"Modern Money Basics" in Modern Money Theory (M.M.T.)x

[Steve3007]

I believe that share prices can rise as demand for them increases (though something called “market sentiment” is key and demand can reflect this).

Yes, the same as anything else that's for sale. Supply and demand.

I am no expert on the stock market but Max Keiser (RT channel) claims that some institutions and some wealthy individuals sometimes use computer algorithms to buy and sell (he claims to have written such if I recall correctly).

One of my previous jobs was writing software for streaming stock market data to an investment application (called Sharescope). As background for that job (and out of curiosity) I learnt a bit about the mathematics of financial derivatives. It's a large and interesting subject in its own right. But, yes, people design algorithms for calculating when to buy and sell stocks, FX, commodities and a whole host of financial "products" that are derived from those things. Those people are called "Quants". It's a massive industry. Have a look at a jobs website (e.g. JobServe) and search for jobs with "Quant" in the title.

The motive is not so much to support a business, but just to make money. If you buy enough, or sell enough, I believe you can affect the price either way and make money either way too.

Yes, generally speaking, when people trade stocks, the motive is to make money. The question is: when does that activity help the business by allocating money to where it can most efficiently be used? And when does it cause harm? That appears to be a subject of debate. For example, there is debate as to whether "short selling" (essentially, betting that the price of a stock will fall) is helpful or harmful for the process that stock markets were designed for: allocating money to where it can most efficiently be used.

Since you mentioned motive: As a general principle, if the motive is to make money, would you automatically regard that as a bad thing? Suppose I spot that a company is well managed and therefore has the potential to grow. Suppose I then decide to invest in that company on the expectation that the company will grow and that my investment will grow with it. Suppose my investment allows that to happen, and the company thereby grows and employs more people. Isn't that a good thing?

[Wossname]

Steve3007 » 35 minutes ago


Since you mentioned motive: As a general principle, if the motive is to make money, would you automatically regard that as a bad thing? Suppose I spot that a company is well managed and therefore has the potential to grow. Suppose I then decide to invest in that company on the expectation that the company will grow and that my investment will grow with it. Suppose my investment allows that to happen, and the company thereby grows and employs more people. Isn't that a good thing?

Given your background I think you probably understand the functioning of stock markets better than I.


In answer to your question, I will say that it is not automatically good to my mind, any more than automatically bad.
I think I would want to know what the company was doing.


Would you agree?

[Steve3007]

Given your background I think you probably understand the functioning of stock markets better than I.

A bit about stock markets because of my past job, yes. But not much about economics in general. I think most of us tend to specialize in specific little areas of individual subjects as the need arises. Unless we're hyper-brainy polymaths!

Would you agree?

Yes, that sounds reasonable to me.

I'll have a crack at the rest of that post of yours later. Now I must make a cake.

[gad-fly]

I believe that share prices can rise as demand for them increases (though something called “market sentiment” is key and demand can reflect this).

Yes, the same as anything else that's for sale. Supply and demand.

Perhaps I know about more economics than the pedestrian, but that is no big deal, be that as it may. It can be said that all market activities are subject to supply and demand, but there is some distinct difference between the stock market and the commodity (or consumer goods) market. The former operates on investment and speculation, with its products in competition with bank products such as time deposits. Unlike cornflakes, such product is sustainable at the same time as it is carried by some degree of uncertainty on price and return. You buy a stock, and you are in, since it is not the end of the story.

I must admit being reluctant to continue on, as I am more concerned about MMT which is what this thread is about.

[Sculptor1]

Steve3007 » 35 minutes ago


Since you mentioned motive: As a general principle, if the motive is to make money, would you automatically regard that as a bad thing? Suppose I spot that a company is well managed and therefore has the potential to grow. Suppose I then decide to invest in that company on the expectation that the company will grow and that my investment will grow with it. Suppose my investment allows that to happen, and the company thereby grows and employs more people. Isn't that a good thing?

Given your background I think you probably understand the functioning of stock markets better than I.

The main thing you need to know regarding stock markets and MMT, is that Stock markets are little more than betting shops.
The "value" of companies is abstracted to a point divorced from their working value. A share becomes disconnected with the performance of the company and what becoming important is how it does in the shares market.
Share can be traded and the more they are traded the more their value increases until an invisible bubble invisibly bursts due to a drop in the perceived value. It is as if an invisible horse breaks its leg on the fairway. "Jitters" in the market can mean that a company's value drops to nothing, as people dump their shares. Or it can be artificially inflated as traders over buy.
Manipulation is rife. Buy big and sell out can makes massive profits from nothing the company has done.
This puts millions of jobs at risk.

[Steve3007]

https://www.bbc.co.uk/news/business-53402176

Now that there is more and more talk in the news of how the current increase in Covid-19 related public spending will be paid for, I think it's interesting to re-visit this topic. As I understand it, one of the key points made by MMT is that taxes don't pay for public services. They destroy money. So presumably MMT proponents would say that organisations like the UK Office for Budget Responsibility (OBR) are talking nonsense when they say that taxes are going to have to rise or spending is going to have to fall?

[Wossname]

So presumably MMT proponents would say that organisations like the UK Office for Budget Responsibility (OBR) are talking nonsense when they say that taxes are going to have to rise or spending is going to have to fall?

Indeed they would. And do.

[Steve3007]

Indeed they would. And do.

Good. I'm glad we're agreed as to what MMT says!

[Wossname]

Steve3007 » 2 minutes ago

Wossname wrote:
Indeed they would. And do.
Good. I'm glad we're agreed as to what MMT says!

A recent post from Professor Murphy:

https://www.taxresearch.org.uk/Blog/202 ... sequences/

[Steve3007]

I've briefly read the article once and will read it again more carefully later. My first impression is that it's too full of editorializing, and details of the role of such things as QE, for me to be able to get down to the fundamentals. I prefer fundamentals.


As I've said before, to my simple mind, common sense says that of course taxes pay for public services. I think one way that people lose touch with that common sense is by fixating on the abstract concept of money and forgetting the underlying fundamentals which it represents.

The underlying fundamental here is:

Various people work to create various goods and services. We all consume some goods and services that we didn't directly work to create. I eat food. I'm not a farmer or a grocer. Doctors and nurses eat food. Doctors and nurses aren't farmers or grocers. Farmers and grocers use the services of doctors and nurses. Therefore farmers and grocers swap the products of their labour with those of doctors and nurses via the mechanism of money. If doctors and nurses are not paid directly, then they are paid via the mechanism of taxation and public spending. Therefore taxes pay for public services. I pay taxes to fund the doctors and nurses whose services I use. So do farmers and grocers.

This all seems to me blindingly obvious common sense. But I think it's when all of these fundamentals are forgotten, and only the mechanism of money is remembered, that common sense seems to go out of the window, resulting in people saying things like: taxes don't pay for public services.

[Sculptor1]

It's ironic that even before the Covid Crisis, Sunak began his career and chancellor in his first budget by adopting Labour's spend to recovery programme, since the last 12 years of Tory failing has not repaired the public finances at all. All the Tories have managed to do is increase the debt whilst putting the brakes on the economy.
What Sunak as done with the COVID crisis is to admit the Tory lie that you cannot spend to help the economy, the lie that has laid waste jobs and prospects of an entire generation, increased inequality and poverty whilst sending billions of pounds overseas into tax havens.
Because right now he is showing that for the last ten years you could have increases spending to improve the infrastructure, the health system and education to prepare the UK for the competitive world market of the future.
Instead we have a demoralised workforce on multiple zero hours contracts, or hidden unemployed, doomed to live in a renters market which is highly exploitative. Thatcher's Victorian values have finally returned when Britain was the richest country in the world with the worst poverty.

[Wossname]

Steve3007 » 11 minutes ago

This all seems to me blindingly obvious common sense. But I think it's when all of these fundamentals are forgotten, and only the mechanism of money is remembered, that common sense seems to go out of the window, resulting in people saying things like: taxes don't pay for public services.

Well we generally believe what the media tell us. Unfortunately the media are wrong. And common sense is wrong because we understand money from the point of view of users of money, not creators of it. But we have been over this.

This is short, and recent from professor Murphy again. Note the argument, there is no such thing as taxpayers’ money. That does not fit with media reports or what you might see as “common sense”.

https://www.taxresearch.org.uk/Blog/202 ... -is-money/

I don’t think we need rehash the arguments though. We have done it to death I think.

[Wossname]

Sculptor1 » 10 minutes ago

What Sunak as done with the COVID crisis is to admit the Tory lie that you cannot spend to help the economy, the lie that has laid waste jobs and prospects of an entire generation, increased inequality and poverty whilst sending billions of pounds overseas into tax havens.
Because right now he is showing that for the last ten years you could have increases spending to improve the infrastructure, the health system and education to prepare the UK for the competitive world market of the future.
Instead we have a demoralised workforce on multiple zero hours contracts, or hidden unemployed, doomed to live in a renters market which is highly exploitative. Thatcher's Victorian values have finally returned when Britain was the richest country in the world with the worst poverty.

Spot on in my book.

[Sculptor1]

I've briefly read the article once and will read it again more carefully later. My first impression is that it's too full of editorializing, and details of the role of such things as QE, for me to be able to get down to the fundamentals. I prefer fundamentals.


As I've said before, to my simple mind, common sense says that of course taxes pay for public services.

No they do not. That was true when the King had to go round stealing silver from the people.
With fiat currency taxes are deleted money.

There is no direct link between tax and spend and the deficit is no indicator of economic health.
Taxes are all about fiscal engineering. Taxes are used to punish and reward different types of economic activity. And about social control.

I think one way that people lose touch with that common sense is by fixating on the abstract concept of money and forgetting the underlying fundamentals which it represents.

The underlying fundamental here is:

Various people work to create various goods and services. We all consume some goods and services that we didn't directly work to create. I eat food. I'm not a farmer or a grocer. Doctors and nurses eat food. Doctors and nurses aren't farmers or grocers. Farmers and grocers use the services of doctors and nurses. Therefore farmers and grocers swap the products of their labour with those of doctors and nurses via the mechanism of money. If doctors and nurses are not paid directly, then they are paid via the mechanism of taxation and public spending. Therefore taxes pay for public services. I pay taxes to fund the doctors and nurses whose services I use. So do farmers and grocers.

This all seems to me blindingly obvious common sense. But I think it's when all of these fundamentals are forgotten, and only the mechanism of money is remembered, that common sense seems to go out of the window, resulting in people saying things like: taxes don't pay for public services.

Those fundamentals are basically useless.
If I make a pencil for 20p and sell it for 40p, where does the other 20p come from and what is the meaning of value in such a system. If I buy a box for 10p for the 20p pencil, I am now able to sell it as a luxury item for £1.20. This happens every day in every economic context.
If I write a book I can sell the digital version for £10, but my costs are only £0.01. How does any of this make sense?
Money is valueless. And taxes are meaningless. When the government can create £485 billion with a computer mouse; as it has done, in fact since the financial crisis. Tell me what has this got to do with "the mechanism" of money in your context?

Murphy is not saying you do not have to tax. On the contrary - his blog is called Tax Research and his book is The Joy of Tax.

[Steve3007]

I've read the article a second time now. My first thought is the same as when I read it the first time: I find articles which are full of editorializing, mockery and rhetorical questions annoying because they're just a distraction from the message. If I'm trying use an expert view to help me make up my mind about something, I'd rather they just use their expertise to layout the facts as they see them, rather than using terms like "deficit fetishist" and "Santa Claus" and stuff.

But, anyway, trying to ignore all that and extract what Richard Murphy is saying factually, he seems to say this:

1. The FT overstates public sector net debt because it doesn't factor in QE.

2. It is not true that BoE bond buying can't continue. It has in Japan and this has not created inflation there.

3. "Sustainable footing" means affordability and low borrowing costs make high government borrowing affordable.

4. The economy will not "fire on all cylinders" again unless we adopt the Green New Deal.

5. Tax rises are bad for the economy.