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MMT and Government Accounting

Some are in an attempt to control the overnight interbank rate.  Certainly not to fund government spending.

Quote from MacroMan1976 on 08/08/2019, 2:16 PM

Depends on how you define "socialism". No modern economies are socialist. They're all varying degrees of capitalism with elements of socialism. But I don't think there's any doubt that MMT people want the US economy to be less capitalist and more socialist. So Lars has a good point.

Correct. The term is mixed economy to be technical.

"A mixed economic system is a system that combines aspects of both capitalism and socialism. A mixed economic system protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims. According to neoclassical theory, mixed economies are less efficient than pure free markets, but proponents of government interventions argue that the base conditions required for efficiency in free markets, such as equal information and rational market participants, cannot be achieved in practical application."

https://www.investopedia.com/terms/m/mixed-economic-system.asp

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Quote from Paul Lebow on 08/12/2019, 7:53 PM

Some are in an attempt to control the overnight interbank rate.  Certainly not to fund government spending.

I respectively disagree.

I agree with the fact that one tool of expansionary monetary policy is for the Fed to buy treasuries and as QE taught us whatever other assets we believe would stimulate the economy, with money out of thin air (akin to printing money according to B. Bernanke's 60 minutes interview).

However, first, we wouldn't have to sell new treasuries if we weren't constantly running a deficit,

But, don't take my word for it,

"In contrast, during the surplus years of the late 1990s and the resulting decline in federal debt levels, Treasury did not have immediate financing needs and did not auction new securities as older ones matured. This effectively increased average maturity since greater numbers of longterm bonds remained outstanding."

https://fas.org/sgp/crs/misc/R40767.pdf 

page 17.

Second, in terms of the number of treasuries held on the Fed's balance sheet this was the best chart I could find. The Fed has other tools to influence the overnight rate, but, increasing the money supply by buying treasuries increases demand in the open market for remaining treasuries, driving up price and keeping yields artificially low.

Let's put it another way, if the Fed sold all of the U.S. treasuries it has on its balance sheet, you'd expect the increase in open market treasury supply to result in a decrease in treasury prices and increase in yield, which would have a devastating effect on the American economy.

The Federal Reserve system is a closed system. At the end of the day, some banks owe money to and other banks are owed money. Similarly, some banks need to borrow overnight to meet their reserve requirements and others have plenty of excess reserves are glad to lend overnight and make interest on those excess reserves, unless they feel they won't get paid back (i.e. Royal Bank of Scotland).

It's late, so I will chew on this some more in my dreams and see if I want to double down or pretend this post never happened in the morning... hahaha

 

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Note that the overall tax burden in Sweden, etc. is now substantially less than in the USA.  Lower taxes and a happier, higher quality of life?  Shocker!  That will kill the lassiz-faire capitalist argument for sure.  It just makes the USA look like a Scrooge that doesn't care about "the little people".  This can't last in a world increasingly obsessed with "social justice".  The rise of the AOC's and Kelton's and MMT is merely a palliative in response to a real symptom.

Anyway, what the right is correct about that the left ignores in favor of the MMT "free lunch" is that government (elected politicians, unelected bureaucrats) simply doesn't work very well at anything but its own self-preservation.  It's not a question of coming up with/having the money, it is about having such money distributed fairly without any crony capitalism or corruption and that >99% of it efficiently reaches the intended receipients without any waste, fraud and/or abuse.  That does not happen in the real world and continuing to ignore it just for the sake of nice, pat ideological argument doesn't win any bonus brownie points.

 

BTW, corporations paying 20% of federal income taxes vs 10% would just result in more poor people, higher prices, less innovation, the usual shrill.  After all, corporations do not pay taxes, the end beneficiaries do.  So less of a burden on corporations is less of a pass-thru burden on consumers and investors.  Just about every economist agrees with that, apparently even Mosler.

 

BTW BTW, the government can borrow/monetize up to the point that unproductivity of doing so trumps productivity.  That's the ideological case for it acting in a countercyclical matter to the economy.  If you stop looking at it like a magical Santa Claus and realize its just an overlay on the real actual economy (private sector), it is just redistributing value.  The morality of that is another topic.

 

@jhaze,

Your 3 points are astute and I agree with them in general.

MMT people have always misconstrued my critiques of them. They claim that I just hate the Job Guarantee and am grinding a political axe. This is disingenuous. I don't care about the politics of this debate. I care about the operations and description.

In the MMT world the govt creates unemployment by creating a money system. This is just wrong. Then there is the whole concept that the govt doesn't "fund" itself and the treatment of reserve accounting and net saving. It's all wrong.

So the thing that bugs me about MMT is that their description of the world is wrong.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche
Quote from Cullen Roche on 08/13/2019, 8:25 AM

I don't care about the politics of this debate. I care about the operations and description.

@Cullen

100%, yes!

It is very difficult to find people to debate with and learn from who can exclude the politics and evaluate the theory purely on its merits. I even find this at work, when a real world deal triggers a thought provoking hypothetical, but many people can't evaluate to distance themselves and evaluate the hypothetical without including the real world deal.

My 2 cents opinions: academic economists need to stick to real accounting data with right interpretation.  MMTers need to read out the meaning of  macro accounting data without reading into  their own meaning.

Quote from Cullen Roche on 08/13/2019, 8:25 AM

In the MMT world the govt creates unemployment by creating a money system. This is just wrong. Then there is the whole concept that the govt doesn't "fund" itself and the treatment of reserve accounting and net saving. It's all wrong.

So the thing that bugs me about MMT is that their description of the world is wrong.

Again, I haven't read the MMT textbook, yet, and want to make sure I don't straw man their position. Even more so, I, like you, want to take what makes sense and if, for example, a theory was 90% correct.... incorporate that 90% into my own thinking and I suppose propose changes to the other 10% .effectively establishing a 2.0 model in my mind. On the other hand, if it is only 10% correct, I take that 10% and find something else that better explains the balance. I find steel manning someone's argument and articulating it in the best way very useful, intellectually (i.e. if you beat someone in chess because of a huge blunder, put the piece back and work it through from there)

So, my first question would be does MMT state "government creates unemployment by creating the money system"? In other words, there would be no unemployment if the government didn't create the money system or would it be better stated it leads to or increases unemployment, unnecessarily. Second, the I'm only aware of the Austrians who claim that unemployment is often the result of the business cycle, which they claim to be able to eliminate through their policies and the business cycle worse by the Fed.

I suppose I don't understand what alternative MMT is proposing, private bank currency like in the past, where we would have Wells Fargo dollars and Chase dollars? I'm surprised MMT theory doesn't incorporate a return to full-reserve banking and sovereign money, where banks are not allowed to create what functions as money and benefit from the seniorage, amongst other things. Putting the supply of money in the hands of the big, bad banks based on their willingness to make loans and find credit worthy borrowers, seems contrary to other MMT tenants, at least how I understand them. The thing is MMTers, maybe for all their faults, are the ones that get how commercial banks work and how the loanable funds and money multiplier theories are just not the way it works anymore. Almost like they are ahead of their time and maybe unfortunately hindered by their political left leanings.

The treasury prints currency and coin and banks have to keep "real" dollars with the Fed (not the phoney IOUs they create that function as dollars), which makes up the monetary base, as I understand it. The rest of the money supply is a result of the fractional reserve banking model.

Maybe you have written this article already, but, without going into great deal for time purposes, what does MMT get right, in your opinion, in their their description of the world and what they have to offer to the orthodox economic community?