Tl;dr: MMT is misguided as it is not considering globalization effects: supply of goods, increased labor pool.
Being a trained economist, could not contain myself to opine on MMT.
1) USA has advantage of being the universal currency of trade. You can't begin to imagine how many railcars of money are in circulation in countries not all of Americans know of. Printing money works, but
2) not in Venezuela. MMT doesn't work there. It is necessary to examine the differences.
In order to debunk MMT one has to understand the law of supply and demand and... Ideal gas law.
Consider a closed economy: everything in USA must be produced in USA, and no dollars leave. Government wants to make sure that everyone has a job that pays and economy is evolving and is efficient.
Enter inflation. Print a little money, 2-3% a year inflation helps to re-allocate workforce to where one can be productive and rewarded with a raise in a promising industry. Coalminers will be with no raises forever, so will be waiters, room cleaners. But e.g. data scientists, AI specialists will enjoy raises. So waiters go study something useful, everyone is happy.
Thus, Federal Reserve Bank has a mandate of both inflation and full employment. With the Ideal gas equation: you increase the temperature (print Money) and an overheated economy blows a valve. PV = nRT. Where: P = pressure/inflation. V=Volume/of goods. n=number of people/amount of gas, T = temperature/amount of extra money created.
So, give same number people a bit more money, they will produce more goods, and if they are not keeping up with demand, you’ll get inflation. Keep throttling this and you’re on your way to higher standards of living and long stretches of prosperity. Too much gas --> raising prices = inflation, chasing the same goods. Empty shelves, no TP and shortage of pasta anywhere.
And for a while the economy had all these barriers which were making it a fairly impenetrable, so V(olume of goods) did not change that much. Nobody was flying in 1200 ventilators overnight in a Jet. It was the 1920s where the Keynesian economics was shaped. So nobody would imagine the level of modern level of globalization. So, it was easy to overheat a country’s economy, since it was neatly contained with geographical and protectionists boundaries. At that time adding amount of money could not be done quickly, humanity adhered to gold standard, and amount of that doesn’t change rapidly. Then there was paper money, that could be freely exchanged to gold/metals. Bretton Woods system made sure of that. Then that guarantee was broken, decoupling from metals in August 1971. By then $ was already a standard of world trade.
Decoupling from gold with a growing population works in theory and helps to provide full employment without having to be bogged down by pesky gold liabilities and convertibility to a finite supply of metal. Works well in a closed system, easier to tweak. Triumph of Keynesian school of thought.
Fast forward to modern times: Presently, for more than a decade ECB, Fed, and Japan for more than a couple of decades now, were trying to ignite this inflation by creating huge amounts of money, and still fell short of the targeted 2%.
Enter Modern Monetary Theory: maybe amount of printed money doesn’t matter, says a hipster who has never been to a 3rd world country, stricken by a runaway hyperinflation.
What about combined gas law that postulates that if you increase temperature and keep the volume the same, you’ll get higher pressure?
You increase amount of money, keep volume of goods the same, you’ll get inflation? It used to work. But in a global economy the volume [of goods] is unstoppable, stretchable!
Dollars are gladly accepted everywhere on Earth, where countries still use Keynesian thought and turn on their presses. Where people are not lulled into trusting their governments with their paper currencies, they’d rather trust $.
In these conditions USA can get away with an increasing flow of goods, produced cheap, without having to make them. So printed/created money goes directly to the unconstrained goods flow abroad, resulting from decades of overcapacity. Overcapacity to produce things that are included into CPI. That mythical basket of standardized necessities, some of which mattered decades ago (TVs?). Or mass-produced eggs that are tasteless and one is depressed just by looking at their shells. All of these cheap commodities go into CPI.
But the things that people really want, like these 1000$+ phones, shiny new sneakers, Ivy leage college degrees, are not fitting into the CPI.
So is MMT right? Pumping money doesn’t move CPI? Sort of. Remember the n = amount of gas/number of people? Now in an open system, you’re just giving more money to more people. Economic integration lifted up hundreds of millions of Chinese people over decades. Great win for humanity and a welcome change from wars of 20th century. In return, other countries send a lot of goods to US, made with cheaper labor, at a lower price tag, importing deflation.
So the pumped up dollars are not creating goods pressure in the CPI basket of commodities [including oil]. But absolutely are inflating prices in art, rarities, but most concerning in healthcare, education and real estate. These are necessities which are paid by insurance and cheap credit.
So traditional CPI does not budge, and the social security and pension payments are indexed to that, guaranteeing a commoditized survival that is failing to match brochures of the active retirement communities and golden years. CDs are yielding nothing, because Fed decided to drench everything in liquidity. A traditional late-life portfolio, heavily slanted towards bonds is yielding south of 7%, failing short of actuarial assumption.
Enter the everything bubble. Last bits of productive assets are snapped up, since there are no alternatives. Real estate in dynamic cities, productive enterprises, good of education. All went up in price because Fed keeps pumping money in, waiting for CPI to move, decimates savers in the process and keeps bailing out zombie companies and industries.
So MMT is flawed as it is looking at the wrong set of variables. It is misguided as it ignores first principles. Specifically it doesn't understand how inflation is made. Adoption of this scourge will lead to bubbles getting bigger, social inequality, inflating P/E multiples to new normal highs.
So why tf am I writing this in a TSLA forum? I believe TSLA can put capital to good productive use, making our energy use more efficient and cleaner. It already is at a point close to self-reinforcing economies of scale. Ultimate productive asset to snap up.
And yes, while we might be tempted to go on tangents debating virtues of finite supply of precious metals, crypto, tp rolls, don’t fight the Fed, just make sure you hodl productive assets that will serve you and your families in years to come.
Being a trained economist, could not contain myself to opine on MMT.
1) USA has advantage of being the universal currency of trade. You can't begin to imagine how many railcars of money are in circulation in countries not all of Americans know of. Printing money works, but
2) not in Venezuela. MMT doesn't work there. It is necessary to examine the differences.
In order to debunk MMT one has to understand the law of supply and demand and... Ideal gas law.
Consider a closed economy: everything in USA must be produced in USA, and no dollars leave. Government wants to make sure that everyone has a job that pays and economy is evolving and is efficient.
Enter inflation. Print a little money, 2-3% a year inflation helps to re-allocate workforce to where one can be productive and rewarded with a raise in a promising industry. Coalminers will be with no raises forever, so will be waiters, room cleaners. But e.g. data scientists, AI specialists will enjoy raises. So waiters go study something useful, everyone is happy.
Thus, Federal Reserve Bank has a mandate of both inflation and full employment. With the Ideal gas equation: you increase the temperature (print Money) and an overheated economy blows a valve. PV = nRT. Where: P = pressure/inflation. V=Volume/of goods. n=number of people/amount of gas, T = temperature/amount of extra money created.
So, give same number people a bit more money, they will produce more goods, and if they are not keeping up with demand, you’ll get inflation. Keep throttling this and you’re on your way to higher standards of living and long stretches of prosperity. Too much gas --> raising prices = inflation, chasing the same goods. Empty shelves, no TP and shortage of pasta anywhere.
And for a while the economy had all these barriers which were making it a fairly impenetrable, so V(olume of goods) did not change that much. Nobody was flying in 1200 ventilators overnight in a Jet. It was the 1920s where the Keynesian economics was shaped. So nobody would imagine the level of modern level of globalization. So, it was easy to overheat a country’s economy, since it was neatly contained with geographical and protectionists boundaries. At that time adding amount of money could not be done quickly, humanity adhered to gold standard, and amount of that doesn’t change rapidly. Then there was paper money, that could be freely exchanged to gold/metals. Bretton Woods system made sure of that. Then that guarantee was broken, decoupling from metals in August 1971. By then $ was already a standard of world trade.
Decoupling from gold with a growing population works in theory and helps to provide full employment without having to be bogged down by pesky gold liabilities and convertibility to a finite supply of metal. Works well in a closed system, easier to tweak. Triumph of Keynesian school of thought.
Fast forward to modern times: Presently, for more than a decade ECB, Fed, and Japan for more than a couple of decades now, were trying to ignite this inflation by creating huge amounts of money, and still fell short of the targeted 2%.
Enter Modern Monetary Theory: maybe amount of printed money doesn’t matter, says a hipster who has never been to a 3rd world country, stricken by a runaway hyperinflation.
What about combined gas law that postulates that if you increase temperature and keep the volume the same, you’ll get higher pressure?
You increase amount of money, keep volume of goods the same, you’ll get inflation? It used to work. But in a global economy the volume [of goods] is unstoppable, stretchable!
Dollars are gladly accepted everywhere on Earth, where countries still use Keynesian thought and turn on their presses. Where people are not lulled into trusting their governments with their paper currencies, they’d rather trust $.
In these conditions USA can get away with an increasing flow of goods, produced cheap, without having to make them. So printed/created money goes directly to the unconstrained goods flow abroad, resulting from decades of overcapacity. Overcapacity to produce things that are included into CPI. That mythical basket of standardized necessities, some of which mattered decades ago (TVs?). Or mass-produced eggs that are tasteless and one is depressed just by looking at their shells. All of these cheap commodities go into CPI.
But the things that people really want, like these 1000$+ phones, shiny new sneakers, Ivy leage college degrees, are not fitting into the CPI.
So is MMT right? Pumping money doesn’t move CPI? Sort of. Remember the n = amount of gas/number of people? Now in an open system, you’re just giving more money to more people. Economic integration lifted up hundreds of millions of Chinese people over decades. Great win for humanity and a welcome change from wars of 20th century. In return, other countries send a lot of goods to US, made with cheaper labor, at a lower price tag, importing deflation.
So the pumped up dollars are not creating goods pressure in the CPI basket of commodities [including oil]. But absolutely are inflating prices in art, rarities, but most concerning in healthcare, education and real estate. These are necessities which are paid by insurance and cheap credit.
So traditional CPI does not budge, and the social security and pension payments are indexed to that, guaranteeing a commoditized survival that is failing to match brochures of the active retirement communities and golden years. CDs are yielding nothing, because Fed decided to drench everything in liquidity. A traditional late-life portfolio, heavily slanted towards bonds is yielding south of 7%, failing short of actuarial assumption.
Enter the everything bubble. Last bits of productive assets are snapped up, since there are no alternatives. Real estate in dynamic cities, productive enterprises, good of education. All went up in price because Fed keeps pumping money in, waiting for CPI to move, decimates savers in the process and keeps bailing out zombie companies and industries.
So MMT is flawed as it is looking at the wrong set of variables. It is misguided as it ignores first principles. Specifically it doesn't understand how inflation is made. Adoption of this scourge will lead to bubbles getting bigger, social inequality, inflating P/E multiples to new normal highs.
So why tf am I writing this in a TSLA forum? I believe TSLA can put capital to good productive use, making our energy use more efficient and cleaner. It already is at a point close to self-reinforcing economies of scale. Ultimate productive asset to snap up.
And yes, while we might be tempted to go on tangents debating virtues of finite supply of precious metals, crypto, tp rolls, don’t fight the Fed, just make sure you hodl productive assets that will serve you and your families in years to come.