22
Feb
2019
Potpourri
==> My interview with Warren Mosler (Bob Murphy Show ep. 18) is up.
==> My critique of MMT is also up.
==> In the movie Dr. Strangelove, the president says it is the avowed position of the US government never to be the first to use nuclear weapons. Not so fast, says Tyler Cowen.
Some punk kid is trashing Krugman and eating your lunch man!
https://www.usatoday.com/story/opinion/voices/2019/02/15/donald-trump-venezuela-socialism-bernie-sanders-ilhan-omar-column/2861461002/
Dang! He’s impressive, I think I’m moving over to listening to The Kid’s podcast.
Regarding the MMT critique:
1. Hayek 1975: “No country can go bust. All that happens is that economic conditions of daily life are getting much worse, so there will be scarcities. People will find that their income is no longer sufficient to maintain their standard of life.”
https://mises.org/library/hayek-meet-press
https://www.carolinajournal.com/opinion-article/hayek-on-meet-the-press/
2. The Byzantine nature of the US central banking system does not change the laws of economics, it does not abolish the Socialist Calculation Problem and Cantillon Effects are still Cantillon Effects. MMT proposals remain a massive exercise in Cantillon Effects so that the public cannot follow the trail when they are continuously looted.
3. For the 5,000th time, no non-Austrian has the slightest familiarity or understanding of even the most basic Austrian concepts or analysis especially the necessity of honest economic calculation. The levels of incuriosity are mind-blowing.
4. Central banking is a “solution” in search of the problem that does not exist but for its own actions.
Regarding the MMT critique:
1. Hayek 1975: “No country can go bust. All that happens is that economic conditions of daily life are getting much worse, so there will be scarcities. People will find that their income is no longer sufficient to maintain their standard of life.”
https://mises.org/library/hayek-meet-press
2. The Byzantine nature of the US central banking system does not change the laws of economics, it does not abolish the Socialist Calculation Problem and Cantillon Effects are still Cantillon Effects. MMT proposals remain a massive exercise in Cantillon Effects so that the public cannot follow the trail as they are continuously looted.
3. For the 5,000th time, no non-Austrian has the slightest familiarity or understanding of even the most basic Austrian concepts or analysis especially the necessity of honest economic calculation. The levels of incuriosity are mind-blowing. I confess that I have an extreme fascination with the complete refusal to engage us that is exhibited universally by non-Austrians.
Regarding MMT : First, thanks much for the Mosler podcast! – helpful. Second – thanks for the useful GND critiques – I agree. Regarding MMT, you seem to be saying that the limit on deficits (whether from lower taxes or higher spending) are defined by the amount of real resources available to absorb the higher spending created by deficits. If real resources are not sufficient, there will be no growth but there will be crowding out of the private sector and inflation. Agreed. Your example with the $24.8 billion makes this clear. I have followed the MMT stuff for several years. While I don’t agree with a lot of aspects, the one principle they do make clear is that the limits to deficit spending (or any kind of spending, for that matter) are defined by the real resources available to absorb this spending without creating inflation.
That is, your valid point is a basic MMT principle. So I don’t understand why you are using it as a criticism. That is, you apparently agree with MMT on this issue- unless I am missing something. Thanks for any thoughts.
“While I don’t agree with a lot of aspects, the one principle they do make clear is that the limits to deficit spending (or any kind of spending, for that matter) are defined by the real resources available to absorb this spending without creating inflation.
“That is, your valid point is a basic MMT principle.”
Then MMT is internally inconsistent since, as Mosler mentioned, he believes that the central bank is actually the price-setter in the economy.
Printing can’t be limited by real resources (as defined, and as valued by consumers) and also the price-setter for these resources. That’s a contradiction.
I found it amusing when Mosler said, at one point, something to the effect that there’s a trade-off if you try to pull some workers away from one job to do another. I immediately thought, sarcastically, “Why not just have the Fed print scarcity away – problem solved.
The point is that Mosler can’t see that money units are only useful when they have a link to real, subjectively valued resources (or at least, temporarily, when some people merely believe a link exists when it does not).
Yes, it’s true that in order for the government to tax people in useless FRNs, they first have to print the FRNs. But in order for people to want to accept FRNs as currency, *they* have to be the ones to perceive some value in holding them.
That makes all the goods and services the “credit” side of the account, and the FRNs the “debit” side.
Consumers are the price setters, and the FRNs are the fraudulent IOUs that require coercion in order for people to accept them as currency.
There’s a mathematical fallacy when people attempt to use a property that makes sense on the margin, but they go ahead and use this in a big-picture context where a change will push the system far from equilibrium.
Thus, in the marginal context of printing one dollar more or one dollar less, the central bank is a “price setter” because the economy is exactly the same either way and a buck is a buck. However, you cannot expect marginal values to hold if the central bank prints up a trillion dollars and the whole economy inflates, then you are no longer sitting at the same equilibrium. The buck will severely devalue.
Krugman uses the same trick when he says that if the rich people all stop working then economics proves this is exactly equivalent to their income, therefore no gain, and no loss.
No, that’s wrong application of marginal theory. If one rich person works one less hour then this hour is equal to the income on the margin … but if ALL the rich people stop working then the whole economy swings to a new equilibrium far from where it was before … and all bets are off. Marginal theory does not make predictions about macroscopic economic adjustment (other than in the very special case of a linear system).
“Marginal theory does not make predictions about macroscopic economic adjustment …”
I would say that the marginal value of a printed buck may or may not exhaust every cent’s utility before it reaches the consumer (all further actions may not be worth a further one-shot gain of 10 cents, for example), but the economy isn’t at the same equilibrium for the tiny amount of change it incentivizes.
Besides, in the right circumstances, a 10 cent part can be the difference between moving ahead with your plans or being stuck – and being in one place versus another can make a huge economic difference.
Does inflation avoid the deadweight cost associated with (non-lump sum) taxation?
Please note that Dhruv will be taking over as Adhesions RBA in the coming months, so please copy him on all correspondence going forward. Thank you!