of bonds costs the U.S. no money. Bonds are issued, the private sector buys them, and the government spends the proceeds right back into the economy. The net result is an increase in the number of bonds held by the private sector, plus an increase in aggregate demand (which is a good thing). Bondholders are happy to hold bonds as assets, and the dollars are merely shifted to earners, via the government spending. The bondholders were not going to spend or invest in production – that is why they prefer to hold bonds, a no-risk, low-interest option.

        1. It doesn’t cost money to “repay” the federal “debt” – the bond money sits in the securities account until redemption. Like moving funds from checking to savings and back.

          1. No, when a savings bond is paid it does not “come out of taxation”. That is objectively false. Bond sales are an asset swap – a deposit account (and the bank’s reserve account) are debited, the purchaser’s securities account is credited, and they get the bond (a tradeable asset). Redemption is simply an asset swap in the opposite direction, like moving funds from savings back to checking – the securities account is debited and the bond is extinguished; the owner’s deposit account and their bank’s reserve account are credited. These are accounting facts that describe the mechanics of bond sale & redemption, not subject to debate.

            If taxation exceeds spending then that surplus does reduce the number of total bonds outstanding, but indirectly (bond redemption releases bank reserves which are extinguished by taxation, since the reserves are gone the Fed does not need to soak up reserves with new bond sale). This is not a process of taxes “paying for bonds”, but rather a reduction of the base money supply (much of which is held in the form of bonds). The federal deficit (surplus) adds to (subtracts from) the total amount of high power money outstanding (all cash + all reserves + all bonds).

          2. When I pay my mortgage payment, does it come out of income, or fairy dust?

            What you are doing is to confuse money and wealth. Our nation’s wealth is the totality of goods and services we produce. Money is just a measuring stick. Taxes reduce the public’s ability to purchase goods and services, which really does make people less wealthy. Government can print money to pay its debts (if I did that it would be illegal), but to prevent inflation it must then tax the public an offsetting amount. There is no way around that. You can wait a few years for the inflation to hit the labor market and then tax to hold it down, but now you are saying, “Oh – all physical commodities cost more in US dollars. I’ve got a great idea! Let’s tax the shit out of the American people to keep their incomes from rising to compensate!”

            How very nice of you.

          3. “When I pay my mortgage payment, does it come out of income, or fairy dust?”

            When you pay your mortgage payment to you are not a monetary sovereign paying your IOUs with more IOUs. Thathe you think your household debt is in any way comparable to sovereign “debt” shows how thoroughly you misunderstand our monetary system.

            Debt service does not come out of federal taxes, PERIOD. You can trace it through on the books, it absolutely does not happen. You think that howould you “feel” that the system works is the important thing, but your feelings about it are irrelevant. US treasury securities are NEVER “paid” out of taxes, period. That’s not the way it works.

          4. When government pays its bills by printing money, that causes inflation. Inflation works just like a tax, so the effect on the taxpayer is the same as if you were taxing them. Economists sometimes refer to inflation as a ‘hidden tax’.

          5. “When government pays its bills by printing money, that causes inflation.

            No, when SPENDING (not “the quantity of money”) exceeds the economy’s production potential, inflation is the result. Simply adding net financial assets to the economy does not tell you anything absent context. You yourself have observed that the exporting of savings bonds is deflationary and the importing of external paper is inflationary, but the real question is “where is it being spent”? If the answer is “nowhere” (i.e. savings) then it is not and cannot be inflationary until it IS spent.

            That the mere existence of dollars added to the economy (cash + reserves + bonds) has ZERO correlation with inflation is easily verified with empirical data. Pull the data series for monetary base, total reserves, and total debt… collate them and sum them together for Net Financial Assets. Now graph that and put it next to CPI. We can see that despite QUITE visible growth in the Net Financial Assets series, the CPI series does not budge from its trend EVER, period. Your hysterical claims about inflation as an “inevitable consequence” of money growth from federal spending are worthless garbage, and you are wallowing in it. You have NO credibility.

            But it’s good to see you have backed off of your ignorant claim that “debt service comes out of taxes”. Taxes EXTINGUISH reserves, so they can hardly then be used to “pay off” bonds.

            The federal government does not borrow for a mortgage. If you accepted funds and put them in a box for a set period of time, then returned them to their owner, then *that* would be analogous to government “borrowing”. The funds are “printed in advance”, and as you have noted (but refuse to face in context) when an equal amount of funds (whether in cash or bond form) is shipped overseas there is no inflationary impact.

            ” Inflation works just like a tax, so the effect on the taxpayer is the same as if you were taxing them. Economists sometimes refer to inflation as a ‘hidden tax’.”

            No, only since your champion Milton Friedman perverted the central banks has inflation acted as a “tax” – a tax that decreases labor’s share of productivity even as profits grow. BEFORE your hero Milton Friedman put his thumb on the scale, wages increased FASTER than inflation and the standard of living of most Americans grew. It was only the deliberate intervention of the Fed into the labor market that caused wages to fall behind inflation. This is easily verifiable with empirical data.

            Absent the government intervention to pick a side in the class conflict, normal levels of inflation are relatively benign. It is only the influence of Chicago filthonomics that has turned it into a tool of class warfare.

          6. You are confusing cause and effect. Spending exceeding the economy’s production is caused by the devaluation of currency.

  4. “Because they can’t see inflation until they begin spending the dollars”

    Well done you have confirmed what MMT says. MMT says it is ANY spending that could be inflationary.

    Then you have

    “growth in the money supply and inflation”

    You need to make up your mind, growth in the money supply doesn’t necessarily mean inflation unless spent.

    Doesn’t seem to me that you understand the difference between what everyone else considers inflation and the Austrian version. You are mixing up the 2.

    1. Andy – Japan can’t see inflation until they let our dollars come home. That’s not the same as spending their dollars (Yen).

      I think I just made up my mind!

      It also seems I did not mix anything up!

          1. There is a longer explanation in the article above. It goes into detail on how a country, like Japan or China, can play mercantilism by using the dollars they are paid in to buy US savings bonds, rather than US goods and services. Our government then spends money, borrowing to do so, to create those savings bonds. China can then replace the dollars their companies are paid with Juan, and that Juan can flow into the Chinese economy to purchase Chinese goods and services. Since that grows the Chinese economy, no inflation occurs, but that growth is a bubble, as China still has all of those US savings bonds floating around, representing purchases that should have been made in the United States rather than China. They can only push the envelope so far before they are forced to start spending dollars, and then the bubble bursts and they fall into the trap Japan is in.

      1. If Japan is holding dollar reserves repatriating them isn’t going to cause them inflation. There is no diabolical state conspiracy to “hide inflation” by stocking up on US bonds. If the Japanese people decide to buy more American products and/or sell us less of theirs, then dollars will flow back to the US. Japan’s USD reserve position is simply a residual of the balance of trade.

        If anything Japan’s current account surplus would be a *driver* of inflation, just as our CAD is a driver of deflation.

          1. You haven’t addressed it, you have only given your garbled and circuitous path to some vaguely stated suppositions.

            You correctly identify that exports are real costs and imports are real benefits (MMT commends you) but after that your cause and effect get pretty wobbly. I am especially amused by your half-stated conception that if Chinese citizens exchange their dollars for yuan that means they are only buying Chinese products. Full disclosure: I have never been to China. Nevertheless I am sure that Chinese citizens purchase US imports with YUAN, not dollars. Which currency denominated their wallet it immaterial.

            China certainly erects *political* barriers to free trade, and trade agreements certainly play into that. That China runs a trade surplus against is in some part a political choice, and China can choose to change that and let her people enjoy the prosperity they create (rather than shipping it overseas).

            It is funny that in your roundabout way you confirmed what MMT says through the sectoral balances, which is that a trade surplus has an inflationary bias for China. You can’t seem to decide consistently which it is, but you got it right that time. Of course, simply learning how the sectoral balances work would give you a more direct (and reliable) route to the truth. 👍

        1. What is funny is that I never said that the basic tenets of MMT are wrong. I said something very different. I called it a word game, and I said that MMT was created to sell snake oil.

          I’ll let that post stand on its own. I’ll let the reader decide if it is wobbly. I’m very comfortable saying that I took several very complex topics and presented them, accurately, in a way that a non-economist can understand.

          When the Chinese purchase our products, they do us Yuan, but that does not happen very often – hence the trade surplus.

          1. That the Chinese purchase less from us than they buy from us is obvious – hence the trade surplus. The idea that it has something to do with a “nefarious conspiracy” to buy US bonds for some purpose that you have a vague idea about (but are clearly incompetent to state in Englsh) is laughable drivel.

  5. Wallace, you seem a pretty intelligent guy, going by your linked in profile. Let me try and explain what MMT is, in terms of a computer network.

    Think of the Network, as the Economy.
    Think of clients of the network as Businesses.
    Think of packets as money.
    Think of the packet storm as hyperinflation.

    Do you agree that a network packet carries value? in that moving a piece of information from A, to B, is valuable….right?

    And, i’m sure you agree that we need to protect a network from too many packets flowing around as this would decrease the value of a single packet because the chances of it getting through without collision or buffer overflow, would become low…. which means that many more packets would need to be sent, which increases the chances of dropped packet… and within seconds we’ll end up with a network swamped by packet storm….. or hyperinflation.

    One way of protecting a network would be to have a strict limit on packets. Every router would only be able to issue a packet if it had already had received one. Routers would need to pay a ‘TAX’ on the packets it received – 20% of packets can be returned to the FED server to be spent on ‘network operations’…
    By being frugal, and packet responsible, we can protect the value that each packet has!!!

    This, of course, is total bullshit. YET, this is how mainstream economics want the real world economy to work.

    How do networks really work? Routers keep track on how many packets are getting through, how many retries. If there are too many packets causing packet loss, routers will automatically slow down the issuing of new packets until the network is able to cope. The amount of packets that are allowed on the network is related to the size of that network. Too many packets, you get ‘inflation’, to little, then valuable resources are not being utilised to the full. As new network infrastructure is built, more packets can be sent without slowing (devaluing) other packets due to packet collision (inflation!)

    THIS is exactly how MMT suggests the economy should be run. The government simply monitors the idle resources, unemployment, and makes more money available until these resources are used. It is a far simpler and obvious solution.

    1. …..Hard disks can be thought of as packet stores, or Banks. If a user of the network, decides to store a 100 gigabytes, how has this affected the efficiency of the network?

      None what soever.

      And this is the same as the real economy. If someone decides to offshore a $100 billion…. this has no effect on the economy. UNLESS there the FED decides to refuse to reissue that stored money, and then you’ll get an economic depression because not enough money will flowing around.
      And then you get protesters shouting about how corporations should be taxed more, to try bring some of that $100b back into circulation…
      It’s bullshit, The Fed simply needs to reissue money that has being saved , otherwise the economy will stall.

      1. There is actually some truth to that. The Fed’s primary job is to maintain a stable M2 money supply. If people are parking large amounts of money offshore, that will reduce the M2. The Fed does not necessarily need to know where that money is, but they do have to react to the fact that it is not in circulation.

        1. …. It doesn’t even need to know M2 is not there.

          It simply needs to observe the results of the missing m2. The fact that there would be not enough money flowing around to use all resources, and issue more until resources are fully used.

          And should the corporation decide to spend some of its offshore hoard back into the economy, Then the gov responds by taxing more to prevent overheating.

          1. Except that the actual amount of money in circulation is not the driving force of anything. Changes in the amount of money are. Prices can adjust to any rational level of M2, but deflation and excessive inflation are not good, so we want to keep the level of money, relative to the size of the economy, in a relatively narrow ‘sweet spot’. That requires knowing what the size of the economy is, what the rate of growth of the economy is, and what the M2 and it’s rate of growth are.

          2. As for corporations (and individuals) spending money they have hoarded overseas, if they spend it to buy US goods and services, then it will help the economy grow. If you get a very sudden change in the amount of money coming in from overseas and you think it is going to overheat the economy, effectively causing a bubble, you don’t want to tax it away. Rather, you want the Fed to sell bonds into the economy to suck that money up and pull it out of circulation.

            We want steady, stable tax rates – not tax rates that fluctuate wildly based on economic conditions.

          3. “Except that the actual amount of money in circulation is not the driving force of anything. Changes in the amount of money are. Prices can adjust to any rational level of M2, but deflation and excessive inflation are not good, so we want to keep the level of money, relative to the size of the economy, in a relatively narrow ‘sweet spot’. That requires knowing what the size of the economy is, what the rate of growth of the economy is, and what the M2 and it’s rate of growth are.”

            That is monetarist logic, a quantity theorist logic. It is wrong. What matters is spending. If the total spending in economy goes up then that can cause inflation if the economy is operating at full capacity. That can theoretically happen even when the M2 is shrinking. The kind of thinking you demonstrate here is monetary simpleton logic. Even a child can understand that you are wrong.

            What usually happens during crises is that private sector is not very optimistic about the future and doesn’t want to spend its income. MMT calls It saving desire. This results is high unemployment and economy not operating at full capacity.

          4. Kristjan – I am not wrong, and nor is monetary theory. You just can’t see that because you have sold yourself on a garbage theory. Let me be very clear so that there is no misunderstanding – MMT is not even a real ‘theory’. It is absolute garbage.

          5. Absolute garbage but it points out the facts. I agree that it is not much of a theory, there is much more to economics than just monetary operations and accounting but you can’t get your theory right if you go wrong about your accounting and the facts about how monetary system operates,

            Austrians go astray, they start talking about real but we live in a monetary economy. When they talk about money and banks, It is not worth listening.

          6. I prefer Chicago School when it comes to monetary policy. That was one of the things Friedman got right.

          7. What exactly did Friedman get right?

            Monetarism has failed everywhere. Friedman himself admitted that his quantity formula was a failure.

            Milton Friedman: “The use of quantity of money as a target has not been a success. I’m not sure that I would as of today push it as hard as I once did.”

            What they all fail to see is that currency itself is a public monopoly. This is of fundamental importance in the economy we live in. MMT is built on this, unemployment is necessarily caused by the government and It cannot be fixed by private sector productivity growth, improving work skills etc.

            I don’t care if It is Friedman or Marx, they all fail in this area.

          8. Kristjan – You are taking Friedman out of context. As of yet, nobody has come up with a really good way to manage money. If you use some commodity as a standard to back money with, then the value of money fluctuates with the value of whatever that commodity is, and suddenly a gold rush causes a recession. If you use a fiat currency, then it is easy to print too much of it, to let it deplete through bank failures, or to make some other kind of mistake. Milton Friedman was reflecting on that – he was not saying that his entire monetary theory was a complete failure. What WOULD be a complete failure is MMT.

          9. Am I taking you out of context too “fed soaking up money suplly by selling bonds and cooling economy”, “price level adjusting to any M2”. That is total garbage. That is why you people don’t understand why QE is not causing inflation. I don’t know where to begin. I cannot explain It here, once I type a longer comment, the post reply button disappears. How about you read about mark up pricing by most firms and how about you read about MMT?

            http://moslereconomics.com/mandatory-readings/

          10. Kristjan – How about you look at Lyndon B Johnson’s use of the printing press to fund Vietnam. This forced Nixon to take us off the gold standard to avoid a run on our currency, but it did not cause inflation until Carter was President, and then we had something Keynes said was impossible – high rates of inflation and high rates of unemployment at the same time. Carter’s solution was to expand they money supply, which only made it worse.

            Don’t let the absence of inflation as an immediate effect blind you to the fact that expanding the money supply faster than the economy expands DOES CAUSE INFLATION. It is often the case in economics that the immediate effect of a policy and the long term effects are the opposite of each other, and Quantitative Easing is but one example of that.

            The best barometer of future inflation is the price of gold. What has happened to the price of gold over the past ten years? It was around $300 an ounce before Quantitative Easing started, and though it has come down some from it’s peak of $1,700 an ounce, it still costs $1,400 an ounce. That is almost four times what it cost before.

            Is gold worth more, or is money worth less? Don’t let the fact that inflation has not yet hit the labor market blind you to the fact that it is working through our economy.

          11. I provided a link for you to read. When oil prices go up 20 fold and there is inflation, you say: It is all because of QE.

            This is the kind of logic you are proposing that people follow. If someone says that is not true and look at the oil prices then you say that is garbage, snake oli, they are trying to confuse you. You really think people are that stupid?

          12. I never said inflation was ALL because of QE, and I certainly never tied in any specific resource (except gold). Oil can change in price for any number of reasons, including us pumping out more.

        2. “If you use some commodity as a standard to back money with, then the value of money fluctuates with the value of whatever that commodity is, and suddenly a gold rush causes a recession. ”

          That is wrong also, like I said I don’t konow where to begin. Randall Wray once said: we have discovered how money works.

          He was right. The more I read “the mainstreamers” the more I realise that MMT is lightyears ahead of them.

          1. You should read Will Durant’s “The History of Civilization, Volume One: Our Oriental Heritage.” Dr. Durant goes into detail on the history of paper money. It turns out that the first paper money comes from Ancient Egypt. It was not backed with gold, but with beer. The pyramid workers were paid in beer, and at some point a scribe decided to pay workers with paper that said, effectively, “Pay the bearer of this X amount of beer.” Workers could then go to the store house and pick up their beer. It did not take long before people started to trade the paper rather than trading physical beer, and paper money was born.

            Beer, being a consumable commodity, fluctuates wildly in value. Egypt’s economy would go into a period of price discovery each time the value of beer changed. They changed to a gold standard based on the fact that gold does not tarnish, making its value far more stable than beer. Gold isn’t perfect either – nobody has as of yet come up with a perfect way to manage a money supply – but gold is better than beer.

            We’ve seen MMT many times too, under other names, and it was experience with MMT that caused the founders to ban fiat money in our Constitution.

            Understand too that we don’t really have a fiat currency per se. Rather, our currency is based on debt, and because that debt is repaid through labor (you work to earn money to pay back debt), one can make a good argument that the value of labor backs our currency.

            Whatever the case, if you print too much, people want more of it for the same things, and you can see that if you look at the most stable commodity, in terms of value, on the planet: gold. Gold cost $300 in 2005. Now it costs $1,400, after falling back slightly from a peak of $1,700.

            Why has gold moved so much? Because investors use it as a hedge against inflation.

            We have thousands of years of history to draw from. It’s not like money is a mystery.

          2. Gold has also become speculation instrument. The fluctuations of this magnitute did not happen and could not happen during gold standard. Most gold bugs have never studied the history of gold standard. It was generally not like they tell you. It was crisis after crisis, on the gold standard for a while and then devaluing again. Just imagine us being on gold standard with the relative value shift that has happened. This would have been a deflationary nightmare, your house loan going up in real terms +4 times! The book you mention doesn’t really deal with monetary history.

            “Debt the first 5000 years” by David Graeber puts to sleep the myth that Austrians and mainstreamers push “first there was barter”. Anropologists have searced for 200 years and they have not found that. It is safe to assume that barter economies like the mainstream describes never existed.

          3. Money cannot be really based on debt only, at least not the way you think. There have been taxes behind fiat, so It is not correct to say that we don’t have fiat. It would be better to say that even gold coins were really fiat, they just happened to be printed on gold. Kings in old days did not have any problem owning all the gold mines. So the purpose of taxes and monetary system in those days was the same as It is today: to provision government. That is the primary purpose of the monetary system today. Gold standard just puts unnecessary restrictions on government’s ability to do that. Governments and government officials don’t suffer because of that, the people do.

          4. You are getting into dangerous territory now. The purpose of money is NOT to provision government. Holy smokes is that a dangerous thought!

            The purpose of money is to make it easier for me to trade my labor for goods and services. I trade my labor to an employer, who gives me money that I can use to buy goods and services for myself and my family. Without money, I would have to barter for all of those goods and services, which would be grossly inefficient.

            THAT is the purpose of money.

            And note that I can have an economy without government. It would again be grossly inefficient. I would have to defend my home and belongings against theft, and would again have to barter for everything I want, but it could be done. Government then does not make commerce possible – it only helps to make it more efficient.

          5. Kristjan – The ONLY sources that will say that fractional lending is a myth are the ones written by proponents of MMT. Doesn’t it bother you a little that EVERYONE else considers them hacks?

          6. ok, you said that you were familiar with endogenous money. you are not the way Post-Keynesians (real Keynesians, not Paul Krugman andd his ilk) describe it. I don’t care what everyone thinks, money multiplier is a myth that is being thrown out of textbooks. “Given the simplicity and widespread understanding of the money multiplier it is a shame that the myth must be laid to rest. The truth is the opposite of the textbook model. In the
            real world banks make loans independent of reserve positions, then during the next accounting period borrow any needed eserves. The imperatives of the accounting system, as previously discussed, require the Fed to lend the banks whatever they need.”

            This is the way real banking works in real world. I don’t care if the whole world believes the earth is flat, it is not.

            file:///C:/Users/kasutaja/Downloads/Soft+Currency+Economics.pdf

        3. The Fed has no real control over M2 since fractional reserve banking is a myth. We have fractional capital banking, thus the banks have direct control over M2 up to the limits of their capital – the Fed has an indirect influence through monetary policy that is weak at best.

          On the same token federal money creation via deficit spending does not have a direct impact on M2 because base money is not “multiplied” as depicted in the fractional reserve myth (bank capital – not reserves – is “multiplied”). Federal money creation is only a small portion (3%) of overall money creation and does not “multiply”.

          1. “The Fed has no real control over M2 since fractional reserve banking is a myth. We have fractional capital banking, thus the banks have direct control over M2 up to the limits of their capital – the Fed has an indirect influence through monetary policy that is weak at best.

            On the same token federal money creation via deficit spending does not have a direct impact on M2 because base money is not “multiplied” as depicted in the fractional reserve myth (bank capital – not reserves – is “multiplied”). Federal money creation is only a small portion (3%) of overall money creation and does not “multiply”.”

            Thanks

          2. “Federal money creation is only a small portion (3%) of overall money creation and does not “multiply”.”

            That is why the NFA are important. Monetarists don’t have a clue.

          3. Does it bother you at all that every economist on the planet who is not a proponent of MMT thinks MMT people are hacks? When you say that monetarists don’t have a clue, that might mean that you don’t.

          4. ok, you said that you were familiar with endogenous money. you are not the way Post-Keynesians (real Keynesians, not Paul Krugman andd his ilk) describe it. I don’t care what everyone thinks, money multiplier is a myth that is being thrown out of textbooks. “Given the simplicity and widespread understanding of the money multiplier it is a shame that the myth must be laid to rest. The truth is the opposite of the textbook model. In the
            real world banks make loans independent of reserve positions, then during the next accounting period borrow any needed eserves. The imperatives of the accounting system, as previously discussed, require the Fed to lend the banks whatever they need.”

            This is the way real banking works in real world. I don’t care if the whole world believes the earth is flat, it is not.

            file:///C:/Users/kasutaja/Downloads/Soft+Currency+Economics.pdf

            Does it bother me that big names in Economics can’t do reserve accounting? Sure.

          5. Ok, these people are from Fed: Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist?

            “While the institutional facts alone provide compelling support for our view, we also demonstrate empirically that the relationships implied by the money multiplier do not exist in the 28 data for the most liquid and well-capitalized banks. Changes in reserves are unrelated to changes in lending, and open market operations do not have a direct impact on lending. We conclude that the textbook treatment of money in the transmission mechanism can be rejected.”

            So money multiplier does not exist. “hacks” from banking have been saying this for years, Adademics in their inory towers have been insisting It does, You can calculate a ratio reserves/deposits but It doesn’t exist the way mainstream presents It.

          6. Kristjan – You believe things that are demonstrably false. If a bank has 1,000 times as much in outstanding loans and in savings and checking accounts as it has in actual money, it is multiplying its holdings through fractional lending. You saying ‘no’ does not change that. You are wrong, and it is as simple as that.

          7. “I never said inflation was ALL because of QE, and I certainly never tied in any specific resource (except gold). Oil can change in price for any number of reasons, including us pumping out more.”

            If you at any time claimed that QE caused even the tiniest amount of inflation then you are laughably wrong. Despite a MASSIVE injection of reserves CPI did not budge from its trend by so much as a millimeter. Your crayon-drawn picture of how inflation works is pure unmitigated drivel.

          8. The key word there is ‘yet’. Inflation often works through the economy slowly, which is why the short term impact of QE (lower interest rates) and the long term impact of QE (inflation causing higher interest rates) are the exact opposite of one another.

            You might find this article helpful: http://thedailylibertarian.com/time-and-values/

          9. “If a bank has 1,000 times as much in outstanding loans and in savings and checking accounts as it has in actual money, it is multiplying its holdings through fractional lending. ”

            Nobody said banks aren’t based on fractional lending – we said they operate on fractional CAPITAL lending, and thus the level of excess reserves does not matter. QE has proven beyond the shadow of a doubt that excess reserves do not cause banks to go on a moneylending spree. Your belief that federal money creation “automatically” multiplies into inflation is nonsense easily disproven.

    1. You linked to a blog with a library or links. I can link too, showing just how strong the Austrian School is: http://www.misis.org . See how easy that is?

      Note too that no perfect school of economics has ever been developed. There is a lot of truth in the Chicago school too. But MMT? That’s fool’s gold.

      1. Why is It fool’s gold? Because It describes our monetary system the way It is? You don’t really disagree with much of what MMT says.
        I can see that you have studied MMT more than most but yoyu still mix up some things or use monetarist thinking.

        “As for corporations (and individuals) spending money they have hoarded overseas, if they spend it to buy US goods and services, then it will help the economy grow. If you get a very sudden change in the amount of money coming in from overseas and you think it is going to overheat the economy, effectively causing a bubble, you don’t want to tax it away. Rather, you want the Fed to sell bonds into the economy to suck that money up and pull it out of circulation.”

        Fed sucking up money by selling bonds does not cool the economy. MMT posirtion has always been that bank reserves versus bonds is not more/ less inflationary. A lot of people had hard time believing It first but after QE-s everywhere with no inflation MMT is convincing. That is why the hostility towards MMT( fool’s gold) makes me wonder. MMT-ers have never said that governments can’t abuse their powers.

      2. “But MMT? That’s fool’s gold”

        MMT is how any monetarily sovereign nation does things in the real world.

        Austrian economics is not practices by anybody. They’re not stupid enough to throw their own people & economy under the bus like that.

        So who’s preaching fools gold?

        And you linked me to MisesDotOrg. Big deal, the snake oil they push is refuted on the Social Democracy blog, also.

      3. As a side note, I should address Chicago School/Monetarism. That was started by a guy who admitted he mis-advised the countries who sought his counsel, to their detriment. He should have told them to establish the rule of law first before going all wild with privatization.

        And he & his legacy all seem to think the US had open borders until about 1913, and there was no protectionism involved in the 2nd Industrial Revolution. Both are false.

        1. The rule of law should always come first. Without law, there is no private property. We did have some protectionism during our most free market period, but it was trivial compared to what we have today. It was also generally speaking counter-productive, as protectionism general is.

          MMT is a rush to devaluation of currency. Thank GOD you people have no political power.

      4. You see Wallace, IMO you are uninformed but not stupid. Almost all MMTers have been where you are, we were not born geniuses to figure everyting up. Once you read more, you will understand. I’ll leave you a comment that one MMTer once said:

        It’s basically like being forced to change your religion. You’re not unhappy with your current faith so there is no reason to take a giant leap to another faith until you start to feel some cognitive dissonance.
        Those that understand MMT all had the experience that something is not quite right with the way things have been explained. Unfortunately it is not until the student is ready that the teacher appears.

        1. MMTers always call anyone who does not ‘see the light’ ‘uninformed’. Your love of MMT is a religion, and so your example is fitting, but I am not a convert. I understand MMT perfectly well, but as soon as you say something like, “Monetary policy is how government is distributed,” my stomach turns. You are a socialist, using MMT as an excuse to enslave the public.

          1. ad hominem, just like the left is calling everyone who disagrees wjth them racist, you are calling everyone socialist, you have no arguments, sorry your bubble was broken

          2. Kristjan – If I was throwing out the ‘socialist’ tag without cause, that would be true, but when you say that the purpose of monetary policy is to distribute government, you are indeed a socialist, and I am being nice by not calling you a communist. Own the word. Bernie Sanders does.

          3. Not only that you don’t understand MMT, you don’t even understand what it is. It is not some ism. MMT describes monetary system the way It is. Monetyary system itself is a tool to achive our goals, It is not a source of information what those goals are(mainstream tries to get that information out of monetary system or at least It pretends that it does). I have never said “distribute government”. Government serves public purpose, It is for public infrastructure. Even the most conservative people think we need government. How big It is and what it does is an area for disargeement but we have a system through voting that we call democracy. It is not perfect and it will never be but the frauds that dominate economic policy certainly don’t serve our interest. Even me and you have some common interest in government I hope. The “we our out of money” narrative serves some very wealthy people in respect of power. It doesn’t serve the right or the left.

          4. I understand MMT perfectly well. If I took the other side of this debate, I could defend it better than you can. The WHOLE POINT of MMT is to confuse how spending, taxation, and inflation occur, with an eye on expanding government, and I’d have to go back up through your comments to see what exact phrase you used for ‘distribute government’. You are right that you might have used a synonym for ‘distribute’. I honestly don’t remember. But you did say either exactly that, or something that means that. You might remember me commenting on how scary a quote that was.

          5. “I understand MMT perfectly well.”

            An you talk about money multiplier? You talk about fed soaking up money by selling bonds and cooling economy. You see, I have been there myself, that is why I know what that kind of thinking involves. I took standard money and banking in university. I know how monetarists were paying attention to the precise amount of reserves in banking in 90-s and were expecting inflation if it got larger by x%.

            “The WHOLE POINT of MMT is to confuse how spending, taxation, and inflation occur”

            It seems you honestly believe that. Was MMT trying to confuse when a lot of Austrians were talking about hyperinflation danger when QE started and MMT said no, QE will not cause higher inflation. Did that confuse you? It might sound confusing. I have to admit that it was nat that ifficult for me really but all the mainstream theories had occupied my brain, It was hard to let go at first. Back then there were some good discussion groups. First I heard about MMT when this guy wes saying if there is not enough tax revenue then government can just print money to pay for public goods, I shut the youtube video immediately, I thought he was nuts. I am sure he said something else also for It to make sense but this is the impression I got.

            I was very interested in monetary operations since I was trading forex at the time. So in these chat groups there were some interesting topics and Warren Mosler name kept appearing. he said this and he said that. The rest is history but I could not grasp Soft Currency Economics first time. I guess It was about economic policy and It was boring. 7DIF hit the spot instantly. Warren is very good in banking and monetary operations. In old days all the MMT group got together in his blog. Now comments are closed there. But I agree, It can sound confusing and some people will never get It. There is just too many abstractions for them, they don’t even know what bank reserves are for example.

            I met some well respected economists and I can tell you they all got something to learn from MMT. It is counterintuitive.

          6. I UNDERSTAND MMT, and while I look at the basic tenets and say, “Yeah – you can look at it that way as long as you don’t read into it the way you want to read into it,” as soon as you start to read into it that government can spend whatever it wants without consequences, I utterly reject it. Rejecting it is not the same as not understanding it.

            You in the meantime have made multiple assertions, such that ‘bank lending does not increase the M2’, that are absurdly not correct.

          7. “as soon as you start to read into it that government can spend whatever it wants without consequences”

            That is not what MMT has said, ever. Spending has “consequences” and deficits matter. Deficits spending can cause inflation. It is just that deficits matter in a deffirent way, the bond vigilantes are not going to be a problem, we can consume everything we can produce etc.

          8. “You in the meantime have made multiple assertions, such that ‘bank lending does not increase the M2’, that are absurdly not correct.”

            I have never said that.

          9. “with an eye on expanding government”

            More garbage. One could just as easily use the insights of MMT to advocate for less taxation (rather than more spending). You can’t (or won’t) separate the economics from the politics, and it’s getting pretty pathetic.

        2. “Less taxation (with more spending) = more inflation”

          When did I say “more spending”? I said less taxes, that’s it. Not that it makes any difference – a larger deficit (regardless of how we get there) does NOT translate into inflation, it just translates into more so-called “debt” (nominal savings), WHICH DOESN’T EVEN FEED INTO M2. In 1980 M2 was 70% larger than the national “debt”. By ’90 the “debt” had grown to the same size as M2. In 2010 the “debt” surpassed 150% of M2 – federal spending has created more dollars than are actually circulating in the economy! You keep flapping your lie-hole about M2, and you aren’t even aware that the “debt” isn’t factoring into it.

          When we consolidate net financial assets (cash + reserves + bonds) and graph it against M2, or CPI, the difference is stark, and the separation occurs LONG before QE. There is not at ANY point a response to NFA growth with similar levels of M2 or CPI growth – not even if you lag by 10-15 years to account for your pathetic backpedaling excuses for why QE haso not generated inflation. The relationship you *insist* exists is not found ANYWHERE in the empirical data, no matter how you massage the numbers.

          Your made-up rules for how the economy works are pure and utter garbage, pseudo intellectual tripe that does not stand up under the light of empirical data.

          1. And QE doesn’t alter the NFA position. There was a time when government bonds were included in monetary aggregates. I am not sure that is better, may be It is so people can see that government deficit spending adds money to economy.

            Once Cental Bank starts buying private debt your NFA consolidation (reserves+bonds+cash) doesn’t work since some of that is not net to private sector.

            Deficit spending can feed into M2 but It really doesn’t matter.

    2. Except that the actual amount of money in circulation is not the driving force of anything. Changes in the amount of money are. Prices can adjust to any rational level of M2, but deflation and excessive inflation are not good, so we want to keep the level of money, relative to the size of the economy, in a relatively narrow ‘sweet spot’.

      Waaaaa…? *hack*koff*koff*

      Money is not doing anything to the economy by virtue of it’s very existence. It’s only when it’s being spent that it’s a problem. “Too much money chasing too few goods” means exactly that.

      http://www.aei.org/publication/money-printing-isnt-always-inflationary

      https://www.ineteconomics.org/perspectives/blog/rapid-money-supply-growth-does-not-cause-inflation

      http://bilbo.economicoutlook.net/blog/?p=13834

      https://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/#35d09a7f42f5

      1. You are misunderstanding. What I mean is that you can run an economy at any level of M2. Look at prices in, say, 1900 compared to today. Prices were much higher in the past, because the dollar was worth much more. CHANGES in the M2 relative to the size of the economy cause inflation or deflation. It is not accurate to say that we have ‘too much’ or ‘too little’ money. It is more accurate to say that the supply of money grew or shrank. In a perfect world, the M2 would always be exactly the same, relative to the totality of goods and services produced. Too bad nobody has ever figured out how to make that happen.

          1. I said that the specific level of money has nothing to do with it – that changes in the supply of money are the driving force. Stop misrepresenting me. Anyone reading this can scroll up and see that you are doing so.

        1. “CHANGES in the M2 relative to the size of the economy cause inflation or deflation.”

          First you have to find correlation and then keep in mind that correlation doesn’t show the direction of causation. It could be tha inflation caused the M2 to grow. You don’t seem to understand endogenous money either.

          1. Of course I understand endogenous money. If I did not, I would not keep referring to the M2.

            You are correct that correlation does not show causation, but this has been studied into the ground. The causation is there.

          2. “Of course I understand endogenous money. If I did not, I would not keep referring to the M2.”

            ok sorry, monetarusts refer to M2 all the time yet they tell you that CB controls money supply. That is what they were teaching me in University “Money and Banking”

          3. Stop misrepresenting me. Anyone reading this can scroll up and see that you are doing so

            Let’s put this to a vote. All participants in these comments who agree say “aye” 😉

            I’m being facetious, of course. We all cry misrepresentation when what we say is shown to be off base.

          4. Considering that you are all coming from the same place, I don’t think a vote is in order. Only one person gets a vote, and that is the person running The Daily Libertarian. What you do get is the freedom to debate me.

      2. “Prices can adjust to any rational level of M2, but deflation and excessive inflation are not good, so we want to keep the level of money, relative to the size of the economy, in a relatively narrow ‘sweet spot.”

        The sweet spot for MMTers would be at a high labor price where capitalists are motivated to buy new machines and develop new technologies. Economy is operating at full employment so you want the productivity to grow. Enough demand with price stability.

          1. No I’m not. Even if my side loses, I am on the right side of history. You have no idea how much carnage your ideas would cause.

        1. There are two kinds of income inequality. There is the kind created by government officials picking winners and losers, and there is the kind created by the market, in which the public, through voluntary transactions, pick winners and losers. The former kind is horrendous, but the latter kind is what drives a healthy, thriving economy. We want more market-based inequality, and less government directed inequality.

          1. I know what you say you “want. ” What you want doesn’t work in the real world. How about as little inequality as possible.

          2. It is a fairy, there is no free market, there has never been one. All economic systems have been politically managed.

            MMT is saying that our current one is not managed the way It could be managed to have full employment. There is a lot of output lost because of the fairy tales that prevail in politics: we are out of money, we have been living at the expence of our children etc. If your free market ideology has to be supported by lies like these then It is no better than communism.

          3. I love how people say, “There is no such thing as a free market,” as if the fact that government always exists changes the fact that we had an almost completely free market from 1789-1913. Do you know what else we had? Living and working conditions that were growing at the fastest pace in human history. Can you imagine what life today might look like had the rise of living and working conditions never slowed down? Keynes once said that in two generations Americans would no longer have to work. He was basing that on his belief that his theories would increase rather than decrease the rate of rise of living and working conditions.

            He was wrong, as are you.

          4. “Free market” is like communism, It has never existed nor will It ever exist. 1789-1913 was not free market either. Currency was still backed by government taxes just like It is today. It is a monopoly and you are talking about free market. I was very interested in Austrian economics while teenager, even later. I still recommend to people to read Austrian theories even though they are completely wrong about money and banking. Smart Austrians have been in MMT boat long ago already (Edward Harrison etc). We might disagree politically how big should government be and what It should do but to deny the operational facts about monetary system?

          5. You are confusing free market economics with anarchy, and pointing at holes in the barn door to prove that the barn door is not there.

    1. Agreed Kristjan. MMT is the one philosophy that threatens to martial-arts kick the “my taxes” weapon right out of the hands of economic conservatives, by pointing out that the government has every right to tax you, and you do not have all rights to wealth or property. Amen.

        1. Anywhere and everywhere there’s been Taxes and Public Services as part of the fabric of society. Anywhere and everywhere there’s the rule of law. Anywhere and everywhere that isn’t Singapore or Chile’ under Pinochet.

          1. You might keep in mind that Chile was the poorest country in South America before Pinochet, and they are the richest country in South America today. They are also still in 10th place in the Heritage Foundation’s Economic Freedom Index, thanks to Pinochet’s economic reforms. In terms of political freedom, Pinochet was a jackass, but his economic reforms created what became known as the ‘Chile Miracle’.

            Singapore has the third highest per capita GDP in the world.

    1. That was a very bad government action. I agree. Most government activities in the economy are bad. But there were far fewer of them in that time period.

      I fear you are guilty of focusing on the hole in the farm door, and failing to see that the barn has a door.

          1. It is not pure speculation. Look at the emergence of England as an economic superpower. They practiced mercantilism in their empire for a long time before giving up and making their empire a free trade block. They emerged as an economic superpower (which they remained until World War One) only after they created that free trade block.

  6. You might keep in mind that Chile was the poorest country in South America before Pinochet, and they are the richest country in South America today

    With an EYESORE of wealth inequality:

    https://www.bloomberg.com/news/articles/2016-11-24/chile-mexico-u-s-have-highest-inequality-rates-oecd-says

    http://www.borgenmagazine.com/economic-inequality-in-chile

    the Heritage Foundation

    *YAWN* And what else do self-referential Neocon Neoliberals have to say about it?

    thanks to Pinochet’s economic reforms

    Uh huh… You spelled Aylwin wrong:

    https://i.imgur.com/JRjKVQM.jpg

    but his economic reforms created what became known as the ‘Chile Miracle’

    Only among those with a vested interest in calling it that. Chile itself can’t run fast enough to lose his SS Privitization Ponzi Scheme. That’s been reworked 2x that I’m aware of.

    Singapore has the third highest per capita GDP in the world

    ALSO with gross wealth inequality, and services the poor can’t get to like public trasportation. And an unusually high abortion rate for married women. And a highly autoritarian government all up in every nook & crack of the economy. And with an unusually high residence in public housing. And like most places Libertarians crow about, only great if you’re already rich.

    http://www.aljazeera.com/indepth/features/2013/11/singapore-poverty-spotlight-20131178362669442.html

    https://thehearttruths.com/2013/02/21/singapore-has-the-highest-income-inequality-compared-to-the-oecd-countries

    https://www.worldfinance.com/infrastructure-investment/government-policy/how-singapore-married-dictatorship-with-a-market-economy

    https://www.scribd.com/doc/22148684/The-Repression-of-Political-Freedoms-in-Singapore-The-Case-of-Opposition-Leader-Dr-Chee-Soon-Juan#scribd

    https://www.researchgate.net/publication/249972772_Singapore%27s_Success_The_Myth_of_the_Free_Market_Economy

    http://www.rollingalpha.com/2015/03/23/singapore-a-success-story-not-a-free-market-one

    http://www.tandfonline.com/doi/abs/10.1080/09512749408719073

    There’s MORE where that came from as afar as bookmarks I have on Chile’ & Singapore, believe me.

    1. Kevin – I’m responding to something like six of you. You’ll have to tell me what those links say if you want me to respond. I can’t work full time, run a web site, read thirty thousand links, AND debate six people. If you can tell me what your argument is, I’ll be happy to refute you.

      1. Why don’t you go to the sources and challenge them to a debate? Why refute me, I’,m just the messenger. Go on the Social Democracy blog and tell that guy you can set him straight~! I’m sure he’d be willing to discuss it with you 😉

        1. You are the messenger who decided to show up. That’s why I’m debating you. Perhaps the person on that blog would like to discuss the matter with Thomas Sowell?

    2. One thing I can tell you, without going through all of those links, is that the primary mistake you are making is that you are looking for issues with Chicago School and Austrian School economics, and rather than saying, “Here is something Hayek or Friedman did not quite get right,” and then improving on the basis of economic thought – Chicago School being nothing more than an attempt to correct some of the issues with Austrian School (neither Chicago School nor Austrian School being perfect), you are rejecting them entirely and coming up with something entirely different – a program that you wish would work.

      1. MMT is not a reinvention of the wheel. It has influences from Abba Lerner, Hyman Minsky, Kalecki, Keynes, chartalism, and more. It is a contemporary synthesis of these combined with a few unique fundamental insights into the operational details of the monetary system. You should actually research the topic for yourself sometime instead of pretending that you have while regurgitating sehondhand rebuttal attempts from others who likely didn’t do any legitimate study themselves either.

        1. It is not a reinvention of the wheel only because wheels work. You said, ‘chartalism’, but you should have said, ‘charlatanism’.

          1. How about instead of posting random links, you post an argument. Are you too dumb to paraphrase others?

        2. The Austrian/Chicago schools would be largely correct if we remained on a fixed exchange rate system.

          Modern Money is the understanding of modern operations of the monetary system. It is a way to look at the world. It is neither left nor right. Values systems are imposed on top of this view not prior to this view.

          From a number of exchanges here it can be seen you broadly agree with swathes of Modern Money principles. You may like to have a look at some of the posts by Ed Harrison at CreditWriteDowns – he is an Austrian MMTist. And as I assume you’re aware the Austrian Schumpeter is a big influence on the Modern Money view.

          There is a great debate on YouTube between Austrian Robert “Bob” Murphy and Warren Mosler. Murphy concedes all operational details. All Murphy’s arguments are on moral principles.

          If it is still going you might even like The Richebacher Letter, last I heard was being done by Rob Parenteau – also an MMTist.

          It is what you can do with these operational details that is important. Hence your value system is imposed on top of this view.

          There is considerable Austrian influence on the Modern Money view and we welcome you taking steps towards embracing it.

          1. You might notice that in my first paragraph, I concede the basic tenets of MMT. It is the application that I take exception with. Those who apply it invariably separate spending and taxation, and endorse what would cause hyper-inflation.

      2. the primary mistake you are making is that you are looking for issues with Chicago School and Austrian School economics, and rather than saying, “Here is something Hayek or Friedman did not quite get right,” and then improving on the basis of economic thought </i

        Because I'm 100% opposed to their nonsense being taken seriously. The politics of Austerity is what's holding us back from true progress. And why should I care what Hayek or Friedman thought, when there's Keynes, Schumpeter, Minsky – a long tradition of right thinking economists to draw from?

        you are rejecting them

        As have many top-rated university scholars with sound academic credentials and impeccable scholarship

        entirely and coming up with something entirely different – a program that you wish would work

        PROVEN to work. For example during the Keynesian era – the 1940’s through 1970’s – the poverty rate was cut in half. During that time period, unions were strong, Truman ran on a platform of defending the New Deal, Eisenhower had a 90% tax rate and implemented the construction of our great superhighway system. As well as called those who wanted to get rid of social security out as foolish. Despite deliberations to the contrary, the war on Poverty also continued to drive down poverty

        You yourself ADMITTED that the view that the government creates new money when it spends. Therefore, you’ve admitted MMT is fundamentally correct. Your problem seems to be that you see some people getting something for free. That of course is more the political predilections of many who are attracted to MMT, but it’s still based on sound ideology.

        Four million an HOUR is spent currently on the war in Afghanistan. [SOURCE: https://www.nationalpriorities.org/cost-of%5D Figure that out over the course of the year and you can put just under 1 Million people through college debt free- assuming 37k is the average amount of debt a student will graduate with who takes out loans. Clearly people not being in debt is a much more sound state for the economy to be in than blowing some brown-skinned country back to the stone age, is it not? Then the notion that we cannot afford free college is simply a fasity that can be disproven even BEFORE one accepts the premises of MMT. All MMT does is confirm what can be observed elsewhere.

        But, I digress. The main point is that I’m sensing a discomfort on your part because you assume that you cannot give something to someone without taking from others – a common misconcepton held by Libertarians. Actually, the economy is better served by people going into the workforce with a college degree that they didn’t go into debt for. They are more likely to spend into the economy and ring those cash registers and thereby provide work for others. Your problem is a highly individualist view and I suspect the thought of collectivism horrorfies you.

        The economy only turned around in the Reagan years AFTER he began deficit spending for the MIC. It’s too bad he had to be so focused on the military, and was party to deregulation and union-busting. But the results speak for themselves. Deficit spending in order to help the economy has been proven over and over again and it’s a highly bi-partisan truth worth embracing. *If* you’re willing to let go of your partisanship, that is.

        1. Need to amend a sentence I didn’t finish:

          Despite deliberations to the contrary, the war on Poverty also continued to drive down poverty during LBJ’s presidency. Things only started to fluctuate *after* he left office, but poverty was never anywhere near what it had come to following the depression. One can surmise that a had a Hayek or Friedman been listened to in that time period, Post-depression poverty would have stayed astronomically high for much longer.

          1. Poverty was dropping long before LBJ, and that drop stopped almost immediately after LBJ started the War on Poverty.

            The growth during the 40s and 50s was while the rest of the world was rebuilding, after being bombed into rubble. We were the only source of everything during that period, and we could have sold dog poop at the time. That was not a sustainable period, and nor was it the period of the fastest growth for our economy. We grew faster from 1789-1913.

            When you say, “Many scholars agree with me,” that’s an appeal to authority, which is a logical fallacy. I could say the same thing, incidentally.

            Reagan sparked growth through deregulation.

            We don’t really spend four million dollars an hour on the war in Afghanistan. You are forgetting that we did not grow our military to fight in Iraq and Afghanistan, and as surprising as it might be, maintaining an army in Afghanistan is not that much more expensive than maintaining an army in Texas, or Missouri. The real cost of the war is not the total cost of the military in Afghanistan, but the difference between the cost of the military in Afghanistan, and the cost of the same military wherever it would be if it were not in Afghanistan. That cost was about $120 billion for both Iraq and Afghanistan combined, during the peak of those wars.

      3. “One thing I can tell you, without going through all of those links, is that the primary mistake you are making is that you are looking for issues with Chicago School and Austrian School economics, and rather than saying, “Here is something Hayek or Friedman did not quite get right,” and then improving on the basis of economic thought”

        Earlier I pointed that Friedman was pushing monetary aggregate targets, that is abondoned today and everyone agress he was wrong. Hayek.
        Best example:

        “When the government of the United States borrows a large part of the savings of the world, the consequence is that capital must become more scarce and expensive in the whole world. That’s a problem.” -Hayek

        So US has borrowed a lot in last ten years, Japan last 25 years. Interest rates are close to zero still. This is a clear demonstration that Hayek didn’t understand how a fiat monetary system operates. Or was he a politician here trying to push a political agenda? Another major flaw Hayek had in his theory was the natural interest rate, once that collapses the ABCT is done. Piero Sraffa attacked Hayek on It, Ha’yek never recovered. You can look It up yourself.

  7. “You might notice that in my first paragraph, I concede the basic tenets of MMT. It is the application that I take exception with. Those who apply it invariably separate spending and taxation, and endorse what would cause hyper-inflation.”

    I have certainly noticed that you concede the basic tenets if MMT. It’s a shame you can’t separate the theory from those whose application disturbs you so much. You are clearly confused about that dividing line, I can only hope that you find more clarity in separating the economics from the politics orlf many who have taken up said economics.

    As for “hyperinflation”, you must not know very much about that if you think that a sound economy minding its own business and issuing currency at a level consistent with full employment is just going to suddenly stumble into “hyperinflation”. Are the go-to examples (Weimar and Zimbabwe) hyperinflation that just occurred out of the blue? ABSOLUTELY NOT. Zimbabwe was a war-torn nation, and Weimar had its economy ravaged by WWI and had crushing reparations debts payable only in gold or gold equivalent. Weimar deliberately hyperinflated to make reparations payments.

    Why don’t hyperinflation hyperventilators use examples that don’t involve war-damaged economies and debts denominated in external currency? Because there really aren’t any. Hyperinflation is an anomaly brought about by catastrophic damage to the real economy, often coupled with external debt.

    1. David – MMT is a word game. It changes nothing. Those who use it are snake oil salesmen, trying to say that money is the mechanism used to distribute government. That’s socialism – which is what you are trying so very hard to sell.

      1. The origins of money are as a creature of the state for government to provision itself and lay the foundation for markets – that is an anthropological fact, not to be confused with the “evolved from barter” fairy tale peddled by mainstream economists. You are free to read works such as Graeber’s Debt: the First 5,000 Years or others to confirm for yourself, but it’s not up for debate. If you wish to base your “history of money” on fabrications that’s your problem.

        1. You are making history up to suit yourself. Yours is the fairy tale. Money exists as a tool to make the transfer of goods and services more efficient, and government’s role is to ensure a stable supply of it.

  8. Just wait until all of this hidden inflation finally appears! Then you MMTers will all have to eat your words.

    (Until that time, please disregard the (lack of) inflation data.)

    1. We have thousands of years of history we can look back at to see inflation follow increases in the money supply. It’s not like this is the first rider at the rodeo.

      1. It’s doubtful that it goes into hyperinflation sans other economic factors. Germany had several key factors such as loss of production and being on a fixed currency as well as under a nasty onus courtesy of the Treaty of Versailles.

        1. Germany tried to print it’s way out of trouble. You are correct that we would have to print ourselves into serious trouble first, before we can try to print ourselves out of it, but since that is what you are endorsing………

          1. You mean Germany printed because of other factors, and that is true, but the printing and the inflation were still cause and effect, and nothing you can say will change that.

          2. Wallace, I don’t think that anyone would argue that EXPONENTIALLY INCREASING PRINTING (as per Weimar) is the path to hyperinflation. It is your contemptible pretense that that is even remotely related to a healthy economy accepting normal injections of monetary growth from the currency issuer that is at issue here. You only bring in “hyperinflation” because you are seeking to draw false parallels.

      2. “We have thousands of years of history we can look back at to see inflation follow increases in the money supply.” No, we have years of history to see that war, drought, famine, political upheaval, and other things cause a drop in production. Money printing is only a (poor) response to prior economic problems.

        Show me some examples of economies that ruined themselves by money printing that didn’t already have to deal with some blow to their production. Weimar? No. Zimbabwe? No. Venezuela? No.

    2. I’ve been listening to doom and gloom forecasts like yours since I was a teenager. It comes to a point when that, like “the Lord is coming back soon” gets repeated often enough that one wises up and stops looking for it. Yours is very much a Religion also.

  9. How about instead of posting random links, you post an argument. Are you too dumb to paraphrase others

    Can’t take the heat? Or too timid against someone who can obviously out-research you?

    Perhaps the person on that blog would like to discuss the matter with Thomas Sowell

    Sowell’s pretty overrated. When you look closely at the things he says, they don’t amount to much. Interesting that he seems to like to debate lil’ ol” ladies with Buckley in the same room.

    1. I can certainly take the heat, but your debate tactic is to post a ton of links and then to say, ‘I got you there’! Do you really think I have time to read all thirty links? What you should do is to provide a summary of what the links say that supposedly show that I am wrong, and then I can refer to the links if I need more information. Your technique is both intellectually dishonest, and lazy.

      Sowell is not overrated. He is arguably the brightest living economist in the world.

      1. Sowell is a big of hot air and not really that bright at all. He’s a fraud, just like Friedman turned out to be.

        I expect you should be able to do as extensive research on a topic as LK – owner of the SD blog – does without busting a sweat. If not, perhaps you should concede to your betters?

        1. Of course you would insult Dr. Sowell. That’s the only way you can refute him. You have ad hominem attacks, and that is all you have.

  10. This seems to have disappeared, so submitting again:

    Poverty was dropping long before LBJ

    Oh really… wow, bummer… because THAT SOUNDS EXACTLY LIKE WHAT I JUST POINTED OUT TO YOU! WOW!!! I totally went over poverty going down since Truman and also efforts by Eisenhower. Imagine that~!

    and that drop stopped almost immediately after LBJ started the War on Poverty

    After he left office, you mean.

    The growth during the 40s and 50s was while the rest of the world was rebuilding, after being bombed into rubble

    Good thing a Libertarian wasn’t in charge, eh? And I didn’t stop at the 50’s, did I?

    We were the only source of everything during that period, and we could have sold dog poop at the time. That was not a sustainable period, and nor was it the period of the fastest growth for our economy. We grew faster from 1789-1913

    Which I already pointed out was a time period of heavy government involvement.

    When you say, “Many scholars agree with me,” that’s an appeal to authority, which is a logical fallacy

    Unless those who disagree with you are more like witch doctors.

    Reagan sparked growth through deregulation

    You spelled deficit spending wrong.

    We don’t really spend four million dollars an hour on the war in Afghanistan

    False, and I sourced my claim for you

    You are forgetting that we did not grow our military to fight in Iraq and Afghanistan

    Irrelevant.

    and as surprising as it might be, maintaining an army in Afghanistan is not that much more expensive than maintaining an army in Texas, or Missouri

    Also completely irrelevant to my point. Now please move the goalposts back to the issue I raised, which is where funds are best allocated.

    The real cost of the war is not the total cost of the military in Afghanistan, but the difference between the cost of the military in Afghanistan, and the cost of the same military wherever it would be if it were not in Afghanistan. That cost was about $120 billion for both Iraq and Afghanistan combined, during the peak of those wars

    Not according to any credible source you’d like to name:

    https://www.google.com/search?rlz=1C1CHBH_enUS761US761&q=cost+of+afghanistan+war+since+2001&oq=cost+of+afghanistan+war+since+2001&gs_l=psy-ab.3..0i8i30k1.379874.395589.0.396335.27.27.0.0.0.0.181.2818.11j15.26.0….0…1.1.64.psy-ab..1.24.2609…0j0i131k1j0i67k1j0i10k1j0i13k1j33i160k1j0i13i10k1j0i13i30k1j0i22i30k1j0i8i13i30k1j33i22i29i30k1j0i8i7i30k1.g2gCx0bbyss

      1. Now that I read your Afghanistan comment again, I’m not even sure you said anything different? Figuring out 4 Million an hour over the course of a year comes to 35 Billion. You said 120 Billion “during the peak” of the Afghanistan & Irag wars combined. Using the National Priorities figures comes to about 70 Billion over a two year period just for Afghanistan alone – a little over half of your 120 Billion. I doubt you’ve done anything here but just a tap dance and distraction from the issues I raised.

        1. I guess I should have checked a calculator before assuming that you were using an inflated number (as many people do). That’s common ground again!

  11. Welp~! I don’t know why but my longer post seems to have gotten munched twice. It’s not a piece of cake commenting on this lovely software to begin with. Also the email notifiers never worked for me, so Idk if and when I’ll be back at this point. No need to hang around if I’m not to be heard.

  12. Explain Greece. This country has been thrust into economic depression worse than that of the great depression 1930’s.

    They are running a surplus. Running a surplus is (according to austrian economics) a good thing.

    WHY are there people dying on the streets?

    1. Greece is easy to explain. They are a part of the Euro Zone. Usually when two countries, say Greece and Germany, have a trade imbalance, the currency of the stronger country inflates relative to the currency of the weaker country. The Drachma would weaken relative to the Deutsche Mark, and as it does, Greece would become more competitive relative to Germany. Enter the Euro, and suddenly when wealth floods in to Germany from Greece, no change in the relative values of currencies occurs. Germany, with more wealth coming in from other Euro Zone nations than is going out, is getting richer, which gives it more capital upon which to invest and grow its economy further, making it stronger. Greece, with less wealth, has less capital to invest on, and is a weaker trading partner than it was before. The Euro is like a big straw, sucking all of the wealth out of the Euro periphery. Essentially, Angela Markel has created a Forth Reich, conquering Europe through monetary policy. Had Hitler been smart, he would have used the Euro instead of the Panzer.

  13. You mean Germany printed because of other factors, and that is true, but the printing and the inflation were still cause and effect, and nothing you can say will change that

    No, because you cannot say that unless it happens sans other factors that were pertinent to Germany. A floating currency & a restore of production would go a long way to help that. Otherwise, you’re missing the point of Necessary and Sufficient conditions that a important, here.

    1. Sure I can say it. You are once again confusing cause and effect. Germany had reasons to go all QE crazy. I don’t dispute that. But those reasons would not have caused hyper-inflation had Germany not gone all QE crazy.

      1. “You are once again confusing cause and effect”

        Do you Libertarians all study Shakespeare or something? Take your meds.

        No the CAUSE AND EFFECT were external factors OTHER THAN increasing the money supply. You keep harping on the money supply because it’s your religion.

        So-called “Printing Money” does not cause Hyper-inflation without other factors present.

        And you don’t even understand what QE is:

        https://www.cnbc.com/id/100760150

  14. Keynes wins again: http://www.huppi.com/kangaroo/L-carterreagan.htm

    Summary

    Carter cannot be blamed for the double-digit inflation that peaked on his watch, because inflation started growing in 1965 and snowballed for the next 15 years. To battle inflation, Carter appointed Paul Volcker as Chairman of the Federal Reserve Board, who defeated it by putting the nation through an intentional recession. Once the threat of inflation abated in late 1982, Volcker cut interest rates and flooded the economy with money, fueling an expansion that lasted seven years. Neither Carter nor Reagan had much to do with the economic events that occurred during their terms. “

    1. Did you notice that I blamed LBJ rather than Carter? Carter’s problem was that, when Volcker told him that he wanted to raise rates, Carter told Volker, based on Keynesian theory, that he could not raise rates while unemployment was high. So Volker played good little soldier and cut them instead. Then Reagan became President, Volcker said, once again, that rates needed to rise, and Reagan said to go ahead and do that.

      It is interesting that here you point to something that shows how inflation can take decades to fully develop, and in earlier comments you refute that assertion. You seem to want the facts to go both ways.

      1. And when Volcker raised rates, unemployment went through the roof. And we had a recession. Rates were recently raised again & the dollar fell.

        And the point I made was that inflation was always with us and always will be. It’s not what your Monetarist religion tells you, it’s what every common sense person knows: Cost-Push/Demand-Pull.

  15. Keynes wins again:

    https://mises.org/library/ronald-reagan-protectionist

    he administration has thus far:

    *Forced Japan to accept restraints on auto exports;

    *Tightened considerably the quotas on imported sugar;

    *Negotiated to increase the restrictiveness of the Multi­fiber Arrangement governing trade in textiles and apparel;

    *Required 18 countries, including Brazil, Spain, South
    Korea, Japan, Mexico, South Africa, Finland, Australia, and the European Community, to accept “voluntary re­straint agreements” that reduce their steel imports to the United States;

    *Imposed a 45% duty on Japanese motorcycles for the ben­efit of Harley Davidson, which admitted that superior Japanese management was the cause of its problems;

    *Raised tariffs on Canadian lumber and cedar shingles;

    *Forced the Japanese into an agreement to control the price of computer memory chips;

    *Removed third-world countries on several occasions from the duty-free import program for developing nations;

    *Pressed Japan to force its automakers to buy more Ameri­can-made parts;

    *Demanded that Taiwan, West Germany, Japan, and Switzerland restrain their exports of machine tools;

    *Accused the Japanese of dumping roller bearings on grounds so that the price did not rise to cover a fall in the value of the yen;

    *Accused the Japanese of dumping forklift trucks and color picture tubes;

    *Extended quotas on imported clothes pins;

    *Failed to ask Congress to end the ban on the export of Alaskan oil and timber cut from federal lands;

    *Redefined dumping so domestic firms can more easily charge foreign competitors with unfair trade practices;

    *Beefed-up the Export-Import Bank, an institution dedicated to distorting the American economy at the ex­pense of the

    *American people in order to artificially pro­mote exports of eight large corporations.

    https://object.cato.org/pubs/pas/pa107.pdf

    “Ronald Reagan has done free trade a double disservice. First, the president most closely identified with the freeenterprise
    system in years has associated free enterprise with protectionism. Second, he has debased free-trade rhetoric
    by linking it with the view that trade restrictions are the province of the president not the Congress. He has debased the
    English language, since the multitude of “voluntary restraint agreements” demanded by the administration were hardly
    voluntary, backed as they are by the threat of legislation.”

    Even people in your own camp says he was more government-involved than many would like to think.

    If you love your prosperity, thank an activist government.

    1. The US economy grew in spite of those protectionist measures – not because of them. You are confusing correlation with causation. Reagan also deregulated a great deal, and reduced tax rates.

      1. Nice speculative answer with nothing to back up your assertions, which is what you’ve been doing the whole time. Then denigrate others for sourcing their claims. You’ve been shown where protectionism has worked more than once. But I can tell you didn’t even read the .pdf article by your answer, or you would know that Carter initiated the same deregulate/cut taxes moves.

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