Simon Wren-Lewis — Central Bank Independence and MMT

This is a follow up to my last post on Corbyn and central bank independence (CBI). No apologies for returning to this topic: not often do you get to talk about policies that are in the process of being formulated. One of the influences that is said to be important for John McDonnell (the new shadow Chancellor) and his advisors is Modern Monetary Theory (MMT).

A comment I sometimes get on my posts is that my arguments are similar to those put forward by followers of MMT. I have not read much MMT literature, but in what I have read I have normally not found anything I take great exception to. On some issues, like the way monetary policy continues to be presented in textbooks, they definitely have good reason to complain about the mainstream. However their account of the way monetary and fiscal policy work seems quite a close match to what many mainstream economists think, which I guess is why my arguments can be similar to theirs.
One area of apparent difference, however, is CBI. You will sometimes hear MMT people talk about CBI being a ‘sham’, whereas mainstream macro attaches great importance to CBI. So which is right? Part of the problem here is that CBI in the UK (where the government decides the goal the Bank has to achieve) is rather different from that in the US (where the Fed has much more discretion over the choice of targets) and the Eurozone (where the ECB is largely unaccountable and has huge power). I’m just going to talk about the UK set up. (For a MMT perspective on the US, see here.)

Mainly Macro
Central Bank Independence and MMT
Simon Wren-Lewis | Professor of Economics, Oxford University
ht Ralph Musgrave

Update:

Scott comments there:

STF17 September 2015 at 07:31

Thanks for engaging on this matter with this very fine post!

The point of my post wasn't to take a position on CBI as much as to investigate whether the arguments of critics of PQE regarding CBI were correct. As you note, I concluded they were not. I will just say on the MMT view that I think it's quite a bit more eclectic and nuanced than a simple "for" or "against," and as Ralph noted above we might not all agree with each other on where we stand on the spectrum between those two, within some limits.

Regarding plain vanilla deficits (PVD) and PQE--yes, my point was they are not different operationally. The original title of the post at NEP (subsequently changed by Yves at NC) was "Corbynomics 101--It's the Deficit Stupid!" ("stupid" here was a play on the 1992 US election, btw; I wasn't suggesting anyone was stupid). The point there being that the deficit is the point operationally, not whether you do it via PQE or PVD. 

I then suggested--which Richard Murphy agreed with on his blog--that the point of PQE was to reframe the discussion about fiscal policy and alternative approaches to stimulus. One can certainly debate whether or not this particular strategy will be successful, but given the politics of deficits at the moment alternative memes are definitely needed.

Best,
Scott Fullwiler