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William Mitchell — Modern Monetary Theory
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
10 comments:
Question :
When the deficit is decreasing.
Is that because the non government sector is spending $ into the US economy adding to GDP ?
Or
Moving $'s into time deposits for pension and saving portfolio purchases ?
Which means are other MMT'rs out there correct when they measure the rate of change between reserve balances and the national debt ?
Or should they just be measuring the size of the deficit ?
As the deficit is a measure of savings after everything else above has already taken place ?
Thanks in advance
MMT people will refer to higher deficits as favorable as a form of rhetoric …. but technically a higher deficit is a less favorable outcome in terms of productivity…
If you give somebody £100, they spend it which is taxed at 20%, leaving the next person with £80 as income. They then spend that £80 which is taxed at 20%, leaving the next person with £64 as income. And so on until the entire £100 disappears and creates £100 of extra tax. All without changing the tax rate one single percent
The result is lots of extra sales and income for people down the spending chain they wouldn't otherwise have received. It's a straightforward geometric progression.
So yes I can see why a higher deficit is less favourable outcome in terms of productivity. It comes down to that word savings again.
Taxes are a curious thing when you think of that straightforward geometric progression. Lower taxes could once again increase saving both short term and long term. Higher taxes returns the money quicker but again with less productivity.
Edward Harrison looks at this way.
The sequence goes from consumers’ wages to consumption to industrial production to capital spending and corporate profits. That means wages should be key to the strength and durability of a recovery. While employment and capital spending are lagging indicators, rather than drivers of the business cycle.
https://pro.creditwritedowns.com/p/whats-your-model-on-how-real-gdp
Which begs the question . Is the GDP figure that measures goods and services sold, as it includes bank lending, a better indicator ?
Some say the rate of change in that indicator leads the market
Got it right so far.
https://tradingeconomics.com/united-states/gross-national-product
What is wrong with just
a) Measuring rate of change of withdrawals ( actual spending) from the daily treasury statement
b) Measuring rate of change of all bank loans. Could you just use rate of change of deposits for this.
c) Measuring rate of change of all savings
d) Measuring rate of change of all goods and services
To get an overall idea of what is going on.
Clearly any positive rate of change in the withdrawals the leading flows and any positive rate of change in loans the leading flows surely must mean the market is moving higher.
Especially if there is a negative rate of change in ALL savings. Savings are being reduced.
With a positive rate of change in finished goods and services.
Or is this way too simplistic ?
I could way wrong, as it is very simplistic thinking, but I think what happens at the top of the business cycle when an economy really heats up is government runs out of things to buy.
So you'll see a continuous negative rate of change in the withdrawals and continuous negative rate of change in final goods and services followed by a negative rate of change in lending. All of which then can't offset the demand leakages of tax and ALL savings.
As demand crashes a final continuous positive rate of change in ALL savings. Like a *rate of change* set of traffic lights moving from green to red. With ALL savings only being the green one at the end of the cycle.
To hell with savings. Put an expiry date on money.
Simplistic Thinking 101
Just introduce granny bonds
https://new-wayland.com/blog/the-only-bonds-we-need-are-granny-bonds/
Granny bonds won't help Canadians pay $2000 per month for their one-bedroom apartment.
So that's why government has come up with a new approach.
For example, the Canada-Nova Scotia Targeted Housing Benefit:
https://beta.novascotia.ca/programs-and-services/canada-nova-scotia-targeted-housing-benefit
Known colloquially as the Landlord Guaranteed Bonus.
Good analogy here:
“If you give somebody £100, they spend it which is taxed at 20%, leaving the next person with £80 as income. They then spend that £80 which is taxed at 20%, leaving the next person with £64 as income. And so on until the entire £100 disappears ”
Would result in balanced fiscal over the period and maximum employment/production…
So MMTs “deficit too small!” political rhetoric is technically wrong…
But it's never balanced as households, businesses and the external sector all want to net save.
That's where those that push it fail. As they never mention how to achieve it with the external sector. They ignore it.
The demand for money will increase across the sectoral balances so they have to create more of it.
When those who push for it cut taxes people will net save.
That's where granny bonds to domestic Only steps in and gets rid of Of interest rate targeting.
The deficit should be whatever it takes to get rid of unemployment. If there is unemployment then they are technically right.
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