Reply to post: Re: Marx would be proud

Re: Marx would be proud

JohnMurray,

Governments are not households. And they are not businesses.

You are correct about this, if nothing else. The household fallacy of governments isn't right, but then as you also say neither is government a business. So Labour's talk of borrowing to buy assets that balance off against the government debt is equally foolish. Nationalise stuff if there's an argument for it, but you have to actually pay the costs of doing so - i.e. it's got to be really worth it.

MMT though is sort of bollocks. It may be true that the government can create money and destroy it in tax - that can be one valid way of looking at the economy. However MMT only lets you print money and spend it if the economy isn't at or near full-output. i.e. Helicopter Money can work in depressions because it's not that inflationary because the economy has unusued capacity and so this just boosts the economy closer to where it should be if there wasn't insufficient demand due to the loss of confidence causing the recession.

But rather like it's dead easy to be a Keynseian in a recession (all that lovely spending you call for) - MMT is much less fun in boom time. That's when the ecomomy is running at (or above) full capacity - and that is when government has to tax more than it spends.. For Keynesians to build up the war chest (actually keep government debt low enough) for safe deficit spending in recession - for MMTers because printing money at full capacity is highly inflationary - and once you start down that road it can very easily become a runaway process. Weimar Germany printed money in the early 20s because it had worked fine(ish) during WWI. When they controlled the economy and it was running under capacity. But when they had a need for hard currency to pay off war debt, printing money was disastrous. Because that's the other problem with MMT - it might work in a closed economy with few imports and capital controls - but as soon as you try to pay foreigners for stuff with cash where the ink's still wet - they get awful sniffy and demand extra. Or worse hard currency.