MMT as Public Policy

Michael Stephens | January 12, 2012

First The Economist, now CNBC.  CNBC’s Senior Editor John Carney has put together a series of posts on Modern Monetary Theory at his blog.  One of Carney’s objections to MMT is this:

…my biggest point of departure with the MMTers is they display a political and economic naivete when it comes to the effects of government spending. When they talk about spending it is almost always in terms of abstract aggregates, which is weird for a school of economics so focused on the specifics of monetary operations. What this means is that they miss the distortions of crony capitalism the accompanies so much government spending.

I’m not sure this is a problem for MMT in particular, but you might put the point a little differently.  Fully MMT-inspired public policy would require a particular set of political and policy-making institutions.  If inflation is going to be fought through raising taxes, for example, we will need a policy-making process that is able to pull this off, and with the right timing.

But having said that, after observing the process since the outbreak of the Great Recession it’s pretty clear that we don’t even have the right policy apparatus for carrying out conventional aggregate demand management.  Having a robust set of automatic stabilizers in place during the crisis would have been far more preferable to forming fiscal policy according to the whims of Susan Collins and Olympia Snowe (or catering to Congress’ anxiety about a thirteenth digit).

Carney’s latest entries:

Monetary Theory, Crony Capitalism and the Tea Party

Modern Monetary Theory and Austrian Economics

Can the Government Guarantee Everyone a Job?

MMT Monetary Theory vs. Austrian Monetary Theory

The Trouble with a Job Guarantee

The Wall Street Firm That Uses Modern Monetary Theory


6 Responses to “MMT as Public Policy”

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  1. Comment by TylerJanuary 12, 2012 at 3:31 pm   Reply


    You write, “… it’s pretty clear that we don’t even have the right policy apparatus for carrying out conventional aggregate demand management.”

    Hasn’t Bernanke done a heckuva job at keeping inflation low?

    • Comment by Michael StephensJanuary 13, 2012 at 2:50 pm   Reply

      Heckuva job. Beyond Bernanke, it’s pretty striking when you look at a graph of long-term trends on inflation (down, down, down). It would be nice to have an organization that’s as brutally effective at maintaining full employment. Perhaps we need something like a Fed for employment (sorry, we do have that; it’s called the Fed. Dual mandate and all that). But if we’re talking about getting the right institutions for the job, Martin Shubik (no MMTer, as far as I know) developed the idea of creating a “Federal Employment Reserve Authority” to monitor unemployment and initiate self-liquidating public works programs in distressed regions (based on a constantly updated list of potential shovel-ready projects).

    • Comment by Michael StephensJanuary 13, 2012 at 4:23 pm   Reply

      Speaking of the irrelevancy of the dual mandate, gape at these recent comments from Jeff Lacker, who’s a voting member on the FOMC:

      “The Fed doesn’t control growth. We can interfere with it. We can impede it,’’ Lacker said. “But in general the growth rate the economy can crank out is determined by technology, people’s preferences, resource endowments, other policies and the like. Our job is to keep inflation low and stable.”

  2. Comment by joebhedJanuary 12, 2012 at 4:38 pm   Reply

    So, it’s like two people meeting on the corner, today.

    One came from far, far away in Austro-land.
    The other came from the land of monetary-theory.

    They both agreed on the corner that the system that brought them there, this present Economist-loved system of private creation of debt-based money, is a failure and a folly, in need of correction.

    Should they spend a great deal of time in discussing from whence they came, counter-observing each’s historical references for points of disagreement? Have they and we the time for such a discourse?

    Or, rather, should they immediately begin the discussion of exactly what it is that they want to happen, in order to press forward from this corner? Which way forward and why.

    Me thinks so.
    Neither the MMTers nor the Austrians have spelled out a systematic methodology for changing the present private monopoly of debt-based, so-called bank credit for anything.

    On the one hand, most Austrians follow the theme of the denationalization of money – as if it were truly nationalized at present.
    Even Huerta de Soto comes up far short on the real mechanisms needed for changing the system.

    MMTers on the other hand want to continue with fractional-reserve banking, only using Lerner’s debt-free money where the social objectives of full employment and general price stability so require.
    As if that job is ever ‘done’.

    In truth, it is neither school that has spelled out a solution.
    Only the monetary reform school that is built on Soddy, Daly and the public money principle have developed a complete proposal.
    It is found in Congressman Dennis Kucinich’s NEED Act of 2011.

    If we’re going to spend some time on this corner discussing which fork in the road to take, let’s put the Kucinich roadmap of a proposal on the table.

    For the Money System Common.

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