by Summary:
There are conditions under which governments can create money—or debt—without fear of inflation or excessive debt burdens. There are other conditions under which debt or money creation can lead to inflation and balance sheet problems.This article is fairly positive towards MMT. As long as the new government money boosts the economy, MMT will work, says Michael Pettis. It is only when money is borrowed (or created) and spent in ways that do not cause GDP to rise that the debt burden rises. For that reason, a rising debt-to-GDP ratio over the medium term is almost prima facie evidence that the government should cut back its spending (over the short-term there can be timing differences between when an investment is made and when it starts to pay off). This is also true of inflation: if the
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There are conditions under which governments can create money—or debt—without fear of inflation or excessive debt burdens. There are other conditions under which debt or money creation can lead to inflation and balance sheet problems.This article is fairly positive towards MMT. As long as the new government money boosts the economy, MMT will work, says Michael Pettis. It is only when money is borrowed (or created) and spent in ways that do not cause GDP to rise that the debt burden rises. For that reason, a rising debt-to-GDP ratio over the medium term is almost prima facie evidence that the government should cut back its spending (over the short-term there can be timing differences between when an investment is made and when it starts to pay off). This is also true of inflation: if the
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Mike Norman considers the following as important:
This could be interesting, too:
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There are conditions under which governments can create money—or debt—without fear of inflation or excessive debt burdens. There are other conditions under which debt or money creation can lead to inflation and balance sheet problems.
This article is fairly positive towards MMT. As long as the new government money boosts the economy, MMT will work, says Michael Pettis.
It is only when money is borrowed (or created) and spent in ways that do not cause GDP to rise that the debt burden rises. For that reason, a rising debt-to-GDP ratio over the medium term is almost prima facie evidence that the government should cut back its spending (over the short-term there can be timing differences between when an investment is made and when it starts to pay off). This is also true of inflation: if the government “prints money” to spend on projects that reduce excess capacity or employ workers productively, the result will not be inflationary to the extent that the increase in demand caused by printing the money will be matched by an increase in supply.
What MMT actually does say is that governments must issue debt or raise taxes if either is necessary to control the potentially adverse economic impact of the additional demand created by spending the additional money. As Lerner puts it:
This seems to be where much of the confusion lies. One of the main criticisms of MMT is that it seems to imply to some people that governments can spend on any project they like without worrying about the consequences. By extension, these critics also assume that for this reason there are no effective limits to government borrowing: debt can always be serviced by creating additional fiat money for the sole purpose of servicing the debt.
To sort through these various claims, our seminar decided to concentrate on the conditions under which there are no intrinsic constraints on government spending, a state that can be called MMT heaven. We also considered the conditions under which there are constraints, in which case governments would have to raise taxes to balance the government expenditures. To simplify matters, we decided that the government could basically spend the money in three ways: