Thursday, January 17, 2019

Michael R. Strain — ‘Modern Monetary Theory’ Is a Joke That’s Not Funny

Scraping the bottom of the barrel. Mocked on Twitter.

Michael Strain is straining. The Establishment is grabbing at straws as their world begins to collapse. Of course, the "joke" is not funny when the joke is on you. Actually, his attempted screed is pretty funny. He is forced to admit that MMT has it right and then look for reasons like political irresponsibility that admitting it will blow up the world.

Bloomberg Opinion
‘Modern Monetary Theory’ Is a Joke That’s Not Funny
Michael R. Strain | director of economic policy studies and resident scholar at the American Enterprise Institute


Andrew Anderson said...

We should be concerned that without genuine* bank reform, generous deficit spending benefiting the poor, unlike tax cuts for the rich, shall prove inflationary long before the unmet needs of the poor are met adequately because the banks will pile on with their deposit creation and consume precious, politically acceptable price inflation space that might otherwise have been used for the general welfare.

So without genuine* bank reform, MMT advocates are in danger of discrediting deficit spending for the non-rich** as too inflationary.

*Warren Mosler's Proposals for the Treasury, the Federal Reserve, the FDIC, and the Banking System do not address the fundamental problem with government-privileged banks - that they extend what is then, in essence, the PUBLIC'S CREDIT. So inflation wise, we would still have the situation of government-privileged banks competing with the Federal Government for real resources - not for the general welfare but for the private welfare of the banks themselves and for those deemed able to repay their loans.

**Including a JG program since unless the JG program unfairly competes with the private sector by providing additional goods and services to lower the general price level, how would it not simply increase DEMAND without increasing SUPPLY?

AXEC / E.K-H said...

MMT: Not a joke but a fraud
Comment on Michael R. Strain on ‘Modern Monetary Theory’ Is a Joke That’s Not Funny’

Michael R. Strain opens the argument: “First, let’s start with the confusion over what it is. The answer seems to depend on which advocate of MMT is being asked. It is sometimes a theory of money. MMT is also being discussed in the context of a political program to justify huge increases in social spending. Finally, there is its role as a prescription for macroeconomic policy. … Even as just an economic theory, it is not settled or fully developed. … The bedrock observation of MMT is correct: Any government that issues its own currency can always pay its bills.”

What is specific to MMT is the claim that almost all economic/social problems can and should be solved by deficit-spending/money-creation. MMT is advertised as a potent medicine that benefits the ninety-nine-percenters and that has no serious short- or long-term negative side effects. MMT claims further that orthodox economics is provably false and that orthodox policy is counterproductive.

MMT is three things: theory, policy, activism. These three elements are constantly mixed in the public debate and this guarantees inconclusive blather in all eternity which keeps soapbox economists, journalists, agenda pushers, propagandists, social media trolls, and the rest of the Circus Maximus employed and fed.

MMT theory is provably false, i.e. materially/formally inconsistent. Because of this, MMT policy proposals have no sound scientific foundations. This, though, does not matter much for the MMT activists because these folks present themselves as the can-do good guys, the real Progressives, the benefactors of WeThePeople who care for the unemployed, the vulnerable, the poor pensioners, the indebted students, and the environment. The activists use MMT as a grab bag of arguments without any concern for consistency, truth, or scientific validity.

The lethal negative effect of permanent deficit-spending/money-creation is NOT on inflation but on distribution.#1 According to the macroeconomic Profit Law, it holds Public Deficit = Private Profit and this means that MMT policy benefits the one-percenters and not the ninety-nine-percenters.

Expressed as a parable. The MMTer resembles a person who prints counterfeit money, say a million, and distributes it with great fanfare among the poor of the town. The media praise her as a fine example of social responsibility and charity. The economic effect of the matter, though, is that the workers are the real benefactors who unwittingly are made to share their real income with the poor. The redistribution of output is effected by barely noticeable price hikes. In the end, the counterfeit money ends up as profit of the business sector as a whole.

The undeniable charm of MMT policy is that apparently there are only winners. Fact is, though, that MMT is proto-scientific garbage and political fraud#2 and that, at the end of the day, the ninety-nine-percenters hold the bag.#3, #4

As a rule of thumb, the financial wealth of the Oligarchy grows in lockstep with the public debt.

Egmont Kakarot-Handtke

#1 Keynes, Lerner, MMT, Trump and exploding profit

#2 Stephanie Kelton’s legendary Plain-Sight-Ink-Trick

#3 MMT = proto-scientific junk + deception of the 99-percenters

#4 Deficit-spending, public debt, and macroeconomic profit/loss

Bob Roddis said...

It seems to me that this guy confuses two separate issues:

1. Deficits where the additional money is borrowed by the government and must be paid back; vs.

2. Deficits where the government just spends new money to pay for stuff without issuing debt in excess of tax receipts.

Do I have that right?

Noah Way said...

Speaking of frauds, don't feed the troll.

Konrad said...

“Yes, a government that issues its own currency can pay its bills. But piling up debt for no urgent reason is lunacy.”

The schizophrenic author admits that the U.S. government creates its spending money out of thin air, while he also claims that the U.S. government borrows its spending money from China or wherever.

And since the government creates infinite money out of thin air, the government will never be able to repay China or wherever.

The twit also thinks that MMT describes what could be, rather than what actually occurs right now.

Someone please seal him back inside his padded cell.

AXEC / E.K-H said...

Bob Roddis

You ask: “Do I have that right?”

No, you don’t get anything right. Bad Austrian karma.

Imagine for a start an elementary production-consumption economy with a balanced household sector budget in the initial period, i.e. C=Yw.#1

Now, if the government runs a deficit in period 1, total expenditures are C+G, the market clearing price rises, and the business sector makes a profit Q=G. Taxes are zero, i.e. T=0.

The banking system consists alone of the central bank. So, profit takes the form of deposits at the CB. The business sector’s deposits are equal to the government’s overdrafts. For a start, there is no interest on deposits/overdrafts.

If the government decides to issue bonds in order to consolidate their overdrafts at the central bank and the business sector buys these bonds then both overdrafts and deposits go again to zero. Money = deposits at the CB vanishes. The business sector now holds interest-bearing bonds. The government has to tax the household sector in order to pay interest to the bondholders.

The government’s debt took first the form of overdrafts and then the form of bonds (liabilities). The business sector’s profit took first the form of deposits and then the form of bonds (assets).

Egmont Kakarot-Handtke

#1 Deficit-spending, public debt, and macroeconomic profit/loss

Andrew Anderson said...

I've read Warren Mosler's Proposals for the Treasury, the Federal Reserve, the FDIC, and the Banking System twice in its entirety today and I have at least one question:

Mr Mosler says "Given that the public purpose of banking is to provide for a payments system and ..." and later "1. The fed should lend unsecured to member banks, and in unlimited quantities at its target fed funds rate, by simply trading in the fed funds market." and finally "3. I would make the current zero interest rate policy permanent."

My question then is why should banks want any deposits and depositors at all when they could instead borrow all the reserves they would ever need to cover cash withdraws, the move of deposits to competitors' banks, Federal tax payments or any other reserve drain in unlimited amounts at ZERO percent from the fed?

So the banks would be in a position TO CHARGE depositors for keeping their deposits, e.g. negative interest, thus encouraging the use of physical fiat instead which is contrary to the stated public purpose of "to provide for a payments system"

What say ye, Warren Mosler admirers? Is his proposal inconsistent? Tom?

Joe said...

His brain would probably melt down upon the realization that bonds and dollars are just different versions of the same thing, differing mainly in their interest rates.