[Politics] Economic Schools Debates

[fectin]

One of the weird things there is how the US government has declared a monopoly on money, and by extension on all things like money. Like this:

http://en.wikipedia.org/wiki/Liberty_Dollar

That's really weird, like to the level of Frank's airship setting.

[erik]

One of the weird things there is how the US government has declared a monopoly on money, and by extension on all things like money. Like this:

http://en.wikipedia.org/wiki/Liberty_Dollar

That's really weird, like to the level of Frank's airship setting.

Well, they're declaring a monopoly in their borders on metal coin money. A fine point, but that's why people can use stuff like Dwolla or Bitcoin without running afoul of those particular laws.

And wow, that sucks for Von NotHaus.

I'd have gotten the agreement in writing rather than a verbal "ok" from a government official. I mean, damn. If you are having a legal team from the treasury look over this crap, how do you not get that in writing?

If you're skirting laws, and he knew he was running into potential trouble beforehand, how do you not get that shit in writing?

[fectin]

Oh, I understand what they're doing, it's just really weird. That statute literally makes it illegal to use a non-US coin in the US. That presumably would include e.g. Canadian coins (because the Canadian mint is probably not seeking US authorization for their currency).

It's also been reviewed fairly recently, because in 1994 congress bumped the penalty from $2000 to $3000.

I also have no idea what interest it serves. I have no idea what interest people even think it serves.

[mean_liar]

So far as I see it - and to me, MMT comes off as economic alchemy which I admittedly do not fully understand - it'd come from the foreign exchange market.

Basically, MMT plays with the idea that fiat money is entirely constructed from nothing. It tugs at the curtain that hides the Wizard and is dangerously close to admitting that most economies are a sideshow of bullshit. Anyone with a vested interest in staying on top that realizes that an economy is cranking out money is going to blow the whistle.

[erik]

Didn't you read the wiki article? It's domestic terrorism to use coins that weren't made at our mints. Government lawyer sez so.

[Username17]

Here are some key MMT concepts:

Inflation happens because demand exceeds available supply. That is: if people have more money than there is stuff to buy with it, and there is still scarcity, people will auction up the price of stuff. It doesn't happen because there is "more money", it happens because people want to buy scarce things. The Bond Market isn't there to finance the country, since the country could declare whatever tax rate they wanted and print however much money they feel like printing - the Bond Market is there to soak up people's desire for savings to keep them from bidding the interest rate to the zero lower bound and cause deflationary pressure. Government debt is not, as Friedman claimed, a promise of future taxation, but a promise to print money in the future and deliver it directly to the bond holder. It is thus safer than any other investment is possible to be in the currency it is denominated in.

When you look at it from that perspective, situations like Japan are not "incomprehensible" as they are to Freshwater types (who have no explanation as to how inflation can stay low with public debt at nearly 200% of GDP), but instead exactly what you'd expect. The Japanese people want to save more than they want to invest, so the government runs a huge deficit every year as a public service to keep interest rates from collapsing. The problem with Japan is that they are not running a deficit that is large enough, because interest rates are still too low. Similarly, the United States needs to print more Treasury Bonds, because the number of people who want to flee to the safety of US Treasury Bonds exceeds the available supply, causing them to auction the price up to its maximum.

Basically, MMT plays with the idea that fiat money is entirely constructed from nothing. It tugs at the curtain that hides the Wizard and is dangerously close to admitting that most economies are a sideshow of bullshit. Anyone with a vested interest in staying on top that realizes that an economy is cranking out money is going to blow the whistle.

You know, that's the best argument against MMT. That if you publicly admit that money is simply whatever you say it is and that it isn't in any way like a gold standard and you can always just print money to cover debts as long as you don't put so much money into peoples' hands at the same time to cause undue inflationary pressure that people will freak out about the government "printing money" and run around with their hair on fire worrying about "hyper inflation" causing it to become a reality. That's a perfectly valid inflationary expectations argument.

But I don't buy it. The fact is that the usual suspects have been running around doom saying about governmental money printing and hyper inflation for years. And nothing happened except that Goldline made a lot of money off amateur metal speculators. Do you really believe that Glenn Beck and Ron Paul can bring down the economy just because their characterization of events is slightly closer to what is "really going on"? The people who believe Glenn Beck don't know what Quantitative Easing is, and the people who don't believe Glenn Beck don't know what it is either.

Austrians have spent the last eighty years pulling back the curtain on money, and it honestly does not matter what is behind it. Austrians will always describe it as a sham that is in imminent danger of collapse, and the rest of society will always ignore them as long as things in Walmarts still have price tags.

-Username17

[Ancient History]

So far as I see it - and to me, MMT comes off as economic alchemy which I admittedly do not fully understand - it'd come from the foreign exchange market.

Basically, MMT plays with the idea that fiat money is entirely constructed from nothing. It tugs at the curtain that hides the Wizard and is dangerously close to admitting that most economies are a sideshow of bullshit. Anyone with a vested interest in staying on top that realizes that an economy is cranking out money is going to blow the whistle.

Here's the thing: money is counting. Early on in the history of arithematic, people relied on physical markers to count shit - fingers, tally sticks, all the way to the abacus. The basic theory went that almost every problem in math could be broken down into a physical problem - if you move and group the pebbles appropriately, count them up, you have your answer. Subtraction is an addition problem. Multiplication is an addition problem. Division is a subtraction problem. Fractions is just multiplication and division. The great value of having actual numbers instead of tallies was that a) it freed you from tedious, slow counting pebbles, b) it opened you to the idea that math was not all moving pebbles.

Economics is also not all about moving pebbles. At rock bottom, every currency has zero intrinsic value, except to the persont that wants it. If you're not hungry, people cannot buy terrible sexual favors from you for a bowl of rice. Money is completely artificial and arbitrary in its value, and the value it has is equal to its perceived value. Which is why if you're floating a currency, you need to both create the demand (make people believe your money has value) and the supply (make money available to people by minting coins, printing bills, issuing e-checks, etc.). Supply is pretty straightforward most of the time, demand is hard, and keeping the two balanced is harder. That is entirely why governments have legal tender laws - to try and maintain a demand for their monies in their territory.

Where things get really wonky is when you get people who find out that money is all numbers on a page and want to go back to tally-sticks, or get the bright idea to write their own numbers on the page. So you have hard-currency advocates that want a return to a material standard (gold, silver, cotton, etc.), basically creating their own demand; and you have counterfeiters that seek to create their own value by creating their own supply; and you have people that try to create their own demand and supply - to float their own currency. As an indication of how carefully governments control their own currencies, notice how the first one is no longer the law of the land, the second is flat-out illegal, and the third has severe restrictions placed on it - and it gets much more interesting whenever you combine a couple of them, like with digital metal currencies or superdollars.

None of this is new, or secret. We live in a universe of uncertainty.

[Lago PARANOIA]

Austrians have spent the last eighty years pulling back the curtain on money, and it honestly does not matter what is behind it. Austrians will always describe it as a sham that is in imminent danger of collapse, and the rest of society will always ignore them as long as things in Walmarts still have price tags.

-Username17

Personally, I don't even see how it would collapse just from that revelation. I mean, consider the following facts:

[*] A country already owns all of the resources within its own borders.
[*] Because of this, a country has the final word on the transfer of resources and will almost always objectively enforce claims on territories on the side of people who legitimately own these claims - which for the purpose of this conversation is restricted to money.
[*] The vast majority of sovereign countries will usually agree to honor claims by other sovereign countries on their resources if the claim is done with their money (or any legitimate money). So if, say, an Indian gives a Pakistani merchant a fistful of rupees for an advertised product and the merchant refuses to hand over the product, the Pakistan government will kick the merchant's ass and force him to hand over the goods.

So, that said, aside from a level of hysterical ignorance I'm not even willing to assign American fundamentalists, why would this revelation be harmful? I mean, people still want shit. The government(s) own all of the shit within their borders. And the government creates the standards to distribute shit. That won't change.

[Ancient History]

I could dispute your facts Lago, but that's niggling - here's the deal:

All economies entail risk and are built on trust
This seems ridiculously obvious, but it really is one of the most fundamental of things, and part of the reason a lot of people end up failing at economics. If the parties cannot trust each other, there is no transaction. If you cannot trust your money to hold value, your money has no value to you. Systems are built up to minimize risk, to encourage people in the faith that if they follow the rules the system will work, and villianize people that shake that trust - because that's when you get bank runs and crap. A lot of the issues with fiat money, weird currencies, the gold standard, etc. boils down to a fundamental lack of trust and aversion to risk.

Not all countries are equal in terms of controlling or exploiting their resources
I could say something about how the whole concept of a "country" is relatively recent, but the big deal is that there is a tremendous divide between what a government can potentially do and what it can actually do. In theory, Somalia has complete control of everything in its borders and could rid itself of pirates, militants, criminals, etc. - in reality, the minimal government just doesn't have the ability or organization to do that. A large part of economic revolutions has always involved countries learning how to control and exploit their resources on a greater scale - this was true of the agricultural revolutions which gave rise to the first empires, and to modern industrialization. Many modern countries have vast natural resources, but lack the organization, technology, and practical means to exploit them - and often face restrictions on doing so from post-industrial societies.

There is a balance between personal and group wealth that is sometimes difficult to perceive
This is one part Communism and one part Tragedy of the Commons; Americans are comparatively wealthy as a people - and by that I mean, Americans have an infrastructure and multiple social services and support networks which they can and do rely on, and the cumulative effect of these works is a form of wealth that most people do not see or understand. The poorest American citizen yet has access to police protection, emergency medical aid, unemployment insurance, relatively clean public toilets and drinking water, K-12 education, often homeless shelters and food pantries or soup kitchens - and they have their entire set of rights. Now, life may still suck for them, they may still die of starvation or exposure or disease, nobody guarantees them a bare but comfortable existence - but that individual is also not a particular burden on society. We as a people understand that shit happens, we have systems built up to help ourselves deal with these things when they happen, and generally we do pretty good about it. When we fail - Hurricane Katrina, say - we raise holy hell about it and hopefully try to fix it.

That is a form of wealth that is hard to quantify - a millionaire in Rwanda does not have the same level of safety and security that a middle-class guy in a Walmart in Hoboken, New Jersey has, and I'm not talking about just violence, but the quality of the air and water, laws regulating traffic and money, legal protections built into constitutions to guarantee rights to a fair trial, freedom from cruel and unusual punishments, freedom of speech and press, etc. You can buy that shit, but it is purchased through paying taxes, being involved with your laws and government, and again - trusting other people.

We like to make fun of financial conservatives for being stupid, but mostly they're averse to trust and blind to the beneficial environment they operate in. They see life as a zero sum game where for them to succeed, others have to fail - and if they are not succeeding, it is because something is causing them to fail. So they control what they can then look at the things they cannot control and try to get a handle on that too.

[Username17]

So, that said, aside from a level of hysterical ignorance I'm not even willing to assign American fundamentalists, why would this revelation be harmful? I mean, people still want shit. The government(s) own all of the shit within their borders. And the government creates the standards to distribute shit. That won't change.

Well again the fiction is that people own their own shit and the government simply enforces private property. The fact that the government also determines and defines private property seems to slip by most people. When you do break people of the fiction that anyone actually owns anything in any sense other than that the government has decreed that they do - people go pretty far into Bolshevism pretty fast. On the other side, if people take the myth of private property too seriously, the siren call of Libertarianism beckons them.

It's a somewhat delicate balancing act. If people don't buy in to the idea of personal property, they start demanding equitable redistribution of the means of production. If people do buy into the idea of personal property as a natural right, they start trying to privatize the water supply. Keeping the country from having a Communist or Anarcho-Libertarian uprising requires constant propaganda and vigilance.

The Koch brothers and McVeigh basically represent propaganda failure on the side of too much private property spouting. That means that major moves that would be expected to upset people who have bought in to the religion of private property would be expected to anger people to the point of terrorism. I mean, you did notice that some dude flew a plane into an IRS building, and some guys tried to make a ricin bomb in Georgia, and Hutatree straight went to war with the cops, and so on and so on? Basically, there are a lot of people in the US who have been brought up to think that they have to take up arms and fight it out Red Dawn style as soon as the government even thinks about redistributing wealth. The number of hate groups and radical right-wing armed militia groups shoots up whenever a democrat is in the White House:



What this means is that you can indeed make a compelling argument that if the government took too active a hand in the economy that society would fall apart. I don't really buy the idea that people would "Go Galt" and simply refuse to use dollars to conduct business. But I definitely do believe that people would attempt to blow up Martin Luther King Day parades, because they are already doing that.

-Username17

[mean_liar]

I could dispute your facts Lago, but that's niggling - here's the deal:

All economies entail risk and are built on trust

This is the main reason why I can't imagine MMT would ever be implemented. You have to trust that the people handing out digits are doing it in a responsible manner.

We'll have a Guaranteed Minimum Income before MMT.

[Username17]

This is the main reason why I can't imagine MMT would ever be implemented. You have to trust that the people handing out digits are doing it in a responsible manner.

That's what the Federal Reserve system already is. Every country on Earth has a body of economists and bankers whose job it is to determine how many digits it would be responsible to produce.

In short: while there are some people who scream very loudly about how they don't trust anyone with the power to print money and that they don't trust the people who are already tasked with printing money in particular, that doesn't prevent any country in the world from using fiat money. Because right now, every country on Earth already uses fiat money.

-Username17

[mean_liar]

This is the main reason why I can't imagine MMT would ever be implemented. You have to trust that the people handing out digits are doing it in a responsible manner.

That's what the Federal Reserve system already is. Every country on Earth has a body of economists and bankers whose job it is to determine how many digits it would be responsible to produce.

Yes, but they're not doing it with the sheer confidence that MMT implies is permissible, not even close. You know that, too, so I assume you didn't mention that because yay Frank?

MMT can't just be merely correct, it also has to convince a predominance of the world financial market that is correct, and that's a tough hurdle.

[Username17]

This is the main reason why I can't imagine MMT would ever be implemented. You have to trust that the people handing out digits are doing it in a responsible manner.

That's what the Federal Reserve system already is. Every country on Earth has a body of economists and bankers whose job it is to determine how many digits it would be responsible to produce.

Yes, but they're not doing it with the sheer confidence that MMT implies is permissible, not even close. You know that, too, so I assume you didn't mention that because yay Frank?

MMT can't just be merely correct, it also has to convince a predominance of the world financial market that is correct, and that's a tough hurdle.

MMT doesn't produce "sheer confidence", it provides different metrics for why it thinks you should or should not print money and different metrics for why you should or should not have the government spend money. The actual process of printing money isn't changed. Whether the world financial markets accept it basically doesn't matter. If the Federal Reserve went MMT, we wouldn't even necessarily know. If Congress went MMT, we wouldn't necessarily know it either.

I mean, would you think it was weird if Congress was debating whether it was more important to reign in inflation or reduce unemployment? Would you think it was weird if Congress invoked the real interest rate in discussions of whether they should raise taxes or issue treasury bonds? Would you think it was weird if the Fed chairmen were arguing about how much money to print in terms of the unemployment rate and the inflation target?

Of course not! They do all those things anyway! The only thing that's different is that MMT tells you to expect different correlations and to discount out-of-hand fears that the country is going to turn into Greece. It doesn't discount fears that we could turn into Zimbabwe, it doesn't discount fears that we could turn into Japan. There are still plenty of economic scare stories that MMT recognizes as valid possibilities for countries which print their own money. People from opposition parties could still go off on hyperbolic doom saying about whatever the fuck the current administration was doing at any given time.

-Username17

[Lago PARANOIA]

This is more of a history question than an economics question, but, even though the idea of a peacetime fiat economy is a pretty recent one, wartime fiat economies have existed for centuries. What made people go back to hard money at all?

If people don't buy in to the idea of personal property, they start demanding equitable redistribution of the means of production. If people do buy into the idea of personal property as a natural right, they start trying to privatize the water supply. Keeping the country from having a Communist or Anarcho-Libertarian uprising requires constant propaganda and vigilance.

With regards to communism: so? First off, I don't think that there's any need to go fully communist at all for people to reject the idea of personal property. You can still get people to agree (probably even most -- I'm one of them) that it's okay for certain members of society to get a larger share of the pie than others. Aside from that fact that few people begrudge Michael Jackson or Steve Jobs of their money on the grounds that they earned it, people are still okay with cutting the Norwegian royal family a fat check every month for absolutely no reason. Hell, I'd go as far as to say that most people would rather have a (slightly) unequal society, even the ones on the bottom. Emphasis on slightly.

Second of all, even if everyone decided to go fully Bolshevik then unless you're a member of the overclass so what?


As far as Anarcho-Libertarian delusions go, even though I think that challenging that crap would increase right-wing violence, would it necessarily be a society-breaking amount? Maybe back before the full onset of the Industrial Revolution, but I think that the Lockean and Jeffersonian myth of 'property uber alles' has been completely discredited at this point. As in if you given the average post-industrial citizen the choice between living as a randomly selected citizen of Oslo or going Galt, people would laugh in your fucking face and say that they don't want to be a Mountain Men or those crazy inbred farmers in Alabama.

I actually would like to do a thread someday about how the worship of property values (epitomized by America's bizarre fascination with the landowning farmer) is the biggest mythological crock of shit from the Enlightenment and believing in that myth isn't just dumb but it actually has set back society. But it'd just end up as a weird rant and I've been doing too many of those lately. So I'll ask PhoneLobster and Koumei how it actually goes down.

[erik]

If the Norwegian royal family is like the British royal family, then apparently they generate enough tourism income to more than cover their luxurious lifestyle. Weird.

Just think of them as well-paid and successful carnies.

[Ancient History]

This is more of a history question than an economics question, but, even though the idea of a peacetime fiat economy is a pretty recent one, wartime fiat economies have existed for centuries. What made people go back to hard money at all?

Mental and cultural inertia, though that's only half the story. Hell, we've had IOUs almost since the invention of money; early forms of currency were stand-ins for difficult to store and transport trade goods like grain and animals, the Knights Templar operated a banking empire based on credit and debit. Even into the Middle Ages most circulating currencies were at least partially fiat-based, with the ruling or minting authority declaring the value of the coin. The idea that precious metals et al. have value as money in and of themselves really gains momentum in interstitial areas where two or more different currencies can mingle and interact and be valued against each other.

Or, put it this way: You're a trader in the 1200s coming from the Carolignian Empire and you have silver coins called thalers. You go to Britain, and they have no fucking idea what a thaler is, they're still using these worn-ass Roman silver coins or maybe some shit stolen from the Moors by Vikings. So in the absence of the fiat value of the coins, your money is now reduced to its inherent value - the amount of silver. Military paper currency produced during, say, WWII had value at the time and in the area because the ruling/issuing authority (the military) declared it to have value and enforced it. Pure fiat. Outside that authority, however, the currency only had the inherent value of the material - paper. This is why, in a world before we had global superpowers, the silver Spanish dollar coins became the currency of choice from China to the Middle East - nobody gave a damn that it was a Spanish king on the coin, only the amount of silver as a medium of exchange. Which you can still see today. Foreign paper money in the US is mostly treated as monopoly money. US greenbacks are an international currency because people want US dollars.

So mostly, in the old days, fiat currencies didn't last because there was too much social pressure or they were only seen as a temporary wartime measure.

[name_here]

Also, fiat currencies have the problem that they lose value when the people who issued them get their shit trashed, and in Europe no one trusted that a particular government would not get its shit trashed.

[mean_liar]

http://www.nakedcapitalism.com/2011/08/ ... aeber.html

[Username17]

http://www.nakedcapitalism.com/2011/08/ ... aeber.html

That's a good article, but the flippant dismissal of barter economics seems unwarranted. Yes, credit and debts was the way people handled transactions within tribes and settlements, but barter has always been how trade was done with actual outsiders.

The Smithian explanation of cows for chickens moving to accumulation of trade goods still holds when you look at people trading with "them" rather than "us".

-Username17

[Lago PARANOIA]

But barter starts to become completely unworkable (or at least unnecessarily restrictive) when you start to interact with more than one or two other tribes or settlements no matter how xenophobic or suspicious you are. The creation of money seems almost completely inevitable unless you live in almost total isolation.


Unrelated Note:
I wonder if or when anyone will come up with an economic theory that is completely integrated with sociology and psychology. If they do, that shit will be the motherfucking ass.

[hyzmarca]

But barter starts to become completely unworkable (or at least unnecessarily restrictive) when you start to interact with more than one or two other tribes or settlements no matter how xenophobic or suspicious you are. The creation of money seems almost completely inevitable unless you live in almost total isolation.

Early money is merely whatever barter good happens to be very popular and easily transferable. If a most people like pretty shells, and most people will give things of value for them, then pretty shells because the defacto currency. This isn't because someone decided that those shells should be money. It's just that those shells are the most popular barter good so it's easier to trade with them.

[Lago PARANOIA]

1.) What does Paul Krugman have against MMT or its offshoots? I can understand him not bringing it up because the American political elite would label him as (even more) shrill and delusional if he did. But it seems like he's actually against it. And not in a reasoned way, but in a 'tut tut unserious person' way that he accuses the political elite of doing towards traditional ideas.

2.) How often is inflation caused by just monetary expansion, with no other confounding factors? Inflation seems to have a lot stronger correlation with political instability than the reverse, since substantial expansions of the monetary supply (e.g. Japan) hardly do anything. Hell, I think I might do a mini-graph showing that surpluses or deficit reduction caused by revenue increases has a lot stronger correlation with recessions.

[mean_liar]

#1 seems an accurate characterization to me. So, brothers in arms in that regard.

#2 seems, to my limited exposure, to be limited to pre-modern/21st century economies. Zimbabwe gets the gold star for fucking up here, but my sense is that's because of employing shitty pump-priming in the 21st century combined with a collapse of their agricultural sector... but I am no economist, nor am I willing to pretend to be one. I've read the deep end of Dealbreaker, finance gets fucking heavy in a hurry.

[Ancient History]

1.) What does Paul Krugman have against MMT or its offshoots? I can understand him not bringing it up because the American political elite would label him as (even more) shrill and delusional if he did. But it seems like he's actually against it. And not in a reasoned way, but in a 'tut tut unserious person' way that he accuses the political elite of doing towards traditional ideas.

Link for great justice. Short version: Technical issues with their stuff aside, it's too simplistic. You cannot have One Theory of Everything in economics, the markets and people and history are too complicated to say that "The solution to every problem y is x!" You need to have a wider picture.

Case in point: the supply/demand curve is not linear. You get to a point where the cost trails off because to go lower you would be losing money on each unit, or higher and nobody that wants it can afford it and, again, you're losing money. If you only look at the middle of the curve, though, that's very linear - and people that only look at that middle section can be mislead.

2.) How often is inflation caused by just monetary expansion, with no other confounding factors? Inflation seems to have a lot stronger correlation with political instability than the reverse, since substantial expansions of the monetary supply (e.g. Japan) hardly do anything. Hell, I think I might do a mini-graph showing that surpluses or deficit reduction caused by revenue increases has a lot stronger correlation with recessions.

Practically never, at least in modern times. Zimbabwe was the ugly stepchild, but even they had more going on than just an over-ambitious printing press that thought they could solve every problem by printing more money. You could make a serious argument for, say, the Spanish peso after they starting shipping in all the silver and gold from the New World, or certain imports to isolated native populations that used non-standard currencies.