by The Federal Reserve Bank of Kansas City has just hosted its annual Economic Policy Symposium at Jackson Hole in Wyoming where central banks, treasury officials, financial market types and (mainstream) economists from the academy and business gather to discuss economic policy. As you might expect, the agenda is set by the mainstream view of the world and there is little diversity in the discussion. A Groupthink reinforcing session. One paper that was interesting was from two US Berkeley academics – Fiscal Stimulus and Fiscal Sustainability – which the news reports claimed suggested that governments should be increasing fiscal expansion even though they may be carrying high levels of public debt. The conclusion reached by the paper is correct but the methodology is mainstream and so
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Mike Norman considers the following as important: fiscal policy, fiscal space, Fiscal Sustainability, MMT
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The Federal Reserve Bank of Kansas City has just hosted its annual Economic Policy Symposium at Jackson Hole in Wyoming where central banks, treasury officials, financial market types and (mainstream) economists from the academy and business gather to discuss economic policy. As you might expect, the agenda is set by the mainstream view of the world and there is little diversity in the discussion. A Groupthink reinforcing session. One paper that was interesting was from two US Berkeley academics – Fiscal Stimulus and Fiscal Sustainability – which the news reports claimed suggested that governments should be increasing fiscal expansion even though they may be carrying high levels of public debt. The conclusion reached by the paper is correct but the methodology is mainstream and so progressives should not get carried away with the idea that there is signs that some give is emerging, which will lead to more progressive outcomes. A progressive solution will only come when the neo-liberal dominance of my profession is terminated and an entirely new macroeconomics paradigm based on Modern Monetary Theory (MMT) is established. There is still a long way to go though....This is a must-read for those interested in MMT. Bill also provides links to previous blog posts that are key to understanding the MMT position on fiscal space (policy space) and fiscal sustainability.
The actual constraint is availability of real resources and policy needs to be addressed to effective and efficient use of those limited resources. Financial resources are unlimited for a soveriegn currency so issuer, so policy is never constrained by "affordability."
Policy is too tight if real resources that are available are be idled, which is wasteful and foregoes opportunity. Policy is too loose if effective demand is stimulated in excess of the capacity of the economy to provide goods to meet it, so inflation may result. The goal is run a policy that optimizes use of available resources in the present, while also generating the economic capability to increase real resources for future use.
The purpose of MMT as a "policy science" is showing how this is possible based on the actual operations of a modern monetary production economy. This involves debunking the myths that rest on a failure to correctly understand money monetary operations in the context of the presently existing monetary system, which results in the inability to appreciate the theoretical implications of this for policy.
Bill Mitchell – billy blog
Fiscal policy is effective, safe to use, and markets know it
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia