tag:blogger.com,1999:blog-6837159629100463303.post4292503487490424603..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: Walras' law, information theory editionJason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-6837159629100463303.post-91143924363277666452014-09-02T11:06:09.448-07:002014-09-02T11:06:09.448-07:00I'm not entirely sure what MMT is either, but ...I'm not entirely sure what MMT is either, but here are a few statements of MMT I copied from the introduction of the Wikipedia entry:<br /><br />http://en.wikipedia.org/wiki/Modern_Monetary_Theory<br /><br />Let's see what the ITM has to say about it ...<br /><br />1. According to modern monetary theory, "governments with the power to issue their own currency are always solvent, and can afford to buy anything for sale in their domestic unit of account even though they may face inflationary and political constraints".<br /><br />The Information Transfer Model (ITM) should be able to model the resulting hyperinflation ... but the ideas of government solvency or political constraints are generally political in nature and outside the ITM's purview.<br /><br />2. In MMT, money enters circulation through government spending. Taxation and its legal tender power to discharge debt establish the fiat money as currency, giving it value by creating demand for it in the form of a private tax obligation that must be met using the government's currency.<br /><br />The quantity of government debt for a country with its own currency seems largely irrelevant to inflation in the ITM. Deficit-financed government spending can affect inflation if dP/dM0 ~ 0 (liquidity trap conditions), but can be offset by monetary policy when dP/dM0 > 0. The relevant form of money (currency M0) enters the economy through requests by banks to the Fed who sends the requests to the Treasury for printing. M0 and NGDP have a strong relationship -- and causality can go both ways: NGDP causes more currency to be printed and more currency causes NGDP to grow. In the former case government spending can cause NGDP to go up, causing M0 to go up -- both of which can cause the price level to go up.<br /><br />[That was kind of a long-winded way of saying: "Sometimes government deficit spending can boost the economy and cause currency to enter the economy and affect inflation. Sometimes government deficit spending can directly affect inflation. But mostly, it's currency."] <br /><br />The source of value of a currency is outside the ITM's purview.<br /><br />3. Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government's deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government's activities per se.<br /><br />The level of taxation seems largely irrelevant to inflation (see 2 above about government deficit spending, though). The overall level of NGDP impacts employment, so government spending can probably reduce unemployment. Unemployment itself seems to a market failure in the ITM (i.e. the ITM doesn't describe the unemployment spikes associated with recessions) -- and it's potentially caused by human psychology (the spikes seem like panicky over-reactions).Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-32508939892296981082014-09-02T05:02:50.495-07:002014-09-02T05:02:50.495-07:00Off topic, but I'd be interested to know if yo...Off topic, but I'd be interested to know if you've tried (or thought of) how to model/test MMT (modern monetary theory) using an information transfer framework. I don't know how to even begin conceptualizing that, given that I can't find a nailed down starting point/set of axioms for MMT which would be amenable to this type of analysis!<br /><br />I'm partial to the MMT take on central banks, as their starting point is looking at how things actually work vs. say idealized MM formulations..<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-31114868736074019532014-09-01T16:59:50.666-07:002014-09-01T16:59:50.666-07:00Exactly one market or the decomposition is an arbi...Exactly one market or the decomposition is an arbitrary division of exactly one market (all the apples sold to people named Pete, all the apples sold to people named Patricia, and all the apples sold to everyone else).Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-35744882478493832782014-09-01T16:56:38.187-07:002014-09-01T16:56:38.187-07:00Yes, I think so. If you go back to this expectatio...Yes, I think so. If you go back to <a href="http://informationtransfereconomics.blogspot.com/2014/05/expectations-destroy-information.html" rel="nofollow">this expectations post</a> and look at the KL divergence, you can imagine an excess supply of money as one possible distribution of apples and money over consumers and firms, call it P1 and an excess demand for money as a different distribtion P2, then if the market clearing distribution is P, then both<br /><br />D(P||P1) and D(P||P2) are going to show information loss relative to P (the loss is minimized when P1 = P2 = P).Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-52473897234071648292014-09-01T00:02:09.905-07:002014-09-01T00:02:09.905-07:00Jason, assuming a monetary economy (as per Nick...Jason, assuming a monetary economy (as per Nick's description) could a situation with ΔIk > 0 correspond to both:<br /><br />1. An excess supply of money in the kth market<br />2. An excess demand for money in the kth market<br /><br />Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-53684347751768595442014-08-31T23:48:18.898-07:002014-08-31T23:48:18.898-07:00Jason, what do you mean by this exactly?: ".....Jason, what do you mean by this exactly?: "...or the decomposition is trivial"<br /><br />Is a case where this is trivial the case of exactly one market?Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-28994581281103082382014-08-31T13:50:40.969-07:002014-08-31T13:50:40.969-07:00Thanks. I guess I didn't scroll down enough!Thanks. I guess I didn't scroll down enough!Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-68893350597778125412014-08-31T13:21:49.206-07:002014-08-31T13:21:49.206-07:00Already answered ...
http://uneasymoney.com/2014...Already answered ... <br /><br /><a href="http://uneasymoney.com/2014/08/22/the-trouble-with-is-lm-and-its-successors/#comment-230728" rel="nofollow">http://uneasymoney.com/2014/08/22/the-trouble-with-is-lm-and-its-successors/#comment-230728</a>Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-57309550412663579052014-08-31T11:10:29.005-07:002014-08-31T11:10:29.005-07:00O/T: David Glasner had a question for you (which I...O/T: David Glasner had a question for you (which I'd like to hear your answer to as well):<br /><br />http://uneasymoney.com/2014/08/22/the-trouble-with-is-lm-and-its-successors/#comments<br /><br />"Jason, Thanks for the link and the explanation. How do you know which direction information is moving?"Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.com