Saturday, 30 October 2021

Whoopee: CUSP publishes long inconclusive article on MMT, the debt and deficit.


CUSP (Centre for the Understanding of Sustainable Prosperity) describes itself at the start of the article as “an internationally leading research organisation funded by the UK’s Economic and Social Research Council (ESRC)”. Well, they WOULD give a flattering description of themselves, wouldn't they? The authors are Tim Jackson and Andrew Jackson.

I'm amazed to see Andrew Jackson, who co-authored what is sometimes called “Positive Money's Bible” (the book “Modernising Money”), which was a brilliant bit of work, if rather long, now authoring this boring article by CUSP.

The article – tediously long at 4,500 words - does get some things right. E.g. it draws attention to the incompetence of the IMF on the subject of debts and deficits. To be exact, the authors say, “The International Monetary Fund (IMF) initially appeared to support Reinhart and Rogoff, suggesting in 2013 that the most ‘critical fiscal policy requirements’ are a ‘persistent but gradual consolidation and, for the United States and Japan, the design and implementation of comprehensive medium-term deficit-reduction plans’.”

Unfortunately the conclusion of the CUSP article is so vague and inclusive, that it's not clear what the point of the article is. The conclusion reads...

“Our principal call here is for a greater degree of flexibility in the use of both monetary and fiscal policy and for better coordination between them. That flexibility should extend not only to the appropriate allocation of the respective targets of price stability and debt sustainability, but also to the precise mandates of the institutions involved in delivering those targets and the mechanisms through which they are achieved.”

The REAL OBJECTIVE of this CUSP article should be obvious: it's to make it look like the highly qualified bores associated with CUSP are doing something, which justifies their salaries.

As for the article's “call for greater flexibility”,that clashes with the call for “precise mandates of the institutions involved in delivering those targets and the mechanisms through which they are achieved.”

If the “mandates” are “precise”, that implies less flexibility than would otherwise be the case.

But not to worry: MMT has set out the “mandates” over and over, and I have added to that numerous times on this blog.

The first basic principle is that, as MMT says, the size of the deficit and debt are irrelevant: the only important consideration is minimising unemployment in as far as that is compatible with keeping to the inflation target. Second, there two obvious problems with the latter policy. The CUSP authors rightly draw attention to one, but appear to be oblivious of the second.

The first is: what happens, given a large debt, if interest rates rise? Government does not really want to had out large sums by way of interest payments to the cash rich. Plus any such interest payments will increase the deficit for reasons that have nothing to do with the JUSTIFIED reason for increasing it, namely dealing with excess unemployment.

Well there's a simple solution to that problem, namely to simply refuse to roll over debt at the new higher interest rate as it becomes due for rollover. I.e. just print money, hand it to previous debt holders and tell them to go away.

Of course that would result in the private sector holding too much cash, which would probably cause excess demand. But that's easily dealt with via higher tax, particularly on the wealthy.

The second problem, which is very similar to the first, is this. The need for a larger than usual deficit probably arises from, or at least is contributed to by an increased desire by the private sector to hoard cash rather than spend it.

But what happens if that desire reverses itself? Well, we're back with the situation where the private sector has an excess stock of cash, and the solution is the same: rob the private sector of that stock via extra tax!

Problems solved!!!!!!

As MMT has claimed for a long time, the best rate of interest on government debt is zero. Doubtless it can't be held at EXACTLY zero all the time. But at least, given the latter “solutions”, it can be held NEAR ZERO for much of the time.

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