Modern Monetary Theory

[AnBr]

pitchforkeconomics.com/episode/debunking-deficit-myths-with-stephanie-kelton-2/

[LFC]

That's a lot longer than I want to get into but the cost of the federal government servicing its debt is likely going to jump as interest rates rise. While I'm no expert it seems that MMT works ... until it doesn't. The bet is that the United States is big enough that it will never stop working. Maybe yes, maybe no.

[AnBr]

www.nytimes.com/2022/02/06/business/economy/modern-monetary-theory-stephanie-kelton.html

[LFC]

Feb 11, 2022 5:30:59 GMT AnBr said:

www.nytimes.com/2022/02/06/business/economy/modern-monetary-theory-stephanie-kelton.html

I couldn't get through the paywall but will read it later over here.

[LFC]

Feb 11, 2022 5:30:59 GMT AnBr said:

www.nytimes.com/2022/02/06/business/economy/modern-monetary-theory-stephanie-kelton.html

This is as clear and succinct an explanation as I've ever read.

To understand how M.M.T. fits in with other dominant ways of thinking, it’s helpful to take a trip to the beach.

In economics, there’s a school of thought sometimes called “freshwater.” It’s the set of ideas that became popular at inland universities in the 1970s, when they began to embrace rational markets and limited government intervention to fight recessions. There’s also “saltwater” thinking, an updated version of Keynesianism that argues that the government occasionally needs to jump-start the economy. It has traditionally been championed in the Ivy League and other top-ranked schools on the coasts.

You might call the school of thought Ms. Kelton is popularizing, from a bay that feeds into the East River, brackish economics.

M.M.T. theorists argue that society should feel capable of spending to achieve its goals to the extent that there are resources available to fulfill them. Deficit spending need not be constrained to recessions, even theoretically. Want to build a road? No problem, so long as you have asphalt and construction workers. Want to feed children free lunches? Also not a problem, so long as you have the food and the cafeteria workers.

I'd be interested in a simplified explanation of how MMT addresses what to do if you don't have those resources. Current budgeting allows for the creation of them through either incentives or direct programs. Does MMT say that still fits as long as the people / companies exist to move in and pick up those opportunities?

Then there's this:

Ms. Kelton and her colleagues make clear that the pandemic relief packages did not follow one of M.M.T.’s key tenets — they did not try to account for resource constraints ahead of time. In an M.M.T. world, the Congressional Budget Office would have carefully analyzed possible inflation ahead of time, and lawmakers would have tried to offset any strain on available workers and widgets with stabilizing measures and tax increases.

The theory’s basic idea on inflation — as Ms. Kelton tells it — is that the best defense is a good offense.

She may be correct. She may also be overstating the ability to truly predict how money should be best spent since data is lagging. She may also be full of shit and taking the same stand as advocates of Tinkle Down Economics: "It would have worked if you had just done it better." But of course an economic theory that requires near perfect adherence isn't remotely useful in the real world.