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buswolley writes:
"Is the United States or the EU really too poor to afford to build the things each needs to maintain prosperous nations? Modern Monetary Theory (MMT) posits that America is not too poor in real resources to do the things it needs to do, and now proponents of the theory have adapted the rules of the classic board game Monopoly to demonstrate their case. For those that do not know what modern monetary theory is about, a suitable primer on the topic might be Warren Mosler's Seven Deadly Innocent Frauds of Economy Policy or Diagrams and Dollars, either as a book on Amazon or on-line for free at NewEconomicsPerspectives.org.
While the Modern Monetary Theory perspective tends to elicit disbelief and even rage, I think it is important for any scientist and geek to weigh the evidence carefully, and by doing so understand better about how and why money is created and destroyed."
(Score: 5, Insightful) by maxwell demon on Saturday March 01 2014, @03:01PM
It's a joke anyway. The Monopolis economy simply doesn't work the way our real economy does.
To start with, neither the dollar nor the euro is issued by the government. That is, the monopoly bank cannot be identified with the government, but rather with the central bank (Federal Reserve, ECB). The government is just another player in their "horizontal market".
Next, the way the central bank issues money is to loan it. This is in stark contrast to the Monopolis scenario where the newly created money is given as compensation for work. The difference is that if you are paid with that money, you own it. But with a loan, you'll have to eventually pay it back.
Which comes to the third difference between real and Monopolis economy: It is a common misconception that all (or even the majority of) money is created by the issuing entity (Fed/ECB). Rather the most money in existence is created by normal banks, via loans. This is known as fractional reserve banking. In Monopolis, there are no banks.
Which leads to the fourth difference: Since Monopolis doesn't know loans (which are the way money is created in our economy), it also doesn't know interest. But interest is a major factor in our economy.
The Tao of math: The numbers you can count are not the real numbers.
(Score: 2) by buswolley on Saturday March 01 2014, @04:06PM
You are, I think, essentially describing the differences between Modern Monetary Theory and Modern Monetary Realism perspectives. Under current law congress has given power to create money to the Fed and banks. The Fed does it through the bonds procedure, which the government agrees to pay interest for borrowing back the same money it created. However, this does not mean that Congress no longer has its Constitutional authority to mint money as it sees fit. Therefore, no matter how much the government has agreed to pay interest on the money it borrowed from itself via the bond process, Congress can always pay back that debt through the minting of money...Indeed they are constitutionally required to honor U.S. debts in full. Therefore, no real fiscal constraint can be applied to the government. The effect of that spending is a different matter. If the government spends supplying a net savings to the private sector, there should be an increase in demand. If there is too much demand relative to supply, and the capacity to ramp up production, then there is inflation. So the real point of all this is to say, how much can we inject into the economy before we have too much inflation?
subicular junctures
(Score: 1) by GeriatricGentleman on Saturday March 01 2014, @06:11PM
I don't know a whole lot of economic theory - just enough to get into trouble really. But I read the discussion thread on the main link (I know, I read TFA) and there is quite a bit of comment on fractional reserve banking and how government doesn't really create the money and you've brought it up here.
I think this is a little disingenuous. The government controls the amount of fractional reserve created by mandating the percentage the banks are required to keep and by not being completely retarded (despite what might seem to be evidence to contrary, there are some smart people making financial recommendations within government). So they know when they issue $50 it means they have created $5,000. I recall some news article on the back of the GFC that the deposit ratio my countries banks had to keep was changing (umm, from 0.1 to 0.2? (eek - too lazy to look for a ref!)) and the flow on effects on money supply were explained. This is in an article to the general public, so am surprised to see this argument come up on a site full of smarter people than me.
However, there are different mechanisms used in different countries for controlling money supply, I have studied a few, forgotten most of what I learned and am more than happy to have my ignorance exposed and be corrected. But I don't think fractional reserve banking is a gaping rent in the description of the Monopolis economy.
(Score: 2) by maxwell demon on Sunday March 02 2014, @05:12AM
There is a difference between issuing the money and controlling the amount of money issues. Anyway, the most important issue is the interest. That changes the game completely because it ultimately enforces that the total amount of debt is larger than the total amount of money.
The Tao of math: The numbers you can count are not the real numbers.