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Hvem er redd for MMT?

Dec 23, 2020 James K. Galbraith

AUSTIN – Parlamentarikere som holder tilsyn med sentralbankers virksomhet vet at de som styrer sentralbankene ikke liker å bli utfordret. De vil forsvare sin mystikk til det siste — den magiske auraen som omgir deres uttalelser og som svøper dem inn i en sølete blanding av banalitet og sludder, i en tåke av makt og sentralbanksjargong.

Derfor er det gøy å plage sentralbankfolk. John Maynard Keynes plaget som kjent Montagu Norman, som var britisk sentralbanksjef fra 1920 til 1944. Wright Patman og Henry Reuss, to kongressmedlemmer som ledet bank-komiteen i Representantenes hus på 1970-tallet, gjorde det samme med den amerikanske sentralbanksjefen Arthur Burns. Jeg vet av erfaring at Reuss likte det han gjorde; jeg var hans assistent på det tidspunktet.

I dag forstyrrer de som tar til orde for moderne monetær teori (MMT) ikke bare nattesøvnen til dagens sentralbankfolk, men selv til de som har forlatt sine sentralbankstillinger — og som nå hjemsøker sentralbankens korridorer på samme måte som Lady Macbeth og roper: “Out damn spot!”

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0 Comments on this paragraph, 40 in all 40 Comments on this article

Ralph McNall Jan 9, 2021

Time to update/replace the Humphrey-Hawkins Full Employment and Balanced Growth Act. For one thing, even the Federal Reserve agrees that the economic tools it has are not adequate for meeting the objectives of the act. That fiscal policy tools are needed. Not to mention that the Full Employment goal should be Full Employment, not 3% Unemployment. And there needs to be recognition that not only doesn't the Fed have the tools to achieve that, but neither does Private Sector Capitalism. It is only practical for the Federal Government to do so, e.g., with an Employment Guarantee Program.
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Alexandros Aslanidis Jan 5, 2021

Excellent article.
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Per Kurowski Jan 1, 2021

MMT addicts, where would current interest rates on US government debts be without Fed’s QEs and statist regulatory favors like allowing banks to leverage their capital much more with loans to the government than with loans to the citizens?
https://subprimeregulations.blogspot.com/2013/01/the-subsidized-risk-free-rate.html
- Ralph McNall Jan 9, 2021
  
  The Fed is fully capable to set interest rates on US Government debt to any value it wants. Debt rates and Government debt are essentially political policy, not monetary necessity. READ @StephanieKelton 's "the DEFICIT MYTH"
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joel bernard Dec 31, 2020

Is modern monetary economics a globally applicable "theory," or is it the description of how a few, favored giant economies such as the U.S. and China (but not even the UK or Japan) can exploit their own resources with wide latitude for deficits? Especially when a favored nation's currency is accepted as a global reserve.

Absent some external aid, no individual or nation is guaranteed subsistence. A resource-rich country like the US differs from Zimbabwe or even Russia. Any country that needs to trade internationally for essential goods depends on the faith of its trading partners in the strength of its currency. So, even as resource-poor Country A pursues fiscal policies to guarantee jobs, the number and quality of jobs are limited by its natural resources, labor supply, and available technology -- and what it has to offer in trade for what it needs. Loose monetary policy combined with redistributive tax policies and some degree of regulation of, e.g. minimum wages, would further equity. But they might not in themselves be sufficient to achieve a desirable standard of living without donated "foreign" aid.

There is a repetition and abstractness to debates over "theory" for which critics and defenders of MMT share responsibility. Size, geography, demographics will dramatically enhance or narrow the possibilities for monetary policy. It would be helpful to hear more about these practical limitations. And less about who has misunderstood what theory.
- Ralph McNall Jan 9, 2021
  
  #MMT is a globally applicable "theory", but is by no means globally practiced. Denison U professor Fadhel Kaboub is an MMT advocate focusing on developing (3rd world) economies. @StephanieKelton 's "the DEFICIT MYTH", among numerous other on-line material, also address many, probably all, of your questions.
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Emilio Zuniga Dec 31, 2020

Mr. J Galbraith argument to defend MMT based in Keynes Monetary Theory to fight the Central Banks mandate with a single task of keep inflation under control, is right. The best example is as he mentions how the FED works with a dual goal and the actions taken by most Central Banks to keep the economy functioning to fight the COVID 19 pandemic. So far there is no much modern monetary theory. Keynes theory works well under a structural stagnation of private effective demand to raise employment. Another example of this is the FED action in the 2007 financial crisis with its rescue monetary package. But Keynes policy was a short term policy where there are no structural changes in the production function as the developed world is undergoing now for the last 15 years. Before the pandemic the US was in the path to full employment (a rate below 4% and no trace of inflation) under accommodative monetary policy, and no need of Keynes expansionary policy. To sum up, monetary theory in Europe needs a fresh reading of Keynes, but they must be aware when it is indeed needed and perhaps other policy changes may be overlooked.
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Norman Kennedy Dec 31, 2020

The magic money tree works fine if all the money gets spent on "projects" with a positive return. Otherwise it will debase the currency. In reality there are not enough good projects and politics will send the money to projects that destroy capital as may be happening today with Covid-19 stimulus money. Right now freshly printed money is going to support illiquid business's many of whom are really insolvent. Thus MMT is a way for politicians to kick the can down the road and avoid the difficult decisions required to restructure. Compare money to energy. (Energy can neither be created or destroyed. It is how you use it.)
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Jose Araújo Dec 29, 2020

Honestly using the examples of Zimbabwe, Venezuela, Argentina or the Weimar Republic to argue against Monetary policy is quite showing of the level of understanding of the basics of money.

Money is what it does.... in all the above cases the official currencies stopped being money, so in fact what happened is that the central banks of those countries stopped having control over money supply because people started using other assets for money.

Amazing the level of ignorance at high level places in our society.
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Danila Simakhodskiy Dec 29, 2020

Well, in 2020 the income of households went down significantly, because many people experienced some sort of salary cuts. So if you take away 2,2 trillion from people in the form of salaries and then give 2.2 trillions in the form of aid, the total money basically hasn't changed. So, MMT can't use this argument in crisis years.
- Ralph McNall Jan 9, 2021
  
  I believe you are associating something with MMT that MMT does not assert.
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Nick Wang Dec 27, 2020

For lay persons like myself, this is quite illuminating on how MMT works: https://m.youtube.com/watch?v=iFDe5kUUyT0
- Ralph McNall Jan 9, 2021
  
  While it may be a valid representation of the banking system, it certainly is a one sided, if at all valid, perspective on inflation and deficits. I suggest you read @StephanieKelton 's "the DEFICIT MYTH".
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B Wilds Dec 27, 2020

With our national debt soaring above 27 trillion dollars nothing is as sobering as looking at future budgets. Several years ago our government predicted that by 2019 the national debt would top 12 trillion dollars, not the 23 trillion it hit. Global debt has surged since 2008, to levels that should frighten any sane investor because debt has always had consequences.
In 1981 Federal Reserve Chairman Paul Volcker is widely credited with ending the stagflation crisis where inflation peaked at 13.5%. Volcker did this by raising the fed fund rate which averaged 11.2% in 1979 to 20% in June of 1981. More about this subject in the article below.

https://brucewilds.blogspot.com/2019/10/warning-interest-rates-inflation-and.html
- Ralph McNall Jan 10, 2021
  
  https://brucewilds.blogspot.com/2019/10/warning-interest-rates-inflation-and.html is very flawed analysis in multiple ways. Read @StephanieKelton 's "the DEFICIT MYTH" or watch some of the better Modern Monetary Theory (#MMT) videos to understand why.
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- Andrew Jordan Dec 29, 2020
  
  It is only really meaningful to analyse as a percentage of GDP (after all, in 2019 the US economy was some 21 trillion dollars). When there is a major crisis such as 2008, or this year, then the real question we should ask is whether NOT increasing the government debt will lead to an even bigger public debt by detroying the growth potential of the economy. Once growth has resumed, the trick is to gradually bring down the level of debt (again: as a percentage of GDP); if you do that too quickly you run the risk of again increasing the debt pile (in proportionate terms; and not least via a collapse in tax revenues). History has too many depressing examples of this. The focus on absolute numbers can be very misleading. Having said all that, I remain skeptical about MMT, except perhaps as a last resort. In my view it would be very difficult to control in practice so as to stop inflation getting out of control (the idea that this can be fine tuned at full employment seems to me to be rather fanciful). At least with QE there is no increase in the debt as such, and it can be more easily unwound (in theory at least!).
  - Ralph McNall Jan 10, 2021
    
    You're skepticism about MMT implies you don't really have a good working understanding of MMT.
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- David Lentz Dec 27, 2020
  
  I lived through that time of high interest rates under Volcker. it was desolation for a generation of young people. These people play with other peoples lives like they are Olympian gods and face no consequences. That’s where a people’s court comes in. if an airline mistreats its customers the CEO could get dragged before the people’s court. All those canceled flights for no reason would result in consequences. The same with idiotic economists who ruined people lives. And idiotic useless presidents who did not build the infrastructure they all promise. It would be beautiful. In any case the last 6 presidents have been completely useless actually just troublemakers. Its time to end the presidency and dissolve the USA and create a new system of city states or whatever. The nation state is finished
  - B Wilds Dec 28, 2020
    
    Sadly, many of the parts are as economically and financially corrupt as the whole.
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Nick Wang Dec 24, 2020

Magic money tree - reminiscent of the stuff Dorothy encountered in the land of the Oz. Or just an extension of the abandoning of the gold standard. Look what that that did to dollars and asset prices. A thought experiment - does that mean we can finally do away with the tax collectors for good?
- Francisco Flores Dec 25, 2020
  
  Taxes are a tool to:
  a) modulate inflation if spending surpasses productive capacity of the economy,
  b) modulate income and wealth inequality,
  c) establish and maintain the demand for the currency.
  d) Allow the govt to provision.
  Although right now in the US the Federal Reserve Act forces the Treasury to issue bonds to primary dealers before the Fed buys them, when deficit spending.
  - Ralph McNall Jan 10, 2021
    
    Yes, taxes are tools, as is fiscal spending on government programs. And the Federal Reserve has neither of these as tools. Which I suspect contributed to the high interest rates and inflation of the 1980's, because the tools the Fed has to manage inflation and employment are not adequate. And the Fed admits that. Addressing that is a central part of Modern Monetary Theory (#MMT).
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Panos Zafeiriou Dec 24, 2020

If we can print our way out of any problem, then why to work? Why not push a little bit our governments to print and distribute? Who needs incentives to be productive anymore?
- Francisco Flores Dec 25, 2020
  
  This is a dumb comment. Money is not wealth to the economy as a whole. So you can't "print" your self to prosperity. Its merely a tool to facilitate the operation of the economy.
  - Panos Zafeiriou Dec 26, 2020
    
    Yes this may be a dumb comment but then so it is the MMT theory.
    - Alexandros Aslanidis Jan 5, 2021
      
      ΜΜΤ is perfectly fine, it's just your comment which is dumb. MMT doesn't claim that money can be eaten. It claims that it is better to print money in order to hire workers to sow seeds and harvest the crop, rather than having idle parts of the working population.
      - Panos Zafeiriou Jan 5, 2021
        
        The implied assumption of the MMT theory is those close to the printing press will use the "printed" money for the designed cause. This never happened in the history of this world, any administration tries to benefit itself first and foremost. This time may be different though.
        
        Ralph McNall Jan 10, 2021
        
        That's what is happening right now with much more ongoing economic support for the top and arguments that we can't afford to pay for comparable support for the bottom.
        And as Twain said, "That just ain't so!"
        MMT specifically argues that if we have the real/physical resources (goods and services) that those at the bottom could and should be able to take advantage of, the money to facilitate that isn't the issue. Yes, profiteering will likely be a continuing issue that should be managed. But that doesn't negate the value of #MMT!
        
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David Lentz Dec 24, 2020

The founders of America had no place for Central Bankers. The current president claimed to be a Jacksonian president. But Andrew Jackson would probably shoot central bankers as he was a violent man and had no place for money printers. Also income taxers. Or a standing army. America should change its name as it no longer resembles the original America except it sits in the same geographic location. So if you are going to have central bankers giving handouts to billionaires or better stated moneyed interests then why not MMT. The government hands out food stamps, farm subsidies, ethanol subsidies, military spending pork. It’s bizarre. Right now it’s just a matter of who gets the handouts. Central bankers are in a tough spot when people are being evicted by hedge fund managers that were bailed out by central bankers.
America is a farce
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Cristian Chelariu Dec 23, 2020

Perhaps the problem has to do with theory. Perhaps one needs to approach MMT not just with neo-classical lenses, but also with institutional theory lenses. In other words, countries with good institutions will not be affected by inflation, while countries like Zimbabwe or Venezuela, lacking institutions, will develop inflation...
- Ralph McNall Jan 10, 2021
  
  There are numerous analysis of what causes hyper-inflation and none of the critical analysis identifies printing of money as a root cause.
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Tim Maly Dec 23, 2020

Thanks for this. The previous commentaries were frustratingly vague. I don’t know enough about MMT to have an opinion about it but I’d expect even its detractors to be able to clearly explain what it is and what’s wrong with it.
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Elizabeth Pula Dec 23, 2020

Here's a little link that nicely probes some real basics about book-keeping that many just either ignore, forget, or attempt to hide, Montier doesn't. Although the article is an oldie and is focused on alternatives at the time to keep income flows juiced, Montier presents the crucial basics about book-keeping that no one wants to shine any light on, even a lot of so-labelled Keynesians of any sort today. (Not referencing you Galbraith.)

https://www.scribd.com/document/34895648/GMO-Montier-26Jul

Absolute power corrupts absolutely.

http://macromomblog.com/2020/07/29/economics-is-a-disgrace/

I'm adding that little link just to be flippant about IT all!
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Lee Irvine Dec 23, 2020

MMT makes some sense, but not the part about free jobs for everyone. That is make work and will erode work ethic, if there still is any work ethic.
- Francisco Flores Dec 25, 2020
  
  Really? Getting paid for work erodes work ethic? And really? "Make work"? Are you saying that there aren't enough worthwhile things to do to build a better society or inhabitable world? Really?
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- Tom Olin Dec 23, 2020
  
  I think you misunderstand how the MMT job guarantee would work. It would not guarantee a job to anyone who wants to do nothing for a paycheck. It would guarantee a job to anyone who wants to work but cannot find a job. Its goal is to provide meaningful work and income to people until they can find permanent employment. Thus, it lessens the impact of economic downturns and helps support economic activity that will lead to a recovery. In addition, it reduces or eliminates the many personal, social and economic pathologies associated with involuntary unemployment.
  - Ben Leet Jan 4, 2021
    
    This is the best comment of all. The economy serves the people, not the opposite. Money creates work. Keynes sent Roosevelt an open letter, published in January of 1933 in the NYTimes, explaining the necessity of public investment when the private employers were unwilling to invest, and the general public had too little purchasing power to inspire investment. The economy came to a standstill, this letter was published in January, 1933, post-election pre-inauguration. The Depression was not a natural disaster, it was an impasse of debt deflation leading to paralysis. MMT uses the same logic. For years the American Society of Civil Engineers publishes an accounting of needed infrastructure improvements-investment reaching trillions per year, and with global climate disaster looming before us, CO2 levels at levels not experienced in 3 million years, there are a surfeit of needed projects that will not inspire private investment, need public-private investment incentives. MMT will play a role. I believe "financial repression" should be reinvented, mandating financial institutions to purchase low yielding government bonds, as happened post WWII. But MMT has limitations, I believe, and as some have stated, small nations cannot use it, are at the mercy of other financial sources, perhaps IMF-like institutions. The straight-jacket of private investment is a doomsday machine. Galbraith might have filled out his essay a bit more.
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