Tax incidence, MMT, and attention whores.

[KrazyHorse]

Saw your comment.

1) You are correct that under a certain set of assumptions there is a free lunch to be eaten
2) The assumption is (as always) about the monetary response to the attempt to eat that free lunch
3) Not sure, as I haven't read K's (or mini-K's) response in detail, but from the first paragraph it looked as though they had completely missed that point

[KrazyHorse]

That would have been funnier (and more accurate) if I'd called him "special K"...

[Kuciwalker]

I assume this is the context.

1) Yeah, the same assumptions Landsburg has to make to suggest we can't tax Kendrick (neither he nor his heirs will ever spend the money), + an AD shortfall.
2) If you have a level targeting central bank then yes, the fiscal stimulus does nothing, but also crowds out nothing. I sure wish we had a level targeting central bank!
3) Yes, he still believes in the long-run budget equilibrium (I'm becoming convinced that the whole fiscal authority/CB distinction is meaningless and so inflation is the only constraint), in which case "taxes fund the government" makes sense. I don't even read DeLong anymore, because he never seems to have an interesting idea that Krugman didn't first.

[KrazyHorse]

2) If you have a level targeting central bank then yes, the fiscal stimulus does nothing, but also crowds out nothing. I sure wish we had a level targeting central bank!

You don't need a level-targeting bank; you just need one that will react to the surprise cash infusion with tightening. How much or how little tightening they do in response will determine whether we get any free lunch

Also, for (1) remember that we will not have AD shortfall forever. The tax code changes slowly...

As for K having interesting ideas, he seems to have given up on that and is attempting to appeal to the lowest common denominator in most of his posts...

[KrazyHorse]

IS LM in interest rate space is still unintuitive to me. It condenses an infinite space of monetary action into finite (at 0 "bound")

I agree that CB/Fiscal contrast is meaningless, except in that we have different authorities running them, with different priorities, different people responsible for decisions, and very different levels of reactiveness

[KrazyHorse]

Also, when you take fiscal action you end up with debt (and in all likelihood money that was misspent), when you take monetary action you don't. Remember nick rowe's (or was it stephen gordon's?) point about bringing in central bank liabilities and asking to exchange them for money....

[Kuciwalker]

The MMT story as I see it:

The government wants to consume resources, so it prints dollar bills and exchanges them for goods.

No one seems to want the dollar bills, so they government goes to certain people and says that they MUST acquire some of these dollar bills and give them back to the government (to be incinerated) or else they will be thrown in jail.

In order to keep the amount of goods purchasable per dollar bill stable, the government commits to not printing more bills than it incinerates.

The government finds that the amount of goods it wants to purchase can be highly variable, and that it is difficult to quickly change the quantity of dollars people have to pay to stay out of jail, so it offers to give some people (1+i) dollar bills for each dollar bill they incinerate, up to X total incinerated now, where X is the deficit. The government lets i vary until quantity incinerated reaches X.

The government finds that despite this, the purchasing power of the dollar ISN'T stable, in both directions.

(I think the mechanisms for instability are the following: If they use the voluntary incineration method too much, i skyrockets and, through intertemporal arbitrage the current buying power of the dollar plummets. And because dollars bills have been adopted as a medium of exchange (or account?) people's desires to hold them aren't totally dominated by their desire to avoid prison; there is some liquidity premium.)

So the government establishes a central bank, and tells it to target the purchasing power of the dollar by fixing the short-term value of i and letting X vary. Of course, this breaks the government's commitment re: not printing more than it burns. And we could achieve the same without all of this subterfuge by just abandoning that commitment and setting X independently of the deficit (for short-term stabilization) and enforcing a long-run price level constraint (for long-term stabilization).

The MMT-advocated policy seems to be that we set i=0 (or any other fixed value) permanently, which I interpret as completely abandoning the voluntary incineration policy. All macroeconomic stabilization, short- and long-term, is done through adjusting taxes and/or spending. Ricardian equivalence doesn't hold in the same form as before, because rather than the long-run budget constraint we have a long-run price level constraint, so the printed dollars are expected to remain in circulation for as long as they are demanded.

edit: my policy seems better than the MMT policy if you assume the varied taxes are distortionary and therefore it is better to have a level tax rate than a varying tax rate

[Kuciwalker]

Also, when you take fiscal action you end up with debt (and in all likelihood money that was misspent), when you take monetary action you don't. Remember nick rowe's (or was it stephen gordon's?) point about bringing in central bank liabilities and asking to exchange them for money....

Sure, I was considering that the additional taxes from Kendrick would be used to reduce present and/or future taxes.

[KrazyHorse]

Nice, now we have mods (I'm assuming this was zzzzsspanishretard) changing thread titles

[KrazyHorse]

Sure, I was considering that the additional taxes from Kendrick would be used to reduce present and/or future taxes.

Except that it won't be if it's offset by central bank tightening (the CB puts government debt back on the market)

[KrazyHorse]

BTW, zsdfoweawefo, I heard that you were freaking out and whining in the mod area about me being mean to you.

Do you realize how pathetic that is?

[Zoetstofzoetje]

well, that's not possible. first, there's no mod area (as far as i know). second, in the staff room no such discussion ever took place.

it did cross my mind to suggest permabanning you though. haven't done it yet, but might. you contribute nothing positive to this board.

all you do is vent some frustration you appear to have on others, by calling half the planet idiots and retards. get a grip on yourself.

[Kuciwalker]

[Fake Boris]

So who changed the thread title?

[Zoetstofzoetje]

guilty as charged. i thought i was funny