Wednesday, 1 May 2019

Gavyn Davies tries to criticise MMT.

At the end of a Financial Times article entitled “What you need to know about MMT”, Davies says the following  - I’ve put his words in green italics.

“These arguments imply that investors should distinguish sharply between two states of the world in which the ideas of MMT might be implemented.
When economies are stuck at the zero lower bound, like Japan and the eurozone today, MMT could persuade governments and central banks to be less worried about debt constraints when considering expansionary fiscal policy, financed by money creation. Within limits and bolstered by institutional reforms to maintain confidence, this might restore healthy levels of demand more quickly.

 However, when an economy is operating normally, and especially when it is close to full employment, MMT should not be used to justify money financed deficit increases, such as those to finance the Green New Deal. In fact, the results could be highly inflationary and financially destabilising. These are the conditions that apply in the US and UK today."

Well, (and this has nothing to do with MMT) it’s a bit hard to see why there should be any “sharp distinction” between where an economy is “operating normally” and where it is in recession. That is, it is nothing more than a common sense observation that there are all degrees of recession, from serious 1930s type recessions to the situation where an economy is operating just a little below capacity.

I look forward to enjoying more incompetent attempts by supposedly authoritative economics commentators to criticise MMT....:-)

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