MMT: when does government deficit spending improve debt-to-GDP ratios?

[doctorow]

Originally published at: https://boingboing.net/2019/12/03/bridges-to-nowhere.html

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[smulder]

@doctorow

deficit spending is normal (every dollar in circulation was “deficit spent,” since the money to pay taxes enters the economy when the government spends it into existence), and that inflation isn’t a mere function of government spending – but rather, inflation occurs when governments and the private sector are bidding against each other for the same goods and services

Currency is also loaned into existence by the Fed, isn’t it?

And the currency that is spent into existence doesn’t disappear after the government buys an aircraft carrier with it either, does it? It’s still there, in the contractors’ pockets, and the contractors’ employees’ pockets, and the contractors’ employees’ families’ pockets, and eventually it gets to Walmart and bids up the prices on regular stuff, doesn’t it?

[davide405]

@smulder

It’s still there, in the contractors’ pockets, and the contractors’ employees’ pockets, and the contractors’ employees’ families’ pockets, and eventually it gets to Walmart and bids up the prices on regular stuff, doesn’t it?

Did you just describe trickle-down economics?

[Dioptase1]

I was curious and looked it up. The answer is no. Similar, but not the same. From wikipedia:
" Trickle-down economics , also called trickle-down theory , refers to the economic proposition that taxes on businesses and the wealthy in society should be reduced as a means to stimulate business investment in the short term and benefit society at large in the long term."

[DukeTrout]

@smulder

and eventually it gets to Walmart and bids up the prices on regular stuff, doesn’t it?

No, because the money spent at Walmart stays in circulation and gets paid to workers there, who spend it.

The only time that it causes a problem is when Walmart benefits more from putting the money into useless investments or stock buybacks than in paying workers; and the problem caused is stagnation, not inflation.

[klossner]

This misinterprets the point. If Walmart stocks ten widgets a week and sells them, it keeps the price constant. If consumer buying power increases and a hundred widgets are sought per week but the widget manufacturer can’t scale up, Walmart increases the widget price. Supply-and-demand is not a controversial principle.

[NickyG]

So a common sense understanding of economics got a new brand name, and people are taking notice? Sure, what the hell.

I’ve noted for years that the reason we don’t have more inflation (despite the expansion of the money supply dramatically) is because so much wealth is being hoarded by the rich, thus, it doesn’t tend to lead to inflationary economic activity (spending on goods and services that everybody else spends money on). Glad to see some fancy-shmance economists are spreading the word…

[smulder]

@davide405

Did you just describe trickle-down economics?

No.

@DukeTrout

No, because the money spent at Walmart stays in circulation

Of course it does. You’re saying “no” and then restating what I said.

The idea that a dollar remembers what it was spent on, five transactions ago, by the government, and thus somehow knows not to trigger inflation with the next transaction, is the problem here.

The money supply doesn’t care what the dollars were initially spent on.

[DukeTrout]

& @smulder

You guys are saying trade causes inflation.

That’s crayola economics. Demand doesn’t spontaneously generate inflation. It stimulates supply. It’s exceedingly rare for supply to be truly constrained long-term in modern economies. Supply can go up or down based on internal and external factors, but economic forces drive an equilibrium with demand unless there is something like forced scarcity (such as a cartel doing price fixing) changing the equilibrium point.

[smulder]

printing money is not actually a form of trade

[DukeTrout]

You were saying that spending (printed) money at Wallmart causes inflation, no? Why? Because it was printed?

From what I understand of MMT, it says that as long as the money remains in the economy, it doesn’t cause inflation. Not inherently.

The evidence is right in front of us. The US government has printed massive amounts of money through the last 2 decades and inflation is nonexistent.

[etpol01]

One thing I’ve heard MMT economists talk about is a federal job guarantee – the idea being that, if the private sector is not providing enough good jobs, we have the government pick up the slack, and help raise the “wage floor.” Like FDR’s New Deal, have the Green New Deal both provide jobs and stimulate the economy (and in the case of the Green New Deal, help with addressing climate change).

This should be a primary target for new federal spending (toward MMT Heaven), but I’m not seeing it mentioned (other than maybe via infrastructure spending).

The other thing I take issue with is this whole concept of “ratio of debt to GDP.” In the MMT context, what does federal “debt” even mean? So, the (currency-controlling) government decided, for whatever reasons (some of which may be legitimate), to borrow money instead of simply issuing it.

At any point the same government can decide to issue more currency and pay off the “debt.” Why is the debt-to-GDP ratio something that needs to be “improved” or optimized for (as a goal itself)? It just seems like another one of those B.S. classical-economics constructs that is trotted out whenever programs that benefit the 99% are proposed, and forgotten about when it’s time to appropriate dollars for war, billionaire tax breaks, and bank bailouts.