Puffer Fish wrote:... snip ...
I don't doubt that the Mainstream theory is wrong, in many ways.
... snip ...
Well, that [= adding to the money supply] starts to get complicated. It depends what you mean by the "money supply", and which types of money supply actually cause inflation, and to what extent.
But for simplicity, lets just talk about a hypothetical case where there is only money issued by a Central Bank, and that money is pure fiat currency, not backed by anything (with no reserve assets), but there is taxation.
Why wouldn't expanding the money supply in this case lead to inflation, in proportion to the amount of money that has been circulated?
Can you give me a logical explanation for that?
OK, but I'll just note that banks create money that adds to the money supply with every loan.
. . . I think that for money supply increases to cause inflation you need to also assume that no comp. expands its production to increase its profits by meeting a demand for more stuff. If more stuff is offered for sale then that stuff can suck up the extra money. [MMT would even let the Gov. make the investments to expand production if corps. refuse to.]
. . . MMT specifically, says that the Gov. (in the US, the Congressional Budget Office) will learn how to look at what real resources (incl. idle labor) will be necessary to let the Gov. spend "this" money without competing with those other users of the resources.
. . . Also, MMT talks a lot about incomes. All Gov. spending adds to someone's income. Taxation reduces what they can spend, so it functionally reduces their income. So, MMT seems to say that it is not "the money supply", it is incomes that can cause inflation.
Puffer Fish wrote: Well, maybe they would have deflation if it was not for the new money constantly being issued by the Central Bank.
And that might be a good thing.
Besides that, it is well known that the economy of Japan has not been doing too good. (Though I think they are doing a bit better in the last couple of years; though that is still irrelevant because the policies we are talking about stretches back much longer than that)
MMTers say that the reason Japan has not done so well is that it doesn't deficit spend enough to offset or replace the savings of its people.
. . . Most MS economists already know that deflation is a very bad thing. Think about a small landlord who owns 10 houses that she rents out. She has mortgages on many of them, incl. the one she lives in. With deflation rents fall, but her mortgage payments don't fall. Why is it good for the economy for her to lose most of her houses?
Puffer Fish wroote: Okay, granted [=that Japan has not collapsed in 28 years of deficit spending]. But we do not know if things would have been different if it was not for those policies, or if things might have been better.
MMT says that if the policies had been different then for sure the results would have been different. MMT says that things would have been worse if the Japanese Gov. had not deficit spent like that. Wondering if things could have been better IF ..., is not a convincing argument.
Puffer Fish wrote: Okay, but that still does not explain how printing money would be any better to effect that type of policy than simple old-fashioned taxation and government spending would. It seems to me they would both result in very similar sort of effects, in this way.
MMT proves that if the Gov. balances its books, then the only way that total non-gov income can increase is for some to borrow from a bank and spend that money. This adds to the money supply. It adds to someone's income which is added to the gross GDP, so GDP can rise. However, it also adds to private debt. Private debt has caused 150 recessions and depressions in some nation over the last 150 years. This is one a year. One study that I heard about said that over those 150 years there had been just 6 cases of hyper inflation. [A Cato Inst. study found 57 cases of hyperinflation over the last 150 years, all after WWI. Maybe they used different definitions or something.] Among those 150 we have the GFC/2008 and the dot com recession of 2001.
. . . MMT also says that when people save this reduces someone's income. If the Gov. is not deficit spending and there are no bank loans then the GDP will fall as a direct result. MMT doesn't want the only way to avoid a falling GDP to be either to ban any savings or to increase bank lending. But bank lending is not sustainable unless the borrowers have a growing income to keep making larger payments as they keep borrowing. This process will always end in a recession.
Puffer Fish wrote: I think the effect of rising unemployment and falling rents, because business revenues are down, is counteracting inflation [during a recession].
That may be why the inflationary effects of more money are often not seen during recessions, though they certainly end up having an effect.
If you did not have that additional money, you would have deflation, and then things would go back to normal after. Whereas with the additional money, you don't see much change in the inflation rate at first, and then after the recession you start seeing inflation, that compensates for the monetary deflation that didn't happen.
That is what I believe.
OK, well, I think that history has shown that one of the main ways to end a recession or depression is to get into a big enough war. This is because in a war nobody worries much about deficit spending.
. . . So, I ask you to think about how to end then Great Depression without Gov. deficit spending. The situation is as follows: all corps. have warehouses full of stuff that they made but could not sell, all corps. have laid off many or most of their workers, as a result the ex-workers are not buying the stuff in the warehouses, until that stuff is sold the corps. will not hire workers to make more stuff, the workers with jobs delay all spending as long as possible, banks will not lend to many people because they can't pay it back, there has been some deflation (which means prices & rents & wages are down), which makes all old loan payments harder to pay, and so on. How, does this end?
. . . You said that some deflation might be a good thing to have (every decade or so?) because this *might* be a good thing. So, I ask you to show just how deflation can be a good thing. Saying if might be good, isn't convincing.
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On another note, why are you so afraid of *inflation*? And are not afraid of deflation?
All central banks are not afraid of inflation of 2%/yr. This is their target rate, not 0%.
You really ought to learn to specify what you mean more clearly when you say "inflation". Is it 10% you fear or what? Or do you really mean 'hyperinflation'?