Tag: Modern Monetary Theory

Why Understanding Money Matters in Greece

Why Understanding Money Matters in Greece

As Greece staggers under the weight of a depression exceeding that of the 1930s in the US, it appears difficult to see a way forward from what is becoming increasingly a Ponzi financed, extend and pretend, “bailout” scheme. In fact, there are much more creative and effective ways to solve some of the macrofinancial dilemmas that Greece is facing, and without Greece having to exit the euro. But these solutions challenge many existing economic paradigms, including the concept of “money” itself.

Brad DeLong believes deficits matter in Modern Monetary Theory

Brad DeLong believes deficits matter in Modern Monetary Theory

Finally, a prominent “mainstreamer” Keynesian gets MMT. Over the past couple of years, Paul Krugman has got close, but he keeps claiming that MMT believes “deficits don’t matter”. He refuses to cite any MMTer who has ever said such a silly thing. One doubts he’s actually read any serious piece by any proponent of MMT. I suspect he is just reacting to comments made on his blog—likely by anonymous supporters of MMT who might not have got it quite right.

Stephanie Kelton does MMT

Stephanie Kelton does MMT

Here’s a very good video on MMT with Stephanie Kelton, the chair of the Economics department at the University of Missouri at Kansas City talking to Lauren Lyster of RT’s Capital Account. As you know, despite my Austrian bias and my remaining allegiance to what Marshall Auerback calls “deficit terrorism”, I think MMT’s descriptive framework is compelling in many regards. […]

Why Minsky Matters

Why Minsky Matters

My friend Steve Keen recently presented a “primer” on Hyman Minsky. In his piece, Steve criticized the methodology used by Paul Krugman and argued that Krugman could learn a lot from Minsky. In particular Krugman’s equilibrium approach and primitive dynamics was contrasted to Minsky’s rich analysis. Finally, Krugman’s model of debt deflation dynamics left out banks–while banks always played an important role in Minsky’s approach. This post is to help explain why Hyman Minsky matters by quickly summarizing Minsky’s main areas of research. Next week I will post up more on Minsky’s view of “money and banking”.

(Re) Occupy Greece

(Re) Occupy Greece

Germany and Papademos have ended Greece’s political sovereignty, but Greece gave up its economic sovereignty long ago when it adopted the euro. Two aspects of national economic sovereignty were inherently lost with nations that gave up their own currency and adopted the euro. A member nation could no longer have a monetary policy and it could no longer revalue its currency. The designers of the euro required a measure sharply curtailing the member nations’ remaining economic sovereignty. The demand that the euro nations surrender the last vestige of their economic sovereignty was deliberate. The euro’s designers viewed national economic sovereignty as the gravest threat to the euro’s success. Their great fear was that inflation could lead to a weak euro, so they adopted the “Stability and Growth” Pact to sharply limit the member states’ ability to control their fiscal policies. The Pact forbade member nations from running material budgetary deficits even during a severe recession or depression.

MMT for Austrians

MMT for Austrians

We (also) do not want black helicopters flying around dropping bags of cash; and we (also) oppose government “pump-priming” demand stimulus—the libertarians and Austrians and even Milton Friedman are correct in their argument that this would generate inflation. Come to think of it, MMTers have more in common with Austerians than with “military Keynesianism” that supposes that high enough spending on the defence sector will cause full employment to “trickle down”. Most MMTers believe we’d get intolerable inflation before the jobs trickle down to Harlem. But can we “afford” full employment?

The Political Economy of Artificial Constraints on Government Money

The Political Economy of Artificial Constraints on Government Money

Consider the statements by the UK leadership that the UK has “run out of money.” Does anyone think that the UK financial leaders believe that statement? If Germany declared war on the UK tomorrow would the UK surrender because it had “run out of money” and could not “afford” to increase expenditures to defend the nation? The point is that nations, when faced with the need to make enormous, emergency expenditures, rediscover through necessity the knowledge of how monetary operations actually work even if they previously were captured by economic dogmas that asserted the opposit

Functional Finance and Exchange Rate Regimes: The Twin Deficits Debate

Functional Finance and Exchange Rate Regimes: The Twin Deficits Debate

In conclusion, while there are links between the “twin deficits”, they are not the links usually imagined. US trade and budget deficits are linked, but they do not put the US in an unsustainable position vis a vis the Chinese. If the Chinese and other net exporters (such as Japan) decide they prefer fewer dollar assets, this will be linked to a desire to sell fewer products to America. This is a particularly likely scenario for the Chinese, who are rapidly developing their economy and creating a nation of consumers. But the transition will not be abrupt.