After thinking about the problems that the majority seem to have accepting MMT, I have concluded it best to divide MMT up into two components. One is the descriptive theory on how things are. This part deals with debt flows, banking reserves, etc… It describes the way a modern economy works. The next part is the prescriptive part of MMT. After understanding how an economy operates, many MMT advocates have policy recommendations. The important thing to understand about these choices is that they are political decisions based on economic theory. One might disagree with these courses of action, but it doesn’t change the first part - the descriptive part of MMT.
I am dividing my article into two posts. Today’s installment will focus on how to use MMT in today’s world. It will examine if the descriptive part can help us with trades in the current environment. Tomorrow’s post will delve into the ramifications for the markets if the prescriptive portion of MMT is adopted.…I don't think it is quite correct to bifurcate MMT into descriptive and prescriptive.
MMT has three major focuses — institutional, macroeconomics, and government policy.
The first is institutional and this is largely descriptive of institutional arrangements — laws, regulations, customary practices, etc. — where economics and finance meet, that is, broadly speaking, money and banking. Economics combines tradable commodities with prices measured in a unit of account, while finance deals with the financial instruments that underlie markets. These are not separate subjects from the standpoint of MMT but rather branches of the same subject that must take each other into account.
Markets are common to both and markets are dependent on institutions in a modern economic and financial system as a subsystem the social system that structures a society. Government as the currency issuer plays a dominant role in this. Commercial banks also create "money" through credit extension. Thus MMT institutional analysis is concerned in particular with government finance and commercial money and banking.
The second is theoretical and this is chiefly macroeconomic. The macroeconomic theory builds on the institutional analysis that underlies it and which most economists either ignore or misunderstand. MMT macro theory shows how the macroeconomic ideal of reconciling the trifecta of 1) full employment, economic growth and 3) price stability is possible to achieve.
The third aspect is policy formulation based on the institutional analysis and macro theory. MMT institutional analysis and macro theory reveal a policy space within which various options are possible. Choice among these alternatives is a political matter.
MMT doesn't prescribe a particular policy position among these various alternatives, but various MMT economists have advocated for positions that they favor. That is to say, they agree on the institutional and macro analysis and the policy space these describe, but different economists may advocate policy recommendations that are not identical, while agreeing on what they consider MMT essentials.
The second part also gets some things wrong. But overall, it's a good attempt to educate and it is is MMT-friendly.
Macro Tourist
Practitioner's Guide to MMT: Part One
Practitioner's Guide to MMT: Part Two
Kevin Muir
Picked up by BoingBoing
A layperson-friendly introduction to MMT, a heterodox school of economics that could finance a Green New Deal
You are too generous Tom, but thanks for reading all that, and saving me the trouble.
ReplyDeleteFrom your review Muir sounds like just another 'investor', capital owner class guy who can't get past justifying his personal greed or some other personal vanity.
The JG is a key element of MMT thinking, to achieve full employment and price stability.
It is not some mere 'social add-on, as Muir would doubtless like us to believe.
And as Mitchell shared with us recently, JG has been there right from the beginning, for macro stability. Warren and Bill arriving at that same conclusion from different perspectives - operations/markets, and macro theory.
I'm not going to ever advocate for half the story, MMT-lite which opens the door to a discredited application being adopted as 'MMT' proper.
If taxation creates unemployment in the currency of account, should it?
ReplyDeleteTaxation does create unemployment. Descriptive.
SHOULD IT? PRESCRIPTIVE
“Remember back to Stephanie’s comment that the government could spend money it doesn’t have and it didn’t even need to issue bonds? Well, in essence this is what the Japanese government is doing. ”
ReplyDeleteWell then what is she complaining about???
“governments always spend first and that bond issuance is simply a way of controlling inflation and altering private sector behaviour.”
ReplyDeleteThe bonds are savings.... not a tool to coerce behavior...