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From the introduction of that paper: One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments1 have

by apo 8y ago

From the introduction of that paper: One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints. Not only can they issue their own currency2 to meet commitments denominated in their own unit of account, but also any self-imposed constraint on their budgetary operations can be by-passed by changing rules. As such, this type of government is not financially constrained in the way that non-sovereign units are, so that it can focus on issues such as full employment and price stability. This reads very much like the articles on MMT that I've been seeing. Explaining why "monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints" seems a lot like a green light for deficit spending. Maybe not advocacy, but something that will be used by advocates. I see it as similar to the way a research article might say that leafy green vegetables are good for you without telling you to eat them. Later, the article continues: "... All these institutional and theoretical elements are summarized by saying that monetarily sovereign governments are always solvent, and can afford to buy anything for sale in their domestic unit of account even though they may face inflationary and political constraints." Saying a company is solvent to buy another doesn't mean that the writer is advocating the purchase, but it may be used by board members advocating the purchase. Theories never advocate, they attempt to summarize a model of how something works. Unfortunately, the model that MMT describes ignores very important details, such as the way that the implosion of debt-fueled asset bubbles interact with political systems to cause further bubbles.

xyzzyz 8y ago
> "... All these institutional and theoretical elements are summarized by saying that monetarily sovereign governments are always solvent, and can afford to buy anything for sale in their domestic unit of account even though they may face inflationary and political constraints." Sure, government can always confiscate everything that exists under its sovereignty. It can either happen via crooks going around with guns, or via "paying" for things by Kinko dollars. The end result is the same in both cases: products and services are not created, because what's the point of doing these, if they are confiscated anyway? What's the MMT insight again? What does it say that's different than mainstream economics? What predictions it makes that are different than mainstream economics? Why it even has a name, and why are we even talking about it? Ah, I know, it's because it promises "full employment" and all other kinds of free lunches.
dragonwriter 8y ago
> Explaining why "monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints" seems a lot like a green light for deficit spending. No, MMT is not a green light for deficit spending. MMT is an explanation for why the entire fiscal model in which “surpluses” or “deficits” (and even moreso government borrowing and having “debt” to finance deficits) exists is a misleading façade when governments monetary power is considered, a holdover that only really makes sense with commodity—rather than same-government-issued fiat—money. > Maybe not advocacy, but something that will be used by advocates. Sure, every theory will be used by advocates of something; MMT isn't used to advocates of deficit spending, but by advocates of monetizing fiscal policy. (Though the latter can look like the former if you are stuck on the model of reality that MMT points out is flawed.)
rafiki6 8y ago
I'm not sure if you got through past the introduction or not but there's this really key piece here: "Now they claim we have got nothing new. And, yet, much of the thought that we integrated in MMT had been lost in the postwar period. Even the very best of the heterodox thinkers—people like Bob Eisner—had got caught up in debates over just how strong “crowding out” is. He took what we call a “deficit dove” argument, against the “deficit hawks”. The debate took place largely on orthodox grounds, trying to find some “sweet spot” for budget deficits and debts. Most of our critics remain in the “dove” camp, arguing that deficits in recession are fine, but that if “too large” they become unsustainable. We developed the “deficit owl” position—a position that indeed can be found in the work of those we follow, but a position that was mostly lost by second and third generation heterodox economists." They go on to explain what that is, and why it matters.

by apo 8y ago

xyzzyz 8y ago

> "... All these institutional and theoretical elements are summarized by saying that monetarily sovereign governments are always solvent, and can afford to buy anything for sale in their domestic unit of account even though they may face inflationary and political constraints." Sure, government can always confiscate everything that exists under its sovereignty. It can either happen via crooks going around with guns, or via "paying" for things by Kinko dollars. The end result is the same in both cases: products and services are not created, because what's the point of doing these, if they are confiscated anyway? What's the MMT insight again? What does it say that's different than mainstream economics? What predictions it makes that are different than mainstream economics? Why it even has a name, and why are we even talking about it? Ah, I know, it's because it promises "full employment" and all other kinds of free lunches.

dragonwriter 8y ago

> Explaining why "monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints" seems a lot like a green light for deficit spending. No, MMT is not a green light for deficit spending. MMT is an explanation for why the entire fiscal model in which “surpluses” or “deficits” (and even moreso government borrowing and having “debt” to finance deficits) exists is a misleading façade when governments monetary power is considered, a holdover that only really makes sense with commodity—rather than same-government-issued fiat—money. > Maybe not advocacy, but something that will be used by advocates. Sure, every theory will be used by advocates of something; MMT isn't used to advocates of deficit spending, but by advocates of monetizing fiscal policy. (Though the latter can look like the former if you are stuck on the model of reality that MMT points out is flawed.)

rafiki6 8y ago

I'm not sure if you got through past the introduction or not but there's this really key piece here: "Now they claim we have got nothing new. And, yet, much of the thought that we integrated in MMT had been lost in the postwar period. Even the very best of the heterodox thinkers—people like Bob Eisner—had got caught up in debates over just how strong “crowding out” is. He took what we call a “deficit dove” argument, against the “deficit hawks”. The debate took place largely on orthodox grounds, trying to find some “sweet spot” for budget deficits and debts. Most of our critics remain in the “dove” camp, arguing that deficits in recession are fine, but that if “too large” they become unsustainable. We developed the “deficit owl” position—a position that indeed can be found in the work of those we follow, but a position that was mostly lost by second and third generation heterodox economists." They go on to explain what that is, and why it matters.