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ABC’s of Modern Monetary Theory (MMT)

Summary:
From Asad Zaman I was overwhelmed by the level of ignorance displayed by distinguished economist Raghuram Rajan in his article entitled “How Much Debt Is Too Much?” published recently in Project Syndicate on Nov 30, 2020. I had meant to write a critique of the article, but to do so requires starting from the very beginning. In this post, I go over some basic MMT concepts, in order to prepare the ground for this critique. There are now many good videos explaining these basics. I will go over six questions discussed in the first ten minutes of “Modern Money & Public Purpose 1: The Historical Evolution of Money and Debt” by Professor L Randall Wray. Learning the answers to these questions provides foundations for understanding MMT which are evidently missing in Rajan’s paper. Professor

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from Asad Zaman

I was overwhelmed by the level of ignorance displayed by distinguished economist Raghuram Rajan in his article entitled “How Much Debt Is Too Much?” published recently in Project Syndicate on Nov 30, 2020. I had meant to write a critique of the article, but to do so requires starting from the very beginning. In this post, I go over some basic MMT concepts, in order to prepare the ground for this critique. There are now many good videos explaining these basics. I will go over six questions discussed in the first ten minutes of “Modern Money & Public Purpose 1: The Historical Evolution of Money and Debt” by Professor L Randall Wray. Learning the answers to these questions provides foundations for understanding MMT which are evidently missing in Rajan’s paper. Professor Wray asks us to decide on True/False for the following six statments:

  • Q1:Just like a household, a nation has to raise money to finance its spending through income or borrowing.
  • Q2:The role of taxes is to provide finance for government spending
  • Q3:The national government borrows money from the private sector to finance the budget deficit
  • Q4:By running budget surpluses, the government takes pressure off the interest rates because more money is available to the private sector for investment projects
  • Q5:Persistent budget deficits will burden future generations with inflation and higher taxes
  • Q6:Running budget surpluses will provide the government with the resources needed to finance spending on retirement benefits for the ageing population in the future

It is easy to score the quiz because  . . read more

Asad Zaman
Physician executive. All opinions are my personal. It is okay for me to be confused as I’m learning every day. Judge me and be confused as well.

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