It was very nice to see Dylan Matthews, who is a young journalist and not an economist, recognize the growing influence of MMT. The piece does get a number of things wrong (perhaps inevitably, given the sheer volume of work we have produced over the last 10-15 years). We’ll be working to clear things up on our various websites (including: new economic perspectives and via our Twitter feed @deficitowl). We hope readers will not jump to erroneous conclusions about MMT. We have gotten a great deal right over the years (the S&P downgrade, the Eurozone debt crisis, QE, US interest rates, inflation, etc.). While the Austrians screamed, “Zimbabwe”, we explained that QE is nothing but an asset swap and that idle reserves — whatever their magnitude — will not “chase” any goods. And while “Keynesians” worried about the impact that large deficits would have on US interest rates, we calmly explained the flaws in the loanable funds framework and insisted that rates would remain low as long as the Fed was committed to low rates (as the Bank of Japan has shown for decades). And while Nobel laureates, like Robert Mundell, were espousing the virtues of a common currency in Europe, we warned that the new design would put bond markets in charge of government policies. At some point, being right should actually count for something.
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Economists have been wrong for so long, it’s become their familiar. While American industry relies on “planned obsolescence” to keep the revenues flowing and Congress passes legislation that’s designed to fail (McCain/Feingold and DADT being just two examples), economists are wedded to a static binary model which leads them to think that when one thing goes up, another must come down–sort of like a seesaw. And the guys at the fulcrum, who take a cut from each side of the consumer/user pair, are left out of the equation entirely.
It’s a static model for a dynamic system, as Galbraith the elder pointed out ages ago.
I would offer a correction if I may – serious economics have been ignored for so long. (Also, what has “become the economist’s familiar?” Is a little devil sitting on Keynes’ shoulder?)
Having a static model for a dynamic system is not a theoretical slam dunk, either. Take Newton’s system – yet here we are, living in a probablistic world (well, depending on who you believe). That’s an extreme case, but I would offer up the point that in the case of strong general trends, you often can generalize away noise and individual factors when they balance out.
At the risk of being called Hayekian, there is a point at which you simply can’t ask for more precision because of the lack of complete knowledge.
Please don’t get me wrong, I just wanted to have some fun and I generally like MMT.
FT Alphaville is taking a look at MMT too now!
Who were these worried “keynesians” wailing about inflation during the crisis/depression? Isn´t that the monetarist and aust(e)rians should be wailing about?
I distinctly remember new keynesian people like Christine Romer, Lawrence Summers and Krugman arguing pretty forcefully for stimulus.
Now I agree that the framework of the new-keynesians are a bit of a fudge and that it is are theoretically ad hoc fixing of a broken approach to economics. But on the policy side aren’t they on your side at the moment?
The only exception I can come up with is Mankiw, who is basically a political hack. Have I missed something?
I thing Wray does acknowledge the common policy points.
“He [Paul Krugman] conceded that on many issues he agrees with MMT conclusions — particularly in rejecting the hysteria about current US federal government budget deficits. I [Randy Wray] want to be clear that MMTers recognize and appreciate the role that Krugman has played in fighting against the deficit hyperventilators in Washington.”
except he insists there is a long term deficit problem waiting to trigger hyper inflation or something like that
Yes, Krugman is concerned about long term deficits. But when Kelton states that “‘Keynesians’ worried about the impact [of] large deficits” she seems to be referring to short term deficits. And that’s what DeLong (over at his blog) is challenging. I’m not sure who Kelton has in mind … maybe Rogoff. He was worried about short term deficits and interest rates, and he did get alot of press attention a few years back.
Some great points there. To lay the argument out from another direction – if somebody looks at Krugman’s blog, they’ll see that he makes the choice, trading the potential of some future inflation against severe economic hardship now and the lost potential for growth (which of necessity compounds future problems, by setting back the clock), to go with stimulus.
He has explicitly said, and actually started a debate between some economists on the Austrian and the Keynesian side, that it is nonsense to talk about burdening future generations with debt. He has said only that a large transfer of debt from one person to another is a cause for concern (which is, whether we agree with the economics or not, likely to end up a big feature of future politics – if demographics change and Hispanics feel they are paying for the retirement of white boomers, for instance, there will be an obvious angle for any two-bit demagogue to leverage).
What I’d like to ask is this – my understanding is that some MMT proponents say that it’s fine to always have deficit spending so long as the future potential for growth outstrips debts (I agree there is some evidence tending to support this, as when WWII era and earlier debts in the US ended up being less “burdensome” due to population growth and the growth of the economy, including inflation, taking a bite out of each dollar of debt). How many MMTers believe this? Is this doctrinaire?
Secondly, if it were the case (I am not interested in “it is not the case” – please view this as a hypothetical) that future growth did not outstrip debt, wouldn’t inflation be a necessary consequence of continued deficit spending?
I do rather like the idea of a “virtuous cycle” but I have always been a bit uneasy with the proposition on the grounds of that assumption, and perhaps a bit because it seems intuitively wrong (yeah, so much for intuition, but I’m jus’ sayin’.)
And to reassure anybody who takes this the wrong way – I always take Austrians to task when they call deficit spending a “Ponzi Scheme.” 🙂
how about for a given size govt there is a ‘right’ level of taxation that results in ‘full employment’.
a deficit is always appropriate when there is a lack of aggregate demand.
Krugman has not calculated/discounted the demand leakages into the future, so he’s just guessing regarding whether future net govt spending might be ‘excessive’.
And if it is, you adjust when the time comes.
If you know a left turn is coming 10 miles down the road you don’t turn now