by Is MMT nothing but Knapp + Lerner + Minsky + Vertical IS curve? Turning to Brad’s challenge, some of the answers will now be obvious. Do we accept the elements he lists as fundamental to MMT? Knapp: yes indeed. He’s always been there … Lerner: dealt with above. What we reject is the aggregate demand approach to full employment and price (and financial) stability. As Minsky argued in the 1960s, pump-priming might get you to full employment but it will never produce sustainable full employment because it will generate financial and price instability. You have to use the Job Guarantee … Minsky: Yep, he was there from the beginning … Vertical IS: Now that is a leap. The ISLM framework is completely incoherent. It is not stock-flow consistent. Even its
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Is MMT nothing but Knapp + Lerner + Minsky + Vertical IS curve?
Turning to Brad’s challenge, some of the answers will now be obvious. Do we accept the elements he lists as fundamental to MMT?
Knapp: yes indeed. He’s always been there …
Lerner: dealt with above. What we reject is the aggregate demand approach to full employment and price (and financial) stability. As Minsky argued in the 1960s, pump-priming might get you to full employment but it will never produce sustainable full employment because it will generate financial and price instability. You have to use the Job Guarantee …
Minsky: Yep, he was there from the beginning …
Vertical IS: Now that is a leap. The ISLM framework is completely incoherent. It is not stock-flow consistent. Even its creator—John Hicks—said he could no longer make any sense of it … But I think all Brad means is that MMT rejects the notion that by changing interest rates the central bank can move the economy to full employment by stimulating interest-sensitive spending. And if that is what he means, I whole-heartedly agree.
Unlike Krugman, MMT argues this impotence is not restricted to the “lower bound” of zero interest rates. What MMT has always argued is that when the Fed lowers its rate target, we cannot say for sure whether the Fed is stepping on the gas or hitting the brakes. It depends. One factor that matters a lot is what is the ratio of government debt to nongovernment debt …
MMT has always recommended abandoning any attempt to fine-tune the economy through central bank interest rate policy. We prefer a permanently fixed rate … For me it is the permanent fixing that really matters, and I like a low rate but do not insist on zero.
So there you go, Brad, the ball’s in your court. We seem to be on the same page.
And by the way, I like Brad’s recent call for all the neoliberal Democrats to step aside and let the progressives following MMT take over.