His first points is this:
The first point is that it is not a controversial claim among economists that countries can create money to meet obligations denominated in their own currency. For some reason, perhaps because there isn’t much else to the theory, MMT proponents treat this claim as an incredibly important discovery they have made, and acceptance of it by others as major victories.But the author is forced to admit right off the bat that the MMT claim that a currency sovereign is self-funding is self-evident. He even cites Alan Greenspan's testimony to that effect. It's a tautology given the definition of sovereignty. If a state gives it up, it is no longer fully sovereign. The US state gave up currency sovereignty to the federal government when they joined the Union, and the EZ states gave up theirs to the ECB.
This makes clear that those that have been claiming that the US government faced default or could go bankrupt were either morons or propagandizing for an ideology. That's just about all the Very Serious People — right up to the President of the United States.
The second point is this:
The second point worth emphasizing here is that the fact that you can do something does not imply that you should do it. Just because you can always print enough money to pay off your local-currency debt does not mean that you should take on large amounts of such debt, or, indeed, that it is always optimal to print large enough amounts of money to pay off your local-currency debt...
Well, doh. What MMT economist ever said that the ability to spend alone dictates the optimal amount to spend in a given context? None.
His other objections have to do with special cases that are dealt with in the MMT literature, along with many other special cases. Application of MMT is not a mindless operation of applying a simple fiscal rule and pushing a button.
First, there is no default risk for a currency sovereign but this doesn't imply that conditions are always such that every currency sovereignty can conduct fiscal policy without limitation. Some states are clearly limited by supervening conditions.
Secondly, a sovereign can always voluntarily choose to default on its debt even though it is not operationally necessary. That is a political choice.
Digging deep into the barrel?
MMT's central idea is neither new nor helpful
Stan Veuger
6 comments:
Hey, that's what he gets paid for. Tom Hickey
An argument for Basic Income.
Thanks, Tom.
I’m glad to see that more and more toadies for neoliberalism are worried about MMT.
Objections to MMT fall into sevaral basic categories, all of which are based on errors, assumptions and lies.
This Veuger clown’s garbage falls into the category of “MMT is correct, but it isn’t.”
“The fact that you can do something does not imply that you should do it. Just because you can always print enough money to pay off your local-currency debt does not mean that you should take on large amounts of such debt, or, indeed, that it is always optimal to print large enough amounts of money to pay off your local-currency debt...”
…except that the US government does not borrow its spending money. Veuger already admitted this. “Yes the US government creates its spending money out of thin air, but this does not mean the government should create money to pay back the parties that the government borrows its spending money from.”
Idiot.
Tom Hickey: “There is no default risk for a currency sovereign, but this doesn't imply that conditions are always such that every currency sovereignty can conduct fiscal policy without limitation. Some states are clearly limited by supervening conditions.”
Yes. For example, if a nation has a trade deficit, and if the nation’s currency is not negotiable outside the nation’s borders, then the nation must starve, or else it must borrow foreign currency with which to buy imports. Simply printing more of the nation’s currency will cause inflation. The USA does not have this problem (despite having the world’s largest trade deficit) because US dollars are negotiable worldwide.
Tom Hickey:”A sovereign can always voluntarily choose to default on its debt even though it is not operationally necessary. That is a political choice.”
I’ve never heard of a sovereign defaulting on an obligation or agreement denominated in the sovereign’s own currency. Defaulting on foreign debts, yes. Rafael Correa of Ecuador and Nestor and Christina got their nations out of the toilet by defaulting on foreign debt. However their successors have taken on more foreign debt, thereby plunging their nations back into the toilet.
Again, the USA has no foreign debt problem, because the USA doesn't need foreign currency. Everyone accepts dollars.
Nestor and Christina Fernandez of Argentina.
Veuger’s claim in his AEI article that “it is not a controversial claim among economists that countries can create money..” won’t wash. One reason is that Bernanke at the start of 2007/8 recession was very evasive on the question as to whether the Fed created money out of thin air. See:
https://americanmonetaryassociation.org/are-you-or-arent-you-printing-money-mr-bernanke/
There’s actually another article by Veuger where he makes a valid criticism of MMT, which is that while MMT advocates overt money creation, MMTers do not specify exactly who determines the amount to be created. I’ve pointed to that weakness in MMT myself on this MNE blog before. See second half of Veuger’s article here:
https://www.aei.org/publication/modern-monetary-theory-and-policy/
As to exactly who does determine the amount of money created, any old independent committee of economists would do (as pointed out by Positive Money) but for the sake of continuity, an existing central bank committee would do. MMT needs an official statement from Bill Mitchell and Warren Mosler on that point.
Obviously that is what government is for, and pretty much how it functions now with congress deciding what gets funded and what doesn’t. The problem is that slavish adoration of money (wealth) has corrupted the entire system, which is entirely self-serving.
Until the value system changes - until we value health, peace, sustainability, etc. more than wealth - nothing will change.
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