As reader Sam C points out, the prominent Bloomberg story, Ignored for Years, a Radical Economic Theory Is Gaining Converts, gives a positive and accurate, if superficial, treatment of Modern Monetary Theory (MMT). Interestingly, it attributes the increased receptivity to MMT as the result of investor frustration and concern with central banks resorting to desperate and destructive-looking measures like negative interest rates, and the accompanying recognition that the only way to pull stagnant and worse, deflating economies out of the ditch is through sustained fiscal stimulus, aka deficits. That’s anathema under the current neoliberal orthodoxy, but it’s becoming more obvious with every passing day that conventional thinking failed to anticipate the criss and has done a mediocre-at-best job at dealing with the aftermath.
Key extracts from the Bloomberg account:
“There’s an acknowledgment, even in the investor community, that monetary policy is kind of running out of ammo,” said Thomas Costerg, economist at Standard Chartered Bank in New York. “The focus is now shifting to fiscal policy.”
That’s where it should have been all along, according to Modern Money Theory. The 20-something-year-old doctrine, on the fringes of economic thought, is getting a hearing with an unconventional take on government spending in nations with their own currency.
Such countries, the MMTers argue, face no risk of fiscal crisis. They may owe debts in, say, dollars or yen — but they’re also the monopoly creators of dollars or yen, so can always meet their obligations. For the same reason, they don’t need to finance spending by collecting taxes, or even selling bonds.
The long-run implication of that approach has many economists worried.
“I have no problem with deficit spending,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York. “But this idea of the government printing money — unlimited amounts of money — and running unlimited, infinite deficits, that could become unhinged pretty quickly.”
To which MMT replies: No one’s saying there are no limits. Real resources can be a constraint — how much labor is available to build that road? Taxes are an essential tool, to ensure demand for the currency and cool the economy if it overheats. But the MMTers argue there’s plenty of room to spend without triggering inflation.
Given that heterodox ideas are typically shut out of the mainstream media, and when they are mentioned, seldom get a positive treatment, this article represents an encouraging departure. I suggest you read it in full. It’s a welcome sign that failed theories are finally leading ones with more promise to get a hearing.