I think one information that is key to understanding this is that money is not a resource, but a social relationship of exchange of goods. An economy runs on resources and labor, so those are the actual important variables, while money is simply one possible way to allocate goods and resources. Every problem with money is either a problem with resources themselves or of using an abstraction as a proxy for resources.
But you also have some level of demand on money if level of money is to high and market cant alocate it in food way it will icrease inflation yes money is social relationship used to exchange but if money lost value people will not exchange more goods and other people will use other money with higher value BC their are more stable and that will make weeker money lose their value like in Venezuela people use dolar and euro not their own boliwars mostly bc Its to weak
@@lesiu6566 yes. Because money, being an abstraction, hidea the real resource shortages that may happen. So the result of people believing and trying to use a piece of paper to acquire a good which is more expensive to produce, creates this whole mess
@@doctorinternet8695 money system is actually good bc it help us to calculate value if we create system without money (Theoretical communism) we will create problem with calculation and trade bc its much more easier to use money as the symbol of value of product and data like inflation to determine suply and demand of products and trade it with other. Money is just medium of exchange and its need few function like: it need to be accept by other used in transaction and be: symbolic(dollar euro etc value create by strenght of value economic growth stable quantity on market and other things) or commodity money(value mostly created by quantity of gold)
@@lesiu6566 Why couldn't consumption just be measured directly instead of using money as an indicator of supply and demand? Why should a consumer be punished for some product being low on supply by increasing it's purchase price? A currency of some sort is convenient as a mean of exchange though, bc there is then this one type of product which can be used to acquire all other products in certain ratios.
You are overthinking things here. Money is all about where it's spent, how it's accumulated and who accumulates it. For federal government, because it literally creates money, it's just keystrokes on a spreadsheet. The problem is the rest of us can go bankrupt if the government doesn't spend and tax appropriately. It's obvious it doesn't and trusting the private sector to do so is an even worse idea. No matter what they preach!
The problem with all discussions of MMT is that we have allowed the definition of the word "inflation" to morph into something that creates misunderstanding. The original (and the only real) definition of "inflation" was "An increase in the ratio of the amount of money in circulation to the amount of goods and services in the market (aka GDP), leading to rising prices". Once we re-defined to word to where it became merely a synonym for "rising prices", we lost the ability to control the problem of rising prices.
the Magic Money Tree is working at full force. Even if FIAT currency would work as inteded, politicans will never use it wisely hence a harder currency is needed that protects the common people from politics shinanigans
Printing money endlessly and its inflationary impacts have been proven many times throughout history. And now we are going to see this recession go to depression levels with massive inflation.
@@zackeryzackery9381 in every case in history (which is a relatively short history since fiat currencies have only been around for a few decades) those inflationary pressures came from increased demand vs supply. Creating more money in an of itself did not actually increase inflation. Japan for instance has been running quite large deficits since the early 90's and rather than inflation they had almost 3 decades of deflation (which is actually worse) despite creating a lot of money.
@@Individual_Lives_Matteryou guys are completely clueless. It's like you saw Ronald Reagan and Margret Thatcher on the thumbnail then immediately dismissed everything in the video. This "summary" is completely braindead.
10:05 “taxes take it out” but not used to raise capital. This is an interesting concept… it can be concluded then that taxes should then be applied in meaningful ways like rebates and other spending is. It implies that income tax is largely a historical artefact, not necessarily effectively applied though. It implies taxation could and should be used to precisely target markets that require deflation. It implies broad taxation is kind of pointless (besides that incentive to use the issuing currency which seems a little odd).
Yes! One purpose of taxation is to release the real resources from the private sector that the government wishes to use, without bidding their price up. Sometimes this won't be necessary but sometimes it will.
One of the odd things about MMT is that spending creates inflation which makes all money worthless than previously. This makes paying the debt back easier. What really happens is that government never pays it back. So the only money that really becomes worthless is our money.
If printing and spending the money increases economic capacity then actually MMT says it will not cause inflation. I think you should look into the concept a bit more because it really does break down a few of the "obvious truths" we take for granted in economics.
You don’t mention that when private banks make a loan most of the money is created out of thin air (endogenously). This money is debt. When the debt is repaid that money disappears. This has been the case since 1844 in the UK, by the bank charter act. If the banks can create money why shouldn’t the government. Should the money grabbing banks be able to create money at all?
Absolutely correct. MMTers are in denial of reality. MMters say there is value in money because taxes put value into it despite the fact that there are plenty of examples of countries which had taxes but money that was inflated so far it became valueless.- i.e. taxes but worthless money and MMTers saying there is value in the money because taxes made it valuable.
So governments tax us to encourage us to work to be able to pay them? That explains why missionaries used to ask colonial governments to impose poll taxes in cashless societies, whereby people who worked only for themselves and their community would be forced to seek paid employment "like good Christians" so that they could pay the government and not have their belongings confiscated in lieu of tax.
The one critique I’ve heard of MMT that does stand up is with regards to their ideas around full employment. It ignores Marx’s Reserve Army of Labour. If the government funds full employment, then it reduces your reserve army of labour down to nothing. When the reserve army approaches zero, the cost of labour skyrockets and your economy tanks because businesses can’t afford employees. This is why banks say they want to see unemployment rise as a result of the rising interest rates. That will push down the cost of labour and increase profits. Basically you can’t have both a capitalist system AND full employment. They are fundamentally opposed.
Mmt, Keynesian, austrian, fiat, or gold/silver standard all run into one major issue: they're debt-based. Equity-based economy would not put anyone in debt. Imagine instead of a bank loan to buy a house, you sell shares in your family (eg $200k for 20% equity and 5% dividends [5% of the 20% equity of net family income]). Banks, etc could buy & sell, making profits from such equity. The family could buy it back too. History of mankind has been debt-based economics, even before the first coin was struck: the first writing was an account of debt from each person and how they paid (eg cows, milk, grain).
That's the "natural rate of unemployment," the minimum amount for employers to have the whip hand over workers. In Mrs Thatcher's day this was euphemistically called the NAIRU or "non-accelerating inflation rate of unemployment," from the theory that if workers could ask for whatever wage they wanted, inflation would skyrocket. That's why Norman Lamont, when Chancellor of the Exchequer, said that unemployment was a price well worth paying: the unemployed "paid the price," and his party's donors benefitted. If you believe in this, then when unemployment falls in a particular area you will sell your shares in companies that manufacture there. It's a self-fulfilling prophecy.
@@faithlesshound5621 It’s not a matter of believing it or not believing it. It’s just an economic reality. It’s based in Marx’s reserve army of labor, and it’s also Kalecki’s argument for why Keynesian failed. What matters is what you do with the information. Neoclassical economists see it as a way to force wages down, which is bad. I think of it as proof that a UBI would be better than a job guarantee. A UBI would not compete with the labor force, therefore it wouldn’t drive up wages.
@@TheCommonS3Nse "Practical men, who believe themselves to be exempt from any intellectual influence, are usually slaves to some defunct economist." So said JM Keynes. That's why I distrust "common sense" and instead hold that economists ought to wear their collars back to front. The Monetary Policy Committee should appear in cardinals' hats when they make their pronouncements.
@@faithlesshound5621 That says nothing to my response. That’s just you burying your head in the sand to ignore a real issue with the jobs guarantee. If the monetary policy committee had listened to Kalecki instead of Friedman, we wouldn’t be in the economic shit show we’re in now. Arguing against the current monetary regime does not address Kalecki’s argument in any way.
The problem is that you have to trust the government with the power to adjust production of money and not abuse it. If you have a fixed number of dollars, and capacity increases, you have *deflation*! Everyone becomes effectively richer because we overall are producing more per capita. Instead, we’re left with reckless overspending and crazy inflation that’s effectively a very regressive tax
Mmt is a good description of a fiat currency. Unfortunately, in the real world, the economy is not an abstraction of fiat currency, its an an abstraction of the movement of value. Every dollar, definitionally, represents one unit of perciveved value. The government can change the ratio of currency/value but cant print value.
I stumbled across this clip whilst laying in bed (it's 6:50, here in Sydney) before heading out the door for my coffee and to read the paper. Well, telling you I actually read a hardcopy of a newspaper tells you a tale in itself. Quite simply, most likely I'm over 50: in fact, I'm 69. Hence, I'm old enough to grasp exactly what you're alluding to with saying: "the economy is not an abstraction". Anyway, I actually went to a seminar Stephanie Kelton spoke on RE MMT in 2017 and she's quite persuasive - part of that entails how sexy she is/was, which had men salivating over her. But not long after attending that seminar and doing a little research it dawned upon that MMT has actually been implemented upon us from at least 25 years ago: it just didn't have a label. In closing, I want you to Google up the painting by John K Waterhouse called: 'The Daughters of Danas' Upon doing so you'll immediately grasp the relevance of that painting and the word I made up called: DANADIC.
@@GynxShinx Printing money creates inflation by definition. In the short term, you may create an illusion of economic stimulus, but medium to long term, you are devaluing the dollar and creating inflation. The reason this is an illusion of economic stimulus because increasing the money supply does not increase real demand and productivity.
7:05 I viscerally despise MMT as "Magic Money Tree". That being said your explanation is one of the more balanced explanations. There are four problems with it 1) "spare capacity" presumes that the public sector knows better than the private sector how to spend money. Is that money spent on consumption, or building meaningful capital? Is misallocated spending punished? Are the cantellon effects that incentivize this sort of spending fair on citizens downstream of it? 2) Say's Law was not accounted for: people don't actually trade money, they trade goods for goods with money in the middle... money isn't the engine, it's the lubricant. It depends on if the government spends money that creates capital and wealth, or misallocates it to pay for consumption e.g. subsidies and welfare cheques 3) Inflation is not a function of spare capacity but, as money creation is no longer sync'd with the creation of capital and goods. Printing money doesn't print more hospital beds. 4) We can achieve full employment by printing money to pay people generously to dig holes with tablespoons and fill them in again. An absurd example, but it shows how meaningless "full employment" is as a measure and that the value of money invested exists on a spectrum... It doesn't account for the value or complexity of capital produced and, instead of satisfying a market of interested citizens (who punish non-delivery with boycotts) but instead diverts money to governments who pay out their backers to remain in power.
First of all MMT is not a political regime, but rather a descriptive theory. So by acknowledging MMT's pointof view, you can use it on different political agendas. You could still argue for a limit of public debt or spending, which is just more accurate in assessing the real economic limits and therefore leavin less economic potential out. I also strongly disagree with your implied korrelation of the quantitative size of monetary aggregate and inflation. Here in the EU all monetary aggregates have massively increased due to low yields and quantitative easing. Even tho, the inflation rate has remained under the 2% mark for almost ten years. This shows, that there are more factors to take into konsideration to accurately assess inflationary tendencies
@@lm_2973 ultimately MMT is a creature of fiat money and fiat is a whim of govt: and the aim of the govt is to grow the govt and to pay off its backers. You cannot separate MMT from that political nature and that you cannot solve political problems with economics. The second is that your comment "inflation remained under the 2% mark" fails on three points 1) the definition of "inflation" has been altered in several jurisdictions (such as the US) to make it appear less severe than under the old definition 2) the key is whether the money makes it into the M2 money supply and lubricates the economy, or is it locked up in bonds or loans that the govt mandates as reserves. In the US, the US Govt is using the FDIC to keep the printed money "off the books" so it looks like there is no inflation (look, everyone is looking at M2!) without realising that the inflation is leaking into the economy in other ways, such as malinvestment pushing up prices in housing or the stock market and crypto as investors try to avoid their savings being inflated out from under them 3) your comment RE: inflation doesn't account for the central limit theorum and which "goods in the shopping cart" are measured for the effect of inflation. As per points 1# and 2# it's arbitrary and the whim of the fiat and political masters keen to stay in office and to be seen "managing" "the economy" and "unemployment" when in truth it has no business doing either.
@@lm_2973 consider a simpler example: Keynesian-ism. There's meant to be a boom and bust cycle, and there should be austerity during the boom, and free spending during the dip to prop up the economy. In practice, the govt simply spends with profligacy during both the dip and the boom to buy votes. That's why Keynesian-ism, like MMT, is promoted by all major govts as "mainstream" as the politicians want economics to anoint them with more political power compared to economic theories that discuss the constraints and limits of govt intervention.
@cassiuslives4807 Why couldn't there just be full employment and shorter worktime for all the workers. Why should some people be held unemployed while others work for +8 hours a day while every able person could work and the working time could be reduced to 7 or 6 hours per day.
@@here98FIN it's a good question but the wrong question in that it betrays a misunderstanding of what is at play here. The real question is, what do customers want and what are they paying for? Are they paying for 24/7 shopping, 2 hour delivery, beds, fridges and automobiles? As per Menger's Customer Sovereignty, in such a way the hours worked per person is shaped by 1) what they can make and 2) are they available for consultation on demand by customers or, as proxy, the employer. Trying to run an economy based on "full employment" and "hours worked" ultimately is a fool's errand in that you could spend 40 hours working on something no-one wants, or 1 hour on something that sells $$$$$$$$ at auction. That's why govt's trying to run the economy is bass ackwards, ultimately. If you worked for me 1 hour a day, but in that hour could produce what another employee could do in 10, then not only might I pay you a premium more than what I would have paid the other employee, you could demand that for your expertise and services. Hence your question RE: hours worked is moot: it was tried in the 1930s and lead to the great depression. There are six or seven more factors that play into this, but I'll leave it at that for now. Hope that answers your question!
The problem with mmt is that it takes value for granted. If you produce widgets nobody wants, they have no value. The Soviet Union found this out the hard way.
Exactly right. MMT proponents advocate for printing money only in the case of deflation i.e. in order to ameliorate or prevent a recession. MMT is a natural extension of Keynesianism
@@skutchBlobaumyes, I would prefer our modern system over our previous systems. How is that even a question? The available goods and services that exist today, the wealth generation created by fiat currencies across the world has been a massive boon to humanity as a whole and the US in particular. Having money tied to commodities limits the amount of capital available in an economy. It was a safety valve against inflation but it also greatly limited the enterprises that could be created. Our issue now is getting capital into circulation from the individuals that have it. Taxation is one of the best tools for this but our gutless representatives know taxes are unpopular and refuse to make necessary adjustments. If we had the progressive tax structures of pre-Reagan era’s we could be incentivizing the wealthy to plow their dragon’s hoards back into the economy creating a plethora of new ventures that could greatly enhance gdp growth and gbi simultaneously. But no we have “all tax bad” Neanderthals repeating the mantra to the wealthiest individuals drum beat.
Not really, because central government sets their budgets, then the local government then decides if it needs to top that up with local taxes. If central government simply provided enough, then there's no need to add that extra layer, and the local governments can just get on with doing the local necessities like organising rubbish collections and filling in pot holes... Then send invoice to central government.
Yes it could. With COVID we’ve seen a massive amount of money being created by central banks. They can only do this because there is spare capacity in the economy - put simply the money created is buying things that would otherwise have gone unsold. Governments will always be tempted to print money. One way to avoid this would be to have an independent central bank that has the ability to say ‘no’ to any government that was becoming irresponsible.
@@economicsunderstood Wouldn't an independent central bank outside of government control lead to it own issue? I know we already have one in the USA but expanding this could lead to its own issues.
In the case of the Bank of England, it's a myth that it is independent and I believe the same holds for the US Federal Reserve. If Congress instructs that a vendor be paid for supplying goods and services, the Federal Reserve cannot refuse. Likewise, in UK statute, the Bank of England cannot do anything that the UK government does not agree with. Ultimately, the power of the purse lies with Congress in the US and parliament in the UK
@@wdavidwoods I agree that the reality is that ultimate power lies with the government. However, I do feel that the 'independence' arrangements we currently have in place allows a level of transparency in decision making which makes it harder for more politically motivated actions to occur.
@@economicsunderstood In the case of the UK, if one looks in the 'Companies House' website for 'Bank of England', it is described as a 'Royal charter company'. In other words, it is 100 per cent owned by the government. The only independence it has is for a government-appointed 'Monetary Policy Committee' to decide on an interest rate. MMT academics point out that this has very little effect on the real economy, and what effect it does have is counter to what most people think. The BoE has no real fiscal independence. I suspect that the central bank independence narrative is a political smokescreen that has been set to deflect blame from politicians.
Both Zimbabwe and the Weimar Republic suffered substantial drops in productive capacity which was the root source of the inflation not the money created. In Zimbabwe this was the transfer of land from commercial farms to under capitalised subsistence farmer. For the Weimar Republic it was the closure of the Ruhr factories and mines in order to avoid paying war reparations to the French.
There is always some excuse from leftards. Just keep printing money, what could possibly go wrong. The MMT crowd is out to lunch today eating twenty dollar happy meals. Get a clue@@davidwright7193
@@altonstevens1294 capital in that case means seeds, fertiliser, tools, land that is lying fallow to recover. A farmer who needs to sell their crop to be able to put it in the ground in the first place isn’t able to maximise their production.
If we understand money as credit, its value becomes clear: Fiat money is central bank's liability (credit) , and It is backed by the credibility of the creditor and the repayment ability of the debtor. This places the government in an extraordinarily advantageous position over the private sector: The government has priority to access central bank credit, which the credibility of the sole legal tender creator (FED) and unchallenged repayment ability of the government (Federal gov) make the government unchallenged in the fiat system. New credit could compensate the old debt as long as debt ceiling keep rising, then the games goes on. The only concern should be inflation.
In theory yes if you can spend x amount of money, whether it exists or not, to increase production capacity significantly enough then you can outweigh the effects of that money printing, however like some comments point out this enables governments to easily misspend that money. If you use the traditional balanced budget policy you don't run this risk of systematic inflation and can avoid it entirely. This entire theory relies on the idea that government can accurately asses the effects of their spending which in recent years (post covid) as proven they cannot. Reject MMT.
@@Pyropardus Yes, we also have UBI, universal basic income. If you're not making more than $15/ hour, you're better off staying home and collecting benefits from the taxpayers.
Hum... No ? The chronic debts are due to neoliberal deregulation of credit, and reducing government only gave more deficits... Who knew. Anyway, practising part of a theory generally doesn't end well. It's like building a bridge with thinner deck or fewer pillars. It's going to do things at first but will not last Why aren't debts held by central banks cancellled already ?
Hum... No ? The chronic debts are due to neoliberal deregulation of credit, and reducing government only gave more deficits... Who knew. Anyway, practising part of a theory generally doesn't end well. It's like building a bridge with thinner deck or fewer pillars. It's gonna do things at first but not going to last.
Why wasn't the company in the early example already producing 1,000,000 widgets already? Why did the government have to buy 200,000 widgets? And if there isn't enough demand for 1m widgets, wouldn't creating more widgets create a surplus, and inefficiency in the market?
I think thus where he made the point "if the gvt interferes with a market at capacity things go sideways and yea sometimes gvts fix things that aren't broken and end up breaking them"
@digitalsurfer4098 in this example those "widgets" that went to hospitals or schools wouldn't have gone there if the government hadn't injected money into the economy by purchasing the extra 250k widgets. So the government created more demand and supply rose to meet it. And it employed more people doing so and thus overall the economy was boosted.
@@aruak321just like when we went to WW2 to get out of the great depression. Nothing like a government mandate to make things work because democracy means we are never wrong
I'm in Canada, we don't have the USD that is often used as a base currency throughout the world. The money that was created for the covid measures definitely ended up causing inflation pushing interest rates higher among other problems. If that drag is not slowing un down I don't know what is, but the economy is is shambles and that's preventing the government from taking measures now (because they also overspent A LOT before covid). Now, we have $60Billions ($1250 per person) just as debt service every year, twice our military budget and if gas prices had not decided to go down we would have had more of it, interest rates are not coming back down for the foreseeable future either.
High intrest rates high for long is good keeps house prices low.Makes sure you dont become a nation of debitors like usa.secondly it rewards participation in the econemy if fruits of ur labor have 0 intrest why bother to work that exstra hour...high interest rates also help to spend more responsible...and the perception helps to hold the government to certain standearts
In what way were government payments ‘definitely causing inflation’? Did you go any deeper into your analysis than that? Nothing to do with oil prices or supply chain constraints? Moreover why should inflation trigger interest rate rises? An interest rate rise just seems to be another way to rise prices and cause more inflation imho …
Thats simple because mony is supply and demand....if the government pumps mony bye spending it that comes into the real economy...Same reason why QE caused inflation and not the supply and demand issues (was only small part) they lied to you about....QE does not cause inflation aslong as the mony stays out of the real econemy (aslong as its just a number in a computer then there is no real world consequences)and as long as the central bank keeps pumping and stocks go up there is no issue.however if folks start to sell shares at same time( bye war)or the believe stocks will go down then a huge flow of fake mony gets converted to real cash and pushed in the real econemy and a tsunami of cash chasing limited goods wil cause inflation....bye repricing for now scares goods can now be sold for higher price.Modern economics are not worth the paper its writon upon...Imagine taking a page out of the playbook of the failed state that Japan is no real gdp growth in last 30y they have reduced purchase power so low that folks dont even wanne reproduce anymore...they live in appartments of sizes where you wouldent push ur dog in..there elderly are barely serviving ......QE was the crime of the Century commited bye the centralbanks and a price will have to be payed for your appeasement of there policy@@52darcey
I am not familiar with the Canadian economy but in Europe we had an inflation increase mainly due to shortages (to simply this for this comment). Then the European Central Bank started to increase interest rates to fight this inflation. This was not only independent of the governments it was in parts contrary to what some government wanted.
Adoption of government issued money may be encouraged by tax requirements, but taxes aren't the primary reason money is needed. For example if a country had a sovereign wealth fund which made taxes unnecessary, the people would still need money. And if a country did require tax payment in it's own currency, it wouldn't stop the citizens from adopting another currency as preferred for all other transactions.
its not that complex , its how the system works , its just that many have been gaslit to think that countries which owns its own currency has to obtain it , which is utter nonsense
@@Phil_D_Waller yeah, I agree. It wasn't complex to me, but I think because of years of indoctrination, it is to many. Once it was explained that it was the coercive obligation to pay taxes that drove the value, it made far MORE sense to me than the narrative lie. It's amazing how resistant people seem to be when it comes to understanding this. The Federal government creates the dollar. Why would they need them from anyone else?? Obviously, we know they don't. States being different, USERS, of the currency, and thus dependent on taxes for funding does add some complexity, as well as countries that don't have monetary sovereignty and peg their currencies to another country's, like ours. Unfortunately, most Americans have little to no immunity to propaganda or ability to think critically and independently.
That taxes are the only way, or the best way for a government to absorb excess money from an economy, is false. Taxes are extremely expensive, are easily evaded, and complicate business matters so as to discourage small business activity. The most efficient way is to pay interest in return for parking money with the government. The government can also receive fees for services where appropriate. Taxes should primarily be used to discourage undesirable economic activity.
@@ThomasVWorm You confuse disagreement concerning a point with lack of comprehension. I was making a counterpoint. Fiat currency is created by government debt because that is the system we agreed to with the banks, who profit from that system. Also Banks create debt and currency simultaneously because they are enabled to do so under our laws. This is not the only possible way to do things, it is just how it is currently done. To say that the state is a "bank" for the private sector is dramatically distorting the business model of a bank. The state performs services and funds _public_ works projects which benefit the public, which includes enabling efficient businesses activity and growth. They do so simultaneously with the issue of debt instruments, which are purchased by the private sector in exchange for modest interest payments at low risk.This removes an approximately equivalent quantity of currency from circulation as is added to the economy via government spending. The net _direct_ effect on the liquid money supply is essentially nil. Most of the money supply is created by commercial banks through private debt. When this is done to enhance profitable production of needed supply, it produces net material gains for the economy. When it is done to enhance consumption, it creates boom / bust cycles, as people spend tomorrow's income today, making it unavailable tomorrow. When it is done to finance unproductive speculation, it creates bubbles and economic instability which lead to destruction of economic value. The idea that some sort of doom might ensue if the state failed to collect your supposed "debts" the private sector has incurred by the state having borrowed currency from the private sector is irrational. The spending by the state _produced_ value for the public, so it was a profitable investment, not a net loss. In effect, the private sector financed activities which enhanced their profitability, and was paid a little in direct profits, and even more in enhanced future profits, for having done so. As long as the enhancement of private sector profitability created by the government spending isn't exceeded by the investment, everyone has already won. There is no need to pull money "created" by this process from the economy. At its core, the function of the government is to enable efficient use of resources. Misguided government spending can mismanage resources and cause net loss, but effective management always creates net gains. You could imagine it being similar to the chief of a tribe assigning tasks to individuals to benefit the community, with no money involved. If she assigns work effectively, the community profits. If she assigns unnecessary tasks in preference to more essential tasks, the community gets poorer. The same applies to state fiscal policy. That leaves control of inflation. If everything is remaining in good balance, there will be no inflation, but when it gets out of balance due to unwise allocation of resources and misuse of private debt for speculation or consumption, inflation can be controlled by better regulation of private credit. Most unproductive growth of the money supply is due to loose credit practices by private banks, not by unwise state spending.
@@crawkn I see what you say but the idea that there is no problem with increased debt created by the state depends on the state being as efficient as the private sector in producing goods and services. The elephant in the room is that is very very seldom the situation because the state is more a consumer than producer. If it was not that case then there would not be a situation of it's need for tax revenues. Growing relative amounts of state created debt compared with increased production is a strong indication of the relative increasing loss of efficiency of the state itself being as productive as the private sector.
@@Rob-fx2dw A thing that is commonly misunderstood about capitalism is that profit is a form of inefficiency. It is an expense for consumers, not a benefit to them. It could even be thought of as a form of tax. So while the government might exhibit some inefficiencies, they are starting from an advantaged point versus a private enterprise which is required to pay investors who are not actively producing anything. When a government operation is not competitive due to inefficiency, the solution is to correct the inefficiency, not introduce a different one. As for the government being a consumer, the purpose of government it to provide for the needs of the people. Therefore the government is a producer of services to the people, who are the consumers. The difference is that they are providing some of those services without direct payment from the consumers. Taxes are the traditional means of collecting payment for those services. Providing services without direct charges makes sense for certain types of goods and services, but not all. One type of business which the government tends to do more efficiently than the private sector, as measured by the cost of services provided, is natural monopolies, and basic, low-profit needs. Public utilities, hospitals, and housing, for example, are usually delivered at significantly lower cost to the consumer than by their for-profit counterparts. A substitute for taxes to raise revenue is for the government to provide the most fundamental inputs such as electricity on a sliding scale, more affordably to the individual consumer of average means, and including some "profit" from heavier users such as industry. This can be the case for pretty much any service the government provides. Businesses who think they can save money by providing for their own needs, such as by generating their own electricity, are free to do so. One objection private enterprise may have to government competing with them is that the government has an unfair advantage because they don't have to make a profit. First, this is an acknowledgement that government may be able to sell the same services at a lower price. Second, the objection can be overcome if the government _is_ making a profit, to supplement the cost of other services they provide without charge, as a substitute for taxes.
Some of you seem to be missing the main difference between MMT and the current system for financing the annual deficit. Currently our government borrows the money. Under MMT it would merely print the needed currency, thereby not increasing the national debt. Debates in Congress over spending and debt ceilings would become mute. People like AOC and Bernie love MMT, which tells me a lot about its merit.
MMT IS the current state. There is no difference between the current state and the MMT. It's the same. MMT describes how our monetary system works (for 5000 years already).
@@player627 neo-liberal ideology and lack of knowledge. The Mont Pelerin Society did a great job by spreading their fairy tales to frame them as "facts". Before they established neo-liberalism Keynesianism was the leading school economics which caused us wealth. MMT is a combination of (Post-)Keynesianism and Chartalism. We were at a point where economic sanity ruled but it got overthrown by protofacists and after ~50 years of propaganda almost everyone believes in their lies.
7:31 example 1 is framed a little odd. There is no need to conflate it with public/private demand. That adds unrelated complexity to the example. More likely, a government will offer some incentive like a rebate for anyone to purchase more widgets. So the example can be simplified to: the government can increase demand for widgets by providing financial incentives (such as rebates). If that demand exceeds the available capacity to supply widgets, the price will inflate. This then leads into interesting discussions like, supply/demand over what period, how long does it take to increase supply capacity, is the demand and supply static or dynamic over time? Do companies report their capacity deficits or excesses to governments so they can make these decisions? How quickly does price respond when not meeting demand? I assume prices respond faster for fundamental things, but slower for things that don’t really matter.
Ever since I first heard this theory it sounded like an excuse for unending and unfettered government spending. Everyone should know that the least efficient consumer is the federal government and everything you’ve outlined here seems to support this.
Wonderful breakdown. I think one criticism of embracing MMT that you did not address, is not economic per se, and may be more of a criticism of sovereign Fiat currency . It basically states that a nation like the US, that creates its own money and owes its debt in it's own money has too much power and is in no way beholden to its people. In other words, at a time of gold standard there was a certain balance between governments, those who produced things, like guns or food, those who held assets and thus could led to the government, and those who had influence on manpower (the people essentially). With fiat currency the balance is completely in the hands of the government. Being able to create money allows them to purchase all the other components, and in fact, also destroy the fiat assets of those it sees as a threat (e.g. Russian Oligarchs and their frozen assets). It doesn't matter how many guns or bullets or nonperishable food items you stockpile. If you are going up against the US gov it is neve enough because their resources are essentially limitless. I think this is an interesting dynamic and is probably one of the main reasons for a government that is oppositional within itself (multiple co-equal branches and multiple parties). Any thoughts on this?
First, a question: what is a "fiat asset"? What I'm about to type is based on Randall Wray's book, "Making Money Work for Us." I'd argue that a bigger concern is that too little deficit spending will cause those in the private economy to rely on credit from private lenders, making debtors beholden to those creditors. As people's debts mount, they become less open to shifting resources to the public good. Just BTW, Wray points out that this is why ancient governments (almost always monarchs) had debt jubilees. The monarchs realized that subjects deep in debt were more beholden to their creditors than they were to the monarch. So periodically, the monarch would decree that all private debt was forgiven. The key, of course, is that in modern times we need to make sure the government is enacting policies that benefit all the people, not just an elite few. And that's on us, isn't it? Know how money really works, and get out and vote for politicians who will make the system work for all.
@@kensheck2049 in imperial period Rome debt jubilees were a common tactic some emperors used to gain trust and popularity from the populace. One problem that occurred, because of how the tactic was implemented, was that the wealthiest people didn't ever pay their debts because they knew that as long as they held out long enough sooner or later their debts would be forgiven. The poor debtors didn't have that luxury because they didn't have the "muscle" to hold off the collectors.
well, atleast the government ist democratic (in princple), the people holding these assets are all super rich billionaires that cannot be held accoutable in the way politicians can be. (though things get problematic if these rich people go into politics...)
Yes, fiat money creates a top-down system where all the power is in the hands of un-elected Banksters who pass laws and create a system which enslaves the workers and the people and creates an unaccountable government, whereas the US Constitution creates a bottom-up system where the government is beholden to the workers and the People to provide them with the intrinsic value materials for coinage required in Art l sec 10 USC. If we understood the Constitution and better appreciated the liberty it creates i don't think we would have ever left it!
If you have money in a bank, that money can (at least in principle) be frozen. It doesn't matter if it's fiat money, gold coins, or your grandma's jewels.
Money on the hands of the state is the just begin of the end of that curreny. In my country (argentina) our government in the past 123 years 112 the the government spent more than what they earn from taxes. In the meanwhile we take over 13 zeros of our national currency (we are going for 3 more), and we have now a hyperinflation. So, be careful with spending more than what you have, unless you want to end up like argentina or venezuela
MMT was set to become a main topic of debate in the 2020 election - then Covid. One could easily argue that the last four years have been an exercise in testing the MMT theory given the Inflation Reduction Act and other legislation. What concerns me is that few realize the idea of quantitative active management of an economy was already tried in India in the 1970s - and by some very bright people. It failed. When we have legislators/bureaucrats with incentives that do not align with a responsible, pragmatic approach to economic management, MMT falls on its face. Kudos for an excellent presentation.
The widgets example is not reality at all because it ignores the vital role of prices which are a way that relative costs between alternative production options and alternative opportunities that people have to purchase more widgets or other goods they need instead. It is know as opportunity cost.
@@GonzoTehGreat So what if I'm young? 30-40 year highs. I understand they have been higher for those that are in their 60s and lived through rougher times. For me, in my lifetime, it's relatively high.
Modern Monetary Theory is far more deceptive than useful because the value of fiat currency comes specifically from expectations that governments will not abuse their power to create more money than is necessary to maintain an equilibrium between the amount of money in the economy and the amount of goods and services produced. To the extent that governments violate that trust, fiat money loses value, so creating new money constitutes an indirect tax on existing money rather than a source of "free" money. The only way fiat money can maintain its value is if government spending is paid for with taxation or borrowing, with the exception that governments can get a bit of extra money by increasing the money supply commensurate with economic growth. In short-term crises that would naturally lead to deflation, governments can counter the deflation by TEMPORARILY injecting extra money into the economy to compensate for factors that cause a temporary reduction in spending power in the private sector. But such action will lead to inflation after the crisis is over if the temporary increase is not rectified by pulling the extra money out of the economy when the crisis is over. The idea that governmental power to create money makes balancing taxation and spending unimportant is an outrageous exaggeration of a far more limited power for governments to benefit from the natural need to grow the money supply as an economy expands.
The widgets are a perfect example of how MMT is really about centralization, corruption and tyranny, the inevitable result of centralization. Central planners are worse than a broken clock.
People being accepting of MMT is why we’ve got an inflation problem here. Dissidents aren’t saying you can’t have just just cuz it’s bad to have debt. It’s that you’re taking value that doesn’t exist yet from the future and asserting that we have that value now, but it’s not real yet. All borrowing has a cost to it, otherwise why would anyone lend?
I remember when a dollar equaled a foot of lumber. Then it became two dollars for a foot for same unchanged lumber. You cannot measure anything with a dollar because its unit of size keeps shrinking.
MMT in a nutshell: The government is the source of all money, income and wealth. Everyone who lives and consumes should be thankful, they make all that happen. We can be happy that the government wants to spend even more next year. There is so much more good to do! Private income is taken away from the state. We might face hard times if we don't stop that ideology.
Your sarcasm is welcomed - MMT is so totally wrong in every regard. Fancy someone actually being so intellectually challenged to believe that the politicians who control spending of money in the economy according to their own objectives of being able to promise what they don't produce and don't know how to will turn out anything but a mess of more poverty.
Clearly, you've never heard of central banks and monetary regulations and laws. The govt already is the source of all, since 17th century in some areas. 🫠
@@yuki-sakurakawa The government seems to be the source of YOUR income. I can assure you that in the real economy the source of income is production and services. Maybe you should try one of these activities. After that you will probably not agree anymore that a big part of your salay is taken by the government. Even though they printed the bank notes.
I’m really not sure that we can reasonably say governments can print as much money as they need so long as there is spare capacity. Capacity varies across the economy and by creating money to employ people who will inevitably spend their own money governments have no ability to control where that money will ultimately end up. And this entirely ignores governments inability to assess total capacity in the first place, let alone where economic activity should be directed. To use your example of a widget factory it seems entirely likely that the government will find itself storing those widgets for many years to come at significant further expense. And we could print money to pay for warehousing and there might be spare warehouse capacity now, but those might need storing for decades.
Its a good THEORY for people who wosrship government as the wise overlord who will solve all their problems. When you reflect on the fact that government is ALWAYS wrong abiut EVERYTHING, its a very scary step on the road to serfdom.
@@chopeda5822it was said in terms of a comparison, the central bank was monetizing the debt and the federal government had no regard to tax revenue... Some months the inflation would get close to 40%
@@Individual_Lives_Matter also, how do you identify unused capacity? Anyway, it's so cute that they come up with 1 rare scenario in which (theoretically at least) MMT wouldn't be a disaster and to boost credibility, they also present a second scenario in which it would. But we all know all too well that once introduced, Governments will play the second scenario to no end.
As always, it is about who decides in the government what is to be spent on whom by how much. Would our partisan way of governing be just in those decisions? It is the human element where theories breakdown.
Exactly. All of the progressive/socialist theories seem to completely ignore that the massive power they want concentrated in the government would be wielded by people, and a large portion of the people are dirtbags, and those dirtbags are drawn to positions where they can wield that power in the name of the people to benefit themselves. I bring this up constantly and the leftists never address it. This is the main reason I am a free market capitalist. While free markets are a usually inefficient and uneven solution to economic issues, they are better than anything else. But the "free market" part is critically important. We need to return to the trust- and monopoly-breaking times of the 20th century. Entities concentrating too much market power throws the whole thing akilter, as we see today.
This is a GOOD basic start for understanding the difference between MMT and the Balanced budget and currency use as we have been using it!! There is ONE EXTREMELY important FACTOR that has BEEN PURPOSELY left OUT of ALL history books AND discussions, about GOLD and it BACKING -- ANY currency! This is; PEople do think correctly that Nixon took the U.S.A. OFF the gold standard to BETTER fund the Vietnam WAR-- this was a fair and correct statement! BUT; There was a MUCH BIGGER factor going on and it WOULD have CHANGED the world financial power structure; Saudi Arabia WAS WORKING in TOTAL -- COLLUSION with Russia and IRAN to corner ENOUGH of the GOLD held by MANY SMALL --- NATIONS! The WHOLE Middle EAST, SMALLER -- EASTERN BLOC - European countries were SO POOR in ALL kinds of minerals and ESPECIALLY -- OIL!!! These MANY small countries had LITTLE to NO -- TRADING leverage --- yet --- NEEDED OIL, STEEL, IRON and MUCH more to build ANY kind of decent ECONOMY! So, Saudi Arabia and Iran had the power of -- OIL and Russia ALL kinds raw minerals AND engineers to TEACH the --- MANY small countries how to use the materials-- for their OWN economic advantage!!! What WAS the TRADE OFF?????? The Small countries had NO trade material that the 3 NEEDED or could get CLOSE to enough from these small countries! Russia, Saud Arabia and IRAN were TRYING to make MANY --- MANY ---- DEALS - with these smaller nations ( like GREECE and SO many more!!!!!) these 3 --- WANTED portions of EACH countries ------ GOLD and it was to BE and ------ ONGOING -- trade!!! The U.N. basically CAUGHT ---- those 3 countries ------ TRYING to corner the SOVEREIGN gold reserves of -- a LOT of smaller countries!! They KNEW they DID NOT NEED --- ALL the GOLD --- OR EVEN the MAJORITY of it ------ they ONLY NEEDED --- ENOUGH -- to WEAKEN the CURRENCIES of the MANY small countries, they ALSO KNEW this --- WOULD make it -- MUCH harder for the MANY countries ---- to PRINT MONEY---- because -- as the 3 dictatorships got the GOLD--- the small countries would NOT have VERY limited economic leverage! If those 3 got ENOUGH GOLD they KNEW they could--- control its PRICE ALSO-- this could have a MASSIVE -- EFFECT on-- ALL other BIG countries-- ability to grow their economies!!! The CORNERING of the GOLD market DID NOT MEAN-- having the MAJOR majority of gold -- it MEANT --- having ENOUGH, to have MAJOR ---- PERMANENT -- INFLUENCE!!!! The BIG PROBLEM in the 1960' ALL the way to 1990-- of OIL having a BIG IMPACT on -- ALL Big economies of EUROPE and the U.S.A. --- MADE ALL this ---- MUCH WORSE, just LOOK how we had ODD and EVEN days for getting gas in the Carter administration! This was Saudi Arabia RETALIATING ---- for YEARS before in getting caught! The Sauds and Russia -KNEW-- the combination of CONTROL of ---- OIL, basic minerals and -GOLD -- would give them International ECONOMIC --POWER --- for many --YEARS to come! As the 3 dictatorships got CAUGHT, the FREE world nations -- ALL KNEW they HAD to -- NOT be HELD -- HOSTAGE by how much GOLD you had!!! Getting OFF the Gold standard, when looking back ----was a VERY GOOD thing! does that MEAN the FIAT system the WHOLE world has now is very GOOD---- NO, NOT at ALL! ---- BUT it is BETTER than the GOLD reserve system!!! The SAYING---- "HE WHO HAS THE GOLD MAKES THE RULES'!!!! WAS VERY TRUE, and the 3 dictatorships were TRYING hard to have the MOST power ! That would have BEEN--VERY UGLY!!!
Thank you for the video! There so much kore cool features of MMT and even more situations it can handle like creating ressources ans capacities where needed. Thereby, spending and taxing has to be thought with who and when receives public spent money and redeems taxes, respectively. Looking forward to more of your content in MMT 😎🙏🇩🇪
"The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong." ~Jay Powell, Chairman of the Federal Reserve Bank of the United States of America
Thanks for this introductory video of MMT, although I think it is totally a sham. I believe MMT is just an excuse for backing up irresponsible gov spending, maybe because people keep questioning about the gov deficits and the national debt. Just a few points I want to make, first if the demand is 75,000 gadgets, then gov purchasing another 25,000 probably won’t do any good because maybe the private sector just doesn’t need these extra gadgets. So you cannot just look at excess production capacity i.e. the supply side but should also take into account the aggregate demand in the market. Plus in reality there can be a lot of corruptions when the gov is involved in this kind of transactions. But that’s a different issue since we are only talking about the theory here. Second, even if there is indeed excess production capacity it will still cause inflation, because the gov is just injecting more money into the economy. So it’s not like in this case you can just print money without any downsides. Third, printing money is just a more disguised form of taxation because the money in people’s pockets will be devalued. In my opinion taxation in a more generic sense means shifting purchasing power from people to gov, and it doesn’t necessarily mean sending a physical check. So the proposition that gov needs tax to spend still holds true, or in other words gov needs to take over part of the people’s purchasing power in order to spend.
To your first point, I believe that the argument is that there is higher demand, but because of price constraints, the demand is not fully realized. There could be 25,000 people that would like the gadget, but are not considered on the demand side because it is not feasible for them to access the gadget without assistance. Maybe that is what you meant about aggregate demand, but as I see it, that is wrapped into the technical challenge of the theory. The government spending would need to adjust spending to allow for the needs of the people, but not spend so much that it increases demand (both public and private) beyond the production capacity of the industry. That is where inflation would come from. To your second point, that is also where the balance of government spending comes in and where taxation fits. If the government spends too much, it will stimulate the economy to exceed production capability. A way that can be mitigated is to increase taxation. That way, the government cools down how much people can spend, thus decreasing demand and not exceeding the production capacity of that industry. Your third point hits the same principles as your second point. The money is only devalued when there is inflation. Inflation, in this model, happens when government and private demand exceeds production capacity. If government spending can walk that line, inflation will not happen. My biggest concern with MMT is having enough people that understand it so they can walk the line effectively. If this were implemented, I am sure there would be initial missteps that would cause people to immediately shut down the idea. We would need patience while we are working out the kinks, and the American public isn't well known for its patience right now.
@@EDMemm Thanks for the reply! Let me clarify a few things, for my first point I meant that maybe there is just no extra need for this kind of product in the market, i.e. 75,000 gadgets can already meet the needs of the private sector and this is all they really need. I don't mean to introduce price constraints etc. because it'll become a lot more complex and definitely a separate problem. My point is if this is the equilibrium reached in the market, then maybe this is all what people need. There are exceptional cases but it can be difficult to know for the gov. I made this point because the video only considered the possibility of supply capacity not being able to catch up but did not consider the possibility that the demand capacity not being able to catch up. Also, I meant aggregate demand in the same way as in the mainstream macro-economics. Hopefully this clarifies it a little bit. As for the second point, I think you have made a good point, and I admit that I didn't take into account of the deflating force i.e. the increase in supply. I think you are assuming that the price level depends on the number of products and the total amount of money in the system, so as long as both increase at the same rate then there should be no inflation. I agree this is a legit and pretty commonly accepted assumption, though I think it is may be more complicated and trickier than that in reality because in reality it still boils down to supply and demand. In addition, in reality both wages and prices tend to be downward sticky, so if injecting money can indeed move the prices somehow it is more likely to go up rather than down, at least in the short run. Taxation may or may not help but will make it even more complicated, but at least in the short run I think it will just make it even worse (not in terms of the inflation numbers but how people actually feel), because you are taking away part of people's purchasing power and it takes time for prices to adjust due to the downward stickiness.
@@EDMemm I'm trying to think a little bit deeper this time and I believe we need to put some constraints on the number of products and the total amount of money when determining the price level, i.e. we should limit to products for sale and money in circulation. I will try to use this example to drive it home this time, assume the private sector only needs 75,000 gadgets but gov just gives them another 25,000, and they just stash these extra 25,000 gadgets since they really don't need to use them at this point. Now let's fast-forward a bit so that the functioning 75,000 are out of their life-expectancy and people need another 75,000 gadgets for replacement, but guess what, they still have 25,000 stashed in the basement so they only need to order 50,000 this time, meanwhile we still have the extra money injected at the earlier point, so it's a lower demand (50,000 < 75,000) and more money in circulation, now what else can we expect other than inflation? Also since the demand is much lower, the factory needs to lay off some people, doesn't it? Well this is not good, so what will the gov do? I guess just repeat the story, inject another amount of money and create even more demand so that it can kick the can down the road... Hopefully you won't argue that as long as we keep repeating this game maybe we will never get inflation.
@@jasonleelawlight Thanks for the well thought out response! I do agree that if the government artificially reduces supply without the requisite demand (in your example, what would lead to the surplus held in warehouses and basements), that would lead to inflation. That is where my main concern comes in. If we have people that are uninformed or unskilled in managing that balance, it could be disastrous. We would need smaller scale cases where people could gain experience and insight before adopting it nationwide. I think there are certain sectors that are more appropriate for this type of system than others. If attemped with a commodity, such as smartphones, that could lead to the overestimations that would influence inflation, like you suggested. I think a better sector could be healthcare. There will always be health needs, so it is harder to overestimate demand. The constraint there is supply. Do we have enough healthcare providers to meet the needs of the people? Maybe, maybe not. If not, there are questions we can ask to help increase the capacity of our system. For example, if people received routine care, would the mitigation of long term health effects lessen the burden of providers? If we used MMT to help provide more access to medical school, could the influx of medical professionals meet the needs of the population? If we can answer those questions, I don't see why MMT might not work in that industry.
@@EDMemm I was talking about gov artificially supply without the requisite demand, but anyway I think you got my point. When it comes to the idea of experimenting in a specific sector on a smaller scale, I think it's a good thought but note that it is hard to limit the money injection only in a specific sector in reality, and when it leaks out to other sectors it can still lead to inflation. The biggest problem of MMT when coming to applications is that gov has to know well about both demand side and supply side and take into account of other subtle factors such as cross-sector effects, psychological effects, politics, etc. and as for how to do it exactly there are also quite some moving pieces, like how to decide how much money to inject, what's the timing to take action, should injection happen in one shot or multiple batches, should there be any complementary measures to take, etc. There are just so many factors involved and so many things that can go wrong, and the consequence can be very bad if it does go wrong because you may not see it immediately. As for health care specifically, I do agree that there is extra demand but I don't think the supply side can catch up as it is extremely hard to get the needed degree and license. I know some people originated from other countries who did health care work before coming to the US, and they told me it's hard to get qualified for this kind of job here in the US. Health care and education are just 2 beasts on their own btw, so I don't want to digress too much here. I do have my opinions on health care, and there is a class series on micro-economics from MIT open courseware, actually you can also find them here on youtube, and the very last class in that series is all about health care since the professor Johnathon Gruber used to work with the gov on healthcare related issues, he provided quite some info and insights on this topic. Just a spoiler, US does have made quite a few attempts to reform the healthcare system but it all failed. I also left my opinions under the last 2 videos in that series so if you are curious you can go ahead and check it out from there, and just a disclosure this doesn't mean I agree with everything that professor says but I do have enjoyed his class and learned a lot from him.
Explained like this, it seems the old Keynesian economic (the government can invest to increase output as long as there is spare capacity in the economy). Only with printing money and taxation in the place of investments and interest rates respectively (increasing taxes cools down inflation much like interest rate hikes). However, this video rests on the assumption that "the government can use these goods for public benefit". If it is so, the government can borrow, invest and pay back the bonds with the increased revenues (created by the common benefits). Printing money does not provide any assurance that the government decisions are actually money well spent (a major problem with central planning). In short, explained like this, I don't buy it.
I personally like the MMT - it's a good concept to run a society.. the issue is how we are measuring the indicators, like e.g. the inflation, which did not take real estate into account - we have seen a decade of almost no inflation, but house prices went up. Btw, the government does not create money, it's the national bank. A government can go into debt and can influence the level of interest rates. A national bank can, as a consequence, pour more money into the market, in case the inflation is too low.
The explanation misses some very important information: MMT is bullshit. Please, please, please! Just read a little bit about economics, particularly about money and how it works. The kind of stupidity pushed by MMT supporters have already been tested, with unsurprisingly catastrophic results.
being able to participate in the US economy has no value lmao. Being protected by our laws that are funded by tax dollars has no value. Being protected by our military, police and firefighters has no value. Money has value Because you can pay taxes with it. Without taxes, you are currency lol. You can always be a pirate in international waters but without taxes, you might end up being a slave. Libertarians are the most entitled people on earth.
MMT no doubt works as long as it's well implemented. It is also impossible to implement it properly when oligarchs can purchase policy when something doesn't suit them and when policy makers are placed in their positions by monied interests which is how the U.S. system works at the moment. The problem is capitalism or at the very least poorly regulated capitalism.
Taxation is more than simply passing money from one part of the economy to spend it in another. This is because the government will generally spend all its income, but how it uses it can cause the whole economy to make faster progress or alternatively to slow it down. Taxation does not simply transfer it from one part to another, but it has secondary effects too. If it is applied to particular parts of the whole economy, it can result in greater benefits than it destroys. This situation means that we cannot simply think in terms of MMT without taking into account the rest of our social system. Another matter is that the total quantity of money can be increased without affecting inflation when its speed of circulation is lowered, and the opposite is also true. Were our salaries to be paid at the same rate but more frequently than once a month, our money would not need to be kept unused for so long. The resulting greater speed of its circulation would result in less money being needed, but with the same rate of its use. MMT does not allow for this effect, which electronic money could well cause, were we were paid weekly instead of monthly.
The situation should also include the interest that the government pays, if and when it increases the national debt by borrowing more money. Taxation has a different effect because it stops so much money being saved, and this influences how much interest on savings a bank will pay so that it can provide investors with loans (and the greater amounts of interest that these borrowers also need to return to the bank). This suggest that when a change is introduced, a lot of additional effects come into play, and consequently the only way to properly understand what is actually happening with any significant economic change, is to simulate all of the corresponding effects at once. To simulate the national economy, we need to construct a model that represents all of its parts and how they function. This is not so complicated as it first appears, if and when you first answer the question: "How many different KINDS of business transaction occur in the macroeconomy?" I reckon only 10 kinds are possible, and to see why please review my short working paper SSRN 2865571 "Einstein's Criterion Applied to Logical Macroeconomics Modelling". Its only 8 pages including the diagram of the model that results. One of the references to this work is my longer explanation about making macroeconomics a true science, to replace the confused situation that at present the economists have to try to understand. Those experts regard macroeconomics as a pseudo-science, but with my more logical approach (due to my past engineering professional experiences) there is a much easier way to both represent the social system and to understand of what it REALLY consists and how it ACTUALLY works. My more complete explanation is in a book that I wrote "Consequential Macroeconomics" which is of 310-pages and is freely available for no charge if and when you write to me at chestdher@gmail.com . I will gladly send you an e-copy and it can enable your past confusion to be eliminated and for the Big Picture to be made properly available, for all to see. I would also be able to answer your questions, but please do not try to argue with me--if you don't like my ideas, I challenge you to do better and help replace the current pseudo treatment. 😎
Liked and subscribed. My question is, how should the government recognize when it is crowding out private spending? Especially when the government is spooked by the prospect of deflation. Can we rely on the government to know when to reduce its presence in a given market? Furthermore, if the widgets that the government will buy are not going to be bought otherwise, doesn't that tell us something about the value of those widgets? I.e. they're not that valuable and so the government buying them is necessarily mal-investment. And finally, why not rely on the price mechanism to do its thing? Why not let the price of widgets fall, thereby discouraging further investment in widget manufacturing, because they're just not that valuable? Why not let widget buyers capture the windfall of lower prices for widgets? Why use valuable materials and labor to manufacture widgets that aren't very valuable? MMT seems to NOT be a rebuttal to classical economics so much as it just ignores classical economics.
You sound like you think the government goes to the mall and buys phones and watches.. when the government spends money it does this on infrastructure, on health insurance, on employees like police and teachers... not on single goods like you're suggesting that would lead to some sort of central economy, the classical nonsense argument of mmt critics
A "widget" could mean anything, like medical treatment, education... the fact that many can't afford them, doesn't reflect on how its valued. Providing such widgets to the public tends to benefit the economy tremendously. Your argument works for any luxury object, but it breaks down when we discuss what a human being needs, because of the obvious moral implications.
@@greogewestmann4913 I like that example. And I think that the same argument is true when it comes to infrastructure. Generally more healthcare and more infrastructure will not be mal-investment, at least not in the world of scarcity we live in. But even with those things there is some limit beyond which the costs are greater than the returns.
I don't like the example greoge provided. Suppose the government stimulates supply of a desired widget like an element of healthcare. Suddenly there is an oversupply, prices go down, and then it is no longer profitable to provide the care, and supply is actually reduced. Similarly, if government supports demand, that will drive prices up and reduce demand among those who cannot afford it (or require govt to continually pay part of the cost). Maybe this is all given in the exchange you had, but the problem is that these actions require the government to have information that is both accurate and essentially prescient. And then as you alluded to, the powers that be have to act correctly. I've watched a few of the MMT proponents, and I am coming to the conclusion that they are hard core socialists. MMT seems to require massive government intervention, and I'm not so sure the ignorance of deficits is not simply a way to ruin the economy and allow the government to assume control. I'm not saying that is so, but I'm suspicious.
The true criticism from adherents to the status quo is that currency will lose its value if the state's authority isn't cemented through the soft power of artificial scarcity.
🎯 Key Takeaways for quick navigation: 00:01 💬 *Modern Monetary Theory (MMT) is a divisive and revolutionary concept in economics, challenging long-held economic maxims.* 00:16 💡 *MMT fundamentally shifts traditional economic thinking, likened to the realization that the Earth is round, not flat.* 00:44 🧨 *MMT seeks to demolish the traditional belief that governments should budget like households, challenging the norms of taxation and government spending.* 01:12 🤔 *MMT challenges the idea that government spending must be limited by tax revenue or borrowing, suggesting governments can create money.* 01:40 🔄 *MMT proposes that government deficits and national debt are not inherently problematic and that reliance on foreign borrowing is a misconception.* 02:08 🌳 *Critics label MMT as a "magic money tree" theory, potentially leading to hyperinflation and economic instability.* 03:33 💰 *MMT is based on the concept of fiat currency, which is money not backed by physical commodities like gold or silver.* 04:16 🏦 *The shift to fiat currencies allows governments more freedom to create money, moving away from the gold standard.* 05:14 ⚖️ *MMT acknowledges the role of inflation, suggesting governments should create money within the economy's productive capacity to avoid it.* 07:17 🔍 *MMT indicates that government spending can boost the economy if there is spare capacity; otherwise, it may lead to inflation.* 08:00 📊 *MMT argues that government budgets should reflect economic conditions, not always aim for balance.* 08:29 🤑 *MMT suggests that taxes are not primarily for funding government spending but have other roles like ensuring currency usage and controlling money supply.* 10:35 📈 *According to MMT, budget deficits can stimulate the economy in conditions of spare capacity, while surpluses can help control inflation.* 11:46 🌐 *MMT emerged as a response to the age of fiat currencies, fundamentally changing the understanding of government financial operations.* Made with HARPA AI
Very interesting video but it does not explain why, if governments can create money at will, why do they inject this additional money by borrowing from foreign governments? Why is it necessary to have a national debt at all, within MMT? I would be interested in this part of the presentation.
I read from an MMT advocator it seems that the enforcement by government is what allows them to issue money at will. I think the only reason MMT is even being advocated at all is because governments themselves favour this kind of power.
@@codebro9728 This theory is new to me and I can sort of go along with it. However, I would have more confidence in the government’s willingness to “enforce” this theory if, when there are high rates of inflation, they would remove money from circulation - by increasing taxes (as this is what justifies the existence of taxes within MMT) or by increasing interest rates more than the Fed or the ECB have done so far. Unfortunately, if the government increases taxes further, there will be a risk of social unrest; if interest rates go up sufficiently to slow down the rate of inflation, the increased cost of rolling over national debt could have dire consequences for the economy. This video was useful to understand the theory; it would be even more useful to have a similar presentation on how the theory works out in practice!
@@johnreading4387 my problem is I think this idea is fundamentally impossible in practice. We would have to live in a perfect world where the government had complete access to every aggregate of the economy. Unfortunately that’s not the case. We can’t entrust the government to have knowledge of everything in the economy because they don’t have this type of capability. Yet almost half of our gdp is government spending. That’s almost half of our gdp that is being misallocated. We’ve done some practices of mmt that are more related to Keynesian economics. The result was a boom bust economy like we saw countless times in the US. The boom is usually caused by artificial demand created by the government and federal reserve and the bust is from the government losing control of the situation in which they try to patch the situation up and then it’s up to time to decide again when the bust will be back but much worse. You’re very right about the social unrest of certain political activities. That’s a big reason why the government has so much control in the first place because they use that unrest to their advantage. I believe in the idea that money belongs to the people. Every cent the government spends is our money whether it’s from taxes or from the printer. Spending money from the printer is far easier for them but it’s at the expense of the middle and lower class. They save most of their money so decreasing their buying power affects them the most. The amount of money being issued into the economy doesn’t dictate the growth of the economy anyway. It’s the increased and more efficient allocation of recourses that dictates it. Money is just a more efficient medium of exchange to improve the allocation process. The government’s problem was they wanted more money. What’s the easiest way to get more money? Monopolise it, and then print it for yourself. The US government is also in the best situation because they monopolised the dollar, there’s no limit to how much can be printed(since it’s fiat), and it’s the reserve currency of the world.
@@codebro9728 In my opinion, governments hide laxiste monetary policies behind a fashionable economic theory that has never been implemented fully, and therefore one can say, has never been seen to fail. For me, there are too many unanswered questions to have confidence in such a theory. I would like to be proved wrong. The principal name behind this theory, Bill Mitchell, was awarded a Nobel prize for his work, so some influential people are certainly convinced. I just think of previous times when governments have increased the money supply to generate demand and this has merely resulted in inflation. It may be different when governments inject money to increase production and with it demand through wages. Governments seem to use MMT to justify unrestricted or uncontrolled spending and I suspect Industry is not fooled. In the UK, the budget of the new prime minister, Liz Truss, used MMT as a justification for reducing taxes across the board - at a time of high inflation. Six weeks later, she was replaced by a prime minister with more traditional economic views. In France, The President Macron has used MMT to justify increasing the monetary supply in France by 600 billion Euros since 2017 and, despite high inflation rates, continues to force through deficit budgets through the National Assembly without vote - constitutional in France but nevertheless anti democratic. Meanwhile, the ECB is incapable of using the only tool at its disposal to manage inflation rates - the director rates - for fear of causing the downfall of the Euro. I would like to think that there are forces at work which understand the interoperability between economic, financial and social factors and which will protect us from severe consequences in all these domains in the coming years. Unfortunately, I merely see politicians at national and regional level, taking actions to solve short term problems but which, cumulatively, will be making our future a very dangerous and unpleasant place to live.
"if governments can create money at will, why do they inject this additional money by borrowing from foreign governments" many reasons, for example you only can regulate your own economy, not all economies and others might not be willing to accept your currency at the value you want them to.
It is interesting that the image of Reagan and Thatcher were chosen on a MMT video. They were the opposite of it. BTW just look around you at inflation and interest rates. Thank a bout of inadvertent MMT during the pandemic, and you will see that the theory has some faulty assumptions.
Inflation was actually quite low still for 18 months after covid first hit. Spending had already occured and some of it was directly into people's bank accounts in the US, and yet inflation remained low. Why was that? Because it wasn't being spent. The money supply had ballooned but the velocity of money crashed. This kept price rises quite low. When economies started to open up, it was primarily a supply-side constraint issue that resulted in prices rising when people started spending their built up savings.
The biggest problem with MMT is the same one that Keynesian Economics has: REALITY. Politicians only apply the part that is beneficial at the time, do this long enough and the whole system collapses.
I'm curious why money has no set unit of value, one that cannot change. Gold, while more stable, can have more mines discovered or a refinery process added to increase supply, for example. An actual unit of value would mean that a dollar has a set unit of value for all time, set by the international standards of weights and measures. We don't float the kilometre or the litre, nor peg them to gold or jugs, so why shouldn't money be treated the same with scientific measurements? Perhaps a dollar could be 1MB of data travelling through a standard fibre optic cable at speed of light? Can you imagine floating the kilometre? One day a kilometre is equivalent to a mile, the next day everybody sells and the kilometre ilhas been devalued to 3 inches. What are your thoughts on cigarettes as currency in prisons, or pokemon cards as currency for kids? Does the lack of gold backing take away the value the people have for it?
@@yuki-sakurakawa I think that in order for something to be a currency, it has to have demand and in order for something to have demand, there has to be a reason for that demand to exist. The reason that gold became currency was because it was scarce, so where other commodities increased in supply faster than the demand for it, which resulted in decreased purchasing power for the people connected to the monetary system. To understand this, imagine that you have a fishtank with a tap going in to it, slowly filling it up with water. Imagine then that you extrude the fishtank and the water level shrinks. This is essentially what happens when you increase the supply of a currency. The fishtank is the money supply and the water is the purchasing power.
Most of us would agree that an economy using commodity-based currency is different from one that uses FIAT currency. The main difference is that a fiat currency has no intrinsic value in itself, it is backed by the good faith and credit of the issuing country while commodity-backed currency is determined by a promise of gold redemption. This difference is huge. A fiat currency supply does not require a store of gold or silver to back it up. That means that economies can grow as much as possible and not be limited by a scarce commodity. There is not enough gold in the world to back all of the currency in circulation. Under a gold standard a country’s currency in circulation, had to balance its gold supply. If the government spent (created) more money than what it had in its gold supply, the difference had to be obtained to keep the two balanced. To do this a country had either to mine more gold, increase taxes, or borrow to obtain funding to purchase more gold. I think that most of us see the issues that the system caused. This whole routine is not necessary under a FIAT system. The irony is that even though we left the Gold Standard in 1971, many, if not most of us, act as if we were still on it; despite the fact that they are so different, even antithetical.
Great work! It seems like the US did this to deal with COVID. I heard something like 18 trillion created since the first case of COVID. Now, suddenly, you need a 6 figure salary in all 50 states if you spend the ideal 25% of income on housing. I'm not really a fan, and I'm not going to lie.
Housing is different. After the collapse in 09 companies have been buying more and more single family homes and self inflating to cycle up the value and rent in a vicious exploit of the system.
The case of MMT is out. If one does not accept MMT as truth, it cannot be for macroeconomic reasons. "It is not what you don't know that will get you into trouble, it is what you know for sure, that just isn't so."
This is exactly like a 15-year-old boy discovering this obviously correct new thing called marxism! All this time, we thought we had to work in order to have things - ugh!
i think there's something real about mmt. You can seperate using these levers from "consumption". If governments could be borrowing or printing money to create real value that pays for itself, then it would be wrong on multiple levels to not borrow and create that one bridge, or that one train tunnel, or maybe creating other types of public assets, but they should be put into risk categories. A B C... Consumption (unemployment, coal subsidies, bureaucratic costs) should be covered by tax income, investments should get borrowed and created money.
In your widget example, you “forgot” to mention what the government is going to do with those 200,000 widgets it bought with the $250,000 it printed. It will give it to various “victim” groups free. Then the productive members of society will be the ones actually paying for the 200,000 widgets when they have to pay an extra .25 for the widgets they need and must buy. In this way, printing money by the government is a DIRECT TAX on the productive workers of America. This would tend to encourage being a victim, in order to get free widgets, and not working because if you are productive, the government takes from you disproportionally. This is coincidentally what we are seeing today.
You need to add a discussion of bonds. Governments do not create money. They create debt ln the form of bonds which they sell to banks and the public in exchange for currency. They use the currency (97% digital) to fund their spending. Taxes are used to pay the interest and principle of the bonds. Currency creation is done by commercial banks when they issue loans.
Excellent presentation, I love that you assessed it without mischaracterization. One issue though is that you didn't explain that printing money without taking an equal amount from the economy also diminishes the value of each dollar by default. It's inevitable and it is called monetary inflation specifically. I've noticed MM theorists do not approach this type of inflation, which is precisely the type of inflation that has kept governments from running their economies like this in the past. They're just trying to maintain the value of each dollar by limiting the number of dollars in circulation. So how does MMT combat this very real issue. From the perspective of MMT I'd assume that taxation and borrowing plays a pivotal role in reducing the amount of money one needs to print to meet its needs, this reduces the amount of monetary inflation substantially by say, needing to print only 100B rather than 1T.
every single MMT econ will state that real reources are the limit and that you cannot continue to create £$ etc without limit so thats a crap statement
He did explain it. Both in the first example and the taxation example. He explained that there is inflation, but it only occurs when supply cannot meet demand. This implies several things: Inflation is localised in the supply chain to wherever supply does not meet demand. Not discussed but probably very important is that inflation is a delayed response, not an immediate response, and the amount of delay is probably dependent on what is demanded. Later he explained that taxation has the opposite effect. It decreases demand. This implies that that taxation can be specifically targeted to areas of demand where inflation is problematic. I don’t think taxation is used in this way yet. It also implies that generalised taxation like GST and income tax are pretty much useless.
All government spending is printing money. All government tax collection is shredding money and any difference is, by definition, saved in a metaphorical drawer somewhere (otherwise it wouldn't show up on a balance sheet). If you have a theory how money in a drawer causes inflation we're all ears. Implicitly you are assuming the overall velocity of money is fixed. It isn't.
@@aldursys So you're saying that if government stopped all spending, taxed the living crap out of everyone, and put that in the metaphorical drawer, there would be no deflation nor a depression. Got it!
How does the government know that there is "spare capacity"? And how does it guarantee that the deficit goes to "spare capacity" instead of simply pushing inflation? Haven't you learn that a central planned economy does not work?
This is maybe too complicated for me, but it seems bad that the money isnt backed by anything. Also doesn't using mmt simply put the burden of overspending on the immediate public as inflation rather than adding to the debt?
The scond point depends on what the goverment is spending on: war or welfare, if governments are providing healthcare, education, infrastructure then the public is getting more out of inflation. If the money is spent on wars then the public gets nothing. It is absolutely a political decision what the public gets. As for the first part, the whole way the economy works is a series of arbitrary rules created by humans, starting with private property this rules determine how the economy works and they can be done in different ways. Fiat currency is a rule that allows government to create money. Private property allows for privatizing profit.
Money never was backed by anything. It doesn't have an intrinsic value. You can't "use" MMT, it just describes our monetary system, same as you can't "do" the theory of relativity. They are given, if you like it or not.
The idea of an existing spare capacity alone is just an infantile and over simplified idea that excludes all other contributing factors which MMt has ignored. Spare capacity exists in most industries where older machinery and processes have been put aside because of better cheaper new machinery and process have made it no longer cost effective. Also the restraint on inflation is not the existence of spare capacity alone because there is always spare or idle capacity. The real restraint is the existence of spare capacity to improve the efficiencies of production at a cost which will be acceptable to those wiling to purchase it at a cost that is comparable to other alternatives.
Great explanation although there is nothing good about MMT, at the end or the day it still can bring in a 2 tier system - the money users and the money creators - which will deffo attract bad actors, its just what happens 😔
Actually, the good thing about knowledge of MMT would be that if the people, the working class voting majority actually demanded human rights policies like Universal Healthcare or free college or a basic income, they could do that with more strength because when they are met with the push-back of politicians saying "How are you gonna pay for that? We can't afford it. Taxes will have to go way up for the middle class." And all that BS, they people will know that's not how it works and can respond with: "The government spends first, taxes second. They can't run out of money, can't go broke and the debt and deficit are not a problem that will burden us or our future generations. That is a lie. A BIG lie and a dangerous lie. Stop being bulls*it artists and enact these human rights laws or we won't vote for you ever." It's a potential political power control for the working class to get the social zeitgeist of society moving on a train of thought that increases public health and lets people breathe to hopefully tackle the bigger problems with society and the economy in the long term.
It'll bring about a government controlled economy. Some people think that's a nifty idea. It isn't. When they eventually roll out CDBCs and the government is able to track your economic activities, it will be able to dole out more money for things it wants you to do and restrict money for the things it doesn't want you to do. You will become completely dependent on the dispositions of those in power. The only real way to fully benefit from MMT is to be on the side of the money creators and that means becoming a lifelong politician. Welcome to the world of high tech feudalism.
I don't understand why MMT is considered so controversial. All the points and steps seem logical and make sense yet the backlash is intense. I would sincerely like to hear a level-headed criticism of why MMT is an incorrect way of viewing macro-economics?
One. It's not necessary. Two. It allows centralization of power via almost unlimited spending. Three. Income tax is immoral and MMT relies on taxation to control the money supply. Four. Inflation was relatively flat in the US until the Federal Reserve and then MMT. After that, it was a hockey stick on a graph.
@@Individual_Lives_Matter I don't think any of these are really valid criticisms of MMT. 1) saying its not necessary is not an argument against MMT at all. 2) Power is already extremely centralized. MMT might allow governments to print a bit more but doesn't seem like something restricted only to MMT. Also that's not a criticism of the theory's validity, only of its *possible* political implications. 3) We already have income tax... and just blindly claiming income tax as immoral isn't much of an argument. 4) Correlation != Causation. We literally just went through a pandemic and massive hits to the global fuel supply with the war in Ukraine. Inflation has also not really been that significant given those two major crises only caused a single year of 7% inflation. Not ideal but kinda expected after these two major world events. You'd have to actually give some evidence that those two events were not the cause of inflation. This is what I mean though, none of these were actually criticisms of the validity of the economics. It just seems like you don't like the thought or don't believe it so ppl slander it without good explanation. I would love to hear a real criticism of the effectiveness of the theory.
You're wrong. They are still doing it. MMT is the description of the reality. Our monetary system works like that for 5000 years. You should watch the video again to understand what the MMT actually is.
I hate to break the news to you but mmt is just another example of devaluing the currency,it always creates inflation and then collapses the economy.Bidenomics will crash the economy and have us in WWlll in no time.
Every government from the beginning of time has known MMT. When ancient Rome debased their gold coins with copper, they were practicing MMT. And the consequences will be the same today as they were in ancient Rome.
the best MMT I’ve read is tying currency to energy production, be it nuclear , green or fossil sourced be it electricity as a finished product, then the market determines the cost of energy thus your currency is dependent on production and out of the hands of politicians thus the country’s producing energy surplus can sell energy to our neighbours and offer low cost energy for industrial companies thus driving investment and efficiency for those companies which in turn drives growth
This was a really good video that I still do not understand lol. However, can you please stop asking people to like and subscribe. Only once is good enough. If it's good, the video will speak for itself, and people will like and subscribe anyways.
Absolutely wrong ! If it is a description of how it works why does it say taxes put value into the moeny when they did not put any value into money in all of the countries where inflation made the money worthless and it could not by anything. Even thier own governments rejected it. - i.e. taxes but worthless money and MMT saying there was value in the money because taxes made it valuable rather than the correct term valueless.
This is very, very worrying indeed and explains why the idea of 'free money' appeared to have pervaded present-day governments. Borrowing/printing money against spare economic capacity...what could possibly go wrong? My life was a lot better before watching this clip
let us know your feelings after this Derrick Jensen | Endgame | The Problem of Civilization + What is it Like to be a River? ua-cam.com/video/AFkjwxDzt2M/v-deo.html
Better that something as ridiculously bad as the gold standard - that is, rely on non-government parties, both internal and foreign, to both not suddenly produce large amounts of gold, or to take enough (or too much) of it out of circulation one way or another. Meanwhile, the available economic capacity has no relation whatsoever to the supply of gold. It's not as if that has ever ruined an economy ... wait, it has.
@@KaiHenningsen The problem with the gold standard, is they try to "fix" the price of gold to some artificial value. Like we did before 1971. After spending a pile of printed (borrowed) money on the Viet Nam war, NASA and Johnson's "Great New Society", the rest of the world wanted the gold and not our inflated dollars. The gold standard should be a floating standard, not rigged.
It's not worrying. It's how the system works for 5000 years. What you're saying is, being dumb is better than being informed about how the monetary system works. That's actually worrying.
@@TiberionMarivallis King Croesius minted gold coins which had intrinsic value. Please don't tell me you believe that is the same as borrowing against hypothetical value.
A better example of MMT would be to simply point out the current state of the U.S. economy, it has been guided in large part by MMT disciples for the last 19 years, less the Trump years. double digit Inflation, grossly overvalued stock market, National debt approaching 34 trillion, and the dollar on the verge of collapse. Yes, that is a much more realistic example of MMT in action!
Also, when the Fed raises interest rates, that means the money supply is increasing… so today, the high interest rates are making inflation worse.. especially for house construction.
All debt, government or private is passed onto our descendants. We liberlaize debt markets and allow borrowers to borrow 10x their earnings to buy a home, then home prices double. Our descendants then face double home prices and have to choose: take on all that debt or stay living in insecure, 12-month tenancy deal homes
What is debt exactly if not just an entry on a balance sheet? What exactly is passed on to our descendants besides this record? If that record is struck out, what is the thing that is left that is of burden to our descendants? If there is no one left to care whether that record is struck out, then it is of little burden o anyone. But if there is someone around to dispute it, then that person is enforcing the debt and creating a burden. It’s almost like debt should have a “lifetime” of when it remains relevant. Now sure, a bank lending a mortgage will want their money back and the promised interest, but what about debt created by government? E.g a loan from the government to pay for education. Should this debt be passed down the generations, or can it just be struck out on death? If it can be struck out, why does that need to wait until the person dies? At some point, that debt become irrelevant, the education has been provided and everyone paid, life moves on, and all that is left is a record on a balance sheet.
Most money (in all it’s manifestations) is created by retail bank loans. It’s not created by the Reserve Bank, the Treasury, the «Government» nor does it come to earth on a meteorite. To imply that bank mortgage loans to Home buyers is the cause of House prices doubling is incorrect.
@@br3nto you have missed my point. Debts increase costs for everyone. The issue of new money (debt) reduces the value of the money you have or anyone else has (it becomes less rare, so each £/$ is worth less). The issue of new debt therefore raises prices, and that must be paid by anyone buying. The enormous rise in credit the past 30 years means that future generations have to pay 10x their incomes for a home rather than 4x as was the norm before debt liberalization especially since the late 90s. THAT is how it is passed onto descendants.
@@richardmackay4369 Whatever the stuff about meteorites was I can only guess if I could be bothered. Your last more earthly point is your opinion. But it is wrong. And I do not imply that higher loans is what has caused huge home prices rises, I say it explicitly
@@mango4ttwo635 I think you missed the point actually. You’re thinking comes from the old theory. MMT replaces those old theories. Rewatch the vid. Inflation / devaluation of money occurs in specific markets where supply cannot meet demand. If supply can meet demand, then inflation does not occur. More so, inflation only happens in places where supply can’t meet demand… so there may be cascades down the supply chain, but it’s still all localised.
Imagine that an economist thinks that these ideas have just appeared recently. In the real world, the US for instance has virtually constantly been running deficits( with a few exceptions) for hundreds of years. Where's the stealing from future generations? The same people who go on about that are the people running the deficits but the economists didn't seem to notice.
Don't these formulations only apply to governments who don't have a balance of payments deficit? If the BOP is in deficit you have to borrow from other countries to finance it. You can't fund a BOP deficit by increasing the supply of domestic currency. (sure, this may not apply if your currency is the world reserve currency and everyone else is borrowing in your currency, but then wouldn't these formulae only hold for the special case of the country that happens to have the world reserve currency?)
+Robert Gillespie What matters is the extent to which a country has monetary autonomy rather than whether they posses a reserve currency. This is very much a spectrum with the US at one end which, as you point out, can simply print more money to pay for its imports. At the other end of the scale there are developing countries, many of whom have their own fiat currencies, but rely on vital imports which have to be paid for in US dollars. They have very little, if any, flexibility. You are right for these countries the formulations don’t really apply. However, there are loads of countries who don’t have a reserve currency but still have a large degree of monetary autonomy, the UK would be one. These countries can within sensible limits use MMT.
@@economicsunderstood Ah. So it would almost seem that underpinning MMT are certain prescriptions regarding not just monetary policy but also trade policy. From what you're saying it would seem like you'd at the very least need an economy that is not dependent on foreign imports for 'the basics' to attain 'monetary sovereignty'. Which in turn implies a specific kind of relationship between the national currency and the dollar. (or whatever the world reserve currency happens to be at moment X in time) That's interesting because it seems that MMT'ers often don't talk about trade, or at least don't emphasize it. Is there anywhere where Kelton and co. discuss the role of trade balances in their theories?
@@robertgillespie3635 Trade balances are explained pretty well outside of MMT. This is why MMTers don't really talk about it. But MMT does give interesting perspective. In the Middle East, the countries export oil at a much larger degree than their importation of their needs. The fact that they accept US Dollars is a way for them to "devalue" their currency. You see, if they accepted only their own currency for oil purchases, this will create massive demand for their currency and bid the exchange rates up. In order to keep their currency from rising, they'll have to print new money (deficit spend) like crazy. This is also true of many countries that are exporting powerhouses like Germany (before Euro), Singapore, China, and Japan. They devalue their currencies by issuing more money to buy USD and USD assets, this drives the price of USD up, and their currencies down, they also build up a huge USD denominated reserve in their central bank. This keeps their exports competitive at the expense of the purchasing power of their people. This is why the US citizens enjoy such cheap goods from foreign countries, at the costs of our manufacturing sector. Its not a free lunch of course, should the USD go down in value, their reserves will be worth less, so they are placing their savings in the hands of a foreign government. There will also come a time when the US will no longer be able to absorb all these goods no matter how cheap they are. Both scenarios are similar to deficit spending to keep employment up in their domestic economy. In one scenario, they flood the market with their currency, which importers get to import goods, the money goes back to the country to pay the exporters and their workers. In straight up deficit spending, money supply is increased to subsidize people, production increases, and if there is excess production, it is exported. Think of Japanese Cars in the first scenario, and US wheat in the second.
Also, I'm curious why money has no set unit of value, one that cannot change. Gold, while more stable, can have more mines discovered or a refinery process added to increase supply, for example. An actual unit of value would mean that a dollar has a set unit of value for all time, set by the international standards of weights and measures. We don't float the kilometre or the litre, nor peg them to gold or jugs, so why shouldn't money be treated the same with scientific measurements? Perhaps a dollar could be 1MB of data travelling through a standard fibre optic cable at speed of light? Can you imagine floating the kilometre? One day a kilometre is equivalent to a mile, the next day everybody sells and the kilometre ilhas been devalued to 3 inches. What are your thoughts on cigarettes as currency in prisons, or pokemon cards as currency for kids? Does the lack of gold backing take away the value the people have for it?
@@yuki-sakurakawa Like everything else, the value of money is based on supply and demand. Supply and demand are dynamic and therefore a flexible money system is needed for price stability. Pegging the money supply to something like gold was proven to be too restrictive, while your idea of using data seems to lack a lot of detail in the why and how. Supply of a particular sovereign currency is controlled by governments through fiscal and monetary policy. Banks create most of the money in the world when people/businesses make loans, the regulations on lending is therefore has a massive influence on supply. Demand can increase for a number of factors. For example, a growing population in a country - more workers mean more people willing to work for that currency aka demand. More goods - when more things are produced, these goods are looking to be exchanged for money. Without more money to satisfy the market, these goods will become cheaper, if it’s too costly to produce these things, then there will simply be excess capacity not being used. Think housing in the US, we have a housing shortage, the industry can absolutely build a lot more, except it’s too expensive, and people don’t have money. There’s is desire housing, willingness to build housing, but no demand because of lack of money. A countries increasing influence in the world - means that more foreign countries will want to hold their currency and assets denominated in that currency like stocks and bonds. The US dollar keeps rising in value because it’s a Global reserve currency, as global trade increasing, demand for USD keeps increasing, however, the USA doesn’t want to deficit spend as much as before constraining the amount of USD the world can have. Also many global firms are already highly leveraged in USD so borrowing more is difficult. Limited supply and increasing demand = USD going up. This is why many countries are trying to move on to other currencies but it’s just not that easy.
The Federal Reserve is a federal as Federal Express, which is to say, not at all. The US Central Bank's independence should be mentioned as a money making cartel it is a complicating factor to this explanation.
Yes.. but the “Cartel” is required to purchase the bonds… so if China or others do not, the member banks are required to purchase them… but the Treasury can then just pay them back if they want… sorry to say.
It works in theory But when you're limited by capacity and you go to increase that capacity and find that there's no skill labor required... You get wage inflation in a focused sector, gentrification pushing lower labor or irrelevant labor into poverty, creating massive internal conflicts. That's what's happening now. Let's pump $60B into the chip industry for example, when there's already a shortage of chip engineers. Capacity cannot increase until labor skills are upgraded, which is a decades-long cycle. In the meantime... Massive waste leading to inflation, first in pockets, and then as these inefficient pockets meet, overall inflation while labor participation drops.
One of the suggested ways proponents of MMT would say it could be used to improve society is to mobilize the productive capacity of the less skilled unemployed through a federal jobs guarantee. Typical private sectors companies don't like to hire people who have a history of unemployment. Well, the longer someone goes unemployed, the less they have a chance or time to develop life skills and job skills to ever get back into a position to be employed like that. Federal jobs guarantee can focus around "care" jobs that are typically un-valued or under-valued by society, such as childcare/daycares/babysitting, those caring for the elderly, those cleaning up and fixing the community spaces or planting trees and doing things beneficial to the environment but don't make a profit in the private sector, but are hugely beneficially to the actual physical environment and society on the whole. The jobs guarantee would be a livable wage and people on those programs would have time to work up their job skills and then can go on to apply for different work that other employers can now see they are qualified for. It's about where the support goes and what values we want to support in society. Of course funds can be wasted. The ridiculous amount of funds wasted on a $700+ US military budget to go bomb other countries, kill innocent people, pollute more than entire countries, steal resources and bring military people back with PTSD and not support them with healthcare is an example of a giant, violent waste of money. But putting funds into schools, hospitals, community organizations, small business and green energy are examples of positive investments in a shift towards a healthy, sustainable future, for starters.
@@coolioso808one of the problems with federal jobs programs is something you already talked about. Some people just don't want to work. Why should tax payers pay someone that may or may not show up everyday. If it's federal they will probably get paid too well, not work hard, have no danger of losing their job, and add more people to the extremely long list of people the tax payers are footing the bill for. My guess is people wouldn't develop many job skills or want to leave the federal jobs.
@@abad3way Since my post about a year ago, I've done more research and changed my views slightly. I'm not a big advocate of a federal jobs program, I'm more supportive of a community job cooperative. I'll explain that more in a bit, but I thought we were under a Modern Monetary Theory video, are we not? Don't we understand that taxes don't fund spending at the federal level? That's been proven, multiple books and articles on that, even the chairs of the Fed have admitted it. It's not 'tax payers' funding anything coming from Federal funding. Funds are created newly, out of thin air, into the accounts directly and then taxes delete some money from the economy. I'd rather Federal funds go to something national that we could all benefit more from, like Universal Post-Secondary Education or Fast, Safe Mag Lev Passenger Rail lines. Back to the community cooperative jobs program and your concern, which a lot of people I know would share with you, is you feel people don't want to work. Well, is it people don't want to do anything to contribute to society or that the only paid jobs are crap jobs that are long hours, boring, dangerous and repetitive? Because who the Hell does want to do those jobs? 80% of people don't like their jobs, by some reports. I have a job where I'm lucky that I enjoy many aspects of it, I'm helping and contributing to society but there are many parts of it that are unnecessarily stressful and difficult. We need a new community owned and operated cooperative system that opens doors for everyone to pursue their passions and then get properly rewarded for it. Like One Small Town Contributionism model. It's 100% voluntary, but all the businesses and projects are co-owned by all the members and each member only has to contribute 3 hours per week to the project or business of their choice or interest. The doors open up dramatically! It could be food prep, it could be animal care, it could be park maintenance, could be music, arts, crafts or repairs. Could be healthcare and education. So many things because the community members co-own and volunteer their time the goods produced can be sold for best prices to the non-members on the open market and every member gets an equal profit share in addition to a free gift basket of goodies created by the members, including stuff like food, textiles and gadgets. What about that sort of community jobs program? It's like taking all the individual charities, non-profits and community programs and putting the best of it all together.
@@coolioso808 that can work on a small scale perfectly well and I hope it works out for you. My original point was that the government tends to make 2 problems for every solution. We should be taking power from it Instead of empowering the leviathan
You didn't understand. MMT is working. It's not about how things should or can work, it describes the current state. For 5000 years our monetary system hasn't changed.
1. In scenario 1, in theory, what happens if the unemployed people who created the widgets then spent all of the money on other goods and services? Then presumably, unless there is spare capacity in those other sectors then inflation will still happen, right? But the principle is the same, it just adds complexity? 2. What is the implication of viewing the government as a money creator, and individuals as money users? In a way we are also money creators, no? Our behaviour determines the multiplier effect. During risky times we might choose to keep our money under a mattress, taking it out of the economy, and in good times we might choose to spend it.. We just do it for different reasons.
The MMT idea that government is the money creator and we are just users is just total rubbish. It is blatantly false and based on some even more absurd and false idea that denies that government gets all of it's money from taxing the private sector or from sales of securities (bonds) to either the Reserve bank or the public or other foreign entities. Government is not the creator of the new money or any money because in todays economies money is fiat credit based money created by the Reserve bank or by Private banks. The new money government gets from the reserve bank is spent by government as the first user of that money. MMT denies or ignores this fact.
@@chopeda5822 Not a given at all. The concept of opportunity cost is ignored in MMT and so are prices. That is just one additional reason it fails as credible theory.
I think one information that is key to understanding this is that money is not a resource, but a social relationship of exchange of goods. An economy runs on resources and labor, so those are the actual important variables, while money is simply one possible way to allocate goods and resources. Every problem with money is either a problem with resources themselves or of using an abstraction as a proxy for
resources.
But you also have some level of demand on money if level of money is to high and market cant alocate it in food way it will icrease inflation yes money is social relationship used to exchange but if money lost value people will not exchange more goods and other people will use other money with higher value BC their are more stable and that will make weeker money lose their value like in Venezuela people use dolar and euro not their own boliwars mostly bc Its to weak
@@lesiu6566 yes. Because money, being an abstraction, hidea the real resource shortages that may happen. So the result of people believing and trying to use a piece of paper to acquire a good which is more expensive to produce, creates this whole mess
@@doctorinternet8695 money system is actually good bc it help us to calculate value if we create system without money (Theoretical communism) we will create problem with calculation and trade bc its much more easier to use money as the symbol of value of product and data like inflation to determine suply and demand of products and trade it with other.
Money is just medium of exchange and its need few function like:
it need to be accept by other used in transaction and be:
symbolic(dollar euro etc value create by strenght of value economic growth stable quantity on market and other things) or commodity money(value mostly created by quantity of gold)
@@lesiu6566 Why couldn't consumption just be measured directly instead of using money as an indicator of supply and demand? Why should a consumer be punished for some product being low on supply by increasing it's purchase price?
A currency of some sort is convenient as a mean of exchange though, bc there is then this one type of product which can be used to acquire all other products in certain ratios.
You are overthinking things here. Money is all about where it's spent, how it's accumulated and who accumulates it. For federal government, because it literally creates money, it's just keystrokes on a spreadsheet. The problem is the rest of us can go bankrupt if the government doesn't spend and tax appropriately. It's obvious it doesn't and trusting the private sector to do so is an even worse idea. No matter what they preach!
The problem with all discussions of MMT is that we have allowed the definition of the word "inflation" to morph into something that creates misunderstanding. The original (and the only real) definition of "inflation" was "An increase in the ratio of the amount of money in circulation to the amount of goods and services in the market (aka GDP), leading to rising prices". Once we re-defined to word to where it became merely a synonym for "rising prices", we lost the ability to control the problem of rising prices.
Allow me to explain it: "we've not completely destroyed the economy yet, so our theory is not disproved, so we will keep doing it."
the Magic Money Tree is working at full force. Even if FIAT currency would work as inteded, politicans will never use it wisely hence a harder currency is needed that protects the common people from politics shinanigans
Printing money endlessly and its inflationary impacts have been proven many times throughout history. And now we are going to see this recession go to depression levels with massive inflation.
did you not watch the video? It explains what is wrong with your statement. @@zackeryzackery9381
@@zackeryzackery9381 in every case in history (which is a relatively short history since fiat currencies have only been around for a few decades) those inflationary pressures came from increased demand vs supply. Creating more money in an of itself did not actually increase inflation. Japan for instance has been running quite large deficits since the early 90's and rather than inflation they had almost 3 decades of deflation (which is actually worse) despite creating a lot of money.
@@fulla6967ie: bitcoin
MMT in a nutshell
Business: "If you print a billion dollars for me, I'll split it with you"
Politician: "You've got a deal!"
You are 100% correct. Everything else that is said about MMT is sophistry and rationalization.
@@Individual_Lives_Matteryou guys are completely clueless. It's like you saw Ronald Reagan and Margret Thatcher on the thumbnail then immediately dismissed everything in the video.
This "summary" is completely braindead.
10:05 “taxes take it out” but not used to raise capital. This is an interesting concept… it can be concluded then that taxes should then be applied in meaningful ways like rebates and other spending is. It implies that income tax is largely a historical artefact, not necessarily effectively applied though. It implies taxation could and should be used to precisely target markets that require deflation. It implies broad taxation is kind of pointless (besides that incentive to use the issuing currency which seems a little odd).
Yes! One purpose of taxation is to release the real resources from the private sector that the government wishes to use, without bidding their price up. Sometimes this won't be necessary but sometimes it will.
When billionaires are the ones who write the tax code, we’ll never be able to fix it. Inflation is just a regressive tax used as class warfare.
One of the odd things about MMT is that spending creates inflation which makes all money worthless than previously. This makes paying the debt back easier. What really happens is that government never pays it back. So the only money that really becomes worthless is our money.
This is an incredibly oversimplified take that's made without context.
If printing and spending the money increases economic capacity then actually MMT says it will not cause inflation. I think you should look into the concept a bit more because it really does break down a few of the "obvious truths" we take for granted in economics.
@@GR8APE69yet its largely true.
but mmt in itself is built on incorrect assumptions, so doenst help.
You don’t mention that when private banks make a loan most of the money is created out of thin air (endogenously). This money is debt. When the debt is repaid that money disappears. This has been the case since 1844 in the UK, by the bank charter act. If the banks can create money why shouldn’t the government. Should the money grabbing banks be able to create money at all?
Absolutely correct. MMTers are in denial of reality. MMters say there is value in money because taxes put value into it despite the fact that there are plenty of examples of countries which had taxes but money that was inflated so far it became valueless.- i.e. taxes but worthless money and MMTers saying there is value in the money because taxes made it valuable.
Who allows the banks to do this? The government.
So governments tax us to encourage us to work to be able to pay them? That explains why missionaries used to ask colonial governments to impose poll taxes in cashless societies, whereby people who worked only for themselves and their community would be forced to seek paid employment "like good Christians" so that they could pay the government and not have their belongings confiscated in lieu of tax.
My country has the poll tax ordinance of 1852.
The one critique I’ve heard of MMT that does stand up is with regards to their ideas around full employment. It ignores Marx’s Reserve Army of Labour.
If the government funds full employment, then it reduces your reserve army of labour down to nothing. When the reserve army approaches zero, the cost of labour skyrockets and your economy tanks because businesses can’t afford employees. This is why banks say they want to see unemployment rise as a result of the rising interest rates. That will push down the cost of labour and increase profits.
Basically you can’t have both a capitalist system AND full employment. They are fundamentally opposed.
Mmt, Keynesian, austrian, fiat, or gold/silver standard all run into one major issue: they're debt-based. Equity-based economy would not put anyone in debt. Imagine instead of a bank loan to buy a house, you sell shares in your family (eg $200k for 20% equity and 5% dividends [5% of the 20% equity of net family income]). Banks, etc could buy & sell, making profits from such equity. The family could buy it back too.
History of mankind has been debt-based economics, even before the first coin was struck: the first writing was an account of debt from each person and how they paid (eg cows, milk, grain).
That's the "natural rate of unemployment," the minimum amount for employers to have the whip hand over workers. In Mrs Thatcher's day this was euphemistically called the NAIRU or "non-accelerating inflation rate of unemployment," from the theory that if workers could ask for whatever wage they wanted, inflation would skyrocket.
That's why Norman Lamont, when Chancellor of the Exchequer, said that unemployment was a price well worth paying: the unemployed "paid the price," and his party's donors benefitted.
If you believe in this, then when unemployment falls in a particular area you will sell your shares in companies that manufacture there. It's a self-fulfilling prophecy.
@@faithlesshound5621
It’s not a matter of believing it or not believing it. It’s just an economic reality. It’s based in Marx’s reserve army of labor, and it’s also Kalecki’s argument for why Keynesian failed.
What matters is what you do with the information. Neoclassical economists see it as a way to force wages down, which is bad.
I think of it as proof that a UBI would be better than a job guarantee. A UBI would not compete with the labor force, therefore it wouldn’t drive up wages.
@@TheCommonS3Nse "Practical men, who believe themselves to be exempt from any intellectual influence, are usually slaves to some defunct economist." So said JM Keynes. That's why I distrust "common sense" and instead hold that economists ought to wear their collars back to front. The Monetary Policy Committee should appear in cardinals' hats when they make their pronouncements.
@@faithlesshound5621
That says nothing to my response. That’s just you burying your head in the sand to ignore a real issue with the jobs guarantee.
If the monetary policy committee had listened to Kalecki instead of Friedman, we wouldn’t be in the economic shit show we’re in now. Arguing against the current monetary regime does not address Kalecki’s argument in any way.
The problem is that you have to trust the government with the power to adjust production of money and not abuse it. If you have a fixed number of dollars, and capacity increases, you have *deflation*! Everyone becomes effectively richer because we overall are producing more per capita. Instead, we’re left with reckless overspending and crazy inflation that’s effectively a very regressive tax
Mmt is a good description of a fiat currency. Unfortunately, in the real world, the economy is not an abstraction of fiat currency, its an an abstraction of the movement of value. Every dollar, definitionally, represents one unit of perciveved value. The government can change the ratio of currency/value but cant print value.
I stumbled across this clip whilst laying in bed (it's 6:50, here in Sydney) before heading out the door for my coffee and to read the paper. Well, telling you I actually read a hardcopy of a newspaper tells you a tale in itself. Quite simply, most likely I'm over 50: in fact, I'm 69. Hence, I'm old enough to grasp exactly what you're alluding to with saying:
"the economy is not an abstraction".
Anyway, I actually went to a seminar Stephanie Kelton spoke on RE MMT in 2017 and she's quite persuasive - part of that entails how sexy she is/was, which had men salivating over her.
But not long after attending that seminar and doing a little research it dawned upon that MMT has actually been implemented upon us from at least 25 years ago: it just didn't have a label.
In closing, I want you to Google up the painting by John K Waterhouse called:
'The Daughters of Danas'
Upon doing so you'll immediately grasp the relevance of that painting and the word I made up called:
DANADIC.
I agree. A government also can't unlimitedly create creditors to buy their debit instruments.
Very good. Unfortunately in the socialist world, there the concept of creating value doesn't exist.
Governments literally can create value by stimulating the economy where it is not already at capacity.
@@GynxShinx Printing money creates inflation by definition. In the short term, you may create an illusion of economic stimulus, but medium to long term, you are devaluing the dollar and creating inflation. The reason this is an illusion of economic stimulus because increasing the money supply does not increase real demand and productivity.
7:05 I viscerally despise MMT as "Magic Money Tree". That being said your explanation is one of the more balanced explanations.
There are four problems with it
1) "spare capacity" presumes that the public sector knows better than the private sector how to spend money. Is that money spent on consumption, or building meaningful capital? Is misallocated spending punished? Are the cantellon effects that incentivize this sort of spending fair on citizens downstream of it?
2) Say's Law was not accounted for: people don't actually trade money, they trade goods for goods with money in the middle... money isn't the engine, it's the lubricant. It depends on if the government spends money that creates capital and wealth, or misallocates it to pay for consumption e.g. subsidies and welfare cheques
3) Inflation is not a function of spare capacity but, as money creation is no longer sync'd with the creation of capital and goods. Printing money doesn't print more hospital beds.
4) We can achieve full employment by printing money to pay people generously to dig holes with tablespoons and fill them in again. An absurd example, but it shows how meaningless "full employment" is as a measure and that the value of money invested exists on a spectrum... It doesn't account for the value or complexity of capital produced and, instead of satisfying a market of interested citizens (who punish non-delivery with boycotts) but instead diverts money to governments who pay out their backers to remain in power.
First of all MMT is not a political regime, but rather a descriptive theory. So by acknowledging MMT's pointof view, you can use it on different political agendas. You could still argue for a limit of public debt or spending, which is just more accurate in assessing the real economic limits and therefore leavin less economic potential out.
I also strongly disagree with your implied korrelation of the quantitative size of monetary aggregate and inflation. Here in the EU all monetary aggregates have massively increased due to low yields and quantitative easing. Even tho, the inflation rate has remained under the 2% mark for almost ten years. This shows, that there are more factors to take into konsideration to accurately assess inflationary tendencies
@@lm_2973 ultimately MMT is a creature of fiat money and fiat is a whim of govt: and the aim of the govt is to grow the govt and to pay off its backers. You cannot separate MMT from that political nature and that you cannot solve political problems with economics. The second is that your comment "inflation remained under the 2% mark" fails on three points
1) the definition of "inflation" has been altered in several jurisdictions (such as the US) to make it appear less severe than under the old definition
2) the key is whether the money makes it into the M2 money supply and lubricates the economy, or is it locked up in bonds or loans that the govt mandates as reserves. In the US, the US Govt is using the FDIC to keep the printed money "off the books" so it looks like there is no inflation (look, everyone is looking at M2!) without realising that the inflation is leaking into the economy in other ways, such as malinvestment pushing up prices in housing or the stock market and crypto as investors try to avoid their savings being inflated out from under them
3) your comment RE: inflation doesn't account for the central limit theorum and which "goods in the shopping cart" are measured for the effect of inflation. As per points 1# and 2# it's arbitrary and the whim of the fiat and political masters keen to stay in office and to be seen "managing" "the economy" and "unemployment" when in truth it has no business doing either.
@@lm_2973 consider a simpler example: Keynesian-ism. There's meant to be a boom and bust cycle, and there should be austerity during the boom, and free spending during the dip to prop up the economy. In practice, the govt simply spends with profligacy during both the dip and the boom to buy votes. That's why Keynesian-ism, like MMT, is promoted by all major govts as "mainstream" as the politicians want economics to anoint them with more political power compared to economic theories that discuss the constraints and limits of govt intervention.
@cassiuslives4807
Why couldn't there just be full employment and shorter worktime for all the workers. Why should some people be held unemployed while others work for +8 hours a day while every able person could work and the working time could be reduced to 7 or 6 hours per day.
@@here98FIN it's a good question but the wrong question in that it betrays a misunderstanding of what is at play here. The real question is, what do customers want and what are they paying for? Are they paying for 24/7 shopping, 2 hour delivery, beds, fridges and automobiles? As per Menger's Customer Sovereignty, in such a way the hours worked per person is shaped by 1) what they can make and 2) are they available for consultation on demand by customers or, as proxy, the employer. Trying to run an economy based on "full employment" and "hours worked" ultimately is a fool's errand in that you could spend 40 hours working on something no-one wants, or 1 hour on something that sells $$$$$$$$ at auction. That's why govt's trying to run the economy is bass ackwards, ultimately.
If you worked for me 1 hour a day, but in that hour could produce what another employee could do in 10, then not only might I pay you a premium more than what I would have paid the other employee, you could demand that for your expertise and services. Hence your question RE: hours worked is moot: it was tried in the 1930s and lead to the great depression.
There are six or seven more factors that play into this, but I'll leave it at that for now. Hope that answers your question!
The problem with mmt is that it takes value for granted. If you produce widgets nobody wants, they have no value. The Soviet Union found this out the hard way.
Exactly right. MMT proponents advocate for printing money only in the case of deflation i.e. in order to ameliorate or prevent a recession. MMT is a natural extension of Keynesianism
Do you live under a rock ? What's going been going on for the last 80 years in the current system ? So you 'd much rather have what we have now ?
Tying MMT to the old Soviet state capitalist structure is so far off you obviously have missed what has been proposed.
@@skutchBlobaumyes, I would prefer our modern system over our previous systems. How is that even a question? The available goods and services that exist today, the wealth generation created by fiat currencies across the world has been a massive boon to humanity as a whole and the US in particular. Having money tied to commodities limits the amount of capital available in an economy. It was a safety valve against inflation but it also greatly limited the enterprises that could be created.
Our issue now is getting capital into circulation from the individuals that have it. Taxation is one of the best tools for this but our gutless representatives know taxes are unpopular and refuse to make necessary adjustments. If we had the progressive tax structures of pre-Reagan era’s we could be incentivizing the wealthy to plow their dragon’s hoards back into the economy creating a plethora of new ventures that could greatly enhance gdp growth and gbi simultaneously.
But no we have “all tax bad” Neanderthals repeating the mantra to the wealthiest individuals drum beat.
GNI*
Stupid autocorrect
There’s a lot to say here but one thing is local and state governments can’t print money so they actually need taxes to survive
Yes but the federal government often finances many operations of local government anyway
Not really, because central government sets their budgets, then the local government then decides if it needs to top that up with local taxes. If central government simply provided enough, then there's no need to add that extra layer, and the local governments can just get on with doing the local necessities like organising rubbish collections and filling in pot holes... Then send invoice to central government.
@@FHH618School systems are definitely outside the central government funding in the USA
One question. Could MMT make governments more irresponsible with spending under the assumption that MMT enables the production of unlimited funds?
Yes it could.
With COVID we’ve seen a massive amount of money being created by central banks. They can only do this because there is spare capacity in the economy - put simply the money created is buying things that would otherwise have gone unsold.
Governments will always be tempted to print money. One way to avoid this would be to have an independent central bank that has the ability to say ‘no’ to any government that was becoming irresponsible.
@@economicsunderstood Wouldn't an independent central bank outside of government control lead to it own issue? I know we already have one in the USA but expanding this could lead to its own issues.
In the case of the Bank of England, it's a myth that it is independent and I believe the same holds for the US Federal Reserve. If Congress instructs that a vendor be paid for supplying goods and services, the Federal Reserve cannot refuse. Likewise, in UK statute, the Bank of England cannot do anything that the UK government does not agree with. Ultimately, the power of the purse lies with Congress in the US and parliament in the UK
@@wdavidwoods I agree that the reality is that ultimate power lies with the government. However, I do feel that the 'independence' arrangements we currently have in place allows a level of transparency in decision making which makes it harder for more politically motivated actions to occur.
@@economicsunderstood In the case of the UK, if one looks in the 'Companies House' website for 'Bank of England', it is described as a 'Royal charter company'. In other words, it is 100 per cent owned by the government. The only independence it has is for a government-appointed 'Monetary Policy Committee' to decide on an interest rate. MMT academics point out that this has very little effect on the real economy, and what effect it does have is counter to what most people think. The BoE has no real fiscal independence. I suspect that the central bank independence narrative is a political smokescreen that has been set to deflect blame from politicians.
Who would have thought Zimbabwe and the Weimar Republic were so sophisticated monetarily?
Both Zimbabwe and the Weimar Republic suffered substantial drops in productive capacity which was the root source of the inflation not the money created. In Zimbabwe this was the transfer of land from commercial farms to under capitalised subsistence farmer. For the Weimar Republic it was the closure of the Ruhr factories and mines in order to avoid paying war reparations to the French.
There is always some excuse from leftards. Just keep printing money, what could possibly go wrong. The MMT crowd is out to lunch today eating twenty dollar happy meals. Get a clue@@davidwright7193
@@davidwright7193 how could the farmers be under capitalized when they had access to unlimited currency.
A subsistence farm produces less, by definition, then a commercial farm, so it has less capital. Currency is not the same thing as capital
@@altonstevens1294 capital in that case means seeds, fertiliser, tools, land that is lying fallow to recover. A farmer who needs to sell their crop to be able to put it in the ground in the first place isn’t able to maximise their production.
If we understand money as credit, its value becomes clear: Fiat money is central bank's liability (credit) , and It is backed by the credibility of the creditor and the repayment ability of the debtor. This places the government in an extraordinarily advantageous position over the private sector: The government has priority to access central bank credit, which the credibility of the sole legal tender creator (FED) and unchallenged repayment ability of the government (Federal gov) make the government unchallenged in the fiat system. New credit could compensate the old debt as long as debt ceiling keep rising, then the games goes on. The only concern should be inflation.
In theory yes if you can spend x amount of money, whether it exists or not, to increase production capacity significantly enough then you can outweigh the effects of that money printing, however like some comments point out this enables governments to easily misspend that money. If you use the traditional balanced budget policy you don't run this risk of systematic inflation and can avoid it entirely. This entire theory relies on the idea that government can accurately asses the effects of their spending which in recent years (post covid) as proven they cannot. Reject MMT.
We are currently practicing most of the elements of MMT and watching it go down in flames in real time.
The funniest part is their job guarantee is also already in effect, it’s called the army.
@@Pyropardus
Yes, we also have UBI, universal basic income. If you're not making more than $15/ hour, you're better off staying home and collecting benefits from the taxpayers.
Well, of course, mmt describes how modern fiat currency works. So if something is happening, then mmt is gonna describe it
Hum... No ?
The chronic debts are due to neoliberal deregulation of credit, and reducing government only gave more deficits... Who knew.
Anyway, practising part of a theory generally doesn't end well.
It's like building a bridge with thinner deck or fewer pillars.
It's going to do things at first but will not last
Why aren't debts held by central banks cancellled already ?
Hum... No ?
The chronic debts are due to neoliberal deregulation of credit, and reducing government only gave more deficits... Who knew.
Anyway, practising part of a theory generally doesn't end well.
It's like building a bridge with thinner deck or fewer pillars.
It's gonna do things at first but not going to last.
Why wasn't the company in the early example already producing 1,000,000 widgets already? Why did the government have to buy 200,000 widgets? And if there isn't enough demand for 1m widgets, wouldn't creating more widgets create a surplus, and inefficiency in the market?
I think thus where he made the point "if the gvt interferes with a market at capacity things go sideways and yea sometimes gvts fix things that aren't broken and end up breaking them"
@digitalsurfer4098 in this example those "widgets" that went to hospitals or schools wouldn't have gone there if the government hadn't injected money into the economy by purchasing the extra 250k widgets. So the government created more demand and supply rose to meet it. And it employed more people doing so and thus overall the economy was boosted.
Yes but they don't care, just tax afterwards and the accounting will look okay so problem solved
@@aruak321just like when we went to WW2 to get out of the great depression. Nothing like a government mandate to make things work because democracy means we are never wrong
05:40 Gotta love this example, because it introduces more questions than it answers. Just like MMT.
So many questions you couldn't list any?
Mmt is corruption driven system, no thanks.
I'm in Canada, we don't have the USD that is often used as a base currency throughout the world. The money that was created for the covid measures definitely ended up causing inflation pushing interest rates higher among other problems.
If that drag is not slowing un down I don't know what is, but the economy is is shambles and that's preventing the government from taking measures now (because they also overspent A LOT before covid).
Now, we have $60Billions ($1250 per person) just as debt service every year, twice our military budget and if gas prices had not decided to go down we would have had more of it, interest rates are not coming back down for the foreseeable future either.
High intrest rates high for long is good keeps house prices low.Makes sure you dont become a nation of debitors like usa.secondly it rewards participation in the econemy if fruits of ur labor have 0 intrest why bother to work that exstra hour...high interest rates also help to spend more responsible...and the perception helps to hold the government to certain standearts
In what way were government payments ‘definitely causing inflation’? Did you go any deeper into your analysis than that? Nothing to do with oil prices or supply chain constraints? Moreover why should inflation trigger interest rate rises? An interest rate rise just seems to be another way to rise prices and cause more inflation imho …
Thats simple because mony is supply and demand....if the government pumps mony bye spending it that comes into the real economy...Same reason why QE caused inflation and not the supply and demand issues (was only small part) they lied to you about....QE does not cause inflation aslong as the mony stays out of the real econemy (aslong as its just a number in a computer then there is no real world consequences)and as long as the central bank keeps pumping and stocks go up there is no issue.however if folks start to sell shares at same time( bye war)or the believe stocks will go down then a huge flow of fake mony gets converted to real cash and pushed in the real econemy and a tsunami of cash chasing limited goods wil cause inflation....bye repricing for now scares goods can now be sold for higher price.Modern economics are not worth the paper its writon upon...Imagine taking a page out of the playbook of the failed state that Japan is no real gdp growth in last 30y they have reduced purchase power so low that folks dont even wanne reproduce anymore...they live in appartments of sizes where you wouldent push ur dog in..there elderly are barely serviving ......QE was the crime of the Century commited bye the centralbanks and a price will have to be payed for your appeasement of there policy@@52darcey
I am not familiar with the Canadian economy but in Europe we had an inflation increase mainly due to shortages (to simply this for this comment). Then the European Central Bank started to increase interest rates to fight this inflation. This was not only independent of the governments it was in parts contrary to what some government wanted.
What you describe is the definition of inflation (limited goods beining chaced byea unlimited currency)not the cause@@leonlowenstadter9223
Adoption of government issued money may be encouraged by tax requirements, but taxes aren't the primary reason money is needed. For example if a country had a sovereign wealth fund which made taxes unnecessary, the people would still need money. And if a country did require tax payment in it's own currency, it wouldn't stop the citizens from adopting another currency as preferred for all other transactions.
Excellent and brief breakdown of this complex subject.
its not that complex , its how the system works , its just that many have been gaslit to think that countries which owns its own currency has to obtain it , which is utter nonsense
@@Phil_D_Waller yeah, I agree. It wasn't complex to me, but I think because of years of indoctrination, it is to many.
Once it was explained that it was the coercive obligation to pay taxes that drove the value, it made far MORE sense to me than the narrative lie.
It's amazing how resistant people seem to be when it comes to understanding this. The Federal government creates the dollar. Why would they need them from anyone else?? Obviously, we know they don't.
States being different, USERS, of the currency, and thus dependent on taxes for funding does add some complexity, as well as countries that don't have monetary sovereignty and peg their currencies to another country's, like ours.
Unfortunately, most Americans have little to no immunity to propaganda or ability to think critically and independently.
Case in point..the stimulus checks during the pandemic resulted in 8% inflation in 2022
That taxes are the only way, or the best way for a government to absorb excess money from an economy, is false. Taxes are extremely expensive, are easily evaded, and complicate business matters so as to discourage small business activity. The most efficient way is to pay interest in return for parking money with the government. The government can also receive fees for services where appropriate. Taxes should primarily be used to discourage undesirable economic activity.
@@ThomasVWorm You confuse disagreement concerning a point with lack of comprehension. I was making a counterpoint.
Fiat currency is created by government debt because that is the system we agreed to with the banks, who profit from that system. Also Banks create debt and currency simultaneously because they are enabled to do so under our laws. This is not the only possible way to do things, it is just how it is currently done.
To say that the state is a "bank" for the private sector is dramatically distorting the business model of a bank. The state performs services and funds _public_ works projects which benefit the public, which includes enabling efficient businesses activity and growth. They do so simultaneously with the issue of debt instruments, which are purchased by the private sector in exchange for modest interest payments at low risk.This removes an approximately equivalent quantity of currency from circulation as is added to the economy via government spending. The net _direct_ effect on the liquid money supply is essentially nil.
Most of the money supply is created by commercial banks through private debt. When this is done to enhance profitable production of needed supply, it produces net material gains for the economy. When it is done to enhance consumption, it creates boom / bust cycles, as people spend tomorrow's income today, making it unavailable tomorrow. When it is done to finance unproductive speculation, it creates bubbles and economic instability which lead to destruction of economic value.
The idea that some sort of doom might ensue if the state failed to collect your supposed "debts" the private sector has incurred by the state having borrowed currency from the private sector is irrational. The spending by the state _produced_ value for the public, so it was a profitable investment, not a net loss. In effect, the private sector financed activities which enhanced their profitability, and was paid a little in direct profits, and even more in enhanced future profits, for having done so.
As long as the enhancement of private sector profitability created by the government spending isn't exceeded by the investment, everyone has already won. There is no need to pull money "created" by this process from the economy.
At its core, the function of the government is to enable efficient use of resources. Misguided government spending can mismanage resources and cause net loss, but effective management always creates net gains. You could imagine it being similar to the chief of a tribe assigning tasks to individuals to benefit the community, with no money involved. If she assigns work effectively, the community profits. If she assigns unnecessary tasks in preference to more essential tasks, the community gets poorer. The same applies to state fiscal policy.
That leaves control of inflation. If everything is remaining in good balance, there will be no inflation, but when it gets out of balance due to unwise allocation of resources and misuse of private debt for speculation or consumption, inflation can be controlled by better regulation of private credit. Most unproductive growth of the money supply is due to loose credit practices by private banks, not by unwise state spending.
@@crawkn I see what you say but the idea that there is no problem with increased debt created by the state depends on the state being as efficient as the private sector in producing goods and services.
The elephant in the room is that is very very seldom the situation because the state is more a consumer than producer. If it was not that case then there would not be a situation of it's need for tax revenues. Growing relative amounts of state created debt compared with increased production is a strong indication of the relative increasing loss of efficiency of the state itself being as productive as the private sector.
@@Rob-fx2dw A thing that is commonly misunderstood about capitalism is that profit is a form of inefficiency. It is an expense for consumers, not a benefit to them. It could even be thought of as a form of tax. So while the government might exhibit some inefficiencies, they are starting from an advantaged point versus a private enterprise which is required to pay investors who are not actively producing anything. When a government operation is not competitive due to inefficiency, the solution is to correct the inefficiency, not introduce a different one.
As for the government being a consumer, the purpose of government it to provide for the needs of the people. Therefore the government is a producer of services to the people, who are the consumers. The difference is that they are providing some of those services without direct payment from the consumers. Taxes are the traditional means of collecting payment for those services.
Providing services without direct charges makes sense for certain types of goods and services, but not all. One type of business which the government tends to do more efficiently than the private sector, as measured by the cost of services provided, is natural monopolies, and basic, low-profit needs. Public utilities, hospitals, and housing, for example, are usually delivered at significantly lower cost to the consumer than by their for-profit counterparts.
A substitute for taxes to raise revenue is for the government to provide the most fundamental inputs such as electricity on a sliding scale, more affordably to the individual consumer of average means, and including some "profit" from heavier users such as industry. This can be the case for pretty much any service the government provides. Businesses who think they can save money by providing for their own needs, such as by generating their own electricity, are free to do so.
One objection private enterprise may have to government competing with them is that the government has an unfair advantage because they don't have to make a profit. First, this is an acknowledgement that government may be able to sell the same services at a lower price. Second, the objection can be overcome if the government _is_ making a profit, to supplement the cost of other services they provide without charge, as a substitute for taxes.
Debt doesn’t matter theory is completely insane.
Some of you seem to be missing the main difference between MMT and the current system for financing the annual deficit. Currently our government borrows the money. Under MMT it would merely print the needed currency, thereby not increasing the national debt. Debates in Congress over spending and debt ceilings would become mute. People like AOC and Bernie love MMT, which tells me a lot about its merit.
MMT IS the current state. There is no difference between the current state and the MMT. It's the same. MMT describes how our monetary system works (for 5000 years already).
@@TiberionMarivallis then why are we still selling Treasuries and arguing over debt ceilings?
@@player627 neo-liberal ideology and lack of knowledge. The Mont Pelerin Society did a great job by spreading their fairy tales to frame them as "facts". Before they established neo-liberalism Keynesianism was the leading school economics which caused us wealth. MMT is a combination of (Post-)Keynesianism and Chartalism. We were at a point where economic sanity ruled but it got overthrown by protofacists and after ~50 years of propaganda almost everyone believes in their lies.
@@player627and yet the debt ceiling is always raised, and the deficit always goes up. Its a show.
7:31 example 1 is framed a little odd. There is no need to conflate it with public/private demand. That adds unrelated complexity to the example. More likely, a government will offer some incentive like a rebate for anyone to purchase more widgets. So the example can be simplified to: the government can increase demand for widgets by providing financial incentives (such as rebates). If that demand exceeds the available capacity to supply widgets, the price will inflate. This then leads into interesting discussions like, supply/demand over what period, how long does it take to increase supply capacity, is the demand and supply static or dynamic over time? Do companies report their capacity deficits or excesses to governments so they can make these decisions? How quickly does price respond when not meeting demand? I assume prices respond faster for fundamental things, but slower for things that don’t really matter.
Ever since I first heard this theory it sounded like an excuse for unending and unfettered government spending. Everyone should know that the least efficient consumer is the federal government and everything you’ve outlined here seems to support this.
Wonderful breakdown. I think one criticism of embracing MMT that you did not address, is not economic per se, and may be more of a criticism of sovereign Fiat currency . It basically states that a nation like the US, that creates its own money and owes its debt in it's own money has too much power and is in no way beholden to its people. In other words, at a time of gold standard there was a certain balance between governments, those who produced things, like guns or food, those who held assets and thus could led to the government, and those who had influence on manpower (the people essentially). With fiat currency the balance is completely in the hands of the government. Being able to create money allows them to purchase all the other components, and in fact, also destroy the fiat assets of those it sees as a threat (e.g. Russian Oligarchs and their frozen assets). It doesn't matter how many guns or bullets or nonperishable food items you stockpile. If you are going up against the US gov it is neve enough because their resources are essentially limitless. I think this is an interesting dynamic and is probably one of the main reasons for a government that is oppositional within itself (multiple co-equal branches and multiple parties). Any thoughts on this?
First, a question: what is a "fiat asset"?
What I'm about to type is based on Randall Wray's book, "Making Money Work for Us." I'd argue that a bigger concern is that too little deficit spending will cause those in the private economy to rely on credit from private lenders, making debtors beholden to those creditors. As people's debts mount, they become less open to shifting resources to the public good.
Just BTW, Wray points out that this is why ancient governments (almost always monarchs) had debt jubilees. The monarchs realized that subjects deep in debt were more beholden to their creditors than they were to the monarch. So periodically, the monarch would decree that all private debt was forgiven.
The key, of course, is that in modern times we need to make sure the government is enacting policies that benefit all the people, not just an elite few. And that's on us, isn't it? Know how money really works, and get out and vote for politicians who will make the system work for all.
@@kensheck2049 in imperial period Rome debt jubilees were a common tactic some emperors used to gain trust and popularity from the populace. One problem that occurred, because of how the tactic was implemented, was that the wealthiest people didn't ever pay their debts because they knew that as long as they held out long enough sooner or later their debts would be forgiven. The poor debtors didn't have that luxury because they didn't have the "muscle" to hold off the collectors.
well, atleast the government ist democratic (in princple), the people holding these assets are all super rich billionaires that cannot be held accoutable in the way politicians can be. (though things get problematic if these rich people go into politics...)
Yes, fiat money creates a top-down system where all the power is in the hands of un-elected Banksters who pass laws and create a system which enslaves the workers and the people and creates an unaccountable government, whereas the US Constitution creates a bottom-up system where the government is beholden to the workers and the People to provide them with the intrinsic value materials for coinage required in Art l sec 10 USC. If we understood the Constitution and better appreciated the liberty it creates i don't think we would have ever left it!
If you have money in a bank, that money can (at least in principle) be frozen. It doesn't matter if it's fiat money, gold coins, or your grandma's jewels.
Money on the hands of the state is the just begin of the end of that curreny. In my country (argentina) our government in the past 123 years 112 the the government spent more than what they earn from taxes. In the meanwhile we take over 13 zeros of our national currency (we are going for 3 more), and we have now a hyperinflation. So, be careful with spending more than what you have, unless you want to end up like argentina or venezuela
Money is always, in every country in the hands of the state.
MMT was set to become a main topic of debate in the 2020 election - then Covid. One could easily argue that the last four years have been an exercise in testing the MMT theory given the Inflation Reduction Act and other legislation. What concerns me is that few realize the idea of quantitative active management of an economy was already tried in India in the 1970s - and by some very bright people. It failed. When we have legislators/bureaucrats with incentives that do not align with a responsible, pragmatic approach to economic management, MMT falls on its face. Kudos for an excellent presentation.
The incentive will always be self-interest. That is why MMT cannot work.
The widgets example is not reality at all because it ignores the vital role of prices which are a way that relative costs between alternative production options and alternative opportunities that people have to purchase more widgets or other goods they need instead. It is know as opportunity cost.
This is assuming govts are responsible. Which they are not. We are also seeing inflation like I never seen in my lifetime.
Then you're young. Today inflation is not especially high, historically speaking. Instead, it was historically low for the last ~15 years.
@@GonzoTehGreat So what if I'm young? 30-40 year highs. I understand they have been higher for those that are in their 60s and lived through rougher times. For me, in my lifetime, it's relatively high.
@@musicotensai Which country are you living in?
Modern Monetary Theory is far more deceptive than useful because the value of fiat currency comes specifically from expectations that governments will not abuse their power to create more money than is necessary to maintain an equilibrium between the amount of money in the economy and the amount of goods and services produced. To the extent that governments violate that trust, fiat money loses value, so creating new money constitutes an indirect tax on existing money rather than a source of "free" money. The only way fiat money can maintain its value is if government spending is paid for with taxation or borrowing, with the exception that governments can get a bit of extra money by increasing the money supply commensurate with economic growth. In short-term crises that would naturally lead to deflation, governments can counter the deflation by TEMPORARILY injecting extra money into the economy to compensate for factors that cause a temporary reduction in spending power in the private sector. But such action will lead to inflation after the crisis is over if the temporary increase is not rectified by pulling the extra money out of the economy when the crisis is over. The idea that governmental power to create money makes balancing taxation and spending unimportant is an outrageous exaggeration of a far more limited power for governments to benefit from the natural need to grow the money supply as an economy expands.
The widgets are a perfect example of how MMT is really about centralization, corruption and tyranny, the inevitable result of centralization. Central planners are worse than a broken clock.
MMT is what introduced me to bitcoin, so there's a small use case.
Central planners cannot compete with the broken clock. They can never make correct decisions.
It’s all politics, fiat money just works the way it does, and MMT describes it well.
People being accepting of MMT is why we’ve got an inflation problem here. Dissidents aren’t saying you can’t have just just cuz it’s bad to have debt. It’s that you’re taking value that doesn’t exist yet from the future and asserting that we have that value now, but it’s not real yet. All borrowing has a cost to it, otherwise why would anyone lend?
I remember when a dollar equaled a foot of lumber. Then it became two dollars for a foot for same unchanged lumber.
You cannot measure anything with a dollar because its unit of size keeps shrinking.
MMT in a nutshell: The government is the source of all money, income and wealth. Everyone who lives and consumes should be thankful, they make all that happen. We can be happy that the government wants to spend even more next year. There is so much more good to do! Private income is taken away from the state.
We might face hard times if we don't stop that ideology.
Your sarcasm is welcomed - MMT is so totally wrong in every regard.
Fancy someone actually being so intellectually challenged to believe that the politicians who control spending of money in the economy according to their own objectives of being able to promise what they don't produce and don't know how to will turn out anything but a mess of more poverty.
Clearly, you've never heard of central banks and monetary regulations and laws. The govt already is the source of all, since 17th century in some areas. 🫠
@@yuki-sakurakawa The government seems to be the source of YOUR income. I can assure you that in the real economy the source of income is production and services. Maybe you should try one of these activities. After that you will probably not agree anymore that a big part of your salay is taken by the government. Even though they printed the bank notes.
Modern alchemy.
I’m really not sure that we can reasonably say governments can print as much money as they need so long as there is spare capacity. Capacity varies across the economy and by creating money to employ people who will inevitably spend their own money governments have no ability to control where that money will ultimately end up.
And this entirely ignores governments inability to assess total capacity in the first place, let alone where economic activity should be directed. To use your example of a widget factory it seems entirely likely that the government will find itself storing those widgets for many years to come at significant further expense. And we could print money to pay for warehousing and there might be spare warehouse capacity now, but those might need storing for decades.
Its a good THEORY for people who wosrship government as the wise overlord who will solve all their problems. When you reflect on the fact that government is ALWAYS wrong abiut EVERYTHING, its a very scary step on the road to serfdom.
You're surely intelligent enough to realise tthat the government of any country is never ALWAYS wrong about EVERYTHING.
@JGS2295 if government isn't ALWAYS wrong about EVERYTHING...that's certainly how you want to bet!
Correct. Government is just self-interested people pretending they care about you.
All Humanity must Agree Upon MMT for it to work. And we don't agree upon Sh*t. And it don't work incease in Productivity.
Brazil adopted MMT from the 50s to the mid-90s. Guess what happened to us
MMT was developed in the 90's, also its not a policy program, its an explanation of how central banks work
@@chopeda5822it was said in terms of a comparison, the central bank was monetizing the debt and the federal government had no regard to tax revenue... Some months the inflation would get close to 40%
@@chopeda5822funny answer
finally an explanation that focusses on unused econmic capacity part and doesnt just say "yea credit means money creation"
"Unused economic capacity"... It's unused by choice. Arbitrarily trying to "use it" just produces waste, inefficiency and corruption.
@@Individual_Lives_Matter also, how do you identify unused capacity? Anyway, it's so cute that they come up with 1 rare scenario in which (theoretically at least) MMT wouldn't be a disaster and to boost credibility, they also present a second scenario in which it would. But we all know all too well that once introduced, Governments will play the second scenario to no end.
"Modern Monetary Theory":
current money printing fantasy
Theyre trying to give a bad practice a sophisticated name. I wont fall for it.
@@davidmella1174
yup
basically: garbage man = "waste disposal engineer"
As always, it is about who decides in the government what is to be spent on whom by how much. Would our partisan way of governing be just in those decisions? It is the human element where theories breakdown.
Exactly. All of the progressive/socialist theories seem to completely ignore that the massive power they want concentrated in the government would be wielded by people, and a large portion of the people are dirtbags, and those dirtbags are drawn to positions where they can wield that power in the name of the people to benefit themselves. I bring this up constantly and the leftists never address it. This is the main reason I am a free market capitalist. While free markets are a usually inefficient and uneven solution to economic issues, they are better than anything else. But the "free market" part is critically important. We need to return to the trust- and monopoly-breaking times of the 20th century. Entities concentrating too much market power throws the whole thing akilter, as we see today.
This is a GOOD basic start for understanding the difference between MMT and the Balanced budget and currency use as we have been using it!!
There is ONE EXTREMELY important FACTOR that has BEEN PURPOSELY left OUT of ALL history books AND discussions, about GOLD and it BACKING -- ANY currency!
This is;
PEople do think correctly that Nixon took the U.S.A. OFF the gold standard to BETTER fund the Vietnam WAR-- this was a fair and correct statement!
BUT;
There was a MUCH BIGGER factor going on and it WOULD have CHANGED the world financial power structure;
Saudi Arabia WAS WORKING in TOTAL -- COLLUSION with Russia and IRAN to corner ENOUGH of the GOLD held by MANY SMALL --- NATIONS!
The WHOLE Middle EAST, SMALLER -- EASTERN BLOC - European countries were SO POOR in ALL kinds of minerals and ESPECIALLY -- OIL!!!
These MANY small countries had LITTLE to NO -- TRADING leverage --- yet --- NEEDED OIL, STEEL, IRON and MUCH more to build ANY kind of decent ECONOMY!
So, Saudi Arabia and Iran had the power of -- OIL and Russia ALL kinds raw minerals AND engineers to TEACH the --- MANY small countries how to use the materials-- for their OWN economic advantage!!!
What WAS the TRADE OFF??????
The Small countries had NO trade material that the 3 NEEDED or could get CLOSE to enough from these small countries!
Russia, Saud Arabia and IRAN were TRYING to make MANY --- MANY ---- DEALS - with these smaller nations ( like GREECE and SO many more!!!!!) these 3 --- WANTED portions of
EACH countries ------ GOLD and it was to BE and ------ ONGOING -- trade!!!
The U.N. basically CAUGHT ---- those 3 countries ------ TRYING to corner the SOVEREIGN gold reserves of -- a LOT of smaller countries!!
They KNEW they DID NOT NEED --- ALL the GOLD --- OR EVEN the MAJORITY of it ------ they ONLY NEEDED --- ENOUGH -- to WEAKEN the CURRENCIES of the MANY small countries, they ALSO
KNEW this --- WOULD make it -- MUCH harder for the MANY countries ---- to PRINT MONEY---- because -- as the 3 dictatorships got the GOLD--- the small countries would NOT have VERY limited economic leverage!
If those 3 got ENOUGH GOLD they KNEW they could--- control its PRICE ALSO-- this could have a MASSIVE -- EFFECT on-- ALL other BIG countries-- ability to grow their economies!!!
The CORNERING of the GOLD market DID NOT MEAN-- having the MAJOR majority of gold -- it MEANT --- having ENOUGH, to have MAJOR ---- PERMANENT -- INFLUENCE!!!!
The BIG PROBLEM in the 1960' ALL the way to 1990-- of OIL having a BIG IMPACT on -- ALL Big economies of EUROPE and the U.S.A. --- MADE ALL this ---- MUCH WORSE, just LOOK how we
had ODD and EVEN days for getting gas in the Carter administration! This was Saudi Arabia RETALIATING ---- for YEARS before in getting caught!
The Sauds and Russia -KNEW-- the combination of CONTROL of ---- OIL, basic minerals and -GOLD -- would give them International ECONOMIC --POWER --- for many --YEARS to come!
As the 3 dictatorships got CAUGHT, the FREE world nations -- ALL KNEW they HAD to -- NOT be HELD -- HOSTAGE by how much GOLD you had!!!
Getting OFF the Gold standard, when looking back ----was a VERY GOOD thing!
does that MEAN the FIAT system the WHOLE world has now is very GOOD---- NO, NOT at ALL! ---- BUT it is BETTER than the GOLD reserve system!!!
The SAYING---- "HE WHO HAS THE GOLD MAKES THE RULES'!!!! WAS VERY TRUE, and the 3 dictatorships were TRYING hard to have the MOST power !
That would have BEEN--VERY UGLY!!!
❤
Thank you for the video! There so much kore cool features of MMT and even more situations it can handle like creating ressources ans capacities where needed.
Thereby, spending and taxing has to be thought with who and when receives public spent money and redeems taxes, respectively.
Looking forward to more of your content in MMT 😎🙏🇩🇪
MMT is Keynesian on hyperdrive.
It is Paul Krugman alien invasion Keynesianism
"The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong." ~Jay Powell, Chairman of the Federal Reserve Bank of the United States of America
Thanks for this introductory video of MMT, although I think it is totally a sham. I believe MMT is just an excuse for backing up irresponsible gov spending, maybe because people keep questioning about the gov deficits and the national debt.
Just a few points I want to make, first if the demand is 75,000 gadgets, then gov purchasing another 25,000 probably won’t do any good because maybe the private sector just doesn’t need these extra gadgets. So you cannot just look at excess production capacity i.e. the supply side but should also take into account the aggregate demand in the market. Plus in reality there can be a lot of corruptions when the gov is involved in this kind of transactions. But that’s a different issue since we are only talking about the theory here.
Second, even if there is indeed excess production capacity it will still cause inflation, because the gov is just injecting more money into the economy. So it’s not like in this case you can just print money without any downsides.
Third, printing money is just a more disguised form of taxation because the money in people’s pockets will be devalued. In my opinion taxation in a more generic sense means shifting purchasing power from people to gov, and it doesn’t necessarily mean sending a physical check. So the proposition that gov needs tax to spend still holds true, or in other words gov needs to take over part of the people’s purchasing power in order to spend.
To your first point, I believe that the argument is that there is higher demand, but because of price constraints, the demand is not fully realized. There could be 25,000 people that would like the gadget, but are not considered on the demand side because it is not feasible for them to access the gadget without assistance. Maybe that is what you meant about aggregate demand, but as I see it, that is wrapped into the technical challenge of the theory. The government spending would need to adjust spending to allow for the needs of the people, but not spend so much that it increases demand (both public and private) beyond the production capacity of the industry. That is where inflation would come from.
To your second point, that is also where the balance of government spending comes in and where taxation fits. If the government spends too much, it will stimulate the economy to exceed production capability. A way that can be mitigated is to increase taxation. That way, the government cools down how much people can spend, thus decreasing demand and not exceeding the production capacity of that industry.
Your third point hits the same principles as your second point. The money is only devalued when there is inflation. Inflation, in this model, happens when government and private demand exceeds production capacity. If government spending can walk that line, inflation will not happen.
My biggest concern with MMT is having enough people that understand it so they can walk the line effectively. If this were implemented, I am sure there would be initial missteps that would cause people to immediately shut down the idea. We would need patience while we are working out the kinks, and the American public isn't well known for its patience right now.
@@EDMemm Thanks for the reply! Let me clarify a few things, for my first point I meant that maybe there is just no extra need for this kind of product in the market, i.e. 75,000 gadgets can already meet the needs of the private sector and this is all they really need. I don't mean to introduce price constraints etc. because it'll become a lot more complex and definitely a separate problem. My point is if this is the equilibrium reached in the market, then maybe this is all what people need. There are exceptional cases but it can be difficult to know for the gov. I made this point because the video only considered the possibility of supply capacity not being able to catch up but did not consider the possibility that the demand capacity not being able to catch up. Also, I meant aggregate demand in the same way as in the mainstream macro-economics. Hopefully this clarifies it a little bit.
As for the second point, I think you have made a good point, and I admit that I didn't take into account of the deflating force i.e. the increase in supply. I think you are assuming that the price level depends on the number of products and the total amount of money in the system, so as long as both increase at the same rate then there should be no inflation. I agree this is a legit and pretty commonly accepted assumption, though I think it is may be more complicated and trickier than that in reality because in reality it still boils down to supply and demand. In addition, in reality both wages and prices tend to be downward sticky, so if injecting money can indeed move the prices somehow it is more likely to go up rather than down, at least in the short run. Taxation may or may not help but will make it even more complicated, but at least in the short run I think it will just make it even worse (not in terms of the inflation numbers but how people actually feel), because you are taking away part of people's purchasing power and it takes time for prices to adjust due to the downward stickiness.
@@EDMemm I'm trying to think a little bit deeper this time and I believe we need to put some constraints on the number of products and the total amount of money when determining the price level, i.e. we should limit to products for sale and money in circulation.
I will try to use this example to drive it home this time, assume the private sector only needs 75,000 gadgets but gov just gives them another 25,000, and they just stash these extra 25,000 gadgets since they really don't need to use them at this point. Now let's fast-forward a bit so that the functioning 75,000 are out of their life-expectancy and people need another 75,000 gadgets for replacement, but guess what, they still have 25,000 stashed in the basement so they only need to order 50,000 this time, meanwhile we still have the extra money injected at the earlier point, so it's a lower demand (50,000 < 75,000) and more money in circulation, now what else can we expect other than inflation? Also since the demand is much lower, the factory needs to lay off some people, doesn't it?
Well this is not good, so what will the gov do? I guess just repeat the story, inject another amount of money and create even more demand so that it can kick the can down the road... Hopefully you won't argue that as long as we keep repeating this game maybe we will never get inflation.
@@jasonleelawlight Thanks for the well thought out response! I do agree that if the government artificially reduces supply without the requisite demand (in your example, what would lead to the surplus held in warehouses and basements), that would lead to inflation. That is where my main concern comes in. If we have people that are uninformed or unskilled in managing that balance, it could be disastrous. We would need smaller scale cases where people could gain experience and insight before adopting it nationwide.
I think there are certain sectors that are more appropriate for this type of system than others. If attemped with a commodity, such as smartphones, that could lead to the overestimations that would influence inflation, like you suggested. I think a better sector could be healthcare. There will always be health needs, so it is harder to overestimate demand. The constraint there is supply. Do we have enough healthcare providers to meet the needs of the people? Maybe, maybe not. If not, there are questions we can ask to help increase the capacity of our system. For example, if people received routine care, would the mitigation of long term health effects lessen the burden of providers? If we used MMT to help provide more access to medical school, could the influx of medical professionals meet the needs of the population? If we can answer those questions, I don't see why MMT might not work in that industry.
@@EDMemm I was talking about gov artificially supply without the requisite demand, but anyway I think you got my point. When it comes to the idea of experimenting in a specific sector on a smaller scale, I think it's a good thought but note that it is hard to limit the money injection only in a specific sector in reality, and when it leaks out to other sectors it can still lead to inflation. The biggest problem of MMT when coming to applications is that gov has to know well about both demand side and supply side and take into account of other subtle factors such as cross-sector effects, psychological effects, politics, etc. and as for how to do it exactly there are also quite some moving pieces, like how to decide how much money to inject, what's the timing to take action, should injection happen in one shot or multiple batches, should there be any complementary measures to take, etc. There are just so many factors involved and so many things that can go wrong, and the consequence can be very bad if it does go wrong because you may not see it immediately.
As for health care specifically, I do agree that there is extra demand but I don't think the supply side can catch up as it is extremely hard to get the needed degree and license. I know some people originated from other countries who did health care work before coming to the US, and they told me it's hard to get qualified for this kind of job here in the US. Health care and education are just 2 beasts on their own btw, so I don't want to digress too much here. I do have my opinions on health care, and there is a class series on micro-economics from MIT open courseware, actually you can also find them here on youtube, and the very last class in that series is all about health care since the professor Johnathon Gruber used to work with the gov on healthcare related issues, he provided quite some info and insights on this topic. Just a spoiler, US does have made quite a few attempts to reform the healthcare system but it all failed. I also left my opinions under the last 2 videos in that series so if you are curious you can go ahead and check it out from there, and just a disclosure this doesn't mean I agree with everything that professor says but I do have enjoyed his class and learned a lot from him.
I feel I understand this quite well.
MMT is just another shell game, for real.
"Keep your eye on the birdie!"
Explained like this, it seems the old Keynesian economic (the government can invest to increase output as long as there is spare capacity in the economy). Only with printing money and taxation in the place of investments and interest rates respectively (increasing taxes cools down inflation much like interest rate hikes). However, this video rests on the assumption that "the government can use these goods for public benefit". If it is so, the government can borrow, invest and pay back the bonds with the increased revenues (created by the common benefits). Printing money does not provide any assurance that the government decisions are actually money well spent (a major problem with central planning). In short, explained like this, I don't buy it.
Mmt is just honest Keynesianism
I personally like the MMT - it's a good concept to run a society.. the issue is how we are measuring the indicators, like e.g. the inflation, which did not take real estate into account - we have seen a decade of almost no inflation, but house prices went up.
Btw, the government does not create money, it's the national bank. A government can go into debt and can influence the level of interest rates. A national bank can, as a consequence, pour more money into the market, in case the inflation is too low.
One of the best basic explanations I've seen. Good job!
Thank you!
Agreed.
The explanation misses some very important information: MMT is bullshit. Please, please, please! Just read a little bit about economics, particularly about money and how it works. The kind of stupidity pushed by MMT supporters have already been tested, with unsurprisingly catastrophic results.
being able to participate in the US economy has no value lmao. Being protected by our laws that are funded by tax dollars has no value. Being protected by our military, police and firefighters has no value.
Money has value Because you can pay taxes with it. Without taxes, you are currency lol. You can always be a pirate in international waters but without taxes, you might end up being a slave. Libertarians are the most entitled people on earth.
MMT no doubt works as long as it's well implemented. It is also impossible to implement it properly when oligarchs can purchase policy when something doesn't suit them and when policy makers are placed in their positions by monied interests which is how the U.S. system works at the moment. The problem is capitalism or at the very least poorly regulated capitalism.
Taxation is more than simply passing money from one part of the economy to spend it in another. This is because the government will generally spend all its income, but how it uses it can cause the whole economy to make faster progress or alternatively to slow it down. Taxation does not simply transfer it from one part to another, but it has secondary effects too. If it is applied to particular parts of the whole economy, it can result in greater benefits than it destroys. This situation means that we cannot simply think in terms of MMT without taking into account the rest of our social system. Another matter is that the total quantity of money can be increased without affecting inflation when its speed of circulation is lowered, and the opposite is also true. Were our salaries to be paid at the same rate but more frequently than once a month, our money would not need to be kept unused for so long. The resulting greater speed of its circulation would result in less money being needed, but with the same rate of its use. MMT does not allow for this effect, which electronic money could well cause, were we were paid weekly instead of monthly.
The situation should also include the interest that the government pays, if and when it increases the national debt by borrowing more money. Taxation has a different effect because it stops so much money being saved, and this influences how much interest on savings a bank will pay so that it can provide investors with loans (and the greater amounts of interest that these borrowers also need to return to the bank). This suggest that when a change is introduced, a lot of additional effects come into play, and consequently the only way to properly understand what is actually happening with any significant economic change, is to simulate all of the corresponding effects at once.
To simulate the national economy, we need to construct a model that represents all of its parts and how they function. This is not so complicated as it first appears, if and when you first answer the question: "How many different KINDS of business transaction occur in the macroeconomy?" I reckon only 10 kinds are possible, and to see why please review my short working paper SSRN 2865571 "Einstein's Criterion Applied to Logical Macroeconomics Modelling". Its only 8 pages including the diagram of the model that results.
One of the references to this work is my longer explanation about making macroeconomics a true science, to replace the confused situation that at present the economists have to try to understand. Those experts regard macroeconomics as a pseudo-science, but with my more logical approach (due to my past engineering professional experiences) there is a much easier way to both represent the social system and to understand of what it REALLY consists and how it ACTUALLY works.
My more complete explanation is in a book that I wrote "Consequential Macroeconomics" which is of 310-pages and is freely available for no charge if and when you write to me at chestdher@gmail.com . I will gladly send you an e-copy and it can enable your past confusion to be eliminated and for the Big Picture to be made properly available, for all to see. I would also be able to answer your questions, but please do not try to argue with me--if you don't like my ideas, I challenge you to do better and help replace the current pseudo treatment. 😎
Liked and subscribed. My question is, how should the government recognize when it is crowding out private spending? Especially when the government is spooked by the prospect of deflation. Can we rely on the government to know when to reduce its presence in a given market? Furthermore, if the widgets that the government will buy are not going to be bought otherwise, doesn't that tell us something about the value of those widgets? I.e. they're not that valuable and so the government buying them is necessarily mal-investment. And finally, why not rely on the price mechanism to do its thing? Why not let the price of widgets fall, thereby discouraging further investment in widget manufacturing, because they're just not that valuable? Why not let widget buyers capture the windfall of lower prices for widgets? Why use valuable materials and labor to manufacture widgets that aren't very valuable? MMT seems to NOT be a rebuttal to classical economics so much as it just ignores classical economics.
You sound like you think the government goes to the mall and buys phones and watches.. when the government spends money it does this on infrastructure, on health insurance, on employees like police and teachers... not on single goods like you're suggesting that would lead to some sort of central economy, the classical nonsense argument of mmt critics
A "widget" could mean anything, like medical treatment, education... the fact that many can't afford them, doesn't reflect on how its valued.
Providing such widgets to the public tends to benefit the economy tremendously.
Your argument works for any luxury object, but it breaks down when we discuss what a human being needs, because of the obvious moral implications.
@@greogewestmann4913 I like that example. And I think that the same argument is true when it comes to infrastructure. Generally more healthcare and more infrastructure will not be mal-investment, at least not in the world of scarcity we live in. But even with those things there is some limit beyond which the costs are greater than the returns.
@@th3b0yg Agreed.
I don't like the example greoge provided. Suppose the government stimulates supply of a desired widget like an element of healthcare. Suddenly there is an oversupply, prices go down, and then it is no longer profitable to provide the care, and supply is actually reduced. Similarly, if government supports demand, that will drive prices up and reduce demand among those who cannot afford it (or require govt to continually pay part of the cost). Maybe this is all given in the exchange you had, but the problem is that these actions require the government to have information that is both accurate and essentially prescient. And then as you alluded to, the powers that be have to act correctly. I've watched a few of the MMT proponents, and I am coming to the conclusion that they are hard core socialists. MMT seems to require massive government intervention, and I'm not so sure the ignorance of deficits is not simply a way to ruin the economy and allow the government to assume control. I'm not saying that is so, but I'm suspicious.
The true criticism from adherents to the status quo is that currency will lose its value if the state's authority isn't cemented through the soft power of artificial scarcity.
🎯 Key Takeaways for quick navigation:
00:01 💬 *Modern Monetary Theory (MMT) is a divisive and revolutionary concept in economics, challenging long-held economic maxims.*
00:16 💡 *MMT fundamentally shifts traditional economic thinking, likened to the realization that the Earth is round, not flat.*
00:44 🧨 *MMT seeks to demolish the traditional belief that governments should budget like households, challenging the norms of taxation and government spending.*
01:12 🤔 *MMT challenges the idea that government spending must be limited by tax revenue or borrowing, suggesting governments can create money.*
01:40 🔄 *MMT proposes that government deficits and national debt are not inherently problematic and that reliance on foreign borrowing is a misconception.*
02:08 🌳 *Critics label MMT as a "magic money tree" theory, potentially leading to hyperinflation and economic instability.*
03:33 💰 *MMT is based on the concept of fiat currency, which is money not backed by physical commodities like gold or silver.*
04:16 🏦 *The shift to fiat currencies allows governments more freedom to create money, moving away from the gold standard.*
05:14 ⚖️ *MMT acknowledges the role of inflation, suggesting governments should create money within the economy's productive capacity to avoid it.*
07:17 🔍 *MMT indicates that government spending can boost the economy if there is spare capacity; otherwise, it may lead to inflation.*
08:00 📊 *MMT argues that government budgets should reflect economic conditions, not always aim for balance.*
08:29 🤑 *MMT suggests that taxes are not primarily for funding government spending but have other roles like ensuring currency usage and controlling money supply.*
10:35 📈 *According to MMT, budget deficits can stimulate the economy in conditions of spare capacity, while surpluses can help control inflation.*
11:46 🌐 *MMT emerged as a response to the age of fiat currencies, fundamentally changing the understanding of government financial operations.*
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Thanks for this...
MMT: print, print baby!
What can go wrong?
Maybe some economic should ask themselves if politics should inject money into the economy to begin with.
Very interesting video but it does not explain why, if governments can create money at will, why do they inject this additional money by borrowing from foreign governments? Why is it necessary to have a national debt at all, within MMT? I would be interested in this part of the presentation.
I read from an MMT advocator it seems that the enforcement by government is what allows them to issue money at will. I think the only reason MMT is even being advocated at all is because governments themselves favour this kind of power.
@@codebro9728 This theory is new to me and I can sort of go along with it. However, I would have more confidence in the government’s willingness to “enforce” this theory if, when there are high rates of inflation, they would remove money from circulation - by increasing taxes (as this is what justifies the existence of taxes within MMT) or by increasing interest rates more than the Fed or the ECB have done so far. Unfortunately, if the government increases taxes further, there will be a risk of social unrest; if interest rates go up sufficiently to slow down the rate of inflation, the increased cost of rolling over national debt could have dire consequences for the economy. This video was useful to understand the theory; it would be even more useful to have a similar presentation on how the theory works out in practice!
@@johnreading4387 my problem is I think this idea is fundamentally impossible in practice. We would have to live in a perfect world where the government had complete access to every aggregate of the economy. Unfortunately that’s not the case. We can’t entrust the government to have knowledge of everything in the economy because they don’t have this type of capability. Yet almost half of our gdp is government spending. That’s almost half of our gdp that is being misallocated. We’ve done some practices of mmt that are more related to Keynesian economics. The result was a boom bust economy like we saw countless times in the US. The boom is usually caused by artificial demand created by the government and federal reserve and the bust is from the government losing control of the situation in which they try to patch the situation up and then it’s up to time to decide again when the bust will be back but much worse. You’re very right about the social unrest of certain political activities. That’s a big reason why the government has so much control in the first place because they use that unrest to their advantage. I believe in the idea that money belongs to the people. Every cent the government spends is our money whether it’s from taxes or from the printer. Spending money from the printer is far easier for them but it’s at the expense of the middle and lower class. They save most of their money so decreasing their buying power affects them the most. The amount of money being issued into the economy doesn’t dictate the growth of the economy anyway. It’s the increased and more efficient allocation of recourses that dictates it. Money is just a more efficient medium of exchange to improve the allocation process. The government’s problem was they wanted more money. What’s the easiest way to get more money? Monopolise it, and then print it for yourself. The US government is also in the best situation because they monopolised the dollar, there’s no limit to how much can be printed(since it’s fiat), and it’s the reserve currency of the world.
@@codebro9728 In my opinion, governments hide laxiste monetary policies behind a fashionable economic theory that has never been implemented fully, and therefore one can say, has never been seen to fail. For me, there are too many unanswered questions to have confidence in such a theory. I would like to be proved wrong. The principal name behind this theory, Bill Mitchell, was awarded a Nobel prize for his work, so some influential people are certainly convinced. I just think of previous times when governments have increased the money supply to generate demand and this has merely resulted in inflation. It may be different when governments inject money to increase production and with it demand through wages.
Governments seem to use MMT to justify unrestricted or uncontrolled spending and I suspect Industry is not fooled. In the UK, the budget of the new prime minister, Liz Truss, used MMT as a justification for reducing taxes across the board - at a time of high inflation. Six weeks later, she was replaced by a prime minister with more traditional economic views. In France, The President Macron has used MMT to justify increasing the monetary supply in France by 600 billion Euros since 2017 and, despite high inflation rates, continues to force through deficit budgets through the National Assembly without vote - constitutional in France but nevertheless anti democratic. Meanwhile, the ECB is incapable of using the only tool at its disposal to manage inflation rates - the director rates - for fear of causing the downfall of the Euro.
I would like to think that there are forces at work which understand the interoperability between economic, financial and social factors and which will protect us from severe consequences in all these domains in the coming years. Unfortunately, I merely see politicians at national and regional level, taking actions to solve short term problems but which, cumulatively, will be making our future a very dangerous and unpleasant place to live.
"if governments can create money at will, why do they inject this additional money by borrowing from foreign governments" many reasons, for example you only can regulate your own economy, not all economies and others might not be willing to accept your currency at the value you want them to.
It is interesting that the image of Reagan and Thatcher were chosen on a MMT video. They were the opposite of it. BTW just look around you at inflation and interest rates. Thank a bout of inadvertent MMT during the pandemic, and you will see that the theory has some faulty assumptions.
Great explanation. Understanding that inflation and unemployment are key factors in MMT really helps. It turned 'magic' into reality for me.
There was incredible level of excess capacity during covid , government printed 40% more money and inflation took off. How do you explain that?
Inflation was actually quite low still for 18 months after covid first hit. Spending had already occured and some of it was directly into people's bank accounts in the US, and yet inflation remained low. Why was that? Because it wasn't being spent. The money supply had ballooned but the velocity of money crashed. This kept price rises quite low. When economies started to open up, it was primarily a supply-side constraint issue that resulted in prices rising when people started spending their built up savings.
Modern Monetary Theory explained; Theft is good.
The biggest problem with MMT is the same one that Keynesian Economics has: REALITY. Politicians only apply the part that is beneficial at the time, do this long enough and the whole system collapses.
but why do we need "public spending" at all?
I'm curious why money has no set unit of value, one that cannot change. Gold, while more stable, can have more mines discovered or a refinery process added to increase supply, for example. An actual unit of value would mean that a dollar has a set unit of value for all time, set by the international standards of weights and measures. We don't float the kilometre or the litre, nor peg them to gold or jugs, so why shouldn't money be treated the same with scientific measurements? Perhaps a dollar could be 1MB of data travelling through a standard fibre optic cable at speed of light?
Can you imagine floating the kilometre? One day a kilometre is equivalent to a mile, the next day everybody sells and the kilometre ilhas been devalued to 3 inches.
What are your thoughts on cigarettes as currency in prisons, or pokemon cards as currency for kids? Does the lack of gold backing take away the value the people have for it?
@@yuki-sakurakawa I think that in order for something to be a currency, it has to have demand and in order for something to have demand, there has to be a reason for that demand to exist. The reason that gold became currency was because it was scarce, so where other commodities increased in supply faster than the demand for it, which resulted in decreased purchasing power for the people connected to the monetary system.
To understand this, imagine that you have a fishtank with a tap going in to it, slowly filling it up with water. Imagine then that you extrude the fishtank and the water level shrinks. This is essentially what happens when you increase the supply of a currency. The fishtank is the money supply and the water is the purchasing power.
We don’t
Because nothing would get done. Who would build roads? Pay police?
@@am-vy1fb f*** them hoe ass roads
Most of us would agree that an economy using commodity-based currency is different from one that uses FIAT currency. The main difference is that a fiat currency has no intrinsic value in itself, it is backed by the good faith and credit of the issuing country while commodity-backed currency is determined by a promise of gold redemption. This difference is huge. A fiat currency supply does not require a store of gold or silver to back it up. That means that economies can grow as much as possible and not be limited by a scarce commodity. There is not enough gold in the world to back all of the currency in circulation.
Under a gold standard a country’s currency in circulation, had to balance its gold supply. If the government spent (created) more money than what it had in its gold supply, the difference had to be obtained to keep the two balanced. To do this a country had either to mine more gold, increase taxes, or borrow to obtain funding to purchase more gold. I think that most of us see the issues that the system caused. This whole routine is not necessary under a FIAT system.
The irony is that even though we left the Gold Standard in 1971, many, if not most of us, act as if we were still on it; despite the fact that they are so different, even antithetical.
Great work! It seems like the US did this to deal with COVID. I heard something like 18 trillion created since the first case of COVID. Now, suddenly, you need a 6 figure salary in all 50 states if you spend the ideal 25% of income on housing. I'm not really a fan, and I'm not going to lie.
Housing is different. After the collapse in 09 companies have been buying more and more single family homes and self inflating to cycle up the value and rent in a vicious exploit of the system.
The case of MMT is out. If one does not accept MMT as truth, it cannot be for macroeconomic reasons. "It is not what you don't know that will get you into trouble, it is what you know for sure, that just isn't so."
This is exactly like a 15-year-old boy discovering this obviously correct new thing called marxism! All this time, we thought we had to work in order to have things - ugh!
i think there's something real about mmt.
You can seperate using these levers from "consumption".
If governments could be borrowing or printing money to create real value that pays for itself, then it would be wrong on multiple levels to not borrow and create that one bridge, or that one train tunnel, or maybe creating other types of public assets, but they should be put into risk categories.
A B C...
Consumption (unemployment, coal subsidies, bureaucratic costs) should be covered by tax income, investments should get borrowed and created money.
In your widget example, you “forgot” to mention what the government is going to do with those 200,000 widgets it bought with the $250,000 it printed. It will give it to various “victim” groups free. Then the productive members of society will be the ones actually paying for the 200,000 widgets when they have to pay an extra .25 for the widgets they need and must buy. In this way, printing money by the government is a DIRECT TAX on the productive workers of America. This would tend to encourage being a victim, in order to get free widgets, and not working because if you are productive, the government takes from you disproportionally. This is coincidentally what we are seeing today.
You need to add a discussion of bonds. Governments do not create money. They create debt ln the form of bonds which they sell to banks and the public in exchange for currency. They use the currency (97% digital) to fund their spending. Taxes are used to pay the interest and principle of the bonds. Currency creation is done by commercial banks when they issue loans.
Excellent presentation, I love that you assessed it without mischaracterization. One issue though is that you didn't explain that printing money without taking an equal amount from the economy also diminishes the value of each dollar by default. It's inevitable and it is called monetary inflation specifically.
I've noticed MM theorists do not approach this type of inflation, which is precisely the type of inflation that has kept governments from running their economies like this in the past. They're just trying to maintain the value of each dollar by limiting the number of dollars in circulation. So how does MMT combat this very real issue.
From the perspective of MMT I'd assume that taxation and borrowing plays a pivotal role in reducing the amount of money one needs to print to meet its needs, this reduces the amount of monetary inflation substantially by say, needing to print only 100B rather than 1T.
every single MMT econ will state that real reources are the limit and that you cannot continue to create £$ etc without limit so thats a crap statement
He did explain it. Both in the first example and the taxation example. He explained that there is inflation, but it only occurs when supply cannot meet demand. This implies several things: Inflation is localised in the supply chain to wherever supply does not meet demand. Not discussed but probably very important is that inflation is a delayed response, not an immediate response, and the amount of delay is probably dependent on what is demanded. Later he explained that taxation has the opposite effect. It decreases demand. This implies that that taxation can be specifically targeted to areas of demand where inflation is problematic. I don’t think taxation is used in this way yet. It also implies that generalised taxation like GST and income tax are pretty much useless.
All government spending is printing money. All government tax collection is shredding money and any difference is, by definition, saved in a metaphorical drawer somewhere (otherwise it wouldn't show up on a balance sheet). If you have a theory how money in a drawer causes inflation we're all ears. Implicitly you are assuming the overall velocity of money is fixed. It isn't.
You need to read some serious literature because you got it all wrong
@@aldursys So you're saying that if government stopped all spending, taxed the living crap out of everyone, and put that in the metaphorical drawer, there would be no deflation nor a depression. Got it!
How does the government know that there is "spare capacity"? And how does it guarantee that the deficit goes to "spare capacity" instead of simply pushing inflation? Haven't you learn that a central planned economy does not work?
This is maybe too complicated for me, but it seems bad that the money isnt backed by anything. Also doesn't using mmt simply put the burden of overspending on the immediate public as inflation rather than adding to the debt?
The scond point depends on what the goverment is spending on: war or welfare, if governments are providing healthcare, education, infrastructure then the public is getting more out of inflation. If the money is spent on wars then the public gets nothing. It is absolutely a political decision what the public gets.
As for the first part, the whole way the economy works is a series of arbitrary rules created by humans, starting with private property this rules determine how the economy works and they can be done in different ways. Fiat currency is a rule that allows government to create money. Private property allows for privatizing profit.
Money never was backed by anything. It doesn't have an intrinsic value.
You can't "use" MMT, it just describes our monetary system, same as you can't "do" the theory of relativity. They are given, if you like it or not.
The idea of an existing spare capacity alone is just an infantile and over simplified idea that excludes all other contributing factors which MMt has ignored.
Spare capacity exists in most industries where older machinery and processes have been put aside because of better cheaper new machinery and process have made it no longer cost effective.
Also the restraint on inflation is not the existence of spare capacity alone because there is always spare or idle capacity. The real restraint is the existence of spare capacity to improve the efficiencies of production at a cost which will be acceptable to those wiling to purchase it at a cost that is comparable to other alternatives.
Great explanation although there is nothing good about MMT, at the end or the day it still can bring in a 2 tier system - the money users and the money creators - which will deffo attract bad actors, its just what happens 😔
Tf do you mean?
Actually, the good thing about knowledge of MMT would be that if the people, the working class voting majority actually demanded human rights policies like Universal Healthcare or free college or a basic income, they could do that with more strength because when they are met with the push-back of politicians saying "How are you gonna pay for that? We can't afford it. Taxes will have to go way up for the middle class." And all that BS, they people will know that's not how it works and can respond with: "The government spends first, taxes second. They can't run out of money, can't go broke and the debt and deficit are not a problem that will burden us or our future generations. That is a lie. A BIG lie and a dangerous lie. Stop being bulls*it artists and enact these human rights laws or we won't vote for you ever."
It's a potential political power control for the working class to get the social zeitgeist of society moving on a train of thought that increases public health and lets people breathe to hopefully tackle the bigger problems with society and the economy in the long term.
I don't think you understood the video.
It's not in the interests of working class because elite is more or less immune to inflation, because higher savings and investment rate.
It'll bring about a government controlled economy. Some people think that's a nifty idea. It isn't.
When they eventually roll out CDBCs and the government is able to track your economic activities, it will be able to dole out more money for things it wants you to do and restrict money for the things it doesn't want you to do. You will become completely dependent on the dispositions of those in power.
The only real way to fully benefit from MMT is to be on the side of the money creators and that means becoming a lifelong politician.
Welcome to the world of high tech feudalism.
I don't understand why MMT is considered so controversial. All the points and steps seem logical and make sense yet the backlash is intense. I would sincerely like to hear a level-headed criticism of why MMT is an incorrect way of viewing macro-economics?
One. It's not necessary.
Two. It allows centralization of power via almost unlimited spending.
Three. Income tax is immoral and MMT relies on taxation to control the money supply.
Four. Inflation was relatively flat in the US until the Federal Reserve and then MMT. After that, it was a hockey stick on a graph.
@@Individual_Lives_Matter I don't think any of these are really valid criticisms of MMT.
1) saying its not necessary is not an argument against MMT at all.
2) Power is already extremely centralized. MMT might allow governments to print a bit more but doesn't seem like something restricted only to MMT. Also that's not a criticism of the theory's validity, only of its *possible* political implications.
3) We already have income tax... and just blindly claiming income tax as immoral isn't much of an argument.
4) Correlation != Causation. We literally just went through a pandemic and massive hits to the global fuel supply with the war in Ukraine. Inflation has also not really been that significant given those two major crises only caused a single year of 7% inflation. Not ideal but kinda expected after these two major world events. You'd have to actually give some evidence that those two events were not the cause of inflation.
This is what I mean though, none of these were actually criticisms of the validity of the economics. It just seems like you don't like the thought or don't believe it so ppl slander it without good explanation. I would love to hear a real criticism of the effectiveness of the theory.
MMT = Magic Money Tree 🌳 😅😮😂
This is a child like view of how money works. Governments have tried a version of this for centuries and it always ends in failure !
You're wrong. They are still doing it. MMT is the description of the reality. Our monetary system works like that for 5000 years. You should watch the video again to understand what the MMT actually is.
I hate to break the news to you but mmt is just another example of devaluing the currency,it always creates inflation and then collapses the economy.Bidenomics will crash the economy and have us in WWlll in no time.
@@TiberionMarivalliswe’re close to MMT, but not exactly. Which is good.
Every government from the beginning of time has known MMT. When ancient Rome debased their gold coins with copper, they were practicing MMT. And the consequences will be the same today as they were in ancient Rome.
the best MMT I’ve read is tying currency to energy production, be it nuclear , green or fossil sourced be it electricity as a finished product, then the market determines the cost of energy thus your currency is dependent on production and out of the hands of politicians thus the country’s producing energy surplus can sell energy to our neighbours and offer low cost energy for industrial companies thus driving investment and efficiency for those companies which in turn drives growth
Great video, I agree this is MINDBLOWING. Gold and Silver were really a ball and chain for humanity
Gold and silvers cheap right now
Bull shit
A ball and chain for unlimited government growth, centralization of power and corruption.
This was a really good video that I still do not understand lol. However, can you please stop asking people to like and subscribe. Only once is good enough. If it's good, the video will speak for itself, and people will like and subscribe anyways.
MMT is a DESCRIPTION of how it ACTUALLY works and not how people imagine it works.
Absolutely wrong ! If it is a description of how it works why does it say taxes put value into the moeny when they did not put any value into money in all of the countries where inflation made the money worthless and it could not by anything. Even thier own governments rejected it. - i.e. taxes but worthless money and MMT saying there was value in the money because taxes made it valuable rather than the correct term valueless.
@@Rob-fx2dwTaxation provides a demand for the money, therefore giving it value.
Yes, it is a post hoc rationalization for a corrupt state of affairs that IS actually happening. That does not mean it is a good thing.
@@Individual_Lives_Matter No it is actually rational. In itself it isnt contradictory.
EVERY country that has resorted to MMT has failed.
Not some countries. EVERY COUNTRY!
This is very, very worrying indeed and explains why the idea of 'free money' appeared to have pervaded present-day governments. Borrowing/printing money against spare economic capacity...what could possibly go wrong? My life was a lot better before watching this clip
let us know your feelings after this
Derrick Jensen | Endgame | The Problem of Civilization + What is it Like to be a River? ua-cam.com/video/AFkjwxDzt2M/v-deo.html
Better that something as ridiculously bad as the gold standard - that is, rely on non-government parties, both internal and foreign, to both not suddenly produce large amounts of gold, or to take enough (or too much) of it out of circulation one way or another. Meanwhile, the available economic capacity has no relation whatsoever to the supply of gold. It's not as if that has ever ruined an economy ... wait, it has.
@@KaiHenningsen The problem with the gold standard, is they try to "fix" the price of gold to some artificial value.
Like we did before 1971. After spending a pile of printed (borrowed) money on the Viet Nam war, NASA and Johnson's "Great New Society", the rest of the world wanted the gold and not our inflated dollars. The gold standard should be a floating standard, not rigged.
It's not worrying. It's how the system works for 5000 years.
What you're saying is, being dumb is better than being informed about how the monetary system works. That's actually worrying.
@@TiberionMarivallis King Croesius minted gold coins which had intrinsic value. Please don't tell me you believe that is the same as borrowing against hypothetical value.
Government controls your money, you have $100 in your pocket today, when your government prints more money, then your $100 lost 90-80%😂
A better example of MMT would be to simply point out the current state of the U.S. economy, it has been guided in large part by MMT disciples for the last 19 years, less the Trump years. double digit Inflation, grossly overvalued stock market, National debt approaching 34 trillion, and the dollar on the verge of collapse. Yes, that is a much more realistic example of MMT in action!
Also, when the Fed raises interest rates, that means the money supply is increasing… so today, the high interest rates are making inflation worse.. especially for house construction.
All debt, government or private is passed onto our descendants. We liberlaize debt markets and allow borrowers to borrow 10x their earnings to buy a home, then home prices double. Our descendants then face double home prices and have to choose: take on all that debt or stay living in insecure, 12-month tenancy deal homes
What is debt exactly if not just an entry on a balance sheet? What exactly is passed on to our descendants besides this record? If that record is struck out, what is the thing that is left that is of burden to our descendants? If there is no one left to care whether that record is struck out, then it is of little burden o anyone. But if there is someone around to dispute it, then that person is enforcing the debt and creating a burden. It’s almost like debt should have a “lifetime” of when it remains relevant. Now sure, a bank lending a mortgage will want their money back and the promised interest, but what about debt created by government? E.g a loan from the government to pay for education. Should this debt be passed down the generations, or can it just be struck out on death? If it can be struck out, why does that need to wait until the person dies? At some point, that debt become irrelevant, the education has been provided and everyone paid, life moves on, and all that is left is a record on a balance sheet.
Most money (in all it’s manifestations) is created by retail bank loans. It’s not created by the Reserve Bank, the Treasury, the «Government» nor does it come to earth on a meteorite. To imply that bank mortgage loans to Home buyers is the cause of House prices doubling is incorrect.
@@br3nto you have missed my point. Debts increase costs for everyone. The issue of new money (debt) reduces the value of the money you have or anyone else has (it becomes less rare, so each £/$ is worth less). The issue of new debt therefore raises prices, and that must be paid by anyone buying.
The enormous rise in credit the past 30 years means that future generations have to pay 10x their incomes for a home rather than 4x as was the norm before debt liberalization especially since the late 90s.
THAT is how it is passed onto descendants.
@@richardmackay4369 Whatever the stuff about meteorites was I can only guess if I could be bothered. Your last more earthly point is your opinion. But it is wrong. And I do not imply that higher loans is what has caused huge home prices rises, I say it explicitly
@@mango4ttwo635 I think you missed the point actually. You’re thinking comes from the old theory. MMT replaces those old theories. Rewatch the vid. Inflation / devaluation of money occurs in specific markets where supply cannot meet demand. If supply can meet demand, then inflation does not occur. More so, inflation only happens in places where supply can’t meet demand… so there may be cascades down the supply chain, but it’s still all localised.
Imagine that an economist thinks that these ideas have just appeared recently. In the real world, the US for instance has virtually constantly been running deficits( with a few exceptions) for hundreds of years. Where's the stealing from future generations? The same people who go on about that are the people running the deficits but the economists didn't seem to notice.
Don't these formulations only apply to governments who don't have a balance of payments deficit? If the BOP is in deficit you have to borrow from other countries to finance it. You can't fund a BOP deficit by increasing the supply of domestic currency. (sure, this may not apply if your currency is the world reserve currency and everyone else is borrowing in your currency, but then wouldn't these formulae only hold for the special case of the country that happens to have the world reserve currency?)
+Robert Gillespie What matters is the extent to which a country has monetary autonomy rather than whether they posses a reserve currency.
This is very much a spectrum with the US at one end which, as you point out, can simply print more money to pay for its imports. At the other end of the scale there are developing countries, many of whom have their own fiat currencies, but rely on vital imports which have to be paid for in US dollars. They have very little, if any, flexibility. You are right for these countries the formulations don’t really apply.
However, there are loads of countries who don’t have a reserve currency but still have a large degree of monetary autonomy, the UK would be one. These countries can within sensible limits use MMT.
@@economicsunderstood Ah. So it would almost seem that underpinning MMT are certain prescriptions regarding not just monetary policy but also trade policy. From what you're saying it would seem like you'd at the very least need an economy that is not dependent on foreign imports for 'the basics' to attain 'monetary sovereignty'. Which in turn implies a specific kind of relationship between the national currency and the dollar. (or whatever the world reserve currency happens to be at moment X in time) That's interesting because it seems that MMT'ers often don't talk about trade, or at least don't emphasize it. Is there anywhere where Kelton and co. discuss the role of trade balances in their theories?
@@robertgillespie3635 Trade balances are explained pretty well outside of MMT. This is why MMTers don't really talk about it. But MMT does give interesting perspective.
In the Middle East, the countries export oil at a much larger degree than their importation of their needs. The fact that they accept US Dollars is a way for them to "devalue" their currency. You see, if they accepted only their own currency for oil purchases, this will create massive demand for their currency and bid the exchange rates up. In order to keep their currency from rising, they'll have to print new money (deficit spend) like crazy.
This is also true of many countries that are exporting powerhouses like Germany (before Euro), Singapore, China, and Japan. They devalue their currencies by issuing more money to buy USD and USD assets, this drives the price of USD up, and their currencies down, they also build up a huge USD denominated reserve in their central bank. This keeps their exports competitive at the expense of the purchasing power of their people. This is why the US citizens enjoy such cheap goods from foreign countries, at the costs of our manufacturing sector.
Its not a free lunch of course, should the USD go down in value, their reserves will be worth less, so they are placing their savings in the hands of a foreign government. There will also come a time when the US will no longer be able to absorb all these goods no matter how cheap they are.
Both scenarios are similar to deficit spending to keep employment up in their domestic economy. In one scenario, they flood the market with their currency, which importers get to import goods, the money goes back to the country to pay the exporters and their workers. In straight up deficit spending, money supply is increased to subsidize people, production increases, and if there is excess production, it is exported. Think of Japanese Cars in the first scenario, and US wheat in the second.
Also, I'm curious why money has no set unit of value, one that cannot change. Gold, while more stable, can have more mines discovered or a refinery process added to increase supply, for example. An actual unit of value would mean that a dollar has a set unit of value for all time, set by the international standards of weights and measures. We don't float the kilometre or the litre, nor peg them to gold or jugs, so why shouldn't money be treated the same with scientific measurements? Perhaps a dollar could be 1MB of data travelling through a standard fibre optic cable at speed of light?
Can you imagine floating the kilometre? One day a kilometre is equivalent to a mile, the next day everybody sells and the kilometre ilhas been devalued to 3 inches.
What are your thoughts on cigarettes as currency in prisons, or pokemon cards as currency for kids? Does the lack of gold backing take away the value the people have for it?
@@yuki-sakurakawa Like everything else, the value of money is based on supply and demand. Supply and demand are dynamic and therefore a flexible money system is needed for price stability. Pegging the money supply to something like gold was proven to be too restrictive, while your idea of using data seems to lack a lot of detail in the why and how.
Supply of a particular sovereign currency is controlled by governments through fiscal and monetary policy. Banks create most of the money in the world when people/businesses make loans, the regulations on lending is therefore has a massive influence on supply.
Demand can increase for a number of factors. For example, a growing population in a country - more workers mean more people willing to work for that currency aka demand. More goods - when more things are produced, these goods are looking to be exchanged for money. Without more money to satisfy the market, these goods will become cheaper, if it’s too costly to produce these things, then there will simply be excess capacity not being used. Think housing in the US, we have a housing shortage, the industry can absolutely build a lot more, except it’s too expensive, and people don’t have money.
There’s is desire housing, willingness to build housing, but no demand because of lack of money.
A countries increasing influence in the world - means that more foreign countries will want to hold their currency and assets denominated in that currency like stocks and bonds. The US dollar keeps rising in value because it’s a Global reserve currency, as global trade increasing, demand for USD keeps increasing, however, the USA doesn’t want to deficit spend as much as before constraining the amount of USD the world can have. Also many global firms are already highly leveraged in USD so borrowing more is difficult. Limited supply and increasing demand = USD going up. This is why many countries are trying to move on to other currencies but it’s just not that easy.
The Federal Reserve is a federal as Federal Express, which is to say, not at all. The US Central Bank's independence should be mentioned as a money making cartel it is a complicating factor to this explanation.
Yes.. but the “Cartel” is required to purchase the bonds… so if China or others do not, the member banks are required to purchase them… but the Treasury can then just pay them back if they want… sorry to say.
@@user-rp3zw6jl5m Yes, there is a debt-death pact.
It works in theory
But when you're limited by capacity and you go to increase that capacity and find that there's no skill labor required... You get wage inflation in a focused sector, gentrification pushing lower labor or irrelevant labor into poverty, creating massive internal conflicts.
That's what's happening now.
Let's pump $60B into the chip industry for example, when there's already a shortage of chip engineers. Capacity cannot increase until labor skills are upgraded, which is a decades-long cycle.
In the meantime... Massive waste leading to inflation, first in pockets, and then as these inefficient pockets meet, overall inflation while labor participation drops.
One of the suggested ways proponents of MMT would say it could be used to improve society is to mobilize the productive capacity of the less skilled unemployed through a federal jobs guarantee. Typical private sectors companies don't like to hire people who have a history of unemployment. Well, the longer someone goes unemployed, the less they have a chance or time to develop life skills and job skills to ever get back into a position to be employed like that.
Federal jobs guarantee can focus around "care" jobs that are typically un-valued or under-valued by society, such as childcare/daycares/babysitting, those caring for the elderly, those cleaning up and fixing the community spaces or planting trees and doing things beneficial to the environment but don't make a profit in the private sector, but are hugely beneficially to the actual physical environment and society on the whole.
The jobs guarantee would be a livable wage and people on those programs would have time to work up their job skills and then can go on to apply for different work that other employers can now see they are qualified for.
It's about where the support goes and what values we want to support in society. Of course funds can be wasted. The ridiculous amount of funds wasted on a $700+ US military budget to go bomb other countries, kill innocent people, pollute more than entire countries, steal resources and bring military people back with PTSD and not support them with healthcare is an example of a giant, violent waste of money. But putting funds into schools, hospitals, community organizations, small business and green energy are examples of positive investments in a shift towards a healthy, sustainable future, for starters.
@@coolioso808one of the problems with federal jobs programs is something you already talked about. Some people just don't want to work. Why should tax payers pay someone that may or may not show up everyday. If it's federal they will probably get paid too well, not work hard, have no danger of losing their job, and add more people to the extremely long list of people the tax payers are footing the bill for. My guess is people wouldn't develop many job skills or want to leave the federal jobs.
@@abad3way Since my post about a year ago, I've done more research and changed my views slightly. I'm not a big advocate of a federal jobs program, I'm more supportive of a community job cooperative. I'll explain that more in a bit, but I thought we were under a Modern Monetary Theory video, are we not? Don't we understand that taxes don't fund spending at the federal level? That's been proven, multiple books and articles on that, even the chairs of the Fed have admitted it. It's not 'tax payers' funding anything coming from Federal funding. Funds are created newly, out of thin air, into the accounts directly and then taxes delete some money from the economy.
I'd rather Federal funds go to something national that we could all benefit more from, like Universal Post-Secondary Education or Fast, Safe Mag Lev Passenger Rail lines.
Back to the community cooperative jobs program and your concern, which a lot of people I know would share with you, is you feel people don't want to work. Well, is it people don't want to do anything to contribute to society or that the only paid jobs are crap jobs that are long hours, boring, dangerous and repetitive? Because who the Hell does want to do those jobs? 80% of people don't like their jobs, by some reports. I have a job where I'm lucky that I enjoy many aspects of it, I'm helping and contributing to society but there are many parts of it that are unnecessarily stressful and difficult.
We need a new community owned and operated cooperative system that opens doors for everyone to pursue their passions and then get properly rewarded for it. Like One Small Town Contributionism model. It's 100% voluntary, but all the businesses and projects are co-owned by all the members and each member only has to contribute 3 hours per week to the project or business of their choice or interest. The doors open up dramatically! It could be food prep, it could be animal care, it could be park maintenance, could be music, arts, crafts or repairs. Could be healthcare and education. So many things because the community members co-own and volunteer their time the goods produced can be sold for best prices to the non-members on the open market and every member gets an equal profit share in addition to a free gift basket of goodies created by the members, including stuff like food, textiles and gadgets. What about that sort of community jobs program?
It's like taking all the individual charities, non-profits and community programs and putting the best of it all together.
@@coolioso808 that can work on a small scale perfectly well and I hope it works out for you. My original point was that the government tends to make 2 problems for every solution. We should be taking power from it Instead of empowering the leviathan
You didn't understand. MMT is working. It's not about how things should or can work, it describes the current state. For 5000 years our monetary system hasn't changed.
1. In scenario 1, in theory, what happens if the unemployed people who created the widgets then spent all of the money on other goods and services? Then presumably, unless there is spare capacity in those other sectors then inflation will still happen, right? But the principle is the same, it just adds complexity?
2. What is the implication of viewing the government as a money creator, and individuals as money users? In a way we are also money creators, no? Our behaviour determines the multiplier effect. During risky times we might choose to keep our money under a mattress, taking it out of the economy, and in good times we might choose to spend it.. We just do it for different reasons.
The MMT idea that government is the money creator and we are just users is just total rubbish. It is blatantly false and based on some even more absurd and false idea that denies that government gets all of it's money from taxing the private sector or from sales of securities (bonds) to either the Reserve bank or the public or other foreign entities.
Government is not the creator of the new money or any money because in todays economies money is fiat credit based money created by the Reserve bank or by Private banks. The new money government gets from the reserve bank is spent by government as the first user of that money. MMT denies or ignores this fact.
they get doll money anyway + if widgets are valuable then socioty is better off
@@chopeda5822 Not a given at all. The concept of opportunity cost is ignored in MMT and so are prices. That is just one additional reason it fails as credible theory.
@@Rob-fx2dw if they are unemployed, they are either on the doll or they are burning through their savings.
Opportunity costs are always infinite