Thursday, 22 October 2020

Stephen King of the HSBC unfortunately writes an article about MMT.


It’s in the Financial Times and is entitled “MMT: The case against Modern Monetary Theory.” King is a senior economic adviser at HSBC.

Well first off, the title is sloppy, isn't it? I mean titles of articles are supposed to short and snappy. So what’s the phrase “Modern Monetary Theory” AND the acronym “MMT” doing there? “The case against” followed either by “MMT” or “Modern Monetary Theory” would be better. But never mind: that’s a minor criticism.

King’s first substantial point against MMT is that it involves giving the keys to the printing press to politicians. As he puts it “Giving elected representatives the keys to the printing press is the equivalent of giving a gambling addict the keys to the casino.”

Well actually MMT does not SPECIFICALLY say that it’s POLITICIANS who should control the press. In fact MMTers are largely silent on exactly who should have the keys, which (as I’ve been pointing out for years) is a weakness in MMT.

Much the best answer to the latter question is the one given by Ben Dyson (founder of Positive Money) – an answer which Ben Bernanke has supported as has Richard Werner and the New Economics Foundation (p.10-11 here). And that’s to have some sort of independent committee of economists decide the AMOUNT of new money to create and spend, while POLITICIANS (quite rightly) retain the right to decide what the money is spent on, or whether the new money should be used to cut taxes.    

King’s next blunder comes in his next sentence where he suggests (truly hilarious this) that MMT claims tax collection should cease. That is, King says “Those governments without access to tax revenues can instead “debase the coinage”.

If King wants to make totally lunatic claims like that, you’d think he’d provide some sort of source for the claim.

King’s final blunder comes in his last paragraph where he makes the tired old claim that there will be a bill to pay for the current money printing spree and that the bill will come in the form of “….higher taxes, more austerity, rising inflation or eventual default.”

Now the flaw in that argument (again, as I’ve been pointing out for years on this blog) is that higher taxes may well be required, but that does not, repeat not, repeat not, repeat not equate to any sort of burden on households or the private sector generally.

Now to the uninitiated, (e.g. ignoramuses like Stephen King), that might sound a strange claim. But it’s all quite simple in fact.

As King (and indeed others) have rightly said, the current money printing spree may well have to be reined in at some point, so as to prevent the excess inflation that might result from that excess money supply. But note that the SOLE PURPOSE of those tax increases is to hold demand down to the level that minimises unemployment while keeping inflation on target (NAIRU if you like).  

I.e. those tax increases do not actually cut GDP or household incomes, or involve any of the “austerity” to which King refers. And that might seem a surprising result. Indeed, in that those tax increases prevent seriously excessive inflation, it’s quite possible that those tax increases ACTUALLY RAISE living standards.

Unfortunately that point will be a mile above the head of Stephen King and numerous other twits at the top of the economics profession.   


1 comment:

  1. Such a refreshing read. I nearly ruined my morning on Kings article.


Post a comment.