![]() ![]() On the basis that politicians, any group of politicians, will spend the bottom out of the Treasury and more however much there is. And he pointed out that if you ever have a chance to cut taxes just do so. Given that we are discussing monetary policy it seems appropriate to bring Milton Friedman in here. The effect that idea has on the incentives for politicians. And it's that bit that absolutely terrifies me. Print the money, spend it, thereby injecting it into the economy, and if inflation rises then taxes are what sucks that money back out of the economy and thus kills off the inflation. Standard theory points to Wiemar Germany, post WWII Hungary and modern Zimbabwe as examples (that last so fun that the end series of banknotes were only printed on one side as they didn't have enough "real money" left to buy ink).Īt which point the MMT crowd say ah, but yes, that's what taxes are for. That standard monetary theory then also says that doing too much of this (in more detail, printing or creating lots of base money, rather than the creation of credit in the manner that the banking system does) will be highly inflationary. We really don't complain about it either. Standard monetary theory also recognises this: we know that the Fed makes a pretty profit each year from printing Benjamins (20 cents of paper and 3 cents of ink really is worth $100 these days) and that's worth perhaps $20 billion a year to the US government in seignorage. Print money, spend it, hey presto, you've financed government. And sure, you could indeed finance government just by printing more money. If you're a country with your own central bank you can print as much money as you like. So I'm certainly not thinking that the MMTers are over there with David Icke and whispering about the Grey Aliens or anything.Īnd their basic outline about money creation is true as far as I can see. Just as the old complaint about central banking goes ("the central banker's job is to remove the punch bowl just as the party gets going" by raising interest rates) a budget surplus is the fiscal equivalent, just part of moderating both the booms and busts to which capitalism is prone. Sure, let's add to aggregate demand in a slump but the flip side of that coin is that in the boom we want to temper things. Not as a means of paying down the debt or anything but as just general good management of the economy. My disagreement being that the old standard Keynesianism was based on the idea that at times we want the government to be contractionary. I might differ on the desirability of a surplus at times but not on that basic point about one being contractionary. Budget deficits are fiscally expansive, a surplus is fiscally contractionary, if there's any one statement at the heart of Keynesianism that's it. And his insistence that a budget surplus, despite the ribbing he gets about it, is in fact economically contractionary doesn't seem to have anything wrong with it. Jamie Galbraith (who I've had one or two very limited interactions with) is certainly a reasonable guy. ![]() It's most certainly not obvious that MMT proponents are all barking mad or anything. If you want all of the grubby details of MMT then I recommend that piece and those it links to. Kelton is not exactly a household name, but to those who follow economic policy debates closely, tapping her is a dramatic sign. His big move: naming University of Missouri - Kansas City professor Stephanie Kelton as his chief economist. Bernie Sanders (I-VT) is poised to break dramatically from traditional Democratic views on budgeting, from Obama to Clinton to Walter Mondale and beyond. But new budget committee ranking member Sen. Elizabeth Warren (D-MA) has clashed with the White House on a key Treasury Department position and the CRomnibus spending package. President Obama's biggest problem in the Senate is obviously its new Republican majority, but opposition from the left wing of the Democratic caucus appears to be growing too. ![]() The basic innovation of MMT is to point out that this no longer has to be so: and that's simply not a tool that I want politicians of any stripe to have available to them.ĭylan Matthews has the story that has me hot and bothered: For at present there does have to be some link, however vague or tenuous, between how much money the government takes in from all of us and how much money the government spends on giving prizes to all. Rather, it's what it will do to the political process if they do gain real policy influence. ![]() It's not actually that I disagree very much with the economics that is being laid out in MMT: indeed, I'm terribly tempted to agree that they're actually correct in much of what they say. The idea that Modern Monetary Theory might actually become vaguely mainstream, even an influence on how the Republic is governed, entirely petrifies me. ![]()
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