Tag Archives: Functional Finance

I was teaching about deficits and debt this last week. If you know me and follow this blog, you'd know that I always emphasize the importance of the distinction between debt in domestic currency and debt in foreign currency. Functional finance authors (and MMT too) are correct in noting that a country cannot default on debt in its own currency (for a model of a currency crisis and default, in foreign currency go here; as afar as I know the only formalization of a PK alternative to the...

Most critiques of MMT take the form of a critic asserting "MMT says X." The response from MMT proponents is that MMT most definitely does not say "X". This situation is obviously confusing. This article attempts to explain why the online debates are confusing (and pointless).... Bond Economics Functional Finance Roots Of MMTBrian Romanchuk

Paper has been published as a PERI Working Paper.From the abstract: Functional finance is only one of the elements of Modern Money Theory (MMT). Chartal money, endogenous money and an Employer of Last Resort Program (ELR) or Job Guarantee (JG) are often the other elements. We are here interested fundamentally with the functional finance aspects which are central for any discussion of fiscal policy and have received more attention recently. We discuss both the limitations of functional...

Wednesday and a short blog post. I regularly work for unions as an expert analyst/witness in their struggles to achieve wage justice with employers who are intent on paying as little as possible. Often these are private employers but at the moment I am helping a union with their campaign to win a reasonable wage increase against a state government. The logic deployed by the government in relation to their fiscal affairs and their wage setting behaviour is a classic demonstration of how...

When the governments in the advanced nations abandoned full employment as an overarching macroeconomic objective, and instead, starting pursuing what I have called full employability, they stopped seeing unemployment as a policy target (to be minimised) and began using it as a policy tool to suppress inflation. As mass unemployment rose, the politics were massaged by the mainstream of my profession who claimed that the level of unemployment that constituted full employment had risen (this...

Might not be MMT, but it isn't Socialism So there has been a lot written on Modern Money Theory lately. There is this piece by The Economist, Jerry Epstein's paper, and Lance Taylor's one, more on the Democratic Socialist ideas than MMT per se (here). There was also this op-ed by Robert Shiller in the NYTimes, and the two posts by Tom Palley, that I reposted here on the blog. Finally, Christine Lagarde also commented on MMT during the World Bank/IMF Spring Meetings.I can and I will not...

In this two-part series I will: 1. Consider the question as to whether fiscal policy is sufficiently flexible enough to provide an effective counter-stabilisation against the non-government spending cycle.If a nation is heading into recession, can governments act quickly enough with discretionary spending changes? If a nation is ‘overheating’ and inflation is threatening to accelerate, can spending and tax changes be implemented quickly enough to counter these tendencies? 2. Should...

I don't link to the NYT since it stopped being a newspaper. Alex Douglas explains Paul Krugman's criticism there of MMT based on r > g.This is not a new criticism. It is a neoclassically based argument. It was raised when Thomas Piketty's Capital in the 21st Century made r > g famous.The expression r > g itself was criticized at the time, and I won't repeat it. Suffice it to say that that is a monetarist view that suffers from the insufficiency of neoclassical assumptions about...

This is the second and final part of this cameo set, which aims to clear up a few major blind spots in peoples’ embrace with Modern Monetary Theory (MMT). This is all repetition. I don’t apologise for that and it does not reflect a slack or bad editorial approach from yours truly as some critics have claimed. Repetition is how we learn. Reinforcing things in different ways (aka repetition) helps people come to terms with concepts and ideas that give them dissonance. MMT is certainly about...

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...