Saturday, 10 May 2014

Summers makes speech. MMTers yawn.

Larry Summers’s big “secular stagnation” idea is that various factors will tend to reduce demand in the future: for example a declining or less fast expansion in the population which in turn means less investment spending.  And his solution is to have government spend more, and/or cut taxes – i.e. run a deficit.
Well whoopee. That point is covered by Mosler’s Law which states that “There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.” (See sentence in yellow at the top of Warren Mosler’s site). Warren is of course a leading advocate of Modern Monetary Theory (MMT).
Of course the Neanderthals who teach economics at Harvard (Kenneth Rogoff, Carmen Reinhart, etc) plus politicians think that expanding the deficit means expanding the debt. But as Keynes pointed out 80 years ago, a deficit can be funded by borrowed or printed money. So there’s no need to expand the debt. But you don’t expect Harvard economists to have heard of or understand Keynes do you?

Statement of the bleeding obvious.
So why is Summers making a statement of the bleeding obvious? Well it could be cos he’s stupid (which I suspect he is). But an alternative is that he is being very smart, and as follows.
As just pointed out, politician/Neanderthals think that more deficit means more debt. Thus they’ve constrained fiscal stimulus in recent years and will probably continue to constrain it: the price for that stupidity being paid by the unemployed, of course.
So POSSIBLY what Summers is doing is producing a super dooper new idea with an impressive and technical sounding name, i.e. “secular stagnation”, in the hope that that important and fiendishly technical sounding phrase impresses politician/Neanderthals, which it certainly will. So come the need for fiscal stimulus, we just tell polilticians that the latter is needed in order to deal with “secular stagnation”, and they all be overawed by that magic phrase “secular stagnation” and implement some fiscal stimulus. Indeed, there are even a number of so called “professional” economists who are impressed by the phrase.

1 comment:

  1. Thats some good sarcasm.

    Even issuing bonds is necessarily "printing" as bonds can only be "bought" with reserves. Before QE, there was less than $1T in reserve balances and yet $12T is securities balances, well then how did people deposit $12T worth of reserves into securities accounts?

    Obviously, the Fed had to print the reserves in the first place.

    Mosler also has at the top of his blog "the money to pay taxes and buy bonds comes from govt spending"


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