Conflicting Views on Money And Debt
"Modern Monetary Theory" is a great introduction to the subject, but I went away feeling that the treatment was rather vague and lacking in detail. In particular, the role of government debt was barely mentioned. MMT claims correctly that the government can create whatever money that makes sense within a broad range of budgetary constraints, but dismisses concern over the "deficit", merely remarking that "deficit = spending - taxes" makes no mathematical sense since it implies that taxes are raised to cover expenses. But why does the government borrow money it can just as well print?
MMT claims that such debt can always be serviced by printing more money, but who receives such money? My hunch was that it went into bank profits and savings by the rich. This remains an un-answered question.
To shed more light on this, I turned back to "Web of Debt". While the MMT book focused on government debt, "Web" is mainly about bank debt - money created by banks as part of the lending process. "Web" sees this process as a creeping disaster since people need to come up with the money to "service" the debt, implying cut-throat competition for money and bankruptcy for the losers. That seemed logical when I first read it - no new net money was being created to service existing debt. But that's not right, of course. Government spending injects new money into the economy (while taxes remove it). In theory, the money supply should grow with the economy. Borrowers should (in theory) create new value in the real world. The money supply should "stand for" that value, growing with increased value in the economy. To cite a simple example, a contractor building a road for the government and borrowing money to do it has "new" money to repay not only the principal but interest on the loan.
"Web" takes a dim view of government spending, spending a lot of ink raising alarm over the growing federal debt (21 trillion and growing exponentially). He seems right in claiming that this debt will never be repaid, nor is there any conceivable way that it could be repaid, nor should it be repaid since (for reasons I don't quite understand) that would mean there would no longer be money in the system. It seems to me, that "Web" only takes note of money created by borrowing from the banks, not money directly created by spending. Government borrowing takes money off the street in exchange for government debt. There are other ways of doing this, most notably taxes and inflation.
"Web" claims that money created by the government is something like 2% of net money creation - the rest is created by the banks. This number seems suspiciously low. The only comparative number I have at hand is 2% of GDP that the US spends on NATO or the 23% that government spending makes up of GDP. In the course of looking this up, I discovered a GAO summary of the Federal debt, including who "owns" the debt. These are numbers I have been wondering about. They give some raw numbers to calculate how much money is being printed for the pockets of "private investors", who hold $41 Trillion of the debt in question. Google is crawling with data and analysis that should allow me to assign some numbers to these various theories and opinions. It is a huge topic - surprisingly on the back burner for MMT enthusiasts.
The one takeaway is that understanding money depends on understanding debt.
It has also occurred to me that the central idea of MMT - that taxes are not revenue - can be easily fiddled away with the way accounts are kept. MMT claims that tax debt is created "out of the blue" as a debt owed by taxpayers and canceled when taxes are paid. It could just as easily be created as a credit to a hypothetical government asset (say, a treasury account) with revenue debiting that asset and spending crediting it, creating the horror of a perfectly rational "deficit" between taxes and spending. This seems to blow up the central idea of MMT, which emerges as just one way to treat the arbitrary "out of the blue" elements of the economy. Anyone who has kept a set of books understands the magic of re-naming accounts to create a fictional view of reality that suits the accountant.
This is not a "front burner" issue for me at the moment, but I want to make note of this in case I come back to it. I am still fond of my current "big picture", which divides society into net creditors and net borrowers. One little wrinkle in this picture is that a big chunk of federal debt is owed to social programs. It turns out that the government borrows from social programs. I can see why the right-wing wants to cut that kind of borrowing in favor of borrowing from the banks and the rich. The way they look at it, these social programs are "unfunded" when they really mean that the money allocated to them has been spent on pork and guns.
MMT claims that such debt can always be serviced by printing more money, but who receives such money? My hunch was that it went into bank profits and savings by the rich. This remains an un-answered question.
To shed more light on this, I turned back to "Web of Debt". While the MMT book focused on government debt, "Web" is mainly about bank debt - money created by banks as part of the lending process. "Web" sees this process as a creeping disaster since people need to come up with the money to "service" the debt, implying cut-throat competition for money and bankruptcy for the losers. That seemed logical when I first read it - no new net money was being created to service existing debt. But that's not right, of course. Government spending injects new money into the economy (while taxes remove it). In theory, the money supply should grow with the economy. Borrowers should (in theory) create new value in the real world. The money supply should "stand for" that value, growing with increased value in the economy. To cite a simple example, a contractor building a road for the government and borrowing money to do it has "new" money to repay not only the principal but interest on the loan.
"Web" takes a dim view of government spending, spending a lot of ink raising alarm over the growing federal debt (21 trillion and growing exponentially). He seems right in claiming that this debt will never be repaid, nor is there any conceivable way that it could be repaid, nor should it be repaid since (for reasons I don't quite understand) that would mean there would no longer be money in the system. It seems to me, that "Web" only takes note of money created by borrowing from the banks, not money directly created by spending. Government borrowing takes money off the street in exchange for government debt. There are other ways of doing this, most notably taxes and inflation.
"Web" claims that money created by the government is something like 2% of net money creation - the rest is created by the banks. This number seems suspiciously low. The only comparative number I have at hand is 2% of GDP that the US spends on NATO or the 23% that government spending makes up of GDP. In the course of looking this up, I discovered a GAO summary of the Federal debt, including who "owns" the debt. These are numbers I have been wondering about. They give some raw numbers to calculate how much money is being printed for the pockets of "private investors", who hold $41 Trillion of the debt in question. Google is crawling with data and analysis that should allow me to assign some numbers to these various theories and opinions. It is a huge topic - surprisingly on the back burner for MMT enthusiasts.
The one takeaway is that understanding money depends on understanding debt.
It has also occurred to me that the central idea of MMT - that taxes are not revenue - can be easily fiddled away with the way accounts are kept. MMT claims that tax debt is created "out of the blue" as a debt owed by taxpayers and canceled when taxes are paid. It could just as easily be created as a credit to a hypothetical government asset (say, a treasury account) with revenue debiting that asset and spending crediting it, creating the horror of a perfectly rational "deficit" between taxes and spending. This seems to blow up the central idea of MMT, which emerges as just one way to treat the arbitrary "out of the blue" elements of the economy. Anyone who has kept a set of books understands the magic of re-naming accounts to create a fictional view of reality that suits the accountant.
This is not a "front burner" issue for me at the moment, but I want to make note of this in case I come back to it. I am still fond of my current "big picture", which divides society into net creditors and net borrowers. One little wrinkle in this picture is that a big chunk of federal debt is owed to social programs. It turns out that the government borrows from social programs. I can see why the right-wing wants to cut that kind of borrowing in favor of borrowing from the banks and the rich. The way they look at it, these social programs are "unfunded" when they really mean that the money allocated to them has been spent on pork and guns.
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