“An Explanation of Modern Monetary Theory”

A Tuesday Wall Street Journal Letters to the Editor writer offered one.

[I]nflation is the only reason to limit budget deficits. The national debt is never a valid reason in countries with their own currencies; they can always make payments as they come due and can never be forced to default.

In particular,

The debt can always be paid by creating money.

Here are a couple more thoughts on the matter.

Printing money is, in and of itself, inflationary if production doesn’t rise in a way that substantially keeps pace with the increase in dollars chasing those goods and services. Using printed money to pay a national debt doesn’t cut it. Otherwise, Treasury could simply declare our national debt paid off, deeming the dollars printed.

Alternatively, Treasury could execute that middle step; the money printed to pay the debt still must go somewhere after the debt instruments are retired, it won’t simply disappear into the æther—it’ll enter the economy and inflate prices.

And this claim:

Treasurys are completely marketable. If a wealthy bondholder wants to buy something, she will sell bonds.

To whom will this wealthy bondholder sell the bonds (I’ll elide questions about the per centage of outstanding bonds this “wealthy” class holds)? There must be a buyer. If the idea is that Government will use the money to buy its own debt, we’re back to the above. Failing that, it’d be interesting to see this wealthy person take one of his bonds to his grocery store to buy food. Or use one to pay his cab driver—and tip well or ask for change.

This isn’t a theoretical disagreement, either; we have the example of Zimbabwe, courtesy of another writer in his Letter:

Zimbabwe’s government, which printed so much currency that it became worthless and had to be abandoned in favor of US currency.

This writer is the proud owner of a Zimbabwe Z$100 Trillion (yes, with a “T”) note that he picked up for two bucks, US—and he says he overpaid.

Trade Dispute

Deutsche Welle is worried about President Donald Trump reignit[ing a] trade battle with Europe.

US President Donald Trump vowed on Wednesday to make good on threats to impose high tariffs on European cars if the bloc doesn’t agree to a long-delayed trade deal with Washington.

The US leader said that the tariffs, which would Germany’s car industry especially hard, could amount to 25%.

This is a misplaced emphasis. The EU has been dealing in bad faith with us, if not openly prosecuting its trade war against us, for some time. The latest example is the EU’s plan to impose a “digital tax” on our tech companies. The EU claims that its new tax would be imposed globally, on all international tech companies, but the largest are American, and the EU tax is explicitly structured to go after ours.

The longer-standing bad faith includes the question of automobile tariffs.  Trump, years ago, offered a no-tariff on cars trade regime as part of a no tariffs at all trade regime between the EU and the US. The German auto industry immediately agreed with the no auto tariffs offer and tried to get the German government to go along with it and work to get EU agreement.  Then-EU President Jean-Claude Juncker agreed to take discuss the no auto tariff question, but then…silence.

The EU (and Germany) have completely ignored the offer of eliminating tariffs on some or all of EU-US trade.

Trump isn’t reigniting anything; he’s just responding to the EU’s trade war.

Tariffs and Fairness

In a Wall Street Journal article centered on the way tariffs involved in the People’s Republic of China/US trade “dispute” and the simmering EU/US trade dispute impact a Scottish town, Alistair MacDonald posed a question.

Is it fair for the US, in its pursuit of trade concessions, to hurt smaller businesses that make iconic products in nations such as Scotland?

The question is a non sequitur.  The correction is, “Is it fair to single out particular subgroups for special treatment when addressing the rest of the group or the group as a whole?”

No, of course not.

Or MacDonald’s question is not a non sequitur (other than the business about iconic products, which is irrelevant in any case): the group that, at this stage, should be being addressed is the group known as Great Britain. In that light, it would be both fair and politically sound to exempt Scottish industries from tariffs applied in response to EU trade abuses. Scotland, after all, is first a part of Great Britain, and only through Great Britain a part of the EU.

Losing our Free Market?

And not just through Progressive-Democrats’ Big Government demands and planned impositions.  Now it’s fund MFWICs with bugs up their noses about their currently favored special interest, exemplified by BlackRock’s Larry Fink.

BlackRock, along with Vanguard and State Street, are the three most powerful investment funds, holding as they do roughly 20% of the S&P 500 through funds they run for investors.  And now Fink is starting to dictate to the companies his company owns shares in what they must do vis-à-vis climate change, Fink’s issue du jour.

Mr Fink is surely right that investors should worry about climate risks leading to big shifts of capital, and therefore big price moves.

No, Fink isn’t “surely” right, for all that he might be. More likely, the climate-related risks are political, as politicians extend their pandering, rather than empirical.

Regardless, though, Fink’s rightness or wrongness isn’t relevant. What’s important here is that Fink shouldn’t be allowed to dictate to those investors that they must invest according to his diktat rather than in accordance with their own imperatives or read of the factors relevant to their own investing.

Medicaid Block Grants

The Trump administration is planning to set up procedures for allowing States to convert the Medicaid funding they receive from the Federal government from matching funds to block grants.

The new procedures would represent a large change.

Medicaid funding is open-ended, meaning the federal government matches state spending. If that funding is converted to a block grant, a state could get a limited, lump sum of federal money instead.

There are two key differences here. One is that the funding would go from strings-attached matches to no-strings block grants. The other is that the decision to go to block grants would be each requesting State’s, resulting in less Federal control over that State’s internal affairs.

Of course, this has vested interests twisting in their knickers.

Consumer groups and [Progressive-]Democrats say that limitation means thousands of people could lose Medicaid coverage or be unable to enroll if states’ costs rise or enrollment swells.

This is cynical and disingenuous. Whether a State’s citizens lose or can’t get access to their own State’s Medicaid is a matter strictly for, and wholly under the control of, the politicians and bureaucrats in that State’s government and the citizens who elect those politicians—who are the bureaucrats’ direct bosses.

At bottom, there is nothing at all preventing a State from reallocating its own spending to cover those costs or enrollments. Or of limiting access to ensure the truly needy can get the aid, limits that too often are blocked by those Federal strings.