New Economic Perspectives

MMT has been getting a lot of press lately. I wonder what submarine[1] is responsible?

Here's the thing: MMT isn't a policy position. It's simply an attempt to accurately describe how the monetary system actually works from an operational perspective[2]. It was a reaction against the Krugmanite nonsense that has no basis in reality and describes the activities of no market practioners. Anyone curious should read the linked primer, but the core principle of MMT is that Taxes drive the value of money. The sovereign's power to impose taxes that can only be paid in the sovereign's liabilities creates an intrinsic demand for those liabilities, which is to say money. Even the gold standard worked this way. The government used to print gold certificates and use those to buy bullion from miners! And of course gold certificates were accepted to extinguish tax liabilities.

That said, a number of MMT theorists are in fact politically liberal and believe that the government should use its monetary sovereignty to interfere more in the economy. It's valid to object to claims like "every dollar of spending has to be funded by a dollar of taxes" because they are observably false. But you could be a hard money conservative goldbug and MMT would STILL be a theoretically valid understanding of how money works. The theory correctly describes the consequences of using a currency the sovereign cannot issue, be it gold, or another sovereign's liabilities.

One area where MMT does hand-wave a bit…

I got to say... that looks pretty hopeless. Complementary currencies [0] are not new and they have limited utility -- especially since the currency takers still have to pay taxes in fiat.

It's very easy to design systems where a single node captures the majority of the value in return for doing the majority of the coordination work. This goes deeper than politics. Look at the design of biological organisms and you find big brains capturing 20 percent of the energy. Look at the design of nation states and you find sovereigns capturing 20-30 percent of GDP. Central coordinators seem to inevitably capture 20-50% of the value. One might even argue that they "earn" it too. Distributed coordination is costly and in a world of scarce resources it's silly to entertain additional coordination costs if you can avoid them. Central coordination has a lot going for it -- in terms of speed, efficiency, economies of scale, and even reliability they are very hard to beat.

Decentralization isn't hopeless though. There exists a class of problems where distribution pays off. Problems that can be truly paralellized, indeed ones that when you examine them you realize they are in fact embarassingly parallel [1]. For these problems it's expensive to introduce a central coordinator. Rather than costs being decreased, the central coordinator now introduces costs intothe system. The central coordinator in fact must hire enforcers to go out and impose its will because there is a natural tendency to…

Taxation doesn't distort the economy. This is such a nonsense statement that it's difficult to say it's even "wrong" -- it's simply meaningless. Taxation and the fundamental ability of the sovereign to create demand for its money tokens is the very basis of any modern, capitalized economy. There is a strong argument to be made that taxes drive money and make economic exchange possible [1].

(BTW, Hacker News is simply terrible at discussing economics. This comment is hardly unique.)

> Broken Window Fallacy

The entire thread and discussion is a bit off-putting but it's worth noting that the question is, as always, what to do about unproductive assets. Nobody is advocating that healthy, able-bodied people should all receive free money from the government. That's why the Broken Window Fallacy is stupid. It's a fallacy against a straw man.

And yes, when it comes to unproductive assets there's good reason to believe that the government should step in and act as the "producer of last of resort." There's always work to be done. The government is never going to run out of money. And, in reality, you're going to end up giving these people money anyways (unless you want to see women and children starving the streets) so you might as well try to see some returns. I've never been a fan of basic income but a Job Guarantee[2] makes perfect sense. Finland would be far better off putting these people to work for the government. Basic income in this form (giving people free money while…

I was for a land value tax (because people with more wealth in the form of land would pay more taxes in theory) but after watching the video I am now against it. It hinges on the definition of improving land, and from an environmental standpoint human improvement of land is an externality that as often as not creates negative value through exhaustion of resources, waste and unsustainability. Also IMHO there is far too much investment in construction, when buildings are already sitting idle. As we keep moving forward with tech and automation, this spending will become more superfluous.

It's becoming more clear to me that we should be thinking about proportions, not arithmetic. Money is a construct, so hard numbers like the size of the money supply and debt are meaningless. It makes more sense to imagine the median global income as being a unit of 1 (per day, per year, it doesn't matter) and then measure individual assets and debts against that. Americans get a score of 5 ($50k median household income), 5 billion people in the world get a score of 1 or less as they earn under $10,000 per year. Millionaires ($100k per year or more) get a score of 10, billionaires get a score of 10,000, etc.

Yes yes there are taxes and expenses but the orders of magnitude remain the same. Dealing at the abstraction level allows seeing patterns that aren't normally visible. The biggest anomaly is the level of work people are willing to maintain while getting paid substantially less…

> Should Eric Schmidt be in jail for his role in the employee wage suppression collusion?

Er, why shouldn't he be? I can think of three main likely arguments why he shouldn't:

i) what he did breached civil but not criminal law: if so then obviously he shouldn't be in jail. I don't know whether that's the case though. I also don't know if he is personally liable for civil damages, and if so why he hasn't been chased for those. (And that's not going into the question of whether his actions should have been made criminal offences by law, and why they haven't been.)

ii) the higher standard of evidence in criminal prosecutions, the first issue you raised. This is of course a real issue in criminal cases, but—speaking as a non-lawyer, non-expert who hasn't been following the story very closely—the evidence on this matter doesn't look at all lacking to me. AFAICS, if Eric Schmidt had been discussing a murder rather than salary collusion in the communications discussed by http://www.businessinsider.com/apple-google-recruitment-emails-lawsuit-2014-1 no-one would be likely to suggest that the evidence was too weak for a criminal prosecution.

iii) Eric Schmidt is a nice person like us, and jail isn't really for nice people like us. I hope the egregiousness and total unacceptability of this argument is clear to everyone without any need for explanation.

So, yes, why shouldn't Eric Schmidt be in jail?

As to the financial sector, while it is obviously difficult to prosecute many…

> The contention upthread was that we shouldn't use government spending for stimulus when monentary policy works better

I actually disagreed with this assertion in another comment [0], so I think we're in agreement here.

> monentary policy doesn't work at all in this situation

This is incorrect, though. A central bank may loan money to banks at a negative rate, with the condition that the loan funds non-financial and household spending (TLTROs) [1]. Such policy can provide stimulus at or below 0% interest rates.

> "well, just helicopter in money from the central bank as stimulus", which is... not monentary policy

As stated, whether helicopter money is monetary or fiscal policy is murky, but likely depends on its implementation:

"In other words, fiscal policy is about managing the net financial assets of the non-government sector relative to the state of the economy, and monetary policy is about managing interest rates (and through it, to the best of its abilities, bank lending and deposit creation) relative to the state of the economy." [2]

If, for example, the legislature were to issue a tax rebate to each citizen, it would satisfy Fullwiler's definition of fiscal policy. However, if implemented by directly altering bank lending, as TLTROs attempt to do, it should be considered monetary policy.

[0] https://news.ycombinator.com/item?id=20080372

[1] https://www.ecb.europa.eu/mopo/implement/omo/tltro/html/index.en.html

[2]…