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 18, 2015
I'm in a debate with deficit terrorist, Maya McGuiness, on Twitter
She's all depressed over the budget deal, which she says will "blow a hole" i the deficit. By that way, that probably means it's going to be GREAT for the economy so do yourself a favor and buy stocks.
But anyway, she's all PROUD of being labeled a deficit TERRORIST. Look...
Have you quietly explained that the deficit is simply the saving rate of the non-government sector, and that it comes out about the same pretty much regardless of the level of taxation for any given level of aggregate demand.
Spend $100 more and you'll get about $90 back as taxes and about $10 increase in savings. Regular as clockwork.
I really don't know what we have to do to explain to people that government controls the *distribution* of taxation, but doesn't really control the %age of spend collected back.
Neil the word "debt" is completely loaded and when someone hears it they change to "moral cognitive mode". Their brains shut down and they go on a frenzy like a headless chicken.
That word simply should not be used when talking about govt securities because they conflate it with household/corporate liabilities. I'm pretty sure if they have a bill in their hands they do not freak out that the govt guarantees them the value of that bill when they exchange it for goods.
Neil the word "debt" is completely loaded and when someone hears it they change to "moral cognitive mode". Their brains shut down and they go on a frenzy like a headless chicken.
That word simply should not be used when talking about govt securities because they conflate it with household/corporate liabilities. I'm pretty sure if they have a bill in their hands they do not freak out that the govt guarantees them the value of that bill when they exchange it for goods.
The proper word is "safe assets." The chief purpose of government securities is not government funding needs but the need of privately owned safe assets in order to reduce financial risk in the system. One way to reduce financial instability is to increase the proportion of safe asset to risky assets in the financial system. This is a reason that some don't want to end public provision of safe assets.
The way to keep the safe assets that reduce risk without creating rent and rent-seeking is not to make them interest paying. That would make them essentially deposits at the central bank that are interest-free, which is tantamount to saving in the currency without the exposure to holding cash and the convenience of banking.
Then it would be clear to all that there is no essential difference between deposits as the central bank, which US tsys now are anyway, and physical cash. US tsys are really just a safer and more convenient substitute for cash under the mattress or buried in the basement.
Mike, I've met Maya, and her ex boss David Walker. Both just retreat into reflex "I'm not listening" mode if you even mention fiat currency operations.
And I & others have sent her multiple emails & tweets.
Her job, from the beginning, has depended on her ability to remain wrong without question, or at least conveniently out of paradigm.
Wake me if you ever get her to even publicly admit that there is a concept called fiat currency operations.
It's all ideology to her, Dave Walker, and the grand vizier, Pete Peterson.
The proper [term] is "safe assets." That's the best suggestion I've heard in 8 years, Tom.
Let's run with that.
You can't win a semantic argument by caving to your opponents definition of terms.
That's like trying to convince a True Believer that there is no God, no devil, no heaven, and that they aren't going to hell ... by constantly drumming those terms into their heads.
All they hear is God, devil, heaven, hell .... and all you accomplish is further cementing into their thinking the very terms you want them to stop using.
The solution is always the same. Define more appropriate terms and stick to them, until an audience, through repetition alone, slowly realized that there's an advantage to using terms that better fit a new paradigm.
And the convenient thing about "safe assets" is that it is already in wide use among both financial people, economists and policy types, because "everyone knows" that the there is extraordinary demand for "safe assets" in the current environment.
From the MMT POV, the safest assets in the private sector are government liabilities in the hands of the private sector. Since the liability rests with the government, they constitute "aggregate net financial assets of non-government" ($NFAs). But that seems to be too difficult a concept for many people to get their heads around.
The fundamental framework of social science including economics is that people act with a view to outcomes, which are potential consequences of action. This is quite different from natural sciences, where action and result are determinate and can be known in terms of definite laws that can be expressed mathematically.
However, the consequences of human action are often epistemologically indeterminate and in some cases also ontologically indeterminate. Shit happens. As a result, action is risky and the consequences may be uncertain, in the sense that risk cannot be meaningfully expressed mathematically with any degree of definiteness.
Bayesianism (subjective probability) is simply the "best guess" with willingness to revise expectations based on feedback. Best guesses are assumptions and hypotheses based on educated guessing using intuition, knowledge of the past, and awareness of subjective conditions like biases. Mathematical analysis cannot remove uncertainty because it is a relationship of subjective and objective. Traders experience this every time they take a position. The only traders I know of that think they can adequately assess and hedge risk, and overcome uncertainty are the ones that haven't been burned yet. Most business people I know realize this intuitively because they know that customers are fickle and blow hot and cold unpredictably.
Capitalism is about munnie making munnie. Anyone of any substance has some sort of portfolio, and most people at least intuitively try to hedge risk and provision for uncertainty by diversifying. Generally diversifying doesn't just mean not putting all your eggs in one basket but distributing risk. That means varying the amount of risk in the portfolio based on exceptions and confidence. So the demand for safe versus risky assets is ongoing, and it's conditional and variable, a relation between subjective and objective. Optimism tends to pay off "in the long run," but one has to have deep enough pockets to last. We probably all know at least some overly optimistic traders that blew up.
I don't think this is difficult to explain. Where the explanation comes in is why government is free to provide or not provide safe assets in the form of government securities to nongovernment. Most people naturally think of government having to obtain funding like they do. However, they also realize that in a fiat regime, government has the power to issue currency at will, which is what "fiat" means. As a result they fear inflation. But this means that their beliefs are contradictory and anyone should be able to see that when it is pointed out to them clearly.
Anyone should also be able to figure out that inflation is a response to demand (spending) in excess of supply (stuff) rather than just there being more munnie in the bank. Issuance of safe assets encourages not spending (saving) rather than spending. After the recent crisis, government spending rose markedly and government added substantially to its consolidated balance sheet. Inflation never happened and still hasn't, and the inflationistas lost their shirt betting it would. The inflation argument is a canard.
The obvious answer is that government should increase provision of safe assets with demand for them, which occurs counter-cyclically owing to increasing uncertainty and a consequent fall in confidence, resulting in portfolio shifting to hedge risk and provision against heightened uncertainty. Since provision of government securities is tied to the fiscal balance, this is what happens.
Government spends more to make up for the decrease in private spending in order to maintain economic activity and employment. Decreased private activity reduces tax revenue. The result is an increasing deficit and increased provision of safe assets to accommodate both increasing nongovernment saving desire and the shifting of portfolios to hedge risk and offset higher perceived uncertainty.
I should have written "the convenient thing about "safe assets" is that it is already in wide use among both financial people, AND economists and policy types." While "safe assets" is chiefly a financial terms is now being used more widely.
"Credit" and "debt" are chiefly financial terms, too, as are "assets and liabilities." But most everyone is familiar with them even though a lot of people haven't the foggiest notion of double-entry.
You'll find that those that want safe assets with interest attached are older people - because it is the safe assets with interest attached that actually pays pensions.
Removing the interest cuts the income from pensions and that income then has to come from elsewhere.
Of course the solution is for the federal government to pay a pension and stop all this token exchange nonsense that actually can't deliver a pension without federal assistance anyway.
Of course the solution is for the federal government to pay a pension and stop all this token exchange nonsense that actually can't deliver a pension without federal assistance anyway
The savings fetish is moral rather than economic. Economically saving rather stupid because of the paradox of thrift and effective demand. Saving is not spending, and the less income that is spent, the greater the demand leakage from circular flow. So the more that government needs to provide anyway to bolster effective demand and prevent economic contraction that restricts the capacity to save owing to reduced incomes from private sources. Not only is there less spend but also less to save.
A market state turns out to be less economical (less effective and less efficient) than a well-managed welfare state.
The solution is always the same. Define more appropriate terms and stick to them, until an audience, through repetition alone, slowly realized that there's an advantage to using terms that better fit a new paradigm.
Exactly Roger, those who frame the debate have already won it. By framing the debate and setting what is being discussed and on what terms you say "what's on the table today". This is what neolibs did 40 years ago and we are stuck with their framing of the debate (which only post-keynesians have challenged), and every minor variation of neoliberalism is stuck with their framing ("new-keynesians", "monetarists" or mainstream "neoclassical" doesn't really change much of substance between them).
Tom yes saving does not make much sense on aggregate level, but because uncertainty and lack of guarantees people is stuck with the current system.
Were the state to provide a scheme to guarantee income channel on retirement savings would drop dramatically (woudl still be needed for acquisition of certain expensive assets like RE, but it would be mostly a friction and on aggregate the saving glut would be reduced a lot). But until that happens people in practice will be stuck with the current scheme.
Although with the current trends of working until you drop dead and removing retirement because "we are out of money!" may as well disappear entirely anyway lol.
They are not listening because It is a moral play. It is the moral play that wins the argument for them.
It is the foundation of goldbuggism also. This is not an honest thing for government to make more money out of nothing. It doesn't seem right for them. So if there is you and a deficit terrorist debating and you say that government doesn't run out of dollars then you are the bad guy because you are suggesting the government does something that is not moral. This is the biggest obstacle IMO.
If you remember Alan Greenspan's comments when US debt was downgraded, he said: we can always print money. This was met with anger by the deficit terrorists. It doesn't matter IMO how you name the debt. May be overtaxing rhetoric would be better: the economy is overtaxed.
It's not honest for collectives to make progress out of the seeming nothingness of return-on-coordination?
How do you square that with our mania for sports teams, where there's there's supposedly "no I in team?" (Not to mention 4.5 billion years of continuous, unstoppable, recombinant evolution.)
NeoLiberal solution, "We'll conjure BullShit out of nothing!" There, that'll fix it! :(
ok, after Greenspan said, we can always print money, here are some comments:
"Who's the guy sitting to the right from our perspective? His face is priceless after he hears Greenspan saying such stupidity."
"why do american people even have to work? just print the money and give to people - if that's creating real wealth, we can all be on vacation forever ! "
"my jaw dropped I swear"
There is so much moral play in this. I know this guy who works in financial sector. He was commenting ECB money printing and he said: they do whatever they do, however long It takes to keep from happening what "Europe deserves".
What MMT-ers don't realize is that their sectoral balances and "government doesn't run out of money" will not win the argument. What does? I don't know. There is something about money that seemingly normal people go kokoo when you talk about It.
Kristjan, is a cognitive barrier/dissonance which takes an enormous energy to break, because is something that has formed part of the social norms since they were born.
Admitting that your effort does not generate money is very hard to admit, because they conflate "money" with real produce. Hence why "why work, we can just print money!".
Is classic conflation between financial and real terms, that's why you have to be cautious about this, explaining that you can't simply print money, that there is a limit to money printing, but on zero-inflation environments where there is a lot of idle capacity there is nothing stopping us from printing and spreading money or for governments to increase expenditure because they are not constraint by taxation or anything like that.
Education sicne early on is the only way to change things, is has always been the only way.
"explaining that you can't simply print money, that there is a limit to money printing"
That's no reason to pay interest. The interest rate is set by the central bank which is owned and controlled by the government.
If the government doesn't spend enough, then the central bank has to drop the interest rate to zero to maintain aggregate demand.
So you don't pay interest. You pay tax instead - since interest is really just taxation by the back door, but into the hands of wealthy people rather than the representatives of the majority of the population.
Have you quietly explained that the deficit is simply the saving rate of the non-government sector, and that it comes out about the same pretty much regardless of the level of taxation for any given level of aggregate demand.
ReplyDeleteSpend $100 more and you'll get about $90 back as taxes and about $10 increase in savings. Regular as clockwork.
I really don't know what we have to do to explain to people that government controls the *distribution* of taxation, but doesn't really control the %age of spend collected back.
Neil the word "debt" is completely loaded and when someone hears it they change to "moral cognitive mode". Their brains shut down and they go on a frenzy like a headless chicken.
ReplyDeleteThat word simply should not be used when talking about govt securities because they conflate it with household/corporate liabilities. I'm pretty sure if they have a bill in their hands they do not freak out that the govt guarantees them the value of that bill when they exchange it for goods.
Neil the word "debt" is completely loaded and when someone hears it they change to "moral cognitive mode". Their brains shut down and they go on a frenzy like a headless chicken.
ReplyDeleteThat word simply should not be used when talking about govt securities because they conflate it with household/corporate liabilities. I'm pretty sure if they have a bill in their hands they do not freak out that the govt guarantees them the value of that bill when they exchange it for goods.
The proper word is "safe assets." The chief purpose of government securities is not government funding needs but the need of privately owned safe assets in order to reduce financial risk in the system. One way to reduce financial instability is to increase the proportion of safe asset to risky assets in the financial system. This is a reason that some don't want to end public provision of safe assets.
The way to keep the safe assets that reduce risk without creating rent and rent-seeking is not to make them interest paying. That would make them essentially deposits at the central bank that are interest-free, which is tantamount to saving in the currency without the exposure to holding cash and the convenience of banking.
Then it would be clear to all that there is no essential difference between deposits as the central bank, which US tsys now are anyway, and physical cash. US tsys are really just a safer and more convenient substitute for cash under the mattress or buried in the basement.
Mike,
ReplyDeleteI've met Maya, and her ex boss David Walker. Both just retreat into reflex "I'm not listening" mode if you even mention fiat currency operations.
And I & others have sent her multiple emails & tweets.
Her job, from the beginning, has depended on her ability to remain wrong without question, or at least conveniently out of paradigm.
Wake me if you ever get her to even publicly admit that there is a concept called fiat currency operations.
It's all ideology to her, Dave Walker, and the grand vizier, Pete Peterson.
The proper [term] is "safe assets."
ReplyDeleteThat's the best suggestion I've heard in 8 years, Tom.
Let's run with that.
You can't win a semantic argument by caving to your opponents definition of terms.
That's like trying to convince a True Believer that there is no God, no devil, no heaven, and that they aren't going to hell ... by constantly drumming those terms into their heads.
All they hear is God, devil, heaven, hell .... and all you accomplish is further cementing into their thinking the very terms you want them to stop using.
The solution is always the same. Define more appropriate terms and stick to them, until an audience, through repetition alone, slowly realized that there's an advantage to using terms that better fit a new paradigm.
And the convenient thing about "safe assets" is that it is already in wide use among both financial people, economists and policy types, because "everyone knows" that the there is extraordinary demand for "safe assets" in the current environment.
ReplyDeleteFrom the MMT POV, the safest assets in the private sector are government liabilities in the hands of the private sector. Since the liability rests with the government, they constitute "aggregate net financial assets of non-government" ($NFAs). But that seems to be too difficult a concept for many people to get their heads around.
The fundamental framework of social science including economics is that people act with a view to outcomes, which are potential consequences of action. This is quite different from natural sciences, where action and result are determinate and can be known in terms of definite laws that can be expressed mathematically.
However, the consequences of human action are often epistemologically indeterminate and in some cases also ontologically indeterminate. Shit happens. As a result, action is risky and the consequences may be uncertain, in the sense that risk cannot be meaningfully expressed mathematically with any degree of definiteness.
Bayesianism (subjective probability) is simply the "best guess" with willingness to revise expectations based on feedback. Best guesses are assumptions and hypotheses based on educated guessing using intuition, knowledge of the past, and awareness of subjective conditions like biases. Mathematical analysis cannot remove uncertainty because it is a relationship of subjective and objective. Traders experience this every time they take a position. The only traders I know of that think they can adequately assess and hedge risk, and overcome uncertainty are the ones that haven't been burned yet. Most business people I know realize this intuitively because they know that customers are fickle and blow hot and cold unpredictably.
Capitalism is about munnie making munnie. Anyone of any substance has some sort of portfolio, and most people at least intuitively try to hedge risk and provision for uncertainty by diversifying. Generally diversifying doesn't just mean not putting all your eggs in one basket but distributing risk. That means varying the amount of risk in the portfolio based on exceptions and confidence. So the demand for safe versus risky assets is ongoing, and it's conditional and variable, a relation between subjective and objective. Optimism tends to pay off "in the long run," but one has to have deep enough pockets to last. We probably all know at least some overly optimistic traders that blew up.
continued
continuation
ReplyDeleteI don't think this is difficult to explain. Where the explanation comes in is why government is free to provide or not provide safe assets in the form of government securities to nongovernment. Most people naturally think of government having to obtain funding like they do. However, they also realize that in a fiat regime, government has the power to issue currency at will, which is what "fiat" means. As a result they fear inflation. But this means that their beliefs are contradictory and anyone should be able to see that when it is pointed out to them clearly.
Anyone should also be able to figure out that inflation is a response to demand (spending) in excess of supply (stuff) rather than just there being more munnie in the bank. Issuance of safe assets encourages not spending (saving) rather than spending. After the recent crisis, government spending rose markedly and government added substantially to its consolidated balance sheet. Inflation never happened and still hasn't, and the inflationistas lost their shirt betting it would. The inflation argument is a canard.
The obvious answer is that government should increase provision of safe assets with demand for them, which occurs counter-cyclically owing to increasing uncertainty and a consequent fall in confidence, resulting in portfolio shifting to hedge risk and provision against heightened uncertainty. Since provision of government securities is tied to the fiscal balance, this is what happens.
Government spends more to make up for the decrease in private spending in order to maintain economic activity and employment. Decreased private activity reduces tax revenue. The result is an increasing deficit and increased provision of safe assets to accommodate both increasing nongovernment saving desire and the shifting of portfolios to hedge risk and offset higher perceived uncertainty.
Kelton's seesaw model.
Stephanie Kelton, What Happens When the Government Tightens its Belt?
I should have written "the convenient thing about "safe assets" is that it is already in wide use among both financial people, AND economists and policy types." While "safe assets" is chiefly a financial terms is now being used more widely.
ReplyDelete"Credit" and "debt" are chiefly financial terms, too, as are "assets and liabilities." But most everyone is familiar with them even though a lot of people haven't the foggiest notion of double-entry.
You'll find that those that want safe assets with interest attached are older people - because it is the safe assets with interest attached that actually pays pensions.
ReplyDeleteRemoving the interest cuts the income from pensions and that income then has to come from elsewhere.
Of course the solution is for the federal government to pay a pension and stop all this token exchange nonsense that actually can't deliver a pension without federal assistance anyway.
Of course the solution is for the federal government to pay a pension and stop all this token exchange nonsense that actually can't deliver a pension without federal assistance anyway
ReplyDeleteThe savings fetish is moral rather than economic. Economically saving rather stupid because of the paradox of thrift and effective demand. Saving is not spending, and the less income that is spent, the greater the demand leakage from circular flow. So the more that government needs to provide anyway to bolster effective demand and prevent economic contraction that restricts the capacity to save owing to reduced incomes from private sources. Not only is there less spend but also less to save.
A market state turns out to be less economical (less effective and less efficient) than a well-managed welfare state.
The solution is always the same. Define more appropriate terms and stick to them, until an audience, through repetition alone, slowly realized that there's an advantage to using terms that better fit a new paradigm.
ReplyDeleteExactly Roger, those who frame the debate have already won it. By framing the debate and setting what is being discussed and on what terms you say "what's on the table today". This is what neolibs did 40 years ago and we are stuck with their framing of the debate (which only post-keynesians have challenged), and every minor variation of neoliberalism is stuck with their framing ("new-keynesians", "monetarists" or mainstream "neoclassical" doesn't really change much of substance between them).
Tom yes saving does not make much sense on aggregate level, but because uncertainty and lack of guarantees people is stuck with the current system.
ReplyDeleteWere the state to provide a scheme to guarantee income channel on retirement savings would drop dramatically (woudl still be needed for acquisition of certain expensive assets like RE, but it would be mostly a friction and on aggregate the saving glut would be reduced a lot). But until that happens people in practice will be stuck with the current scheme.
Although with the current trends of working until you drop dead and removing retirement because "we are out of money!" may as well disappear entirely anyway lol.
They are not listening because It is a moral play. It is the moral play that wins the argument for them.
ReplyDeleteIt is the foundation of goldbuggism also. This is not an honest thing for government to make more money out of nothing. It doesn't seem right for them. So if there is you and a deficit terrorist debating and you say that government doesn't run out of dollars then you are the bad guy because you are suggesting the government does something that is not moral. This is the biggest obstacle IMO.
If you remember Alan Greenspan's comments when US debt was downgraded, he said: we can always print money. This was met with anger by the deficit terrorists. It doesn't matter IMO how you name the debt. May be overtaxing rhetoric would be better: the economy is overtaxed.
It's not honest for collectives to make progress out of the seeming nothingness of return-on-coordination?
ReplyDeleteHow do you square that with our mania for sports teams, where there's there's supposedly "no I in team?" (Not to mention 4.5 billion years of continuous, unstoppable, recombinant evolution.)
NeoLiberal solution, "We'll conjure BullShit out of nothing!" There, that'll fix it! :(
ok, after Greenspan said, we can always print money, here are some comments:
ReplyDelete"Who's the guy sitting to the right from our perspective? His face is priceless after he hears Greenspan saying such stupidity."
"why do american people even have to work? just print the money and give to people - if that's creating real wealth, we can all be on vacation forever ! "
"my jaw dropped I swear"
There is so much moral play in this. I know this guy who works in financial sector. He was commenting ECB money printing and he said: they do whatever they do, however long It takes to keep from happening what "Europe deserves".
What MMT-ers don't realize is that their sectoral balances and "government doesn't run out of money" will not win the argument. What does? I don't know. There is something about money that seemingly normal people go kokoo when you talk about It.
Kristjan, is a cognitive barrier/dissonance which takes an enormous energy to break, because is something that has formed part of the social norms since they were born.
ReplyDeleteAdmitting that your effort does not generate money is very hard to admit, because they conflate "money" with real produce. Hence why "why work, we can just print money!".
Is classic conflation between financial and real terms, that's why you have to be cautious about this, explaining that you can't simply print money, that there is a limit to money printing, but on zero-inflation environments where there is a lot of idle capacity there is nothing stopping us from printing and spreading money or for governments to increase expenditure because they are not constraint by taxation or anything like that.
Education sicne early on is the only way to change things, is has always been the only way.
"explaining that you can't simply print money, that there is a limit to money printing"
ReplyDeleteThat's no reason to pay interest. The interest rate is set by the central bank which is owned and controlled by the government.
If the government doesn't spend enough, then the central bank has to drop the interest rate to zero to maintain aggregate demand.
So you don't pay interest. You pay tax instead - since interest is really just taxation by the back door, but into the hands of wealthy people rather than the representatives of the majority of the population.