There are two ways in the absence of a debt-ceiling increase for the President not to break the law:
1. Find some other debt of the U.S. government--like, as Bob Rubin did, the debt of the U.S. government to the Federal Employees' Thrift Savings Plan--where the Trustee will not complain if the government does not pay its debts for a while, and then have the government not pay its debts for a while.
2. Mint the damned coins already.
(2) look strongly preferable to me--the exercise of the government's not paying its debts to people who can't gain standing to sue and then saying that unpaid debts by the government are not part of the debt subject to limit has always seemed ugly.Brad DeLong — Grasping Reality with Every Possible Tentacle
The Trillion Dollar Coin--Or, More Sensibly, 1000 Billion-Dollar Coins--Is The Only Way For Obama To Fulfill His Oath Of Office
J. Bradford DeLong | Professor of Economics, UCAL Berkeley
See also: John Quiggin: Mmt: Noted
Zimbabwe (really!). Typically uninformed criticism by John Quiggin. When are critics going to actually read MMT literature before they go off on a tangent that just makes them look foolish professionally?
Is there some rule that says data from Zimbabwe isn't relevant in economics? Is the subject US-specific?
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ReplyDeleteZimbabwe had lots of debt denominated in foreign currency, REAL shortages of goods and services due to a collapse in production, and a governmental crisis that undermined the legitimacy of the currency.
ReplyDelete@ John Quiggin
ReplyDeleteWelcome to Mike Norman Economics. Thanks for coming by.
Nothing wrong with discussing hyperinflation intelligently. Using it as a club to beat a straw man by bringing it in out of context and regardless of economic history is not. Zimbabwe, Weimar, etc. are irrelevant to the present context in developed countries like the US. MMT proponents expect this from advocates of Austrian economics and LIbertarians, but not from professional economists.
See Bill Mitchell Zimbabwe for hyperventilators.
L Randall Wray, Zimbabwe! Weimar Republic! How Modern Money Theory Replies to Hyperinflation Hyperventilators (Part 1)
Cullen Roche, Hyperinflation - It's More than Just a Monetary Phenomenon
Hyperinflation is relevant to the claim (to which I was responding) that governments can spend what they like without any need to increase taxation.
ReplyDeleteI don't impute this claim to serious MMT advocates, but I was getting a it lot in response to discussions of Australian government policy, with MMT being claimed as authority.
This isn't relevant to current US fiscal policy, but I never said it was.
Hyperinflation is relevant to the claim (to which I was responding) that governments can spend what they like without any need to increase taxation.
ReplyDeleteFirst, MMT would agree with that wrt inflation and MMT economists have been quite specific about policy formulation and implementation in this regard. MMT denies that governments can spend without reference to availability of real resources. They claim that government spending is not limited by inflation constraint when there are idle resources that the private sector is not using and not bidding on, like the unemployed.
Roche's historical investigation would suggest that hyperinflations virtually always have antecedent conditions, such as war or other reasons for resources shortage, as was the case with Zimbabwe, when production was disrupted. Weimar resulted from the terms that were imposed on Germany as war retribution. Emerging country hyperinflations have resulted from borrowing in another's currency or running a currency board.
It's predominantly related to antecedent factors that are non-monetary which eventually lead to run-away inflation. I don't find any clear example of expansion of the monetary base as the chief cause when a government is a currency sovereign issuing a non-convertible floating rate currency and not borrowing in a foreign currency or running a peg, or from running up government debt by a currency sovereign. In fact, most inflations are more the result of private credit extension in times of high animal spirits rather than government currency creation that is not to meet wartime needs to transfer resources to public use.
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ReplyDeleteHyperinflations seem to be special cases that are closely related to context. Therefore, it doesn't seem wise to cite hyperinflation as a possibility generally, and when a government is a currency sovereign in the above sense, one would have to make a case how hyperinflation would like follow from economic policy.
Of course, this is not to rule out government stupidity. Russia defaulted on its debt voluntarily since at the time it had the ability to just issue currency to cover its outstanding debt. Governments could choose act stupidly to create hyperinflation, too, and some likely have. This was likely an issue with the US Continental during the Revolutionary War, for example, but this was a result of wartime issuance.
MMT admits that the constraint on money creation is availability of real resources since effective demand in excess of the capacity of the economy to expand production to meet it will result in inflation. Inflation can also result if government bids up prices in acquiring resources from the private sector, creating supply shortages, too, as it war time. Abraham Lincoln realized that to prevent inflation when he funded the Civil War with greenback issuance, taxes would need to be raised, anticipating Abba Lerner's functional finance. The Confederacy didn't realize this or was not able to collect taxes and they experienced sever loss of purchasing power through wartime issuance.
Supply shortages, especially of vital resources like energy, can result in supply side inflation rather than demand side, too, as it the 70's oil embargo that affected the US. This is a long way from hyperinflation, however.
But perhaps the major objection regarding inflation generally is the intertemporal government budget constraint, which Scott Fullwiler meets in Interest Rates and Fiscal Sustainability.
The basic MMT position on controlling inflation is based on Lerner's functional finance and a modification of Minsky's job guarantee, which adds the JG as a price anchor, anchoring the value of the currency to compensation for an hour of unskilled labor guaranteed by the government as employer of last resort, similar to the government (central bank) as lender of last resort.
MMT is also based on Minsky's analysis of financial instability and recommends reforming the banking and financial system to reduce systemic risk and limit overextension of credit by regulating the asset side of the balance sheet of financial institutions.
How about a realistic starter set of $1 coins--as proposed in Senate Bill S. 1105?
ReplyDeleteSee "How The One Dollar Coin Can Cure The Economy" at http://www.opednews.com/articles/How-The-One-Dollar-Coin-Ca-by-Clifford-Johnson-130515-443.html.