This blog post is written for a workshop I am participating in Germany on Saturday, October 13, 2018. The panel I am part of is focusing on external trade and currency issues. In this post, I bring together the basic arguments I will be presenting. One of the issues that is often brought up in relation to Modern Monetary Theory (MMT) relates to the foreign exchange markets and the external accounts of nations (particularly the Current Account). Even progressive-minded economists seem to reach an impasse when the question of whether a current account should be in surplus or deficit and if it is in deficit does this somehow constrains the capacity of currency-issuing governments to use its fiscal policy instruments (spending and taxation) to maintain full employment. in this post I address those issues and discuss nuances of the MMT perspective on the external sector.Bill Mitchell – billy blog
MMT and the external sector – redux
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
4 comments:
He gets the text book theory right. Kudos to Mitchell. Good first step is always to understand orthodox thinking.
Now to understand how MMT will impact the currency and real users in real life. Advanced nations, emerging nations and frontier nations have different levels of depenedence on primary goods like food and medicine, for example, or commodities or luxury cars and hand bags. These drive trade, investment, inflation and interest rate policy more than domestic labor costs. It's not entirely clear that domestic labor costs are even a primary determinant of inflation outside the classroom. To fail to consider how these differences change policy prescription, make MMT less valuable because there aren't qualitative or quantitative measures that can be applied using available statistics to understand where MMT is at its zenith or nadir for so called fiscal space. WHO in society is hurt or benefits from policy ALWAYS matters. The failure to understand and plan for this is what drives chaos, war and political instability following Economists doing their best and feigning unintended consequences.
Ryan Harris: Now to understand how MMT will impact the currency and real users in real life.
For advanced nations, who cares? The importance of foreign exchange and the foreign sector is wildly exaggerated, preposterously wildly for the US. Institute MMT & the JG. After a possible short spell when the dumb money might flee the dollar - a few percentage point drop. It would come roaring, and I mean roaring, back.
These drive trade, investment, inflation and interest rate policy more than domestic labor costs. It's not entirely clear that domestic labor costs are even a primary determinant of inflation outside the classroom.
Nonsense. In a full employment, US MMT economy, nearly everything else is trivial. The only thing on the same order is energy. Interest rate policy. Set it a zero. Period. Problem solved.
I mean, I think Bill Mitchell understands textbook theory and the real world better than you or even me. Most criticism of MMT on the external sector amounts to taking positions that MMT and functional finance clearly refuted long ago. And scads of subsequent history have confirmed the MMT position. Making such criticisms, inflating trivialities into bogeymen, reveals nothing but the critic's lack of understanding of the correct description, common sense and history.
It is like saying to Copernicus & Kepler & Newton - your theory is a good first step, but clearly to understand the real world, you have to understand heliocentrism, epicycles and the flat earth sitting on an elephant on an elephant etc theory better.
Sorry to be so acerb, but as far as I understand this and earlier comments, you do see to be espousing flat-earthism.
I think we disagree on my assumption that at any given time, government can only do one of the following: allow free trade OR set wages OR control the industrial composition of the domestic economy.
Any one excludes the others so long as companies have to turn a profit which is another assumption.
“Institute MMT & the JG. After a possible short spell when the dumb money might flee the dollar - a few percentage point drop. It would come roaring, and I mean roaring, back.”
It would create an inequality similar to what we have been experiencing g this year where the US is the only major with a supportive fiscal policy and the USD is rallying as others with less fiscal support lower their terms of trade to get product sold here where the growth is ... Which you may not consider to be in the best interest of the external nations...
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