Saturday, April 11, 2020

MMT Style Economic Distortions

J.D. Alt has an interesting post wherein he compares government to "the Ouroboros—the mythical snake eating its own tail". He makes the case that MMT should not--as a theory--take an economy to self-destruction but should enable it grow in beneficial ways. I made two comments, the first warning of the dangers of misguided monetary distribution and the second pointing out what I see as being an MMT style economic distortion occurring now due to misguided covid-19 responses. The second comment is reproduced here.

[4/25/20 UPDATE: This second comment seems to have failed moderation. Despite two submissions, I never could find it present. There have been no site updates since April 13.]

 Roger's second comment:

The vision of " .... sovereign government as the Ouroboros" is  a good place to start, yet not an accurate depiction of the economic effects of the covid-19 response.  Clearly, government is 'consuming' part of the private economy today by effectively shutting down the 'non-essential' sector. Left 'unconsumed' is the 'essential' part of the private sector--mainly the food sector.

From this observation, we (who are interested in macroeconomic sectors) can see that government (the sector in control) has divided the private sector into two sub-sectors; 'non-essential' and 'essential'. Non-essential includes the aircraft industry, travel/lodging, construction, retail stores, restaurants, and entertainment industries. Essential includes the entire food chain, medical related to pandemic care and government itself. Non-essential sectors are expect to shut down activity, thereby becoming effectively 'consumed'.

Government is well aware that 'non-essential' workers and business owners are placed into dire economic straits by forced 'consumption'. Government has enacted several programs costing trillions of dollars that government does not have, relying on MMT recognized methods of financing (direct government printing) for funding sources.

But here is the alarming aspect of one program--the helicopter drop of money (approximately $1200) to all adult citizens who filed a Federal tax return. Both the government sector and essential private sub-sector will continue getting near normal income during the coronavirus emergency economic shutdown. These sectors do not need MMT style money-drop help. On the other hand, members of the shutdown 'non-essential' sector clearly do need help and a one-time payment of $1200 is unlikely to be fair compensation the economic hurt inflicted.

This one program, MMT style, seems destined to magnify the economic divide between government and 'essential' private sectors and contrasting 'non-essential' private sub-sector.

Perhaps additional (expected) future government support programs will address this looming economic distortion.

(c) Roger Sparks 2020

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