Rules to placate fiscal conservatives so they can live with using MMT to allow large budget deficits - Politics Forum.org | PoFo

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#15038253
Prof. Richard Wolff said recently in a youtube video that he can see that Modern Monetary Theory is right in all important aspects of how it describes the economy of a nation like the US and UK, but not France, etc, which use the euro. However, he is worried that political leaders will be tempted to over do it and cause inflation, and that it is just a matter of time before the leaders give in to temptation and do cause inflation, maybe a lot of inflation. [In case you don't know Dr. Wolff claims to be a Marxist.]

I can certainly see his point. This is why I have asked my MMT authorities if there is some set of rules that they can live with about how much of a deficit a nation can have. Their response is that is depends on so many factors that it is useless to tie the Government's hands with limits.

However, I still think that it would be useful to have some limits on deficit spending. This would make it easier to convince the “fiscal conservatives”** to let us try to use MMT to fine tune the economy.
As a stting point, my thought on this are:

1] When a nation has a trade deficit that means its currency is being taken out of the nation and not returned. This leakage will damage the economy sometime soon. Therefore, the Gov. can have a deficit equal to the current account deficit, which includes money coming into the nation as investments.
2] However, this is not enough, more should be added to the deficit.
This more is the amount that the people and comp. want to save. This leakage will also reduce the GDP sometime soon if it isn't replaced by deficit spending. How much is this? Well, now (for example) insurance comp., etc. are saving Gov. bonds and the people are saving cash. [BTW, banks mostly don't loan out the depositors' money, banks create new money when they make loans.] So, if there is a measure of how much saving is going on then the deficit can equal this amount plus the current account deficit. If we can't measure the saving then the rule might be to set the total Gov. deficit at between 4% & 6% of GDP plus the current account deficit.

3] There needs to be a rule that under no circumstances should the Gov. have a surplus to pay down or (worse) try to payoff the national debt. The national debt can never and should never be paid off, except maybe with magic money that the Gov. creates just for this purpose.

4] If there is inflation of more than 3% then the deficit will need to be (i.e., must be) reduced by cutting spending or increasing taxes. If there is inflation is above 5% in any year or is between 2% and 5% for 3 straight years then the deficit must be reduced. In these cases the deficit needs to be just the current account deficit. This must continue until inflation reaches (goes down to) 1%.
5] If the reduced deficit above does not make inflation be reduced any, then, there must be no deficit until inflation reaches 1%.
6] When inflation reaches 1% then the deficit rule goes back to the total of the current account balance and the saving by the comp. and people.

7] If war has been declared then these rules should always be set aside. They can also be set aside if the budget is approved with a 2/3 vote in both houses of Congress.


.** . It is my considered opinion that fiscal conservatives are usually that way because of some inborn character trait, so we do need to placate them to some extent. At least for some fairly long period of time after MMT starts to be used to allow additional deficit spending.
#15038694
Steve_American wrote:3] There needs to be a rule that under no circumstances should the Gov. have a surplus to pay down or (worse) try to payoff the national debt. The national debt can never and should never be paid off, except maybe with magic money that the Gov. creates just for this purpose.

There's no reason to have a national debt. All it does is give unearned interest income to people who have more money lying around than they know what to do with.
4] If there is inflation of more than 3% then the deficit will need to be (i.e., must be) reduced by cutting spending or increasing taxes. If there is inflation is above 5% in any year or is between 2% and 5% for 3 straight years then the deficit must be reduced. In these cases the deficit needs to be just the current account deficit. This must continue until inflation reaches (goes down to) 1%.
5] If the reduced deficit above does not make inflation be reduced any, then, there must be no deficit until inflation reaches 1%.
6] When inflation reaches 1% then the deficit rule goes back to the total of the current account balance and the saving by the comp. and people.

How do you define and measure inflation?
#15038714
Truth To Power wrote:There's no reason to have a national debt. All it does is give unearned interest income to people who have more money lying around than they know what to do with.


In general I agree. As it stands now, law and tradition require spending in excess of taxes to be 'offset' by bond sales. This 'requirement' is predicated on the obsolescent notion that sovereign spending needs to be financed, either by taxes or bond sales.
#15038793
Truth to power wrote:
How do you define and measure inflation?

My personal definition of 'inflation' is, "An ongoing increase in the cost of most things and services." So, a 1 time spike is not inflation. Also, currently most Gov. are run by people who think that the Gov. needs to get money from the people with taxes or bond sales, and so they instruct the technocrats who compute 'inflation' to do it is a way that keeps the official number low. They are worried about the things that are indexed (like Soc. Sec. payments) that (they think) could or will bankrupt the Gov. So, for example, cars and cellphones are improving all the time. The technocrats who figure inflation claim that the improved ones would have cost more in the past (i.e. last year) so they fiddle with the numbers to make the final number lower. I would put an end to this. The retired people should not be squeezed by doctored numbers. The money they get from SS goes into the economy and adds to the GDP thus helping younger people keep their jobs. Also, the cost of healthcare and housing rent needs to be fully included in the inflation calculation.
quetzalcoatl wrote:
In general I agree. As it stands now, law and tradition require spending in excess of taxes to be 'offset' by bond sales. This 'requirement' is predicated on the obsolescent notion that sovereign spending needs to be financed, either by taxes or bond sales.

You are correct. There is no need for additional bond sales (except in the eurozone).
OTOH, we should want to have stable markets. Here I'm referring to insurance comp. and pension plans (wherever they are housed). For some time to come they will need Gov. bonds with nice yields. There is no good reason to, for example, call all the bonds in now and pay them off with magic money the Gov. has just created. IMHO, this is a very bad idea. There would need to be a soft landing.
#15038956
Steve_American wrote:My personal definition of 'inflation' is, "An ongoing increase in the cost of most things and services."

That is a problem, because the result is that when the prices of the rich's assets increase, that's "a booming market," but when the price of working people's labor increases, that's "cost-push inflation."
So, for example, cars and cellphones are improving all the time. The technocrats who figure inflation claim that the improved ones would have cost more in the past (i.e. last year) so they fiddle with the numbers to make the final number lower. I would put an end to this.

IMO the only non-arbitrary way to determine if and how much prices have increased is with a commodity price index, where the prices are for the exact same items.
OTOH, we should want to have stable markets. Here I'm referring to insurance comp. and pension plans (wherever they are housed). For some time to come they will need Gov. bonds with nice yields.

Their desire for income unrelated to productive contribution is not a reason to give it to them.
There is no good reason to, for example, call all the bonds in now and pay them off with magic money the Gov. has just created. IMHO, this is a very bad idea. There would need to be a soft landing.

Right: a sudden substitution would be too disruptive. Just pay them off as they come due.
#15039317
Truth To Power wrote:That is a problem, because the result is that when the prices of the rich's assets increase, that's "a booming market," but when the price of working people's labor increases, that's "cost-push inflation."

I didn't intend to include labor wages in my definition. Increasing wages might push up prices but until prices do go up there isn't any inflation.
. . . I included services as in getting your teeth cleaned by a dentist, etc.

Truth To Power wrote:IMO the only non-arbitrary way to determine if and how much prices have increased is with a commodity price index, where the prices are for the exact same items.

I think this is not a workable idea. People mostly don't buy commodities, they buy finished goods. Cars change every year. Cell phone and computers more often than that. Handbags change too.
. . . My idea is define cars as for example 4-door sedan or 2-door pickup, etc., and track their prices. So what if the things are different? The consumer who needs to replace a car, cell phone or handbag. can only buy the ones being made now or a used one. Any attempt to correct of "improvements" is subjective and fails to look at the impact on their lives of having to spend more for some things and so have less to spend on all the other things they need to buy.

Truth To Power wrote:Their desire for income unrelated to productive contribution is not a reason to give it to them.

You can think this until it is your pension plan or insurance comp. that can't meet its obligations. When it effects you (if you are like most people) you will suddenly change your mind.
These sorts of comp. need safe investment vehicles. Risk is not good for them or their clients. At least when the sh*t hits the fan like it almost did in 2008.

Truth To Power wrote:Right: a sudden substitution would be too disruptive. Just pay them off as they come due.
#15040110
Steve_American wrote:I didn't intend to include labor wages in my definition.

But wages are by far the biggest component of consumer prices.
Increasing wages might push up prices but until prices do go up there isn't any inflation.

Which prices?
I think this is not a workable idea.

It is very workable.
People mostly don't buy commodities, they buy finished goods.

So what? Prices for finished goods are prices for things that are not the same over time. Comparing them is therefore invalid.
Cars change every year. Cell phone and computers more often than that. Handbags change too.

So the prices are not actually for the same things, and therefore cannot be used to show an increase in prices.
. . . My idea is define cars as for example 4-door sedan or 2-door pickup, etc., and track their prices.

That doesn't measure inflation, as already explained.
So what if the things are different?

So you are comparing the price of apples last year with the price of oranges this year. That is an invalid comparison.
The consumer who needs to replace a car, cell phone or handbag. can only buy the ones being made now or a used one.

So what? It is not only consumers who pay prices, and the prices for different items are not comparable.
Any attempt to correct of "improvements" is subjective and fails to look at the impact on their lives of having to spend more for some things and so have less to spend on all the other things they need to buy.

Garbage. People who buy a smart phone, for example, often find they don't have to buy a computer. Buy a more efficient car, you don't have to buy as much gas. Etc. The only way to avoid invalid comparisons is not to make them.
You can think this until it is your pension plan or insurance comp. that can't meet its obligations.

And also after it can't. Because unlike greedy scum, I am not greedy scum. Despite what you might conclude on the basis of introspection, not everyone places their own narrow financial interests above the community's interest in liberty, justice, and truth.
When it effects you (if you are like most people) you will suddenly change your mind.

No, I goddamned will not. The fact that most people are greedy is not a valid reason to empower their greed legally.
These sorts of comp. need safe investment vehicles.

Tough $#!+. That doesn't give them a right to steal from everyone else.
Risk is not good for them or their clients.

Tough $#!+. That doesn't give them a right to steal from everyone else.
At least when the sh*t hits the fan like it almost did in 2008.

The $#!+ hits the fan BECAUSE we legally empower greed. HELLO??
#15040381
@Truth To Power,
Every reply you made to my post just made an assertion. No facts. No reasons why my claims or ideas are invalid. I provided my evidence. You provided none. So, I can only reassert my statements above which is pointless.

Therefore, I'll not reply. I'll leave it to the readers to decide based on the evidence presented so far.

Edit to add.
TtP wrote, "Tough $#!+. That doesn't give them a right to steal from everyone else."
This claim is just wrong in 2 ways.
1] Taxpayers don't pay the interest on bonds, it is borrowed from other bond buyers. Everyone else = taxpayers, right?
2] The Gov. needs to add to the money supply to do 3 things, this interest is part of the total added.
. . . a] To replace money that is saved by the people and comp. like the insurance comp. I spoke about. If this money isn't replaced the GDP will, without a doubt, be less than what it would have been if the money was spent and not saved. Keynes called this 'the paradox of thrift'.
. . . b] To replace money that went into an account of a foreign comp. or nation at the US Fed. Res, bank. [The money, these days, doesn't actually leave the country it is in an account at the Fed. If spent by that nation it just moves to a different account at the Fed.]
. . . c] To provide additional money to allow for population growth and other growth of the economy as a whole. This is what is wrong with the EU's economy. The money supply can't grow because of the austerity the treaties demand. So, the economy is stagnant or declining as a whole {some few nations can grow because others decline *more*}.

Just so you know, several core MMTer profs. agree with you that the US Gov. should sell bonds that pay zero interest, never positive and never negative. Zero. I just {in my non-expert opinion} wonder if some small constant interest of 1% to 2% might be better.

.
#15040787
Steve_American wrote:@Truth To Power,
Every reply you made to my post just made an assertion. No facts.

That claim is false as a matter of objective physical fact. Assertions that, like mine, describe reality, are facts.
No reasons why my claims or ideas are invalid.

That claim is false as a matter of objective physical fact. I identified the facts that show your claims are false, invalid, or irrelevant.
I provided my evidence. You provided none.

That claim is also false as a matter of objective physical fact.
So, I can only reassert my statements above which is pointless.

Because I explained why they are wrong, invalid, or irrelevant.
Therefore, I'll not reply. I'll leave it to the readers to decide based on the evidence presented so far.

Me too.
TtP wrote, "Tough $#!+. That doesn't give them a right to steal from everyone else."
This claim is just wrong in 2 ways.

Nope.
1] Taxpayers don't pay the interest on bonds, it is borrowed from other bond buyers. Everyone else = taxpayers, right?

No, consumers. When bondholders are entitled to take from production without contributing to production, everyone else gets less for their contributions.
2] The Gov. needs to add to the money supply to do 3 things, this interest is part of the total added.

Irrelevant. If the money was not added as bond interest, it would be added as other spending. Some of that spending is of course just as useless as paying bond interest, or even more useless, like money spent bombing foreign countries, or paying farmers not to grow crops. But when the government spends money on roads, education, health care, etc. value is created as a result. When it gives interest income to bondholders, no value is created.
. . . a] To replace money that is saved by the people and comp. like the insurance comp. I spoke about. If this money isn't replaced the GDP will, without a doubt, be less than what it would have been if the money was spent and not saved. Keynes called this 'the paradox of thrift'.

Irrelevant, as explained above. There are lots of more useful things the government could issue money to pay for.
. . . b] To replace money that went into an account of a foreign comp. or nation at the US Fed. Res, bank. [The money, these days, doesn't actually leave the country it is in an account at the Fed. If spent by that nation it just moves to a different account at the Fed.]

As above.
. . . c] To provide additional money to allow for population growth and other growth of the economy as a whole. This is what is wrong with the EU's economy. The money supply can't grow because of the austerity the treaties demand. So, the economy is stagnant or declining as a whole {some few nations can grow because others decline *more*}.

As above.
Just so you know, several core MMTer profs. agree with you that the US Gov. should sell bonds that pay zero interest, never positive and never negative. Zero. I just {in my non-expert opinion} wonder if some small constant interest of 1% to 2% might be better.

There is no reason to sell bonds at zero or any other rate of interest. Just issue the money.
#15040919
@Truth To Power,
Yes, MMTers do want to US Gov. to mostly just spend dollars into the economy when it deficit spends.

However, I think there is a need for some zero interest bonds. Those Insurance comp. and pension plans agencies don't want to have huge deposits in any bank that might go broke. They would rather have a zero interest bond, I think. This is why I think that 1% bonds would be good.
Banks might pay some interest but there is a risk there. A 1% US Gov. bond has zero risk unless the USA ceases to exist.
#15041263
Steve_American wrote:However, I think there is a need for some zero interest bonds. Those Insurance comp. and pension plans agencies don't want to have huge deposits in any bank that might go broke. They would rather have a zero interest bond, I think. This is why I think that 1% bonds would be good.
Banks might pay some interest but there is a risk there. A 1% US Gov. bond has zero risk unless the USA ceases to exist.

Why should people who have money lying around -- money that they don't want to do anything productive with -- be paid for contributing nothing? If they want a return, let them make a productive investment. If they don't want a return, let them put their money under their mattress.
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