The 10th plague brought an end to solvency issues, but not yet output issues

Interesting how Germany gravitating to negative growth came at about the same time Draghi announced the ECB will ‘do whatever it takes’

With the ECB now taking national govt insolvency off the table, and member nation rates coming down accordingly, the reason for deficit reduction- solvency- has fallen by the wayside.

So now the EU is free to adjust deficits for optimal output without the former solvency concerns.

With austerity, every professional forecaster revises his GDP estimate down and unemployment up.

With a proactive increase in the deficit, whether via tax cuts or spending increases, every professional forecaster revises his GDP estimate up and unemployment down.

And so relaxing the stability and growth pact to maybe a 7% deficit limit from the current 3% limit would result in forecasts for rapidly rising GDP and rapidly falling unemployment. And with the output gap as large as it is the increased economies of scale with expanding output will likely further promote price stability.

Yet it’s not even a passing thought.

So with deficits now likely high enough to support growth from current levels, if they’d only leave them alone, instead, continuing efforts to proactively reduce deficits = continued widening pressure on the output gap.

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66 Responses to The 10th plague brought an end to solvency issues, but not yet output issues

  1. Walid M says:

    Warren

    if i refused to pay my taxes on the basis that the government did not need my taxes as a source of revenue to use in whatever gov spending program they may claim to need it for …and also claim that the government was acting in an oppressive manner by taxing my income during times of general hardship when there is no risk of inflation and i was the only victim of such action ….
    Would you come to my defense in a court of law ??

    Reply

    WARREN MOSLER Reply:

    no

    Reply

  2. Monica Smith says:

    What shall we call it when a government suffers from anorexia?

    Reply

    WARREN MOSLER Reply:

    thin markets?

    Reply

  3. Neil Wilson says:

    “They simply deny the problem. ”

    And those who believe there is a problem obsess about it to the point of destroying current investment to avoid an issue that there is no reason to believe will ever happen.

    Destroying current investment is guaranteed to make the real situation in the future worse.

    So it’s a risk trade off. Do you stop a real problem happening today and ensure that tomorrow will be better, or guarantee that tomorrow will be worse by obsessing about a future that likely will never happen.

    The increase in the aggregate level of private savings will slow down and stop when everybody has enough to make them feel secure. Very few rich people ever have enough or ever feel sufficiently secure. It’s often that nagging doubt that drives them.

    Warren’s analogy of a scorecard is nearer the truth than you might think.

    Reply

    Sergei Reply:

    @Neil Wilson,

    Neil: And those who believe there is a problem

    Neil, in reality it is YOU who obsess with the absence of the problem. Please note that I qualified my statement with “might” and similar stuff. However it caused you pain and just revealed that you are not open minded enough to consider all possibilities from all possible sides. I think you do bad service to MMT.

    Reply

    Neil Wilson Reply:

    @Sergei,

    ” Please note that I qualified my statement with “might” and similar stuff.”

    Really:

    And I quote: “They simply deny the problem.”

    no ‘they’ don’t. ‘They’ simply say there is bigger fish to fry than constantly worrying about whether the end of the world is coming.

    As Randy Wray puts it: “Floating the exchange rate thus gives more domestic policy space. Capital controls offer an alternative method of protecting an exchange rate while pursuing domestic policy independence”.

    The MMT recommendation is that domestic policy independence and using that domestic policy space to the full is a more important factor. ZIRP suggestions ensures that any return in the non-government sector has to come from financial assets generated by the non-government sector. No government sector freebies.

    Beyond that the current account is always balanced by the capital account. For the most part leave it be and concentrate on full employment and price stability at home.

    Reply

    Sergei Reply:

    @Neil Wilson,

    Neil: And I quote: “They simply deny the problem.”

    This is the factual statement, not my opinion. What you say later quoting Randy is changing the topic rather answering the question.

    The flip-coin of unlimited public debt is the (very likely if not guaranteed) unlimited equity and wealth gap. How do you respond to this?

    Please do not bring in exchange rates since the first level problem is THE country.

    Also please do not bring low unemployment rates that you take care of with budget deficits since in a slave-based society unemployment is also zero.

    ESM Reply:

    @Neil Wilson,

    @Sergei:

    For the record, I worry (and have expressed that worry previously) about a rapid, self-reinforcing decrease in savings desire. It’s rather uncharted water as near as I can tell. The best defense of course is a system with robust automatic stabilizers, where tax revenue rises superlinearly with inflation. As a last resort, it is always possible for the government to restrict exports.

    But of course, it’s not clear how well any such stabilizers will really work or what dislocations will happen if there was a large, sudden wave of dis-savings.

    That being said, it seems like we’re really far away from potentially destabilizing levels of NFA, at least if the past is any guide.

    Also, in addition to GDP, I like to compare NFA against total tangible wealth (private sector and government), which includes land, roads, buildings, mineral resources, durable goods, and the enterprise value of companies/businesses (both publicly traded and private). With total wealth in the US in the $50T range, NFA of $12T or so, growing at $1T/yr, doesn’t appear obviously troubling.

    WARREN MOSLER Reply:

    beware that sudden rush to full employment and beyond!

    Neil Wilson Reply:

    Sergei,

    You can believe what you like. I have no intention of accepting the framing you require to make your arguments stack up.

    Life is about the balance of probabilities. The MMT proposals keep the economic system within a basin of attraction that allows you to have full employment with price stability. That is what the design does and testing it shows that is the case.

    Edge cases are dealt with by special procedures as they are with any system.

    We Brits believe we can explain anything by referring to the weather, drinking tea or football.

    In football when the ball goes out of play at the side you pick the ball up and throw it back in again. And yes that will mean you have to use your hands. No doubt that process offends those who believe a morally pure football must only involve the feet.

    Sergei Reply:

    @Neil Wilson,

    Neil: That is what the design does and testing it shows that is the case.

    Why? When? By who? Did I miss anything?

    It is not the matter of beliefs. And between two of us it is YOU who has expresses a strong belief of infallibility as per above. Not me. I am on the skeptical side admitting that I can be wrong. That is why I express a healthy dose of skepticism that we have THE design which shows anything we can rely upon. As ESM states above if Japan suddenly swings into spending this has potential to kill MMT once and forever. Yes, for any *practical* sense of the Japanese government you might think of it as a balance of probabilities and here I would be very much with you. But for any *theoretical and academic* sense the fact that *potential* problems of budgets deficits and public debt are wiped aside by all MMTers I know of only highlights the problems and deficiency of theory. IMHO. What mechanisms of price stability are on the table which can cope with a sudden change of saving desires scaled to the level of 200% of GDP? None, that I know of which have been tested and shown to work. But feel free to bring real life examples to the table.

    ESM Reply:

    @Neil Wilson,

    “No doubt that process offends those who believe a morally pure football must only involve the feet.”

    Perhaps football/soccer should actually be played without use of the arms at all, even for balance. The players on the field could be put in straitjackets, for instance. It’s surprising that this hasn’t developed in Britain yet. Seems rather Monty Pythonesque.

    Nihat Reply:

    the problems and deficiency of theory

    Bernard Lietaer likens MMT to a new driver assigned to a broken car (no brakes, poor steering) that has crashed repeatedly. And his point, as far as I can tell, is precisely about the subject of this discussion.

    Neil Wilson Reply:

    “Bernard Lietaer likens MMT to a new driver assigned to a broken car (no brakes, poor steering) that has crashed repeatedly.”

    Less a driver, more a mechanic. That is probably the reason Warren built up a car company ;-)

    Neil Wilson Reply:

    “What mechanisms of price stability are on the table which can cope with a sudden change of saving desires scaled to the level of 200% of GDP?”

    What mechanisms do you carry around each day to cope with the non-zero probability that all the Oxygen molecules in the air will suddenly leap into one corner?

    I very much doubt you spend the entire day walking around in a space suit.

    In risk management to assess an event you first need the probability of it happening and the impact if it does happen. And then you deal with the risks classified as high probability, high impact.

    Solutions for extremely low probability events fall into the category marked YAGNI – You Ain’t Gonna Need It.

    Trying to force people to come up with the perfect a-priori risk free model is a classic way of stopping anything from changing. I believe the transactional analysis game is called “Why don’t you, yes but”.

    We’re not playing.

    Nihat Reply:

    Are things like 100% estate tax or an annual 2.5% tax on net wealth okay/acceptable political choices in the MMT paradigm?

    Sergei Reply:

    @Neil Wilson,

    Neil: In risk management to assess an event you first need the probability of it happening

    Rational people always have doubts because nothing is 100% certain. Even if all oxygen collapses into a single point next moment, then the moment after that it will get back to a normal. And noone will die. How can you even know that oxygen does NOT do such exercise every second plank time meaning that the probability of your YAGNI is 50%.

    I see your arguments as meaningless. Example? I have a CRO which tells me that I can not buy local currency Czech government bonds because there is credit risk which he does not like to increase because we already have too many of those bonds. And no amount of rational convincing and massaging will change his mind. So you are like my CRO. Sorry about that. You are IRrational in your statements. And seriously you do no favour the the “T” part of MMT. Even if all you have is YAGNI

    Matt Franko Reply:

    @Neil Wilson,

    Segei and Neil,

    I believe MMT sez that prices are necessarily a function of what price the govt sector is willing to pay for things and what prices the govt allows it’s banks to lend against things… it would seem that as long as the govt didnt “raise it’s bid” in this regard, prices would remain basically stable no matter what the $NFA:USGDP ratio went to…. rsp,

    WARREN MOSLER Reply:

    or if they did rise which would cause govt spending to go to 0, they would be forced back to the gov’s ‘bid’

    Neil Wilson Reply:

    ” it would seem that as long as the govt didnt “raise it’s bid” in this regard, prices would remain basically stable no matter what the $NFA:USGDP ratio went to”

    That is clear. Automatic stabilisers work and have worked for many, many years. MMT proposals are just enhancing the auto-stabiliser system to make it stabilise properly at full employment.

    Essentially the stabiliser system keeps the ball in the field of play (basin of attraction around a point of equilibrium).

    But that’s not the reason for the objection. The reason for the objection is to try and prevent MMT from being tried – because objectors are terrified it might just work which would then render their core beliefs obsolete.

    You see this strategy all the time when you’re trying to change things.

    The objections are getting more and more extreme with each scenario having vanishingly small probabilities. And at those vanishingly small probabilities the private sector bankruptcy rules are sufficient.

    Sergei Reply:

    @Neil Wilson,

    Warren: if they did rise which would cause govt spending to go to 0

    HOW?! What is the mechanism to ensure it in almost real time?

    WARREN MOSLER Reply:

    raise your price and you can’t sell any to the gov

    raise prices offered to the gov and the gov doesn’t buy any

    WARREN MOSLER Reply:

    the problem is unemployment/output gap.

    the deficit that coincides with full employment is the right sized deficit

    Reply

    Sergei Reply:

    @WARREN MOSLER,

    “the deficit that coincides with full employment is the right sized deficit”

    Again and again same thing. There are NO tools on the table which ensure that a sudden swing of savings into consumption in Japan can show you overnight how deficient your formulation above is. I do not say “will”. I say “can”. The problem is that you deny “can” and do not consider such scenarios. I see it as not really honest and very ideological. The only sure case where deficits is NOT a problem is in the increasing society with inequality increasing without limits. Everybody is employed (i.e. full employment) and absolute inequality.

    Are you and MMT fine with slavery? How do you defend?

    Reply

    WARREN MOSLER Reply:

    a sudden swing to consumption is also a sudden swing towards full employment and a 0 output gap, which an upward swing in real wealth and the average standard of living.

    and if you go ‘beyond full employment’ and ‘spending from savings’ drives up prices for a while, you get a one time price level increase.

    so what? sounds like the good kind of problem, vs what we have now?

    Sergei Reply:

    @Sergei,

    “you get a one time price level increase.”

    So no price stability. Please remove then such claims from MMT jargon.

    And why just one time price increase? Why not a continuous price increase with spill-over effects into the institutional structure? Just a belief?

    WARREN MOSLER Reply:

    see ‘soft currency economics’ thanks.

    it’s about shifts in relative value as markets allocate by price.

    The govt defines the value of its currency via the prices it pays, etc. as previously stated.

    Inflation is defined as a continuous increase, which requires a continuous redefinition by govt.

    ESM Reply:

    @Sergei,

    I find the response to Sergei’s legitimate concerns to be unpersuasive. There’s no question that there could be a sudden shift in savings desire which would require a proactive fiscal adjustment on the part of the government, and that it is much easier (although, admittedly, rarely implemented) for the government to correct for a sudden increase in savings desire rather than a sudden decrease in savings desire.

    Correcting for a sudden decrease in savings desire is not only politically difficult, it will take time, and during that time, the poor will suffer tremendously as the rich scoop up all of the real resources. I think the liberal commentators here understand this intuitively, and it is one of the principal reasons (along with the unfortunate human tendency towards envy) that they want to redistribute wealth through the tax code.

    As most people here know, I am against government enforced redistribution of wealth, but I do acknowledge that the risk of wealthy people dominating the consumption of real resources under certain conditions is a real one, and that government action to mitigate those effects may be ineffective or even destabilizing over the short-term.

    That is why I am an advocate of a consumption tax automatic stabilizer (one which incorporates a sizable pre-bate of sales taxes on the first, say, $30K of consumption).

    WARREN MOSLER Reply:

    I don’t like taking the kinds of transactions that ‘make us rich’ re comparative advantage, economies of scale, etc. as per soft currency economics.

    And don’t forget the govt necessarily ‘distributes wealth’ as it taxes/spends, shifts resources form private to public domain.

    then it tries to redistribute them.

    getting the first right reduces the instance of the second

    Sergei Reply:

    @Sergei,

    “And don’t forget the govt necessarily ‘distributes wealth’ as it taxes/spends, shifts resources form private to public domain.
    then it tries to redistribute them.
    getting the first right reduces the instance of the second”

    Where if anywhere did I miss the reference to getting the first right? MMT is all about flows. There is no talking at all about stocks, i.e. wealth. And all references to the importance of stocks are persistently wiped away.

    And now all of a sudden we here that we need to get stocks right so that we get the least interference with flows later.

    Or I completely misread your statement above?

    WARREN MOSLER Reply:

    the govt neither has nor doesn’t have any dollars. in that sense the notion of ‘stocks’ of dollars for the govt. is inapplicable.

    the non govt sectors have all kinds of ‘stocks’ of dollars, and the demand or lack thereof to accumulate said stocks is at least one whole chapter in the 7dif.

    Sergei Reply:

    @Sergei,

    Looks like we are talking different languages.

    Lots of people try to make an effort and get your (MMT) perspective. I tried and I think I did.

    But then when people come with additional questions after getting the basic premises it looks like you refuse to make any effort to try to get their questions. And the question under discussion has been expressed now in many different ways to fix possible communication problem.

    And look what is done in return:
    1. You can believe whatever you like (Neil) and feel free to &$%
    2. authority of math (1st grade algebra), closed systems and a monopoly on truth from paul-engineer. So lets say I studied theoretical physics and therefore have a higher level monopoly on truth (paul, please read Disciplined minds to understand it)
    3. macro-coded references to 7difs and as ever cryptic 1 liners as ever

    Are these responses rational from someone who tries to develop a consistent and closed theory without cutting any corners?

    I do not see it like this.

    Nihat Reply:

    Sergei,

    Do you put any stock in the claim that MMT is an apolitical theory?

    If yes, do you think your question can be answered in apolitical terms?

    Neil Wilson Reply:

    @Sergei,

    “And the question under discussion has been expressed now in many different ways to fix possible communication problem.”

    So has the answer.

    There comes a point when you can’t help any more. It’s the same problem with the 100% reserve crowd and their obsession with ‘debt free money’.

    We should agree to disagree and leave it at that.

    Sergei Reply:

    @Sergei,

    Neil: We should agree to disagree and leave it at that.

    It is not problem for me. I would not care less. I am neither an MMTer nor a defender of it. However I see it as big problem for those who are. But we can agree to disagree here as well.

    Sergei Reply:

    @Sergei,

    Nihat, I see MMT as highly political. On this quality it is probably worse than neoliberalism which enforces a pretty clear political agenda through “free markets are efficient” meme. Why MMT is potentially worse is that its true political agenda (imho) is hiding behind the full employment/equality banner. MMT is extremely an dangerous instrument.

    WARREN MOSLER Reply:

    how can description of a system be a dangerous instrument?

    Sergei Reply:

    @Sergei,

    yes that is the question that should worry you. but you are too much of an idealist. but then even if we can ignore how this instrument can be misused there are still problems which always come as an annoying afterthought in mmt . equality, production, international trade. look around. how many people who got excited by mmt in the last couple of years have dropped the story by now? why are you not worried?

    Matt Franko Reply:

    @Sergei,

    If you go to the video at this link below, and forward to the 13:00 mark, Warren, Bill, and Randy answer questions related to this concern for price stability in an economy with a FFNC state currency type of system.

    http://mikenormaneconomics.blogspot.com/2011/11/infaltion.html

    I believe the underlying point is that with our current type of FFNC system, govt is ultimately the most influential in the setting of all prices, or govt “ratifies” prices … or how Warren phrases it: “prices are a function of the price govt is willing to….” this may not sit well with folks who are strong libertarians who perhaps see “the free market” or “invisible hand” as the operative force in setting price… ie traditional “supply-demand” concept with the govt subject to these forces and not vice versa…

    I often think perhaps even the basic economic assumptions of “supply and demand” should be revisited in light of the fact that the foundational work in that area was conducted at a time (18th Century) and in a context of a monetary system based on metals which are gone from the scene now… rsp,
    PS (FD: I’m not a libertarian so it may be easier for me to see things this way…)

    Sergei Reply:

    @Sergei,

    Matt, on one hand MMT and MMTers describe government is a bunch of elected people (like in the Fed & Congress game) acting on behalf of population. On the other hand MMT and MMTers seem to describe government as super apolitical, technocratic and neutral and even outright stubborn agent (of who?) to react to any events of the world (like in setting prices game) acting against population.

    I do not really dispute the statement that government is the most influential price setter in the *domestic* economy. But I also think that it does not bring us too far in understanding how the global world works and what we really need to do. And we could still discuss what the “domestic” qualifier actually means when noone wants to sell what you need for your currency. Plenty of examples in the history of the world. And Warren already admitted that “no, price setting power of government is not always strong enough”.

    Why and how is MMT different from neoliberalism? Both strive to pretend as apolitical. But is it really possible for an economy theory? Can anybody really claim a “theory” if it applies to a very small part of the world if at all? What interest, apart from curiosity, does it have for the bigger world? Yes, monetary description is fine. But having two apolitical economic theories instead of the dominant one is simply too much.

    Why don’t MMT just stop bs-ing and bring its political statements into public? Full employment and price stability are not the ones I am looking for. Because these are already taken by the mainstream and therefore unavailable. And here we all know pretty well what stands behind those claims. Why and how MMT is different?

    WARREN MOSLER Reply:

    when did i say that?

    Matt Franko Reply:

    @Sergei, Well the way I look at it is that at least here in the US, the political process has resulted in some actual laws that direct govt economic policy to in our FRA: “…., so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” and via the Humphrey-Hawkins Full Employment Act: “Full Employment”…. so to the extent that MMT seeks to explain the operations of our current monetary system with a view towards achieving these legislated goals that are already part of established law, I dont see it as “political” at this point… Another thing is that “the other side” in this ie “neo-liberals” or whatever, do not exhibit an accurate understanding of how a FFNC state currency system operates and therefore any specific policy they advocate for is misguided at best… so MMT is just trying to present a pathway towards achieving what are already settled political matters here in the US utilizing the monetary system that we already have… this shouldnt be politically controversial. rsp,

    Nihat Reply:

    Matt, it is apolitical when you say the size of debt is no problem, and both democrats and republicans go “say what?” Otherwise, nothing is settled in politics.

    Sergei Reply:

    @Sergei,

    Matt: this shouldnt be politically controversial

    Matt, there cannot be economics without politics. We already have neoliberalism which pretends to deliver politically uncontroversial solutions. My preference would be that MMT takes the political dimension head on. In this sense I do not see full employment / price stability as political ends. For one thing our system is build around $1 = 1 vote whereas MMTers repeatedly stated that government deficits should be whatever it needs. Which has a nice potential to “whatever it takes” gap in inequality with, to take it to extreme, spillovers into slavery. So slavery can be a perfect example of an MMT compliant society – full employment and price stability.

    Matt Franko Reply:

    @Sergei, Here in the US we dont have the Maastricht Treaty that targets only 3% deficits. Our laws dont specify a a target fiscal deficit they target what have become politically established favorable economic outcomes for the citizens… This is established law here in the US in both the FRA and the HHFA.

    We have mentally weak leadership that cannot figure out how to meet these legal requirements; and our current leaders will not do the honorable thing and resign in disgrace and have become intransigents.

    MMT establishes a path to meet these already politically settled legal goals. This is a technical issue here in the US at this point…. I dont think this is exactly the same case in Europe.. rsp,

    Nihat Reply:

    They actually take on the political dimension quite explicitly. I find this talk by S. Kelton (81 minutes on youtube) relevant and useful.

    Calgacus Reply:

    @Sergei, Sergei, Lerner considered the kinds of problems you are talking about long ago. And IIRC compared them to jumping into a lake to allay worries about getting your hair wet [& catching a cold] if you took a shower. But yes, he agreed that ceteris paribus, better to have a smaller national debt, less NFA out there – but that the ill effect (inflation being the only conceivable one) are grossly exaggerated and misunderstood, and that there is only an illusory return to “sound finance” when taking them into consideration. They aren’t a real argument against MMT / Functional Finance.

    I think the only time the kind of big national debt / sudden dissaving inflation scenario really happens is postwar inflation, as in the USA after WWII. After all, Britain had a bigger debt/GDP than Japan today for much of the 19th century, IIRC – legacy of the Napoleonic wars. Apparently it’s fairly common that postwar inflation is worse than wartime inflation, as it was in the USA, where largely caused by taking off price controls too quickly and abruptly before production could have been reoriented. Was just reading about such things in Dudley Dillard’s great old book on Keynes.

    WARREN MOSLER Reply:

    and even then it’s a one time shift rather than continuous

    paul Reply:

    @Neil Wilson, @nihat

    “Bernard Lietaer likens MMT to a new driver assigned to a broken car (no brakes, poor steering) that has crashed repeatedly.”(very out of context framing here btw).

    Bernard Lietear says that MMT appears to be correct in every way but…

    …his concerns with MMT have more to do with the centralized control of the issuance of fiat, no matter by whom, than anything else. If that changes MMT will be able to gracefully change with it, because no matter what solution is settled on by the money-creator Gods it won’t be able to transcend the tyranny of arithmetic.

    MMT is a system framework designed to work based on the way things ARE and is basically pure math, so The criticisms levelled on this page are way off-target – they assume something is wrong with math itself. How someone uses the tools is another matter altogether, but if I smash your head with a hammer it isn’t the hammers fault.

    @ Sergei

    “What mechanisms of price stability are on the table which can cope with a sudden change of saving desires scaled to the level of 200% of GDP? “

    What mechanism should one design capable of dealing with a situation that, the way you’ve presented it is darn near impossible?

    Net savings in US dollars worldwide consist of some $11 Trillion in bonds and maybe $1.5 – $4 Ttillion in net cash (who knows?). Bonds can’t be spent in totality, there aren’t enough net dollars in existence to buy all of them, so the bulk would go unsold.

    The same thing can be said for every real asset in existence. What if everyone tried to sell their Apple stock at the same time? Their house? Cash in their pension funds? The system is not designed for these events regardless and no economic theory can plan for it. Because it isn’t likely to happen. The boogie man is strong with this one.

    Your hypothetical is unrealistic and absurd in the extreme and should not to be taken seriously.

    Reply

    Nihat Reply:

    @paul,

    I understood Lietaer to be saying, in a single-currency system with positive interest, booms and busts are inevitable, and wealth will always accelerate toward the few from the many until a reset, and repeat of the same exercise (as he shows history as the witness). The way I understood his evaluation is, MMT, being concerned with (and confined to) such a system, can’t be and isn’t a breakthrough from this pattern. Hence his broken car–new driver analogy. But yes, he seems to suggest it’s a much better driver, full employment, price stability, etc.

    Reply

    paul Reply:

    @Nihat,

    BTW, I think Bernard Leitaer is a genius and I agree with his characterizations and conclusions. Warren often says that the natural rate of interest is zero. This is in harmony with Leitaer’s observations.

    MMT however is fully capable of making the adjustments necessary to be applicable to different methods of distribution of resources.

    MMT is focused on the way things are currently arranged. Lietaers arguments are for a brave new world that doesn’t exist yet.

    Nihat Reply:

    @paul,

    BTW, I somehow remembered Black Swan by Nassim N. Taleb. It talks a lot about math possibly being wrong, or misapplied. (Not that I assume or claim MMT’s math is wrong. I don’t know enough yet.)

    Reply

    paul Reply:

    @Nihat,

    “It talks a lot about math possibly being wrong, or misapplied.”

    Yes, math is often misapplied. See mainstream economics.
    I haven’t found any math flaws in MMT (I’m an engineer), but as far as the math underlying MMT is concerned, it is so simple I don’t see how it could be misapplied or “wrong”. The math is nothing more than addition and subtraction within a closed system.

    One can make it more complicated with financial transactions that obscure the underlying math but at the end of the day all MMT is saying is the non-government can’t create something out of nothing, money-wise. Only the fiscal authority can do this.

    Nihat Reply:

    Paul, yeah, I agree. I had indeed asked myself what math you were talking about. Wasn’t it essentially arithmetic? (Still there are some underlying assumptions, stemming from aggregation of large numbers of random/autonomous agents; black swan events are not to be neglected completely.)

    paul Reply:

    @Nihat,

    “black swan events are not to be neglected completely.)”

    I don’t imply we should neglect them at all. I characterize these kinds of events as products of mal-distribution and excessive leverage. A disfunctional regulatory scheme.

    Those things are not directly related to MMT principles, although MMT gives insight into how to avoid them in the first place.

  4. Paulo Garrido says:

    Yes. But first, German policy-makers should be convinced of the feasibility of sustaining a combination of 3 to 7% budget deficit and 5% of exports, otherwise they will not play ball with the euro… ;)

    This raises two questions. Can the EZ become a 5% net exporter? If the answer is ‘probably no’, then the question changes. How Germany will deal with the recognizance of the fact?

    In any case the second is of most interest. One knows from the Japan experience that private savings as public debt can go safely to 200% of product. Yet, an upper limit must exist as private savings derive their value from the capability to be applied in the productive system. What are presumably estimates for this limit ratio?

    Even more: near this limit the budget deficit must equal at most product growth, discounting net imports (foreign savings). How does the monetary dynamics look like?

    Reply

    Sergei Reply:

    @Paulo Garrido,

    Paulo: Yet, an upper limit must exist as private savings derive their value from the capability to be applied in the productive system. What are presumably estimates for this limit ratio?

    Very good point. MMTers have been many times challenged on this to no avail. They simply deny the problem. Well, it might be that there IS not problem, but looks like many people are far from convinced that political system can play fast enough with the real economy. The fact of life is that is hardly, if ever, the case.

    Reply

    WARREN MOSLER Reply:

    the ‘limit’ is largely a function of institutional structure.

    you know you are reaching the ‘limit’ as you approach full employment

    Reply

    Nihat Reply:

    FWIW, I like this answer. Theoretically satisfying.

    Reply

    Sergei Reply:

    @WARREN MOSLER,

    “the ‘limit’ is largely a function of institutional structure.”

    Something I completely disagree. Exactly such rigid thinking can kill MMT overnight despite all it advantages. This limit is a variable target. Today it is x, tomorrow it is Y. So today Japan can feel fine with 200%. Tomorrow even 100% might be too much. You need to ensure not to hit it. But if you hit it then situation can become unpredictable and uncontrollable. Why? Because the savings bubble collapses and economy can not cope with increasing consumption because it was never made to cope with. a) structure is skewed towards high-tech exports while imports are mostly raw materials. And additionally unemployment in Japan is already relatively low. So the structure is rigid and you can not change it overnight. But the demand side can easily change.

    Reply

    WARREN MOSLER Reply:

    the limit is full employment

    Sergei Reply:

    @Sergei,

    Warren: the limit is full employment

    You are talking flows. Everybody else is talking stocks.

    WARREN MOSLER Reply:

    glad we agree

    Paulo Garrido Reply:

    @WARREN MOSLER,

    ‘limit’ is an inadequate word. Satiation, satisfying or saturation values of saving desires is more appropriate.

    Satiation values for saving desires must exist both for flows and stocks.

    Yes, we know that we will be approaching saving desires flow satisfaction at full employment.

    If satisfaction of saving desires as a flow is maintained along time its value approaching a stable ratio to product growth is to be expected. This will mean that the country will reach a cooperation level enough to stabilize the ratio of the private savings stock to its value base.

    The particular values of stabilization may vary with countries, their programs for universal pension, health care and education coverage, productive efficiency and resilience, the way private savings are also made universal to a minimum in an adequate frame. So, yes, the ‘limit’ is institutional.

    When a country will approach such a stock stabilizing value what happens from the standpoint of MMT?

    The tax rate more precisely measures the fraction of transfer of real product from private to public purpose.

    No loss of security or prosperity for citizens is implied other than resulting of the always possible natural causes or their own failure to manage the system.

    MMT prescribes: employment need satisfaction, saving desires satisfaction, real product criterion satisfaction.

    This implies an economy going towards satisfactory as the dis-cooperations caused by unemployment and saving pressures are canceled.

    Reply

    WARREN MOSLER Reply:

    in fact, that’s the definition of full employment

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