[Steve_American]

1] That sounds more like it. 33% is fairly substantial in all.


2] It's not impossible. Why did the Bush admin refuse to bail Lehman Brothers out? It had done so for Bear Sterns.

3] That risk can perfectly suppress lending.


4] Open market operations.


5] The theory applies differently for Japan because of the zero lower bound. It's not possible, in practice, for central banks to set a negative nominal interest rate.

1] https://www.cnbc.com/2023/01/12/heres-t ... chart.html

This source shows that US inflation was over 8% for about 9 mo. with an average rate of about 8.5%. So, 33% of that is 2.8%. This is 40% above the Fed's target inflation rate of 2%. I hope the Lurkers (there are over 350 of them now) can see that this is not a significant amount of "punishment" for 14 years of deficit spending (totally well over $10T IIRC) and $5.5T more covid spending. All that deficit spending was someone's income, and it stayed in the economy as income for others until it was parked by a saver in her savings acc.

2] The difference is the Japanese Gov. cares about its citizens' wellbeing. This is why it actually aims at full employment, instead of purposely causing unemployment like our Fed is now. So, it will not end its policy of aiding the zombie banks to punish someone (the owners?) knowing it will also take money from some innocent depositors who believed the Gov's promise to not take their money if they left it in that bank. Also, it is different from Lehman Brothers in that it is a decades-long settled policy, not a sudden unexpected situation.

3] This is just your assertion.
AFAIK, the Japanese Gov. is keeping the zombie banks going so they Will make loans to the citizens. It doesn't make much sense for the Gov. to punish a bank and some of its large depositors after years of support, because the bank "lent too much."

4] I asked for the exact way it does it not the name of the method.
AFAIK, Open Market operations means buying bonds on the secondary market to control the interest rate on new bonds being sold, so the Gov. pays less interest or to keep interest rates low in the economy. Just how does this reduce the M1 money supply?

5] AFAIK, the theory holds that (Because of the large on-going deficits) bond vigilantes will attack the Japanese bond market to force the Gov. and BoJ to let interest rates on new bond sales go way up. This has not happened in 30 years.
. . The interest rate on excess reserves in banks is -0,1%. This lets the Gov. sell its bonds at a rate close to +0.1%, giving a yield of just 0.2%, and this is enough for the Japanese to buy the bonds. Note that, about 40% of outstanding bonds are owned by the BoJ. Yet the bond vigilantes can't force interest rates up.

I'm sorry, but I don't see how the zero lower bound makes Japan different from all other nations when it comes to the bond vigilantes' ability to force interest rates on Gov. bonds up. Can you explain how you think it works?
______________________________._______________________________________


For the record and the Lurkers' information, MMTers assert that the Mainstream theories are wrong. This mostly because they were not changed when Nixon took the world off the psudo-gold standard in 1971. This made all currencies into fiat currencies.
. . This meant that Gov. no longer needed to protect their gold supply. They had been doing this by restricting the amount of deficit spending so that there would not be enough mny for some group of "vigilantes" to have enough currency to demand all the gold in the nation's possession. They also sold bonds to convert some currency which was backed by gold into interest bearing bonds that could not be used to demand gold. But, still there was felt to be a limit on how big the national debt could be without there being problems with the gold supply.
. . So, even 10 years after 1871 in 1981, when Reagan took office, the US national debt was just $1T. This was because the theory held that the Gov. must not expand the debt much more than that. At one point in a fit of honesty, Dich Cheney actually said what MMTers are saying, i.e., "That Reagan proved that deficits don't matter". Obviously, Reagan also thought the total debt doesn't matter (despite his lying rhetoric), because he blew up the debt by $2T to $3T more debt (depending on what counts as debt). Note, the relative size of that increase. If Obama had tripled or quadrupled the size of the debt, when he left office, the debt would have been between $31.8T and $42.4T (he started with a debt of $10.6T). Instead, he left the office with a debt of about $18.5T. This shows you just how radical Reagan's policies were from what went before.

From the internet=> On January 20, 2009, the day Mr. Obama took office, the debt stood at $10.626 trillion.

.

[wat0n]

1] https://www.cnbc.com/2023/01/12/heres-t ... chart.html

This source shows that US inflation was over 8% for about 9 mo. with an average rate of about 8.5%. So, 33% of that is 2.8%. This is 40% above the Fed's target inflation rate of 2%. I hope the Lurkers (there are over 350 of them now) can see that this is not a significant amount of "punishment" for 14 years of deficit spending (totally well over $10T IIRC) and $5.5T more covid spending. All that deficit spending was someone's income, and it stayed in the economy as income for others until it was parked by a saver in her savings acc.

That's not how inflation works.

Inflation isn't a "punishment", there is no morality about it.

And 33% of the extra inflation being due to demand pressures is not insignificant at all.

Of course, the supply chain issues are important by themselves. But denying that large deficits, even if justified, combined with supply chain issues don't have anything to do with the inflation we're currently leaving behind is absurd.

2] The difference is the Japanese Gov. cares about its citizens' wellbeing. This is why it actually aims at full employment, instead of purposely causing unemployment like our Fed is now. So, it will not end its policy of aiding the zombie banks to punish someone (the owners?) knowing it will also take money from some innocent depositors who believed the Gov's promise to not take their money if they left it in that bank. Also, it is different from Lehman Brothers in that it is a decades-long settled policy, not a sudden unexpected situation.

Yet banks that are insolvent will of course be prepared in case they find themselves having a nasty policy surprise.

That's on top of the other well documented issues with zombie banking...

3] This is just your assertion.
AFAIK, the Japanese Gov. is keeping the zombie banks going so they Will make loans to the citizens. It doesn't make much sense for the Gov. to punish a bank and some of its large depositors after years of support, because the bank "lent too much."

...Which includes making loans to unprofitable businesses (which then become zombies themselves), also harmful for economic performance in the long run.

4] I asked for the exact way it does it not the name of the method.
AFAIK, Open Market operations means buying bonds on the secondary market to control the interest rate on new bonds being sold, so the Gov. pays less interest or to keep interest rates low in the economy. Just how does this reduce the M1 money supply?

What does the Fed pay bond holders with when it buys bonds?

5] AFAIK, the theory holds that (Because of the large on-going deficits) bond vigilantes will attack the Japanese bond market to force the Gov. and BoJ to let interest rates on new bond sales go way up. This has not happened in 30 years.
. . The interest rate on excess reserves in banks is -0,1%. This lets the Gov. sell its bonds at a rate close to +0.1%, giving a yield of just 0.2%, and this is enough for the Japanese to buy the bonds. Note that, about 40% of outstanding bonds are owned by the BoJ. Yet the bond vigilantes can't force interest rates up.

I'm sorry, but I don't see how the zero lower bound makes Japan different from all other nations when it comes to the bond vigilantes' ability to force interest rates on Gov. bonds up. Can you explain how you think it works?

Simple, Japan would like - indeed, needs - a more lax monetary policy yet it can't get it because interest rates are already at 0%.

Normally, then, fiscal policy would be the answer, which Japan also tried but even that didn't quite work. At some point, the Japanese government just couldn't find good infrastructure projects to fund for stimulus and even giving checks directly to the public would not stimulate consumption all that much. Part of the problem, too, is the aging of the Japanese population as this also depresses demand further so it's not just a matter of purely financial problems.

That's why Japan is a rather ad-hoc case but who knows, maybe it's a glimpse into a possible future for the West in general. We'll have to wait and see what other effects we can expect from population ageing, as it will have implications that go beyond just an unsustainable pension system. Thus far one of those implications for the US has been the labor shortages in many industries.

For the record and the Lurkers' information, MMTers assert that the Mainstream theories are wrong. This mostly because they were not changed when Nixon took the world off the psudo-gold standard in 1971. This made all currencies into fiat currencies.
. . This meant that Gov. no longer needed to protect their gold supply. They had been doing this by restricting the amount of deficit spending so that there would not be enough mny for some group of "vigilantes" to have enough currency to demand all the gold in the nation's possession. They also sold bonds to convert some currency which was backed by gold into interest bearing bonds that could not be used to demand gold. But, still there was felt to be a limit on how big the national debt could be without there being problems with the gold supply.
. . So, even 10 years after 1871 in 1981, when Reagan took office, the US national debt was just $1T. This was because the theory held that the Gov. must not expand the debt much more than that. At one point in a fit of honesty, Dich Cheney actually said what MMTers are saying, i.e., "That Reagan proved that deficits don't matter". Obviously, Reagan also thought the total debt doesn't matter (despite his lying rhetoric), because he blew up the debt by $2T to $3T more debt (depending on what counts as debt). Note, the relative size of that increase. If Obama had tripled or quadrupled the size of the debt, when he left office, the debt would have been between $31.8T and $42.4T (he started with a debt of $10.6T). Instead, he left the office with a debt of about $18.5T. This shows you just how radical Reagan's policies were from what went before.

.

I have yet to see an interesting MMT insight. To me, it looks like they are just applying accounting identities while making a story up.

One story that can't explain why countries experience hyperinflation.

[Steve_American]

1] That's not how inflation works. Inflation isn't a "punishment", there is no morality about it. [I hope moving the 2nd sentence o show better how it relates to the 1st sentence, is OK with you.]

2] And 33% of the extra inflation being due to demand pressures is not insignificant at all.

3] Of course, the supply chain issues are important by themselves. But denying that large deficits, even if justified, combined with supply chain issues don't have anything to do with the inflation we're currently leaving behind is absurd.


4] Yet banks that are insolvent will of course be prepared in case they find themselves having a nasty policy surprise.

That's on top of the other well documented issues with zombie banking...

...Which includes making loans to unprofitable businesses (which then become zombies themselves), also harmful for economic performance in the long run.


5] What does the Fed pay bond holders with when it buys bonds? [Remember you asserted that this will help the Fed reduce the M1 money supply.]


6] Simple, Japan would like - indeed, needs - a more lax monetary policy yet it can't get it because interest rates are already at 0%.

Normally, then, fiscal policy would be the answer, which Japan also tried but even that didn't quite work. At some point, the Japanese government just couldn't find good infrastructure projects to fund for stimulus and even giving checks directly to the public would not stimulate consumption all that much. Part of the problem, too, is the aging of the Japanese population as this also depresses demand further so it's not just a matter of purely financial problems.

That's why Japan is a rather ad-hoc case but who knows, maybe it's a glimpse into a possible future for the West in general. We'll have to wait and see what other effects we can expect from population ageing, as it will have implications that go beyond just an unsustainable pension system. Thus far one of those implications for the US has been the labor shortages in many industries.


7] I have yet to see an interesting MMT insight. To me, it looks like they are just applying accounting identities while making a story up.

One story that can't explain why countries experience hyperinflation.

1] I put 'punishment' in quotes, to signify that it may not be the right word.
AFAIK, your theory says that if the US Gov. has large deficits long enough then the punishment for that is high inflation someday. Pay now or pay later. Or is it, suffer now or suffer later.

The additional inflation is not 2.8 percentage points. The target is 2%, so the additional infltion is just 0.8 percentage points. 2.8-2=0.8.

2] The theory is that all the deficits have accumulated and someday that causes an outbreak of infltion. Frankly, you seem to be saying that the well over $10T in accumulated deficits and therefore additions to the national debt of well over $10T don't matter at all in causing the over 8% inflation at the top of the curve. That only the $5.5T is claimed to have caused the high inflation, along with the shortages from covid, the lockdowns, OPEC+ increasing the oil price, war in Ukraine, and additional corp profits that resulted from price gouging because they have monopoly pricing power.

Lurkers, please note, the theory is that all the deficits have accumulated and someday that causes an outbreak of infltion. Yet, nobody that I saw blamed any of the infltion we had from 2021 to 2023 on the over $10T added to the national debt from 2008 to 2020.

3] There you go exaggerating what MMTers and I have said. Did we really say that they had nothing to do with the inflation? Or, did I say that the pain from infltion was much smaller than the benefits from the years of deficits and then the support given to the economy when the economy was partially shutdown, so incomes disappeared.

4] How does keeping additional reserves and not making loans help a zombie bank if the Gov. pulls the rug out from under it? Never mind. I don't know enough about the subject to debate it.

5] AFAIK. the Fed just creates the dollars it buys the bonds with.
Then AFAIK, those new dollars become additional deposits in banks, and so they add to the M1 money supply. This increases the M1, it does not reduce the M1.

6] OK, the BoJ can't stimulate the economy by reducing interest rates, because they are very close to zero. So, now it is up to the Gov. to stimulate the economy. If it tried and failed. Then it didn't try hard enough. If should not give the same money to everyone, because the Japanese elderly like to save so they will save it. Instead give 100K yen to women who have child. Or something like that. Do research to find out who will spend it and not save it. Or, cut taxes on young people. Etc.

7] OK, you need a list of insights that MMT has given me, in no order.
. . a] Deficits and the national debt don't matter in a financial sense. They can matter in how they impact the use of labor and real resources.
. . b] The NAIRU = Non-accelerating inflation rate of unemployment is meaningless nonsense. It can't be calculated from any number from data. It is just opinions. It just lets central banks claim they are still fulfilling their mandate to cause "full employment" while they are raising interest rates to increase unemployment.
. . c] The Phillip curve is BS.
. . d] Poor nations should not be forced to borrow what they can never repay. So, for example, in about 2010 the triumvirate should not have forced Greece to borrow 68B euros that were used to bail out the German and other European banks, when everyone could see that Greece can never pay the interest let alone the 68B euros.
. . Some other way should be found so poor nations don't borrow.
. . e] When the Gov. is running a surplus, by definition, the non-gov. sectors of the economy (private and foreign) must be in deficit. If both the Gov. and the foreign sectors are in surplus, then the private sector is doubly in deficit. This is why the US can't pay down its national debt, because it always has a trade deficit (so the foreigners are in surplus) and adding a Gov. surplus just sucks income out of the private sector forcing it to draw down its savings or borrow from banks. And, too much borrowing from banks will also cause a recession.
. . f] A huge problem with the US economy is that some corps have been allowed to grow so big that they have monopoly pricing power. This means that any theory that is assuming that the economy has a lot of competition is going to give stupid policy recommendations, because one of the key premises is false, so the resulting conclusion is invalid.
. . g] If neo-liberal economic theory and neo-Keynesian theory are proven from a set of Premises, using the rules of formal deductive logic, then all the premises must be true for the proof to be valid. If even one premise is false, then every part of the theory that depends on that premise is invalid. I assert that invalid proofs of conclusions always make the conclusions without value in the real world, that is they are useless.
. . h] One false premise is that the earth is functionally of infinite size, that we will never run out of any critical resource, that we can always find a substitute if we run out of something. There are many others. Do you want a list?
.

[wat0n]

1] I put 'punishment' in quotes, to signify that it may not be the right word.
AFAIK, your theory says that if the US Gov. has large deficits long enough then the punishment for that is high inflation someday. Pay now or pay later. Or is it, suffer now or suffer later.

The additional inflation is not 2.8 percentage points. The target is 2%, so the additional infltion is just 0.8 percentage points. 2.8-2=0.8.

You are forgetting supply factors have an impact on inflation even in normal times. Here's the breakdown from the SF Fed's website:



https://www.frbsf.org/economic-research ... inflation/

Therefore, you shouldn't assume that 2 percentage points of that 2.8% are part of "normal" or "target" inflation. The figure is lower.

2] The theory is that all the deficits have accumulated and someday that causes an outbreak of infltion. Frankly, you seem to be saying that the well over $10T in accumulated deficits and therefore additions to the national debt of well over $10T don't matter at all in causing the over 8% inflation at the top of the curve. That only the $5.5T is claimed to have caused the high inflation, along with the shortages from covid, the lockdowns, OPEC+ increasing the oil price, war in Ukraine, and additional corp profits that resulted from price gouging because they have monopoly pricing power.

Lurkers, please note, the theory is that all the deficits have accumulated and someday that causes an outbreak of infltion. Yet, nobody that I saw blamed any of the infltion we had from 2021 to 2023 on the over $10T added to the national debt from 2008 to 2020.

No, I would not say so. Deficits from 1790 don't affect today's inflation.

Only recent deficits matter, according to this IMF paper, on average, deficits have effects on inflation for 3 or so years:

https://www.imf.org/-/media/Files/Publi ... t-pdf.ashx

3] There you go exaggerating what MMTers and I have said. Did we really say that they had nothing to do with the inflation? Or, did I say that the pain from infltion was much smaller than the benefits from the years of deficits and then the support given to the economy when the economy was partially shutdown, so incomes disappeared.

Which deficits exactly? Deficits during lockdowns were justified, deficits when the economy is growing just fine are not.

4] How does keeping additional reserves and not making loans help a zombie bank if the Gov. pulls the rug out from under it? Never mind. I don't know enough about the subject to debate it.

They make it less likely the bank will fail to pay depositors who want their money back.

5] AFAIK. the Fed just creates the dollars it buys the bonds with.
Then AFAIK, those new dollars become additional deposits in banks, and so they add to the M1 money supply. This increases the M1, it does not reduce the M1.

That's correct. Now, what happens when the Fed sells bonds? How is the Fed being paid?

6] OK, the BoJ can't stimulate the economy by reducing interest rates, because they are very close to zero. So, now it is up to the Gov. to stimulate the economy. If it tried and failed. Then it didn't try hard enough. If should not give the same money to everyone, because the Japanese elderly like to save so they will save it. Instead give 100K yen to women who have child. Or something like that. Do research to find out who will spend it and not save it. Or, cut taxes on young people. Etc.

It seems they tried all that. That's why Japan is such an interesting case - why did it just stop growing despite all the stimulus?

2 options, that are not mutually exclusive:

1) Population ageing, maybe older people aren't too sensitive to those stimulus anyway.

2) Zombie banks and firms, they were able to indirectly get some stimulus yet their basic unprofitability means their investments will constantly underperform and therefore lending to them is kind of pointless. The problem though is that pulling the plug would mean mass layoffs and therefore less economic growth and employment at the beginning. This would also account for why did public infrastructure investments didn't quite work, those projects weren't too profitable or necessary to begin with (e.g. large international airports for small villages).

7] OK, you need a list of insights that MMT has given me, in no order.
. . a] Deficits and the national debt don't matter in a financial sense. They can matter in how they impact the use of labor and real resources.

I disagree. They do matter if that means interest rates on such debt will go up.

This may not be the case for the US but it definitely matters for many smaller economies even if they have fiat currencies.

. . b] The NAIRU = Non-accelerating inflation rate of unemployment is meaningless nonsense. It can't be calculated from any number from data. It is just opinions. It just lets central banks claim they are still fulfilling their mandate to cause "full employment" while they are raising interest rates to increase unemployment.

I don't think the NAIRU is meaningless but I agree it's hard to estimate and use in practice. It is useful conceptually, but not much more than that.

. . c] The Phillip curve is BS.

Same as for the NAIRU, if anything it's even worse as there's a consensus the Phillips Curve can change rapidly. It's better to think of it as a very short term correlation than a structural curve.

. . d] Poor nations should not be forced to borrow what they can never repay. So, for example, in about 2010 the triumvirate should not have forced Greece to borrow 68B euros that were used to bail out the German and other European banks, when everyone could see that Greece can never pay the interest let alone the 68B euros.
. . Some other way should be found so poor nations don't borrow.

2 things:

1) Greece isn't poor, it's a bona-fide first world country.

2) Nobody forced Greece to borrow, it could have refused to and just defaulted. The problem is that, like in Japan, a default would have led to mass layoffs and an even worse recession, with little prospect of recovery in the medium term as defaulting hurts your reputation among lenders.

Would you, after all, lend money to someone with a history of not paying back?

. . e] When the Gov. is running a surplus, by definition, the non-gov. sectors of the economy (private and foreign) must be in deficit. If both the Gov. and the foreign sectors are in surplus, then the private sector is doubly in deficit. This is why the US can't pay down its national debt, because it always has a trade deficit (so the foreigners are in surplus) and adding a Gov. surplus just sucks income out of the private sector forcing it to draw down its savings or borrow from banks. And, too much borrowing from banks will also cause a recession.

These are not MMT insights. They come from national accounts identities.

What you're describing is true by definition. The real insight is learning, for example, why does the US have constant trade deficits?

. . f] A huge problem with the US economy is that some corps have been allowed to grow so big that they have monopoly pricing power. This means that any theory that is assuming that the economy has a lot of competition is going to give stupid policy recommendations, because one of the key premises is false, so the resulting conclusion is invalid.

This is something that is being hotly debated. It is indeed true that markups - the ratio between price and marginal cost - have been going up, which suggests firms have more market power than in the past. It is not entirely clear what implications does this have or why are markups increasing to begin with.

It does seem much of the increase is due to reallocation of sales from low markup firms to higher markup firms, but it is still unclear what consequences does it have.

https://www.janeeckhout.com/wp-content/uploads/RMP.pdf

. . g] If neo-liberal economic theory and neo-Keynesian theory are proven from a set of Premises, using the rules of formal deductive logic, then all the premises must be true for the proof to be valid. If even one premise is false, then every part of the theory that depends on that premise is invalid. I assert that invalid proofs of conclusions always make the conclusions without value in the real world, that is they are useless.

Not true. You can conclude true things from false premises - this is an insight from propositional logic.

What you cannot, or should not, do is conclude false things from true premises if your thinking is correct.

I do agree that theories must be tested against the data. But thus far, I have trouble seeing how is MMT supported by any data at all, particularly if you stop looking at the US.

. . h] One false premise is that the earth is functionally of infinite size, that we will never run out of any critical resource, that we can always find a substitute if we run out of something. There are many others. Do you want a list?
.

I would not say this is a premise in any economic theory.

[Steve_American]

1] You are forgetting supply factors have an impact on inflation even in normal times. Here's the breakdown from the SF Fed's website:



https://www.frbsf.org/economic-research ... inflation/

Therefore, you shouldn't assume that 2 percentage points of that 2.8% are part of "normal" or "target" inflation. The figure is lower.


2] No, I would not say so. Deficits from 1790 don't affect today's inflation.

Only recent deficits matter, according to this IMF paper, on average, deficits have effects on inflation for 3 or so years:

https://www.imf.org/-/media/Files/Publi ... t-pdf.ashx


3] Which deficits exactly? Deficits during lockdowns were justified, deficits when the economy is growing just fine are not.


4] They make it less likely the bank will fail to pay depositors who want their money back.



5] That's correct. Now, what happens when the Fed sells bonds? How is the Fed being paid?



6] It seems they tried all that. That's why Japan is such an interesting case - why did it just stop growing despite all the stimulus?

2 options, that are not mutually exclusive:

1) Population ageing, maybe older people aren't too sensitive to those stimulus anyway.

2) Zombie banks and firms, they were able to indirectly get some stimulus yet their basic unprofitability means their investments will constantly underperform and therefore lending to them is kind of pointless. The problem though is that pulling the plug would mean mass layoffs and therefore less economic growth and employment at the beginning. This would also account for why did public infrastructure investments didn't quite work, those projects weren't too profitable or necessary to begin with (e.g. large international airports for small villages).


7a] I disagree. They do matter if that means interest rates on such debt will go up.

This may not be the case for the US but it definitely matters for many smaller economies even if they have fiat currencies.


7b] I don't think the NAIRU is meaningless but I agree it's hard to estimate and use in practice. It is useful conceptually, but not much more than that.


7c] Same as for the NAIRU, if anything it's even worse as there's a consensus the Phillips Curve can change rapidly. It's better to think of it as a very short term correlation than a structural curve.


7d] 2 things: [I made it 3]

1) Greece isn't poor, it's a bona-fide first world country.

2) Nobody forced Greece to borrow, it could have refused to and just defaulted. The problem is that, like in Japan, a default would have led to mass layoffs and an even worse recession, with little prospect of recovery in the medium term as defaulting hurts your reputation among lenders.

3] Would you, after all, lend money to someone with a history of not paying back?


7e] These are not MMT insights. They come from national accounts identities.

What you're describing is true by definition. The real insight is learning, for example, why does the US have constant trade deficits?


7f] This is something that is being hotly debated. It is indeed true that markups - the ratio between price and marginal cost - have been going up, which suggests firms have more market power than in the past. It is not entirely clear what implications does this have or why are markups increasing to begin with.

It does seem much of the increase is due to reallocation of sales from low markup firms to higher markup firms, but it is still unclear what consequences does it have.

https://www.janeeckhout.com/wp-content/uploads/RMP.pdf


7g] Not true. You can conclude true things from false premises - this is an insight from propositional logic.

What you cannot, or should not, do is conclude false things from true premises if your thinking is correct.

I do agree that theories must be tested against the data. But thus far, I have trouble seeing how is MMT supported by any data at all, particularly if you stop looking at the US.


7h] I would not say this is a premise in any economic theory.

1] I'll agree that it ought to be a little lower. However, I find it very strange that 2/3 to 4/5 of the time, the amounts of inflation caused by shortages and demand are close to equal. I can think of no reason why the amount caused by shortages and the amount by demand should be linked like that. IMHO, they ought to be independent. Therefore, I wonder if the method being used to create that graph is deeply flawed. Of course, I also doubt every study done by MS econonists, because IMHO their theory is just BS.

2] Well, IMHO, the theory can be restated as "Beginning after the economy has been reset by a period of inflation or a recession, ongoing large deficits and so increasing national debt will someday cause a period of high inflation. Suffer now or suffer later."
. . So, now you point out that the IMF says that the economy is reset every 2 or 3 years, not at the last period of inflation or recession.
. . So, the difference between MMTer's theory and the IMF's theory is that MMTers say none of the deficits matter in a simple financial calculation and the IMF says only the last 2 or 3 matter in their financial calculation. MMTers say that it isn't the financials that matter, instead it is the labor and real resources that are being put into a state of shortage by the Gov. deficit spending.
OTOH, MS Econ. theories ignore the resources and/or labor that are in a state of shortage as they just look at the money flows.
. . OK, now why did the commentators I saw just focus on the last covid stimulus checks sent out by Biden, and less on the stimulus checks by Trump, and not at all on the larger deficits under Trump caused by his tax cuts for the rich and the corps they own? They seem to have given Trump's tax cut deficits a total pass. I notice that you have condemned them, which is good.

3] The "they" there referred to all the deficits since the last recession. You have said that this should not include the deficits during or maybe right after the recession to get the economy out of the recession. So, in the recent case it would be the deficits from 2011 until 2019.

4] I quit discussing this for lack of info on zombie banks.

5] When the Fed sells some of the few bonds it holds, obviously, that increases the M1.
. . How often does the Fed sell enough bonds to make a dent in the M1? Compared to the total outstanding bonds the Fed's holding is tiny and the amount it sells is much smaller than tiny.
. . Given my replies, it would help the lurkers if you went back to where you asserted that the M1 mattered in some way and explain your point clearly. I have forgotten your point.

6] You must know that I'm not going to grant that there are just 2 options. Maybe the entire theory of how or why deficits and a large national debt cause inflation or high interest rates is totally wrong. That has been my assertion all along.

7a] You assert, "They do matter if that means interest rates on such debt will go up."
. . You are correct. But, I assert that MMT says that the central bank can choose to keep interest rates (on new bonds being sold) low, and the Fed itself sets discount rate, and there is nothing the bond buyers can do about it. The Gov. can always find buyers if the central bank buys them right away on the secondary market at a slight profit for the buyer/seller. It is free no risk money for those buyer/sellers.

7b] So you think the NAIRU is not meaningless, it is just useless in practice. OK, fine I accept I used the wrong word for you. Maybe the lurkers don't see much difference.

7c] The above also goes for the Phillips Curve. It is useless in practice to predict the future or to guide policy makers in your opinion, IF I can infer your opinion from what you said.

7d] You say 2 things. I made it 3.
. . 1] Yes, Greece is a poor nation because it lives off borrowed money, that it can never pay back. It borrows in euros and dollars, both of which are foreign currencies that it doesn't issue. The US is different because it only borrows dollars that it can issue and the amount it borrows from foreigners is tiny compared to the economy.
. . 2] You don't know the history in detail. According to the Finance Minister of Greece at the time, he had a plan to leave the EZ and get its own currency back. The ECB threatened to freeze its assets (or some such thing) so it could not access money from any ATM IIRC, and the Gov. caved in and took the loan. That loan can never be paid back without the Greek Gov. seizing real assets of its people and selling them to foreigners to get the euros to pay the loan. This would throw the Greek people out of their homes or give all Greek factories and tourist hotels, etc to foreigners. The Greek people would be totally ef'ed.
. . 3] Well, this is at the heart of the problem with the EU and the EZ. MMTers asserted in 1999 that the structure of the EU is deeply flawed, and that the whole idea of the EZ is worse.
. . All founding MMTers agreed in 1999 that the EU and EZ would do OK until the 1st crisis. Then the problems would come to the forefront. One problem with the EZ is that its members are like US states. They use the euro, so there is a risk that they will have to default on their debts. In the EU the same applies but indirectly. The Treaty that is the "Constitution" of the EU says that no nation can have a ratio of debt/GDP over 60%. When they reach this level, they must balance their budget. This has 2 problems; a] in a recession their GDP will fall, so even if they borrow no more, their ratio will increase and go over 60%. And, b] If they have a trade deficit or current account deficit, then euros are being sucked out of the nation every year. This is unsustainable. It will cause a recession someday. The Treaty does not allow any Gov. to take any step to end the trade deficit. They are helpless to do anything to stop the flow of euros out of the nation.
. . In the US, the US Gov. spends more in red states than it taxes out to increase the dollars in those states because they lose dollars to the blue states as they buy and sell stuff between the states. The EU does NOT do this.

OK, given those insights, in the early 2000s, German and French, etc. bankers didn't see these insights. They thought that Greece and other EU nations had no risk of default. So, they saw a lot of old Greek bonds in the secondary market that were paying 25% interest. They bought tens of billions of euros worth of them. Then came the GFC/2008 and now they knew that Greece would be forced to default on them. So, the bankers got the EU and ECB to make that loan to Greece to repay those bonds. Greece was forced to take it, at least its Gov. thought it had no other choice.

7e] You say, "The real insight is learning, for example, why does the US have constant trade deficits?"
. . OK why does the US always have a trade deficit?
IMHO, it is like this. After WWII the world was a mess, except the US. The US promised to buy the exports of all nations so they could have a trade surplus while they recovered.
. . After, the world got back on its feet. There was a new problem. It is that in international trade there can be no total deficit or surplus. In every year the account must be exactly balanced. Some nations can be in deficit and others in surplus, but the total of all deficits and surpluses must be zero. To solve this problem, the US continued to have a large trade deficit so other nations, mostly the developing nations, could have a surplus. The US did not take steps to end its trade deficit for the good of the system.
. . So, foreign nations accumulated dollars. In about 1970 De Gaul decided to cash in France's dollars for gold under the terms of the treaty system. Nixon was forced to break the treaty system and stop giving gold for dollars. This is when and why the gold standard ended.
. . The US economy was used to the trade deficit and as long as foreigner were and are willing to accept bonds for the excess stuff being imported there is no problem. The US can always pay the interest and redeem the bonds, because it issues the dollar. Yes, there can be inflation. And, yes, the foreigners can buy land, etc. in the US, which can be a problem.
. . Then, in the 1990s the Gov. decided that it could/should subsidize the moving of American factories to Mexico and China, etc. This has been called the stupidest thing any nation has ever done in all of time, and I agree. This increased the US trade deficit.

7f] It may be hotly debated in MS Econ. circles, but IMHO, the conclusion was reached back around 1900 that monopolies and trusts are a terrible thing, that must be broken up. And, IMHO, nothing has changed since then. In fact, AFAIK. MS Econ. still assumes that the US economy has an ideal or perfect market, which includes an assumption that there are thousands of sellers and buyers of each thing in the economy, so no monopolies.
. . The entire debate you point to is stupid, we already decided this over 120 years ago.

7g] I have never heard of propositional logic. I googled it, and found nothing useful to decide if it is true or not. Therefore, I'm sticking with my assertion the one can't prove conclusions with even one false premise. You may learn something. but to prove it, you need to only use true premises or use scientific inductive logic using a lot of data.
. . My argument is that there is only one way a premise can be true, but there are many ways it can be false. Which one it is that makes it false is important. If you restate the premise to make it true then you can use it to prove something.

7h] Just because the MS Econ. theorists were able to hide the premise from you that the world is infinite and we can always find a substitute for a resource, doesn't mean that it isn't part of the theory.
. . I have seen a few experts on climate change assert that it is assumed by MS Econ. Theories. That it is necessary for them to be able to never worry about what happens someday when we run out of the 1st critical resource that we must have to support over 8 billion people. For example, all life needs phosphorus to grow. No other atom can be substituted in their chemistry. We are rapidly approaching a point at which we can't get enough of it to make the fertilizer we need to sustain 8B people. What happens then? And, this is just one example.
. . Another example is oil. With exponential growth of use, there is a doubling time. For oil it is around 25 years. Also, in exponential growth of use, during the last doubling time before there is none left, you use half of what you started with. So, if there was 2 thousand trillion (KxT) tons of oil in the ground in 1800, then in the last 25 years of exponential growth of use at the sane constant rate, 1 KxT tons will be used. So, after you have used half of what you started with it looks like you have a lot left. but you have just about 25 more years left.

Economists assume that we will never run out of a critical recourse that we can't find a substitute for. We can't drive the oceans' fish stock to extinction by overfishing and/or climate change. We will always be able to at least sustain the then current use of chemical fertilizers. Etc. Etc. Etc.
. . However, if even one runs out billions will die. And, economists have never threatened you with that. The fact that they have never threatened you with that means they assume it can't happen. They threaten you with tax increases to pay off the national debt, but not this.
. 11482 views

[wat0n]

1] I'll agree that it ought to be a little lower. However, I find it very strange that 2/3 to 4/5 of the time, the amounts of inflation caused by shortages and demand are close to equal. I can think of no reason why the amount caused by shortages and the amount by demand should be linked like that. IMHO, they ought to be independent. Therefore, I wonder if the method being used to create that graph is deeply flawed. Of course, I also doubt every study done by MS econonists, because IMHO their theory is just BS.

We'd need to jump into the model they are using. I don't really see why or why not.

2] Well, IMHO, the theory can be restated as "Beginning after the economy has been reset by a period of inflation or a recession, ongoing large deficits and so increasing national debt will someday cause a period of high inflation. Suffer now or suffer later."
. . So, now you point out that the IMF says that the economy is reset every 2 or 3 years, not at the last period of inflation or recession.
. . So, the difference between MMTer's theory and the IMF's theory is that MMTers say none of the deficits matter in a simple financial calculation and the IMF says only the last 2 or 3 matter in their financial calculation. MMTers say that it isn't the financials that matter, instead it is the labor and real resources that are being put into a state of shortage by the Gov. deficit spending.
OTOH, MS Econ. theories ignore the resources and/or labor that are in a state of shortage as they just look at the money flows.
. . OK, now why did the commentators I saw just focus on the last covid stimulus checks sent out by Biden, and less on the stimulus checks by Trump, and not at all on the larger deficits under Trump caused by his tax cuts for the rich and the corps they own? They seem to have given Trump's tax cut deficits a total pass. I notice that you have condemned them, which is good.

Trump's pre-pandemic deficits were bad, the economy didn't need any extra stimulus - there was still some slack in the labor market but there was no real need for the federal government to do anything about it. If you want to cut taxes in an economy that is growing more less normally, fine, but you have to figure out how to keep the deficit in check.

Also, note those effects only refer to inflation.

3] The "they" there referred to all the deficits since the last recession. You have said that this should not include the deficits during or maybe right after the recession to get the economy out of the recession. So, in the recent case it would be the deficits from 2011 until 2019.

I'd narrow it even further. The deficits as percentage of GDP were falling until 2015 or so.

5] When the Fed sells some of the few bonds it holds, obviously, that increases the M1.
. . How often does the Fed sell enough bonds to make a dent in the M1? Compared to the total outstanding bonds the Fed's holding is tiny and the amount it sells is much smaller than tiny.
. . Given my replies, it would help the lurkers if you went back to where you asserted that the M1 mattered in some way and explain your point clearly. I have forgotten your point.

M1 is a measure of money supply.

Fed Treasury holdings are around 1/3 of M1, that's not irrelevant as M1 counts the deposits arising from the money created by private banks:

https://fred.stlouisfed.org/series/TREAST

6] You must know that I'm not going to grant that there are just 2 options. Maybe the entire theory of how or why deficits and a large national debt cause inflation or high interest rates is totally wrong. That has been my assertion all along.

MMT doesn't really explain why there are trade deficits, does it? It takes those as given.

7a] You assert, "They do matter if that means interest rates on such debt will go up."
. . You are correct. But, I assert that MMT says that the central bank can choose to keep interest rates (on new bonds being sold) low, and the Fed itself sets discount rate, and there is nothing the bond buyers can do about it. The Gov. can always find buyers if the central bank buys them right away on the secondary market at a slight profit for the buyer/seller. It is free no risk money for those buyer/sellers.

Only if the Central Bank's monetary policy commitment to low inflation is credible. Do it in many other countries and believe me it won't be able to find buyers.

7b] So you think the NAIRU is not meaningless, it is just useless in practice. OK, fine I accept I used the wrong word for you. Maybe the lurkers don't see much difference.

7c] The above also goes for the Phillips Curve. It is useless in practice to predict the future or to guide policy makers in your opinion, IF I can infer your opinion from what you said.

Yes, both are however useful conceptually.

The uselessness of the Phillips Curve is one of the things that led to the demise of old Keynesianism.

7d] You say 2 things. I made it 3.
. . 1] Yes, Greece is a poor nation because it lives off borrowed money, that it can never pay back. It borrows in euros and dollars, both of which are foreign currencies that it doesn't issue. The US is different because it only borrows dollars that it can issue and the amount it borrows from foreigners is tiny compared to the economy.

So Greece would magically become rich if it went back to issuing the Drachma?

. . 2] You don't know the history in detail. According to the Finance Minister of Greece at the time, he had a plan to leave the EZ and get its own currency back. The ECB threatened to freeze its assets (or some such thing) so it could not access money from any ATM IIRC, and the Gov. caved in and took the loan. That loan can never be paid back without the Greek Gov. seizing real assets of its people and selling them to foreigners to get the euros to pay the loan. This would throw the Greek people out of their homes or give all Greek factories and tourist hotels, etc to foreigners. The Greek people would be totally ef'ed.

Exactly why his threats were not credible.

. . 3] Well, this is at the heart of the problem with the EU and the EZ. MMTers asserted in 1999 that the structure of the EU is deeply flawed, and that the whole idea of the EZ is worse.
. . All founding MMTers agreed in 1999 that the EU and EZ would do OK until the 1st crisis. Then the problems would come to the forefront. One problem with the EZ is that its members are like US states. They use the euro, so there is a risk that they will have to default on their debts. In the EU the same applies but indirectly. The Treaty that is the "Constitution" of the EU says that no nation can have a ratio of debt/GDP over 60%. When they reach this level, they must balance their budget. This has 2 problems; a] in a recession their GDP will fall, so even if they borrow no more, their ratio will increase and go over 60%. And, b] If they have a trade deficit or current account deficit, then euros are being sucked out of the nation every year. This is unsustainable. It will cause a recession someday. The Treaty does not allow any Gov. to take any step to end the trade deficit. They are helpless to do anything to stop the flow of euros out of the nation.
. . In the US, the US Gov. spends more in red states than it taxes out to increase the dollars in those states because they lose dollars to the blue states as they buy and sell stuff between the states. The EU does NOT do this.

OK, given those insights, in the early 2000s, German and French, etc. bankers didn't see these insights. They thought that Greece and other EU nations had no risk of default. So, they saw a lot of old Greek bonds in the secondary market that were paying 25% interest. They bought tens of billions of euros worth of them. Then came the GFC/2008 and now they knew that Greece would be forced to default on them. So, the bankers got the EU and ECB to make that loan to Greece to repay those bonds. Greece was forced to take it, at least its Gov. thought it had no other choice.

Mainstream economists, at least those in the US, also warned about the Euro. In fact, Milton Friedman himself was deeply skeptical about the Euro as early as 1997:

https://www.project-syndicate.org/comme ... l-disunity

7e] You say, "The real insight is learning, for example, why does the US have constant trade deficits?"
. . OK why does the US always have a trade deficit?
IMHO, it is like this. After WWII the world was a mess, except the US. The US promised to buy the exports of all nations so they could have a trade surplus while they recovered.
. . After, the world got back on its feet. There was a new problem. It is that in international trade there can be no total deficit or surplus. In every year the account must be exactly balanced. Some nations can be in deficit and others in surplus, but the total of all deficits and surpluses must be zero. To solve this problem, the US continued to have a large trade deficit so other nations, mostly the developing nations, could have a surplus. The US did not take steps to end its trade deficit for the good of the system.
. . So, foreign nations accumulated dollars. In about 1970 De Gaul decided to cash in France's dollars for gold under the terms of the treaty system. Nixon was forced to break the treaty system and stop giving gold for dollars. This is when and why the gold standard ended.
. . The US economy was used to the trade deficit and as long as foreigner were and are willing to accept bonds for the excess stuff being imported there is no problem. The US can always pay the interest and redeem the bonds, because it issues the dollar. Yes, there can be inflation. And, yes, the foreigners can buy land, etc. in the US, which can be a problem.
. . Then, in the 1990s the Gov. decided that it could/should subsidize the moving of American factories to Mexico and China, etc. This has been called the stupidest thing any nation has ever done in all of time, and I agree. This increased the US trade deficit.

The US government didn't subsidize off-shoring, that was a decision made by businesses.

Are these ideas things you can conclude from MMT?

7f] It may be hotly debated in MS Econ. circles, but IMHO, the conclusion was reached back around 1900 that monopolies and trusts are a terrible thing, that must be broken up. And, IMHO, nothing has changed since then. In fact, AFAIK. MS Econ. still assumes that the US economy has an ideal or perfect market, which includes an assumption that there are thousands of sellers and buyers of each thing in the economy, so no monopolies.
. . The entire debate you point to is stupid, we already decided this over 120 years ago.

These are not monopolies though. Most cases correspond to monopolistic competition.

https://www.investopedia.com/terms/m/mo ... market.asp

There are also cases where having a single producer is the most efficient option (e.g. when there are large economies of scale). In those, those industries are either heavily regulated or nationalized (in the last decades the former has been found to be a better option in practice as some governments would use the nationalized businesses as employment agencies).

7g] I have never heard of propositional logic. I googled it, and found nothing useful to decide if it is true or not. Therefore, I'm sticking with my assertion the one can't prove conclusions with even one false premise. You may learn something. but to prove it, you need to only use true premises or use scientific inductive logic using a lot of data.
. . My argument is that there is only one way a premise can be true, but there are many ways it can be false. Which one it is that makes it false is important. If you restate the premise to make it true then you can use it to prove something.

https://en.wikipedia.org/wiki/Propositional_calculus

The issue with premises isn't in proving, if you are thinking logically you'll get to the proof eventually. The issue is that, if your premise is false, you can conclude statements that can both be found to be true and false in the real world and it would be logically correct.

By their nature, premises are not expected to be proven to be true (although it's a great thing if that can be proven). You can perfectly start building a theory from premises that cannot be easily proven using real world data. For instance, saying corporations aim to maximize profits is actually an assumption/premise that could or could not be true yet the conclusions from assuming so can be true regardless (in some cases, the conclusions can hold even if firms don't try to maximize profits but e.g. want to minimize costs instead).

That's when the science part needs to kick in and models/theories need to be contrasted to real world data. This is also why models are not usually taken to be the truth as they are necessarily simplifications of reality that we use to get to some insights, and therefore will always miss some aspects of it.

7h] Just because the MS Econ. theorists were able to hide the premise from you that the world is infinite and we can always find a substitute for a resource, doesn't mean that it isn't part of the theory.
. . I have seen a few experts on climate change assert that it is assumed by MS Econ. Theories. That it is necessary for them to be able to never worry about what happens someday when we run out of the 1st critical resource that we must have to support over 8 billion people. For example, all life needs phosphorus to grow. No other atom can be substituted in their chemistry. We are rapidly approaching a point at which we can't get enough of it to make the fertilizer we need to sustain 8B people. What happens then? And, this is just one example.
. . Another example is oil. With exponential growth of use, there is a doubling time. For oil it is around 25 years. Also, in exponential growth of use, during the last doubling time before there is none left, you use half of what you started with. So, if there was 2 thousand trillion (KxT) tons of oil in the ground in 1800, then in the last 25 years of exponential growth of use at the sane constant rate, 1 KxT tons will be used. So, after you have used half of what you started with it looks like you have a lot left. but you have just about 25 more years left.

Economists assume that we will never run out of a critical recourse that we can't find a substitute for. We can't drive the oceans' fish stock to extinction by overfishing and/or climate change. We will always be able to at least sustain the then current use of chemical fertilizers. Etc. Etc. Etc.
. . However, if even one runs out billions will die. And, economists have never threatened you with that. The fact that they have never threatened you with that means they assume it can't happen. They threaten you with tax increases to pay off the national debt, but not this.
. 11482 views

It's not hard to add those assumptions of e.g. a limited resource if you want. It's not that big of a deal for the theories at least.

And note it's an assumption that natural resources are finite. We don't know if that will be actually the case if e.g. we become more efficient than we are through scientific innovation or start traveling to other planets to get what we need. There are already projects to mine asteroids so the latter may as well happen a few centuries from now.

[Steve_American]

We'd need to jump into the model they are using. I don't really see why or why not.


1] Trump's pre-pandemic deficits were bad, the economy didn't need any extra stimulus - there was still some slack in the labor market but there was no real need for the federal government to do anything about it. If you want to cut taxes in an economy that is growing more less normally, fine, but you have to figure out how to keep the deficit in check.

Also, note those effects only refer to inflation.


2] I'd narrow it even further. The deficits as percentage of GDP were falling until 2015 or so.


3] M1 is a measure of money supply.

Fed Treasury holdings are around 1/3 of M1, that's not irrelevant as M1 counts the deposits arising from the money created by private banks:

https://fred.stlouisfed.org/series/TREAST


4] MMT doesn't really explain why there are trade deficits, does it? It takes those as given.


5] Only if the Central Bank's monetary policy commitment to low inflation is credible. Do it in many other countries and believe me it won't be able to find buyers.


6] Yes [the Phillips Curve and NAIRU are useless to guild policy], both are however useful conceptually.

The uselessness of the Phillips Curve is one of the things that led to the demise of old Keynesianism.


7] So Greece would magically become rich if it went back to issuing the Drachma?


8] Exactly why his threats were not credible.


9] Mainstream economists, at least those in the US, also warned about the Euro. In fact, Milton Friedman himself was deeply skeptical about the Euro as early as 1997:

https://www.project-syndicate.org/comme ... l-disunity


10] The US government didn't subsidize off-shoring, that was a decision made by businesses.

11] Are these ideas things you can conclude from MMT?


12a] These are not monopolies though. Most cases correspond to monopolistic competition.

https://www.investopedia.com/terms/m/mo ... market.asp

12b] There are also cases where having a single producer is the most efficient option (e.g. when there are large economies of scale). In those, those industries are either heavily regulated or nationalized (in the last decades the former has been found to be a better option in practice as some governments would use the nationalized businesses as employment agencies).


13] https://en.wikipedia.org/wiki/Propositional_calculus

The issue with premises isn't in proving, if you are thinking logically you'll get to the proof eventually. The issue is that, if your premise is false, you can conclude statements that can both be found to be true and false in the real world and it would be logically correct.
14] By their nature, premises are not expected to be proven to be true (although it's a great thing if that can be proven). You can perfectly start building a theory from premises that cannot be easily proven using real world data. For instance, saying corporations aim to maximize profits is actually an assumption/premise that could or could not be true yet the conclusions from assuming so can be true regardless (in some cases, the conclusions can hold even if firms don't try to maximize profits but e.g. want to minimize costs instead).

15] That's when the science part needs to kick in and models/theories need to be contrasted to real world data. This is also why models are not usually taken to be the truth as they are necessarily simplifications of reality that we use to get to some insights, and therefore will always miss some aspects of it.


16] It's not hard to add those assumptions of e.g. a limited resource if you want. It's not that big of a deal for the theories at least.

And note it's an assumption that natural resources are finite. We don't know if that will be actually the case if e.g. we become more efficient than we are through scientific innovation or start traveling to other planets to get what we need. There are already projects to mine asteroids so the latter may as well happen a few centuries from now.

This reply is an example of why threads die. The number of points that need to be addressed keeps growing until one party loses interest and stops replying.

1] I wrote, and you ignored in your reply the meat of my reply:
"So, the difference between MMTer's theory and the IMF's theory is that MMTers say none of the deficits matter in a simple financial calculation and the IMF says only the last 2 or 3 matter in their financial calculation. MMTers say that it isn't the financials that matter, instead it is the labor and real resources that are being put into a state of shortage by the Gov. deficit spending.
OTOH, MS Econ. theories ignore the resources and/or labor that are in a state of shortage as they just look at the money flows."

Again, MMT;s insight is that the financial calculation misses the actual causes of the inflation. These are always the shortage of labor or of real resources that the nation can easily make use of (by importing them if necessary). MS Econ. thinks it can just look at the financial numbers, not at the reality.
. . . This settled policy by MS economists to ignore reality is one of my biggest gripes with the MS theories. You seem to agree that the real world data is very important.

2] The debt to GDP ratio is not important. Here you're falling for the MS Econ. BS. You just agreed that only some recent deficits matter. That all the older deficits have already been parked as savings, or otherwise disappeared into the economy and don't matter anymore. The national debt, and so the debt/GDP ratio includes all the older deficits that you said don't matter, so you should also ignore them when they are included in the debt.
. . You are just looking at the financials. The MMT insight is that one should look at the real world situation. A list of what to look at includes => available unused labor, available unused real resources, the trade deficit/surplus, the saving rate, etc.

3] I wrote, and you didn't reply to this.
"...it would help the lurkers if you went back to where you asserted that the M1 mattered in some way and explain your point clearly."
. . Please explain why you brought the M1 number into this discussion.

4a] I wrote: "You must know that I'm not going to grant that there are just 2 options. Maybe the entire theory of how or why deficits and a large national debt cause inflation or high interest rates is totally wrong. That has been my assertion all along."
And you replied: "MMT doesn't really explain why there are trade deficits, does it? It takes those as given."

Your reply is very strange. I wish you had replied to what I asserted. Please try again.

4b] OK, you're right MMT doesn't explain trade deficits. ADAIK, no Econ. theory tries to do that.

5] Here you assert that some nations are not credible when they try to keep interest rates low. You didn't specify anything about those nations. So, of course, you're correct. So, what? Which nations is the entire point. Most or almost all of those nations have already borrowed in dollars or euros. So, MMT's insight for them is they are ef'ed. MMT can't help them.
. . Or, maybe those nations need their debts forgiven with private banks, etc. being bailed out by the Fed or ECB. Or the nations can default.
. . The US Constitution requires a bankruptcy law because the Founders knew some debts are as much the fault of the lender as the borrower, so bankruptcy is the remedy.

6] If the Phillips Curve and NAIRU are useless, explain now they are useful conceptually.

If you agree that they are both useless, then you must agree with MMTers and me that the Fed's current high interest (discount rate) policy is totally without any basis. By law the Fed must target "full employment" and low inflation. If both concepts are useless then the Fed can target full employment. MMTers assert that wages are not driving inflation currently. And, so what does that mean?
. . If the Fed must choose one or the other, then an MMT insight is that higher interest rates are a cost for many businesses and will cause them to increase prices, which is a driver of inflation. So, the Fed can't lower inflation by increasing the discount rate. Therefore, the Fed should do what it can do and target full employment.

[Actually, the Fed can lower inflation by causing a deep enough recession/depression. MMters assert that this will cause massive pain for some, compared to the pain caused to all by inflation. The Gov. or Fed can help those hurt by inflation. I can see that this might increase the inflation. The rich are hurt more by inflation, but the rich are causing the inflation with their excess profits that are because of the high prices that the corps owned by the rich are setting as a choice. If the rich don't want inflation, then they can choose to accept less profits.]

7] No, Greece already has debt in euros [way over 87B euros worth]. It has high unemployment. Its youth are leaving to find jobs somewhere else. It's a huge mess because it joined the EU & EZ.

8] Whose threats? I assert again that Greece was forced to take that loan.

9] I explained why Greece was forced to take that loan, and this is your reply. This is non-responsive.

10] I remember clearly, at the time, assertions that the Gov. was doing more than just letting the corps include the costs of moving overseas as a normal business. Note, I said more than that.

11] No, those facts are not insights from using MMT. They are the history as I learned it over the years of my life. One needs to know them to answer your question you seemed to ask me. Which was, "Why does the US always have a trade deficit?" You asked, and I tried to answer. You ignored my answer, not even a thank you, or an assertion I'm wrong.
. . This was not nice.

12] So, what? Corps in a concentrated (the word escapes me, is it market) market, still have monopoly pricing power when the market is dominated by less than 6 players (= 4 or 5).

12b] Yes, this is why utilities are regulated or owned by the gov. Like potable water and sewage systems.

13] The part I highlighted above shows that you can't prove anything using one false premise. You said it yourself there.

So, we agree. All the rest doesn't matter if you stand with your statement I highlighted.

14] Yes, premises can also be conclusions, that have already been proved.

15] Do you realize how much you diverge here from MS Econ. theories? AFAIK, MS Econ. mostly ignores reality. I posted a thread here years ago about 2 studies, years apart, of the opinions of econ. graduate students. They both showed that a big majority said that historical econ. data didn't matter much to their studies.
. . Imagine what it would mean if chemistry or biology or engineering grad. students said that.
. . Economics claims to be a science, but its grad. students have been taught to discount historical data about reality. This should make it a non-science. It actually behaves more like a religion behaves.

16] Right now, THE PROBLEM is ACC.
As you-all know, I tend toward the view that we need to act now in a really massive way to avoid tipping certain looming tipping points, like Methane in the Arctic.

The assumption that the world is functionally infinite is THE reason businessmen led us this deep into this mess.

I don't care a wit about what might be possible in 100 or 200 years. I do not even care about what may be possible in 10 years. After 10 more years of doing almost nothing, it will be too late to avoid a +5 deg. C world by 2099. The tipping points are that powerful. They must not be tipped. Also, carbon capture from the air around us is not possible at scale. There is no place to put it and it would take more energy than we will ever have to use for that, instead of something else like staying alive.
. . Note that. I'm using an insight from MMT that more money is useless if there is not enough energy available to do it. The amount of energy needed is more than the amount we used when we burned all the coal and oil over the last 170 years. This is from the theory of thermodynamics; that it takes as much or more energy to undo a chemical reaction.
. 11616 views

[wat0n]

This reply is an example of why threads die. The number of points that need to be addressed keeps growing until one party loses interest and stops replying.

I agree, I'll try to keep my responses as brief as possible.

1] I wrote, and you ignored in your reply the meat of my reply:
"So, the difference between MMTer's theory and the IMF's theory is that MMTers say none of the deficits matter in a simple financial calculation and the IMF says only the last 2 or 3 matter in their financial calculation. MMTers say that it isn't the financials that matter, instead it is the labor and real resources that are being put into a state of shortage by the Gov. deficit spending.
OTOH, MS Econ. theories ignore the resources and/or labor that are in a state of shortage as they just look at the money flows."

Again, MMT;s insight is that the financial calculation misses the actual causes of the inflation. These are always the shortage of labor or of real resources that the nation can easily make use of (by importing them if necessary). MS Econ. thinks it can just look at the financial numbers, not at the reality.
. . . This settled policy by MS economists to ignore reality is one of my biggest gripes with the MS theories. You seem to agree that the real world data is very important.

Mainstream theories do not ignore the shortages of labor and other aspects of the real economy. Indeed, the very concept of the Phillips Curve deals quite literally with labor markets.

Likewise, concepts of supply-side inflation are clearly focused on the real economy.

Yet the monetary aspects cannot be ignored. What events in the real economy can justify hyperinflations like that in Germany in the 1920s? Are you sure real economy developments can explain on their own why is it that Chilean average inflation in 1930-2000 was around 35% a year?

2] The debt to GDP ratio is not important. Here you're falling for the MS Econ. BS. You just agreed that only some recent deficits matter. That all the older deficits have already been parked as savings, or otherwise disappeared into the economy and don't matter anymore. The national debt, and so the debt/GDP ratio includes all the older deficits that you said don't matter, so you should also ignore them when they are included in the debt.
. . You are just looking at the financials. The MMT insight is that one should look at the real world situation. A list of what to look at includes => available unused labor, available unused real resources, the trade deficit/surplus, the saving rate, etc.

Of course that ratio matters. It isn't the only thing that does, the real problems begin when there's a high debt/GDP ratio along with high interest rates as that's when servicing debt can become an issue, but it definitely is a concern to take into account.

3] I wrote, and you didn't reply to this.
"...it would help the lurkers if you went back to where you asserted that the M1 mattered in some way and explain your point clearly."
. . Please explain why you brought the M1 number into this discussion.

It's a measure of money supply. Simply put, M1 = bills/coins (currency) in circulation + deposits.

Open market operations affect interest rates by affecting money supply. Since the Fed has a monopoly in practice - keeping in mind banks will only rarely keep more reserves than the legally required minimum - that in turn allows it to strongly influence interest rates.

4a] I wrote: "You must know that I'm not going to grant that there are just 2 options. Maybe the entire theory of how or why deficits and a large national debt cause inflation or high interest rates is totally wrong. That has been my assertion all along."
And you replied: "MMT doesn't really explain why there are trade deficits, does it? It takes those as given."

Your reply is very strange. I wish you had replied to what I asserted. Please try again.

Is your theory derived from MMT?

4b] OK, you're right MMT doesn't explain trade deficits. ADAIK, no Econ. theory tries to do that.

There's a whole field of international trade that allows to explain deficits from a microeconomic point of view and a field within macroeconomics that attempts to explain deficits from macroeconomic phenomena. Exchange rates play a key role here.

5] Here you assert that some nations are not credible when they try to keep interest rates low. You didn't specify anything about those nations. So, of course, you're correct. So, what? Which nations is the entire point. Most or almost all of those nations have already borrowed in dollars or euros. So, MMT's insight for them is they are ef'ed. MMT can't help them.
. . Or, maybe those nations need their debts forgiven with private banks, etc. being bailed out by the Fed or ECB. Or the nations can default.
. . The US Constitution requires a bankruptcy law because the Founders knew some debts are as much the fault of the lender as the borrower, so bankruptcy is the remedy.

You don't think it's relevant that MMT is not applicable for most nations? Emerging economies, developing economies and even some developed economies (rich countries) can't find much use from MMT.

Such commitments to keeping inflation low are not credible because they often fail. Indeed, too often.

6] If the Phillips Curve and NAIRU are useless, explain now they are useful conceptually.

They illustrate that labor markets do influence inflation, exactly the type of real economy you were asking for. What's a better example of a real economy than wage pressures?

The problem is that, in practice, it's very hard to estimate the Phillips Curve and to learn what level doesn't accelerate inflation (aka "natural unemployment"). Neither is easily observed.

For the Phillips Curve, there is also very strong reasons to suspect it's not a stable relationship either. So, while it may be useful to understand that there may (likely, is) a trade-off between inflation and unemployment, it's hard to figure out just what that trade-off is in practice. Even worse, even if you do, the trade-off isn't stable over time as it depends on monetary policy itself and also on microeconomic/sectorial developments in labor markets, it's not the same in the short and long run and furthermore there is a hard lower bound in the unemployment rate (it can't be negative) which implies the trade-off also depends on the level of unemployment itself, making it even harder to estimate from the data. And of course inflation itself may be affected by things that don't have much to do with wage pressures (which you can think as a shifting of the curve).

All of these things make estimating a Phillips Curve quite pointless in practice. But it's a good intuition, sort of "OK just remember labor markets can affect inflation, and there's probably a trade-off between low unemployment and low inflation at least over the short run", not much more than that.

If you agree that they are both useless, then you must agree with MMTers and me that the Fed's current high interest (discount rate) policy is totally without any basis. By law the Fed must target "full employment" and low inflation. If both concepts are useless then the Fed can target full employment. MMTers assert that wages are not driving inflation currently. And, so what does that mean?
. . If the Fed must choose one or the other, then an MMT insight is that higher interest rates are a cost for many businesses and will cause them to increase prices, which is a driver of inflation. So, the Fed can't lower inflation by increasing the discount rate. Therefore, the Fed should do what it can do and target full employment.

[Actually, the Fed can lower inflation by causing a deep enough recession/depression. MMters assert that this will cause massive pain for some, compared to the pain caused to all by inflation. The Gov. or Fed can help those hurt by inflation. I can see that this might increase the inflation. The rich are hurt more by inflation, but the rich are causing the inflation with their excess profits that are because of the high prices that the corps owned by the rich are setting as a choice. If the rich don't want inflation, then they can choose to accept less profits.]

No, I don't agree with that premise. Hiking interest rates can be justified for other reasons, like keeping inflation in check.

I think one of the issues is that you're assuming hiking rates is somehow irreversibly damaging the labor markets or that they are permanent. Neither is necessarily true (although some models can conclude that, the phenomenon is called "hysteresis"), and we may in fact see some decreases if inflation keeps coming down.

7] No, Greece already has debt in euros [way over 87B euros worth]. It has high unemployment. Its youth are leaving to find jobs somewhere else. It's a huge mess because it joined the EU & EZ.

So? Greeks still enjoy a good infrastructure, a high per capita income, far higher than average material living standards, etc. That's despite all the issues you are mentioning.

8] Whose threats? I assert again that Greece was forced to take that loan.

The Finance Minister's. He wasn't "forced" to, he could have said no and let the economy collapse by repudiating all debts. He didn't, of course, but it was an option, one which some countries do take at a great cost.

10] I remember clearly, at the time, assertions that the Gov. was doing more than just letting the corps include the costs of moving overseas as a normal business. Note, I said more than that.

Such as? If anything, it seems to me that this was the effect of lifting many of the protections they enjoyed by signing FTAs.

11] No, those facts are not insights from using MMT. They are the history as I learned it over the years of my life. One needs to know them to answer your question you seemed to ask me. Which was, "Why does the US always have a trade deficit?" You asked, and I tried to answer. You ignored my answer, not even a thank you, or an assertion I'm wrong.
. . This was not nice.

Well, thanks for the response but as you said it's your own insight. MMT had nothing to do with it, but that's a problem. It's a problem, because as you mentioned trade deficits do matter for explaining some of the things MMT aims to explain. That means there's a quite critical incompleteness that should probably not be there.

12] So, what? Corps in a concentrated (the word escapes me, is it market) market, still have monopoly pricing power when the market is dominated by less than 6 players (= 4 or 5).

"Market" is fine.

Not necessarily. It can be concentrated with more players (for instance, a single one could represent 90% of output/sales so even if you have millions of competitors this guy still calls the shots). Likewise, there could be less players yet still be quite competitive, and be cheaper if there are economies of scale or scope involved.

Monopolistic competition does matter. It is probably one of the most common forms of industrial organization, where businesses try to fill a small niche and get some market power there, particularly in a service economy. Could that explain the rising markups? It's hard to know. We don't know much about what's going on, but the fact that the increase is mainly driven by reallocation of firms, with more profitable basically eating the less profitable ones, is interesting.

12b] Yes, this is why utilities are regulated or owned by the gov. Like potable water and sewage systems.

Correct.

13] The part I highlighted above shows that you can't prove anything using one false premise. You said it yourself there.

So, we agree. All the rest doesn't matter if you stand with your statement I highlighted.

I mean, you can prove it in the sense that you will arrive to a logically valid conclusion. Whether that's true or not is anyone's guess and depends on the case.

A broken clock is right twice a day, remember?

14] Yes, premises can also be conclusions, that have already been proved.

By either using other premises or looking at the data/empirical evidence (a process that, in practice, also involves making assumptions. Statistical models use them all the time).

15] Do you realize how much you diverge here from MS Econ. theories? AFAIK, MS Econ. mostly ignores reality. I posted a thread here years ago about 2 studies, years apart, of the opinions of econ. graduate students. They both showed that a big majority said that historical econ. data didn't matter much to their studies.
. . Imagine what it would mean if chemistry or biology or engineering grad. students said that.
. . Economics claims to be a science, but its grad. students have been taught to discount historical data about reality. This should make it a non-science. It actually behaves more like a religion behaves.

This is just not true, in every half-decent program and even bad ones, students will need to work with data. A good part of any program will consist in taking a lot of statistics and econometrics (basically statistics applied to economics but which is its own discipline at this point, as it has contributed with insights to both economics and statistics).

Nowadays, if anything, the problem is arguably the opposite - there are many economists who work with data but don't care too much about theory. They will instead just use a half-baked explanation or present a result that is hard to generalize or interpret.

This is a neverending fight within the field. To make matters worse, there's also the major issue of the replication crisis affecting science in general (not just economics and not even just social science at this point). Simply put, many empirical work is impossible to replicate and many very well known papers/experiments that spawned subfields in their disciplines don't replicate when redone with larger samples.

16] Right now, THE PROBLEM is ACC.
As you-all know, I tend toward the view that we need to act now in a really massive way to avoid tipping certain looming tipping points, like Methane in the Arctic.

The assumption that the world is functionally infinite is THE reason businessmen led us this deep into this mess.

I don't care a wit about what might be possible in 100 or 200 years. I do not even care about what may be possible in 10 years. After 10 more years of doing almost nothing, it will be too late to avoid a +5 deg. C world by 2099. The tipping points are that powerful. They must not be tipped. Also, carbon capture from the air around us is not possible at scale. There is no place to put it and it would take more energy than we will ever have to use for that, instead of something else like staying alive.
. . Note that. I'm using an insight from MMT that more money is useless if there is not enough energy available to do it. The amount of energy needed is more than the amount we used when we burned all the coal and oil over the last 170 years. This is from the theory of thermodynamics; that it takes as much or more energy to undo a chemical reaction.
. 11616 views

It's hard to know if these dire predictions will ever come to be true. Honestly, it is far from clear what the exact effects of global warming be and, far more importantly, if we can adapt to them.

Note though that you are assuming we won't. This is complicated, as this is a prediction that falls well outside the scope of economics and yet you expect economists to make good models by assuming one of the scenarios.

[Steve_American]

I agree, I'll try to keep my responses as brief as possible.



1] Mainstream theories do not ignore the shortages of labor and other aspects of the real economy. Indeed, the very concept of the Phillips Curve deals quite literally with labor markets.

Likewise, concepts of supply-side inflation are clearly focused on the real economy.

2] Yet the monetary aspects cannot be ignored. What events in the real economy can justify hyperinflations like that in Germany in the 1920s? Are you sure real economy developments can explain on their own why is it that Chilean average inflation in 1930-2000 was around 35% a year?


3] Of course that ratio matters. It isn't the only thing that does, the real problems begin when there's a high debt/GDP ratio along with high interest rates as that's when servicing debt can become an issue, but it definitely is a concern to take into account.


4] It's a measure of money supply. Simply put, M1 = bills/coins (currency) in circulation + deposits.

Open market operations affect interest rates by affecting money supply. Since the Fed has a monopoly in practice - keeping in mind banks will only rarely keep more reserves than the legally required minimum - that in turn allows it to strongly influence interest rates.


5]Is your theory derived from MMT?


6] There's a whole field of international trade that allows to explain deficits from a microeconomic point of view and a field within macroeconomics that attempts to explain deficits from macroeconomic phenomena. Exchange rates play a key role here.


7] You don't think it's relevant that MMT is not applicable for most nations? Emerging economies, developing economies and even some developed economies (rich countries) can't find much use from MMT.

Such commitments to keeping inflation low are not credible because they often fail. Indeed, too often.


8] They illustrate that labor markets do influence inflation, exactly the type of real economy you were asking for. What's a better example of a real economy than wage pressures?

The problem is that, in practice, it's very hard to estimate the Phillips Curve and to learn what level doesn't accelerate inflation (aka "natural unemployment"). Neither is easily observed.

For the Phillips Curve, there is also very strong reasons to suspect it's not a stable relationship either. So, while it may be useful to understand that there may (likely, is) a trade-off between inflation and unemployment, it's hard to figure out just what that trade-off is in practice. Even worse, even if you do, the trade-off isn't stable over time as it depends on monetary policy itself and also on microeconomic/sectorial developments in labor markets, it's not the same in the short and long run and furthermore there is a hard lower bound in the unemployment rate (it can't be negative) which implies the trade-off also depends on the level of unemployment itself, making it even harder to estimate from the data. And of course inflation itself may be affected by things that don't have much to do with wage pressures (which you can think as a shifting of the curve).

8] All of these things make estimating a Phillips Curve quite pointless in practice. But it's a good intuition, sort of "OK just remember labor markets can affect inflation, and there's probably a trade-off between low unemployment and low inflation at least over the short run", not much more than that.


9] No, I don't agree with that premise. Hiking interest rates can be justified for other reasons, like keeping inflation in check.

10] I think one of the issues is that you're assuming hiking rates is somehow irreversibly damaging the labor markets or that they are permanent. Neither is necessarily true (although some models can conclude that, the phenomenon is called "hysteresis"), and we may in fact see some decreases if inflation keeps coming down.


11] So? Greeks still enjoy a good infrastructure, a high per capita income, far higher than average material living standards, etc. That's despite all the issues you are mentioning.


12] The Finance Minister's. He wasn't "forced" to, he could have said no and let the economy collapse by repudiating all debts. He didn't, of course, but it was an option, one which some countries do take at a great cost.


13] Such as? If anything, it seems to me that this was the effect of lifting many of the protections they enjoyed by signing FTAs [free trade agreements].


14] Well, thanks for the response but as you said it's your own insight. MMT had nothing to do with it, but that's [trade deficits??] a problem. It's a problem, because as you mentioned trade deficits do matter for explaining some of the things MMT aims to explain. That means there's a quite critical incompleteness that should probably not be there.


"Market" is fine.

Not necessarily. It can be concentrated with more players (for instance, a single one could represent 90% of output/sales so even if you have millions of competitors this guy still calls the shots). Likewise, there could be less players yet still be quite competitive, and be cheaper if there are economies of scale or scope involved.

15] Monopolistic competition does matter. It is probably one of the most common forms of industrial organization, where businesses try to fill a small niche and get some market power there, particularly in a service economy. Could that explain the rising markups? It's hard to know. We don't know much about what's going on, but the fact that the increase is mainly driven by reallocation of firms, with more profitable basically eating the less profitable ones, is interesting.


Correct.


16] I mean, you can prove it in the sense that you will arrive to a logically valid conclusion. Whether that's true or not is anyone's guess and depends on the case.

17] A broken clock is right twice a day, remember?


By either using other premises or looking at the data/empirical evidence (a process that, in practice, also involves making assumptions. Statistical models use them all the time).



18] This is just not true, in every half-decent program and even bad ones, students will need to work with data. A good part of any program will consist in taking a lot of statistics and econometrics (basically statistics applied to economics but which is its own discipline at this point, as it has contributed with insights to both economics and statistics).

Nowadays, if anything, the problem is arguably the opposite - there are many economists who work with data but don't care too much about theory. They will instead just use a half-baked explanation or present a result that is hard to generalize or interpret.

This is a neverending fight within the field. To make matters worse, there's also the major issue of the replication crisis affecting science in general (not just economics and not even just social science at this point). Simply put, many empirical work is impossible to replicate and many very well known papers/experiments that spawned subfields in their disciplines don't replicate when redone with larger samples.


19 ] It's hard to know if these dire predictions will ever come to be true. Honestly, it is far from clear what the exact effects of global warming be and, far more importantly, if we can adapt to them.

Note though that you are assuming we won't. This is complicated, as this is a prediction that falls well outside the scope of economics and yet you expect economists to make good models by assuming one of the scenarios.

1] If they base their policy recommendations on the real data, they are failing to tell the public that.

2] There are plenty of books, papers and YouTube videos on the German hyperinflation. AFAIK. it was caused by the Versailles Treaty. It demanded that Germany pay huge reparations in gold, Pounds, Francs, or dollars. So, the Ger. Gov. had a problem that it had a massive shortage of hard money. Also, France occupied the Ruhr industrial basin causing shortages of stuff made there in Ger. To get this foreign currency the Gov. printed Marks. The problem started with the shortages.

3] So, you admit that the debt/GDP ration only matters sometimes. So, why not focus on the sometimes and not the ratio. And again, the US could keep the interest rates low if the Fed chose to. The Fed SETS the discount rate. The Gov. can refuse to sell bonds at a higher rate as I explained above.

4] By this time in our discussions you ought to know that I'm not going to let you assert what you are trying to prove. What you just said there is that the M1 matters when it matters.
Specifically, how does the money supply influence, or better determine, interest rates? I'm not going to take your word for that. Tell me how.

5] I wrote: "You must know that I'm not going to grant that there are just 2 options. Maybe the entire theory of how or why deficits and a large national debt cause inflation or high interest rates is totally wrong. That has been my assertion all along."
And you replied: "MMT doesn't really explain why there are trade deficits, does it? It takes those as given."

I replied, "Your reply is very strange. I wish you had replied to what I asserted. Please try again."

To that, you replied with this.
Your reply, "Is your theory derived from MMT?"

I assert that the MS Econ. Theory about national debts and deficits causing inflation and high interest rates is totally wrong. And you reply with that.
Do you mean my theory of national debts and deficits causing inflation and high interest rates? You should say that.
If that is what you meant, then my answer is yes.

6] OK, I'll do what you do.
Both of those fields are total BS. Prove me wrong.

7] Do you think it is relevant that all MS Econ. Theories are not relevant to any nation?
Totally wrong in my view, means they are in my view totally not relevant anywhere.
. . MMT is relevant in some nations, and it points the way that all nations should go.

8] And they get the relationship totally wrong.


9] If hiking interest rates causes inflation, then how can hiking interest rates control inflation? You need to speak to my points and not ignore them.

10] Yes, hiking [interest] rates is irreversibly damaging the labor markets or they are permanent. Corps don't like to hire the long term unemployed and this makes the damage to those people perminate. The damage also includes the kids of the unemployed having their brains and education damaged.

11] How about a source? Also, when the youth leave the nation to find work, this increases the per capits income by reducing the total population. It also means the nation is in steep decline.

12] The Finance Minister was forced to resign. And the Gov. then took the loan, according to my memory of his statements on YouTube.

13] My memory is from 25 years ago. The report was that the US Gov. helped pay for the movement of the machines overseas.

14] Trade deficits are easy to measure. The data is easy to get. I have never seen an MMTer try to derive a theory for why a nation has the trade deficit or surplus from 1st principals. They just look up the data.

15] Monopolistic competition may be one of the most common forms of industrial organization today, after 40 years of neo-liberal theory setting policies and one of them is that the anti-trust laws not be enfotced. And the theory may say that this is fine. But if I'm right and the entire theory is total BS, then your point is incorrect. Such almost monopolies are not good. They may be efficient at making money for the owners, but they stifle competition by design and so will sooner or later lead to inflation.

16] You wrote, "I mean, you can prove it in the sense that you will arrive to a logically valid conclusion. Whether that's true or not is anyone's guess and depends on the case."
. . Any onewho reads that would conclude that if it can be validly logically 'concluded' but still be either true or false, that it has not been proved and the logic systm used is deeply flawed.
. . This is what I asserted.

17] People say a broken clock is right 2 times a day, but such a clock is useless. And you know that.
. . In the same way a theory that is right 1% of the time, and we have no idea when that is, is totally useless to guide policy. There are 205 7-minute periods in a day, so the broken clock indicated the right time to 3.5 min either way accuacy 2/205 =1% per day.

18] OK, the studies were from around 1993, more or less. So, maybe Profs. added more real world data usage to their program.

19] All you have to do is live 10 years and you will be able to see if my prediction that some major climate tipping point will have been tipped is accurate. It can be much less, nobody knows. Then you will know if I'm right. That is the nature of tipping points.
. . Let me illustrate with an example. There is this really big rock on to top of a hill, some idiot is digging under it looking for gold. An expert tells him that if he keeps digging like that someday soon, it will start rolling down the hill and will without a doubt not stop until it reaches the valley bellow. If 3 days later the rock starts to roll, where will it end up? This sort of thig is what climate scientists mean by 'tipping points'.

[wat0n]

1] If they base their policy recommendations on the real data, they are failing to tell the public that.

How so?

2] There are plenty of books, papers and YouTube videos on the German hyperinflation. AFAIK. it was caused by the Versailles Treaty. It demanded that Germany pay huge reparations in gold, Pounds, Francs, or dollars. So, the Ger. Gov. had a problem that it had a massive shortage of hard money. Also, France occupied the Ruhr industrial basin causing shortages of stuff made there in Ger. To get this foreign currency the Gov. printed Marks. The problem started with the shortages.

That is why Germany felt the need to print money to pay for the debt. It is exactly why MMT can fail to be useful in many cases.

3] So, you admit that the debt/GDP ration only matters sometimes. So, why not focus on the sometimes and not the ratio. And again, the US could keep the interest rates low if the Fed chose to. The Fed SETS the discount rate. The Gov. can refuse to sell bonds at a higher rate as I explained above.

Because the Treasury yields are not set by the Fed.

4] By this time in our discussions you ought to know that I'm not going to let you assert what you are trying to prove. What you just said there is that the M1 matters when it matters.
Specifically, how does the money supply influence, or better determine, interest rates? I'm not going to take your word for that. Tell me how.

Simple, interest rates are the price of the overnight loans made by the Fed.

The central bank will issue new bonds (i.e. borrow) to increase interest rates, which in turn decreases money supply (the central bank will take the money out of circulation, decreasing M1). When the central bank wants to cut rates, it will lend money to the banks and other financial institutions, increasing money in circulation (and increasing M1).

5] I wrote: "You must know that I'm not going to grant that there are just 2 options. Maybe the entire theory of how or why deficits and a large national debt cause inflation or high interest rates is totally wrong. That has been my assertion all along."
And you replied: "MMT doesn't really explain why there are trade deficits, does it? It takes those as given."

I replied, "Your reply is very strange. I wish you had replied to what I asserted. Please try again."

To that, you replied with this.
Your reply, "Is your theory derived from MMT?"

I assert that the MS Econ. Theory about national debts and deficits causing inflation and high interest rates is totally wrong. And you reply with that.
Do you mean my theory of national debts and deficits causing inflation and high interest rates? You should say that.
If that is what you meant, then my answer is yes.

I'm asking you about trade deficits. I don't see how MMT explains why they happen.

6] OK, I'll do what you do.
Both of those fields are total BS. Prove me wrong.

Note they at least try to explain why trade deficits happen, they don't take those as given.

And I wouldn't say they are BS. That exchange rates matter for trade is an empirically verified fact.

7] Do you think it is relevant that all MS Econ. Theories are not relevant to any nation?
Totally wrong in my view, means they are in my view totally not relevant anywhere.
. . MMT is relevant in some nations, and it points the way that all nations should go.

Mainstream theory does at least try to be relevant to all nations. MMT doesn't even try.

8] And they get the relationship totally wrong.

How so?

9] If hiking interest rates causes inflation, then how can hiking interest rates control inflation? You need to speak to my points and not ignore them.

How did you infer that? Central banks increase interest rates as a response to inflation, aiming to suppress future inflation.

10] Yes, hiking [interest] rates is irreversibly damaging the labor markets or they are permanent. Corps don't like to hire the long term unemployed and this makes the damage to those people perminate. The damage also includes the kids of the unemployed having their brains and education damaged.

That is one theory, but it's not clear just how relevant it is in practice. How many of the unemployed end up being long-term unemployed? And how likely is it for them to become permanently unable to work and thus pushed out of the job markets? Does this happen because of rate hikes or it depends on sectoral factors?

11] How about a source? Also, when the youth leave the nation to find work, this increases the per capits income by reducing the total population. It also means the nation is in steep decline.

https://en.wikipedia.org/wiki/List_of_c ... ment_Index

12] The Finance Minister was forced to resign. And the Gov. then took the loan, according to my memory of his statements on YouTube.

Yes, because the alternative was deemed unacceptable.

14] Trade deficits are easy to measure. The data is easy to get. I have never seen an MMTer try to derive a theory for why a nation has the trade deficit or surplus from 1st principals. They just look up the data.

The problem with letting the data speak is that, more often than not, it's hard to figure out what it's saying.

Yes, by all means look at the data. But if you want to explain why, and you don't have an experiment you can do to test causality, you will be very well advised to build a model as it will be your only way to provide a causal explanation.

This is something that would be useful to keep in mind:

https://en.wikipedia.org/wiki/Spurious_relationship

15] Monopolistic competition may be one of the most common forms of industrial organization today, after 40 years of neo-liberal theory setting policies and one of them is that the anti-trust laws not be enfotced. And the theory may say that this is fine. But if I'm right and the entire theory is total BS, then your point is incorrect. Such almost monopolies are not good. They may be efficient at making money for the owners, but they stifle competition by design and so will sooner or later lead to inflation.

Anti-trust laws are very much enforced. Monopolistic competition doesn't happen because of that, it's happening because there is far more product diversity than in the past, which allows for niches.

16] You wrote, "I mean, you can prove it in the sense that you will arrive to a logically valid conclusion. Whether that's true or not is anyone's guess and depends on the case."
. . Any onewho reads that would conclude that if it can be validly logically 'concluded' but still be either true or false, that it has not been proved and the logic systm used is deeply flawed.
. . This is what I asserted.

If the reader doesn't know about formal logic, sure. But you can perfectly reach logically valid conclusions that are false in the real world.

Logic isn't about what's true, it's about how you think.

17] People say a broken clock is right 2 times a day, but such a clock is useless. And you know that.
. . In the same way a theory that is right 1% of the time, and we have no idea when that is, is totally useless to guide policy. There are 205 7-minute periods in a day, so the broken clock indicated the right time to 3.5 min either way accuacy 2/205 =1% per day.

Correct, which is why theories must be contrasted to the data. A theory may be very logical yet be useless because it doesn't fit what we see in reality.

18] OK, the studies were from around 1993, more or less. So, maybe Profs. added more real world data usage to their program.

Even back then there was a substantial use of data. Nowadays, in the era of big data, it's way more than in the past.

19] All you have to do is live 10 years and you will be able to see if my prediction that some major climate tipping point will have been tipped is accurate. It can be much less, nobody knows. Then you will know if I'm right. That is the nature of tipping points.
. . Let me illustrate with an example. There is this really big rock on to top of a hill, some idiot is digging under it looking for gold. An expert tells him that if he keeps digging like that someday soon, it will start rolling down the hill and will without a doubt not stop until it reaches the valley bellow. If 3 days later the rock starts to roll, where will it end up? This sort of thig is what climate scientists mean by 'tipping points'.

OK, but even then you can't expect economists to model this correctly. It's outside the field.

Furthermore, what you're saying also means it's hard to predict what will happen. If there's a tipping point as you say, what makes you believe we'll pass it 10 years from now? Figuring that out is extremely hard pretty much by definition, and data alone doesn't help since this is not something we've experienced in the recent past.

[Steve_American]

1] How so? [How are policy makers failing to show the public that they are basing their policy choices on data and not on "unproven" elements of MS Econ. Theory.]


2] That is why Germany felt the need to print money to pay for the debt. It is exactly why MMT can fail to be useful in many cases.


3] Because the Treasury yields are not set by the Fed.


4] Simple, interest rates are the price of the overnight loans made by the Fed.

The central bank will issue new bonds (i.e. borrow) to increase interest rates, which in turn decreases money supply (the central bank will take the money out of circulation, decreasing M1). When the central bank wants to cut rates, it will lend money to the banks and other financial institutions, increasing money in circulation (and increasing M1).


5] I'm asking you about trade deficits. I don't see how MMT explains why they happen.


6] Note they at least try to explain why trade deficits happen, they don't take those as given.

And I wouldn't say they are BS. That exchange rates matter for trade is an empirically verified fact.



7] Mainstream theory does at least try to be relevant to all nations. MMT doesn't even try.


8] How so? [How do you (meaning me) infer that the Phillips Curve is flawed?]


9] How did you infer that? Central banks increase interest rates as a response to inflation, aiming to suppress future inflation. [Please stop using pronouns instead of more words to specify just what you mean. Here the 'that' could refer to my conclusion that raising interest rates also increases inflation, or to my conclusion that if raising rates increases inflation then the Fed can't reduce inflation by increasing rates, until the rates are so high that they have caused a recession.]


10] That is one theory, but it's not clear just how relevant it is in practice. How many of the unemployed end up being long-term unemployed? And how likely is it for them to become permanently unable to work and thus pushed out of the job markets? Does this happen because of rate hikes or it depends on sectoral factors?


11] https://en.wikipedia.org/wiki/List_of_c ... ment_Index
[This is the link to a source that I requested.


12] Yes, because the alternative was deemed unacceptable. [Here he is talking about why Greece took the loan from the IMF of 87B euros a little after the GFC/2008.]


13] The problem with letting the data speak is that, more often than not, it's hard to figure out what it's saying.

Yes, by all means look at the data. But if you want to explain why, and you don't have an experiment you can do to test causality, you will be very well advised to build a model as it will be your only way to provide a causal explanation.

This is something that would be useful to keep in mind: [The colon here tells me that this 'this' refers to the link below.]

https://en.wikipedia.org/wiki/Spurious_relationship


14] Anti-trust laws are very much enforced. Monopolistic competition doesn't happen because of that, it's happening because there is far more product diversity than in the past, which allows for niches.


15] If the reader doesn't know about formal logic, sure. But you can perfectly reach logically valid conclusions that are false in the real world.

Logic isn't about what's true, it's about how you think.


16] Correct, which is why theories must be contrasted to the data. A theory may be very logical yet be useless because it doesn't fit what we see in reality.


17] Even back then [in the 90s] there was a substantial use of data. Nowadays, in the era of big data, it's way more than in the past.


18] OK, but even then you can't expect economists to model this [climate tipping points] correctly. It's outside the field.

Furthermore, what you're saying also means it's hard to predict what will happen. If there's a tipping point as you say, what makes you believe we'll pass it 10 years from now? Figuring that out is extremely hard pretty much by definition, and data alone doesn't help since this is not something we've experienced in the recent past.

[Note the places where I needed to add words so the reader knew what you were saying. I may have gotten some wrong, because even I can't be sure what you meant.]

1] OK, for example, the Fed claims that raising interest rates is necessary because wages are too high, so it needs to increase unemployment to reduce wage growth. Here the Fed is stating that the unemployment rate is below the NAIRU rate. So, the Fed claims it's basing its decision on data, but it is also basing it on the theory about NAIRU, which you have asserted is impossible to calculate and so is useless to guide policy decisions.

2] My point is that the hyper part of the inflation was the result of the money printing. The inflation started because of shortages. You asked me to explain the hyperinflation in Germany in to 20s. I did that. The hyper part is always caused or it may be better to say "facilitated" by the Gov. choosing to print money.
. . For the record, I'd like to remind everyone that even the 20% inflation at the peak in the 70s was not high enough to be called 'hyper'. And, that MMTers assert that a part of that rate was a direct result of the increased business expenses that businesses had because they were paying more interest expense.

3] Yes, bond yields are not set by the Fed. I have said this to you 3 times now. Learn what I'm saying or refute it. To repeat what I'm saying =>
. . Japan has proven for 30 years now that the combination of the Gov. and the central bank can set bond yields. The Gov. just refuses to sell bonds at a higher rate, and the central bank supports this by buying new bonds on the secondary market at a slight profit for the buyer & now seller of the new bonds. Yes, this is more inflationary than when the M1 is reduced by the sales of bonds, but in Japan the Gov. could not get inflation over 0.5% and close to its target of 2%. In the US this may be more of a problem. In Japan they were choosing to sell bonds at a 0.1% interest rate and they sold them.

4] Interest rates [charged by banks] are not the overnight rate. They are related to the discount rate that is set by the Fed. The Fed is currently increasing the discount rate, AFAIK. From the internet=>

The discount rate is the interest rate set by the Federal Reserve (Fed) on loans extended by the central bank to commercial banks or other depository institutions. Adjusting the discount rate allows central banks such as the Fed to reduce liquidity problems and the pressures of reserve requirements, control the supply of money in the economy and basically assure stability in the financial markets.

This is not to be confused with the federal funds rate, which is instead the target interest rate for overnight interbank lending,

5] Like I said, I have not seen an MMTer try to explain why some nations have trade deficits.
. . IMHO, if there is international trade then some nations will have a surplus and some a deficit. This is so obvious that I think you want to know why some nations have chronic trade deficits.
Maybe MMTers use the MS speculations as their theory. I don't know.

6] Why do you think that we need to know why some nations have chronic trade deficits?
Why can't the answer be specific to each nation?

7] So what? IMHO, MS Econ. Theories were made up by lackies of rich people to support Gov. policies that made the rich richer by letting the corps they own pay lower wages (by reducing union power, etc.) and charge higher prices (by allowing corps to buy their competition, etc.). The theories created a fantasy world as opposed to trying to model the real world. They did this by asserting that they would prove the truth of their theory by deductive logic based on a set of simplifying assumptions or premises. They used many false premises, though. The use of false premises is why the world they modeled is a fantasy.
. . I can assert that the founding MS economists were lackies of the rich because they worked at think tanks created by the rich or were Profs. at Univ. that had chairs in the Econ. Dept. sponsored by the rich or corps, etc.

If you don't believe that the rich have an ongoing legal semi-secret conspiracy, then read up on the "Powell Memo". Just 1 of many possible links =>
https://billmoyers.com/content/the-powe ... porations/

8] I thought that you said that the Phillips Curve is so uncertain that it is useless when used to guide policy decisions.

9] Yes, central banks say that they believe that they can control inflation by increasing interest rates. I suppose that many of them believe this, just like you do. MMTers assert and make a good case that in the 70s, a part of the increasing inflation was the direct result of corps having higher costs which they passed on as higher prices. These higher costs included higher interest payments because interest rates were higher.

10] What is clear is that when many workers are laid off [because the Fed has caused a recession to reduce wage growth], they take a job in a different field at a lower wage. Now they are stuck in a new field that pays less. This is semi-permanent. So, some workers will always be worse off during the recovery and for the rest of their lives because of the recession. Another example of damage to workers is new graduates who graduated during the recession and never get any job in their field because after the recession corps prefer to hire the newest graduates and not those who graduated during the recession; this damage is permanent.

11] Thanks. OK, well, that source put Spain with its youth unemployment rate of over 20% in the top bracket, it is among the best nations in the world, by this measure. The data was from 2021, so after covid and during the period of high inflation. That is not a good year to use, and a really high youth unemployment rate ought to be weighted more heavily.

12] It was unacceptable because the powers that be (here the EU Commision and the ECB) were not cooperating and were instead finding things to threaten Greece with and maybe paid bribes, I have zero evidence of bribes.)

13] So the data is hard to use, so instead you think basing policy decisions on theories that are not proven because they used false premises is better. Why is that better? See #15 below for how false premises really can't be used to prove conclusions.

14] You are totally wrong to say that anti-trust laws have been enforced in the same way for the last 40 years as they were in the 50 and 60ss. Did you miss the recent announcement by the Biden Admin. that it would enforce those laws more strictly? You have no basis to assert that "monopolistic competition" is only a result of new niches, and not in any way lax enforcement of anti-trust laws. [You need to review the facts about lax enforcement of anti-trust laws from 1981 until 2023.]

15] So what? If the system of logic you use allows conclusions that are false to be validly assigned the truth value of "true", that, that system can never claim to have proven
anything.
. . The rules of classical deductive logic were used for over 2000 years because they only rated true things as true. This new logic system you named doesn't always do that, so it is useless to prove anything. You don't seem to understand this. I expect that the Lurkers can see it.
. . IMHO, that new logic system is like alternative facts. A product of crazy hew methods of thinking, with emphasis on CRAZY.

16] When a model doesn't match reality, that is sufficient evidence that you need a better model. So, you need a better model, one like MMT.

17] OK.

18] What I'm saying, about when major tipping points will be tipped is what some experts have said in peer reviewed papers. I'm just telling you what the pessimistic reports are saying, not the optimistic ones. You seem to already know what the optimistic ones say.
. . I remind the Lurkers of the fact that, in every report by the IPCC it says that things are getting worse faster than we said they would in the last report. This fact, combined with the fact that the rules and process to generate the IPCC report have NOT been changed to improve the accuracy of the reports, means that it is very likely that the next IPCC report will also say that, THINGS HAVE GOTTEN WORSE FASTER THAN WE SAID THEY WOULD IN THE LAST REPORT.

Also, recent data shows that the rate of temp increase has increased a lot in the last few years, and note, that is years before the current El Nino started.
11756 views

[wat0n]

[Note the places where I needed to add words so the reader knew what you were saying. I may have gotten some wrong, because even I can't be sure what you meant.]

It becomes a lot easier to understand if you break every point in quotes like I'm doing.

1] OK, for example, the Fed claims that raising interest rates is necessary because wages are too high, so it needs to increase unemployment to reduce wage growth. Here the Fed is stating that the unemployment rate is below the NAIRU rate. So, the Fed claims it's basing its decision on data, but it is also basing it on the theory about NAIRU, which you have asserted is impossible to calculate and so is useless to guide policy decisions.

I've yet to see the Fed saying something like that. What the Fed does talk about is inflationary pressures, and yes a strong job market can be part of that but it's hardly the only factor.

And yes, there is a NAIRU/Phillips Curve type of argument implied. But if you look carefully, the Fed isn't saying "unemployment is too low which is why we're getting so much inflation", keeping in mind that's the relationship those concepts deal with (inflation and unemployment).

2] My point is that the hyper part of the inflation was the result of the money printing. The inflation started because of shortages. You asked me to explain the hyperinflation in Germany in to 20s. I did that. The hyper part is always caused or it may be better to say "facilitated" by the Gov. choosing to print money.
. . For the record, I'd like to remind everyone that even the 20% inflation at the peak in the 70s was not high enough to be called 'hyper'. And, that MMTers assert that a part of that rate was a direct result of the increased business expenses that businesses had because they were paying more interest expense.

If you accept insanely high levels of inflation can happen due to monetary issues, why is it that you don't think lower levels of inflation - even deflation - can't be explained by changes in the money supply?

Real economy factors matter, but so do monetary ones.

3] Yes, bond yields are not set by the Fed. I have said this to you 3 times now. Learn what I'm saying or refute it. To repeat what I'm saying =>
. . Japan has proven for 30 years now that the combination of the Gov. and the central bank can set bond yields. The Gov. just refuses to sell bonds at a higher rate, and the central bank supports this by buying new bonds on the secondary market at a slight profit for the buyer & now seller of the new bonds. Yes, this is more inflationary than when the M1 is reduced by the sales of bonds, but in Japan the Gov. could not get inflation over 0.5% and close to its target of 2%. In the US this may be more of a problem. In Japan they were choosing to sell bonds at a 0.1% interest rate and they sold them.

Yes, in Japan that was the big issue hence the liquidity trap. Hence the explanations - based on the real economy - I mentioned. Japan would very much have preferred to have negative interest rates but that's not usually feasible in practice.

Also, what do you mean when you say that the government can refuse to sell bonds at a higher rate? Sell them to whom?

4] Interest rates [charged by banks] are not the overnight rate. They are related to the discount rate that is set by the Fed. The Fed is currently increasing the discount rate, AFAIK. From the internet=>

They're both intimately related indeed, so much that the Fed will target the overnight rate - the rate at which commercial banks lend to each other - even if as you say it's not directly set by the Fed. The discount rate is related because it's the rate at which banks, instead of borrowing from each other, borrow from the Fed. Of course if the overnight rate changes the discount rate needs to change in tandem.

5] Like I said, I have not seen an MMTer try to explain why some nations have trade deficits.
. . IMHO, if there is international trade then some nations will have a surplus and some a deficit. This is so obvious that I think you want to know why some nations have chronic trade deficits.
Maybe MMTers use the MS speculations as their theory. I don't know.

That's the problem, they don't have a theory. It means MMT is incomplete. And yes, one economy's deficit will be another's surplus, which is why models will often try to explain the overall balance/net exports.

6] Why do you think that we need to know why some nations have chronic trade deficits?
Why can't the answer be specific to each nation?

Because net exports is one of the components of GDP in the national accounts identity.

7] So what? IMHO, MS Econ. Theories were made up by lackies of rich people to support Gov. policies that made the rich richer by letting the corps they own pay lower wages (by reducing union power, etc.) and charge higher prices (by allowing corps to buy their competition, etc.). The theories created a fantasy world as opposed to trying to model the real world. They did this by asserting that they would prove the truth of their theory by deductive logic based on a set of simplifying assumptions or premises. They used many false premises, though. The use of false premises is why the world they modeled is a fantasy.
. . I can assert that the founding MS economists were lackies of the rich because they worked at think tanks created by the rich or were Profs. at Univ. that had chairs in the Econ. Dept. sponsored by the rich or corps, etc.

If you don't believe that the rich have an ongoing legal semi-secret conspiracy, then read up on the "Powell Memo". Just 1 of many possible links =>
https://billmoyers.com/content/the-powe ... porations/

So what??! How self-centered do you need to be to ask that?

8] I thought that you said that the Phillips Curve is so uncertain that it is useless when used to guide policy decisions.

Ah, yes. If the flaw you are thinking about is what I said I agree. But that doesn't mean the concept is necessarily bullshit or useless, you may not use it for policy but it can still be useful for modeling/theory.

9] Yes, central banks say that they believe that they can control inflation by increasing interest rates. I suppose that many of them believe this, just like you do. MMTers assert and make a good case that in the 70s, a part of the increasing inflation was the direct result of corps having higher costs which they passed on as higher prices. These higher costs included higher interest payments because interest rates were higher.

The bulk of that inflation in the 1970s came from the real economy (oil, other commodities). Interest rates on the other hand have the effect of reducing demand, since loans are more expensive so agents can't just say "OK, I'll pay for it later" as easily and have to cut expenses (be it consumption or investment).

10] What is clear is that when many workers are laid off [because the Fed has caused a recession to reduce wage growth], they take a job in a different field at a lower wage. Now they are stuck in a new field that pays less. This is semi-permanent. So, some workers will always be worse off during the recovery and for the rest of their lives because of the recession. Another example of damage to workers is new graduates who graduated during the recession and never get any job in their field because after the recession corps prefer to hire the newest graduates and not those who graduated during the recession; this damage is permanent.

Agreed about your point for recent grads, although it doesn't happen to every recent grad either. For them, and those workers you mention, I think the issue is more complicated. It depends a lot on the industry they work in and is probably the result of more fundamental structural changes.

11] Thanks. OK, well, that source put Spain with its youth unemployment rate of over 20% in the top bracket, it is among the best nations in the world, by this measure. The data was from 2021, so after covid and during the period of high inflation. That is not a good year to use, and a really high youth unemployment rate ought to be weighted more heavily.

You can check other years if you want. Spain has a high youth unemployment, but there's consensus it has a good quality of life in all (for now at least).

12] It was unacceptable because the powers that be (here the EU Commision and the ECB) were not cooperating and were instead finding things to threaten Greece with and maybe paid bribes, I have zero evidence of bribes.)

It was unacceptable to the Greeks because it would have meant an even deeper recession. The EU Commission knew it and knew the Greeks would eventually give up.

13] So the data is hard to use, so instead you think basing policy decisions on theories that are not proven because they used false premises is better. Why is that better? See #15 below for how false premises really can't be used to prove conclusions.

Because correlation doesn't mean causation, so you have to at least have a prior idea of what's the causal chain.

Cue classic pirates and global warming graph.

14] You are totally wrong to say that anti-trust laws have been enforced in the same way for the last 40 years as they were in the 50 and 60ss. Did you miss the recent announcement by the Biden Admin. that it would enforce those laws more strictly? You have no basis to assert that "monopolistic competition" is only a result of new niches, and not in any way lax enforcement of anti-trust laws. [You need to review the facts about lax enforcement of anti-trust laws from 1981 until 2023.]

Not just more strictly, the Biden Administration announced a broader enforcement too. It has actually been controversial among experts in the field.

I'd be surprised if the new enforcement would go as far as to police specific niches.

15] So what? If the system of logic you use allows conclusions that are false to be validly assigned the truth value of "true", that, that system can never claim to have proven
anything.
. . The rules of classical deductive logic were used for over 2000 years because they only rated true things as true. This new logic system you named doesn't always do that, so it is useless to prove anything. You don't seem to understand this. I expect that the Lurkers can see it.
. . IMHO, that new logic system is like alternative facts. A product of crazy hew methods of thinking, with emphasis on CRAZY.

This is actually a conclusion from that classic system of logic you are referring to. It's why data is still necessary.

16] When a model doesn't match reality, that is sufficient evidence that you need a better model. So, you need a better model, one like MMT.

Sure, so what's your evidence - data based evidence - to suggest MMT is as good as you claim?

18] What I'm saying, about when major tipping points will be tipped is what some experts have said in peer reviewed papers. I'm just telling you what the pessimistic reports are saying, not the optimistic ones. You seem to already know what the optimistic ones say.
. . I remind the Lurkers of the fact that, in every report by the IPCC it says that things are getting worse faster than we said they would in the last report. This fact, combined with the fact that the rules and process to generate the IPCC report have NOT been changed to improve the accuracy of the reports, means that it is very likely that the next IPCC report will also say that, THINGS HAVE GOTTEN WORSE FASTER THAN WE SAID THEY WOULD IN THE LAST REPORT.

Also, recent data shows that the rate of temp increase has increased a lot in the last few years, and note, that is years before the current El Nino started.
11756 views

Don't you think that the fact there are pessimistic and optimistic reports already suggests figuring out where the tipping points are is extremely hard even for experts in the field, let alone economists?

[Steve_American]

@wat0n
Dear Lurkers, it pains me to have to stop responding to wat0n. This will likely be my last reply.

So, wat0n, I find these replies to be worthless.
You assert without evidence that classic deductive logic can wrongly give a truth value of true to a conclusion made in a valid way with only true premises.
When one makes such an outlandish assertion, one needs to provide an example, at least.
Edited to add the word "wrongly" that I left out somehow.

You wrote, "The bulk of that inflation in the 1970s came from the real economy (oil, other commodities). Interest rates on the other hand have the effect of reducing demand, since loans are more expensive so agents can't just say "OK, I'll pay for it later" as easily and have to cut expenses (be it consumption or investment)."
. . You totally ignored the reason the inflation lasted. MMters say that in the 70s unions were strong, so when OPEC raised oil prices, the workers through their unions and the corps got into a battle to see who would see falling real incomes. Neither side would back down so wages were raised after strikes, then corps raised prices, then wages need to increase when the contract ended, etc., etc.


The Fed is using NAIRU as the basis of its policy according to my MMT sources. The Fed thinks the economy is too tight, mostly meaning the labor market is too tight. So it wants to increase unemployment.


I wrote, Do you think it is relevant that all MS Econ. Theories are not relevant to any nation?
Totally wrong in my view, means they are in my view totally not relevant anywhere.
. . MMT is relevant in some nations, and it points the way that all nations should go."

You replied.


"Mainstream theory does at least try to be relevant to all nations. MMT doesn't even try."

I replied, "So, what?"

And you attack me as self-centered.
Using a worthless useless theory is no better than taking the data at face value and working with it. Saying that doesn't make me self-centered.
And, I accused the mass of MMS economists who created the theory of being paid hacks of the rich and you ignored my assertion.


You don't pay attention to my points. You don't refute my points. You just make assertions without evidence or an example. You make personal attacks.

I'm giving up on this discussion.



My apologies to the Lurkers. I need to make a correction. Recently the Fed has been increasing the Funds Rate, not the Discount Rate. The Funds Rate is a guide to the banks on the overnight borrowing/lending between themselves.

[wat0n]

@wat0n
Dear Lurkers, it pains me to have to stop responding to wat0n. This will likely be my last reply.

So, wat0n, I find these replies to be worthless.
You assert without evidence that classic deductive can give a truth value of true to a conclusion made in a valid way with only true premises.
When one makes such an outlandish assertion, one needs to provide an example, at least.

Did you read the link re: propositional logic I posted?

You can set up toy examples that are obviously false in reality but are logically sound. As in, taking those assumptions for granted, does allow you reach that conclusion. And you can also prove both F => T or F => F are true.

You wrote, "The bulk of that inflation in the 1970s came from the real economy (oil, other commodities). Interest rates on the other hand have the effect of reducing demand, since loans are more expensive so agents can't just say "OK, I'll pay for it later" as easily and have to cut expenses (be it consumption or investment)."
. . You totally ignored the reason the inflation lasted. MMters say that in the 70s unions were strong, so when OPEC raised oil prices, the workers through their unions and the corps got into a battle to see who would see falling real incomes. Neither side would back down so wages were raised after strikes, then corps raised prices, then wages need to increase when the contract ended, etc., etc.

That is ONE theory, another one is that the Fed did not go hard on tightening monetary policy like Volcker did in 1982.

The Fed is using NAIRU as the basis of its policy according to my MMT sources. The Fed thinks the economy is too tight, mostly meaning the labor market is too tight. So it wants to increase unemployment.

It's not that the "economy is too tight", it's that inflation is too high. If inflation is expected to go back to target, the interest rate hikes will stop.

And they frame their policy in these terms precisely because it's impossible to know what the NAIRU is. They prioritize inflation.

I wrote, Do you think it is relevant that all MS Econ. Theories are not relevant to any nation?
Totally wrong in my view, means they are in my view totally not relevant anywhere.
. . MMT is relevant in some nations, and it points the way that all nations should go."

You replied.


"Mainstream theory does at least try to be relevant to all nations. MMT doesn't even try."

I replied, "So, what?"

And you attack me as self-centered.
Using a worthless useless theory is no better than taking the data at face value and working with it. Saying that doesn't make me self-centered.
And, I accused the mass of MMS economists who created the theory of being paid hacks of the rich and you ignored my assertion.

1) Mainstream economics is not worthless. You keep making this claim but have not backed it at all.

2) Why would I care about theories that don't even aspire to be applicable everywhere?

3) Why would I care about incomplete theories?

You don't pay attention to my points. You don't refute my points. You just make assertions without evidence or an example. You make personal attacks.

I'm giving up on this discussion.

Fine.

[SpecialOlympian]

Sorry to break up this extremely interesting quote fight that I guarantee everyone is reading, but it's really funny that the American government would ask its people to spend their precious time on earth working longer to fund our pointless wars that we keep losing.

Literally, we're asking your grandparents to spend more time in the workforce because God forbid we don't outspend the next 10 largest country's military budget combined. If your grandfather isn't spending his twilight years as a Wal-Mart greeter then we won't be able to sail an aircraft carrier through Chinese/Taiwan waters to prove a point.

And I think everyone here can agree how important that is.

[wat0n]

Meh, at this point we're being asked, mainly, to fund our super pricey healthcare.

[Steve_American]

I'd like to thank the Lurkers who followed this thread.

I hope sime of you learned something important about economics.

If you'd like to learn more click on my name where it says "By Steve_American".
This will take you to my page.
Scroll down to the bottom, where it says "Search user's posts" and click on that, or go to the Economics page from the Home page for more ecomomics threads.

[Steve_American]

Lurkers, I feel that I need to say one more thing.

I asked wat0n to give me an example of Classic Deductive Logic where a valid proof using only true premises gives the conclusion the truth value of true when it is actually a false conclusion. I meant he should give us an actual example like; If all fish live in the water and if this animal does not live in the water, then this animal is not a fish. Instead, he didn't give a specific example like that, and he seemed to be referring to his Propositional Logic system and not to Classical Deductive Logic.

This is what pissed me off.
.

[wat0n]

Lurkers, I feel that I need to say one more thing.

I asked wat0n to give me an example of Classic Deductive Logic where a valid proof using only true premises gives the conclusion the truth value of true when it is actually a false conclusion. I meant he should give us an actual example like; If all fish live in the water and if this animal does not live in the water, then this animal is not a fish. Instead, he didn't give a specific example like that, and he seemed to be referring to his Propositional Logic system and not to Classical Deductive Logic.

This is what pissed me off.
.

It's not about a proof but whether reasoning assuming a false premise will always lead to a false conclusion.

For instance, take the following:

"When it rains and I'm outside in the open while naked (A), I get wet (B)". Using propositional logic, you can express it as A => B.

It's not raining while I'm outside in the open and naked (A is false). Can I ever get wet regardless? (Can B be true?)

If I am in fact wet, because I went to a nudist beach, swam a bit and just came outside the water and it did not rain at any time, is this statement illogical? Is this inference really wrong? (Is A => B false?)

[Steve_American]

It's not about a proof but whether reasoning assuming a false premise will always lead to a false conclusion.

For instance, take the following:

"When it rains and I'm outside in the open while naked (A), I get wet (B)". Using propositional logic, you can express it as A => B.

It's not raining while I'm outside in the open and naked (A is false). Can I ever get wet regardless? (Can B be true?)

If I am in fact wet, because I went to a nudist beach, swam a bit and just came outside the water and it did not rain at any time, is this statement illogical? Is this inference really wrong? (Is A => B false?)

Again Lurkers, I had asserted that classical deductive logic proves things because its system never gives the wrong truth value as long as all the premises are actually true. He asserted that classical deductive logic can at times prove statements that are false as true when the proof uses only true premises and the proof is otherwise valid. I asked him to support that assertion.

His response to support that assertion is to talk about propositional logic. It is non-responsive.

He asserts above that the point is not about proofs. However, I asserted that MS Econ. theories are not supported by the scientific method. They are proved using deductive logic. But, many of the premises are false. They are often called simplifying assumptions. But, they are false anyway. For example, IIRC, the proof that the free market sets the things correct price at all times, includes the assumption that all players in the market know everything about the thing being sold, it may also include that all the players have an equal ability to choose not to make the deal.

Here, he seems to be asserting that it doesn't matter that MS Econ's conclusions are not proven. It doesn't matter that, for example, a given policy choice can increase inflation or decrease it, because of unknown factors. It is still a valid theory to assert that that policy choice is the best to reduce inflation in all cases. [Note, this is just an example. I'm not saying it is true or false.]