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.
Pages
▼
Pages
▼
Friday, August 18, 2023
Structural Deficits Are Deflationary — NeilW
Neil shows how it is necessary to understand accounting along with institutional arrangements and their effects.
What MMT points out is that people save for insurance and status purposes. Until those savings are satisfied there won't be sufficient spend in the economy to employ everybody.
Therefore the government spends instead of the non-government sector, which if it becomes 'deficit spending' satisfies those savings desires.
A prescribed price then becomes the system stabiliser as the cycle waxes and wanes.
"Why give people more munnie just so they can save even more?"
More the other way around.
They will save anyway, which will reduce the flow below full employment levels.
Restricting money doesn't stop people saving. Restrictions makes people more scared causing them to save more for insurance purposes. And you then get a pro-cyclical contraction.
Therefore we replace the missing spending with a Job Guarantee wage, which will automatically back off as the cycle turns.
Setting that one price will cause all others to fall in line as the market determines relative pricing.
That's the basis of price anchorism. It's all in Warren's stuff.
Even the simple simulations I've done validate the dynamics.
Hi Neil, Warren often says that if inflation is higher than budget deficit it means real public debt is contracting and is functionly the same as a budget surplus. So if this is the case, would a country like Australia with high household debt to GDP be in trouble if this situation were sustained for any length of time?
“ MMT shows this is backwards.”
ReplyDeletelol no they don’t… maybe YOU do…
MMT says “deficit is too small!”… in the face of lackluster output..,
When as you point out in the analogy the best domestic economic output would leave a balanced fiscal position delta T…
MMT: “if someone saves then we can’t buy all of our output”
ReplyDeleteSo their solution is to save EVEN MORE?🤔
"Deficit is too small" is easily explained.
ReplyDeleteWhat MMT points out is that people save for insurance and status purposes. Until those savings are satisfied there won't be sufficient spend in the economy to employ everybody.
Therefore the government spends instead of the non-government sector, which if it becomes 'deficit spending' satisfies those savings desires.
A prescribed price then becomes the system stabiliser as the cycle waxes and wanes.
Why give people more munnie just so they can save even more?
ReplyDeleteAnd then how do they know what’s going to happen ? the deficit might even be reduced when you go back and look at it after the period is over…
"Why give people more munnie just so they can save even more?"
ReplyDeleteMore the other way around.
They will save anyway, which will reduce the flow below full employment levels.
Restricting money doesn't stop people saving. Restrictions makes people more scared causing them to save more for insurance purposes. And you then get a pro-cyclical contraction.
Therefore we replace the missing spending with a Job Guarantee wage, which will automatically back off as the cycle turns.
Setting that one price will cause all others to fall in line as the market determines relative pricing.
That's the basis of price anchorism. It's all in Warren's stuff.
Even the simple simulations I've done validate the dynamics.
Hi Neil, Warren often says that if inflation is higher than budget deficit it means real public debt is contracting and is functionly the same as a budget surplus. So if this is the case, would a country like Australia with high household debt to GDP be in trouble if this situation were sustained for any length of time?
ReplyDelete