Wednesday, 2 June 2021

A poor criticism of MMT by Alexander William Salter.


Alexander Salter is an associate professor of economics in the Rawls College of Business at Texas Tech University. In an article entitled “There’s nothing modern about MMT”, his central claim is that MMT won’t work if there is ineffective control of money creation. Well that’s pretty obvious!

But the flaw in that idea is that stimulus has actually been effected over the last ten years or so by organising an astronomic and unprecedented money supply increase (base money in particular), yet serious inflation is nowhere to be seen. I.e. stimulus has been implemented very much as prescribed by MMT, yet control of the money supply increase has been well under control. Ergo effective control cannot be all that difficult.

It is true that MMTers do not go into nearly enough detail on exactly how control should be organised, but that’s not much a problem because numerous other organisations and economists (including one former Fed chairman and one former vice chairman) have also advocated implementing stimulus via money creation and they have in fact set out “control” mechanisms.

The favourite control mechanism advocated by the latter economists is simply to have some sort of independent committee of economists, possibly at the central bank, decide how much money to create. For one organisation that advocates that, see p.10 here.

Re senior Fed people, Bernanke put in a good word for that sort of system. See para starting “A possible arrangement….” in his Fortune article “Here’s How Ben Bernanke’s Helicopter Money Plan Might Work.”

Plus Stanley Fischer, former vice chairman of the Fed, and co-authors supported that sort of system. See their article “Dealing with the next downturn” published by “The European Money and Finance Forum”.


P.S. (4th June 2021).    Having said above that MMT is a bit vague on exactly who decides the size of the deficit, Stephanie Kelton in her book “The Deficit Myth” does actually say that a committee of economists in the form of the Congressional Budget Office should take that decision. See just under the heading “Guardrails for Discretionary Fiscal Adjustments”, Ch8. Thus Alexander Salter’s criticisms are even weaker than I suggested when writing the above paragraphs. 

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