Monday, February 27, 2012

John Carney responds to Warren Mosler

Read it a CNBC | NetNet
Warren Mosler Thinks I'm Wrong About US' 'Greece' Danger
by John Carney | Senior Editor


wh10 said...

I don't get it. Sometimes Carney seems like he really gets MMT, and sometimes he doesn't. His last paragraph is not coherent.

wh10 said...

I left a comment there. The default burden is fine as long as we understand it is self-imposed. But there is problem with the assumption that no-bond sale is more inflationary than bond-sale. If he is going to invoke MMT in the rest of the piece, he has to at least explain why he is departing there.

Dan Kervick said...

I had two comments for John Carney this time around:


"These taxes are not merely transfers from taxpayers to bond holders. They are a net burden on society because, without them, taxpayers could have invested the capital in productive enterprises."

A premise such as this one is unjustifiably smuggled into almost every argument I have ever seen on the tax burden or debt burden issue.

Clearly a transfer of income among the members of a society could leave that society worse off, if the recipients of the transfer do something with the funds that generates less value than would have been generated by the original possessors of the funds.

If we tax away the savings of wealth creators and use the money to buy a sugar-coated marshmallow pony for every member of our society, then presumably we have not done our society much good.

But if we tax away low marginal utility surpluses that are being used for idle and extravagant consumption, or for wasteful investments, and use the funds for roads, schools and human development, we have helped ourselves.

The belief that tax transfers consist only in the former is unwarranted.


"At this point, the government would either have to make the debt payment by inflating the money supply with new dollars or refuse to make payments when they are due."

Austrians tend to muddy up this issue by using the same word, "inflation" to refer to both increases in the money supply and increases in the price level.

But the fact is that in the hypothetical situation in which the economy has slowed, we would almost certainly *want* to increase the money supply - preferably by spending new money directly into the economy. Rather than generating an unacceptable price inflation, in an economy running below capacity this additional money would just monetize the expanded production of goods and services generated by the spending.

There are certainly ways we can burden successive generations through the stupid use of public funds. There are also ways we can burden successive generations through stupid failures to deploy public funds.

wh10 said...

Dan, by 'economy slowing,' he is assuming productivity growth is falling or negative rather than it being a shock to aggregate demand, and that the deficit is high enough relative to productivity so as to cause inflation.

Dan Kervick said...

I'm not sure I understand wh10. Do you think he really means productivity, or is he just being careless about the difference between falling productivity and falling product? I took him to just be referring to the fact that in a recession government revenues will decline because of a general drop in income/product, and that as a result the government will either have to tax more or "print money" to meet its existing debt obligations.

Dan Kervick said...

... or rather, not just in a recession, but any time the rate of growth slows while borrowing stays the same or increases.

Matt Franko said...

I dont think Carney is an economist... I think he is a lawyer.

Unforgiven said...

I think this is the equivalent of John telling the State Trooper that there was a deer on the road.

I kind of wish he would bounce this stuff off Warren first, even if he is shooting for maximum effect with minimum upset. I certainly understand Mike's point of view on his position in the media, but I think his response is a bit of a trainwreck.

mike norman said...


According to Carney then, we have already defaulted, because we've "inflated the money supply" (he's talking about the monetary base, here).

mike norman said...

Moreover, the debt of the government will ALWAYS grow because their will ALWAYS be a desire of the non-government to save in the government's unit of account. (Either ours $$ or some other government's unit of account.) The Chinese and Japanese have been saving in our unit of account for decades. How has that impoverished them? How has it impoverished us? How does the fact that American citizens wanting to accumulate dollars impoverish them? How does it make our nation "less prosperous?" He's really confused. Even under a gold standard or fixed exchange rate, somebody is running a deficit of gold or foreign currency, somewhere. But they're getting the real goods in return.