by MMT — building on Post-Keynesian foundations To be sure, MMT concedes that the ability of an endogenous money supply to constrain inflation has limits. Government spending can still run up against the scarcity of real resources. Although some progressives invoking MMT seem unaware of this, Wray readily acknowledges that “just because the government can afford to spend does not mean government ought to spend more.” Government “must weigh the consequences in terms of withdrawing resources from other (perhaps more desirable) uses, as well as possible impacts on prices and exchange rates.” This returns us full circle to the first MMT constraint on inflation: the size of the “buffer stock” (Wray’s term) of unemployed labor that can be put to work … One of
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MMT — building on Post-Keynesian foundations
To be sure, MMT concedes that the ability of an endogenous money supply to constrain inflation has limits. Government spending can still run up against the scarcity of real resources. Although some progressives invoking MMT seem unaware of this, Wray readily acknowledges that “just because the government can afford to spend does not mean government ought to spend more.”
Government “must weigh the consequences in terms of withdrawing resources from other (perhaps more desirable) uses, as well as possible impacts on prices and exchange rates.” This returns us full circle to the first MMT constraint on inflation: the size of the “buffer stock” (Wray’s term) of unemployed labor that can be put to work …
One of the most emphatic assertions of MMT, to quote Wray, is “taxes are not needed to ‘pay for’ government spending.” Taxes are needed only to make sure people accept fiat money and, if necessary, to keep inflation in check. And because both the treasury and central bank are government institutions, there is some truth to the idea that both institutions have dual roles …
Equally important, critical parts of MMT’s edifice are built on Post-Keynesian foundations. As Kelton and Wray, along with Scott Fullwiler proclaim: “We have never tried to separate our ‘MMT’ approach from the heterodox tradition we share with Post Keynesians, Institutionalists and others. We have tried to extend that tradition.” A comprehensive and extensive critique of the Post-Keynesian paradigm is beyond the scope of this article. But if you strip away Post-Keynesian precepts, much of MMT’s edifice collapses, taking down many of its policy proposals with it.