Various economists have tumbled to a point that has long been obvious to
advocates of Modern Monetary Theory, namely that escaping a recession is easy:
just print money and spend it (and/or cut taxes). Or to cite Mosler’s law, “There is no financial
crisis so deep that a sufficiently large tax cut or spending increase cannot
deal with it.” That’s set out in yellow at the top of Warren Mosler’s site. (And
for the benefit of the ignoramuses who think that money printing always leads
to inflation, it won’t if the economy has spare capacity.)
Howevever, the economists who have tumbled to the above point often
claim that the extra spending, for some bizarre reason, has to come in the form
of extra public INVESTMENT. Why?
Three examples of this “investment complex” are as follows. First this article
by Mario Seccareccia,
Professor of Economics, University of Ottawa. He wants to see “massive public
investment” so as to “sustain aggregate demand in the long term”.
Complete nonsense! You don’t need “investment” to “sustain demand”: you
simply need SPENDING (as implied by Mosler’s law). The question as to whether
that spending should take the form of investment or consumption spending is an
ENTIRELY SEPARATE ISSUE.
The moral is that if you produce a nice new simple law, the equivalent of E=MC2 in economics, no one wants to know you. In contrast, if you produce
tens of thousands of words of hot air, you’ll be enthusiastically applauded by
your fellow academics, plus you may even be nominated for a Nobel Prize. Well I'm exaggerating, but no by a huge amount.
The second example of the “investment complex” is an article by Tejvan Pettinger
(search for the phrase “public sector investment”).
As to the third example, you shouldn’t be surprised to learn that
Kenneth Rogoff (professional advocate of all forms of economic illiteracy) also
subscribes to the above “investment” nonsense. Search for “high return
infrastructure” in this Financial
Times article.
This will be way above the head of Prof. Kenneth Rogoff (and other
Harvard economics department academics) but if an investment is “high-return”
is should be made ANYWAY: i.e. regardless of whether the economy is in
recession or not. That of course is a repetition of a point already made above.
But when dealing with dimwits, sometimes constant repetition is the only way of
getting the message across.
Ralph, Yes what you say is true. However, investment is spending too. So it may help to get the MMT idea if we embrace the word 'investment' too. Investment in education, health, transport, the environment, digital networks, housing etc is something MMT advocates shouldn't have too much difficulty supporting.
ReplyDeleteI personally didn't like schemes like 'cash for clunkers'. They gave the concept of stimulus spending a bad name.