Monday, 28 January 2019

Matt O’Brien criticises MMT in the Washington Post.

An article in the Washington Post by Matt O'Brien explains what every ten year old knows, namely that excessive money printing leads to inflation. The article’s title is: “Everything you need to know about the theory that deficits don’t matter”. I’m eternally grateful to WaPo.

Matt O’Brien criticises MMT on the grounds that it involves relying on politicians to raise taxes by enough to damp down any excess inflation. That’s a point which arguably has some validity, though it is not really supported by UK experience. That is, prior to 1997 when the Bank of England was granted independence, UK politicians (the finance minister in particular) effectively had the power to print money willy nilly, since the finance minister controlled the BoE.  That did result in SOME irresponsible pre-election booms, but did not result in hyperinflation.

And apart from the UK, there seems to be no relationship between central bank independence and inflation according to the first chart here – you need to scroll down quite a bit.

However, there’s an easy solution to the “politician problem” to which O’Brien draws attention: it’s to have some sort of independent committee of economists determine how much money to create / print: and could easily be some existing central bank committee, e.g. the BoE’s Monetary Policy Committee. Indeed, one of the advocates of Overt Money Creation, namely Positive Money advocates just such a committee.

So O’Brien’s criticism of MMT is not totally invalid. But it’s a criticism that MMTers can very easily deal with, and indeed ought to deal with by mentioning something along the lines of Positive Money’s independent committee in MMT literature.

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