Economics is in transition between “two-body problem” and “three-body problem” thinking
With gratitude to all MMT proponents I’ve been learning from the last 12 years.
Economics is in a transition period between an old paradigm and a new one. Never easy, especially for adults out of college and un-used to learning new things.
Cixin Liu’s Three-body Problem offers a useful metaphor for economics; it’s in transition between “two-body problem” and “three-body problem” thinking.
Astrophysics expanded to include, embrace and understand three-body problems. Mainstream economics as a whole has yet to do this.
Newton solved the two-body problem. Given Newton’s simplified view of the universe as exclusively driven by gravity; and, given two bodies in space with known positions and motions, determining their previous or subsequent motion and positions — is relatively easy to calculate and understand.
A three-body problem, determining the previous or future motion-positions of each of the three, is MULTIPLE TIMES MORE COMPLEX to calculate and understand. Why? Briefly, while the center of mass between two bodies remains constant, the center of mass between three bodies is continually in motion. See a visualization of the chaotic movement of center of mass between three bodies here https://en.wikipedia.org/wiki/Three-body_problem
Old gold economics paradigm is well-characterized as a “two-body problem:” Taxes equals money in. Spending equals money out. This of course mirrors a household economy; since, individual families cannot legally print their own money.
Modern Money (MMT) makes federal level economics into a three-body problem. How? Why? It takes into account sovereign govs can legally print their own money.
How does this turn “tax and spend” into a three-body problem? Easy, “spending” (printing new money) is no longer a problem.
When spending new dollars into the economy is endlessly legal, the new problem becomes how much to spend; and, where to spend, to keep ALL of the following economic indicators healthy:
- Employment-unemployment,
- Inflation, and
- Continued investment in domestic factories and production.
In three-body economic thinking (MMT), as long as spending new money into the economy keeps the above three economic indicators healthy — there’s no problem.
See Stephanie Kelton, The Deficit Myth, and others on how Japan has been doing this since the 1980s.
