The NYT article on MMT is really bad https://noahpinion.substack.com/p/the-nyt-article-on-mmt-is-…
“MMT was already pretty marginal,” said Jason Furman, a Harvard economist, noting that, in his view, most policymakers and prominent academics ignored it already. Even if policy in the pandemic effectively embraced the idea that you do not have to pay for your spending, that idea, he said, was also Keynesian. And the MMT crowd, while dismissing the Fed’s role, has not come up with a clear and obviously workable idea for how to stem inflation, he argued, adding, “If you were open-minded, this would discredit it still further.”…
MMT proponents almost always refuse to specify exactly how they think the economy works. They offer a package of policy prescriptions, but these prescriptions can only be learned by consulting the MMT proponents themselves. There is no model here — no set of equations or definite formal statements that a layperson could use to generate their own MMT policy prescriptions without appealing directly to the gurus…
When Drumetz Françoise and Pfister Christian of the Banque de France read Kelton’s book and tried to comprehend the essence of MMT, they concluded: “Overall, it appears that MMT is based on an outdated approach to economics and that the meaning of MMT is a more that of a political manifesto than of a genuine economic theory…”
Like I just said when the tax policy is to hit the rich with higher taxes no lie is left out.
Supply side economics has been 40 years of slow GDP growth. The prior demand period had far higher growth.
The top bracket percentage under Truman was problematic because it had to come down over time. As it came down later in the cycle inflation was released.
Today’s MMT is tempered by a need for counter cyclical economics. Meaning taxes are low on the wealthy now and will be higher cutting off inflation much later in the cycle.
The bout of inflation we are experiencing is mostly related to the FED giving $120 billion per month to the wealthy. It leaves them with a far greater amount of disposable income after their usual savings rate. The wealth also translates into higher equity prices creating a massive wealth effect. All of this in a low tax environment for the wealthy has led to massive yet temporary inflation. By cutting the wealthy off from the $120 billion per month from the FED March inflation numbers reported in April should be significantly reduced.
“Overall, it appears that MMT is based on an outdated approach to economics and that the meaning of MMT is a more that of a political manifesto than of a genuine economic theory…”
And I believe there’s a more fundamental underlying theory behind it. That theory being: if the government does it, it’s right and good.
Pursuant to MMT I propose the following:
The US federal government will reabsorb the Federal Reserve, so it’s the government - not a private entity - creating money out of thin air.
The US federal government will be prohibited from borrowing money for any purpose. It should never need to since it can just create money as needed. Temporary exception: it will be allowed to borrow, each year, up to 90% of the cash spent the previous year in principal payments (not interest) on debts.
All US federal taxes will be eliminated. Why should the government impose a tax-and-bookkeeping burden on itself and the entire populace, when it can just create more money?
Inflation can then be controlled by the federal government controlling its own size. This should be easier and less intrusive than controlling what everyone in the country does that relates to inflation.
That theory being: if the government does it, it’s right and good.
The doctrine the US has operated on for forty years is everything the government does is “bad”, so the government should be defunded and all the money handed to the “JCs”, because everything they do is “good”.
When the US started on this road, the Federal debt, since the founding of the republic, was slightly under $1T. In the forty years since, the debt has grown to $30T, with only one slight reprieve in the accumulation of debt, which Greenspan defined as a problem.
One of the themes of the NYT article is that MMT has failed to predict the current economy, which reduces its credibility as an economic theory. As illustrated by this quote from the original article:
“M.M.T. was already pretty marginal,” said Jason Furman, a Harvard economist, noting that, in his view, most policymakers and prominent academics ignored it already.
It is perfectly possibly to talk about something without also promoting it. If you mention the gold standard it doesn’t mean you are in favor of it.
Can someone here explain how spending a trillion or two more will help get inflation under control?
If it’s paid for by a combination of tax increases and cuts elsewhere, it might not be inflationary. Once upon a time, Congress and the POTUS agreed on a “pay-go” rule, that all new spending had to be paid for, rather than adding to debt. For a brief moment, the US government started to recover it’s financial footing, while the economy enjoyed both low unemployment and low inflation.
That discipline didn’t last long.
(Some of us grew up and stopped believing in that sort of magic.)
“Magic” like throwing money at the “JCs” will “create jobs” and “pay for itself”?
Current budget debate in Michigan, which has a big budget surplus: invest in infrastructure and education, which benefits everyone, while phasing out the tax increases levied on retirees and the poor a few years ago, or give the money to the “JCs”?
Can someone here explain how spending a trillion or two more will help get inflation under control?
DB2,
What passed for MMT ten or twenty years ago changed to be up to date in 2021. Meaning the blog posts etc are just throwing shiney at the wall for propaganda purposes.
The entire anti MMT thing is to defend the wealthy from higher taxes.
Disposable income is causing the inflation primarily. Higher taxes would reduce the amount of disposable income.
Can someone here explain how spending a trillion or two more will help get inflation under control?
Today’s inflation is from reduced supply (worker shortages, houses for sale) and increased demand (semiconductors, consumer products, private equity buying houses). Spending that increases supply will reduce inflation. Raising taxes to pay for the spending will reduce demand and so further reduce inflation.
One possible US policy is providing better childcare options for parents. This spending would increase the workforce and so reduce worker shortages. Raising taxes to pay for it would further reduce inflation. Raising taxes has an immediate effect on inflation, as tax withholding can be adjusted quickly.
But that’s not going to happen. More likely, the FED will increase interest rates by 2% and there will be a recession in a year or two. Inflation will be tamed by higher unemployment. It’s difficult to negotiate a higher wage when you don’t have a job.
There are many ways to get inflation under control, some monetary and some fiscal.