From Lacy Hunt’s MMT Interview: ‘Nearly 100% Of Our People Would Be Miserable, Absolutely Miserable’
Earlier this month, longtime bond bull Lacy Hunt waded into the MMT debate and it's fair to say his assessment was some semblance of scathing.
"In historical cases of money printing, the countries were not the reserve currency of the world, as the U.S. is today", Hunt wrote, in Hoisington Investment's quarterly outlook report. "Thus, the entire global system could be destabilized in very short order if this were to occur."
Needless to say, Hunt is not alone in suggesting that MMT is probably a
MMT describes an operational reality : government (sovereign currency creator) deficits = private sector surpluses. The only non-self-imposed limiting factor is inflation. Aggregate demand refers to demand for anything other than the currency, and an increase in aggregate demand can lead to inflation. Taxes function to increase demand for the currency (as opposed to other things) so it can be removed from the private sector and sent back to the sovereign, which in turn reduces aggregate demand (i. e. lowers inflation).
The problem is two-fold:
1) There is a mistaken belief that sovereign government budgets are like household and local government budgets (non-currency-creators).
2) The mistaken belief that the sovereign can only spend money that has already been created.
Those two mistaken beliefs could be summarized as , lack of knowledge about operational reality, and lack of imagination. Which is why guys like Hunt keep evoking the “free lunch” nonsense…as if people will stop working simply because the government is making higher education available to everyone. High school education was not available to everyone, then it was, but people didn’t stop working and producing because of it. In fact, more was produced because of it.
How is that operational reality any different than our current prescription? Have their been limitations to sovereign support in any real sense? Public debt to GDP in nearly every Western nation would imply that they have no issue pushing the envelope.
To me MMT is just a political argument for more redistributive inflation. It does not seem particularly modern as the idea of fiscal stimulus has been around for centuries. Do we want more inflation or less? Apparently we want 2%, enough so that debtors are not crushed but not so much as to spook the creditors. Veer too far away from 2% in either direction and real problems emerge rather quickly. Those of us who are well endowed would much prefer inflation to be 0% but I can concede that debtors need some relief.
The United States is running trillion dollar deficits annually and the government is printing money to buy government debt now, with a growing economy and reasonably stable consumer prices. It is hard to envision how America can continue these practices without dealing with a currency crisis which undermines the dollar’s reserve status or a debt crisis which undermines the Treasury’s risk-free status when any of the spinning plates fall.
There has to be a simpler way to articulate the inevitable fallacy of MMT, otherwise all this turns into a futile Academic and Philosophical debate where no one truly understands what the other guy is saying. Actually it already has…
If unlimited money were unleashed on an unlimited population unlimited crap would be produced and something called government would have to adjudicate and rule this “utopia” in which after a time nothing is worth anything.. Why…. because we are drowning in garbage advertised and produced by the rulers.. After all, the natural world would be destroyed by this deluge that is man made. The inevitable Trophy is power and becomes the ultimate goal and we drift into new levels of totalitarianism such as the world has never seen before…So much for the Liberal’s Utopia. Reminds me of the Dark ages all over again.
MMT does not say that money is “unlimited”. It says that it is limited by inflation, not by some arbitrary cut-off like “we can’t afford to make education and healthcare available to everyone”.
Do you really believe that “…the natural world would be destroyed” by making university education and healthcare available to all citizens?
Money has already exceeded the rate of inflation… It is just to what ends and to whom it is allocated .. Try the Defense Budget for example… Before these type goals are satiated there will in a practical sense have to be unlimited amount of Liquidity/money dumped into the system….The ability of the consumer to consume is practically endless.What is your plan for dealing with the SS system and the Demographics that predicate it’s viability. How about global warming and population increase especially with free (in a practical sense) healthcare available to All. How about species diversity which is in rapid decline for the past century…or rising sea levels..and deforestation as examples.
My point is the problems caused by MMT are exponential in volume and the ability to resolve them….a relative snails pace..It is all how you look at this set of issues as to how you see the viability of MMT.
Someone feel free to correct me if I’m wrong, but I’ve assumed that MMT essentially postulates that the amount of debt the country can support is vastly greater than what classical economists believe.
What I’d like to hear from classical economic supporters is what number or percentage of GDP do you believe will cause the economy to, and let me quote this correctly, make 100% of our people “miserable, absolutely miserable.” Because in all the information I’ve read or heard that was adamant against MMT I’ve never gotten that number from classicists. It’s all conjecture. At least MMTers have that number.
Let’s make a law that anyone that does MMT and it fails to provide a higher standard of living for the bottom 75% will be jailed hard labor for life. Will AOC et al still be proponents????
I hope you don’t expect to be taken seriously after making such a ridiculous comment.
I think the point is that someone has to have some skin in the game. When there are no consequences, all sorts of bad things happen. Voila, Trump. Chicago under Mayor Daley is another fine example: he bankrupted the city and walked.
MMT seems very solid theoretically, and it is very dangerous. Politicians will always want to hit the juice too hard, and no government institution is ever 100% independent from political and public pressure. Can you imagine Trump with a printing press? The problem is not with MMT itself; the problem lies in the question of how to implement it responsibly.
Chris… One of the problems with MMT is that it’s proponents want it applied in the areas on Health care ,college educations and other Social Services. All these areas are the most rapidly inflating “cash Cows ” for many businesses and industries.. Demand can be unlimited and unless you have efficient equitable distribution mechanisms MMT is doomed. The greater good has to be addressed here not the EPS to the stockholders. All you have to look at is drug pricing and health insurance issues which have been addressed for three decades and virtually no progress made..Then compare it with Defense (Offense) funding and the trajectory since Eisenhower first warned on it and one can see a system run amok . Who really thinks with MMT the human genome changes to responsible from greed /profit oriented.
It cannot be implemented responsibly. Once the democrats get their hands into the honey pot, they will print money non-stop to appease the masses in order to win the next elections, creating a vicious circle that will stop only when we become a Venezuela or the system breaks in an even more spectacular fashion.
You mean they won’t budget responsibly like Trump?
Trump is not a real republican. In many ways, he is a democrat with NY values, as correctly noted by Ted Cruz (?). For Trump, running on a republican ticket was a marriage of convenience. Not to say that the current crop of republicans is much better.
Party ideologies shift over time and across multiple dimensions. The fact that Trump won the election as a Republican, the fact that his base identifies heavily as Republican, and the fact that most other Republican politicians follow him meekly all indicate that Trump effectively defines the Republican party today. You may not like it, but that’s reality. There is no immutable Republican ideal against which to weigh him. “Trump is not a real Republican” is a horribly weak way to resolve your cognitive dissonance, and it’s going to leave you disappointed going going forward. Consider supporting someone like Hickenlooper, who sounds like he would fit you better ideologically, even though he’s–gasp!–a Democrat.
That was exactly my point. Or half of it, anyway. Republicans would do the same.
” Can you imagine Trump with a printing press?”
Can you imagine him with the nuclear codes?…Oh, right, he has them already.
Remember Rick Santelli screaming about “the debasement of the currency” back in 2008 & 2009? What’s the difference?
People went through graduate school studied economic theories constructed in the 1930s or even centuries ago. They don’t want to give up on those “truths” despite the abject failure of the Phillips Curve, Santelli’s dollar valuation nonsense and the failure of the Japanese experiment to generation a deflationary typhoon.
Why not have the issue zero coupon perpetuals? Aren’t you simply moving things from one side of the balance sheet to another?
Americans claim that the ability of companies and entrepreneurs to walk away from debt via bankruptcy is one reason why our economic system is so vibrant. But for ideological reasons, that’s not applied to government or student debt. The same biases cloud the debate on MMT.
Ooops – make that “the failure of the Japanese experiment to generation an INFLATIONARY typhoon.