Scott Sumner’s strange ideas on MMT.

 
A recent article by Scott Sumner attempts to criticise MMT. All the article actually does is to show that he doesn’t have much idea as to what MMT is all about. (Title of the article is “Why Money Matters”.)

The article deals at length with just one point, namely the effect of swapping dollars for government issued bonds. (Where the central bank creates money and buys up bonds, that swap equals QE, of course). Plus the article claims MMT’s ideas on swapping bonds for cash are defective.

Now there’s just one glaring flaw in that, which is that MMTers advocate a more or less permanent zero interest rate (on government bonds and government liabilities generally). Incidentally Milton Friedman advocated the same.

Now in that sort of permanent zero interest rate scenario there’d scarcely be any government issued bonds! What’s the point in locking up your money for a year or several years if there is no reward for doing so? Absolutely none!

Indeed Milton Friedman is quite explicit about that: that is, he said he didn’t see the point of government borrowing, except in emergencies. (See his para starting “Under the proposal….” here.)

So even if Scott Sumner’s criticisms are valid, he is dealing with a matter which is near irrelevant for MMTers. That’s not much a body blow for MMT!

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Postscript (4th Dec 2020).   Then in the final three paras of his article he says "the public’s attempt to get rid of excess cash balances will drive up the price of a wide range of assets, leading to more total spending," And apparently "All of this is ignored by MMTers."

So I left about five links in the comments to articles by MMTers which very specifically refer to the stimulatory effects of extra cash balances."  Then Sumner accuses me of confusing stocks with flows when in fact those links refer very specifically to stocks!!

Frankly it's difficult to know how to descrbe Scott Sumner's grasp of MMT without resorting to three letter words.