McConnell Economics, Chapter 13

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Alphaville
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Re: McConnell Economics, Chapter 13

Post by Alphaville »

chenda wrote:
Sat Apr 10, 2021 3:36 pm
All that really matters is the productivity of our fields, factories and the knowledge of our workforce.
from what i've read so far (i've gone back and forth and jumped to other texts) they'd agree with you on this.

the basic premise so far is that, since the current monetary policy framework pits inflation against employment (we know this to be the case), and central banks run their economies at below full employment in orded to prevent inflation, there is an ongoing waste of human capital and productivity. see: https://en.wikipedia.org/wiki/NAIRU -- they claim this is unnecessary and this is where they go against current orthodoxy, but not ready to discuss that yet--i'm actually quite shocked hahaha.

the first part of the argument is that the claim of many politicians that the government must tax and borrow in order to sped (e.g. thatcher's famous speech) is wrong. rather, money is created by sheer government spending, then tax and borrowing come afterwards, but... not to pay for the spending! but just to regulate the money supply and create demand for currency. which is how central governments run huge deficits: they are currency issuers not currency users. they don't operate like households/private business/local governments.

so we have central banks running economies very indirectly by regulating key interest rates (where they pit inflation vs employment) that encourage or discourage borrowing towards purchases,

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Re: McConnell Economics, Chapter 13

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Jin+Guice wrote:
Tue Apr 06, 2021 4:58 pm
In the U.S., money is “fiat money,” which has no intrinsic value. It gains it’s value from people’s faith in it’s purchasing power and the amount of money that exists in relation to the amount of goods/ economic activity in the current economy.

People hold money because of it’s transaction value and it’s store of value. The total demand for money is both of the total demand for these values added together.

[...]

Not a lot of new info to me in this chapter, but it's got a lot of info for those with no familiarity of how money is created/ the fed works in the U.S.
it's fun to look at this and contrast with mmt where money's value is not from people's faith but because the government holds the monopoly on the dollars and these are required to pay taxes and other obligations, i.e. the value of the currency is born out of state power, and its role is to subject people to state power, and force them to provision the government.

also money is created (and destroyed) out of thin air by the fed. they literally add numbers at will to credit/debit ledgers. they can never run out of money. only artificial constraints like paygo or the debt ceiling limit it, but they are totally made up base on outmoded notions.
Jin+Guice wrote:
Tue Apr 06, 2021 4:58 pm
There are 3 definitions of money
M1: Currency and “checkable deposits.”
M2: Savings deposits, <100,000 time deposits (CDs), Money Market accounts, M2 also includes M1
M3: M2 and >$100,000 time deposits.

not sure if the same type of classification but mosler defines:
-commodity money (eg gold)
-credit (eg gold certificates)
-fiat (numbers in a scorekeeping game)

--

i really like how pitting contrasting theories make remembering each one easier

chenda
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Re: McConnell Economics, Chapter 13

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Interesting stuff, how does this contrast or differ (if at all) with 'quantative easing' about which much fuss is made ?

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Re: McConnell Economics, Chapter 13

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chenda wrote:
Tue Apr 13, 2021 2:13 pm
Interesting stuff, how does this contrast or differ (if at all) with 'quantative easing' about which much fuss is made ?
the folks who do the quantitative easing (lowering interest rates to promote borrowing to promote purchasing) are quoted admitting that it's not an ideal tool to run the economy and it's insufficient and slow in times of crisis. they are also quoted implying that they can create money without borrowing or collecting from "the taxpayer" and that deficits don't matter. they're monetarists out of bullets.

eta:
Uncle Sam doesn’t lose any dollars when he spends, and he doesn’t get any dollars when he taxes. That’s why former Fed chairman Ben Bernanke refuted the claim that taxpayer dollars were being used to rescue banks after the financial crisis. “The banks have accounts with the Fed,” he explained. “We just use the computer to mark up the size of the accounts.” Taxpayers didn’t bail out Wall Street. The scorekeeper did.
mmt calls for fiscal intervention (eg government purchases and tax changes) rather than mere interest manipulation to provide both a stable currency and maximum employment. closer to keynes... but...

they go beyond mere fiscal policy though... but i'm not ready to tackle that yet because that is the perspective warping part. it's a big bomb to drop ha ha ha.
Last edited by Alphaville on Tue Apr 13, 2021 4:00 pm, edited 2 times in total.

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Re: McConnell Economics, Chapter 13

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eta: chartalism is older than mosler though, and the articulation of these ideas goes back all the way to adam smith, and can also be found in keynes.

see: https://en.wikipedia.org/wiki/Chartalism

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Re: McConnell Economics, Chapter 13

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G&J,

Great series of threads. It's fun watching the reactions to macro theory. Or sometimes lack of reaction... :roll:

As for the MMT/chartalism/Mosler worship, I am trying to hold my tongue.

Before anyone goes down into that infested rabbit hole, consider a macro look at where we are today:

https://m.youtube.com/watch?v=1HmGLV46L60

Chenda, the video is short, simple, and gives a macro answer to your question. The series is a good look at how macro looks at economies, and their strengths/weaknesses/interplay. Which is what macro is for, and why the tools are poorly adapted for individual purposes, as each "criticism" seems to point out.

....

Mosler was a billionaire, making his money in bond markets. Smart enough to do that, but seriously impaired in trying to apply the lessons of bond markets more widely, see his whole life of technical failure outside of his area of expertise (starting a car company based on composite tech, without bothering to learn the known weaknesses of that tech, etc). Then decide for yourself how applicable his wisdom is to anything one actually cares about (like goods actually being on local shelves available to purchase with a currency one has available...).

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Re: McConnell Economics, Chapter 13

Post by Alphaville »

Riggerjack wrote:
Wed Apr 14, 2021 1:16 pm
As for the MMT/chartalism/Mosler worship, I am trying to hold my tongue.
lmao it's not worship! it's enthusiasm for refreshing ideas.

im try to get macroeconomics and an enthusiastic approach always works best for learning.

you don't get excited by novelty? why not?

anyway this is a dialogue, so please go ahead & shoot mmt down! i wanna hear good counterarguments--not ad-hominems, but good logical non-dogmatic refutations. possible?

ok this is the mcconnel thread, maybe time to branch out.

--

mcconnell is $$$. greedy college textbook bastards :lol:

ertyu
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Re: McConnell Economics, Chapter 13

Post by ertyu »

@Riggerjack, will you explain your understanding of the positive (rather than normative) aspects of modern monetary theory and the reasons why you believe these don't hold? Calling it infested and going after mosler's competence is irrelevant imo. I clicked on the youtube video link but i also don't see how it's relevant to the discussion.

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Re: McConnell Economics, Chapter 13

Post by Riggerjack »

MMT is just a different perspective on money generation than is found in really basic econ textbooks. AFAIK, it's accurate. If it isn't, I am not the one to debunk it. Macro isn't my strength or interest.

However, I am very familiar with the ways that MMT gets used by enthusiasts to generate nonsense. It is to economics what quantum woo is to physics. A gathering of misunderstandings mixed with wishful thinking.

YMMV, and good luck with it.
I clicked on the youtube video link but i also don't see how it's relevant to the discussion.
You didn't see the relevance of an economist talking about the current macroeconomics of the US, in a thread about macroeconomics?
you don't get excited by novelty? why not?
Chartalism was debunked over a century ago. As exciting as discussing whether piano legs should be covered so their inherent sexiness don't cause young men to lose control of themselves. Not new. Not interesting. And so backward and confused I don't know where to stop laughing and start crying in frustration.

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Alphaville
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Re: McConnell Economics, Chapter 13

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Riggerjack wrote:
Wed Apr 14, 2021 3:39 pm
However, I am very familiar with the ways that MMT gets used by enthusiasts to generate nonsense. It is to economics what quantum woo is to physics. A gathering of misunderstandings mixed with wishful thinking.
baby, bathwater?
Riggerjack wrote:
Wed Apr 14, 2021 3:39 pm
Chartalism was debunked over a century ago.
really? by who? show us?


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Re: McConnell Economics, Chapter 13

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those are nations who cannot pay foreign debt, not paying currency they issue themselves. e,g greece is a currency user not a currency issuer.


debt in a foreign currency is different.

also given historical timing the others cases were probably gold backed where money supply cant expand past a multiple of the gold reserves.

so none of those is refuting mmt or chartalism for that matter.
Riggerjack wrote:
Wed Apr 14, 2021 4:14 pm
Theory:
https://en.m.wikipedia.org/wiki/Financial_crisis

again thats a list of financial crises not a refutation of chartalism which states that money emanates from state power monopoly on the currency and enforced taxation.

btw mmt does not posit the existence of free lunches, rather it states that the real constraint of a sovereign fiat currency with no foreign debt is inflation, not budgetary deficits.

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Re: McConnell Economics, Chapter 13

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which states that money emanates from state power monopoly on the currency
And what do you think happens to that state power monopoly, when the state is challenged?

See 20th century UK.

I get it. You are an avid fan of this stuff. Rock on.

But this is a macro thread. So I was talking about macro. If you want to go on about MMT, I won't stop you.

But one might wonder why a macroeconomics textbook doesn't even mention Chartalism.

Or not.

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Re: McConnell Economics, Chapter 13

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Riggerjack wrote:
Wed Apr 14, 2021 5:05 pm
And what do you think happens to that state power monopoly, when the state is challenged?

See 20th century UK.

I get it. You are an avid fan of this stuff. Rock on.

But this is a macro thread. So I was talking about macro. If you want to go on about MMT, I won't stop you.

But one might wonder why a macroeconomics textbook doesn't even mention Chartalism.

Or not.
lol how can i be an avid fan when i just started reading it yesterday

all we asked was for you to present a counterargument to chartalism and instead you offer... um... not an argument.

that's ok if you don't want to discuss it man, you don't have to.

but please don't cast aspersions, like "avid fan" lmao. too funny.

if you want to discuss macroeconomics by all means do.

e.g.
Riggerjack wrote:
Wed Apr 14, 2021 5:05 pm
And what do you think happens to that state power monopoly, when the state is challenged?

See 20th century UK.

please answer your own question, and explain how it refutes chartalism?

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Re: McConnell Economics, Chapter 13

Post by Qazwer »

Riggerjack wrote:
Wed Apr 14, 2021 5:05 pm
And what do you think happens to that state power monopoly, when the state is challenged?

See 20th century UK.

I get it. You are an avid fan of this stuff. Rock on.

But this is a macro thread. So I was talking about macro. If you want to go on about MMT, I won't stop you.

But one might wonder why a macroeconomics textbook doesn't even mention Chartalism.

Or not.
I am not sure that I am tracking your argument. You could argue that the 1932 UK debt crisis was due to UK stubbornly holding on to the gold standard. So it might be metalism debunked in favor of classics Chartalism. But this is really not my field - what I’m particular about UK in 20th century are you referring to? My limited understanding is that the 20th century was a transition from UK pound sterling backed by gold to US dollar which has had variable backing and then completely transitioned off of gold in the 1970’s.
I think of classics chartalism as a contrast to metalism. This is different than neochartalism in MMT which to be honest I do not know enough about to comment.

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Re: McConnell Economics, Chapter 13

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Qazwer wrote:
Wed Apr 14, 2021 10:49 pm
I think of classics chartalism as a contrast to metalism.
right? that's what im reading about right now. aristotle vs plato.

i prefer aristotle! terrible zoologist, ha ha ha ha, but he lived in this world.

as for mmt i linked a mosler paper that seems a good start. kelton is much more pedagogical though. i did stop reading her for a bit to go look at the background,

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Re: McConnell Economics, Chapter 13

Post by Riggerjack »

Qaswer,

I am saying that circumstances change.

When they do, some of the assumptions of MMT become false. Without the room to maneuver, states generally fail. The UK had an allied much bigger economy to soften the landing. Just like us, right? :?


Alphaville. We have danced on this before. Ok you aren't obsessed. You just need to explore MMT. Again, rock on, but not with me.

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Re: McConnell Economics, Chapter 13

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Riggerjack wrote:
Thu Apr 15, 2021 8:38 am
Alphaville. We have danced on this before.
first i hear of this but everyone categorizes things differently so no worries.

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Re: McConnell Economics, Chapter 13

Post by chenda »

Riggerjack wrote:
Wed Apr 14, 2021 1:16 pm
Chenda, the video is short, simple, and gives a macro answer to your question.
Hyperinflation ? Maybe, although we've seen many such predictions that's it's imminent over the past decade and it's never happened. Indeed we seemed to have had more in common with late Weimer than early Weimer. Perhaps this time it will happen, but I'm skeptical. Let's revisit this in a year or so and see :)

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Re: McConnell Economics, Chapter 13

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chenda wrote:
Thu Apr 15, 2021 9:57 am
Hyperinflation ? Maybe, although we've seen many such predictions that's it's imminent over the past decade and it's never happened. Indeed we seemed to have had more in common with late Weimer than early Weimer. Perhaps this time it will happen, but I'm skeptical. Let's revisit this in a year or so and see :)
i lived with hyperinflation and it was a horror, but the main driver of hyperinflation in such cases was debt in a foreign currency and stagnant productivity. i.e. monetary easing was not followed by an increase in employment and was also negated by unfavorable foreign exchange.

this is not the same as having debt in your own currency and reduced slack in the economy.

please note that milton friedman advocated monetary tightening to stop inflation in the 70s but also argued that the great recession would have been prevented with monetary easing. he was against the gold standard because it did not allow monetary expansion to allow a fluorishing economy, but against too much monetary expansion to prevent price increases.
Last edited by Alphaville on Thu Apr 15, 2021 10:07 am, edited 1 time in total.

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