I am considering reading some texts on Modern Monetary Theory. I have read a some of the secondary descriptions of it on the web, and I generally find them somewhat confusing. So I want to actually see what these real texts say. As a preliminary matter, I want to explain my understanding of one of the points MMTers appear to make. I think this point is made in very confusing ways, and so I wonder if I am missing something, or if the explainers aren’t very good. In any case, here goes.Matt Breuning | Politics
Me and Modern Monetary Theory
Matt Bruenig
(h/t geerussell via email)
4 comments:
He's leaving out bond issuance...
Another thing I would recommend he think about is "where did Rachel get the $10 in the first place?"
rsp,
His basic description is an adequate general description, and it accords with functional finance. It's the simple "business card" model used by Warrren and Bill Mitchell, for example, to illustrate the basic idea of a fiat currency with a sole provider with tax authority.
It needs addition of detail for application to special cases like a cb and tsy issuance instead of Treasury issuing notes and coin without bank intermediation.
He's on the right track, but to really understand it he needs to do the accounting.
For example, in direct issuance of notes and coin by Treasury, Treasury books the nominal value as an asset, the cost of material and minting as liability, and seigniorage as equity. Treasury spends in the asset into the economy to acquire private resources for public use, and the public holds the asset, the corresponding liability for which lie with government on the Treasury's book. That asset is a tax credit that can be exchanged with Treasury to extinguish private liabilities to government, e.g., taxes, fees, and fines. The accounting shows that the credit is held as a non-government financial asset, since the asset is with non-government and the liability with government. This is the simplest case. The difference between a convertible fixed rate system and a non-convertible flex rate one is that government is constrained by having to obtain the real asset into which the currency is convertible in the former case, and in the latter case, not. Ergo, less operational constraint, more policy space in the case on non-convertible flex rate. Disadvantage is greater potential for currency to lose purchasing power through fx devaluation and domestic inflation.
PeterC [heteconomist] plays a nice MMT bass line here ....
What Everyone Should Know About Budget Deficits and Public Debt
His blog post is pretty good as a basic description as Tom says.
However, I harbour doubts over his understanding based on his comments
Supposing you print money in the short term in order to bring the economy back to capacity. Does this not imply some future tax to soak up the money in order to avoid inflation? And therefore under this Ricardian equivalence view wont it end up crowding out because people will reduce their short term consumption in order to prepare for the future tax that soaks up this money-financed spending? (I realize this is crazy idealized view of how people behave, but in theory).
Not withstanding the final remark in parentheses.
Post a Comment