Financial Times journalist Wolfgang Münchau’s article (April 24, 2016) – The revenge of globalisation’s losers – rehearses a common theme, and one which those on the Left have become intoxicated with (not implicating the journalist among them). The problem is that the basic tenet is incorrect and by failing to separate the process of globalisation (integrated multinational supply chains and global capital flows) from what we might call economic neo-liberalism, the Left leave themselves exposed and too ready to accept notions that the capacity of the state has become compromised and economic policy is constrained by global capital. This is a further part in my current series that will form the thrust of my next book (coming out later this year). I have broken sequence a bit with today’s blog given I have been tracing the lead up to the British decision to call in the IMF in 1976. More instalments in that sequence will come next week as I do some more thinking and research – I am trawling through hundreds of documents at present (which is fun but time consuming). But today picks up on Wolfgang Münchau’s article from the weekend and fits nicely into the overall theme of the series. It also keeps me from talking about deflation in Australia (yes, announced today by the Australian Bureau of Statistics) as the Federal government keeps raving on about cutting its fiscal deficit (statement next Tuesday). I will write about those dreaded topics in due course.…Bill Mitchell – billy blog
The Left confuses globalisation with neo-liberalism and gets lost
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
39 comments:
Haha.
Globalization is part of the neoliberal agenda. It basically comes down to MMT thinking that the government can simply expand domestic demand and that's all there is to it. But no, the external sector constrains fiscal policy.
That's why poor nations do not want Western things imposed on them.
It looks really hilarious that nations have things imposed on them and MMT comes and says all that's fine, minor stuff.
Bill: "So the search for new markets and new ways of organising production is not new and has been going on for centuries."
So has divergence in fate of nations gone on for centuries.
"It looks really hilarious that nations have things imposed on them and MMT comes and says all that's fine, minor stuff. "
Yeah if that was a true representation but then again it isn't. And the misrepresentation itself isn't funny enough either so no laughs more than your initial "HAha" which is like laughing at your own jokes.
Globalization is part of the neoliberal agenda….
That's why poor nations do not want Western things imposed on them.
The whole theory of comparative advantage on which free trade is based rests on the theoretical assumption that the players are otherwise essentially symmetrical, so that trade is mutually beneficial.
But that is not necessarily the case and often was not historically. This was the underpinning of colonialism and mercantilism, e.g., under the British empire and its "liberal" philosophical foundations.
The British empire morphed into the American "empire" and British liberalism was replaced by US neoliberalism, with its attendant neo-imperialism and neocolonialism.
In this view, Russia should give up its "imperial ambitions" and return to be a "gas station," like the Middle Eastern "gas stations." And China, like India for the British, should be a source of cheap labor and "know its place."
Just as the British empire was based on control of the sea militarily, so too, the American empire is based on control of sea and air.
As the classical economists realized, economic is about trade. In fact, they did not use the term "economics." They called it "commerce." Classical liberalism was essentially economic liberalism rather than social liberalism (freedom from imposition of traditions and "morals") and political liberalism (true democracy of government of for and by the people). It was rather bourgeois liberalism that advocating freeing newly endowed property owners through commerce from feudal arrangements. It was the liberalism of government by acquisitors rather than rule by landed title holders under the remnant of feudalsim. In effect, it was a good old boys club rather than hereditary aristocracy and the monarch's court.
In the British empire, the Bank of England was privately owned and the most powerful firm was the East India Company. It was known as "the company that ruled the waves." Of course, the British Navy ruled the waves, but it was essentially a protection arm of the company. It has also been called "the company that changed the world." through its corporate charter, it initiated an institution and instituiional arrangements that grew into the modern corporation, and its control of the British state is similar to the control that contemporary corporations exert over contemporary state under neoliberalism.
See, for example, Karl Marx & Friedrich Engels, The East India Company — Its History and Results, Written: June 24, 1853; First published: in the New-York Daily Tribune, July 11, 1853. I find the parallels with contemporary events rather astounding.
The power the East India Company had obtained by bribing the Government, as did also the Bank of England, it was forced to maintain by bribing again, as did the Bank of England. At every epoch when its monopoly was expiring, it could only effect a renewal of its Charter by offering fresh loans and by fresh presents made to the Government.… But the East India Company, instead of fulfilling its agreement, got into financial difficulties, and, instead of paying a tribute to the English people, appealed to Parliament for pecuniary aid. Serious alterations in the Charter were the consequence of this step. The Company’s affairs failing to improve, notwithstanding their new condition, and the English nation having simultaneously lost their colonies in North America, the necessity of elsewhere regaining some great Colonial Empire became more and more universally felt.….
Ramanan notes:
So has divergence in fate of nations gone on for centuries.
This is all part of a historical piece that is still unfolding.
"But no, the external sector constrains fiscal policy. "
Ram what do you see the limiting factor there?
Like here in the US we are having political upheaval due to the lost domestic output that the CAD financially represents so in that regard it is a political constraint... Trump is really picking up steam here with his tariff proposal to put an end to the massive CAD for instance...
OTOH, if the foreign sector savings are NOT official reserves and remain in the banking system then there are regulatory constraints (how much bank capital there is as banks are regulated via the ratio of assets to capital...) I can see there separate from any political constraints...
Are you saying it is a political constraint? (I dont think you are ... I assume you are not saying it is political...) If not, then is the constraint bank capital in the system?
What is CAD?
It basically comes down to MMT thinking that the government can simply expand domestic demand and that's all there is to it.
They say that's all there is to it for a reason: that's all there is to it. Those are pretty close to Abba Lerner's own words - he says basically nothing about functional finance needs modification for an open economy (which can be seen as a special case of a closed economy).
How is a country which floats its currency, doesn't have foreign denominated debt, and doesn't stand behind the debts of its banks(ters) to get into trouble? Tumbleweeds blowing through a deserted street is the answer.
But no, the external sector constrains fiscal policy.
Yes, the fearsome external constraint, no one to know what it is. Sad that intelligent people like yourself want to fall for such nonsense.
Calgacus,
I don't "fall for such nonsense". I originate such non-nonsense.
You are making it look as if it's the neoclassical guys who say such nonsensical stuff. No, in neoclassical economics, it's not really a problem because market mechanisms do the trick for resolving imbalances.
About Lerner: he did say external debt is a problem: https://larspsyll.wordpress.com/2015/02/11/the-true-nature-of-public-debt/
Matt,
I am saying it's a problem for fiscal policy. It's not just political. It's a real problem.
Eric Tymoigne at NEP:
• Negative FB [foreign balance] is not financially sustainable for any country unless that country’s currency is the international reserve currency.
• For the country supplying the international reserve currency, negative CAB [current account balance] is sustainable only if the currency in unconvertible. If the currency is convertible then the Triffin dilemma holds. The dilemma is that the country must have a deficit of its current account balance in order to supply the currency that the rest of the world needs; but the country faces threats of conversion demands as supply of reserve currency grows among other countries.
Money and Banking Part 13: Balance Sheet Interrelations and the Macroeconomy
CAD - Current Account Deficit
Matt, look at Saudi Arabia, or Venezuela, and you will see why there is a real problem...
It all comes down to import dependency or incompetent public/private sector. Export dependency can be solved through ramping internal demand, export dependency can't be solved with just 'more demand'.
Printing money: not always the solution to all problems. Who knew...
Ramanan: I originate such non-nonsense. Well, then it is quite similar to the nonsense that has wreaked a great deal of destruction in many countries that have fallen for it. (Venezuela or Greece just recently)
Of course external debt is a "problem", a burden, a debt. But if it is denominated in the domestic currency, it cannot constrain domestic "expansion" - which will more than solve the increased "problem". Internal debt - if you look at a nation as a whole - isn't a debt, because it doesn't exist, because you are looking at the nation as a whole.
Lerner was very, very clear on such things, and but hardly anybody seems to read beyond a few essays like that one you linked to. For instance, to answer others' musings here, his Economics of Control is quite clear on when & how tarriffs might be "good" for a fun finance nation that is trying to only look out for itself -when it has monopsony or monopoly power, and presents formulas to optimize tarriff rates. The relevant chapters of Economics of Employment (on the foreign sector, on the national debt) are very clear that there is no such external constraint on fiscal policy. He thought of nearly all the objections I have ever seen & answered them.
By the way, it seems to me that he was influenced by Seymour Harris's book "The National Debt" - he wrote the preface to Economics of Employment - in sharpening his arguments in E of E. Dudley Dillard commented that it was one of Harris's hastily written, badly edited potboilers - but the best book ever written on the subject. Considering the decline in economic understanding since then, it likely still is.
IN general, one can never overestimate the sprezzatura in Lerner's deceptively simple words.
But really, the burden of proof is on those who say there is a constraint to say what it is in the conditions I presented. I believe we pretty much agreed here once that there wasn't, actually, you just stated incorrectly that the traditional procedure of states differentiating their own credit from that of their bank(sters) - of letting foreign currency speculators go broke - was "an alternate reality".
Tom: Neil Wilson corrected Eric Tymoigne on some of that statement, and he accepted the correction.
@ Calgacus
Neil's interchange with Eric was on the 24th. Eric has not changed the body of the post.
Here is the exchange in the comments there.
Neil Wilson | April 24, 2016 at 1:19 am | Reply
“Negative FB is not financially sustainable for any country unless that country’s currency is the international reserve currency.”
This bit I disagree with. There is more than one ‘international reserve currency’. Foreign states save in a multitude of denominations to sustain their ‘export led policy’. They have no choice but to do that or abandon the policy as the floating rate shifts against their export destinations.
I see nothing that justifies the ‘one currency to run them all’ idea. It is a myth.
Eric Tymoigne | April 24, 2016 at 10:57 pm | Reply
I see you point. Let me put it more precisely then. If a country needs to deficit spend vis-a-vis the ROW then that means that either the domestic private sector or the government do so, or both. If the domestic private sector does it then unstable, if the government does it then it depends on the denomination of the debt (if in domestic currency no problem)
Investopedia
The U.S. dollar also continues to be the currency of choice for foreign exchange transactions. Around 90% of foreign exchange transactions involved the U.S. dollar in 2013. More than 80% of international trade finance was conducted in U.S. dollars as well.
Calgacus,
Sorry, Lerner was confused. On the one hand he says external debt is a problem and the other hand behaved as if functional finance works fine.
"Well, then it is quite similar to the nonsense that has wreaked a great deal of destruction in many countries that have fallen for it."
Lol. How?
Tom,
Tymoigne is all assertion. He's not proving anything.
Sigh. Lerner isn't confused at all; he considers & weighs many objections. Would be nice if someone read him. A good sign is that a couple of MMT (semi) newbies seem to have put his longer works on their reading list.
Being overweight can be a problem. Few people think that amputating ones limbs is a good solution. But that is similar to advising against fiscal expansion because of a "foreign constraint". Sure going into debt, even in your own currency can make things less good at home - if you go into debt to do insane things or you issue an insane amount of currency to the foreign sector (something like the German reparations).
But that is never what the argument is about. It's imagining that issuing currency to build up your own country - a great boon - what the hell else is the point of having a monetary production economy? - will be stymied by small and unpredictable, short term, only possible, not necessarily occurring negatives, largely inflicted on those best able to absorb a small hit.
For a country the size of France or Britain, say, such an obsession with fx value over domestic expansion is insane. For people who said so at the crucial turning points, see the late Robert Eisner on his ignored advice commissioned by Mitterand, and the not-late Geoffrey Gardiner's writings ten years earlier (Callahan, the IMF loan etc),
Lol. How?
Basically, pegging, issuing foreign denominated debt, the whole stream of complicated nonsense. If Greece had just said g'bye to the Euro, would be doing fine now. If Venezuela hadn't had a crazy multiple exchange rate system, even with the other problems, would probably be doing fine now.
Tom: The decisive phrase is "(if in domestic currency no problem)". That's a correction to his statements, or some interpretations of them; accurate, but actually going a bit beyond Neil even. No problem = No problem at all comparable to the benefits to be utterly Lerneresquely precise.
"Tymoigne is all assertion. He's not proving anything."
So are you, you are not proving anything.
The political left has long had a tendency to repeat the same words over and over without bothering to define such words, and without any idea as to what such words mean.
George Orwell pointed out long ago that one of the left's favorite chants, i.e. "fascism", had essentially become meaningless.
"The political left has long had a tendency to repeat the same words over and over without bothering to define such words"
Then the political left has something in common with the political right, not counting the fetishism for neoliberalism.
"...advising against fiscal expansion because of a "foreign constraint". Sure going into debt, even in your own currency can make things less good at home - if you go into debt to do insane things or you issue an insane amount of currency to the foreign sector (something like the German reparations).
But that is never what the argument is about. It's imagining that issuing currency to build up your own country - "
When stuck in the fault finding process and continue with that even when the process is about finding solutions, the main goal is still fault finding instead of finding solutions. The only difference is that now focus is on how to find faults in presented solutions. Here's where the "imagining" part is swept away and replaced with misrepresentation, in order to get the always longed for -faults have been found! Move on!
It's all about rubbing the spinal marrow to get that nice feeling of being right.
"But no, the external sector constrains fiscal policy. "
Well if so then we have to show why this is so... iow we have to look at some sort of regulatory parameter that has a mis-matched response to a large/fast increase in the CAD or something like that...
iow if a nation were to increase fiscal a lot in a short time period, and most of that leading flow went to foreign sector banks who did not have enough regulatory capital then that would cause the forex rates to collapse as the system capital was effectively fixed over the short time period ... etc.. or something like that...
Otherwise it looks like a political constraint as residents of the import nation rebel politically due to the lack of increase in production in their nation with the fast increasing CAD...
Matt,
"Well if so then we have to show why this is so."
Very easy. Fiscal policy raises output (via the Keynesian multiplier argument) but it also comes at the cost of deteriorating balance of payments, unless exports rise. So just boosting fiscal policy deteriorates the current account balance and the debt to the rest of the world and the process is not sustainable. You need exports to grow to keep debts sustainable. Not an easy thing to do.
"So are you, you are not proving anything."
Thanks for accepting Eric Tymoigne is not proving anything.
"Basically, pegging, issuing foreign denominated debt, the whole stream of complicated nonsense. If Greece had just said g'bye to the Euro, would be doing fine now"
And where did I say the Euro is some OM thing?
You are arguing by anti-analogies. Just because fixed exchange rate systems do not resolve imbalances doesn't mean floating exchange rate systems also do the same.
"Sigh. Lerner isn't confused at all; he considers & weighs many objections."
If functional finance is true, why is external debt a problem at all?
"So just boosting fiscal policy deteriorates the current account balance and the debt to the rest of the world and the process is not sustainable. You need exports to grow to keep debts sustainable."
Haha.
Very easy turned out to be fiddling and wangling where you partly do a statement instead of an explanation.
The decisive phrase is "(if in domestic currency no problem)". That's a correction to his statements, or some interpretations of them; accurate, but actually going a bit beyond Neil even. No problem = No problem at all comparable to the benefits to be utterly Lerneresquely precise.
Ah, I didn't see that "if in domestic currency no problem" was a qualification added to the original. Thanks for pointing that out.
The kicker seems to be the interpretation of the phrase "no problem."
For example, Randy has said that while real resources are the only real constraint on fiscal policy, countries also watch the inflation rate and the fx rate.
Many EM's believe rightly or wrongly that the international market looks at their monetary and fiscal policy regarding inflationary expectations and expectations regarding the fx rate. This affects the country's position in world finance and the are concerned to preserve relatively good standing for various reasons. Both Russia and China are taking this into consideration, for example, when MMT would suggest a looser monetary and fiscal policy to address an economic crisis in which real resources are available. At least Russia dropped the peg, but they are apparently following the advice of the head of the central bank who is a liberal, albeit under criticism from some like Sergei Glazyev that are recommending a policy that is more in paradigm with MMT, although not completely.
Venezuela is much further out in the weeds though, and Rousseff in Brazil seems to be clueless, having created her own economic problems by ill-advisedly turning to neoliberal policy. It seems that now both countries believe that they need foreign exchange owing to declining oil prices and "protecting" their financial position out of ignorance.
"Very easy turned out to be fiddling and wangling where you partly do a statement instead of an explanation."
Look up Thirlwall's Law and the literature behind it.
"CAD is not a problem, if you have a working economy and society!"
Obvious...
Finance is an ex-post problem of an institutional and social problem. If you have import dependency, unstable governments, lack of productivity capacity and are a dictatorial banana republic the faith in your own currency -and thereby debt- will be low. The elites of your own nation will try to accumulate foreign assets, including foreign currency -and thereby debt-, which can create a payment crisis in the future.
Seems like a pointless debate: obviously if you live in a crooked nation which lacks the capabilities to provide its population both economically and social justice, you are bound to fail eventually.
With a floating regime, over time, is harder to build such instabilities as national firms and governments will have to adjust policies or risk exchange risk premiums (ie. Russia). It still is possible that thought financial engineering the problem may build up over time (ie. some South American nations, like Argentina).
But what is important is that the real limitations are always real resources, this includes political and social organization, above anything else.
Getting the causality backwards: the financial problems happen BECAUSE there are real productivity and social problems. Financial problems don't cause real problems, as long as the real economy is stabilized and allowed to keep functioning (ie. banking crisis shenanigans), which a sovereign has the power to. The ability to print money and spend is always limited by this, MMT never said anything different AFAIK.
P.S: Unfortunately we are getting to the point that developed nations are descending into the same sort of dysfunctionality, at that point we may even revert to gold standard because no one will be able to trust nothing.
Very easy. Fiscal policy raises output (via the Keynesian multiplier argument) but it also comes at the cost of deteriorating balance of payments, unless exports rise. So just boosting fiscal policy deteriorates the current account balance and the debt to the rest of the world and the process is not sustainable. You need exports to grow to keep debts sustainable. Not an easy thing to do.
Don't take on foreign and domestic private debt by using the cb to lend directly supplemented by fiscal policy.
A reason that sanctions on Russia are considered a blessing there rather than a curse is that Russian companies are paying down foreign debt and not taking on new debt not denominated in rubles, and the cb and government owned banks are supporting investment to some degree.
Import substitution is growing the domestic economy due to sanctions, too, and the renewed arms race is ramping up Russian industry and technology, as the Russian military has to compete with the high tech US military. Russian arms exports are also exploding owing improved quality and innovation, as well as to the cost advantage from the low ruble. And while Russia did not impose capital controls, capital flight has diminished and reversed as opportunities in Russia become more attractive.
They could have done better and still could do better, but they have not done too badly considering. The stumbling block in government policy seems to be coming mostly from the central bank, although Putin also seems to want to hold the deficit at ~3% of GDP for 'fiscal discipline."
While it is true that Eric is not proving anything there, he is not trying to do so. That's not within the scope of the undertaking which is to provides a short summary of major principles of money & banking and finance from the MMT POV. As such it assumes MMT analysis.
"For example, Randy has said that while real resources are the only real constraint on fiscal policy, countries also watch the inflation rate and the fx rate."
Well, that's because the inflation and fx rate can be a sign of real constraints. The problem is confusing that they are ALWAYS the sign of real constraints, which is not true.
If you have stupid governments all over the place adding fuel to the fire (providing liquidity to gamble and leverage), when not doing it themselves, or not controlling capital movement when they should, you are shooting yourself in the shoot.
OFC in neoliberal economics it does not make sense to do otherwise, as is always pro-corporations/pro-wealthy/pro-gamblers and never pro-people/pro-economy. So is a case of 'curve fitting', where policies always end up creating expected outcomes (Neil W. has talked a couple times about this).
at that point we may even revert to gold standard because no one will be able to trust nothing.
This is the intention of many. As Alan Greenspan said somewhere, we (central banks) operate as if on a gold standard. (Anyone have the reference, I can't find it now.)
Many elites view a gold standard as a feature and not a bug.
The Russian and Chinese government have switched to saving in bullion rather than foreign reserves, which are chiefly USD. Some think is that they expect a return to gold.
Yes, I know that's the endgame for some insane people, but that endgame will only mean more conflicts and war, and an even more dysfunctional global society is an ever descending loop of chaos.
I recall how Graeber reported that the cycles where the currency was more driven by commodities, rather than pure credit, were times of much instability and conflict.
We don't want to go there... Is not good for humanity.
That's why I have been saying that the world needs managed trade rather than free trade and managed finance rather than free markets and free capital flows. "Free markets, free trade and free capital flows" are poison owing to the fallacy of composition. It does not lead to spontaneous natural order that mutually benefit for all, as is assumed, for the reasons that have already been explored. Basically, "it's the assumptions, stupid." The assumptions are unrealistic.
"Managed" can be taken as a synonym for "coordinated" in this instance. It's a matter of viewing the world as a system with social political and economic aspects rather than an aggregate of individuals or nations. But that requires not only intelligence but also maturity.
"Russian arms exports are also exploding owing improved quality"
sorry couldnt resist Tom.....
Ha ha.
The point is though that the US thought they had Russia in a chokehold by imposing sanctions with Russia running a dollar peg. Apparently, they didn't realize that Russia would drop the peg, use its USD balances to pay off existing debt and also use sanctions as a way to impose import substitution domestically w/o violating trade agreements.
A large country with lots of available real resource that has is a currency sovereign has a lot of policy space if it realizes it and knows how to use it.
Russia had to deal with a hit to its exchange rate but turned that into an advantage is exporting arms. It also had to deal with a bout of moderate inflation but that wasn't terrible and now it has turned around as domestic goods come on the market. Agriculture is the bright spot and Russia has decided to focus on the speciality market of non-GMO and organic, for which there is increasing demand. Russia is also pretty competitive in IT.
It will take some time to rebuild the industrial base and master innovation, but that is now a priority.
Anyway the US attempt to break Russia economically seems to be failing, with Russia in a turnaround, and Europe is getting tired to taking the brunt of the economic fallout from it.
All in all they seem to have managed currency sovereignty and use of policy space fairly well. The Russian people are also tough and resilient and not likely to be impressed with such attacks.
The US was also expecting Russian to rise up in protest of deteriorating economic conditions, especially given some agitation. Another fail.
Now we'll see how China does. It needs to drop that peg.
"Look up Thirlwall's Law and the literature behind it."
Cop out.
"That's why I have been saying that the world needs managed trade rather than free trade and managed finance rather than free markets and free capital flows."
Fair trade then, which is what Bill says he's for instead of free trade which is what Ramanans through misrepresentation says MMT is for by writing "It looks really hilarious that nations have things imposed on them and MMT comes and says all that's fine, minor stuff".
Can't have fair trade without managed trade and all what that implies. Free trade is of course also managed but in highly unfair way.
(1/2)
Just because fixed exchange rate systems do not resolve imbalances doesn't mean floating exchange rate systems also do the same.
Imbalance, what imbalance? There is no MMT claim that floating rates necessarily "resolve imbalances". Just that "the imbalances" don't matter to anyone in practice, and that functional finance leads to win-win situations.
The Chinese sold some stuff to the USA. They accepted dollars in exchange. Both sides thought this "imbalance" was a balanced transaction for "the moment" - which means years or decades or longer. Otherwise the two sides wouldn't have entered into it.
The only way the Chinese can use the dollars is to buy something from the USA with them. And of course they do - the Chinese etc buy a lot of US stuff; they just happen to sell more. The only implicit moral obligation that the USA has or could possibly have is that there will not be serious internal inflation in the USA that will devalue US dollars for anyone, Chinese or American. The Chinese have by that token become part of the US currency zone then in Neil Wilson's terminology, on an equal footing to anyone else. There is no conceivable responsibility of fx rate stability vs China's currency, as Lerner points out, very importantly in my opinion.
(2/2)
If functional finance is true, why is external debt a problem at all?
Because it is a debt. Any debt is a burden is a problem. That's what those words mean. But if it easy to honestly repay, it is more a theoretical burden or problem. The "usual interpretation" of Lerner, according to Lars Syll in the link you posted is an “asymmetry thesis”: "INTERNAL public debt involves no burden to the “public,” but EXTERNAL public debt does indeed involve a burden."
That is perhaps not the best way of explaining Lerner. Internal public debt is not a burden to the public as a whole, because it is not a debt of the public as a whole, because we are looking at the public as a whole. Once you've consolidated balanced sheets, you've consolidated balance sheets - there is no debt. You can't do so and then pretend you haven't in the same breath. If we look at the relation of the parts of a nation to the whole, the internal debt, the National Debt is a problem in the same theoretical sense & Lerner says so, and even points out how it could be a problem more practically. There is no essential asymmetry, but complete symmetry. As others point out above, the only way that this problem can be expressed, no matter who the creditor is, the only way this (potential) problem can become an actual one is by inflation.
The factual point is that reasonably stable and prosperous countries simply don't inflate their currencies by excessive "Keynesian" expansion - the postwar era was no more inflationary than "the Great Moderation". In particular, spending of the type Keynes, FDR, the Swedish model etc favored - MMT JG type targetted spending - has been less inflationary.
"Symmetrically", countries that become indebted in their own currency to the outside world through functional finance do not become poorer and less able to pay their debts in every sense, but more able. The only real way they could become less able is if states followed bad advice and prematurely curtailed "expansions", allowing mass unemployment, not exploiting the advantage of having a reserve currency, of foreign saving, of a "hostile gift" (Lerner). The US advantage relative to Europe in the last few decades was that its finance was more functional, while Europe practiced the sound finance that the US only preached.
In reality, functional finance is sounder, in theory and proven in practice, than sound finance, both at home and abroad. In both the internal & external case, Lerner argues that theoretical debts can theoretically become practical problems (if they necessitate tax rises to restrain inflation). This transformation of theoretical to practical, of potential to actual hardly ever happens in wealthy countries outside of wartime. But in either case, Lerner argues that there simply isn't any better policy - sound finance will lead to more problems of the same type, more unemployment and more inflation, than functional. Lerner compares sound finance to jumping into a lake to avoid getting wet from a gentle rain.
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