Austrian vs. MMT | Dylan Moore vs. Bob Murphy on Tom Woods Show

[Dylan Lawrence Moore]

Yao! For those of you paying attention to all the videos I've been plastering over the boards, I'm sure you've noticed that a lot of them are regarding an economics theory called Modern Monetary Theory (MMT). I was converted to this camp by Nima when he was posting here on the boards awhile back, and it sounds like absolute heresy to those who come from an Austrian economics background (which was me).

Yesterday I was able to go on the Tom Woods Show to debate Bob Murphy on the subject. The debate was "formal"; that is we had opening statements and allotted amounts of time to respond to each other, and thus weren't allowed to interrupt each other. I'm not a big fan of this style of debate, because I think figuring out the truth requires a certain amount of "getting in someone's face".

There was no formal resolution, but I believe I made a good case for MMT. You can listen to the podcast here:

https://tomwoods.com/ep-1116-debate-bob-murphy-and-dylan-moore-on-modern-monetary-theory-mmt/

The big crux was the disagreement was the source of money: is it a commodity or an abstraction?

If the rules permitted me to get in Bob's face, this would be the #1 thing I would have gotten into his face for: after he agreed that there is no constraint on government spending in a floating exchange system, near the end he repeats that "government taxes people in order to pay for bonds". By saying this, it means he didn't understand what "no constraint on government spending" means, which is one of the prime ideas behind MMT.

[lorry]

On 3/20/2018 at 10:29 PM, Dylan Lawrence Moore said:

There was no formal resolution, but I believe I made a good case for MMT. You can listen to the podcast here:

https://tomwoods.com/ep-1116-debate-bob-murphy-and-dylan-moore-on-modern-monetary-theory-mmt/

The big crux was the disagreement was the source of money: is it a commodity or an abstraction?

 

Thank you for the link, I've just started listening. 

[vandoren]

On 3/20/2018 at 11:29 PM, Dylan Lawrence Moore said:

The big crux was the disagreement was the source of money: is it a commodity or an abstraction?

OMG, why is this a controversy at all? Why not look at a bank to see how it works? All money is someone's liability, that's all. Money is as real as debt. When someone takes out a loan - he expands the balance sheet of the bank, such creating money. The new money is backed by his ability to repay the debt. One could say that money is monetization of debt collateral. Read this to better understand how the banking system works (btw, Stefan repeatedly demonstrated a lacking understanding of this):

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-in-the-modern-economy-an-introduction.pdf

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

Speaking of MMT, the theory starts with two phony assumptions:

1) that money is created by the government. This is false given the explanation above. All money is simply an expansion of the balance sheets in the banking system. This is true on all levels - FED, commercial depositary institutions and so on. All players can create money through such expansion, and this is mostly done by the private sector.

2) the sectoral balances equation suggests that budget deficit is necessary for private saving. This is false, because they regard GPD in Y = C + I + T + (X - M) and national income Y = C + S + I as equal. However these two Y are different. GDP is not national income. (in the US GDP = $19,965B, National Income = $16,607B) National income plus depreciation plus indirect taxes are equal to GDP.  Thus S = I is complete bullshit.

Therefore, given that basic assumptions of MMT are false, there is no need to give MMT any attention. Period.

[vandoren]

That said, all this nonsense about equating national income to the GDP goes back all the way to J.M. Keynes, and was parroted without questioning in textbooks by such established "economists" as Mankiw and Krugman. I've never realized how bad all this is, because we learn the correct equation in Germany even in the undergrad courses. Which is this:

Also the Statistische Bundesamt (German Federal Bureau of Statistics) does the GDP calculation in the correct way: https://www.destatis.de/DE/Publikationen/StatistischesJahrbuch/StatistischesJahrbuch2017.pdf?__blob=publicationFile

Following the link, we can find all the needed data. For example the total national income was 2,388 billion euro, disposable income for households was 1,814B and saving of private households 181B. Private investments 194B. For the whole economy: disposable income 2,610B, savings 313B, investments 598B. The Keynes assumption that saving = investments is nowhere true. You may also go to BEA or to FRED and compute all this for the US, but the result should already be clear - Keynes was an idiot. As are the MMT adepts.

[Dylan Lawrence Moore]

On 5/19/2018 at 6:38 AM, vandoren said:

OMG, why is this a controversy at all? Why not look at a bank to see how it works? All money is someone's liability, that's all. Money is as real as debt. 

I agree. That's why I'm posting this stuff here.

On 5/19/2018 at 6:38 AM, vandoren said:

Speaking of MMT, the theory starts with two phony assumptions:

1) that money is created by the government. This is false given the explanation above. All money is simply an expansion of the balance sheets in the banking system. This is true on all levels - FED, commercial depositary institutions and so on. All players can create money through such expansion, and this is mostly done by the private sector.

It's true on all levels that banks are money extension arms of the government. The Fed is a government institution. Yea it has some "private characteristics", but it exists by statute and is able to operate within the parameters given to it by Congress. "Private" banks require government license to do what they do and to be members of the Fed. So all players can create money through such expansion... with government permission.

On 5/19/2018 at 6:38 AM, vandoren said:

2) the sectoral balances equation suggests that budget deficit is necessary for private saving. This is false, because they regard GPD in Y = C + I + T + (X - M) and national income Y = C + S + I as equal. However these two Y are different. GDP is not national income. (in the US GDP = $19,965B, National Income = $16,607B) National income plus depreciation plus indirect taxes are equal to GDP.  Thus S = I is complete bullshit.

 

It's correct that S=I is bullshit. MMTers don't claim that S=I. A budget deficit or a current account surplus are necessary for net private saving, not all saving. And we've never said national income and GDP are equal, so... strawman.

[vandoren]

On 5/20/2018 at 6:49 PM, Dylan Lawrence Moore said:

It's correct that S=I is bullshit. MMTers don't claim that S=I. A budget deficit or a current account surplus are necessary for net private saving, not all saving. And we've never said national income and GDP are equal, so... strawman.

There is no such thing as net saving. What Keynesians/MMTlers use as "net savings" is simply lending/borrowing diff of the private sector. Which has absolutely nothing to do with real savings. Of course if the government borrows money then it must come either from the rest of the world, or from the private sector. Only all this extra money can be used in every possible way - consumption, investments, savings. What you use as "net savings" has no meaning whatsoever. Here it is as used by the MMTlers:

The real savings look completely different:

Quote

The Fed is a government institution. Yea it has some "private characteristics", but it exists by statute and is able to operate within the parameters given to it by Congress. "Private" banks require government license to do what they do and to be members of the Fed. So all players can create money through such expansion... with government permission.

Sorry, this is complete nonsense. If you take out a credit - you create new money. Uncle Sam isn't involved at all. Read the Bank of England papers. Listen to Perry Mehrling lections. Both are excellent.

 

[Dylan Lawrence Moore]

Your pics aren't working.
 

7 hours ago, vandoren said:

There is no such thing as net saving. What Keynesians/MMTlers use as "net savings" is simply lending/borrowing diff of the private sector. Which has absolutely nothing to do with real savings. Of course if the government borrows money then it must come either from the rest of the world, or from the private sector. Only all this extra money can be used in every possible way - consumption, investments, savings. What you use as "net savings" has no meaning whatsoever. Here it is as used by the MMTlers:

Net savings is what's left over after you cancel out the borrowing of the private sector, minus whatever money has been sent to the foreign sector. Private sector money has to be paid back, where it cancels itself out. Government deficit spending does not, as the government creates the money out of nothing and does not need it back in order to spend.

7 hours ago, vandoren said:

Sorry, this is complete nonsense. If you take out a credit - you create new money. Uncle Sam isn't involved at all. Read the Bank of England papers. Listen to Perry Mehrling lections. Both are excellent.

 

Sorry, the only nonsense there is you not addressing what I wrote.

[vandoren]

Quote

Net savings is what's left over after you cancel out the borrowing of the private sector, minus whatever money has been sent to the foreign sector

Don't you realize, that private sector can only borrow from the private sector, while the government can only borrow from the private sector? Your "net savings" (don't call it savings! it's simply loans to the government!) are a tautology.

Quote

Government deficit spending does not, as the government creates the money out of nothing and does not need it back in order to spend

Why are you so lazy to learn how the money works? I've already provided you with resources. Government sells bonds. Bonds create money in the same way as private loans do - through expansion of balance sheets of private banks.

Money in the modern economy - an introduction
Money creation in the modern economy

 

[barn]

On 05/21/2018 at 12:13 PM, vandoren said:

Money in the modern economy - an introduction
Money creation in the modern economy

Thank you!

Edited May 22, 2018 by barn
aaand for the heads up on the course too, Ace!

[vandoren]

BTW, the whole Perry Mehrling course is on coursera - https://www.coursera.org/learn/money-banking

My youtube link contains only small part of the course.

[EGreg]

I like Warren Mosler's debate with Bob Murphy on YouTube. (Disclaimer: Bob Murphy is my friend on facebook)

Here is Warren Mosler debunking a lot of Ron Paul / Peter Schiff type fears that the whole thing is about to crash because of government spending:

https://www.youtube.com/watch?v=fBSdryT8QWE

[EGreg]

My main problem with MMT is that it all looks neat and cozy when the world is buying your treasuries. Seems that you can run as much of a budget deficit as you want, and overextend yourself as much as you want. But there's a limit. When the world's banks start buying Chinese treasuries more than US treasuries and demand for US sovereign debt diminishes, suddenly the Fed might find it's cheaper to print than borrow, and it will print money, leading to inflation. That in itself isn't necessarily bad, but it is already not something the US government wanted to do, but rather what it was forced to do. If the process continues then the inflation might reach high levels.

I mean imagine a simple scenario, where a government doesn't borrow and simply prints tons more money and spends it on UBI or infrastructure and other public goods. Rich people who feel their money is being taken to finance the "lazier" or "poorer" sectors of the population will simply move out, representing capital flight. Then the country will institute capital controls to try to fight this.

What it comes down to is this, in my opinion: as long as there is inequality, there are different classes of people with different mentality. If you want your country / jurisdiction to do well, you have to make sure to attract capital and have it stay there. This can be done in a variety of ways, not necessarily low taxes. And then as long as the actual capital is there, you can denominate it in whatever local currency you like, and call it what you like. But if you print too much money that amounts to a flat tax and if it's too high, you risk capital flight. Your job as a government is to attract capital to the region, and redistribute enough of it to fund whatever mandates or programs you have, make life nice for the people there, which may attract more people if it works out. It's all a balance. Similar things happen when you run a company. You need to attract capital and invest it in projects, which may work out and attract more investors, or not. The main difference is that, with money parked in a company, the investors may not be able to simply withdraw their money from a bank and bounce.