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MMT, Deficits and Savings: The Babysitting Model
John Carney | Senior Editor
Good post, good questions, moves the debate forward.
The answer to why government "should" accomodate non-government saving desire using the sectoral balance approach, stock-flow consistent modeling, and functional finance is to achieve full employment along with price stability (mopping up residual unemployment with the MMT JG).
The economic justification of this normative "should" is efficiency and effectiveness. Policy that idles productive resources unnecessarily is economically inefficient. MMT macro theory shows that this inefficiency in the name of controlling inflation is mistaken and that achieving full employment and price stability is a feasible objective using policy options derived from MMT macro theory.
Moreover, an economy is the material life-support system of a nation. Effectiveness wrt public purpose requires full employment in a situation in which income is a sine qua non of survival in modern society. Persistent unemployment results in economic adversity and political dissatisfaction, which all politicians know is poisonous to their careers.
10 comments:
"a situation in which income is a sine quo non of survival in modern society"
I would just add Tom in light of what Bill wrote last week it is critical for survival in a monetary economy.... so the way I look at if (of course) is fairness.
ie if the govt seeks to provision itself by implementing an open monetary economy, (hence immediately UNemploying people) then it is ONLY FAIR that said govt provides enough NFA to provide for full employment and to satisfy savings desires of the non-govt....
Resp,
I think he simplifies demand leakages as "savings desires". Lot's more complicated. Net imports and pension plans and IRAs and insurance let alone stuffing mattresses.
He also leaves out the foreign sector, which could accomodate the savings desires of both the private sector and government if they ran deficits that were high enough.
Bottom line: someone's gotta run a deficit for someone else to net save.
Mike,
Fair point about the foreign sector. I purposefully left that out to simplify things a bit.
A crucial point that gets glossed over in too many MMT pieces is that households and businesses can save without any government or foreign deficits. They just can't all do it at the same time.
Too often I find statements that could be read as implying otherwise. People are genuinely confused about this. So it should be said over and over again: a dollar saved by someone must be a dollar spent or loaned from someone else. But that someone else can be a bank, a business, or any other private enterprise or individual.
Intra-sectoral savings is not just possible. It is what we see all around us all the time. Glossing over it is a serious mistake.
Clonal posted this excellent exposition on another entry...
http://bilbo.economicoutlook.net/blog/?p=18427
"When commom sense fails"
The confusion only comes when taking MMT out of it's Macro context.
Keep the discussion going John Carney.
John,
With all due respect I've never seen that point "left out." I think it's always been stated, that someone's got to run deficits and it's better for the sovereign to do it.
John,
With all due respect, I think it's always been stated. Someone's got to run deficits for another sector(s) to run a surplus. And I think MMT's position, generally, is that it's better for the sovereign to run the deficit.
And MMT has frequently spoken about Keynes' Paradox of Thrift, which deals with what you are saying. Warren often refers to it as fallacy of composition.
@Matt ie if the govt seeks to provision itself by implementing an open monetary economy, (hence immediately UNemploying people) then it is ONLY FAIR that said govt provides enough NFA to provide for full employment and to satisfy savings desires of the non-govt....
Uhh... this gets a bit tricky. It *may* be true that an unemployed person in such a system has a case for demanding more assets.
But we also know that monetary economies have *benefits* over a non-monetary one. The production structure is bigger, people have more stuff, etc. So the government could also claim that this person owes *the government* a tax for setting up this awesome monetary structure.
In other words, what is this person's *argument* that they would be better off in a non-monetary system? Why does the government *owe* them anything if they are *still better off* in the unemployed-welfare world than in the non-monetary, possibly-starving world?
John's gettin' there....
John, if you report on MMT, I would view Warren Mosler's entreaty of the other day as an open invitation from him to email him (or try to call him) before you "go to print" so to speak when reporting on MMT. (He asked for it) This type of fact checking was missing from the WaPo piece the other weekend....
When Mike was doing his radio show he would often be able to have Warren on as a guest for interview on the fiscal issues (I think that was before "MMT" was coined)... and Mike always seemed to be able to catch up with him via phone once or twice per month no problems...
Resp,
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