Let’s start fresh on this one….(or, what I did instead of working or going to church this morning) And, with apologies to Mr. White, but a good debate pulls no punches.
Our Mr. White, in the last post, has proposed a sort of blanket debt forgiveness that, for those with a Judeo-Christian background, would be understood as a “Jubilee”, about which more can be read here. Of course (IMHO), this biblical practice was patterned after (and, thus, intended to reinforce) God’s plan of salvation. The concept of remission of sin was extended to include – or, rather, be demonstrated in – the legal concepts of property ownership using debt as an analog for sin…you might say that was the central premise.
Leaving aside a more detailed review of the subject – which is, admittedly, probably well above my pay grade, I would submit that the practice: a) did not implicitly proscribe debt, but, rather b) discouraged it and presented both practical and moral limitations on the practice. If nothing else, it more explicitly served as a reminder against the risks of a permanent state of indebtedness. Bad enough when it came to property and finances, worse still with indentured servitude, and utterly catastrophic in regards to the soul. Of this we can be certain: its purpose was not to encourage indebtedness with the promise of a last-minute pardon.
But, before leaving the biblical realm we might also be reminded that:
What has been will be again, what has been done will be done again; there is nothing new under the sun. ~ Ecclesiastes 1:9
And, so it is with debt and money. We’ve had reason in the past, for instance, to call attention to the Greeks own ancient innovations with debasing currency to solve a sovereign debt problem. Nothing, nothing at all, new under the sun in today’s headlines. Nor is there, I fear, in Mr. White’s MMT prescription for the current economic crisis. It is, afterall, merely the ultimate debasing of our current currency to solve a debt problem.
The MMT crowd argues that fiat money, being simply an artifice of governmental authority, can be “printed” (or, rather, created as government debt) with virtual impunity (I know, I’m oversimplifying) and that, as a matter of course, deficit spending is the ultimate source of monetary growth and, thus, a significant controlling factor for economic growth. In this fashion, they believe that deficit spending is utterly necessary for the health and welfare of the nation, that aggregate savings or investment can’t or won’t occur without an accommodating expansion of the money supply (again, through the practice of deficit spending).
They correspondingly tend to ignore a great many rather basic facts in their “rigorous” mathematical proofs, notably that:
money is not the economy, or that
savings, investment, and improved productivity are not in the least dependent on accommodating expansion of the money supply, or that
government spending is prototypically consumptive in nature and, thus, more generally counter-productive to the process of saving and/or investment, or that
any artificial manipulation of the money supply inherently distorts market pricing signals (even and especially for money itself) and, thus inevitably leads to the misallocation of resources, or that
equitable and sustainable international trade practices – those that can be balanced over the longer term – require a natural equilibrium that can only be established in the use of a reliable and stable means of exchange, or that
anything that is managed politically will, more often than not, be disastrously mismanaged.
Just to name a few concerns.
Now, I readily admit to being blissfully ignorant of the MMT point of view until Mr. White recently thrust it into my path. Up to that point, I had merely been agitated by the more typical Keynesian and/or neo-Keynesian lunacy, as habitually demonstrated by the likes of Paul ‘pop goes the weasel‘ Krugman. As noted in the previously referenced article at the Ludwig von Mises Institute by Robert Murphy, the real problem with the MMT position is that it depends wholly on rhetorical, logical, and mathematical tautologies. (See also this associated article by Murphy.)
I think Murphy is absolutely correct in this assertion, if only on the basis that (as I note above) the MMT position takes as a basic foundation (or predicate logic) the assumption that the “economy” is a merely a monetary (and thus, not a production/consumption) phenomenon. In this fashion they can describe a rigid mathematical formulation that accounts for all of the basic monetary accounts, all the while ignoring any and all of the quantitative and qualitative underpinnings that those monetary values are intended to describe; you know, things like actual physical productive output or actual physical labor inputs.
But, heck, that’s a huge problem with almost all economic study. Most economists, for instance, necessarily utilize some sort of monetary inflator/deflator indexing system, such as the CPI, in order to (rather lamely) attempt to normalize nominal monetary data so that, the economist’s hope, the rather complex (i.e. tangible) relationships in the economy can be fairly evaluated.
Why is this such a big problem? Well, shoot, because – oh, for some reason – we’re always having to guess just how much the various manipulations of the currency have manifestly distorted pricing in the market. Use of the CPI – again, however lamely – attempts to “normalize” (or eliminate) all of those government and federal reserve induced distortions. Unfortunately, the CPI is generated by the same entities that brought us the distortions, so you decide just how trustworthy the data really is.
But, hey, flawed is flawed, no matter the reason. In this case, you simply cannot ignore (sidestep, walk around, or blink away) the fact that MMT math will always and forever demonstrate things that we know to be absolutely and utterly untrue. First among them: infinitely greater deficit spending does not equate to infinitely greater net savings. Oh, to be sure, the nominal bank balances of (specified, lottery winning) government contractors and entitlement classes might get infinitely larger.
And, by golly, if nominal growth actually meant anything in this world, they (the lottery winners, at least) would be in great shape. To be sure, they would be better off than any non-lottery-winner or, of course, our trading partners. But, we know that isn’t true, else we might all be inclined to print up our own currency for the same reasons, deftly leaving the “in God we Trust” part blank. Oh, wait, this is supposed to be a monopoly power, isn’t it? Well, scratch that notion.
Still, I guess we’d just have to hope that all that (infinitely larger) government spending would actually be productive. But, I suggest that, just maybe, we’ve been down this road so long that we’ve actually forgotten what real production and growth might actually look like.
Can we, as I suggested to Mr. White, really ignore the fact that the disproportionate growth in the financial and public sectors or our consistent trading of manufacturing activity for low-wage service sector jobs over the past 40 years may have a little something to do with our fiat/credit/debt and tax-regulated/deficit monetary system? All the while, our bankers and public servants have consistently told us that “the debt doesn’t matter, we only owe it to ourselves anyway” and that “this is the new economy”. Uhuh. My bankrupt, unemployed, and homeless fellow citizens, and perhaps our foreign creditors, beg to differ.
More to the point, if we can actually and seriously suggest that any debt, regardless of who or what entity it is incurred or intended to be paid by, “doesn’t really matter”, well, we’ve probably missed the whole point of debt, haven’t we? After all, from the MMT point of view, these current imbalances might be resolved simply by paying them off in a new ex-Fed/new Fed dollar. Like magic, the old debts vanish and, well, I sure hope you’re on the right side of this massive transfer of (nominal) wealth.
Worse still, we’ve probably missed the whole point of the Jubilee concept too. The idea here, I think, isn’t that all debtors (or sinners, eh?) get a nifty “get out of jail free” card conveniently issued once every seven or forty-nine years or, in this case, when the curse is about to choke the life out of you. Rather than encourage us to rack up maximum debt in advance, the real intent might have been that we would be reminded that any (but, especially perpetual) indebtedness is a curse, not to be taken on (or handed out) lightly.
My vastly inflated (and deflated, and inflated, and deflated) two cents.
PS – In a prior comment, Mr. White characterized the noted von Mises article as “disappointing”, specifically claiming that the MMT position isn’t that “deficits don’t matter”, but that taxation is the counter-regulating cure and, thus, that the money supply ought to be managed (presumably to some manner of equilibrium) through both mechanisms. Naturally, I’d like to hear this position developed in more detail.
My hardfast skepticism, of course, is based in large part on a recognition of human nature, one shared by our founding fathers who insisted that the money supply not be subject to infinite abuse. Presumably, the Federal Reserve – with or without its “Taylor Rule” – was intended to be exempt from base political influences. But, human nature is found in any human institution. The power and authority to coin money, concentrated as it may be, ought to be limited by more than just math and the presumed good intention of the humans in charge. That, after all, was the whole point of gold and silver.
In the end, any political or financial construct that might permit, facilitate or otherwise encourage the empowerment of one class of citizens at the expense of another will be subject to abuse. The prescribed limits of power reflected in our Constitution, of course, were intended to thwart those efforts as effectively as possible. In this context, I see no benefit to the MMT argument as it, ultimately depends wholly on the motivations and discipline of the political class. In this, it provides no material improvement over the present system. Quite to the contrary, there would be, I’m quite certain, less discipline and rigor than we now have,which is to say, “not a hell of lot”. (We might, once again, be reminded of this danger as expounded in this classic exchange.)