Well sort of,
This was exciting news for fans of the alternative economic school, more popularly known as MMT, which asks people to think of money, credit and tax in a completely different way to what is usually considered conventional in economics.
All in all, we have to say, the article did a good job, at least when it comes to explaining the origins and basics of the theory. As a primer it worked well.
. . .
The reaction, of course, is interesting because it shows to what degree MMT really does represent a paradigm shift in economics. If you can’t flip your brain into MMT mode, try as you might, you’ll never really understand what they’re going on about.
So earlier I made some disparaging comments about folks who don’t get the basic ideas that either the MMTers or the MMers are pushing. That was at minimum inappropriate.
Still, I think it’s a mistake to talk about MMT as if it is some grand new way of looking at the world. Its basically just understanding how Central Banks with a little bit of progressive liberalism sprinkled on top for extra fun.
For example Izzy quotes Stephanie Kelton as saying
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).
That has nothing to do with being a Keynesian or anything. It simply has to do with not thinking about what you are saying. Is there any theoretical difference here between this framework and the dominant economic framework?
I don’t see it.
Its just that people saying that interest rates would rise in the face of massive deficits are not even trying to walk through the mechanics of either interest rates or deficits. They are just asserting something that they think they heard once but weren’t really even paying attention to.
Maybe I am wrong.
If so I would like to hear the alternate story. I posit that no such consistent story exists. Anyone claiming to have one is engaging in hand waving or is speaking gibberish.
Or take this also from Kelton
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.
Mundell’s endorsement was aesthetic. For example, I am allergic to cats. If someone said we should adopt X monetary policy and I knew a side effect was going to be to run all the cats out of America (sorry Kevin) then I am going to be more predisposed to supporting that monetary policy.
However, that is not to say I have an “alternative theory of money and cats.” I just don’t like cats or rather I don’t like their effect on my immune system.
Or take Micheal Hudson quoting me and responding
“You can’t just fund any level of government that you want from spending money, because you’ll get runaway inflation and eventually the rate of inflation will increase faster than the rate that you’re extracting resources from the economy,” says Karl Smith, an economist at the University of North Carolina. “This is the classic hyperinflation problem that happened in Zimbabwe and the Weimar Republic.”
Me: Wrong again. The Weimar inflation stemmed from the balance of payments. The Reichsbank created deutsche marks and threw them onto the foreign exchange markets to raise the money to pay reparations to the Allies (who turned around and paid the United States for arms purchases made prior to U.S. entry into the Great War).
What exactly are we disagreeing on here?
I am tempted to say nothing and that this is just a meaningless exchange of English phrases. But, if anything then it is probably the definition of the word “government.”
I am happy to talk this over with Michael but I feel overwhelming confident that he will agree that attempting to purchase an unbounded quantity of goods and services with no countervailing extraction of purchasing power from the economy will lead to hyperinflation.
The only place that I could possibly forsee a disagreement is over whether Michael thinks the extraction limit is less than 100%, which I would suggest that it is. However, that is first an empirical question and second I don’t think would prevent us from agreeing that by virtually any sensible definition of terms an extraction rate of 500,000% is not possible and absent any bank intervention the means through which it would be thwarted would be hyperinflation and a rejection of the currency.