There was an article posted by American political analyst Jared Berstein yesterday (January 7, 2018) – Questions for the MMTers – which I thought was a very civilised exercise in engagement from someone who is clearly representative of the more standard Democratic Party view, that the US government has to move towards balancing its fiscal position and reducing government debt in order to meet the social security challenges posed by an ageing population and the accompanying increase in dependency ratios.
He is sympathetic to Modern Monetary Theory (MMT), given that he wrote “there’s no distance between my views and a core principal of MMT: the need for deficit spending when the economy is below full employment”. In other words, he notes that “MMT or whomever else argues on behalf of expansionary fiscal policy is correct”.
But that is a fairly standard ‘progressive’ position when the economic cycle is below full capacity. This position typically alters quite dramatically when so-called longer terms considerations are brought into the picture. Jared Bernstein worries about the inflationary consequences of fiscal policy (so do MMT economists by the way) and thinks central banks should be the primary macroeconomic policy makers (MMT economists reject this).
He also thinks that if the government doesn’t sell bonds to match its deficits then there will be “currency debasing”. MMT economists have pointed out the fallacies of that proposition but he is still in the dark about it.
And he also thin[k]s that fiscal position should be balanced at full employment. MMT economists do not agree with that proposition pointing out that it all depends on the state of saving and spending decisions in the non-government sector. It is likely that continuous deficits will be required even at full employment given the leakages from the income-spending cycle in the non-government sector.
So while his queries are conciliatory and written in an inquiring fashion, the gulf between this typical ‘progressive’ view of macroeconomics and MMT is rather wide. This is Part 1 of a two-part series that responds to the questions that Jared Bernstein raises and hopefully puts the record a bit straighter....[Paragraphing introduced for online readability. This is one paragraph in the original. tjh]
Bill Mitchell – billy blog
An MMT response to Jared Bernstein – Part 1
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
What I find interesting is how the mainstream keeps asking the same questions over and over again - even though there are dozens of blog posts and academic papers addressing the points. A quick Google search on any of these would have yielded an answer.
ReplyDeleteIt does feel like de-programming cult members. But at least in this case somebody has ventured outside the compound.
Well said, Neil. I was somewhat taken aback when I read Bernstein's post, because the issues are ones that I have seen addressed countless times. Kudos to Jared, or course, for trying to engage and I hope it continues.
ReplyDeleteDem heavies Summers and Lew out last week running on smaller deficits as the Dem 2018 platform...
ReplyDelete“I note that some commentators (no links to stop them getting unwarranted advertising revenue – click bait) have tried to piggy back off Jared Bernstein’s queries by claiming that Modern Monetary Theory (MMT) does not have an inflation theory.”
ReplyDeleteHere’s Janet Yellen : “Inflation should rebound over the next year or two, she said, adding: "I will say I am very uncertain about this. My colleagues and I are not certain that it is transitory, and we are monitoring inflation very closely."
So not even the Fed economists with their $B research budgets don’t have a theory of inflation
so why does MMT have to have one with no munnie?????
This whole “inflation!” thing is a joke...
More Yellen: “our framework for understanding inflation dynamics could be misspecified in some fundamental way, perhaps because our econometric models overlook some factor ”
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ReplyDeleteJared Bernstein technically is not an economist
ReplyDeleteQuote:
Bernstein graduated with a bachelor's degree in Fine Arts from the Manhattan School of Music where he studied double bass with Orin O'Brien. He earned a master's degree in Social Work from the Hunter College School of Social Work, and, from Columbia University, he received a master's degree in Philosophy and a Ph.D. in Social Welfare.
Shocking.....
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