Friday, 25 September 2020

Two mistakes by MMT bigwigs.

One mistake was made by Warren Mosler and interestingly this mistake probably explains his strange belief that interest rate cuts do not boost demand. He claims in an article entitled “There is no right time for the Fed to raise rates” that “For every dollar borrowed there is a dollar saved…”.

Well thanks in part to the efforts of Positive Money since its foundation, and this more recent Bank of England article, it is now more widely appreciated that in order for private banks to lend more, they do not actually need to get money from anywhere. Put another way, the private bank system can create money out of thin air. Or put a third way, it is untrue to say that “for every dollar borrowed there is a dollar saved”.

The second mistake.

The second mistake is in this Financial Times article by three MMT bigwigs, Scott Fullwiler, Rohan Grey, and Nathan Tankus.

The para starting “Regardless of which policy…” argues that the more “we regulate big business for public purpose” the easier it is to deal with “bottlenecks” in the economy in general: an utterly bizarre argument.

The article was written in early 2019, but since then I haven’t noticed the authors expanding on their amazing new “regulating for public purpose reduces bottlenecks” theory. That’s because the theory is nonsense: I imagine the authors are hoping everyone has forgotten about the theory.

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