The trolls are at it.
Continental Telegraph
Zimbabwe’s Real Riots Problem – Modern Monetary Theory Strikes Again
Tim Worstall
Ep. 124: What is Modern Monetary Theory? — Political Economy with James Pethokoukis
Why Modern Monetary Theory is an unserious idea for an unserious time
James Pethokoukis
26 comments:
Wow, this Worstall guy is a real piece of work. At least he admits MMT is, in fact, correct. So the only refuge he has now is the old idea of there's different truths for different qualities of people. Only the smart, elite class of people can handle that there is no god, if the common man found out, chaos would ensue. Murder and rape everywhere, only this time it's mmt and inflation everywhere.
Worstall is a pompous ass with an agenda. His article blames MMT but ignores the real reasons for problems in Zimbabwe. Example: high taxes serve to constrict and collapse the economy. This and other polices are the direct opposite of MMT.
Zimbabwe’s real riots problem – Modern Monetary Theory strikes again
MMT describes what actually happens, just as the theory of aerodynamics describes how aircraft actually get into the air.
Tim Worstall admits this, but then, as always, he contradicts himself, saying that no, MMT is a policy prescription that, if enacted, would inevitably cause hyper-inflation. This is like claiming that the theory of aerodynamics, if enacted, would inevitably cause all planes to crash. That's why we must never operate by the theory of aerodynamics.
”The conventional answer is to inflation is to stop printing money, or raise interest rates, or raise taxes. MMT says raise taxes. OK, great.”
WRONG. MMT says (just as Worstall does) that the answer is to stop printing money, or raise interest rates, or raise taxes.
“Thus MMT leads to runaway inflation.”
WRONG. Once again, MMT explains what actually happens, not what might or should happen.
Worstall then resorts to the standard Zimbabwe bogeyman. Like most people, Worstall ignores that fact that Zimbabwe’s 11 months of hyperinflation (1989-90) was caused by economic attacks by Britain, the USA, and the IMF. They attacked because Zimbabwe’s government refused to keep paying on IMF debt bombs, and would not let foreign corporations steal all of Zimbabwe’s resources.
“Zimbabwe is screwed because of modern monetary theory. Again. Not because MMT itself is wrong, but because it doesn’t account for the incentives faced by those in power. Thus MMT isn’t a power we want to give government, the reason being the sort of scum who get elected.”
MMT is an explanation, not a “power.” Likewise the theory of internal combustion is an explanation, not a “power.” Perhaps Worstall prefers a euro-zone situation, in which supreme power is wielded by parasitic bankers.
At any rate, Worstall always shoots himself in the foot by admitting that MMT is 100% correct, while simultaneously claiming that MMT is wrong.
As for Zimbabwe, its current problems arose because President Emmerson Mnangagwa (who deposed Robert Mugabe in November 2017) is a neoliberal whose taxes have caused fuel prices to rise from $1.24 per liter (USD $5.19 per gallon) to $3.31 a liter (USD $12.53 a gallon) making Zimbabwe the most expensive country in the world to fill a car.
Mnangagwa did this to repay the World Bank and IMF, who claim that Zimbabwe owes them $2.2 billion. Once this is paid off, Mnangagwa can take new loans from the IMF, and thereby plunge Zimbabwe further than ever into debt.
The goal is to reduce Zimbabwe to a neoliberal paradise (i.e. a shit-hole for the 99%).
Bit off topic: Tom, you may already have seen it, but Eric Tymoigne has just put up a very informative string of tweets concerning the MMT view of taxes (both consolidated and unconsolidated versions of the analysis).
https://twitter.com/tymoignee/status/1086356194967482368
Konrad,
Your claim that MMT simply describes what happens ain't true: MMTers also describe what they WOULD LIKE TO HAPPEN, and that includes so alled "overt money creation".
It's a bit naive to think no politician in that circumstance won't fall for the tempation of printing too much money and leaving the inflationary mess for successor politicains to clean up.
Positive Money, which also advocates OMC is ahead of MMT here. That is, PM advocates a system where some sort of independent committee of economists controls stimulus (aka money printing if you like). That committee could be an existing central bank committee.
Ben Bernanke also expressed approval of OMC long as an independent central bank or similar kept politician's money printing desires under control. See Bernanke's para starting “A possible arrangement…” in this Fortune article entitled “Here’s How Ben Bernanke’s “Helicopter Money” Plan Might Work.”
“Your claim that MMT simply describes what happens ain't true.”
I was referring to the raw basics of MMT -- e.g. the fact that the US government does not run on tax revenue, and does not borrow its spending money.
It is true that some MMT people go beyond the descriptive realm into the prescriptive realm, such as their silly “jobs guarantee.” That aside, I stand by my assertion that basic MMT describes what happens, not what could or should happen.
“MMTers also describe what they WOULD LIKE TO HAPPEN, and that includes so called "overt money creation.”
OMC refers to the federal budgeting process. MMTers would like to dispense with the legal requirement that the Fed sells T-securities whose face value equals the federal deficit for a given fiscal year. This law is a silly vestige from the fixed exchange rate Bretton Woods system. It is unnecessary, and it is a sham, because if investors don’t buy T-securities whose aggregate face values equals the federal deficit, then the Fed “buys” the requisite T-securities itself. In other words, the law is effectively ignored. It’s all a pretense designed to sustain the illusion that the U.S. government borrows its spending money.
“It's a bit naive to think no politician in that circumstance won't fall for the temptation of printing too much money and leaving the inflationary mess for successor politicians to clean up.”
Oh, but politicians do fall for the temptation. Each year they set new records in the amount of money they create out of thin air for weapons and wars. Meanwhile they claim that there is “no money” for social programs that would help average people.
Despite this increasing creation of money, inflation is not a problem, since bankers suck up so much money via debt bondage (student loan payments, etc.) that they keep the economy in a permanent recession.
“Positive Money, which also advocates OMC is ahead of MMT here. That is, PM advocates a system where some sort of independent committee of economists controls stimulus (aka money printing if you like). That committee could be an existing central bank committee.”
Here we do not agree. The “positive money” people suffer from Ellen Brown Syndrome, which consists of the false delusion that all money worldwide is created by banks as loans.
Thanks, Peter. I haven't had time to keep up with everything and did catch that.
MMT says (just as Worstall does) that the answer is to stop printing money, or raise interest rates, or raise taxes. Konrad
Or raise the DEMAND for fiat (money) by (GASP!) actually allowing the non-bank private and local government sectors to use fiat and by eliminating all other privileges for bank deposits over a Nation's fiat.
This would vastly increase the amount of "money printing" that could be done for a given amount of price inflation.
It is true that some MMT people go beyond the descriptive realm into the prescriptive realm, ... Konrad
Not nearly enough since by refusing to advocate for the removal of government privileges for the banks - whereby the banks may safely create many more deposits for the PRIVATE welfare of the banks themselves and for the welfare of the so-called credit worthy - they would implicitly sharply limit the ability of the monetary sovereign to deficit spend for the GENERAL welfare.
"Worstall is a pompous ass with an agenda."
How accurate.
The agenda being to critique what I consider the naivety of MMT. Let's just take the theory as given. OK. What then?
"It's a bit naive to think no politician in that circumstance won't fall for the tempation of printing too much money and leaving the inflationary mess for successor politicains to clean up. "
That is my critique.
Now, obviously, that's driven by my utter and total contempt for those who go into politics and their motivations and incentives. I would note here that I've worked in politics, stood as a candidate myself. Have actually seen who and what up close.
Ralph thinks that such behaviour might happen. I insist that it will but that's only a difference of emphasis. My problem with MMT is that, as a useful policy prescription, it fails because no political system will ever print just the right amount of money and only that amount, taxing back the excess. Thus as a useful method of running the world MMT fails.
You're entirely welcome to disagree with me on that but it's not exactly a pompous thought for me to have, is it?
Tim, governments already make use of their fiscal capacity when it comes to wars and tax cuts for the rich. It's only when it comes to social programs that they pretend to be "out of money".
"it fails because no political system will ever print just the right amount of money and only that amount, taxing back the excess."
The MMTers propose a job guarantee. If implemented, this would ensure what they call 'loose full employment' irrespective of the overall level of spending.
This would afford policymakers leeway similar to the leeway afforded under the present NAIRU approach.
The ratio of JG employment to total employment (the 'buffer employment ratio' or 'BER') would have a similar significance to policymakers as the unemployment rate in the current policy framework.
BER < NAIBER (akin to u < NAIRU presently) would call for contractionary policy.
Quite possibly all you say is true. Doesn't actually address my point. Which is that telling politicians they've an open checkbook isn't going to work out well.
The first paragraph was intended to address that point. That is, I think politicians already do behave as if they have an open checkbook when it suits powerful interests, just not when it comes to social programs.
“Doesn't actually address my point. Which is that telling politicians they've an open checkbook isn't going to work out well.“
In a democracy you have the ability to cast your vote to vote them out if you think they misbehave.
So it should be up to voters to decide what politicians they want and what those politicians do.
And technically, using the US as an example, it must be bank deposits that cause price inflation since, except for mere coins and Federal Reserve Notes, ONLY depository institutions in the US economy may even use US dollars with the rest of the economy using their deposits, mere liabilities for US dollars.
Thus any discussion of price inflation MUST include the banks too - especially their enhanced ability to safely create deposits ("Bank loans create bank deposits") via government privilege.
Maybe rather than viewing criticism from a different frame as trolls, address the actual issues instead of the witty repartee answers MMT typically do.
When critics point to Zimbabwe and the political dysfunction, point out our current system is MT and that we already have political checks on the system to prevent progressive/regressive authoritarians from power grabs and crowding out private consumption with government. Obviously, from their frame the JG as imagined by Kelton/AOC is far more problematic than Mosler's or Wray's version.
An MMT JG could entail voluntary/conscripted labor into military service, instead of a Green New Deal. It could entail support for religious study or prosletyzing. Or distribution of anti abortion materials to schools. You can design a JG to be a conservative wet dream instead of the progressive fantasy.
peterc is correct. Politicians and media talking heads already do act as if the US has an unlimited checkbook when it comes to the interests of the powerful. It's only when it's something for average people does the question of "How do we pay for it" come about. We can't have medicare for all or more public school funding, but billions extra are always available to be funneled to "Defense" contractors, no questions asked. Heck, the politicians gave enormous amounts of extra money to the military that the military didn't even request and no one asked "where will it come from?". Trillions in tax cuts and again, no question of "where will it come from?". You dare try to get funding for projects that benefit commoners and immediately you hear from every corner, "well how are you going to pay for it?". It's clear what's going on.
Good governance is required regardless. Some myth about limited money does not prevent bad governance from making a mess of things. The eurozone is a fantastic example, with their foolish and slavish devotion to "sound" public finance, they've really made a mess of things with austerity. Or anywhere the IMF has been allowed to operate...
So Worstall has added absolutely nothing new or interesting, just a gratuitous distortion.
”Maybe rather than viewing criticism from a different frame as trolls”
That’s been done so many times already. People have tried to engage in serious discussion with guys like Worstall but always end up with the same lazy brain argument like Zimbabwe. People like Worstall are interested in one way communication where they think they are the smartest guys around.
I'd be fascinated to be given an actual response to my argument. All I've ever been told is "But our politicians wouldn't act that way!"
Anyone got anything more substantial?
S400, that is Worstall's point. It's not Worstall's job to explain why MMT will work. He is the critic and has done his job in good faith.
What Austrian and other theory gets right and MMT gets wrong is more human and less accounting.
MMT rapidly sets perverse incentives that will likely result in extraordinary power concentration and even violence and MMT sort of does the economics hand wave and says don't worry, be happy!
The difficulty in designing a system isn't to get the accounting right, though that is important and MMT has done it well, better than other economics generally speaking.
The reason that John Carney tried to get MMT and Austrians together was because aligning incentives and avoiding tribalism and races to the bottom and other human frailties and proclivities is THE MOST IMPORTANT part of an economy. Austrians get the accounting wrong but are good at aligning and forecasting 2nd and 3rd order effects on human behavior, this is where MMT fails, miserably.
In terms of understanding financial markets and how our existing system works, MMT does a great job but if you really designed the system without our checks and balances to really turbo-charge and optimize the system AND let Kelton/AOC/Kamala or Bannon/Cheney/Rumsfeld types use a JG to maximize their favored sectors, it would be horrific wealth grab. That's the point. It's not incidental to the design, do the math/accounting on the composition of the economy in 100 quarters of accounting using MMT and realistic growth assumption in sub sectors of the economy... it's a mathematical certainty that MMT will fail if you tried to manage using an aggregate inflation measure with a motivated leadership.
Pointing to the accounting and saying, "You guys are morons, we've showed you that we've accounted for inflation!" is witty, and we all hear it. What we don't hear is MMT doing the other half of economics, which is to describe how it will design government and markets to align interests to prevent perverse incentives and wasted output and inefficiencies from arising. Please don't ask me to explain how aggregate measures of inflation aren't adequate to manage an economy to prevent real waste! That isn't my job.
Tim Worstall: Which is that telling politicians they've an open checkbook isn't going to work out well.
It worked out much better when everybody knew this and said this, during the postwar or Keynesian era. Everybody understood MMT back then. The economic illiteracy of the subsequent neoliberal era worked out less well, except for malefactors of great wealth.
So this statement flies in the face of an enormous amount of experience, and deems this voice of experience "naive". That's par for the course these days. Whenever someone criticizes me as naive, I thank them. I only get worried and double check what I said if people compliment me.
Wow, this Worstall guy is a real piece of work. At least he admits MMT is, in fact, correct. So the only refuge he has now is the old idea of there's different truths for different qualities of people. Only the smart, elite class of people can handle that there is no god, if the common man found out, chaos would ensue. Murder and rape everywhere, only this time it's mmt and inflation everywhere. [Joe]
This is exactly the right analogy, in my opinion.
” It's not Worstall's job to explain why MMT will work. He is the critic and has done his job in good faith”
If Zimbabwe is brought up as an example then in a serious discussion one shall expect that the one bringing up Zimbabwe knows the whole history around the inflation event and not just cherrypick the money printing.
And of course you don’t know anything of his good faith more than I do.
“MMT rapidly sets perverse incentives that will likely result in extraordinary power concentration and even violence and MMT sort of does the economics hand wave and says don't worry, be happy!”
For that claim You should come up some depth evidence. Otherwise it’s just hand waiving.
“ forecasting 2nd and 3rd order effects on human behavior, this is where MMT fails, miserably.”
So prove it. Otherwise it’s just hand waiving.
“Kelton/AOC/Kamala or Bannon/Cheney/Rumsfeld types use a JG to maximize their favored sectors, it would be horrific wealth grab.”
It’s a political choice and in a democracy you can vote them out in the cold if you find politicians not doing the right things. Are you against that?
“I'd be fascinated to be given an actual response to my argument. All I've ever been told is "But our politicians wouldn't act that way!"
Anyone got anything more substantial?“
You got an answer but you ignored it.
In a democracy you have the ability to cast your vote to vote them out if you think they misbehave.
So it should be up to voters to decide what politicians they want and what those politicians do.
Now, you said you don’t trust politicians so what kind of system do you really want? A system where unelected technocrats are pulling the strings and politicians can’t do any major reforms based on what their voters want?
That system is already in place and being reinforced as we speak.
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