Has Simon Wren-Lewis just become a Lernerian--a devotee of and an evangelist for MMT? It looks to me as though that is the case! Mirabile visu….Come on in, Brad. The water's fine.
Grasping Reality
Must-Read: Has Simon Wren-Lewis just become a Lernerian--a devotee of and an evangelist for MMT?
Brad DeLong | Professor of Economics, UCAL Berkeley
Must-Read: Has Simon Wren-Lewis just become a Lernerian--a devotee of and an evangelist for MMT?
Brad DeLong | Professor of Economics, UCAL Berkeley
The central idea is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound and what is unsound. This principle of judging only by effects has been applied in many other fields of human activity, where it is known as the method of science opposed to scholasticism. The principle of judging fiscal measures by the way they work or function in the economy we may call Functional Finance ...
Government should adjust its rates of expenditure and taxation such that total spending in the economy is neither more nor less than that which is sufficient to purchase the full employment level of output at current prices. If this means there is a deficit, greater borrowing, "printing money", etc., then these things in themselves are neither good nor bad, they are simply the means to the desired ends of full employment and price stability.
— Abba Lerner, "Functional Finance and the Federal Deficit" (1943)
??? Wren-Lewis has indeed been supporting helicopter money. But in this piece isn't he just arguing that pre-2008, Spain's fiscal policy wasn't tight enough?
ReplyDeleteWren-Lewis: "The mistake everyone here makes is to judge the appropriate fiscal policy by the size of the deficit."
ReplyDeletehe is 100% correct imo....
SW-L now an MMTer? That's all down to me, folks. I've left comments on his blog at the rate of two or three a week for the last year at least, and have been trying to edge him towards MMT.
ReplyDeleteNow will someone recommend me for a Nobel Prize...:-)
Not really MMT, just plain old Taylor rule macro.
ReplyDeleteThink about it this way: a EMU country can't "control" inflation within its jurisdiction using monetary policy because monetary policy is under control of the supranational ECB. So the only way to mimic a monetary policy reaction function is via fiscal policy. Call it functional finance but its really just plain old aggregate demand management.
The argument that EMU countries weren't independently adopting a tight fiscal policy stance is perfectly aligned with the framework and mindset of the founders of the EU, which went ahead with the EMU without a continental treasury.
Also I don't think inflation relative to average inflation is a gauge of anything.
ReplyDeleteApply it to sovereign Australia 2-3% inflation but high unemployment. I'd be happy to see 5% inflation if Australia was fully employed as defined by MMT.
If SWL is a MMTer I'm a banana.
ReplyDeleteSWL is a signed up member of the 'Central Bank Uber Alles' club - alongside Krugman. He believes the central bank should rule money and should be the entity that hands out money to all and sundry when it feels like it.
He'a a dangerous member of the establishment. A New Keynesian through and through.
SWL will become an MMTer when we lets people know that the Central Bank is just a service department of the Treasury and the government, as the democratically elected body, should operate fiscal policy via the automatic stabilisers it considers appropriate. And that there should be debate in parliament over what is appropriate.
That isn't the case. SWL believes he has the One Truth and certainly isn't interested in allowing a choice of truths to be decided democratically.
Is he in favor of central banks buying up stocks?
ReplyDelete