Wednesday, 10 February 2021

Adam Smith Institute tries to criticise MMT.



That’s in an ASI article by Tim Worstall entitled “This is going to be the most lovely test of Modern Monetary Theory”.

Tim’s basic criticism of MMT is that Joe Biden’s plans for more stimulus than Trump envisaged could result in excess inflation, which allegedly shows that MMT’s “print and spend” policy is flawed.

Well the first problem there is that given excess inflation, the Fed has the power to negate any excess fiscal stimulus with an interest rate hike.

Of course, if a country adopts MMT in toto, i.e. implements stimulus JUST VIA “print and spend” with interest rate hikes being ruled out, and the decision on how much to print is left with politicians, there is a danger politicians will “do a Mugabe” and print too much. And that is Tim Worstall’s basic point.

Well it’s pretty stark staring obvious that politicians, if left to their own devices are liable to do too much “print and spend”!!  The solution to that problem, (as Ben Dyson (founder of Positive Money) explained in his book “Modernising Money” ten years ago) is not to let politicians take the latter decision! Doh! (Incidentally, Ben Benanke gave his blessing to that sort of Positive Money system)

I.e. under a Ben Dyson regime, the central bank (or some other independent committee of economists) decides the AMOUNT OF print and spend, while the decision as to exactly what to spend the extra money on (or whether to implement tax cuts) stays with politicians.

To put that another way, if Biden type stimulus does prove excessive, that does not indicate a weakness in MMT: it indicates a weakness in letting politicians rather than central banks have the ultimate say in how big a stimulus package should be. 


Endnote: Positive Money.   Ben Dyson and Positive Money certainly advocated the above split of responsibilities as between politicians and central bank for the first five or so years of Positive Money’s existence. Plus you’ll find the above “split” idea advocated in numerous PM publications other than “Modernising Money”. However Positive Money has recently been taken over by a collection of people who advocate a strange assortment of woke ideas, like trying to tell Brits they should all feel more guilty about slavery. Possibly Brits SHOULD FEEL more guilty about slavery, but that sort of thing is not really what PM was set up for. Thus I am not entirely clear what Positive Money’s CURRENT policy is on the “split” point.  

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