Saturday, April 23, 2011

More attention for MMT

Nick Rowe has another blog post about MMT. Check it out here:

Functional Finance vs the Long Run Government Budget Constraint

Here is an excerpt:

"Let's ask a slightly different question. Why do governments pay interest on their debt? Actually, it sounds like a different question, but it's really the same question. Why finance government deficits with interest-paying debt, when you could use non-interest-paying currency?

The answer is the same: you pay interest on the debt to encourage people to hold it and stop people spending it. If you cut the interest rate on government debt, will people sell it back to the government for money, spend the money, and cause inflation? If not, then Aggregate Demand is too low, and the problem is deflation, not inflation. So there's a free lunch from cutting the interest rate on government debt. And the government should eat that free lunch. And then the Long Run Government Budget Constraint kicks in again".


Tom Hickey said...

Thanks for the heads up, Kevin. I posted a comment on functional finance and sectoral balances, in contrast to Nick's monetarist approach.

Clonal said...


Another economist wanting to bash MMT

Robert P. Murphy - used to be with Laffer Associates

MMT Bask -

Seething said...

LOL Murphy? He's a hardcore Rothbardian Austrian.

Tom Hickey said...

On it, Clonal. I posted some references there. We'll see where it goes from there.

Anonymous said...

The Austrians remain skeptical. They've brought up their big guns/themes: freedom, theft, coercion, banking, central planning.

Anonymous said...

Robert P. Murphy remains unconvinced: