Welcome MMT enthusiasts

I have said all I have to say on MMT, in this format, which you can find in very recent posts.

If somebody would like to invite me to a debate – in the form of a dialogue at a website – then I would certainly consider that. But I am not going to lean into MMT anymore via blogging tit for tat, in part because I seem to be having trouble identifying what MMT really believe. This may be my fault, and there is probably some diversity within the MMT school.


Can’t figure it out, despite my thirst for knowledge

But I can tell from this site’s dashboard that the MMT guys are sending traffic my way. So thanks, and welcome.

MMT can be viewed as providing a perspective on which policy responsibilities should be assigned to the monetary authority and Treasury (broadly defined to include Congress) as well as a set of analytics to describe how the desired framework might work. It is more than this, but I think I am safe saying it comprises this.

Rather than argue further (here) with MMT, I would like to make a few points expressing my own ideas on policy assignment and its implications. If the opposite of these claims is what MMT believes, then I guess I disagree with them. If it is not, then I guess I might have no quarrel. But these are my views:

  • It probably would not be a good idea to put Congress in charge of managing the business cycle or determining the size of the base money stock. Congress is utterly dysfunctional and I am inclined to agree with Peter Orszag that it would be better to limit the role of Congress in business cycle management than to enhance it. *
  • The case for expansionary fiscal policy is stronger when there is massive unemployment and – more importantly – when the funds rate is stuck at zero than when the economy is near full employment and the Fed claims to be in the midst of a tightening program. There are many other opinions held by people who share mine on this particular issue. I am not expressing those other opinions. My claim here is both limited and extremely simple, which is different from necessarily being right.
  • The idea that the US has a limited fiscal capacity and that ultimately spending must be financed with taxation is correct and important. The public sector budget constraint cannot be evaded by changing the policy assignments at the Fed and Treasury.  The fact that the US issues its own currency raises US fiscal capacity by limiting the risk of self-fulfilling fiscal worries or what Soros might call reflexivity.  Moreover, US fiscal capacity is probably much higher than the austerians have argued.  But it is not unlimited, and spending must ultimately be paid for mostly with taxation.  Related, the main purpose of taxation is to fund government spending.

* In 2011, Orszag proposed developing a Fed-like organization to insulate the more technical elements of fiscal policy (assuming they exist) from the political process. I have not seen much from him on this issue since then, which may be an oversight by me. But I share his view that Congress has demonstrated an inability to do its job and that its influence should be dialed back, to the extent that is consistent with republican government.  Congress might not go for this, obviously, but perhaps I could propose baby steps. First, pass a budget. Second, stop threatening to default. And maybe then we can discuss next steps. In the meantime, you are not getting to run monetary policy.