Krugminator2. Thanks for the comment, I'm definitely interested in having a
conversation with you about this. Some of what I'm going to say will be controversial or perhaps seem downright ludicrous. I hope you will ask questions where you think I'm mistaken and continue this as a conversation.
MMT treats all spending the same.
MMT as an economic discipline has NOTHING to say about where to spend, those are
political choices. Even if those choices are wrong, MMT is still correct in that, as a discipline it does not prescribe policiy choices it just descibes how the fiat money system has worked since 1971. Understanding the effects of spending and how money are spent are two different things. However, most well-informed MMT'ers will insist that where money is spent matters, but any MMT'er worth their salt should understand that MMT is a description, not a prescription of economics. Thus MMT informs peoples opinions, but those opinions aren't part of MMT.
For example, I can describe to you how solar power works, but if you support solar power policies, that has nothing to do with the description of how solar works. It's your opinion based on your understanding of solar power.
Spending is part of a functioning economy but it isn't the driver.
You are quite right.
If we're going to analogize...how about this one:
Supply is the "driver", demand is the "fuel" and money is the "road".
Without supply, there is nothing else.
Cuba can spend as much money as it wants.
Pointing out that a country can spend as much as it wants teaches us 1 simple lesson. That any nation that has a sovereign free-floating currency can create and spend as much as it wants and this teaches us that spending isn't constrained by taxes.
That's it. That's all you should have taken from that statement if you read that somewhere. If you assumed the rest, that was a mistake on your part. Just as if you asked me if I
can jump off a 10-story roof and I answered; "yes" and assuming that because I answered yes that I assumed that I could do it without facing the consequences that come when I hit the ground.Sovereign money nations can create all the currency they want, but that isn't the same as saying that they should.
MMT completely ignores the supply side.
Can you cite anyone considered an authority
in MMT that has stated that?
Production and inndriven drives standards of living. The goal is to maximize productivity.
Agree 100%, which means the real question is how to achieve it.
The government is wasteful and unproductive.
What does it waste?
If productivity is paramount, then the only way that government spending could be "unproductive" is if the money is used is zero-sum, or the products it purchases is zero-sum.
Now of course productivity has limits, specifically real resources and labor and MMT recognizes that spending is constrained by real resources and labor (productivity) and that overspending will result in inflation (the economic constraint). That should tell you that productivity is pivotal to MMT.
Government spending doesn't face a market test. Government spending takes productive workers and resources from the private sector and puts them to work inefficiently.
That's only true if real resources and labor are unavailable. If there are unemployment and resources available to meet higher levels of demand, then nothing is taken, in fact, the economy in question will experience growth.
The government can overspend and distort prices, this is true, but this is a deeper can of worms I don't want to delve into right now.
Then there are the practical problems with government spending even if you ignore the productivity argument. Government spending isn't a faucet you can turn on and off. You have to pass legislation and figure out how to spend that money. That is time consuming. Then it isn't like you can just turn spending off once it starts. "Nothing is so permanent as a temporary government program."
Most of the money spent each year (about 4/5ths) comes from the private sector. Banks take existing reserves (government money) and expand their balance sheets by creating credit money (banks liability) and depositing the customers promise to pay (asset) and securing it with the banks capital (investor dollars).
The Banking system has been created to be "elastic" so that it can expand or contract based on the demand (or lack of) for goods and services.
Government (Congressional spending) deficits add to banking reserves, government surpluses remove them.
The Fed (which is technically part of the executive branch) can manipulate the number of reserves available
in the banking system, however, it cannot create or destroy them.
The demand for money is measured against available reserves and this is how the interest rates (pre-2008) was set. Post 2008 the Banking system is swamped with reserves so the Fed sets the rate directly by paying interest on reserves.
