Tax incidence, MMT, and attention whores.

[Kuciwalker]

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 feel like every time I read the IS/LM article on wiki I get a momentary intuition of wtf they are talking about, and then it collapses. I've done this multiple times. I like AD/AS curves better.

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

Yes, I think most MMTers envision a Fed-like entity handling fiscal macroeconomic stabilization, with e.g. the employer-side payroll tax as the instrument (an awesome idea IMO).

[KrazyHorse]

Right:

1) There's no "mod area", there's a "staff room". This is an important distinction.
2) You are a filthy liar, as I have been informed by reliable sources
3) You're a pathetic ***** whose only defence is to use administrative buttons.

WTG, ****

[Fake Boris]

Since when have you been getting rough with Kuci?

[KrazyHorse]

Since when have you been getting rough with Kuci?

He likes it. Back to the discussion...

[Al B. Sure!]

guilty as charged. i thought i was funny

Inappropriate behavior, Zoetstofzoetje. You should be better than this.

[Tupac Shakur]

I don't even read DeLong anymore, because he never seems to have an interesting idea that Krugman didn't first.

QFT

[KrazyHorse]

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

I don't think the taxation mechanism (forcing payment in e.g. USD) is really an important part about the monetary story. National currencies have attractive properties to recommend them over alternate focal points.

IS MMT necessarily an advocated policy or is it a theory of macro that stands on its own?

[Tupac Shakur]

BTW, I'd love to see Zoetstofzoetje try to permaban KH...

[Kuciwalker]

I don't think the taxation mechanism (forcing payment in e.g. USD) is really an important part about the monetary story. National currencies have attractive properties to recommend them over alternate focal points.

IS MMT necessarily an advocated policy or is it a theory of macro that stands on its own?

Keeping in mind that my entire understanding of it comes from Steve Waldman: MMT is a theory of macro with right- and left-wing adherents, but it naturally suggests certain methods of macro stabilization.

Also, my thoughts have mostly focused on the pure Chartalist aspects, wherease MMT nominally is a somewhat broader sectoral analysis (amusingly, it redirects to Chartalism on Wikipedia).

The left-wing MMT suggestion appears to be a job guarantee, while the right-wing suggestion is to use tax cuts for stabilization.

[KrazyHorse]

So what is the difference in theoretical framework that distinguishes MMT from new keynsianism (i.e. closet monetarism).

All I've seen of this suggests that IF you implement the policy idea THEN you get a different picture of macro than before the policy was implemented. This doesn't seem to me to be particularly awe-inspiring as a theoretical revelation? Perhaps I am missing the point.

[Kuciwalker]

So what is the difference in theoretical framework that distinguishes MMT from new keynsianism (i.e. closet monetarism)

MMT completely eschews micro foundations as far as I can tell. It's purely a story of sectoral balances (they like to talk about "net financial assets" i.e. private financial assets not backed by private liabilities, which is just the government debt + currency stock).

Some also seem to think that the interest rate doesn't actually affect investment, but I don't understand why.

[KrazyHorse]

micro foundations is a major focus of research, but the framework of conventional macro stands on it's own, no?

I'm not trying to argue, here. I just don't understand this very well.

[Kuciwalker]

All I've seen of this suggests that IF you implement the policy idea THEN you get a different picture of macro than before the policy was implemented. This doesn't seem to me to be particularly awe-inspiring as a theoretical revelation? Perhaps I am missing the point.

MMT claims to obtain in most modern fiat systems.

[KrazyHorse]

Please explain what you mean by that. Does it obtain different theoretical results? Does it obtain the same results in a substantially different way?

You can use quotes that helped you understand the framework from IF or the worthwhile post.

[Kuciwalker]

I don't think the taxation mechanism (forcing payment in e.g. USD) is really an important part about the monetary story. National currencies have attractive properties to recommend them over alternate focal points.

I feel like the taxation mechanism is necessary to explain the nonzero value of the dollar, though perhaps not sufficient to explain 100% of the dollar's value (I mentioned a liquidity premium earlier, which I think captures most of the other factors). Absent dollar taxation you might see it persist as currency for a while, but it would be inherently unstable.