One of the leading lights of MMT,
Warren Mosler, suggested that the only liability government should issue is
money (monetary base to be exact). I.e. he suggests that government issue no
interest paying debt (see 2nd last paragraph here).
That amounts to saying that the
central bank base rate should be permanently held at zero – a point which
Warren argued in more detail here.
But that in turn implies that
adjustments to aggregate demand (AD) should be made by fiscal means rather than
monetary means (like interest rate adjustments), and there is much to be said
for that. For example, an interest rate cut (or QE) channel stimulus into an
economy JUST VIA investment. That makes as much sense as channelling stimulus
into an economy just via restaurants, theatres, and subsidised electricity and
. . . add a few other sectors of the economy or products you like - at random.
But adjusting AD just via fiscal
measures means we need a quicker method of doing that adjustment than we have
at the moment: in particular, we don’t want to have to wait while politicians spend
months debating the pros and cons of various types of government spending
(and/or tax cuts) before stimulus is effected. But at the same time, we do want
the electorate and politicians to retain control of strictly political
decisions, like what proportion of GDP is allocated to public spending and how
that spending is split between education, defence, etc. How to square that
circle?
Well the solution is set out in a publication
authored by Positive Money, Richard Werner and the New Economics Foundation.
And the solution is easy: let politicians decide whatever they want in respect
of the above POLITICAL points. But when it comes to the DEFICIT, leave that in
the hands of a committee of economists. And if those economists thought that
£Xbn of stimulus was in order over the next six months, they’d say to
politicians, “Here’s your £Xbn. Do what you want with it, but we advise that
stimulus spending is spread FAIRLY WIDELY: concentrating the spending on just a
few products or sectors of the economy will result in distortions or wild
gyrations in spending on those areas.”
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