Using modern monetary theory would create more economic stability and less reliance on politicians to use the monetary system for public needs, writes Darren quinn.
MODERN MONETARY THEORY (MMT) is a description or if you prefer, a systemic analysis of money as it currently exists.
It reveals that taxation is important in stimulating demand for foreign currency, among other things, including creating unemployment. After all, there is no unemployment in a non-cash economy.
Adam triggs, researcher at the Brookings Institution and the Crawford School of Public Policy at the Australian National University (ANU) wrote in 2019, this MMT ‘looks like a solution looking for a problem’. This is not the case. The MMT shows that the new economic consensus on the monetary system is wrong and it also shows what tools are available in the modern monetary toolbox.
‘If it’s [MMT’s] the stated goal is to achieve full employment, so it seems unnecessary.
This simple sentence is misleading in the extreme. MMT is exactly what is out there. He has a preference for sovereign currencies but can explain any monetary system.
The preference for sovereign currency is due to the fact that it offers a more independent political space, strengthening democracy. Triggs then defines full employment as an unemployment rate of five percent. Ah the horror! This is based on the mythical “rate of inflation without acceleration of unemployment” (NAIRU), which is sometimes transposed by the expression “natural rate of unemployment”.
MMT defines full employment (as all good economists do) as frictional unemployment that is between one and three percent with zero or near zero underemployment. These are the people who change jobs or are sick. After all, there is no natural rate of unemployment, just as there is no natural rate of homelessness, no natural rate of poverty, and no natural rate of illiteracy.
MMT shows that all expenses are new expenses and are actually funded by “printing” money. However, the term “print money” is quite misleading in business circles.
What economists generally mean, in fancy terms, is quantitative easing (QE) – the exchange of government bonds for cash. A clear and simple exchange of financial assets. Bonds are first bought in cash and when QE is implemented the bonds are exchanged for cash. Money comes first. What MMT means is that all expenses are new expenses, whether they are done electronically with keystrokes or with physical money. So, no, QE is not MMT and neither has QE produced inflation as expected.
MMT advocates controlling inflation through progressive tax rates, job guarantees and other new automatic stabilizers. It also explains that inflation is a problem of resource allocation, not a monetary problem.
Triggs talks about the world lending us our own currency, which is just plain nonsense. To still be plausible, lenders would have to get it from us first – the word “sovereign” does most of the work here. Even then, except in physical cash, it remains in accounts at the central bank. So how on earth are foreign savings in Australian dollars going to finance anything?
Triggs also looks at some new fallacies in the economic consensus about rising inflation, interest rates, and depreciating exchange rates – as if we don’t have the tools to deal with them. We do.
The closest thing to real criticism or critical analysis of MMT Triggs’ offerings is a call to authority from some “eminent” economists of the New Economic Consensus, including Olivier Blanchard, which is getting closer and closer to MMT.
Triggs is trying again in 2020 to say that MMT is just a new image of Orthodox economics – what I previously called the New Economic Consensus. This is easy to refute because the orthodox economy thinks that taxes and / or bonds finance public spending.
Stephanie Kelton, author of the bestseller The deficit myth: modern monetary theory and how to build a better economy, wrote a detailed operational document that refuted this. The great irony is that she was trying to prove it.
In his 2020 item Triggs said:
For Kelton, the fundamental propositions of MMT are that government budgets are fundamentally different from household budgets, that budget deficits are not necessarily bad, that governments should spend more when the economy is weak, and that governments should focus. more on unemployment than on budget deficits. She believes that the main constraint on public spending is inflation, that the increase in the deficit does not necessarily have to impoverish future generations and that governments cannot run out of money if they have their own central bank, their own currency and no external debt.
If this all sounds right and logical to you, that’s because it is. Most mainstream economists have been making these points for nearly a hundred years.
If Triggs accepts all of this, he is approaching acceptance of MMT. However, to say that most mainstream economists have been making these points for years is a mistake.
It is very strange – if all the main characteristics of MMT were so widely shared and understood – how do we explain statements by politicians, central bankers, private executives, lobbyists, media commentators, etc., which seem to fail. not accept or understand basic MMT. complaints?
Again, Triggs tries to counter with the inflation and / or hyperinflation argument against MMT – to which I repeat, MMT argues for inflation control through progressive tax rates, the guarantee and other new automatic stabilizers. It also explains that inflation is a problem of resource allocation, not a monetary problem.
“If you have hyperinflation, you haven’t followed the recipe. The recipe clearly defines the spending limits.
MMT is an excellent counterpoint to resorting to politicians to use the monetary system for public purposes. That is why we have democratic accountability and the vote.
Darren Quinn is a leader in educating people about modern macroeconomics. You can follow Darren on Twitter @AusMMT.
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