Edward Harrison compares John Cochrane, Paul Krugman and Lars Syll and concludes that economics is ideological.
LS: "Is ideology only playing a role when it comes to fiscal policies? Hard to believe. As already Gunnar Myrdal argued 80 years go, ideology is all over all economists. Whether they are into monetary or fiscal policies is immaterial."
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On the fiscal versus monetary question, MMTers have got it right.
The problem with pure fiscal policy (i.e. government borrows and spends and/or cuts taxes) is that the deflationary effect of the borrowing partially or wholly negates the stimulatory effect of the spending (so called “crowding out”). Plus, it’s plain bizarre for the government / central bank machine to borrow something it can produce in infinite quantities itself at no cost.
As to pure monetary policy, i.e. adjusting interest rates, there is no logic in channelling stimulus into the economy just via borrowing and investment. I.e. there is obvious reason why the average recession is caused mainly by a reduction in investment spending rather than a reduction in non-investment spending (particularly by the consumer).
Ergo the best stimulatory package is to combine the above two: i.e. simply have the central bank print new money and have government spend it (and/or cut taxes).
That combination is actually implied in Warren Mosler’s recent Debate Club article, though he isn't very explicit on the point. He advocates a permanent zero or near zero interest rate. And if the government / central bank machine issues zero interest rate liabilities to pay for extra spending, those liabilities are effective cash or near cash. That is, no borrowing is involved.
In fact MMTers in general should be more explicit on the latter point, I think.
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