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PaperclipPerfector  6mo ago (text post)   24832 thread views

Culture War Roundup for the week of May 6, 2024

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the numbers are so disconnected from anything the average person can comprehend

Apparently it's not just for the average person.

To be fair, it's easy to mock people who ought to know what they're talking about but the US funding market is legitimately impossible to describe.

It says, Jared Bernstein, Chair of the Council of Economic Advisors.

The lady in that video got on my nerve. She managed to compress so many bad economic ideas and implications into such a short few sentences.

I also had to double check the date on that video. Is someone seriously asking after the last few years why we don't just print more money? Have they been to a restaurant or bought anything recently? We did the experiment during covid of just 'printing more money' and then we had record setting inflation.

There is also the rather basic idea that if you expect to be paid back in X currency in the future then you have a vested interest in that currency maintaining its value. Its a way of signalling commitment to the future value of the currency. Its like a CEO offering to only be paid in stock options that don't vest for a few years. It would signal they are confident in the future success of the company.

Wait, she's the one who's the problem, and not him? I thought she was just trying to bring up the problem that those who profess that we can just print money and not worry about debt don't understand why we borrow, showing that there's a problem with their model.

She's the wacky MMT advocate who thinks you can just print money to get out of any fiscal problems. He is a very progressive and fiscally liberal, but mainstream, economist who thinks that printing money and borrowing money have very different effects on inflation.

I checked, and yeah, you're right.

Together they fight crime?

I can't even tell what the dude is saying. He is stuttering and mumbling and talking in circles.

"I'm waiting for someone to stand up and say: Why do we borrow our own currency in the first place?"

The way she phrased it made me think she was saying it is ridiculous that we borrow our own currency. But yeah maybe I am just totally misinterpreting her tone.

I checked; I'm wrong.

The great thing about printing money here in America is that we are the USA USA USA baby! Everyone takes our dollar, they take it for oil, for oranges, for tungsten, for cars, for iphones. We print it up out of thin air and they give us real goods for it every day.

The higher the trade deficit the more they are getting ripped off by exchanging real goods for dollars. Even with all the printing we are still experiencing a strong dollar and less inflation compared to other countries that don't have the backing of the US economy and 11 carrier strike groups.

Look at any currency vs the US dollar over the last 4 years. The dollar is as strong as it has ever been. MMT is a brilliant scheme for extracting real material and goods from the rest of the world in exchange for protection and promises. It is crazy that we get away with it! USA USA USA!

Did you notice the accelerating pace of people accepting things which are not the dollar to trade internationally?

No. And neither has the dollar.

This might run out, with devastating effect, some day.

If people lose confidence in the US dollar, suddenly they'll try to get rid of it, leading to an increase in domestic supply and dramatic inflation, and foreign goods in general will be much more expensive.

It might, when someone else has 11 carrier strike groups. It won't be in our lifetimes.

But how much does that actually matter to the value of the dollar?

My guess would be that the general value prospect to people and countries abroad of holding dollars are that:

  1. Dollars have low inflation, so they're one of the better currencies to sit on.
  2. The US is fairly reliable, as nations go, so it can be expected to remain stable.
  3. Dollars are useful for trade with the US, and the US is an important part of the world economy.
  4. Other places and people want dollars too, so they work well as a currency.

But if 1 fails (due to, say, running out of people willing to finance US debt, meaning that we need to start printing money to fund things or pay back debtors), then some will drop the US dollar for other currencies. This will drive down the cost of the dollar, that is, cause inflation, which will lead to more of the same.

I don't expect 3 and 4 to go anywhere, but I think 1 and 2 could change, in a way that would meaningfully affect demand for dollars, and hurt US prosperity.

That said, that's mostly just from me thinking things through myself, not something better vetted, so is there some reason that I'm wrong, or something I'm missing?

Anything could happen, but it hasn't. People have been predicting the demise of the dollar for 60 years, from weird baskets of BRIC currency to crypto, to gold. It only gets stronger! It is interesting that people are always calling for the fall of the mighty USD and yet when I travel these days I can only buy more and more with the same amount of cash! Call me when that changes.

I don't expect the demise of the dollar before the US comes close to defaulting on its debt, which is still a ways away. But the deficit's steadily been growing relative to GDP. (And even then, I don't expect a total collapse.)

The US will never default, we are in a better place than all other countries, hence the strong dollar. Unless you think all other players are totally irrational investing in it? If we are defaulting, the rest of the world has already fallen apart and it doesn't matter. Like people who buy gold for the apocalypse...when what you really need is beans and bullets.

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Or if one of those gets sunk by hypersonic missiles. Or if you run out of people to con into manning them in exchange for IOUs.

I think it's quite reasonable to put a decent chance of dollar collapse happening within the next 50 years actually. Especially now that the dam of signing oil contracts in other currencies has broken. Though I'm still betting on Japanese style long term containment.

It becomes more likely if NATO decisively loses the Ukraine war. When force is the only thing backing the entire system, any large display of weakness is a potential black swan.

Lots of hypotheticals here. The dollar has only become stronger over the last 20 years despite rumors of demise. So forgive me if I take this with a huge grain of salt.

I'm not saying it's gonna happen. Again my base case is USD becomes JPY 2. But if you're not banking on it being possible you're taking an irrational risk in my opinion.

Also the dollar is insanely weaker in real terms than 20 years ago. Anything with an actual backing would trample over it. The only question is whether the people emitting an alternative could survive the wrath of the US Army.

You're the only one. The dollar is stronger than ever against all other currencies, anything that takes the dollar down will mean the end of the financial world first.

In "real terms" it is stronger than ever compared to all other currency; if your talking about inflation which is normal, expected, sought after, and planned for, then yes, it has inflated, like it is supposed to, to keep money moving.

If you understand monetary policy at all you don't want something that never changes in value or deflates, that just leads to hoarding and doing nothing.

Unless you're some kind of silver/gold late night TV guy then this is all common knowledge.

Ah, an other private account so I don't even know where you're coming from on issues. TheMotte should do away with that feature.

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I think his interview was taken out of context. Atleast I hope it was. The reason we borrow money instead of just printing all we need is it basically soaks up money that would end up elsewhere and cause inflation instead of being saved. And inflation reduction device.

He should be smart enough to know that so I have to assume he was just tired or wasn’t sure where they were going and didn’t feel like providing a better answer.

He might be an MMTer. That's gotten popular among the in crowd recently for obvious "we can print as much money as we want without worrying about inflation" reasons.

This is rather MMTers poking some fun at other supposed macro experts who don't actually have a correct clear grasp on how money or government funding works. He kept tripping over his words because his intuition was leading him astray, so "government prints money and then lends it" kept coming out. The correct, clear, simple answer is that government prints money in the form of bonds every day, and swaps them with central bank reserves where appropriate (like swapping between $100 bills, $1 bills, and quarters where appropriate, perhaps when trying to ride the bus or go to the arcade). The only clash is that people have pre-existing non-sensical stricter definitions of the word "money", so MMT generally prefers to sidestep a language intuition issue and just refer more broadly to what matters, financial assets.

It's already been nearly a decade since mainstream economists stopped trying to say MMT is wrong, and switched to "we knew that already", so I guarantee you MMTers aren't saying something as obviously wrong as "we can print as much money as we want without worrying about inflation". And it's MMT who has pushed better & better verbal explanations to laypeople of all those interlocking balance sheets in IGI's linked NYFed diagram.

It's already been nearly a decade since mainstream economists stopped trying to say MMT is wrong, and switched to "we knew that already"

This might also be because talking with MMT'ers is often a constant exercise of dealing with motte-and-baileying with risible radical claims and commonsense stuff described in somewhat different words from usual.

It may be the case when dealing with random commenters on the internet, but that kind of goes for everything right? I'm talking about like Paul Krugman who kept being embarrassed when going a few rounds against MMT economists over the years, and he kept exposing that he couldn't shake some fundamental incorrect starting points like a loanable funds framework.

As for different words, that's definitely a communication hurdle where people feel like they're not speaking the same language. To me it seems to be warranted to actually cut to the heart of what matters with some different terminology, to avoid some pitfalls with peoples' everyday colloquial versions of money, lending, borrowing, etc., and talk about what is actually happening with each balance sheet operation.

But it has to be said that people in finance and central banking pretty much immediately understand MMT's descriptions in a matter of minutes. After MMT started gaining popularity, there were multiple central bank research papers put out saying the same types of things, to help educate the field and wider public, and to help correct classic misconceptions still being taught in economic textbooks. The only people who really struggled with it were mainstream academic economists, who had to try to translate real world explanations into their toy model terms. 'So you're saying that in your version of my model, my drawn curve here should be basically a vertical/horizontal line pushed out over here?'

Bingo.

I looked deep into MMT many years ago to find out what descriptive claims they made that were different from mainstream economics. I found three:

(1) Confidence in fiscal policymakers to e.g. time fiscal policy to control demand.

(2) An approximately flat SRAS curve, though many of its advocates don't realise this and haven't read about SRAS curves, because they have never read an intro macro textbook. In plain English, it's like an on/off model of how increased demand affects prices: until full employment, stimulus is more or less non-inflationary. Mainstream Keynesians used to believed this.

(3) Various Old Keynesian claims about the monetary policy or interest rate changes, though this is not universal among MMT advocates.

That's it. Everything else is motte-and-bailey, rhetoric, distractions which have performed the useful function of hiding MMT from most rigorous scrutiny, or uninteresting errors that some advocates of MMT make when they mix up normative with descriptive claims about how e.g. the Treasury works.

I'm not an economist and I don't understand much about it, so I wish you and @LateMechanic would have a discussion to illuminate this a bit. He seems to be pro-MMT and you seem to be against. You two have any thoughts on the other's view?

Such a discussion would be hard. MMT advocates tend to see themselves as primarily stating a profound critique of standard theories of public finance that is true as a simple matter of institutional facts + accounting, whereas I see them as warming up a few ideas that almost all Keynesians abandoned long ago. So the very terms of the debate would likely be messed up. This has been my experience debating MMTists in the past, e.g. they say, "Do you admit X?", I show that X has been standard econ for 100+ years, and they say "Oh, so you admit X!", I say "Of course", and then they say, "Well, this politician says otherwise, and he did PPE at Oxford, so economists must teach otherwise!"

It seems like your deep dive was not into primary MMT sources, but rather critiques from the outside? Your post sounds like you were just following the attempted dismissal from like a Sumner/Rowe/Noah Smith, at least from when I was following along 10 years ago.

If you were reading anything from the main MMTers themselves, you would surely have seen them counter these dismissals a hundred times. You would surely have seen that the main thing they talk about is about how fiscal policy already manages the macro system with automatic stabilizers for the last 80+ years, not requiring congress to manually fiddle with tax rates all the time to respond to demand and inflation. And you would have heard Wray say in every book or every talk that we could certainly get some demand-pull inflation before true full employment if simply pumping fiscal stimulus via general spending, which is a demonstrated lesson from the 60s keynesians. If those were 2 of your own 3 conclusions from an actual deep dive, and you weren't just re-presenting a critique you heard, I don't really know what to say.

I do agree that a full discussion is a bit pointless and frustrating. In general I'm perfectly content with how economists, central bankers, policymakers, all the way on down to average internet commenters, have shifted a decent amount in the last 15 years toward the MMT explanations. From what I see there's a lot less of the really goofy misconceptions (we're borrowing from china, we're broke, central bankers are wizards, interest rates control the price level, banks are lending out reserves, QE is printing money, etc). So to the extent that the dismissal of MMT is "we already knew that" or "I don't agree with their progressive policy prescriptions", it works for me.

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MMT covers a wide range of actual policy positions, some reasonable and some not. But in general it’s a retarded third world conspiracy that leads to stuff like Turkish and Argentine hyperinflation directed by idiotic leaders who reject any link between inflation and borrowing, not merely in theory but in practice. The unique situation the US and to a lesser extent other Anglo countries are in with regards to the effect of public borrowing on inflation is unique because of their balance of trade, foreign investment, very large service sectors and so on, just like Japan’s weird dynamic, and doesn’t prove MMT in any genuine way.

The core bulk of MMT is descriptive, showing how money, banking, and government finance work, from a fundamental logic & accounting level of interlocking balance sheets. When armed with these correct fundamentals, it's a lot easier to see where actual tradeoffs and choices apply, and to avoid being upset by goofy incorrect gut notions and suffering from various types of cognitive dissonance. If anyone even talks about "public borrowing", they likely still don't grasp what is even actually happening in the accounting plumbing.

The policy prescriptions which some MMT proponents tack onto that descriptive project is probably a mistake in my view. But most of them think that once you understand the real constraints, then some choices (like implementing a Job Guarantee / Employer of Last Resort program) are so obvious and moral that they should always be pitched at the same time, and ended up with a largely progressive following who wanted more of that. You can take or leave those prescriptions though, it doesn't make the descriptive project incorrect.

There is not a single MMT economist who is confused that different countries & currencies have different challenges. By the 2010s when they were starting to get traction after a decade, they probably knew more about it than almost anyone, because this was such a common early dismissal attempt 'yeah maybe they know about the US, but circumstances are special there'. The core logic still works in any situation, and understanding real constraints vs. imaginary or self-imposed constraints is the key thing to get right. There are definitely real constraints and tradeoffs in all cases.

That wouldn’t even be a correct interpretation of MMT

https://en.wikipedia.org/wiki/Modern_monetary_theory

I think some butchered downstream version got all deficits are fake thing perhaps from the 2010’s where inflation was low so plausibly in their theory it was fake when inflation was below 2% and we had excess unemployment.

That wouldn’t even be a correct interpretation of MMT

Having a correct interpretation of MMT does not in my experience seem to be a necessary precondition of being an MMTer.

The Low-IQ version of MMT while the high IQ version is right enough it may have been a better model in 1925.

It also I don’t think generalizes as well for a small open economy that isn’t as diversified or a powerhouse in every industry.

Isn't this clip of him trying to explain the unexplainable (i.e. mmt)? It seems like they deliberately edited out the question to make him look like a moron and the whole film seems to be mmt propaganda.

Of course it's also possible that he is a moron, he doesn't seem to have any economic background anyway.

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