Ian Stewart is happy with printed money being spent on assets keeping their prices high, but not on public goods a services. And he says that MMT will crowd the private sector out, something that MMT economists are always very careful about.
Now, it’s worth noting that both MMT and QE involve the government creating money electronically – or, more graphically though incorrectly, printing it. But with QE a central bank creates money to buy assets, such as government bonds. This injection of new money into the system drives down interest rates and bolsters asset prices. Under MMT, by contrast, the government spends the money directly on public services.
That’s one crucial difference, and from it a second follows. With QE, as practised in the US and Europe, central banks have promised to reverse money creation. They can do so because, unlike under MMT, the money that has been created has been swapped for assets which can be sold. The idea is that central banks will, in time, sell these assets, withdrawing money from the system and dampening asset prices and activity. This has so far convinced investors that the new money created will eventually be absorbed back into the system. The message from central banks is that QE does not represent a permanent expansion in the supply of dollars, euros and pounds.
By contrast, the money created under MMT will be spent on public services and not in purchasing assets. And, since there are no assets to sell in future, the money creation is permanent.
These are important differences. They explain why so many prominent US economists, from Fed chair Jay Powell to former treasury secretary Larry Summers, have raised concerns over MMT.
No comments:
Post a Comment