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View Diary: Who can own the future? (262 comments)

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  •  You are 100% correct that the question is always (5+ / 0-)

    "what is the utility of this investment, what is the social good and productivity increase that this investment will create" and never "can we afford this investment as a society".

    You did a nice job of describing MMT thinking, but I would just add one simple caveat to this sentence:
    "If we just credited everyone's bank account without producing additional utility we would have lots more $ chasing the same amount of goods and that would produce inflation."

    I would add "When the private economy is running at full capacity.........if we just credited everyone's bank account without producing additional utility we would have lots more $ chasing the same amount of goods and that would produce inflation"

    The reason MMT would put it this way is because if there is plenty unused productive capacity due to low aggregate demand stemming from high unemployment, then adding additional spending power to people (instead of a lump sum payment into everyone's bank account, you could equivalently just cut broad based taxes like FICA to accomplish the same economic effect of giving people more spending capacity), would go towards increasing sales and thus employment.  Increasing employment would increase the number of goods and services produced, so even if there was more money, it would be chasing more goods and services so you could have a net zero effect as far as inflation when you are doing this from a high unemployment rate position.  Now if the unemployment rate was 3%, and we implemented a large FICA tax cut, or increased Govt spending significantly, we would already be near our maximum ability to produce and then we would more likely get inflationary pressure.

    A good way to think about and summarize the rule of thumb is as follows:

    If unemployment is too high => the deficit is too small
    If inflation is too high => the deficit is too large.

    Always remember that inflation is a combination of 4 factors:
    M x V = P x Q
    (M)oney supply
    (V)elocity of money
    (P)rice level (inflation)
    (Q)uantity of goods and services for sale

    If the money supply increases and goods stay the same, we could not have inflation in the velocity of money were to drop a corresponding amount.  There is always more to it than just "More money = more inflation".  Thats a right wing myth.

    You have a much clearer understanding than many people so thats good

    "The Earth is my country and Science my religion" Christiaan Huygens.................... Please join our Kos group "Money and Public Purpose". The gold standard ended on August 15, 1971, its time we start acting like it.

    by Auburn Parks on Sun Jul 14, 2013 at 09:55:42 AM PDT

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