The Right And Wrong Of MMT (Modern Monetary Theory)

MMT—modern monetary theory—has become one of the hottest topics in economics. The best selling book, "The Deficit Myth", by economist Stephanie Kelton has even made this little understood theory go mainstream. But deeply analyzing these ideas has become more pressing than ever as we debate, in the middle of a pandemic, whether the government should be adding more debt to support the economy. Along with our guest, "grumpy" economist John Cochrane from the Hoover Institution at Stanford University, we take a look at what MMT gets right, what it gets wrong, and how it should change our thinking.

[idlikemoreprivacy]

1) Governments ALWAYS create money to spend, as you can READ from any treasury/central bank rules.
2) Thus the question is HOW this money they ALWAYS create is spent and why

Why don't read/watch the intro to MMT in any text or video before speaking 40min about something you didn't bother to understand?

[lachlanmccall]

Cochrane mistakes MMT for a policy proposal to start “printing money”, when in fact it describes the reality that every dollar Congress spends is always funded by crediting new reserves into the banking system (money creation). Even Kelton’s book (the only source he’s read) says it’s already how Congress spends. There’s even a mathematical model by Steve Keen illustrating this point. Sloppy work by Cochrane. Descriptive claims are not policy prescriptions. And that’s before we get beyond the basic facts to the contested elements, like the Quantity Theory of Money, which is theoretically bunk (because banks don’t lend out reserves, as S&P’s former Chief Economist said) and empirically bunk (because Japan has massively increased the money supply, with no impact on inflation).

[phil_]

It's all fiat money. Don't be fooled by the politicians.

[Rob-fxdw]

A very fruitful discussion and worthwhile input from Mt Cochrane which everyone should be taking notice of instead of pushing politically subservient called theories that like MMT that are easily clearly false.

[opensky]

Inviting a Luigi with partial understanding of MMT who in turn invites a John knoking down strawmen accompanied by a biased moderation does not make for an insightful video. I expected some sincere criticism. But that requires understanding first

[twhelostl]

The big subject should be "What does spending accomplish" Our bureaucrats are like mice tuned loose at the cheese factory. They're complicit with the DOD and all sorts of endless charitable concerns. FEMA doesn't get nearly enough to help disaster victims get back on their feet. Our challenge is eliminate spending on things that have little impact. Productivity is the only point.

[thegnosticatheist]

Most of what MMT fans says that's true was already told by Milton Friedman. M. Friedman already said that deficit doesn't matter. What matters is the public spending - the bigger it is, the more risk there is to misallocate resources. Open market is self-correcting due to peaceful competition and focusing the decision making on the consumer. And the more free the market is, the better and quicker the self-correcting mechanisms work.

Rest about MMT are just linguistic technicalities. MMT fans like to shout about the order of events: that the government firstly prints money and then taxes the outcome. For which I respond with a big yawn. It's a miniscule technicality and if this is mind blowing for someone, it's only because they don't understand real economy.

Even with home resources one can spent before earning. Just ask parents/kids/friends and pay them back later. As long as they have resources you need, you don't need to engage national currency for it. So MMT describes EXACTLY situation where national budget is managed like a household budget. Household uses currency when it needs to import goods and services from other households. And this situation is analogue to when nation imports goods and services from other countries.

Basically, as long as you can grow veggies in your own garden, you don't need to rely on (foreign) currency.

[patricksullivan]

I'll quarrel with something Zingales says; that we don't know for sure what the demand for money is exactly. Not according to Milton Friedman! He points out that the demand for money (as expressed in the goods and services that are given up for it) is absolute, or infinite. We have many real world examples when that was literally true; Weimar Germany and several other Eastern European countries after WWI. Or Robert Mugabe's Zimbabwe, where they couldn't add zeroes fast enough to the pieces of paper to devalue them, but people still used the Z Dollar.

[BanBb]

The reason for US dollar demand is not the size of its army, it is the size of its economy. It's what the US dollar buys, and it's trust in the good faith and credit of the US government. Foreign countries that hold US dollars, hold them because the US purchased more from them than they did from the US. That is a win for them, and that they can ill afford to change. In return the US gets stuff for the US dollars spent. To derive something negative from that is to deny capitalism. It is a win/win situation.

[BanBb]

The gold standard was abandoned due to its propensity for volatility, as well as the constraints it imposed on governments. People hoarded gold instead of depositing it in banks, which created an international gold shortage. Countries around the world basically ran out of supply and were forced off the gold standard. The U.S. came off the gold standard for domestic transactions in 1933 and ended international convertibility of the dollar to gold in 1971. Bank failures during the Great Depression of the 1930s frightened the public into hoarding gold, making the policy untenable. We entered a FIAT system that fit the needs of modern economies, and soon after the US's establishment the world followed suit. The arguments presented here are inappropriate because they come from a false view that we never left the Gold Standard. The FIAT allows for greater economic growth because government spending it is not limited by unnecessary constraints like tax revenue and gold supply to back it.

[nathaniel]

The number of ads on this video is ridiculous

[Rob-fxdw]

The MMT idea that a government that prints it's own money does not have to default on it's debts is just illustrative of the lack of understanding of what a default actually is.
A default is failure to get repaid in value or number of units of currency.
Would anyone on this panel who disagrees with this fact be happy to get their debt repaid in worthless currency ?
I doubt it simply because it is still a default ! So the whole idea of repaying in money that has been created without any corresponding increase in real wealth is just plainly ignorance and stupidity.

[paulmaakestad]

Cochran understands nothing about MMT.

[nthperson]

Independent of the MMT analysis is the credit-fueled and speculation driven aspects of our economy that result in asset bubbles. This aspect of our economy can only be eliminated by the public capture (i.e., the taxation) of rents associated with advantage, where markets for land and natural resources are concerned, and subsidies yield unearned income flows. In essence, our current system of public revenue results in a massive redistribution of income and wealth from actual producers to non-producing rentier interests.

[chrisk]

Seriously, you guys are still misunderstanding some core concepts in MMT. “Printing” more money does not necessarily cause inflation. Look at Japan. In free markets price Inflation happens when demand starts getting close to or above supply capacity. Full stop. So MMT would say that a national government with full monetary sovereignty can spend as much as it wants up until the supply starts to reach full capacity. So as long as you continue to invest in building supply capacity to stay ahead of demand, like healthcare or the military for example, you can continue to increase Federal spending without intrinsic limits.

[davidwilkie]

Glib and oily artists of the Darkness.

[Rob-fxdw]

It is amazing the ignorance of the statements people make about taxes.
Taxes do NOT soak up inflation. Taxes are merely a way to transfer ownership of financial assets to government which spends it again. If taxes reduced inflation then any money transfer would reduce inflation which is clearly another false idea.

[Rob-fxdw]

Creating more money and spending it into the economy dies not employ more people. It just will push up up the ability to demand more at present prices and forced up prices because at the time it is spent there are no new goods or services that have been created. It also will push up the ability of first spender of that money to buy more.
To say it will increase demand and that will increase employment is ignoring the correct sequence of what happens.
To say otherwise like the speaker in this video is as foolish as believing a new clock that runs slower will create a longer day or a larger shadow of a tree results in a taller tree to block the light. Totally about face thinking.

[john-lenin]

Thanks for the **** eating m****n perspective!