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View Diary: Modern Monetary Theory vs the Fiscal Cliff (65 comments)

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  •  Good Post (3+ / 0-)
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    jellyyork, Letsgetitdone, semiot

    A couple of points:

    Inflation - the primary recommendation of MMT, the thing that really differentiates it from earlier thought (Keynesian, Institutional, Functional Finance) of which it is a synthesis, is the Job Guarantee.  This is both a measure to attain & maintain chock-full employment AND an anti-inflation measure, which is obviously superior to the current No-Job Guarantee of unemployment, both in terms of increasing production and in decreasing inflation.

    Raising interest rates is not usually a good means to fight inflation, as it has both inflationary effects (robotically denied by the modern mainstream, understood by Keynes & Lerner decades ago) and deflationary effects.  It might rarely be helpful in conjunction with the Job Guarantee, where a government intentionally forces more people onto the fixed government wage jobs.

    Taxes are a way to move value back from the private sector into the public sector. Deficits are the opposite. Deficits are a way to leave value in the private sector. For example:

    This isn't really right. Taxes "move" money, NFA, financial wealth "into" (not really) the public sector, from the private sector. What the private sector gets is the right to perform the taxed activity, something non-financial. If the government is selling something, like gold under the gold standard, this is like taxation. Private gives money/financial, gets real = gold. In the case of property taxes, basically the private sector is paying rent to the public sector, and the money is "rental coupons".  Money always was fiat money, even  under a gold standard, which was just something tacked on to the underlying fiat money.

    Deficits - government spending move money from the public sector to the private sector and "value", real wealth, from the private sector to the public sector. As Warren Mosler says, and as Alfred Mitchell-Innes explained with crystal clarity a hundred years ago, government spending is the real taxation. In a sane economy, with a Job Guarantee, a Labor Standard, the unemployed sell something of real value to the government, their labor, in return for a money, financial wealth. In a gold standard, that is like the government buying gold from the private sector.

    Financial & "real"  must always be carefully distinguished. They always move in opposite directions. That's basically why (modern) mainstream neoclassical fake-mathematical commodity-theory quackonomics, which confuses them incessantly, gets everything backwards.

    •  Inflation is not the primary recommendation (1+ / 0-)
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      Calgacus

      of MMT but it is the thing which is most commonly misunderstood by those who advocate what I think of as "gold standard thinking." I actually have more to say but must scamper out for a while. I promise to get back to you with a more thoughtful and detailed response.

      "When in doubt, do the brave thing." - Jan Smuts

      by bunnygirl60 on Sun Nov 25, 2012 at 01:50:44 PM PST

      [ Parent ]

      •  OOps (0+ / 0-)

        I meant that paragraph to add to the discussion you and dopper0189 et al were having above on inflation, not that "inflation is the primary recommendation". Should have said " On Inflation: "   I meant, "the JG is the primary recommendation". My fault for the confusing wording.

    •  Ok - I'm back but really my response would be to (2+ / 0-)
      Recommended by:
      psyched, Calgacus

      read the post by LetsGetItDone that you go to if you click the link I posted for him at the end of my diary. You are still, very, VERY much thinking in terms of the neo-conservative, gold standard theories and have not come to terms with the reality that has changed since 1971. LetsGetItDone is so much more articulate than am I on all the details. I really encourage you to read him. Also, Professor Kelton's podcast interview by Sam Seder, from last week, is straightforward if you just want a cursory pass through again.

      I HONESTLY appreciate your feedback and always welcome debate but I think that if you really are wanting to stick to a conservative viewpoint than you need to talk to a pro. My post was aimed at those who have never heard of MMT and want to know why monetary theory is suddenly a part of budget debates.

      "When in doubt, do the brave thing." - Jan Smuts

      by bunnygirl60 on Sun Nov 25, 2012 at 06:23:11 PM PST

      [ Parent ]

      •  My comment should have been clearer. (2+ / 0-)
        Recommended by:
        semiot, clonal antibody

        Bunnygirl60 - I'm a screwy rabid MMTer. And a very leftie one. Joe (Letsgetitdone) has paid me the compliment that he "almost always agrees with your incisive posts". And Wray paid me the compliment of saying "You're doing my work for me" for something similar to what I said above.  

        So I think you may be misinterpreting it. One point is that MMT is a general theory, and you can understand economics under a gold standard with it. Indeed that is what the earlier economists whose thought MMT is a synthesis of, had to do perforce, as they usually lived under some kind of commodity standard.

        This can be more than historically helpful as one can think of the Job Guarantee as a Labor Standard, setting the value of a dollar not to gold, a comparatively worthless metal, but to human labor, which basically every economist ever has always agreed is somehow or other the source of human wealth. Labor is the real gold. The real scarce, valuable, commodity.

        Government spending to employ the unemployed takes something which would have been destroyed - the labor of the unemployed - and does useful things with it. This is "transfering" wealth, which otherwise would have been destroyed, into the public sector. So it is a colossal free lunch. The money paid to the unemployed, by the Keynesian "multipler effect", will make the private sector work better and perhaps even employ more than the government programs do. (That happened in the 30s & 40s)  

        The hardest, most delicate thing is usually to get the simplest, easiest things really, really right, and then to realize how simple and easy things really are. Which here is understanding what money is and therefore clearly distinguishing between the nominal/financial/monetary & the "real" economy of goods & services. And getting how things "move" correctly.

        So that is why I criticized some things in your fine post as not exactly right.  Such deficits don't exactly move value to the private sector. They directly "move value" to the public sector but the monetary spending increase, which goes to from the public sector to the private sector, enables the private sector to create value better.

        •  Calgacus, (0+ / 0-)

          Please reply to Chris Cook above. I think you might do a better job of answering Chris' concerns than I would.

        •  I understand your point much more clearly now. (0+ / 0-)

          Thank you for the clarification. My thoughts would be two-fold.

          The first is that when one is trying to make an argument to a banker one has to talk like a banker and when one is making an argument to an artist, one must speak like an artist. Framing makes all the difference. MMT is, as best I can tell, desperately trying to break through the wall of long-established, conservative thinking. When you start speaking about labor as bring the true value, you sound, rightly or wrongly, like what they might even manage to call "communist." I'm not advocating for that in any way, I'm just saying it is so. An argument which has any hope of impact has to speak in a tongue which can be heard by its audience.

          My second thought, as a manufacturer, would be that, yes, you are absolutely right but it doesn't feel that way to me in a functioning day-to-day basis on the ground. There is no doubt that the people who work for me are an invaluable asset but when I go to the bank or present a business plan for expansion, no one ever asks me about my people. They ask me about our debt load, our hard assets, our orders backlog. They ask me about things that fit on a balance sheet. Sadly, that is the world I have to live in no matter how much I agree with you.

          "When in doubt, do the brave thing." - Jan Smuts

          by bunnygirl60 on Tue Nov 27, 2012 at 06:48:58 PM PST

          [ Parent ]

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