Great Leap Forward


Here’s an unintentionally hilarious piece by Tim Worstall at Forbes:

Watch out, he warns, MMT has come to Washington! Our nation’s capital!

No doubt ruin and wastage will follow.

Why? Well. Nothing wrong with the theory of Modern Money Theory, he admits.

“It’s not actually that I disagree very much with the economics that is being laid out in MMT: indeed, I’m terribly tempted to agree that they’re actually correct in much of what they say.”

He admits that MMT is right on budgets:

“It’s most certainly not obvious that MMT proponents are all barking mad or anything. Jamie Galbraith (who I’ve had one or two very limited interactions with) is certainly a reasonable guy. And his insistence that a budget surplus, despite the ribbing he gets about it, is in fact economically contractionary doesn’t seem to have anything wrong with it. Budget deficits are fiscally expansive, a surplus is fiscally contractionary, if there’s any one statement at the heart of Keynesianism that’s it.”

And it is right on money:

“And their basic outline about money creation is true as far as I can see. If you’re a country with your own central bank you can print as much money as you like.”

And really nothing wrong with the policy, either. No, it is all politics.

What he’s afraid of is that if politicians understood that they cannot run out of money, they’d spend like they cannot run out of money.

And off we’d go to Weimar and Zimbabwe land.

It is the same line that Paul Samuelson took, when he argued that the job of an economist is to lie. Or, better, to preach the old time religion and superstition. Put real fear into the politicians and the voters they represent.

Government is just like a household, you know. Careful, Gov, you’ll run out of money. You’ll have to go hat-in-hand to Bond Vigilantes when you run out. Uncle Sam will have to go to the Salvation Army for a cup of soup.

It is the same old fear mongering by someone who does not trust the democratic process and does not understand budgeting.

The way we ensure that policymakers don’t run up the spending to create hyperinflation is by subjecting them to the budgeting process, and then holding the administrative branch to approved budgets.

It isn’t religion, superstition, or fear mongering that forestalls accelerating inflation. It is accountability.

And where-O-where do our blogging pundits get the idea that all politicians always and everywhere are pushing for hyperinflation? I see exactly the opposite.


9 Responses to “Oh Me Oh My! MMT IS ABOUT!”

NeilWJanuary 12th, 2015 at 9:52 pm

When politicians spend like drunken sailors and screw up badly then we can get rid of them via the democratic process.

When bankers spend like drunken sailors and screw up badly we can't – as we have seen.

That's the deal. Pick your poison.

Gregory_LongJanuary 13th, 2015 at 6:36 pm

I don't think the real opposition to MMT has anything to do with inflation, it is about opposing the idea that the federal government can "print and spend" money; and, the reason to oppose "print and spend" is so the federal government will not be able to muscle in on Wall Street's power to run the economy all by itself.

pebirdJanuary 14th, 2015 at 2:15 pm

The government debt is equivalent to the net financial assets held by the private sector

Assuming wealth is a financial stock that is expended at a lower rate than income over a given period, then advocating a limit to GDP to government debt ratio is basically a position that private wealth should be limited by policy.

Just what I would expect from Fortune magazine, fortunes for the few.

cwmayer2004January 14th, 2015 at 2:49 pm

I've talked to a lot of people from the conservative and libertarian end of the spectrum about MMT, and they gag because they don't like the political implications. They want a smaller, less intrusive government and MMT knocks down a big argument of theirs, namely, that we "can't afford it." As we know, MMT is not incompatible with a desire for a smaller government, but it does make you change your arguments.

So, I agree – it's all about the politics…

spenfieldsJanuary 14th, 2015 at 10:35 pm

I agree. This is political battle which is deciding who gets to create money for what end. Is it bankers who can do it to earn interest for themselves? Or is it governments who can create on behalf of the people, growing economies in a debt-free and thus more stable manner?

Andrew_M_GarlandJanuary 15th, 2015 at 3:44 am

So much of modern economics depends on a subtle understanding of metaphysics. In this case, what does "can" mean?

The pro-MMT meaning is that a government can print and spend as much money as it wants. Pay for resources with created money and don't bother collecting taxes or selling bonds. This is so much easier, and each dollar spent raises production and produces prosperity. The only limit is the amount of real resources in the US, or on Earth.

The con-MMT meaning is that a government is physically able to create all the money it wants to, but it shouldn't want to do this too much. Hyperinflation might result, and it should operate within budgets and the democratic process.

The above post seems to take both positions. There is nothing wrong with creating and spending as much money as politicians want to, but they won't, because they will be under budget constraints.

Is the teaching of MMT that money creation and spending is good, but we shouldn't do too much? Why not do a good thing as much as physically possible, until our fingers are raw pushing the "Create Money" button?

The same question in a different way, what are the costs of money creation and inflation? Is money creation a cost or a benefit? Or, does it change from a benefit to a cost along the way, and where along the way? Is there any quantification to the MMT theory?

PZ_January 17th, 2015 at 4:53 am

And political goal of mainstream economics is to make people poor. That is the aim of their every singe policy recommendation. Incredible!

DismayedFebruary 3rd, 2015 at 1:48 pm

There's a great deal on the web about MMT, and Professor Wray has written a number of very good books about MMT:

A key part of MMT is the acknowledgement that you can create inflation by spending beyond the real capacity constraints of the economy. And a logical conclusion of MMT is that government can provide a job guarantee without fueling inflation.