Commentaries (some of them cheeky or provocative) on economic topics by Ralph Musgrave. This site is dedicated to Abba Lerner. I disagree with several claims made by Lerner, and made by his intellectual descendants, that is advocates of Modern Monetary Theory (MMT). But I regard MMT on balance as being a breath of fresh air for economics.
Tuesday, 13 November 2018
Academia’s aversion to free speech is pathetic.
But people are fighting back: there’s a new journal where people can write articles anonymously. So if you suspect you might be accused of what George Orwell called “wrong-think”, you can try publishing what you have to say there. And on the same theme, I like this article by Scott Sumner (economics prof at Bentley University, Bentley University, Massachusetts) in which he says in relation to the national debt, “So how large a debt should we have? I don’t know.” (The article is entitled "Peak fiscal indiscipline")
Now given that SS writes about a million words a year on interest rates, national debts, monetary policy, fiscal policy, and related matters, that “I don’t know” admission is a bit strange.
I actually called him out on that one in the comments after his article, and suggested what the optimum debt might be (which is actually not a hundred miles from the amount that would result from adopting the new Labour Party “fiscal rule”). My comment appeared, but SS evidently didn’t like it, because it then disappeared. Like I say, some academics are not too keen on free speech.
I actually said:
"The debt ideally needs to be whatever induces the private sector to spend at a rate that brings full employment when the rate of interest on the debt is zero. I’ll explain.
As to best rate of interest on the debt, I see no reason why money should be confiscated from taxpayers just to pay interest to people who want to hoard dollars. I.e. agree with Milton Friedman who advocated the issuance of base money, but thought the size of the debt should be zero.
As to the AMOUNT of Fed issued dollars to issue, private sector spending varies with the stock of the private sector’s stock of liquid assets, thus the number of dollars issued, ideally, needs to be whatever brings full employment.
Obviously attaining the above ideal is difficult, but monetary and fiscal policy should always aim at moving towards it. Indeed, that’s pretty much what the UK Labour Party’s recently announced “fiscal rule” does".
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To rehash a previous discussion, for me full employment should not be public policy's goal. Knowledge advancement should be our public policy goal.
ReplyDeleteHayek might say that since knowledge is measured by prices, only employees can expand valuable knowledge.
I however challenge the basic assumption that prices best represent value. For me, markets are not efficient, prices are arbitrary, inflation is therefore psychological and can be easily neutralized by printing money faster than prices rise. In my model the private sector already prints money at their leisure, prints it faster than asset prices rise so their purchasing power keeps increasing. The private sector however allocates the money they create arbitrarily, fickly, capriciously. If government prints money faster than prices rise and distributes the new money equally, the negative distributional effects of money-printing are greatly reduced. Purchasing power stability should replace nominal price stability as a mandate for central banks.