Author Topic: Stuff about MMT that may be relevant to our interests.  (Read 1031 times)

Virgil0211

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Stuff about MMT that may be relevant to our interests.
« on: April 29, 2011, 08:09:23 PM »
I was browsing various blogs the other day, and I came across this one.

It had some interesting ideas that may explain why we aren't seeing hyperinflation, or why we aren't seeing people abandon US dollars and switching to other currencies in spite of the price increases in consumer goods.

It's run by a blogger who, from what I can tell, started out Austrian, experimented with Keynesianism, then switched back after the stimulus plan turned to crap, though his experiment with keynesianism was restrained compared with others and had only to do with the recession itself.

http://www.creditwritedowns.com/2010/07/misunderstanding-modern-monetary-theory.html

http://www.creditwritedowns.com/2011/03/more-thoughts-on-out-of-control-deficit-spending.html

http://www.creditwritedowns.com/2011/04/on-hyperinflation.html

The one that's particularly relevant is the last one. It actually makes a bit of sense as to why people would stick to a medium of exchange that was essentially worthless- you need it to pay taxes, and the government already forces you to accept it as tender. MMT might be worth studying, at least for a perspective on how fiat currency works. I mean, honestly, if gold had depreciated in real value the way the dollar has over the past few years, people wouldn't have kept using it. The legal tender laws discourage adopting another currency, but the government isn't the best at prohibiting activities like this (vis a vis, the drug war). The requirement that it be repaid in taxes and the fact that it already in use by 1971 seems to complete the puzzle. It may also explain why we haven't seen hyperinflation yet, as the government still has relatively high compliance rates with relation to taxation. I'm not so sure on his other assertion about needing foreign currency obligations, though. Seems more like a correlation/causation thing.

Anyway, thoughts on this? At the very least, I found it an interesting read.

MrBogosity

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Re: Stuff about MMT that may be relevant to our interests.
« Reply #1 on: April 29, 2011, 08:48:22 PM »
Don't ignore the fact that banks aren't lending as much money. The banking "reform" means that they can get interest on money they hold in reserve--meaning they're being paid to NOT loan out money, reducing the Multiplier Effect.

Virgil0211

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Re: Stuff about MMT that may be relevant to our interests.
« Reply #2 on: April 29, 2011, 09:02:00 PM »
Don't ignore the fact that banks aren't lending as much money. The banking "reform" means that they can get interest on money they hold in reserve--meaning they're being paid to NOT loan out money, reducing the Multiplier Effect.

I know, but the primary thing I was focusing on was why people would voluntarily go with a fiat currency without problem. Drug laws don't stop people from using drugs, prohibition didn't stop people from drinking, so why would legal tender laws stop people from developing a more reliable 'underground' currency? I mean, there was the liberty dollar, but that's the main example I can think of, and I don't recall it going into very widespread use despite its popularity.

I guess what I'm saying is that it makes sense to think of the fiat dollar as getting a bit of its value from the fact that it must be paid for in taxes.

I'm not embracing MMT wholesale, obviously. The policy prescriptions and historical conclusions of most MMT'ers (budget deficits increase production, really? And the only time a currency has ever been used has been when it's imposed by the government?) prevents that. However, it may be useful if taken only for its models of how fiat currency works and where fiat currency gets its value. For example, this means that the social security system may not directly 'collapse', in the sense that social security will run out of assets to make the payments. What it does mean is that the greater the deficit incurred by social security payments, the more the supply of money will be inflated. The primary sign of the social security system failing wouldn't be a social security check bouncing, but the increasing deficit recorded by the SS system and the eventual malinvestment that would occur from inflating the money supply like that unless it was offset somewhere else. That could be a useful observation, especially when statists make claims about social security being sustainable for one reason or another, or if you ever run into a chartalist/MMT statist on youtube. =P

MrBogosity

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Re: Stuff about MMT that may be relevant to our interests.
« Reply #3 on: April 29, 2011, 09:33:15 PM »
Gresham's Law. People hoarded the Liberty Dollars because they were actually worth something and held their value. As long as people are getting paid in FRNs, they're going to be using those first.