Friday, December 1, 2017

Noah Smith — Bigger Deficits for Bad Tax Cuts Is a Bad Deal

 
Noah Smith puts Stephanie Kelton and MMT in the crosshairs of his sights.

Bloomberg View
Bigger Deficits for Bad Tax Cuts Is a Bad Deal
Noah Smith | Bloomberg View columnist

32 comments:

Neil Wilson said...

There are only two options - given that the process is driven by saving: accommodate or confiscate.

So the view ought to be that anybody who thinks the 'debt should be smaller' should volunteer their pension as the savings to be confiscated. After all it is as good a way to decide who gets needlessly taxed as any other.

Once you lined that up you'd get a change of heart very quickly.

Noah Way said...

Unless of course you're one of the more than 50% of Americans who don't have a savings account.

Matt Franko said...

Smith was tweeting about hyperinflation yesterday related to this.... thinks the deficit is going to cause hyperinflation....

AXEC / E.K-H said...

MMT is ALWAYS a bad deal for the 99-percenters
Comment on Noah Smith on ‘Bigger Deficits for Bad Tax Cuts Is a Bad Deal’

Noah Smith summarizes: “Her [Stephanie Kelton’s] reasoning, common in MMT circles, is that government deficits are also private-sector surpluses. That’s simple accounting ― since there are only the government and the private sectors in the world, when the government borrows it’s the private sector that lends. When banks or individuals buy government bonds, they become net lenders, meaning that they’re running a financial surplus with respect to the government.”

That’s NOT simple accounting, that’s false accounting. Fact is that economists get macroeconomic accounting wrong since Keynes.#1 The scientific embarrassment is that accounting is elementary mathematics. Because MMTers are too stupid for elementary math the whole theoretical superstructure falls apart, which, in turn, means practically that MMT policy proposals have NO sound scientific foundation.

Whatever Stephanie Kelton thinks she is doing or claims she is doing for the ninety-nine-percenters is a matter of indifference, what she is actually doing is agenda pushing for the one-percenters.

From correct macroeconomic accounting follows Public Deficit = Private Profit. With MMT policy, the business sector is always better off. The household sector, on the other hand, always holds the bag. It is taxed in real terms in the period of government deficit spending without realizing it. It is taxed in subsequent periods if interest on government debt is greater than zero, and it is taxed in nominal terms in the indefinite future, i.e. beyond the time horizon, in order to eventually redeem the accumulated government debt.

The Pavlovian counter-argument against MMT is that it produces inflation. This is nonsense, more precisely, old Quantity Theory nonsense. MMT policy does not cause inflation but massive distributional distortions.#2

MMTers and Post Keynesians and Functional Financers in their utter scientific incompetence simply have no idea how the monetary economy works. The profit and employment theory is provably false since Keynes.#3

With MMT policy, Warren Mosler and his scientifically incompetent academic supporters have found a way to propagandistically endorse full employment, healthcare, and all other popular social agendas and to increase at the same time the business sector’s profit with the help of the sovereign money issuing state.#4

Egmont Kakarot-Handtke

#1 Rectification of MMT macro accounting
https://axecorg.blogspot.de/2017/09/rectification-of-mmt-macro-accounting.html

#2 MMT, money printing, stealth taxation, and redistribution
http://axecorg.blogspot.de/2017/11/mmt-money-printing-stealth-taxation-and.html

#3 MMT: The one deadly error/fraud of Warren Mosler
https://axecorg.blogspot.de/2017/11/mmt-one-deadly-errorfraud-of-warren.html

#4 MMT and the promotion of Wall Street socialism
http://axecorg.blogspot.de/2017/11/mmt-and-promotion-of-wall-street.html

Tom Hickey said...

Bloomberg-paid troll.

Matt Franko said...

"The Pavlovian counter-argument against MMT is that it produces inflation. This is nonsense, more precisely, old Quantity Theory nonsense."

Well the MMT people will often readily admit that "the only limit to high deficit is inflation" so your point here is a bit off the mark... iow it is not a counter argument but a disagreement on scale effect of the tax cuts... iow Smith thinks the "inflation" threshold will be breached and apparently the MMT elites do not...

iow Smith is generally correct within the MMT context wrt "inflation" but there is a specific disagreement wrt scale..... iow Smith is saying "deficit too big!" and MMT sez "deficit too small!"...

Unknown said...

Noah, as usual is misrepresenting what Stephanie Kelton is saying. See this this Market Watch video

Matt Franko said...

"Once you lined that up you'd get a change of heart very quickly."

C'mon Neil that is not working... we do it all the time it goes in one ear and out the other with these people... they dont get it they dont have the aptitude/skills...

they are not trained adequately in math/science they dont get the needed reps in an Arts Degree program .... we let them off the hook too easily in school... let them exit the STEM disciplines too easily...

Matt Franko said...

"Unless of course you're one of the more than 50% of Americans who don't have a savings account."

Right good point I never thought of that ... they dont have the science training AND dont have a savings account to even make some sort of analogous logical comparison...

good point... definitely a keeper... this is probably cognitively relevant for non-savers...

Tom Hickey said...

Well the MMT people will often readily admit that "the only limit to high deficit is inflation" so your point here is a bit off the mark... iow it is not a counter argument but a disagreement on scale effect of the tax cuts... iow Smith thinks the "inflation" threshold will be breached and apparently the MMT elites do not...

Why would one think that inflation is a problem or hyperinflation a specter when the Fed still can't hit its inflation target and the yield curve is flattening, with Bullard cautioned that hiking rates further is likely to invert the curve?

Makes no sense.

Anyway the whole thing is based on an op-ed and some tweets. NS is either ignorant of the MMT literature on this, or else he is being disingenuous in characterizing MMT to tar it. Although he doesn't use Weimar and Zimbabwe, that is the implication of departing from the orthodoxy. He is probably reading the stuff from Peterson Institute. This is a hit piece.

Matt Franko said...

iirc he left Stony Brook and she just went there...

Could be like a former college football coach going back and running up the score with a new team... ahhh the academe....

MRW said...

Noah Smith does not understand MMT. He doesn’t understand jack-shit. He writes, "If people get scared of a default and stop buying government debt, the central bank can just print money to buy government bonds."

(1) ‘Buying government debt’ is exchanging USD in your commercial bank savings account for a risk-free 100% protected Federal Reserve securities account in the same amount. The yields can be different.

(2) The central bank, the Federal Reserve has never printed money to buy government bonds. The private sector purchases treasury securities through “Primary Dealers.”
The private sector has no stinking idea whether the central bank is or is not the buyer or seller of a treasury security. No clue.
The central bank doesn’t have to buy government bonds because some idiot in Delaware is scared USD are going to default.

Noah Smith’s article is stupid.

MRW said...

Correction: "The private sector purchases and sells treasury securities through “Primary Dealers.”

AXEC / E.K-H said...

Matt Franko

You say: “Well the MMT people will often readily admit that ‘the only limit to high deficit is inflation’ so your point here is a bit off the mark... iow it is not a counter argument but a disagreement on scale effect of the tax cuts... iow Smith thinks the "inflation" threshold will be breached and apparently the MMT elites do not...”

What the MMT people readily admit is old Quantity Theory nonsense. Deficit spending leads to a one-off price hike and NOT to inflation.#1 The disastrous effect of MMT is NOT on inflation but on DISTRIBUTION.#2

The whole inflation argument is a bit off the mark.

Egmont Kakarot-Handtke

#1 MMT was right all along: Gov-Deficits do NOT cause inflation
https://axecorg.blogspot.de/2017/10/mmt-was-always-right-gov-deficits-do.html

#2 Austerity and the idiocy of political economists
https://axecorg.blogspot.de/2017/03/austerity-and-idiocy-of-political.html

Matt Franko said...

"What the MMT people readily admit is old Quantity Theory nonsense. "

You're telling me....

MRW said...

"What the MMT people readily admit is old Quantity Theory nonsense."

If you’re stating they’re buying it, not according to Warren Mosler and Scott Fullwiler they aren’t. They mocked the notion in a talk I can’t remember the link to. They said the old Quantity of Money Theory was nutz and useless.

They both said Net Financial Assets was the accurate criteria. Frank Newman, former US secretary of the Treasury said the same thing about the Quantity Theory of Money during one of his presentations with the Columbia Univ law department Modern Monetary Theory Series.

You can watch one of them here:
https://www.youtube.com/watch?v=Ae7PO-j7TIc

MRW said...

Egmont K-H,

You’re still peddling this notion that the US federal level macroeconomy is based on your definition of science, terms you insist must be obeyed in order for you to grant the poobahs from your point-of-view the honor of being an economic scientist here. Your point-of-view has nothing to do with reality.

Maybe some shit like that applies in whatever section of Germany you live in, but macroeconomics does NOT apply that way to the US federal government. Federal-level macroeconomics in the USA is NOT a scientific act, and the whole idea that scientists and scientists only can control and run it is just stupid.

Listen to Frank Newman
https://www.youtube.com/watch?v=Ae7PO-j7TIc

Matt Franko said...

MRW they are pretty mainstream when it comes to inflation...

Although Warren not as much... Warren sez something like “all prices are necessarily a function of what the govt pays for things and what they let their banks lend against things ...”. which is pretty good but he doesn’t apply it consistently and the academic MMTers don’t seem to either believe this or understand this...

Matt Franko said...

“the whole idea that scientists and scientists only can control and run it is just stupid.”

Do you go to a witch doctor when you are ill? C’mon...

Ryan Harris said...

Noah is being useful. He is pacing his audience whom are skeptical of yet-another-grandiose economic theory. He then went to the academic MMTers to talk about it and put the ideas in front of quarter-million viewers. Remember only a few years ago, he put MMT in the freakish Economics corner of curiosities. Now it's not treated as a trivial troll.

Tom Hickey said...

Right. There's a rule in PR: No free publicity is bad publicity.

AXEC / E.K-H said...

MRW

You say: “You’re still peddling this notion that the US federal level macroeconomy is based on your definition of science, terms you insist must be obeyed in order for you to grant the poobahs from your point-of-view the honor of being an economic scientist here.”

The Law of Gravity and 2+2=4 applies always and everywhere. This is the very kick of science that it applies universally. The same holds, of course, for economic laws and the elementary math of accounting.

Warren Mosler argues: “In other words, government deficits equal increased ‘monetary savings’ for the rest of us, to the penny. Simply put, government deficits ADD to our savings (to the penny). This is an accounting fact, not theory or philosophy. There is no dispute. It is basic national income accounting.”#1

No, correct accounting says Public Deficit = Private Profit. Warren Mosler is either stupid or he deliberately deceives his brain-dead followers. His assertion “Simply put, government deficits ADD to our savings (to the penny).” is false. It is NOT “our” savings but “their” profits.

If you do not understand what science is all about, that’s OK. But that academics and people with an economics diploma like Mitchell, Tcherneva, Wray, Kelton, Fullwiler, Forstater, Kaboub, Tymoigne etc. join Warren Mosler’s sales force is strange, to say the least.

Egmont Kakarot-Handtke

MRW said...

I don't agree, "Public Deficit = Private Profit." Doesn't make sense.

Example. The federal government purchases rural farm land (from owners) to build a massive new metropolitan airport system linking two cities. The land purchase eventually provides profit for the non-governmental private owners, not the federal government.

The contract that the federal government has engaged in to create this new airport system provides the initial work income to build area transportation, cargo warehousing, building airport runways, new terminals, et cetera, et cetera, et cetera. This initial work income spending is authorized by Congress.

The eventual profit is owned by the non-governmental private vendor that fulfills the job. This profit DOES NOT belong to the federal government.

The Public Deficit is the amount that Congress has authorized as federal spending (actual federal government purchasing, buying, to provision for itself). It can include various contractors under one purchase order.

Matt Franko said...

Egmont consider you are trying to analyze as systemic (corporate profits) a matter that is better analyzed as localized ...

You are trying to relate profits (small part of an economy) to a systemic result (entire fiscal deficit)...

Noah Way said...

Public Deficit = Private Profit." Doesn't make sense.

Makes perfect sense. The govt is always spending beyond revenue (deficit) to benefit private interests. The bloated military (essentially working as corporate security for industrial interests) is probably the best example on a multitude of levels.

Matt Franko said...

But the govt credits the bank accounts of more sectors than the military...

The deficit is measured from a systemic aspect... a systemic result....

So it’s not good science to the take that systemic result and then try to apply that to a more localized matter such as corporate profits or a specific sectors profits....

MRW said...

Noah Way,

The govt is always spending beyond revenue (deficit) to benefit private interests.

(No, it doesn’t. It’s a common belief by people involved in the non-government private sector that the US federal government spends to benefit the private sector…and it doesn’t.)

The federal government does NOT spend to benefit private sector interests.

The federal government PURCHASES from the US private sector to provision itself.

The federal government buys things as needed to RUN THE GOVERNMENT, which it can afford to do because it creates its own currency…but it must have legal approval of and authorization by Congress.

Neil Wilson is more clear-headed about this.
“Economics uses mathematics in the same way medieval religions use Latin. It is to give an air of mystery and power to the charlatans doing the 'interpretation’.”

Another: Neil Wilson quote:
”And of course it goes without saying that I hate these groupings with a passion. It is entirely possible to be in favour of good business and good social provision at the same time. So the standard groupings no longer have any real meaning."

It's not socialism. It's social provisioning. It's what a government OF the people, BY the people, and FOR the people, DOES for the people.

Governments provision themselves. Sophisticated societies and governments provision themselves for the health, wealth, and future prosperity of all its citizens, who as citizens, tell the government what they want.

Right now they want jobs. The only way they can get jobs is if there are sales. Tax cuts aren't going to do it. What's the value of a tax cut or credit when there are no sales? Regulation isn't going to do it. Business don't care about regulations when there are overrun with sales and orders--they said so since the financial crisis in 2008 in survey after survey! Businesses want customers.

Businesses do not hire unless they have the sales to justify it. Households make up 70% of the spending in this country.

Businesses do not create jobs, consumers do.


See Wilson’s website:
https://medium.com/modern-money-matters/savings-are-an-export-product-e1db780d1c1b

MRW said...

I have no clue whether the quote from "It's not socialism" to "Businesses do not create jobs, consumers do" above is my verbiage or Neil's. I have a feeling that section mine, sounds like me. ;-)

MRW said...

But it also sounds like Neil.

Neil made a brilliant cogent argument that the federal government BUYS, doesn't spend. Wish I could find it. Of course, I copied it and now can't find it.

Ralph Musgrave said...

I agree with Smith: MMTers' "deficit crusading" does go over the top sometimes. I.e. there is such a thing as excess inflation.

Matt Franko said...

Ralph prices don’t increase because “the deficit is too big!”... ie savings increase, if anything increased savings might be bearish...

AXEC / E.K-H said...

MRW

You say: “I don’t agree, Public Deficit = Private Profit. Doesn’t make sense.”

National accounting deals with period flows for the economy as a whole. Your airport example shows that you do not understand what aggregated period flows are. The lack of sense is in your head.

Consistent National Accounting results in the formula Public Deficit = Private Profit. Private profit is total monetary profit for the business sector as a whole. The formula is provable and testable to the penny. For the proof see ‘Rectification of MMT macro accounting’
https://axecorg.blogspot.de/2017/09/rectification-of-mmt-macro-accounting.html

For the MMT accounting mistake/error/fraud see ‘MMT and the magical profit disappearance’
https://axecorg.blogspot.de/2017/08/mmt-and-magical-profit-disappearance.html

Public deficit spending has always been a profit machine for the one-percenters, see ‘Keynesianism as ultimate profit machine’
http://axecorg.blogspot.de/2015/07/keynesianism-as-ultimate-profit-machine.html

That people who call themselves Progressives argue for deficit spending is either stupidity or fraud or both, see ‘Austerity: Who takes the little man for a ride?’
http://axecorg.blogspot.de/2017/08/austerity-who-takes-little-man-for-ride.html

MMT policy does NOT cause inflation but the gigantic distortions of the distribution of income and wealth that so-called Progressives criticize so vehemently. A bit schizo, isn’t it?

Egmont Kakarot-Handtke