Wednesday, February 22, 2012

John Carney on Dylan Matthews on MMT

Good read. John gets it that the fundamental issue is the desired size of government, which involves the requisite expenditure to achieve. Tax policy then adjusts effective demand appropriate for maintaining that level, relative to changing conditions. This is the MMT position.

The "right" size of government is a political question. How to achieve it economically is a matter of economic policy. A correct view of economics shows the relevant policy options for doing so.

With this understanding, the country can have an intelligent political debate without bringing in "junk economics" (Michael Hudson) to justify political choices. Then the debate can be on the merits, with voters deciding what kind of country they want to live in and future they wish to create, based on realistic alternatives and opportunity cost, taking trade-offs into consideration.

Read it at CNBC NetNet

Modern Monetary Theory’s Big Weekend: The Problem with Surpluses
by John Carney | Senior Editor


David said...

I guess I'm starting to get where Carney's coming from a little more. He seems closer to the Lafferites than to the bottom up approach of UMKC or Bill Mitchell. I have a problem with his assumption that surpluses will tempt congress into increasing the size of government, also quoting Mosler to that effect. In our recent experience with surpluses, it seems to me they only came about because of expansion of private debt coupled with reduced spending. All the Clintonites have plumed themselves on that magnificent accomplishment since that time.

The Bush admin (basically Lafferite) response to the recession that followed was tax cuts. Unfortunately they were largely structural untaxing of the rich with limited stimulative effect other than to exacerbate the housing bubble. It seems to me the whole size of government thing is sort of the wrong argument. Carney and others have an ideological bias against government programs. Fine. But the real issue seems to be the bias favoring private debt as opposed to government debt. This is the epiphany people need to have: It is private debt not government debt that caused the great financial collapse. And yes, we can spend our way out of it. It is the misplaced ideology of private credit being inherently superior to public credit that needs to be combatted.

Tom Hickey said...

It is the misplaced ideology of private credit being inherently superior to public credit that needs to be combatted.

Yes, this is bound up with the government as big household analogy. People don't get it yet that the currency issuer doesn't need to get money the way currency users do.

The government as big household analogy is used by the fiscal conservatives who know better to limit the welfare of government, even as they expand their pet projects like global hegemony through military superiority, as well as the financial sector to promote excessive rent-seeking behavior that is parasitical on production.