Modern Monetary Theory (MMT) has received further criticsm in the US – perhaps particularly because that seems to be where it is (can we hope?) gaining a hold.
Britain is still mired in the all-consuming provincial business of Brexit.
“…the treasury can only spend by first ensuring it has adequate funds in its account with the central bank.”
But this start is incorrect, for, as Steve Keen has pointed out, as it owns – in effect – its own bank, it can run if necessary, (as the Bank of England confirms in their staff working paper no 604) on negative equity.
The same article suggests the Federal Reserve is independent, yet goes on to say “the central bank is the agency tasked with controlling the money supply”. Who tasks it? The government of course!
“given that money is fungible it can be difficult to impossible to blame any specific government project on inflation. MMTists would need to demonstrate how such an agency would be superior to an agency that decides on the amount or cost of acquiring money (central bank) ”
This is also delusional. Absolutely all money created is potentially inflationary – to suggest that we should should stop creating some because it is more inflationary, even if we need what the money created is used for, is putting the cart before the horse
“The second issue is whether fiscal policy is an adequate way to control inflation.”
Actually, (the alternative), interest rates don’t work to control inflation as Richard Werner has proved. And with just 57 hyperinflation instances in the period from the French Revolution till 2012 inflation is really not such an accidental disaster. Hyperinflation is always reckless mismanagement – and, incidentally, it is certainly not a disaster for borrowers, which is, actually, most of us.
First they should simply drop the confusing and misleading claims about whether taxes and borrowing fund government spending (framed as describing ‘operational realities’) — at best it’s speaking another language and stifling efforts to get other economists on board with the framework through semantic confusion, at worst it is simply flat out wrong.
Well, it’s either right or wrong – it cannot be degrees of rightness or wrongness…
Second, they should take more seriously the moral hazard issues associated with abolishing central bank independence and should consider instead allowing the central bank or another independent agency to control the amount of seigniorage revenue available to the government for spending. There should be no concern about this being undemocratic or compromising progressive policy, as politicians would be free to appoint who they like to run the agency.
As most Central Banks seem to be based on ex Goldman Sachs staff I rather doubt this precludes moral hazard and do Goldman Sachs do democracy?
It is all so – literally – incredible that I will just say simply that the next writer, a self proclaimed socialist, quotes with a conclusional approval Jonathan Portes’ suggestion that “The claim that that MMT means that a future government can dodge hard choices about how to pay for decent public services is just plain nonsense.”
That is no more than a statement of the bleeding obvious. Though it is true that taxation might not be so hard when you know that we spend and tax. It has the distinct advantage that you know that there is no trickle down and money does not grow on rich people.
And isn’t that the real message both of MMT and for the UK especially, of the ‘Joy of Tax‘. Once you know where money comes from and how it is created – we can then use tax for genuine progressive social purposes when we know it has nothing to do with revenue raising?
*Amended 1 March 19 to make clearer:
“Actually, interest rates don’t work to control inflation as Richard Werner has proved.”
“Actually, (the alternative) interest rates don’t work to control inflation as Richard Werner has proved.”