Read it at The Washington Post
Modern Monetary Theory, an unconventional take on economic strategy
by Dylan Matthews
(h/t Clonal in the comments)
Just submitted a comment over there:
The article omits the basic MMT rationale on deficit and debt, so it is not really at all evident why MMT economists claim what they do. MMT is based on Wynne Godley's sectoral balance approach to fiscal balance based on government offsetting saving desire of non-government (households, firms, and external sector). The balances of the government, private domestic sector and external sector sum to zero as an accounting identity. As non-government savings desire changes and the government deficit does not shift to offset it at full employment, then either economic contraction will result if there is is shortfall in the government deficit, or inflation if there is an overshoot. The national debt is the accumulated deficits, which inject net financial assets into non-government, hence represent national savings of net financial assets, i.e., accumulated financial wealth. When government runs a surplus, it withdraws net financial assets from non-government and draws down national saving of net financial assets, i.e., national financial wealth decreases. By targeting the appropriate deficit to offset non-government saving desire, the economy can be stabilized at close to full employment, and a job guarantee for anyone willing and able to work can mop up the residual of unemployed. MMT shows how to achieve full employment (less frictional) and price stability, which is the "holy grail" of macroeconomics, thought to be unachievable other than by redefining unemployment by increasing the so-called "natural rate." However, idle resources, especially human resources, are national resources going to waste and that waste can never be recaptured. This is hugely inefficient and MMT shows how to obviate this inefficiency through Godley's sectoral balance approach for determining the appropriate size of the deficit and Abba Lerner's functional finance, for adjusting the deficit through fiscal policy. The job guarantee, derived from Hyman Minsky, is used to establish a buffer stock of employed instead of the present buffer stock of unemployed, and the basic wage serves as a price anchor against inflation. Very simple. Wish the article had explained it.
Just submitted a comment over there:
The article omits the basic MMT rationale on deficit and debt, so it is not really at all evident why MMT economists claim what they do. MMT is based on Wynne Godley's sectoral balance approach to fiscal balance based on government offsetting saving desire of non-government (households, firms, and external sector). The balances of the government, private domestic sector and external sector sum to zero as an accounting identity. As non-government savings desire changes and the government deficit does not shift to offset it at full employment, then either economic contraction will result if there is is shortfall in the government deficit, or inflation if there is an overshoot. The national debt is the accumulated deficits, which inject net financial assets into non-government, hence represent national savings of net financial assets, i.e., accumulated financial wealth. When government runs a surplus, it withdraws net financial assets from non-government and draws down national saving of net financial assets, i.e., national financial wealth decreases. By targeting the appropriate deficit to offset non-government saving desire, the economy can be stabilized at close to full employment, and a job guarantee for anyone willing and able to work can mop up the residual of unemployed. MMT shows how to achieve full employment (less frictional) and price stability, which is the "holy grail" of macroeconomics, thought to be unachievable other than by redefining unemployment by increasing the so-called "natural rate." However, idle resources, especially human resources, are national resources going to waste and that waste can never be recaptured. This is hugely inefficient and MMT shows how to obviate this inefficiency through Godley's sectoral balance approach for determining the appropriate size of the deficit and Abba Lerner's functional finance, for adjusting the deficit through fiscal policy. The job guarantee, derived from Hyman Minsky, is used to establish a buffer stock of employed instead of the present buffer stock of unemployed, and the basic wage serves as a price anchor against inflation. Very simple. Wish the article had explained it.
"About 11 years ago, Jamie Galbraith recalls, hundreds of his fellow economists laughed at him. To his face. In the White House."
ReplyDelete(Is there even a facility in the White House to have a meeting with hundreds of attendees? that should be fact checked...)
F these corrupt orthodox morons; who cares what they think; "deficit owl" is already taking a weak position; they need to be publicly exposed and rebuked as the morons that they are... they have gotten EVERYTHING wrong! Even The Queen knows it.
...who actually believe it is "taxpayer on the hook" and that we are "borrowing from the Chinese", and "leaving our debt to our grandchildren"... for crying out loud.
M-O-R-O-N-S ! ie "Stupid and blind"; ie "they know not what they do".
They need to be "tarred and feathered" and run out of town if we are ever to get our economy back.
Resp,
If Australia and Canada have run surpluses. can it be assumed they are net exporters? Or that their credit bubbles have not burst? This cries for a response from Bill Mitchell.
ReplyDeleteChewitup -
ReplyDeleteYes, Australia and Canada were able to run supluses by running current account surpluses. The Gods of accounting are not mocked.
I was disapointed that the article gave the Peterson moron tha last word on the subject.
Jared Bernstein on this - MMT in the Headlines
ReplyDeleteJared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow. From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team.
Quote:
know some visitors here will be happy to see this piece on “modern monetary theory” in today’s WaPo today, as was I. It’s particularly gratifying to see my friend Jamie Galbraith featured, a rare economist who’s ability to see outside the box has enabled him to be consistently right about a lot of things that others have missed.
For me, I’m down with MMTs up to a point. I very much agree that deficit reduction has been deeply miscast as pure virtue, with little regard for its economic impact. As I’ve written many times here, the first question re fiscal policy, at least until we’re reliably headed toward full employment is not “how quickly does your deficit come down?” It’s: “is your deficit large enough to replace lost private sector demand?”
Some good, some not so good (in the interest of being "fair and balanced," I suppose). The WaPo is a pretty conservative rag, so this was not a bad article for this venue.
ReplyDeleteBut bare mention in the WaPo would be positive over all even if the piece were a complete take-down. Great PR, and it was good to feature Jamie, who has wide recognition.
MMT is getting media legs.
"up to a point."
ReplyDeleteThat is as far as where promoting a concept of an "owl" gets you... comes up short of the mark.
This is sad where Bernstein is supposedly one of the most progressive economists out there and already here: "headed toward full employment"... "headed"?
Even moron monetarists and moron NAIRU people believe we are always "headed" towards "full employment".
Weak sauce.
Resp,
Tom agree - by trying to come off as balanced, the article in places misrepresents the MMT position, and also lets this Gagnon guy get away with claiming QE can cause increased bank lending etc
ReplyDeleteThis article also brings out Dean Baker, and he talks about his quibbles (minor) with MMT - Modern Monetary Theory: What's Modern About It? The article has also been posted at the Business Insider
ReplyDelete