Washington establishment freaks out as Modern Monetary Theory gains currency

Originally published at: https://boingboing.net/2019/10/09/shattering-overton-window.html




Wasn’t Boingbing rife with predictions just a few years back that the US dollar would experience hyperinflation due to the Fed spending so much money?

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MMT has the advantage of being a commonsense interpretation of the facts (i.e., governments that can create money can spend it at will).

I wish Bernie would emphasize the federal jobs program more. Guaranteeing good-paying jobs for all who want them is a winning message in the rust belt. Green-FDR!


Go SeaWolves!

the deficit/austerity hawks are starting to freak out

There’s that side, sure.

But there’s also the side of actual economists who are calling shenanigans on MMT, specifically Krugman: https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wonkish.html


That still would fit in the MMT model, if the Fed is bidding against consumers for the same kind of thing (mortgages, car production) which were part of the bailout. It worked out because, during the time the Fed was buying, consumers weren’t; and by the time consumers were back in the market, the Fed was out.


It’s a theory posited by economists…

Just like any other social science field, there are a variety of concepts and theories, and economists don’t always agree about everything.


Theme song for MMT posts


That’s fine as far as it goes, but doesn’t address any of the points Krugman raises in response to the person and positions in this article.

I don’t pretend to understand the math, but Krugman has a very good track record.

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Some centrists are trying to diffuse the energy for MMT by proposing “stimulus” as a means of making the economy less unequal and dysfunctional, but the right aren’t even willing to make that concession – instead, they’re having a full-bore freakout.

Movement conservatives haven’t left themselves room to do anything else. These are people who think Keynes and FDR were secret commies.


Except that economics isn’t just about pure numbers or some natural law. There are many different ways to structure an economy, which is really what economics is about, discussing and debating what could be as much as what actually exists.

Krugman has really lucked out in happening to be at the core of the current mainstream of the democratic party’s preferred views on the economy, I’d argue. He’s the go to go for them. But look around - that view isn’t serving us all well, so perhaps rethinking things is what we need to be doing right now.

[ETA] Here is some criticism of Krugman, from the left, the second is a mention of him as accepting many aspects of classical liberal economics… FWIW, of course…


I am not sure I completely buy MMT, but its converse, austerity economics, has a pretty long track record of being a bad idea. When governments restrict spending to reduce debt unnecessarily, you can get a bad feedback loop, where cuts lead to both lower growth and lower tax revenues, which cause the austerity advocates to further reduce government spending.


It seems obvious to me that stopping spending on utilities, infrastructure, the parks and monuments etc would lead to less usage. And it’s not like the private sector does a good job with that shizz. And reduced usage ends up in lower economic activity. Less money cycling around. Poor performance. Less tax revenue triggering further austerity.

Austerity only makes sense if you are trying to run the government as a profitable business. And that’s not democracy. That’s feudalism.



A modern government is a collective way to distribute resources to everyone who lives in a given society, it’s not there to generate wealth in the sense of a profit, but in order to help ensure a decent standard of living for all of us. There are some things that just won’t function off the logic of a for-profit system, such as infrastructure, education, health care, etc. Collecting taxes and spending them on these things makes a hell of a lot of sense, because if you have a certain baseline that we all enjoy, you can very much free up all sorts of productive power of individuals to go out and make other parts of the economy successful, meaning you get more taxes coming in for those services that don’t work under a for profit system.


At least we’ve gotten past Peak Peak Oil.


It doesn’t even work for businesses. Austerity usually means inadequate investment in some critical area (R&D; sales; quality; manufacturing) followed by doubling down on the inadequacy of investment until the death of the business unit.

I’ve seen it from up close too often. The metrics (usually profitability or margin-based) improve while revenue decreases, so executives get their bonuses and leave right before the collapse. What actually works in that situation is to use debt to invest in the critical area to overwhelm the inadequacy, and power through to the other side. Basically, trading a quarter or two in the red for future growth, instead of maintaining low profitability as revenue diminishes to unsustainability.


So, why even bother with issuing government debt? Why not just print money directly?

Old joke:

If you took every economist in the world and put them in a line, they still couldn’t reach the same conclusion.

/Don’t forget to tip your server well, folks.


I wish Krugman would be more disciplined in his reasoning. From the article you linked:

Are MMTers claiming, as Kelton seems to, that there is only one deficit level consistent with full employment, that there is no ability to substitute monetary for fiscal policy? Are they claiming that expansionary fiscal policy actually reduces interest rates?

This is a pile of very different ideas thrown together to sound smart but mean nothing. Deficit level relationship to full employment is a separate issue than the relationship between monetary and fiscal policy. Linking “expansionary fiscal policy” to a single metric like interest rates is meaningless; there are a lot of ways that fiscal policy could be expansionary.

Krugman is a self-proclaimed Keynesian but I’ve never seen evidence of it, just a lot of defense of Milton Friedman ideas.