84/ Ok, chapter 4 “Their red ink, is our black ink”. I think it was Keen in one of his podcast episodes who said something that I hadn’t considered. From memory: as a country’s economy grows, whatever that means, the money supply would need to grow too.

Looking at population growth alone that makes sense to me. And that means that my mental model of a fixed “amount of money we have” isn’t correct. It would, at least over longer periods of time, need to be elastic in some way. And I can’t see how that could be a global zero sum game either, since many countries that were poor a century ago, and are still poor today, often still have a “bigger” economy than they did a century earlier.

92/ As some folks have alluded at (where does the new money actually go) and based on something she says earlier in the book (that deficits have actually been too low) I started wondering. Imagine I have a truck full of dirt and I tell you I’m going to pour it out, you’d think it would create a pile of dirt, right? But what if I pour it into a hole. We don’t get a pile, we lose a hole…

The thing that I think MMT are arguing is that “debt” isn’t “debt” if it’s monopoly money you made up. To you as the money machine it behaves differently. And debt isn’t debt. It’s potentially pothole filling. But that means something is absorbing money, and don’t just say “rich people” because that is lazy. Are there holes? Where are they? What would be the effect of filling them? I’m assuming that filling different holes would have different effects. And maybe that’s MMTs thing: to fill the unemployment/underemployment hole? And from there achieve an effect?

94/ Still in chapter 4. She was discussing another economist, Wynne Godley, and so I had to look him up and that opened another line on economic models: equilibrium models (the “mainstream economics” models) and a set of models referred to as “accounting models”.

Steve Keen, who a lot of folks have brought up (the guy with the podcast “Debunking Economics”) seems to be one of the people who are proponents of “accounting models”.

And it seems to me that MMT draws from the work of economists in this area.

Wynne Godley was credited for predicting the financial crisis based on his model.

This paper looks very interesting because it seems to contrast the two approaches. Which tends to be illuminating in my experience.

“No one saw this coming. Understanding financial crisis through accounting models”.
https://pure.rug.nl/ws/portalfiles/portal/2646456/09002_Bezemer.pdf

95/ so far my (quite shallow) understanding is that these “accounting models” model flows of money. With the basic premise that money has to come from somewhere and go somewhere. Or more accounting-wise that a subtraction one place has to lead to an addition of equal size (possibly the sum of multiple additions) somewhere else.

This relates to the idea that MMT presents, which Wynne Godley also seems to have supported and Richard Vague (above article and TED talk), that a deficit for the state necessitates a surplus somewhere else. Found this graph from Godley using his “sectoral financial balances” framework, depicting the US economy. This graph is very similar (perhaps identical?) to what Vague shows in his TED talk. They both show what seems to be an inverse relationship between a public deficit and a private surplus.

100/ but hold up… I just argued that the size of the money supply was not fixed… but I guess that fits… because the public side can create money to cover it’s deficit, but private sector doesn’t have that option. So under austerity we create a zero sum game.

Am I even making sense anymore ?

103/ seems to me from reading this and some of the references that the disagreement seems to be “technical”. Krugman seems to agree that the fear of deficits is overblown, but seems to argue that interest rates are another tool to manage possible inflation. Tbh I haven’t gotten the opposite impression yet from the book, but maybe I missed it.

One thing I do wonder about is that if the deficit is in the form of bonds, won’t higher interest rates affect the cost of the accumulated deficit? Wouldn’t the public side now also have to pay more for the accumulated deficit? How does that work?

Maybe I don’t know how any of this works

105/ she is describing a model for interest rate that I think she is going to argue against. In it there seems to be a mechanism where one imagines that the private sector and public sector compete for loans in the same fixed sized market. And so the public sector deficits are in this model financed by loans in this market. And therefore the increased deficit would then be a significant increase in demand on a finite supply of money. And therefore drive the interest rate up.

But… that’s not how it works? In the real world? The banks increased their interest rates when the central bank did. So this model doesn’t make sense at all to me.

114/ And here from the Congressional Research Service

Deficit Financing, the Debt,
and “Modern Monetary Theory”
https://sgp.fas.org/crs/misc/R45976.pdf