Flirting with MMT in the Financial Times

Michael Stephens | October 3, 2011

Martin Wolf, in the Financial Times last week, “thinks the unthinkable” and inches toward what sounds distinctly like a Modern Money Theory approach:  “Alternatively, the government could fund itself from the central bank, directly. Better still, the government could increase its deficits, perhaps by slashing taxes, and taking needed funds from the central bank. Under any of these alternatives, the central bank would be behaving like any other bank, creating money in the act of lending.”

Wolf goes on to argue that such a policy needn’t be inflationary, insisting on the absence of a necessary and immediate linkage between central bank money and the overall money supply:  “…the policy would be inflationary only if it led to chronic excess demand. So long as the central bank retains the right to call a halt, that need be no serious danger.”

To learn more about MMT and its policy implications, this short working paper by Randall Wray is a good place to start.  Wray is also putting together an MMT primer over at New Economic Perspectives.

Beyond the particulars of Modern Money Theory, would it be too naive to expect that the latest crises, convulsions, and lingering stagnation would prompt more economists and economic thinkers to move beyond “normal science” and begin, in a more general sense, thinking the unthinkable?


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