Wednesday, 6 March 2019
The incompetent Kenneth Rogoff on MMT.
Rogoff penned an article published by Project Syndicate recently criticising Modern Monetary Theory. The article is nonsense from start to finish. I’ll run through it, which won’t take long because it’s a short article.
First, Rogoff cites Jerome Powell (Fed chairman) as saying the US debt:GDP ratio is already high which allegedly means that there are dangers in using the Fed to fund more public spending. Well one problem there is that the equivalent ratio in the UK in 1945 was over double the current US ratio: around 250% compared to the current US ratio of around 100%. The UK 250% did not prove any sort of a problem: that debt gradually declined to about 50% in the 1990s.
Moreover, the argument that something is large (or small) compared to what it used to be, and thus that we shouldn’t allow that new size is a feeble argument. Buildings are at least twenty times as high as they were two hundred years ago. Is that a problem?
Next Rogoff says “The US is lucky that it can issue debt in dollars, but the printing press is not a panacea.” So who said money printing WAS A panacea? Rogoff doesn’t say.
Next, Rogoff says “If investors become more reluctant to hold a country’s debt, they probably will not be too thrilled about holding its currency either. If that country tries to dump a lot of it on the market, inflation will result.”
So excess money printing leads to excess inflation? You don’t say! Every mentally retarded ten year old knows that. Plus MMT does not (amazing as this might seem) advocate LIMITLESS amounts of money printing: it advocates just enough to bring full employment without excess inflation. That’s it.
Next, Rogoff points to the fact that at the moment, the World is happy to absorb more US government debt at remarkably low rates of interest. He then says “That said, it would be folly to assume that current favorable conditions will last forever, or to ignore the real risks faced by countries with high and rising debt. These include potentially more difficult risk-return tradeoffs in using fiscal policy to fight a financial crisis, respond to a large-scale natural disaster or pandemic, or mobilize for a physical conflict or cyberwar. As a great deal of empirical evidence has shown, nothing weighs on a country’s long-term trend growth like being financially hamstrung in a crisis.”
OK, so what is a country supposed to do given excess unemployment: abstain from fiscal stimulus and leave a million unemployed to rot just because there are risks (as there always have been) associated with fiscal stimulus? (Note: I am not saying there actually is excess unemployment in the US right now. The US economy may well be very near capacity. I am just assuming for the sake of argument that there is excess unemployment.)
Rogoff’s masterly solution to the latter “risks” is a longer term structure for US debt. (Bonds issued by the US government only last about three years compared to more like ten years for the UK)
Well frankly that has little to do with the arguments for and against MMT. There are a whole string of pros and cons associated with long and short term government bonds, with official UK views clearly differing from US views.
Then in his penultimate paragraph, Rogoff criticises QE. Well what’s that got to do with MMT? Practically nothing.
In short, if this Project Syndicate article of Rogoff’s is any guide, he doesn’t have the faintest idea what MMT consists of, and in as far as he does have a grasp, he totally fails to land any punches on it.
Given that Rogoff was advocating a limit to stimulus at the height of the recent recession (i.e. advocating austerity) it’s a wonder anyone still listens to him.
As Laurie MacFarlane of the New Economics Foundation said in a tweet, it’s a bit of a puzzle why Rogoff is still employed as an economics professor at Harvard.