by Does MMT — really — ignore expectations? A view yours truly often encounters when debating MMT is that there is an inflationary bias in MMT and that its framework ignores expectations. Hmm … It is extremely difficult to recognize that description. Given its roots in the writings of Keynes, Lerner, and Minsky, it is, to say the least, rather amazing to attribute those views to MMT. Let me just quote one source to show how ill-founded the critique is on this issue: While the IS-LM approach of John Hicks tried to represent what he saw as the key elements of Keynes’ General Theory, it is clear he left out issues relating to uncertainty and probability that Keynes saw as being crucial in the way that long-term expectations were formed … The decision to
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Does MMT — really — ignore expectations?
A view yours truly often encounters when debating MMT is that there is an inflationary bias in MMT and that its framework ignores expectations.
Hmm …
It is extremely difficult to recognize that description. Given its roots in the writings of Keynes, Lerner, and Minsky, it is, to say the least, rather amazing to attribute those views to MMT. Let me just quote one source to show how ill-founded the critique is on this issue:
While the IS-LM approach of John Hicks tried to represent what he saw as the key elements of Keynes’ General Theory, it is clear he left out issues relating to uncertainty and probability that Keynes saw as being crucial in the way that long-term expectations were formed … The decision to invest is dependent on the ‘state of long-term expectation,’ which is ignored in the static IS-LM approach … Investment, among other key economic decisions, is a forward-looking process … The failure to include the crucial role of expectations and historical time means that the IS-LM framework is reduced to presenting a general equilibrium static solution that has little place in a dynamic system where uncertainty is a key driver in economic decision making.