by Summary:
In most ways, Modern Monetary Theory—Functional Finance—is just macroeconomic common sense: We do not like high unemployment. We do not like excessive inflation. Thus the government should make it its first priority to use its tools of economic management so that we do not experience either. And maybe the government needs to be a little bit clever in how it uses fiscal and when and how it uses monetary policy to keep the task of financing the national debt from becoming an undue or even an unsustainable burden. So what can go wrong with MMT?Three things can go wrong;MMT implicitly assumes that the debt market is efficient—that if the government debt gets on an unduly burdensome and unsustainable path, we will see that immediately in high interest rates. If that is not true, the
Topics:
Mike Norman considers the following as important: Abba Lerner, Functional Finance, MMT
This could be interesting, too:
In most ways, Modern Monetary Theory—Functional Finance—is just macroeconomic common sense: We do not like high unemployment. We do not like excessive inflation. Thus the government should make it its first priority to use its tools of economic management so that we do not experience either. And maybe the government needs to be a little bit clever in how it uses fiscal and when and how it uses monetary policy to keep the task of financing the national debt from becoming an undue or even an unsustainable burden. So what can go wrong with MMT?Three things can go wrong;MMT implicitly assumes that the debt market is efficient—that if the government debt gets on an unduly burdensome and unsustainable path, we will see that immediately in high interest rates. If that is not true, the
Topics:
Mike Norman considers the following as important: Abba Lerner, Functional Finance, MMT
This could be interesting, too:
Steve Roth writes MMT and the Wealth of Nations, Revisited
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Matias Vernengo writes Public vs private debt
Michael Hudson writes International Trade and MMT with Keen, Hudson
In most ways, Modern Monetary Theory—Functional Finance—is just macroeconomic common sense:
"Implicitly assumes"? I'll be interest to see what MMT economists think of this.So what can go wrong with MMT?
- We do not like high unemployment.
- We do not like excessive inflation.
- Thus the government should make it its first priority to use its tools of economic management so that we do not experience either.
- And maybe the government needs to be a little bit clever in how it uses fiscal and when and how it uses monetary policy to keep the task of financing the national debt from becoming an undue or even an unsustainable burden.
Three things can go wrong;
- MMT implicitly assumes that the debt market is efficient—that if the government debt gets on an unduly burdensome and unsustainable path, we will see that immediately in high interest rates. If that is not true, the government and the economy can face one hell of a mess should a bubble in government bond prices develop and then collapse. Cf. Greece.
- MMT implicitly assumes that wealth-owners react rapidly when they see trouble ahead—that when investors conclude that the government cannot or will not balance its books without ultimate high inflation, inflation will jump immediately.
- MMT implicitly assumes that extra financial leverage generated by the high values of collateral assets does not serve as a significant source of risk—that it is only on a small scale that investors will borrow foolishly just because they can....
By Popular Demand: What Is “Modern Monetary Theory”?
Brad DeLong | Professor of Economics, UCAL Berkeley