Bloomberg Businessweek July 26, 2021|Economics|”Are We Living in an MMT World?” “Not yet, say architects of the once-fringe school of economic thought” “THE BOTTOM LINE MMT economists say they desire credit for reeducating policymakers on the danger of deficits, but admit they haven’t made as much headway on taxes and inflation.”
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MODERN MONETARY THEORY
Image from MARKETPLACE.ORG . . Critics of MMT on Left and Pundits of MMT on Right.
Summary offered by 2244
Facts presented in charts. The U.S. federal debt as a % of GDP has surged with the pandemic from about 30% to more than 100% now but a key element of MMT (Modern Monetary Theory) is that the “cost to service debt as a share of GDP has dropped since prior to the pandemic from 3% to a low of about 1.3% to about 1.6% now.
According to American MMT experts interviewed for the Bloomberg Businessweek one can break the theory into four pieces.
First, the deficit as a “boogeyman”. No question the federal deficit last year and this coming year will be the largest in modern history but MMT pundits argue that the U.S. didn’t skimp on “stimulus...and [as a result] the economy is bouncing back. After all we have a stable currency they say and we are not constrained like a household or business that must pay their debt or face higher interest rates or insolvency. America can and should issue money in time of need. Further, the government can control interest rates on the bonds they issue. What really constrains the economy is what we can’t control readily and that is “labor or lumber” and critics of MMT and others worry currently about that. Consequently the deficit boogeyman is still a concern if not a real one in the eyes of MMT. Jerome Powell (Federal Reserve) though comments that “spending during the Covid crisis [necessary and appropriate]...is not sustainable in the long run because ‘the laws of gravity have not been repealed.”
Second piece of MMT is “How to Spend.” Using congress to authorize needed spending is slow as is the effect of adjusting interest rates. These levers in a sense hurt those in need by delaying relief. MMT argues that “fiscal policy is a better tool.” Even better “for MMT the ultimate stabilizer is for the government to act as employer of last resort, offering a job to anyone who wants one.” It is noted that other methods like “ramping up jobless benefits and paying airlines $300,000 per job, or mailing checks to households that didn’t need the money” makes less sense than directly “‘targeting the spending’ to people who were [and were going to be] out of work [for the long haul]’”
Third piece is “How to pay for it.” MMT advocates believe “that governments don’t need to raise revenue to pay for their spending” in a dollar for dollar way. They admit though that taxes are helpful at “cooling demand (and therefore inflation), redistributing income or discouraging undesirable behaviors, like smoking and use of fossil fuels.” Otherwise they are for making the U.S. more equitable but not by “Congress approving taxes.”
Fourth piece is “Managing inflation.” MMT suggests that government interventions such as to “ease supply bottlenecks”....[or] use regulation or other tools to promote competition in sectors where companies have too much pricing power” are more effective at managing inflation.
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