Wednesday, 1 May 2013
Brad DeLong: the new MMTer?
Brad DeLong put a long quote from Abba Lerner on his blog a few days ago. Lerner is sometimes said to be the founding father of Modern Monetary Theory (MMT).
Then he had an article published by Project Syndicate which is pretty much MMT compliant.
My only quibble with the latter article is that he seems to suggest that if the interest rate demanded for holding a country’s debt rises too far, the country is in trouble. I beg to differ.
If those bond vigilantes want an excessive amount of interest, the relevant country can just print money instead of borrow it (as Keynes and Milton Friedman pointed out). And that activity is NOT NECESSARILY inflationary: after all we’ve printed astronomical and unprecedented amounts of money via QE, and excess inflation is nowhere to be seen.
However, if it looks like inflation WILL ENSUE, that just proves the economy is at capacity, thus printing cannot be taken any further.
In other words, as MMTers have pointed out ad nausiam, the debt and deficit are not constraints. Inflation on the other IS A CONSTRAINT. Or rather, it’s THE constraint.
One can never be 100% sure what is going on in someone else’s mind, but it looks to me like DeLong is edging towards MMT.