Over the weekend, I had a realization about Modern Monetary Theory and why it's significant. Should I do a tweetstorm on it?
Surprisingly, people want me to go forward, so here's what I was thinking about with respect to MMT...
Critics of MMT make various claims, like
"It's not saying anything new"
"We've always known that for a sovereign currency issuer, the risk is inflation, not default"
"The definition of a sovereign currency issuer is a spectrum, not absolute, so government debt still matters"
"It's not saying anything new"
"We've always known that for a sovereign currency issuer, the risk is inflation, not default"
"The definition of a sovereign currency issuer is a spectrum, not absolute, so government debt still matters"
Or they say they think there are limits to how far government debt can grow, but that they agree with MMT somewhat in that we can make use of fiscal policy much more.
And all these points are fine, I guess, as far as they go. They may have some merit, who knows.
And all these points are fine, I guess, as far as they go. They may have some merit, who knows.
But all of the "we've already known all this stuff" arguments miss the point that nobody was making any headway before.
As far as I can tell, there was basically zero progress being made in the public sphere to counter fear mongering on government debt. None.
As far as I can tell, there was basically zero progress being made in the public sphere to counter fear mongering on government debt. None.
Now if the point of economics is just to publish papers or whatever, and critique other people's papers then that's fine.
But if the point of economics is to change people's minds and change the debate and open up pathways to better policies, then people were failing before.
But if the point of economics is to change people's minds and change the debate and open up pathways to better policies, then people were failing before.
But thanks to MMT (and MMT alone) there's a real effort to shift the debate about the dangers of government debt, and also to treat fiscal policy as the primary economic stabilization tool (as opposed to monetary policy). And that's starting to show up in how politicians talk.
(Not many politicians of course, but some. And you have to start somewhere)
As MIT's Andrew Lo has put it (in his critique of the efficient market hypothesis) “It takes a theory to beat a theory.” advisorperspectives.com/articles/2017/…
Until someone was willing to package these ideas under a name, call it something and make a real effort to change the our language and our metaphors, then it wasn't going to go anywhere. And that's what folks like @StephanieKelton and many others are successfully doing. /fin
