My Twitter conversation today with David Walker exposed a lot, like, he's very confused. First he tried to say that I "grossly misrepresented" him with my sound clip of our interview, where he said that the Social Security checks would not bounce, thus contradicting himself and all of his efforts in trying to make people believe that the program was insolvent.
Today he clarified in his tweet that he was referring to the short term health of SS, but not long term. Then I said to him that it didn't matter, short term or long term; the U.S. can't run out of dollars. I sent him the clip of Alan Greenspan smacking down Paul Ryan on this very subject.
The effort apparently went right over Walker's head because his response to me was that I didn't understand government finance. He said--get this--that it was a question of fiscal policy and not monetary policy. (As if I didn't understand that.) I never even mentioned monetary policy to this guy!!!
All at once it made me realize that Walker didn't grasp what Greenspan and I were saying. I guess he thought that we must have been referring to monetary policy because we said something about the government not running out of dollars and he believes those dollars can only come from one place and one place only and that is the Fed. (He's obviously hooked on the Fed "money printing" thing.)
Walker went on to say there were "legal issues" that I didn't understand as well. What legal issues? My guess is that he was trying to make a point that the Fed could not "pay into" Social Security. No kidding, but that was never anything that I ever mentioned.
He continued by trying to impress me with the fact that he was a Social Security Trustee for five years. This was intended to mean that he, not I, was the expert on the matter. (And we all know that government bureacrats and even high level policy "experts" ALL know what they're talking about when it comes to the monetary system right? !@#$%)
Anyway, the whole conversation left me very depressed. This guy really, really, has no clue.
Remember that Republucans are the main proponents that everything is busted and needs to be privatized.
ReplyDeleteWalker must be thumbing this way and can never stop and be called to make any legitimately objective stance since he is too busy catering and cratering.
And they criticize MMT for consolidating central bank and government. It turns out this is necessary.
ReplyDeleteAnd MMT doesn't have anything useful to add to Post Keynesian analysis? :)
Any time you say something like US can never run out of dollars, you hear something like: anyone with half a brain knows that. Yet people don't seem to grasp that. If MMT line of reasoning is so stupid then how come Greg Mankiw writes about US turning to China based IMF in year 2050 to borrow money.
And they criticize MMT for consolidating central bank and government. It turns out this is necessary.
ReplyDeleteRight. Informal consolidation is how it works in practice. People like Scott Sumner that imagine the cb and Treasury acting at cross purposes don't understand actual operations when they put forward such counterfactual hypotheticals.
And they criticize MMT for consolidating central bank and government. It turns out this is necessary
There are two types here. The first type really doesn't understand how it works. The second type, usually people that understand finance and economics, know that the government can in principle do this but they see restrictions on that power to be necessary to preserves the purchasing power of the currency, so it as a practical matter it is off the table. They need to be shown how "money 'printing" doesn't necessarily result in lower purchasing power or fiscal unsustainability owing to the IGBD. Then there is also the argument that money is neutral and in the long run the economy tends to equilibrium, so short term fixes just get in the way of the resetting that is taking place. Those arguments have been answered.
Tom,
ReplyDeleteAs I've written (and I challenge anyone to refute), there is virtually no amount of money printing that would devalue the currency in a globally open, competitive, entrepreneurial and technologically advanced world. It leads to greater output, employment, tax collection, demand for that transactional unit, etc.
"As I've written (and I challenge anyone to refute), there is virtually no amount of money printing that would devalue the currency in a globally open, competitive, entrepreneurial and technologically advanced world" - Mike
ReplyDeleteNow you're talking my language. Friends and acquaintances are constantly talking about the impending demise of the dollar…pretty soon no one will want them. Like foreigners collect dollars because they are worth something, rather than in exchange for their products and services.
Convince me that they will ever be willing to give up that source of business, the source that comes in large part from American consumers, who essentially are propping up the World economy.
Then I will worry about the "value" of the dollar.
One suggestion though…I consider "printing" synonymous with spending.
Most in the world think of printing as adding to the quantity of money, which is irrelevant without context.
Most of the money in existence now may as well be on the Moon…it is essentially inert.
The only money that matters as far as those of us that depend on the economy is concerned is new money, newly created and spent.
Oops. My second response above is to
ReplyDeleteAny time you say something like US can never run out of dollars, you hear something like: anyone with half a brain knows that. Yet people don't seem to grasp that. If MMT line of reasoning is so stupid then how come Greg Mankiw writes about US turning to China based IMF in year 2050 to borrow money.
As I've written (and I challenge anyone to refute), there is virtually no amount of money printing that would devalue the currency in a globally open, competitive, entrepreneurial and technologically advanced world. It leads to greater output, employment, tax collection, demand for that transactional unit, etc.
ReplyDeleteRight, and their response is that they will only accept an argument in terms of an orthodox model, i.e., their stipulations. That's why people like Walker, Mankiw, et al can never be convinced. They are diehards.
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ReplyDeleteI agree Mike. It seems to me that even intelligent people chronically underestimate the efficiency of our modern economy. Production is hardly a problem anymore, even for oil! For better or worse, the US is producing more oil than it has in decades, making the 70's style oil driven inflation even less likely it seems.
ReplyDeleteAn example I always use is that it used to take lawyers hundreds of billable hours to pour through documents and find case evidence. That same work can now be achieved literally in seconds thanks to advanced computer power. This is an efficiency gain of several hundred percent at least, I'd reckon. These types of efficiency gains leave an incredible amount of room for Net Financial Injections from Uncle Sam! Not than anyone in DC appreciates this at all.
BTW I try to avoid the term "printing money" since it almost always causes people to go straight to their "Wiemar Germany-money-in-wheelbarrows" schema.
Justin,
ReplyDeleteI use "printing money" because it's the Austrian's term and if I can use it and defuse it, then it serves my purpose.
"The second type, usually people that understand finance and economics, know that the government can in principle do this but they see restrictions on that power to be necessary to preserves the purchasing power of the currency, so it as a practical matter it is off the table. They need to be shown how "money 'printing" doesn't necessarily result in lower purchasing power or fiscal unsustainability"
ReplyDeleteI had a guy telling me that debt monetization has always historically caused inflation. He even showed me some chart about US where quantity of money and inflation correlated. Most of these people really think that MMTers are horse thieves, they really believe that mainstream is right and MMT is wrong. They might think that they just don't have enough time to refute all this nonsense but It is has been all refuted before in their opinion. You cannot talk endogenous money to these people. The ones who understand don't do so immediately, It must be difficult to understand. My guess is that person who is not familiar with monetary theories will not understand by spending few nigts reading MMT. One guy asked me: what's fiscal policy? Yet he understood very good by reading my blog for a few weeks.(actually he was messing up and his understanding really started to kick in when he translated Warren's Full Employment and Price Stability into Estonian-translating is like teaching to others, you learn the stuff really good yourself) He had just lost his job and I guess he could relate. He is one of the most informed commentators in my blog and he corrects me if I make a mistake sometimes. :)
This stuff is not very easy to understand, this has been my experience.
imagine the cb and Treasury acting at cross purposes
ReplyDeleteWell, an independent CB could act at cross purposes, at least in theory, couldn't it?
Say it decides to pay IOR at a rate of its preference and stops intervening in the secondary markets for Treasury's bonds and bills. There will be a divorce between "money" and monetary policy.
In time, there could follow a disconnect between the interbank lending rate and the T bill rate.
And - in an admittedly extreme scenario - if the CB keeps its stance "forever" a high level of public debt could eventually bring in permanently higher interest rates for the Treasury, in an imitation of what happened in certain countries of the eurozone.
Remember that in the eurozone the bank rate is now 0.25% but many euro countries are paying multiples of this when they do short term borrowing with bills.
And even in a "monetarily sovereign" country, an independent CB that decides to never intervene in the government securities' markets (the ECB's stance, in general) could create serious problems as far as the "sustainability" of public debt is concerned.
The ECB is different as it is international.
ReplyDeleteIf the Fed created high interest rates, the government would still be able to deficit spend, it would just pay higher interest rates on its bonds. If the high rates caused economic problems then the Fed's mandate would require it to change policy.
the Fed's mandate would require it to change policy
ReplyDeleteThat means the Fed is not very independent, and that is great.
But an independent CB - say, with a statute modelled on that of a Supreme Court - could create lots of problems for a "sovereign" Treasury.
And of course, the link berween the bank rate and short term T-bill rates would be broken.
Yes it could, but is there a modern country with currency sovereignty in which this has occurred? Sumner's hypothesis is about the Fed and US Treasury.
ReplyDeleteObviously it can happen with an independent cb run by financial interests that use their power to counter the political authority. The BOE was founded in the 17th century when bankers didn't trust the crown to act in their interests based on past performance and managed to put a leash on the king.
But modern central banks in nations sovereign in their currency act in tandem with the Treasury to coordinate monetary and fiscal policy.
The EZ is a special case, where the ECB is controlled by a neoliberal elite and has acted in the interest of the elite at the expense of nations that gave up currency sovereignty and where there is no comparable central fiscal authority. So there is no possibility of cb and Treasury consolidation without a Treasury.
@paul meli
ReplyDeleteFed money printing is the number one complaint/objection I hear when discussing monetary or fiscal policy with people who have no real knowledge of the subjects. Over and over again they hear the financial press use the phrase and soon enough everyone just accepts that is what's happening.
I've had more success persuading lately by explaining monetary operations in the context of the individual's checking and savings accounts, that it's the equivalent of their bank moving money from the latter to the former; the person usually understands at that point they have no more spending power.
Matt
ReplyDeleteCheney said that deficits don't matter
Walker was trying to re-GOP the assistant decider
goog,
ReplyDeleteCheney meant they dont matter "politically"...
Now the Peterson cohort of human garbage people are spending up to $1B of Peterson personal $$$$ to try to change that...
They are being somewhat successful.
Check out how the issue of "the deficit" has moved up in the order of ranking of public opinion of importance in the chart from Turd Way I posted above...
rsp,