Monday, June 22, 2020

The Deficit Myth: Modern Monetary Theory Primer (Book Review) — Ted Stamas

  • Primer on Modern Monetary Theory.
  • Useful to understand Modern Monetary Theory and economics in general.
  • Concept leans to the Socialist and Utopian side of the ledger.
Not yet convinced but interested. Sees difficulty in passing policy based on use of policy space chiefly because the electorate is deficit and debt adverse (after years of being exposed to the conventional wisdom and fear-mongering).

The post is interesting, too, in that it is the first I have encountered that is somewhat mid-range. The reaction is generally love it or hate it.

Seeking Alpha
The Deficit Myth: Modern Monetary Theory Primer (Book Review)
Ted Stamas


Ralph Musgrave said...

I left a comment.

Mike Norman said...

I didn't read Kelton's book, but the author of this article says, "A big problem she has is that she is equally critical of both sides of the political aisle. President Obama didn't get it, and President Trump doesn't either."

Trump doesn't understand deficits?

He's running a $2T deficit--largest nominal deficit in history. And given projections of Q2 GDP that would be about 17% of GDP. Biggest since WWII.

So, if Kelton actually says this she is being totally political in spite of posturing as being apolitical.

Unknown said...

I've read her book and I've no recollection Kelton attacks Trump for being a deficit hawk.

Matt Franko said...

Now thinks targeted USD tax credits for US citizens to spend in the depressed travel and hospitality industries is not rational:

And Giving people another day off per week is going to increase output and is rational...

Tom Hickey said...

I don't think that Stephanie Kelton would or could claim that she is not "non-political." After all, she has previously run for office as a Democrat, served as Bernie Sanders economic advisor and occupied an official role on the Democratic side of the Senate Budget Committee. She now regularly advises Democratic officials and candidates, and presently sits on one of Joe Biden's unity committees.

Rather, I assume she would claim as do the other MMT economists that MMT is an macroeconomic theory based on achieving full employment, which is legislated in the US by Humphrey-Hawkins Act. Until the law is changed, this is settled issue. The MMT JG is only solution on the table that claims to do this will optimizing growth through use of available real resources, while also managing price stability through a price anchor.

I think that they would say that the claim is hypothetical but not political under current US law. It's an argument about how to fulfill the intent of the existing law that challenges other views that are themselves not not necessarily political, just less effective in achieving the objective. The fact is that every framework involving societies has a normative component (value) in addition to a positive one (fact).

It is arguable that solutions that favor capital (profit, investment) over labor (equality, social justice) do have an ideological bias, whereas views that advocate a living wage and actual full employment also have an ideological bias.

What MMT economists do claim, correctly, is that the institutional analysis of the monetary system and its monetary and fiscal implications regarding policy space is politically neutral since it is entirely descriptive.

I also think that it is reasonable to argue that the president doesn't have a view of deficits that is "MMT-based" although there are similarities, and that he has said things that would lead one to conclude that his understanding of both MMT and the operational realty regarding policy space is deficient when his many statements are taken into account. He has previously advocated a gold standard, for example, even nominating gold-standard advocate Judy Shelton to the Fed. He also campaigned on reducing the deficit. So what is his actual understanding of this issue? Frankly, I don't know and can't tell from either his statements or his behavior. He seems to me to be closer to Art Laffer (tax cuts for the "job creators") than the MMT understanding.