Brad DeLong on MMT as functional finance.
In my view, the economics of Abba Lerner—what is now called MMT—is not always right: It is not always possible for the government to spend freely to attain full employment, use monetary policy to keep the debt under control, and rely on rising inflation as the only signal needed of whether and when policy needs to be tightened. Why not? Because it is possible that the bond market can get itself into an unsustainable position, in which underlying inflationary pressures are masked until it is too late to rebalance government finances without a financial crisis.
But, in my view, right now the economics of Abba Lerner is 100% correct. The U.S. (and Europe!) should use expansionary fiscal policy to rebalance the economy at full employment and potential output. And interest rates are so low that doing so does not require any additional monetary policy steps to keep the debt under control.WCEG — The Equitablog
Yes, expansionary fiscal policy in the North Atlantic would solve many of our problems. Why do you ask?
Brad DeLong
See also
Economist’s View
'MMT and Mainstream Macro'
Mark Thoma | Professor of Economics, University of Oregon
"We all knew this all along." Uh huh.
"Debt under control": he doesn't understand it, neither does SWL, or or all monetarists/new-Keynesian types.
ReplyDeleteHe's either slowly getting there or being intentionally obtuse because the full logic of Lerner et al is just too damn uncomfortable. As much as it seems to be the latter, it could, just could be the former: decades of ISLaMic fundamentalism, as someone pithily put it, is going to rot your brain.
ReplyDelete"It is not always possible for the government to spend freely to attain full employment"
ReplyDeleteIt is with the Job Guarantee. They always forget about the Job Guarantee - which is the device that turns the philips curve on its head by employing the buffer stock.
They just can't get their head around the idea that when the system is short of flow the government sets the price if it supplies the flow.
I can see how MMT could be hard to understand if you think in mainstream framework. It just prevents you from understanding It if you don't really think that monetary system is public monopoly and government is the monopoly supplier of currency. That's what they are all trying to do, think about MMT in mainstream famework. IS-LM is garbage, you cannot go MMT with that. Thatõs why they are saying that there is nothing new in It when they look at the accounting: "we knew it before" I think thatõs what's happening, could be little bit of big shot ego thing also.
ReplyDelete