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1)
Many people don’t seem to understand MMT and fire off at it, but a lot of the points they try to make don’t make any sense because they do not understand what MMT is and isn't saying. The main source of confusion comes down to the nature of money.
Many people don’t seem to understand MMT and fire off at it, but a lot of the points they try to make don’t make any sense because they do not understand what MMT is and isn't saying. The main source of confusion comes down to the nature of money.
2)
Money can be fixed to something with a supply constraint, or it can be freely floating. The choice between these two creates markedly different outcomes in terms of the monetary system.
Money can be fixed to something with a supply constraint, or it can be freely floating. The choice between these two creates markedly different outcomes in terms of the monetary system.
3)
People typically think of money system that is tied to gold; govt can only spend money when they have FIRST COLLECT enough gold to back the money they issue. Printing more money simply creates increased claims on a limited supply of gold, thus inflating the price of gold.
People typically think of money system that is tied to gold; govt can only spend money when they have FIRST COLLECT enough gold to back the money they issue. Printing more money simply creates increased claims on a limited supply of gold, thus inflating the price of gold.
4) When money system is freely floating, govt does not need to collect anything first, because they are the CREATOR of money in the first place. Govt dont need to take money from you (tax) in order to spend it, this is backwards
5)
A subway does not first collect subway tokens from us and then spend it on us. Subways MUST FIRST CREATE the tokens which they then FIRST SPEND on us in exchange for cash. Subways are then able to collect those tokens back from us in exchange for cash.
A subway does not first collect subway tokens from us and then spend it on us. Subways MUST FIRST CREATE the tokens which they then FIRST SPEND on us in exchange for cash. Subways are then able to collect those tokens back from us in exchange for cash.
6) Subways cannot collect tokens from us if we they do NOT FIRST CREATE AND SPEND THOSE TOKENS. A Subway can't be constrained by their "token debt" because they are the CREATOR of those tokens.
7)
In the same way, Govt must first CREATE the money and MUST FIRST SPEND it on us in exchange for labour. They then collect that money AFTERWARDS in the form of taxes. This is because the only way we can pay taxes is to pay it with Govt issued money.
In the same way, Govt must first CREATE the money and MUST FIRST SPEND it on us in exchange for labour. They then collect that money AFTERWARDS in the form of taxes. This is because the only way we can pay taxes is to pay it with Govt issued money.
8)
A govt is not constrained by money debt which they can only repay by collecting taxes. This is absurd as saying the Subway has a token debt which they can only repay by collecting more tokens from its customers.
A govt is not constrained by money debt which they can only repay by collecting taxes. This is absurd as saying the Subway has a token debt which they can only repay by collecting more tokens from its customers.
9)
The govt has a MONOPOLY on money and thus decides how many people will be unemployed. If a govt only spends 10 USD, but demands 1 USD in tax from 15 people, by design they have ensured 5/15 people cannot pay back taxes because they have not SPENT enough USD to begin with.
The govt has a MONOPOLY on money and thus decides how many people will be unemployed. If a govt only spends 10 USD, but demands 1 USD in tax from 15 people, by design they have ensured 5/15 people cannot pay back taxes because they have not SPENT enough USD to begin with.
10)
The Govt can solve this by increasing the money they SPEND, to ensure there is enough money for everybody to be able to earn and pay back, or reduce the tax so that the demand of money the Govt makes matches the supply of money they have created
The Govt can solve this by increasing the money they SPEND, to ensure there is enough money for everybody to be able to earn and pay back, or reduce the tax so that the demand of money the Govt makes matches the supply of money they have created
11)
Why does this system exist? Govt require labour in order to provide public services, such as military, legal arbitration etc… In the absence of taxes, nobody would bother doing these tasks for the govt.
Why does this system exist? Govt require labour in order to provide public services, such as military, legal arbitration etc… In the absence of taxes, nobody would bother doing these tasks for the govt.
12)
However, because the govt threatens with jail or guns if we do not pay taxes, we are now INCENTIVISED to trade our labour for govt issued money. We now trade our labour for that govt issued money. The govt collects our labour to create military, legal arbitration etc...
However, because the govt threatens with jail or guns if we do not pay taxes, we are now INCENTIVISED to trade our labour for govt issued money. We now trade our labour for that govt issued money. The govt collects our labour to create military, legal arbitration etc...
13)
Thus, the only way inflation can occur in such a system is when the supply of money outpaces the productive labour of the state the govt governs. If productive capacity of a state is high, that can mean you can create tonnes of money without necessarily creating inflation.
Thus, the only way inflation can occur in such a system is when the supply of money outpaces the productive labour of the state the govt governs. If productive capacity of a state is high, that can mean you can create tonnes of money without necessarily creating inflation.
14)
Thus govt printing their money are only constrained by the actual RESOURCES and PRODUCTIVE labour they have in their society, before you see inflation. Money printing by itself does not create inflation in such a system.
Thus govt printing their money are only constrained by the actual RESOURCES and PRODUCTIVE labour they have in their society, before you see inflation. Money printing by itself does not create inflation in such a system.
15)
Countries that had debt denominated in something they cannot control, like gold or USD, undergo massive inflation when they create new money, like Weimar and Zimbwabe. This is because their debt is a currency they USE not a currency they CREATE/ISSUE
Countries that had debt denominated in something they cannot control, like gold or USD, undergo massive inflation when they create new money, like Weimar and Zimbwabe. This is because their debt is a currency they USE not a currency they CREATE/ISSUE
16)
When govt debt is denominated in their own currency, historically it has rarely caused inflation.
This might be why despite decades of QE in US, effectively MMT in Japan for 4 decades, we have not seen any runaway hyperinflation in either.
When govt debt is denominated in their own currency, historically it has rarely caused inflation.
This might be why despite decades of QE in US, effectively MMT in Japan for 4 decades, we have not seen any runaway hyperinflation in either.
17)
With these in mind, one might be able to pose more reasonable and nuanced questions against the proposals made by some MMT proponents.
With these in mind, one might be able to pose more reasonable and nuanced questions against the proposals made by some MMT proponents.
18)
Eg Is it truly possible to ensure that you can know the right amount of money to be spent (Created) that doesn't go beyond the resource capacity of a state?
Eg Is it truly possible to ensure that you can know the right amount of money to be spent (Created) that doesn't go beyond the resource capacity of a state?
19)
If we really want to go into the weeds, do we really want to live under a govt that takes labour from us at the threat of gunpoint? These are questions that go far off into political/societal philosophy rather than economics.
If we really want to go into the weeds, do we really want to live under a govt that takes labour from us at the threat of gunpoint? These are questions that go far off into political/societal philosophy rather than economics.
20)
But, you MUST acknowledge the reality of our CURRENT MONETARY SYSTEM before trying to argue what policies you may or may not want. Arguing as if our current system follows some wishful fantasy system in your mind is the WRONG way to argue against MMT.
But, you MUST acknowledge the reality of our CURRENT MONETARY SYSTEM before trying to argue what policies you may or may not want. Arguing as if our current system follows some wishful fantasy system in your mind is the WRONG way to argue against MMT.
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