Wednesday, December 29, 2021

Mental Models for What Government Does With Our Money | Mind Matters — Jonathan Bartlett

Nice try from the angle of mental models, but totally wrong about the MMT mental model. No indication that the author has read Stephanie Kelton's The Deficit Myth, aand if he did, he missed the point — it's about availability of real resources and the rest is accounting. The accounting, or failure to understand it, can obscure where currency comes from (issuance, which he realizes), how it is produced and distributed through the central bank, and how fiscal operations including taxation and securities issuance operate. 

While Jonathan Bartlett does not go into it, there is a also huge amount of confusion over the monetary and fiscal aspects of government finance. Many if not most financial professionals misunderstand this.

 Where Bartlett is correct is in viewing the popular MMT mental models as somewhat simplistic for pedagogical purposes. And as he points out, even the hard sciences do this since many don't have the background to understand the sophistication of the actual models. It would be a distraction for beginning students and the general public. So the models are dumbed down. 

But criticizing a dumbed down model when the professional literature clarifies it is attacking a straw man. Of course, it is fair game to criticize the dumbed-down model as a teaching tool, especially when something more suitable is available. This improves teaching.

The important matter regarding the article lies in taking the angle of mental models. Most people outside the sciences do not understand this concept, let alone how conceptual models work. This is a huge gap in critical thinking that leads to many false ideas. This is clear regarding MMT judging from much of the criticism. Most popular criticism of MMT takes a popular model of MMT to be "MMT," when the professional literature shows otherwise. 

Mind Matters
Mental Models for What Government Does With Our Money | Mind Matters
Jonathan Bartlett | Senior Fellow, Walter Bradley Center For Natural & Artificial Intelligence


Ahmed Fares said...

On the subject of releasing resources, Scott Sumner comments on an article by Matthew Yglesias which includes the reason why European taxation works and US taxation doesn't.

I have often advocated a progressive consumption tax. If you try to “tax the rich” without reducing their consumption, then you aren’t actually taxing the rich. Who are you taxing in that case? Perhaps you are reducing the amount that the rich put into investment projects. Or maybe you are reducing the amount that the rich donate to charity. But if you are not reducing the consumption of the rich, then it’s hard to see how you are freeing up resources that can be used to help the non-rich.

In a recent post, Matt Yglesias did a nice job of explaining how public policy is ultimately not about moving money around, it’s about shifting resources from one use to another:

I do see the view, from a standpoint of abstract cosmic justice, that it’s annoying to see someone like Elon Musk or Jeff Bezos get so rich without contributing more to the Treasury. So there is a case for taxing wealth or unrealized capital gains or at a minimum changing the stepped-up basis rule. But fundamentally, I do think there are profound reasons why things like VAT and payroll taxes are the workhorses of European welfare states. Musk is not employing 10,000 butlers who can be taxed away and turned into preschool teachers. Inducing him to liquidate financial assets and fork over the proceeds does not generate any real resources that are available for new use. What a Nordic-style tax system does is broadly constrain consumption in order to free up resources for more extensive consumption of health, education, and other social goods.

Unfortunately, it’s politically difficult to tax the consumption of the rich because Republicans don’t like taxes at all and Democrats don’t like taxes that cost jobs in industries that make luxury goods for the rich, such as yacht building.

Yglesias’s post is entitled “The case against ‘creating jobs'”, and is well worth reading.
—Scott Sumner (What it means to “tax the rich”)

I quoted the whole article but here is a source for those who want to read the comments:

What it means to “tax the rich”

Also, here is a link to Matt's article. The relevant part is near the bottom in a section titled: "A walk on the supply side".

The case against "creating jobs"

Peter Pan said...

Full employment or welfare.
Full employment or destitution.

Good luck finding the right "balance".

Matt Franko said...

“ No indication that the author has read Stephanie Kelton's The Deficit Myth, aand if he did, he missed the point ”

lol you ever think maybe he disagrees with it?

Matt Franko said...

Where in the Socrates playbook does it say you can’t disagree with another’s thesis?

lastgreek said...

Socrates had a playbook? I didn't know that. I knew John Madden had a playbook :)

John Madden -- R.I.P.

Matt Franko said...

It’s a figure of speech…

Peter Pan said...

Do not mistake MMT Derangement Syndrome for the Socratic method.

Matt Franko said...

99.9% academe of Economics operates under Socratic methodology… this is the problem… not that people operating under that methodology exhibit disagreement… that’s what they are trained to do…

Matt Franko said...

MMT needs to leave Bard and go over to a Land Grant University department and convert the Degree Program to Bachelor of Science…

NeilW said...

"I have often advocated a progressive consumption tax."

Which is out of paradigm for MMT. As we all know consumption taxes allow people to build up huge savings tax free.

The correct tax point is the point at which wages are paid - but paid by the employer. That fits with what empirical tax incidence and tax salience evidence we have. It binds on the employer and the respond by offering fewer jobs

The public sector then hires the people who don't get jobs.

lastgreek said...

Yeah, I know. I just wanted an excuse to mention the passing of the great, legendary NFL coach John Madden.

Plus are you the one here always complaining about the overuse of figure of speech?

Matt Franko said...

“ Plus are you the one here always complaining about the overuse of figure of speech?”

There is no problem with using figurative language … AS LONG AS YOU ALSO UNDERSTAND THE LITERAL IT REPRESENTS…

The problem is when you think the figurative is literal like you did… this is a reification error … like here you think I’m asserting that Socrates literally went around Ancient Greece with the literal equivalent of a contemporary NFL playbook…. (Did they even have paper?)

“Socrates playbook” is a figure of speech I created to represent in 2 words the whole of the Socratic methodology of education which a whole book could define ….

Figures of speech are not literal they are used to gain efficiency in language but the gain in efficiency is traded off for a reduction in specificity….

We don’t use figures of speech in STEM we use abstractions… to represent the real… Art Degree people use the figurative to represent the literal… the discipline of Language is 99.9% taught under Art Degree programs just like the discipline of Economics…

You need to figure out which side you are on…

Peter Pan said...

I prefer hourglass figures of speech.

lastgreek said...

"(Did they [the Greeks] have even paper then?)

Your ignorance of all things Greek shocks me, Matt.

"Did they have paper back then?" LOL... Matt, not only did they have paper back then, they had laptops, too, for souvlaki's sake!


Ahmed Fares said...

Papyrus (/pəˈpaɪrəs/ pə-PYE-rəs) is a material similar to thick paper that was used in ancient times as a writing surface. It was made from the pith of the papyrus plant, Cyperus papyrus, a wetland sedge. Papyrus (plural: papyri) can also refer to a document written on sheets of such material, joined side by side and rolled up into a scroll, an early form of a book.

Papyrus is first known to have been used in Egypt (at least as far back as the First Dynasty), as the papyrus plant was once abundant across the Nile Delta. It was also used throughout the Mediterranean region and in the Kingdom of Kush. Apart from a writing material, ancient Egyptians employed papyrus in the construction of other artifacts, such as reed boats, mats, rope, sandals, and baskets.

The English word "papyrus" derives, via Latin, from Greek πάπυρος (papyros), a loanword of unknown (perhaps Pre-Greek) origin. Greek has a second word for it, βύβλος (byblos), said to derive from the name of the Phoenician city of Byblos. The Greek writer Theophrastus, who flourished during the 4th century BCE, uses papyros when referring to the plant used as a foodstuff and byblos for the same plant when used for nonfood products, such as cordage, basketry, or writing surfaces. The more specific term βίβλος biblos, which finds its way into English in such words as 'bibliography', 'bibliophile', and 'bible', refers to the inner bark of the papyrus plant. Papyrus is also the etymon of 'paper', a similar substance.

I had to look up the word "etymon" because I don't have an Art Degree.

etymon - a word or morpheme from which a later word is derived

Matt Franko said...

Is souvlaki Greek it thought gyros (properly pronounced ji-ro) were Greek and souvlaki was Lebanese or Syrian?