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MMT's Godfather Says the US Government Is Spending Like a Drunken Sailor | Odd Lots
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- Опубликовано: 7 июл 2024
- Modern Monetary Theory has gained prominence over the last several years by offering an alternative view on the constraints to fiscal policy. The basic gist is that the size of the deficit is not per se problematic. What matters are real resource constraints, and that if government spending gets too high - or is spent in unproductive ways - then inflation can materialize as too much money collides with insufficient supply. Another argument that some MMT adherents make is that the conventional path to fighting inflation (higher interest rates by the Federal Reserve) can actually be inflationary, because the coupon payments made by the government to Treasury holders constitute a form of government spending or fiscal expansion. In this episode of the Odd Lots podcast, we speak with Warren Mosler, the intellectual godfather of MMT, to explain the mechanisms at play and assess the current macro environment. Perhaps surprisingly, Mosler is concerned with the combination of high government debt loads, high deficits (which he characterizes as spending like a drunken sailor), and the orthodox approach the Fed is taking to fighting inflation. With debt as high as it is, the annual interest payments due to these rate hikes has gone up significantly, creating a situation that mainstream economists might call Fiscal Dominance. He explains how this environment is a recipe for consistently higher and sustained inflation in the years ahead.
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In my limited understanding of MMT it is not a surprise to me that Warren suggests spending can be inflationary, I don’t understand why y’all would think otherwise. MMT just seems to have different views about what drives inflation and which levers might be used to control it.
Not different at all. Copy and pasted from Keynes. For example, the idea that taxation can tame inflation is straight from Keynes
@@MBarberfan4lifeKeynes believed this only in relation to how taxes can decrease an enlarged money supply during full employment.
It's a post Keynesian Heterodox concept. Nobody in MMT claims it's unique. It's more so highlighting these aspects of economics.
I@@MBarberfan4life I believe Keynes school of thinking inflation can be controlled by interest rates? Also they only advocate deficit spending during recession or a slowdown. So there are differences between the two.
Inflation is a complex phenomenon, you have to differenciate between a one-off price shocks (usually through imported energy prices going up) and a self-sustaining process of prices (usually wages and consumer prices) spiraling up. Anyways you can say that spending in the economy beyond capacities should in general drive up prices as people are competing for output which can not in the short term be expanded. So you have to look at income and how and for what it is spent. What Mosler claims is that interest income may well also be spent by a relevant percentage. When income shifts from wages to interest payments it all depends on who earns that income and what those people do with it. If the interest income channel and propensity to spend it is high enough it can indeed cause demand driven inflation.
If that is true and interest income does indeed get spend enough it can cause inflation and that means that the CB will have trouble "controlling" inflation on its own. It will need help from fiscal policy in that case which casts doubt on the ability of an independent central bank to control inflation. I'd say that this was always false to some degree as the interest rate alone is not the only factor determining inflationary pressures. The idea that one technocratic institution could use one big lever to effectively control inflation in a targeted manner is bizarre to beginn with. The CB is to some degree much like Maggie in the simpsons intro turning a fake wheel and thinking they can steer the car. Their primary strategy is more like communicating certain narratives to influence behavior an short to mid-term expectations which is kitchen psychology.
By this logic, we just need to ramp up our annual deficit to 20% of GDP and we'll have the best economy in the history of mankind.
If our economy has 20% worth of slack in the economy, we could. The limit to spending is the dollar economy's ability to produce. If you want to spend higher than that for whatever reason, you need to analyze your economy and create a plan on how to either restrict consumer competition or increase production overtime.
This really isn't hard. We just make it difficult for political reasons.
@@teddybruscie Yes. If we could accurately predict what should we invest that 20% deficit spending into to increase real physical productivity then we could spend without inflation. However, our ability to centrally plan such outcomes has historically not that great and thus argument for not removing income from the economy via such high taxation is the historically conservative argument that fits within the MMT framework. The only reason you are deficit spending is to replace the financial asset destroys by excessive taxation in the first place. MMT really brings into focus how much of a scam the "independent" Federal Reserve+ Income Tax system really is and how it only exists to redistribute financial assets to favored institutions which get first access to "high power money" and benefit from inflationary income resulting unnaturally high interest rates on the public's money which favored institutions charge the public interest to use for ZERO reason.
Bs