by From Lars Syll First, it was Paul Krugman. Then came Kenneth Rogoff. And now Lawrence Summers has felt the urge to attack MMT and defend mainstream economics: There is widespread frustration with the performance of the economy … Altered economic conditions have led to the development of new economic ideas … And now, these new ideas are being oversimplified and exaggerated by fringe economists who hold them out as offering the proverbial free lunch: the ability of the government to spend more without imposing any burden on anyone … Modern monetary theory is fallacious at multiple levels. First, it holds out the prospect that somehow by printing money, the government can finance its deficits at zero cost … Second, contrary to the claims of modern monetary theorists, it is not true that
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from Lars Syll
First, it was Paul Krugman. Then came Kenneth Rogoff. And now Lawrence Summers has felt the urge to attack MMT and defend mainstream economics:
There is widespread frustration with the performance of the economy … Altered economic conditions have led to the development of new economic ideas … And now, these new ideas are being oversimplified and exaggerated by fringe economists who hold them out as offering the proverbial free lunch: the ability of the government to spend more without imposing any burden on anyone …
Modern monetary theory is fallacious at multiple levels. First, it holds out the prospect that somehow by printing money, the government can finance its deficits at zero cost … Second, contrary to the claims of modern monetary theorists, it is not true that governments can simply create new money to pay all liabilities coming due and avoid default …
For neither the right nor the left is there any such thing as a free lunch.
Now compare that to what the same Summers wrote just a couple of years ago:
IMF asserts that properly designed infrastructure investment will reduce rather than increase government debt burdens. Public infrastructure investments can pay for themselves … Infrastructure investment actually makes it possible to reduce burdens on future generations.
In fact, this calculation understates the positive budgetary impact of well-designed infrastructure investment … The IMF finds that a dollar of investment increases output by nearly $3. The budgetary arithmetic associated with infrastructure investment is especially attractive at a time when there are enough unused resources that greater infrastructure investment need not come at the expense of other spending. If we are entering a period of secular stagnation, unemployed resources could be available in much of the industrial world for quite some time …
What is crucial everywhere is the recognition that in a time of economic shortfall and inadequate public investment, there is for once a free lunch – a way for governments to strengthen both the economy and their own financial positions.
Now isn’t that strange? What appeared to be a great idea less than five years ago, all of a sudden turns out to be bad. The free lunch is not — after all — free …
When the economics establishment is questioned and challenged, the high priests close ranks. Ideas that were considered great transmute into bad when they turn out to be connected with heterodox theories that challenge the hegemonic theory …