Optimal Money Flow - Lawrence C. Marsh

[Scott 2]

Notre Dame economist Lawrence C. Marsh just released a book called Optimal Money Flow. He explains the current state of the economy, then suggests what we might do about it. His overview and info graphic:

http://sites.nd.edu/lawrence-c-marsh/sample-page/



I found the presentation of money as a flow helpful. He explains the current state of the economy well. He also makes it clear why handing out money might not trigger inflation, provided there is sufficient unemployment. Especially if it goes to individuals, rather than banks. Inflation was a big fear of mine, when the stimulus checks released earlier this year. I am no longer afraid.

I am curious - do others know the criticism of his analysis? I can see why the proposed solution might be contentious, but the description of our economic state seems sound. The book reviews on Amazon and Goodreads are quiet. Other than "big government bad", his story seems hard to refute. The book is also overwhelmingly in favor of my political perspective, so I probably have blind spots. What he offers is almost the polar opposite of our economic policy over the past 4 years.

I liked the book enough, that I am immediately rereading it. I never do that.

[ertyu]

Some details:

- because so much production has already been exported to low cost labor areas, the stimulus checks actually resulted in imports rising. people spent their money, but they spent it on imports. of course, they did spend some of the money locally as well, but the "leakage" to the international economy is one of the arguments against the effectiveness of trying to boost consumer demand this way. The counter-argument to this counter-argument is, well what'cha gonna do instead??

- the build infrastructure + invest in green energy argument might also be better than "directly access consumer demand." The debt bubble isn't such a big deal if gdp is rising with it.

- you could subsidize companies who on-shore production

as an early retiree, inflation will hurt me personally, but the truth is there really isn't a better way of solving this problem than inflating it away. let's see how things pan out.

[Mister Imperceptible]

De facto MMT. Enabling distribution directly to individuals also means enabling direct taxation. You jaywalked across the street while disagreeing with your government or committed any other language violations.

Bernie Sanders suggested billionaires pay a tax on gains during the pandemic. Notice there was no thought to abolishing the manner in which a centralized system has power to control and distribute reward.....and punishment. Just a bunch of politicians competing over control over that centralized power.

Of course the IMF and other central banks are already hard at work maintaining the enslavement of everyone, as previously described here

The counter-argument to this counter-argument is, well what'cha gonna do instead??

Let it collapse. The argument that we need to keep the system propped up to keep people employed does not even hold water anymore. Everyone is getting fired.

Other than "big government bad", his story seems hard to refute.

It is the only refutation needed.

[Scott 2]

Modern monetary theory is the keyword I was missing. Thanks for that. This overview has an interesting discussion of it, specifically the podcast:

https://www.bloomberg.com/news/features ... er-s-guide

@ertyu - I think the MMT proponents are targeting zero inflation.

[Mister Imperceptible]

Stephanie Kelton was on Macrovoices #242 and dismissed opposing arguments to MMT as “silly” without offering any serious argument as refutation. Erik Townsend said that using taxation to reign in inflation would become impossible once politicians have full access to money printing and taxation would be disregarded. I agree with Townsend. Human nature is human nature, and the power is too irresistible.

https://www.macrovoices.com/

Ben Hunt also had a good article late last year demonstrating the tether between taxation of government spending being severed.

https://www.epsilontheory.com/the-long-now-pt-4-snip/

[Scott 2]

Gotta love a podcast that provides transcripts:

https://www.macrovoices.com/guest-conte ... elton/file

I don't know the answer, but it's good to see both sides of the discussion

[Mister Imperceptible]

That transcript is good, but it does not include the discussion between Townsend and Ceresna after the interview of Kelton by Townsend. That is where Townsend says what he really feels; he was pulling his punches when interviewing Kelton.

[Scott 2]

Their discussion was good perspective, especially the bit on idealogical bias, thanks.

[ertyu]

The fact that mmt has an inflation risk associated with it is not bug but feature. In the end, the only way demand and growth restarts is if debt is taken care of, and the only way debt can be taken care of at this point is inflation. Inflation is also redistributive towards the less wealthy as they usually tend to (a) have bigger %of NW in real estate and (b) be leveraged, which is how you want to be if you're a borrower and there is inflation. Source is Lyn Alden chart i admit to being too lazy to dig up. Inflation might hurt me -- and most of us here -- on personal level, but it's needed for the macroeconomic resolution of this mess. Even if it's painful, it would be less painful than "let it all collapse."

[shemp]

I am curious - do others know the criticism of his analysis?

Newly created money (same thing as government debt) circulates until it comes to a final resting place in the hands of misers, who are a small minority. Infinite creation of new money ==> infinite money in the hands of the small minority of misers, which they can convert into total control of politics. IF (huge IF) the misers are politically inactive or politically benign or proportionally reflect politically views of rest of population, then no problem. Otherwise, MMT opens the door to a potentially very harsh absolute dictatorship by the miser class. In particular, the miser class might consist of people who get psychological pleasure from knowing there is plenty of starvation and other misery among the non-misers. (English miser and misery derive from same Latin root, probably because people previously noticed how misers thrive upon seeing misery in other people.)

[nomadscientist]

I haven't read the book. Based on summary, if I had to offer critique:

1. automation isn't new. why is this happening now and not in 1880?

2. is it really true that income equality is driven in a big way by taxes? only if you consider health insurance and college fees to be taxes IMO. are these the creation of special interests? arguably, but those who lose out also support them, which suggests widely distributed error in society, not self-interested minority controlling politics.

3. middle class debt bubble appears largely discretionary i.e. people are not overleveraging to buy just enough car to drive to work but rather overleveraging buying luxury consumption of a bigger, new, better looking car. college (not listed lmao, well he is a prof...), credit card, even mortgages similar. if that's the case, giving middle class free money won't make them lever down. what's needed is to deny middle class credit.

4./5. liquidity trap was talked about a lot back in 2008/9, but in the end the mega printing did manage to keep inflation in roughly the bracket desired and consequently unemployment steadily declined to all-time lows in the US. places with more constrained monetary policy (e.g. some Eurozone countries) suffered deflation and persistent high unemployment, indicating that the US and other countries with functional central banking apparatus (UK, Iceland, Australia, etc.) really were not in liquidity traps.

6. middle class is overspending (buying leveraged) and underdemanding - wut?

[ertyu]

Re: 1, it was happening, it's in Das Kapital It was already a thing when Marx was writing and it's becoming more and more of a thing now. The reason why it's a problem now is because it's intersecting with demographics. Before, populations were growing, aggregate demand was rising, rising tides boats etcetera. Now, the advance of technology is accompanied by ageing populations in all major developed economies.

The second reason why it's more of a thing now is the speed of change. We have had attempts at automation all along, but those attempts have been speeding up as time passed. See morore's law etc.

Re: 6, he means this: you're a middle class dude and you rack up all consumer credit you can get your hands on. At first, as you pile on more and more credit, your spending would be rising. But at some point, you'd have to start paying at least some of those debts back. You're not the us gvt, you can't "refinance" forever. At some point, your credit gets too crap and you need to face the music. At that point, instead of spending more than your income, you need to spend less than your income as you'll be using some of your income to pay down debt.

[Flurry]

Regarding inflation/raising interest rates: It's almost impossible to raise inflation as long as the currency is able to compete with other hard currencies, that's a historical fact. You need other currencies growing stronger if you want inflation. That's the problem we have in Europe / the Euro-zone: It's just not possible to raise inflation because the US Dollar, the British Pound, the Japanese Yen and every other hard currency gets weaker as well. You need people wanting to exchange your currency against other currencies "because those currencies are better".

[Mister Imperceptible]

Of course the IMF and other central banks are already hard at work maintaining the enslavement of everyone, as previously described here

“You will own nothing and you will be happy!”

[Bonde]

I read the Bloomberg brief about MMT and got a bit of understanding of it.

I also got Marsh' book but did not read it yet as I'm skimming through Ray Dalio's Principles atm. Here is a free online version of it: https://www.principles.com/the-changing ... /#chapter1

As I understand it Dalio is not totally against using the printing press as a tool but worry that politicians cannot control it / will misuse it.

Ray Dalio: To be clear, central banks’ “printing money” and giving it out for spending rather than supporting spending with debt growth is not without its benefits—e.g., money spends like credit, but in practice (rather than in theory) it doesn’t have to be paid back. In other words, there is nothing wrong with having an increase in money growth instead of an increase in credit/debt growth, provided that the money is put to productive use. The main risks of printing money rather than facilitating credit growth are a) market participants will fail to carefully analyze whether the money is being put to productive use and b) it eliminates the need to have the money paid back. Both increase the chances that money will be printed too aggressively and not used productively so people will stop using it as a storehold of wealth and will shift their wealth into other things. Throughout history, when the outstanding claims on hard money (debt and money certificates) are far greater than there is hard money and goods and services, a lot of defaults or a lot of printing of money and devaluing have always happened.

History has shown us that we shouldn’t rely on governments to protect us financially. On the contrary, we should expect most governments to abuse their privileged positions as the creators and users of money and credit for the same reasons that you might do these abuses if you were in their shoes. That is because no one policy maker owns the whole cycle. Each one comes in at one or another part of it and does what is in their interest to do at that time given their circumstances at the time.
(Principles, chapter 2)

[Bonde]

I found this bit of Krugman's take on MMT:

Insider:
I'm not sensing a wholehearted endorsement of Modern Monetary Theory, but I'm catching some hints at that. Do you think the way we've handled this recovery is going to at least elevate the debate around MMT?

Krugman:
I could do the old academic put down about MMT: There's much that's true, and there's much that's new, but what's true isn't new and what's new isn't true.
When people ask, "well, isn't this a vindication of MMT?" Well yeah, but it's also exactly what IS-LM macro would say.
I haven't seen people make this point: In the overheating debate, MMTers, at least if they're consistent with their own doctrine, are substantially to the right of people like me. Because I say, "Look, if the stimulus that comes out of the rescue plan is too big, that's okay. The Fed can tighten monetary policy and prevent an inflationary problem."
But the MMTers don't seem to believe that monetary policy can ever be used for anything useful. We've actually had Stephanie Kelton saying you can't control inflation by raising interest rates.
I'm not sure I understand their doctrine, but if that's what you believe, then you should be very worried about excessive stimulus. Because their view is the only way to reign in inflation is to have a fiscal tightening. And since that's probably not in the cards, you should actually be very worried that the first round of fiscal stuff might be too big.
Whereas if you believe in conventional Keynesian macro, you say "yeah, well, but the Fed can contain it by raising interest rates."
If you take this stuff seriously, MMT is actually something that would make you more cautious and less willing to go wholeheartedly into these progressive policies than if you were a conventional Keynesian.

Insider:
In that, you don't have the Fed to serve as that backstop?

Krugman:
That's right. From my point of view, you want to go big because it's asymmetric. If you go too small, then you hit the zero-lower-bound and, and the Fed can't help you if you go too small.
But if you go too big, the Fed can contain any overheating. If you have a doctrine that says monetary policy doesn't matter, then you don't have that asymmetry. So you don't have the argument for going really big. It's a really weird thing.
The two groups of people that are not all that political who I find the hardest to talk to are supporters of MMT and cryptocurrency.

https://www.businessinsider.com/paul-kr ... ?r=US&IR=T

[RFS]

Regarding inflation/raising interest rates: It's almost impossible to raise inflation as long as the currency is able to compete with other hard currencies, that's a historical fact. You need other currencies growing stronger if you want inflation. That's the problem we have in Europe / the Euro-zone: It's just not possible to raise inflation because the US Dollar, the British Pound, the Japanese Yen and every other hard currency gets weaker as well. You need people wanting to exchange your currency against other currencies "because those currencies are better".

This made me think of a quote from Dave Haggith's recent post, Evidence of Inflation's Inferno is Everywhere, But President Can't Feel The Heat.

Dollar down

"And, if you misguided yourself into believing the dollar isn’t losing value as inflation says it must, and you believe that based on the dollar index, note that the dollar index only measures the US dollar’s value against other currencies, which are also now falling. Therefore, you have to look, instead, at what is happening to the dollar’s purchasing power according to the government and the Fed:

With the dollar index, it’s all relative, and the dollar happens to the best horse in the glue factory at a time when many nations have been on money-printing sprees with low interest at a time when nearly all national economies have their own internal inflation. The last days of the dollar on that last graph, look pretty lousy in terms of what a dollar now buys you. The BLS, in fact, says the last three months have been the worst three-month plunge in purchasing power of the dollar since 1982."