Perhaps MMT is a way of putting money into the hands of the folks who spend it and build more infrastructure and products people need like affordable housing and supported accommodation for the drug addicted and perhaps free healthcare. All these would create productive work which in turn would inject more money into a deflationary/disinflationary economy. The fiat money supply would need to be inflated as there is more demand for it to buy more stuff which in turn would help the GDP.
Dunno, just the musings of one who knows little about this stuff. Your thoughts duc?
I think you are missing the central point which is 'money' does not create goods and services. Goods and services are the driving force or wealth of an economy.
So let's take one of your examples: free health care. To provide free health care you will need:
(a) land to build your hospital/infrastructure on; and
(b) someone to design your hospital; and
(c) someone to build your hospital; and
(d) equipment, which requires someone to design/build the equipment and transport it etc; and
(e) staff (doctors, nurses, cooks, physios, cleaners, etc) and have their wages paid etc; and
(f) consumables (food, drugs, drink, dressings, etc); and
The list goes on and on.
So in our economy, which operates on a money basis, all of those costs are met by in this example government. The government collects/earns/creates its money by:
(a) exchanging goods and services that we produce, for money, which we then exchange for something on the above list; or
(b) increasing taxation; or
(c) borrowing; or
(d) creating new money.
So: (b) is not free, the taxpayer pays. The taxpayer earns their money by exchanging their goods and services for money and having that money taxed away to government, who then provide from the original list, healthcare. Clearly not free. Simply redistribution.
Neither is (c) free. A loan needs to be repaid + interest. Again, someone must earn [exchange goods services for money] to service the loan.
As far as (a) is concerned, some would have that the Police/Army etc and suchlike are services provided by the State. So let's accept that a certain % of taxes are earned by government. If we had a payment dedicated and clearly allocated to those services [at cost], then there will be a shortfall when you look at providing 'free' whatever, in this case healthcare.
So option (d): by simply creating new money, suddenly the government is flush. It can now provide the free whatever, this is the theory of MMT and all inflationary theories.
All that has happened is that government has increased the volume of fiat money in the system. There are no increases in the volume of goods and services and now resources. They are the same. So what happens?
The government undertakes to provide free healthcare and because more money is required in starting from scratch, [from our list] that is the way they choose.
Land is purchased for a hospital. That land might have been used for something else, but government can, if required bid the price higher than any other buyer, because they simply create money. The same happens with each item on the list.
The net effect is that resources are consumed by government at [usually] inflated prices through the increase in the volume of money and resources, goods, and services which are now re-allocated towards the government's largesse, removing them from the area of the economy they were previously employed.
MMT talks about providing the bottom of the food-chain consumers [you and me], free new money. Exactly the same phenomenon occurs, but it is far harder to see and understand.
Take a product: coffee.
It is produced through stages from growing it, to all the stages inbetween, to the shelf on the supermarket, where we, the end consumer buy it.
At each stage of production, there will be a profit earned to each stage of production, that is roughly equivalent in % terms. This is so because if it were not, then those factors and stages of production would move to the area of greatest profit, let's say coffee on the supermarket shelf.
If/when that happened, the area vacated, or all other areas, would:
(a) in the short term reduce their supply or their supply could not match the demand to the more profitable stage; and
(b) their prices would rise as the consumer demanded more coffee; and
(c) over time, the vacated areas would attract new producers to fill the gaps in production.
Where do those new producers come from? Other areas of the economy, that are less profitable. For example, let's say I'm in trucking and I used to haul bricks to building sites. Now, I'll haul coffee from producers to supermarkets. The brick producer will either have to match or exceed the payment from the coffee chap to get me back.
Now obviously, give free money to all consumers, they will spread the love so to speak. Again, the final stage of production, sales to the consumer become the most profitable across the whole range.
Some [many] of those products will have vertical production [supply] chains. The demand from consumers goes up from the free money, across the board. Supply stays constant. Some producers may move to the final stage to try and cash in, reducing supply, some will stay put and simply increase their prices to once again, return profit levels to the equilibrium of previous levels.
The result is that you simply have a rise in prices generally. Prices will not stay constant, for all the reasons above and they will not fall, because there is no increase in supply above demand.
The consumer, who had that free money, is no better off than a one time gift, as the general price rise eats up any benefit gained. In fact, they are worse off because with the general price rise, they remain at their pre-gift levels of earnings, but now prices are higher.
So another injection of cash, rinse and repeat, until you reach a critical point and create a hyper-inflation which destroys that fiat currency and topples the government, unless they are a military junta.
Money is simply a tool, not a means to an end re. wealth.
That is the massively simplified version of essentially the theory of the natural rate of interest.
There is no free lunch.
jog on
duc