An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Friday, December 21, 2012
Larry Kudlow's "supply side" love is really Keynesian love
Great video as usual. This may be a side issue, but I'm trying to wrap my head fully around MMT. I understand the basic model: we have a domestic government sector, domestic private sector and a foreign sector (the rest of the world). The other macro accounting concepts are starting to click as well.
Here's my question: the value of the market dropped by over half, around 7 trillion, from Oct '07 until March '09 How does the stock market fit into MMT? I hope it doesn't sound like a stupid question. I was an econ minor and computer science major. :)
Mike, why do you go after people so much? Why are you so frigg'n angry? No one owes you anything, and its your own fault that no one wants you on TV. If your ratings suck, they suck, and it's not the networks' responsibility to give you airtime just because you think that you make sense.
"Mike, why do you go after people so much? Why are you so frigg'n angry?" - Arty Produca
Because there are so many ill-informed morons out there spewing bullshit and calling it a good hand…so Mike calls bullshit to make them show they have nothing…it's all part of the game.
I would think you media ambulance-chasers would be eating that up.
CNN actually has a whole show (or at least used to) called "Reliable Sources" hosted by Howie Kurtz that reports on the media itself and Fox used to have "Fox News Watch" with John Scott that should be all over these morons just like Mike is doing here... but those 2 shows are run by/for morons too looks like...
The more prestigious Columbia Journalism Review is on the CNBC bullshit like Mike is here but that is about it that I have seen outside the blogosphere...
I guess D over there at RT is still stuck in the Soviet Pravda mode where it is still unthinkable to actually hold a "news" organization accountable for their garbage they spew... and the actual truth doesnt matter... what a disgrace..
Totally. Mike is so good at "calling it out" that he completely backed out of a challenge to go on capital account and debate me on his points, which I consider to be utter nonsense. Now, that's just my opinion. I don't need to resort to calling Mike names, because I can stick to his ideas, which are ridiculous, and debunk them point by point. Of course, you and Mike and anyone else who hides behind the digital firewall where its nice and cosy prefer to lob alley-oops to yourselves instead of going on international television to make your cases. I think that pretty much speaks for itself.
1. If foreign creditors stop wanting to hold dollars the currency could lose value.
- Are you afraid that foreigners could "dump" the dollar, leading to a currency collapse? Is that your main concern?
According to MMT, the financial constraints are the inflation rate and the exchange rate. So govt in managing the economy and the currency through policy has to look at both.
When inflation is low and the economy is underperforming, the govt (cb) lowers the interest rate, which tends also to lower the exchange rate, which is bullish for bonds, equities, and commodities, as well as exports (cet. par.) Should the fx rate fall below the govt's target then it can raise the interest rate which will be bearish for bonds, equities, and commodities, as well as exports (cet. par.)
But according to MMT, a better solution would be to use fiscal policy to close the output gap and strengthen the economy, which supports the fx rate. Then level off before there is inflationary pressure, which would adversely affect the fx rate.
2. Government spending is bad because it leads to "malinvestment", as shown by China.
- MMT doesn't say the government should go out and build empty cities, so this point is irrelevant.
What leads to malinvestment is neither excess deficits in order to address an output gap nor low interest rates. What leads to malinvestment from the govt side is crony capitalism and corruption. Wrt spending, it's cronyism, and wrt to finance it is failure to limit lending to solid collateral, as well as generally lax oversight.
The more prestigious Columbia Journalism Review is on the CNBC bullshit like Mike is here but that is about it that I have seen outside the blogosphere...
Matt,
I see a question of aligning tactics to goals. The CJR is trying to effect change in the conduct of journalism and chooses its battles accordingly.
Presumably an MMT advocate is trying to effect change in macro economic policy or public opinion. Given that MMT is a tiny insurgency with limited opportunity for audience exposure, how does the tactic of "take your ball and go home" advance that cause? Sure, it may make a point in pursuit of better journalism but it also quits the field where an audience might be reached.
In that vein, I offer one small, anecdotal data point on the benefit of staying in:
"It was a jaw-dropping moment ... I switched on the TV, channel hopped and watched Professor Stephenie Kelton give a webcam interview for the ‘Capital Account’ program last week. ... Up until that moment I had placed economists in the same category as the political establishment and therefore part of the problem rather than the solution. I had never heard of Modern Monetary Theory but now, having read many blogs and watched many more YouTube presentations, I am mesmerized!"
The platform was used to effectively reach a person in the audience without the requirement of convincing Lauren or Demetri to personally believe or promote MMT. Tactics.
"because I can stick to his ideas, which are ridiculous, and debunk them point by point." -Demetri
Demetri, that will be very hard nut to crack...in order to debunk Mikes ideas you will have to debunk mathematics itself, and here I mean the basics...simple arithmetic.
Start with this...if the government doesn't net spend, where would money come from?
Are you claiming that we are going to function on credit alone? That would be impossible, credit does not equal money, so I am interested in your answer.
Secondly, even if we were on a gold standard, the government would still have to net-spend into the economy (by buying gold) for gold-backed money to be in anyone's possession.
The only difference between that and what we currently do is that the government buys production to enter money into the economy instead of gold...there is a lot more of production then there is gold.
See, it isn't all that complicated.
Mike is a lot smarter than you think he is, and maybe you aren't quite as smart as you think you are.
Something similar happened to me. In about 2005, I was waiting for the housing bubble to pop and recognized the top in mid-2006. I also saw the financial system going shaky at the time of Bear Stearns. After the crisis hit, and "everyone" missed it, I was puzzled. So I looked into what economists and analysis were saying and all I saw was, "No one could have seen it coming." I thought, WTF? That's crazy. So I started to look for anyone who got in and ran into a comment that Ramanan put up somewhere about MMT. He sounded a bit far-fetched to me, but he seemed like a smart guy and he also provided references, on which I followed up. The rest is history.
If it's out there, some people will get it and pass it on.
I agree completely with your comments, I like to keep terminology simple in comments unless it's something technical, but there's this...
A "smart" person doesn't act or pursue policies against the persons own best interest unless it might benefit society as a whole, and a "smart" person knows what he doesn't know.
Anyone that believes an economy can thrive by starving it of liquidity is not to be taken seriously. There isn't a functioning system in the known universe that operates under that principle.
Paul you will have to debunk mathematics itself, and here I mean the basics...simple arithmetic.
Right, money has to come from somewhere, and in a modern economy that's the hierarchy of money with either gold reserves at the apex or else central bank reserves. Now it is central bank reserves. The credit and payment system ride on top of central bank reserves. MMT's descriptive aspect sets forth the institutional arrangements.
This proves govt with a certain degree of policy space bounded by availability of real resources (output), price stability (inflation rate), and relative value of the currency (exchange rate). Managing these is the task of economic policy wrt harmonizing growth, employment and price stability within these boundaries.
The two basic choices are a fixed supply of reserves or a supply that expands and contracts wrt the demand for credit.
While there are advantages and disadvantages to both, the key difference is in the policy space that each affords. Those that prefer less govt prefer less policy space and seek to limit the supply of reserves at the apex of the hierarchy of money on which credit rides. The opposite is true of those who prefer more policy space. These are ideological POV's that determine different kinds of societies.
So what we have now is people that prefer less policy space and "sound money" talking about inflation and devaluation and ignoring the huge waste incurred by idle resources, including unemployment and underemployment resulting from an output gap that could be addressed through more liberal policy.
The question is then, are the fears over inflation and devaluation sufficiently real to justify allocating trillions of potential to waste? That is a though case to make based on what "could" happen in the future, when have an undesirable situation in the present that can be corrected by using available policy space.
Right, paul. What I am saying is that otherwise smart person can act stupidly due to cognitive bias. It's what marketing and advertising is all about, for instance. The ancients called it sophistry, making the worse case seem better through rhetoric trumping logic.
"if we were on a gold standard, the government would still have to net-spend into the economy (by buying gold) for gold-backed money to be in anyone's possession"
"Of course, you and Mike and anyone else who hides behind the digital firewall where its nice and cosy prefer to lob alley-oops to yourselves instead of going on international television to make your cases. I think that pretty much speaks for itself. " - Demetri
Demetri, here you're just being a little shit.
Most of us posting here have an interest in economics for different reasons and we all come from varying backgrounds. We don't participate in this forum for fame or fortune and we don't troll other sites giving people a hard time.
What we have in common is a need to figure out "how things work" and we have fun solving the puzzle.
This is unlike the Austrian dogma that comes across as religious belief.
Her's where I stand,..I'm an old mechanical engineer with a good background in math and science and I believe in math and science. I believe in myself over what others say I should believe, and I believe in what math says is possible rather than some religious belief.
I have no desire to be on your TV show and there is no one beyond my family that would care to see me there.
But, you are welcome to come here and have a civil discussion on economics anytime you like and you will be treated like a guest, unless you bring an attitude with you.
Y, I'm not familiar with free coinage, you would have to explain it to me first.
Then, I would parse it just as I would any other math-related problem. These things tend to reduce down to word problems in Algebra, which no one seemed to like.
Right, but just the minting if free. Btw, who pays for the minting, since there is no free lunch.
And where do you get bullion without owning a mine or prospecting. In the first case you hire miners to do the back-breaking work or you buy machines to do it. Seems like this would have to be on credit in anticipation of ore to be recovered, refined and assayed in the future.
In the second you devote you time to doing the back breaking work yourself. How do you support yourself in the meanwhile, assuming that your claim does "pan out."
"And be it further enacted, Persons may bring gold and silver bullion, to be coined free of expense; That it shall be lawful for any person or persons to bring to the said mint gold and silver bullion, in order to their being coined; and that the bullion so brought shall be there assayed and coined as speedily as may be after the receipt thereof, and that free of expense to the person or persons by whom the same shall have been brought"
Basically it was handing out money to whoever could get their hands on gold.
I looked it up in Wikipedia and it looks like the practice ended in 1873 or somewhere around that time.
Anyway, it hasn't been in practice since the Federal Reserve Act was implemented and in any case it doesn't change what I wrote in response to Demetri…the government must buy something to increase the money supply, gold standard or no.
To do otherwise would be tantamount to counterfeiting with all of the undesirable effects that go with it.
This comment has been removed by the author.
ReplyDeleteGreat video as usual. This may be a side issue, but I'm trying to wrap my head fully around MMT. I understand the basic model: we have a domestic government sector, domestic private sector and a foreign sector (the rest of the world). The other macro accounting concepts are starting to click as well.
ReplyDeleteHere's my question: the value of the market dropped by over half, around 7 trillion, from Oct '07 until March '09 How does the stock market fit into MMT? I hope it doesn't sound like a stupid question. I was an econ minor and computer science major. :)
Mike, why do you go after people so much? Why are you so frigg'n angry? No one owes you anything, and its your own fault that no one wants you on TV. If your ratings suck, they suck, and it's not the networks' responsibility to give you airtime just because you think that you make sense.
ReplyDelete"Mike, why do you go after people so much? Why are you so frigg'n angry?" - Arty Produca
ReplyDeleteBecause there are so many ill-informed morons out there spewing bullshit and calling it a good hand…so Mike calls bullshit to make them show they have nothing…it's all part of the game.
I would think you media ambulance-chasers would be eating that up.
right Paul,
ReplyDeleteCNN actually has a whole show (or at least used to) called "Reliable Sources" hosted by Howie Kurtz that reports on the media itself and Fox used to have "Fox News Watch" with John Scott that should be all over these morons just like Mike is doing here... but those 2 shows are run by/for morons too looks like...
The more prestigious Columbia Journalism Review is on the CNBC bullshit like Mike is here but that is about it that I have seen outside the blogosphere...
I guess D over there at RT is still stuck in the Soviet Pravda mode where it is still unthinkable to actually hold a "news" organization accountable for their garbage they spew... and the actual truth doesnt matter... what a disgrace..
rsp,
Paul,
ReplyDeleteTotally. Mike is so good at "calling it out" that he completely backed out of a challenge to go on capital account and debate me on his points, which I consider to be utter nonsense. Now, that's just my opinion. I don't need to resort to calling Mike names, because I can stick to his ideas, which are ridiculous, and debunk them point by point. Of course, you and Mike and anyone else who hides behind the digital firewall where its nice and cosy prefer to lob alley-oops to yourselves instead of going on international television to make your cases. I think that pretty much speaks for itself.
Demetri
where did you get those stats on investment?
ReplyDelete"which I consider to be utter nonsense"
ReplyDeleteIn your video amusingly called "Is MMT a recipe for state capitalism and central economic planning?" you made two points:
1. If foreign creditors stop wanting to hold dollars the currency could lose value.
- Are you afraid that foreigners could "dump" the dollar, leading to a currency collapse? Is that your main concern?
2. Government spending is bad because it leads to "malinvestment", as shown by China.
- MMT doesn't say the government should go out and build empty cities, so this point is irrelevant.
Warren Mosler's proposals for the current situation are very simple:
http://moslereconomics.com/2012/01/10/proposal-update-including-the-jg/
1. If foreign creditors stop wanting to hold dollars the currency could lose value.
ReplyDelete- Are you afraid that foreigners could "dump" the dollar, leading to a currency collapse? Is that your main concern?
According to MMT, the financial constraints are the inflation rate and the exchange rate. So govt in managing the economy and the currency through policy has to look at both.
When inflation is low and the economy is underperforming, the govt (cb) lowers the interest rate, which tends also to lower the exchange rate, which is bullish for bonds, equities, and commodities, as well as exports (cet. par.) Should the fx rate fall below the govt's target then it can raise the interest rate which will be bearish for bonds, equities, and commodities, as well as exports (cet. par.)
But according to MMT, a better solution would be to use fiscal policy to close the output gap and strengthen the economy, which supports the fx rate. Then level off before there is inflationary pressure, which would adversely affect the fx rate.
2. Government spending is bad because it leads to "malinvestment", as shown by China.
- MMT doesn't say the government should go out and build empty cities, so this point is irrelevant.
What leads to malinvestment is neither excess deficits in order to address an output gap nor low interest rates. What leads to malinvestment from the govt side is crony capitalism and corruption. Wrt spending, it's cronyism, and wrt to finance it is failure to limit lending to solid collateral, as well as generally lax oversight.
The more prestigious Columbia Journalism Review is on the CNBC bullshit like Mike is here but that is about it that I have seen outside the blogosphere...
ReplyDeleteMatt,
I see a question of aligning tactics to goals. The CJR is trying to effect change in the conduct of journalism and chooses its battles accordingly.
Presumably an MMT advocate is trying to effect change in macro economic policy or public opinion. Given that MMT is a tiny insurgency with limited opportunity for audience exposure, how does the tactic of "take your ball and go home" advance that cause? Sure, it may make a point in pursuit of better journalism but it also quits the field where an audience might be reached.
In that vein, I offer one small, anecdotal data point on the benefit of staying in:
From the comments at NEP:
"It was a jaw-dropping moment ... I switched on the TV, channel hopped and watched Professor Stephenie Kelton give a webcam interview for the ‘Capital Account’ program last week. ... Up until that moment I had placed economists in the same category as the political establishment and therefore part of the problem rather than the solution. I had never heard of Modern Monetary Theory but now, having read many blogs and watched many more YouTube presentations, I am mesmerized!"
The platform was used to effectively reach a person in the audience without the requirement of convincing Lauren or Demetri to personally believe or promote MMT. Tactics.
"because I can stick to his ideas, which are ridiculous, and debunk them point by point." -Demetri
ReplyDeleteDemetri, that will be very hard nut to crack...in order to debunk Mikes ideas you will have to debunk mathematics itself, and here I mean the basics...simple arithmetic.
Start with this...if the government doesn't net spend, where would money come from?
Are you claiming that we are going to function on credit alone? That would be impossible, credit does not equal money, so I am interested in your answer.
Secondly, even if we were on a gold standard, the government would still have to net-spend into the economy (by buying gold) for gold-backed money to be in anyone's possession.
The only difference between that and what we currently do is that the government buys production to enter money into the economy instead of gold...there is a lot more of production then there is gold.
See, it isn't all that complicated.
Mike is a lot smarter than you think he is, and maybe you aren't quite as smart as you think you are.
Something similar happened to me. In about 2005, I was waiting for the housing bubble to pop and recognized the top in mid-2006. I also saw the financial system going shaky at the time of Bear Stearns. After the crisis hit, and "everyone" missed it, I was puzzled. So I looked into what economists and analysis were saying and all I saw was, "No one could have seen it coming." I thought, WTF? That's crazy. So I started to look for anyone who got in and ran into a comment that Ramanan put up somewhere about MMT. He sounded a bit far-fetched to me, but he seemed like a smart guy and he also provided references, on which I followed up. The rest is history.
ReplyDeleteIf it's out there, some people will get it and pass it on.
Mike is a lot smarter than you think he is, and maybe you aren't quite as smart as you think you are.
ReplyDeleteNot so sure it is smarts. Mostly, I think it is ideological capture that is as emotionally based as rationally. Don't like govt? Go Austrian!
Cognitively, it is called "confirmation bias."
ReplyDeleteTom,
ReplyDeleteI agree completely with your comments, I like to keep terminology simple in comments unless it's something technical, but there's this...
A "smart" person doesn't act or pursue policies against the persons own best interest unless it might benefit society as a whole, and a "smart" person knows what he doesn't know.
Anyone that believes an economy can thrive by starving it of liquidity is not to be taken seriously. There isn't a functioning system in the known universe that operates under that principle.
Paul you will have to debunk mathematics itself, and here I mean the basics...simple arithmetic.
ReplyDeleteRight, money has to come from somewhere, and in a modern economy that's the hierarchy of money with either gold reserves at the apex or else central bank reserves. Now it is central bank reserves. The credit and payment system ride on top of central bank reserves. MMT's descriptive aspect sets forth the institutional arrangements.
This proves govt with a certain degree of policy space bounded by availability of real resources (output), price stability (inflation rate), and relative value of the currency (exchange rate). Managing these is the task of economic policy wrt harmonizing growth, employment and price stability within these boundaries.
The two basic choices are a fixed supply of reserves or a supply that expands and contracts wrt the demand for credit.
While there are advantages and disadvantages to both, the key difference is in the policy space that each affords. Those that prefer less govt prefer less policy space and seek to limit the supply of reserves at the apex of the hierarchy of money on which credit rides. The opposite is true of those who prefer more policy space. These are ideological POV's that determine different kinds of societies.
So what we have now is people that prefer less policy space and "sound money" talking about inflation and devaluation and ignoring the huge waste incurred by idle resources, including unemployment and underemployment resulting from an output gap that could be addressed through more liberal policy.
The question is then, are the fears over inflation and devaluation sufficiently real to justify allocating trillions of potential to waste? That is a though case to make based on what "could" happen in the future, when have an undesirable situation in the present that can be corrected by using available policy space.
Right, paul. What I am saying is that otherwise smart person can act stupidly due to cognitive bias. It's what marketing and advertising is all about, for instance. The ancients called it sophistry, making the worse case seem better through rhetoric trumping logic.
ReplyDelete"I can stick to his ideas, which are ridiculous, and debunk them point by point."
ReplyDeleteDemetri, could you possibly briefly summarize your main criticisms of MMT. Then you can get some responses.
At present you seem to think that MMT is something that it isn't.
Paul,
ReplyDelete"if we were on a gold standard, the government would still have to net-spend into the economy (by buying gold) for gold-backed money to be in anyone's possession"
What about free coinage?
"Of course, you and Mike and anyone else who hides behind the digital firewall where its nice and cosy prefer to lob alley-oops to yourselves instead of going on international television to make your cases. I think that pretty much speaks for itself. " - Demetri
ReplyDeleteDemetri, here you're just being a little shit.
Most of us posting here have an interest in economics for different reasons and we all come from varying backgrounds. We don't participate in this forum for fame or fortune and we don't troll other sites giving people a hard time.
What we have in common is a need to figure out "how things work" and we have fun solving the puzzle.
This is unlike the Austrian dogma that comes across as religious belief.
Her's where I stand,..I'm an old mechanical engineer with a good background in math and science and I believe in math and science. I believe in myself over what others say I should believe, and I believe in what math says is possible rather than some religious belief.
I have no desire to be on your TV show and there is no one beyond my family that would care to see me there.
But, you are welcome to come here and have a civil discussion on economics anytime you like and you will be treated like a guest, unless you bring an attitude with you.
Y, I'm not familiar with free coinage, you would have to explain it to me first.
ReplyDeleteThen, I would parse it just as I would any other math-related problem. These things tend to reduce down to word problems in Algebra, which no one seemed to like.
free coinage:
ReplyDeleteyou turn up at the mint with gold/silver bullion and they mint it into coins, either for a fee or for free.
Demetri,
ReplyDeleteIt's actually the Treasury that prints the currency, not the Fed.
"you turn up at the mint with gold/silver bullion and they mint it into coins, either for a fee or for free." - y
ReplyDeleteDoes that make it legal tender? Under current law?
Right, but just the minting if free. Btw, who pays for the minting, since there is no free lunch.
ReplyDeleteAnd where do you get bullion without owning a mine or prospecting. In the first case you hire miners to do the back-breaking work or you buy machines to do it. Seems like this would have to be on credit in anticipation of ore to be recovered, refined and assayed in the future.
In the second you devote you time to doing the back breaking work yourself. How do you support yourself in the meanwhile, assuming that your claim does "pan out."
Does that make it legal tender? Under current law?
ReplyDeleteUsed to be that way at one time.
I think the first mint practised free coinage of silver.
ReplyDelete(first US mint)
ReplyDeleteyep, here's the Coinage Act of 1792:
ReplyDelete"And be it further enacted, Persons may bring gold and silver bullion, to be coined free of expense; That it shall be lawful for any person or persons to bring to the said mint gold and silver bullion, in order to their being coined; and that the bullion so brought shall be there assayed and coined as speedily as may be after the receipt thereof, and that free of expense to the person or persons by whom the same shall have been brought"
Basically it was handing out money to whoever could get their hands on gold.
y and Tom,
ReplyDeleteI looked it up in Wikipedia and it looks like the practice ended in 1873 or somewhere around that time.
Anyway, it hasn't been in practice since the Federal Reserve Act was implemented and in any case it doesn't change what I wrote in response to Demetri…the government must buy something to increase the money supply, gold standard or no.
To do otherwise would be tantamount to counterfeiting with all of the undesirable effects that go with it.