F. Marc Ruiz — Your Mind On Money: Modern Monetary Theory going mainstream?

Silly post that completely misunderstands MMT, but a nice comment by Scott Fullwiler setting the author straight.

NWI Times
Your Mind On Money: Modern Monetary Theory going mainstream?
F. Marc Ruiz
(h/t Tschäff Reisberg on FB)

Here is Scott's comment there:

stf18 - 22 hours ago

Hi Marc

A few corrections for you.

First, you write:

"The theory also stipulates that a central bank, like the Federal Reserve, can create new money to finance this spending without concern of currency devaluation (inflation) as long as the government conducts business (taxes and spending) in the currency it is creating."

This is incorrect. We have never said this can be done "without concern of currency devaluation (inflation)" and in fact we have always said these are the principle concerns, so we make the precise opposite point you attribute to us here. The point is that default and bond vigilantes are not the applicable concerns. Also, devaluation and inflation are not the same thing--the $US has depreciated 30% against the Euro since 2000 and inflation has not risen, for instance.

Second, you write:

"MT based policies will invariably lead to an economy completely awash in liquidity, whether productive or not, and excess liquidity invariably leads to financial bubbles. And bubbles scare me."

Again, MMT has never proposed leaving the economy "awash in liquidity" in this manner (I would argue here that your understanding of what liquidity is is rather deficient, but that's a different point for another day). We follow Abba Lerner here, who argued that bonds can be provided to replace reserves if it is desired that the public hold bonds rather than "money." The point, again, is that the decision of bonds vs. reserves is based on the macro consequences, not the need to "finance" govt deficits.

Third, another correction and a comment. You write:

"Policies founded in MMT also concern me because I think they tend to scare business owners and entrepreneurs operating in the real economy. Unlimited liquidity and spending may facilitate trading and speculation on Wall Street, but real business owners tend to get scared by government deficits and debt."

Again as above, MMT has never proposed either unlimited liquidity or spending. We are adamantly opposed to both. As for the comment, we would argue that "real business owners" care the most about sales (i.e., demand for their products) when making decisions about how many workers to employ and how much to invest in productive capacity. A government that uses fiscal policy to sustain spending at the macro level at or near current productive capacity should lead to less uncertainty among businesses than one that pursues, say, austerity in the face of false concerns over bond vigilantes. So, you've built a straw man here and knocked it down--MMT is completely opposed to policies that "facilitate trading and speculation on Wall Street."

Overall, I appreciate your interest in MMT and your willingness to discuss it on your blog, but your understanding of MMT at the current time is built on a number of fabrications/stereotypes rather than actual MMT literature.

Best,
Scott Fullwiler
neweconomicperspectives.org