The past few years have taught us a lot about the effects and operations of monetary policy in the United States.John! John!!!
The Federal government responded to the economic downturn by spending enormous amounts and Federal Reserve responded to the financial crisis with an enormous expansion of its balance sheet — what the proles call "printing money" — and both occurred without any attendant inflation or giant soaring of interest rates.
The school of economics that best explains this phenomenon is called "Modern Monetary Theory" or MMT. The MMT school is made up of scholars, businessmen and online advocates who have a deep understanding of the operations of the actual operational aspects of our monetary system.
They argue, quite persuasively, that our monetary system is built in such a way that our government is never revenue constrained, which is to say it can spend as much as it likes, because the government creates our money. The real constraint on government spending is price inflation, which occurs when government and private spending outpace economic output.
I was first attracted to MMT because of the focus on monetary operations. I really enjoy figuring outMany of the MMT people have studied this stuff in detail.
"The nitty-gritty details of how things like swap lines, Treasury auctions, and payment of claims on the Treasury occur and reading detailed papers on the daily meetings of the Treasury and the Fed estimating what Federal spending will amount to" are not the exclusive domain of the MMTers, any damn Fed watcher worth his salt will follow this stuff. Most with alternative interpretations to the way the MMTers read the data and statements, so please don't give the MMTers a gold star for just reading material that many others do.
You also state that:
They [MMTers] argue, quite persuasively, that our monetary system is built in such a way that our government is never revenue constrained, which is to say it can spend as much as it likes, because the government creates our money. The real constraint on government spending is price inflation, which occurs when government and private spending outpace economic outputThis is not an MMT view it is an Austrian school view. Here is Austrian economist Murray Rothbard on the matter:
Throughout history, governments have been chronically short of revenue. The reason should be clear: unlike you and me, governments do not produce useful goods and services that they can sell on the market; governments, rather than producing and selling services, live parasitically off the market and off society. Unlike every other person and institution in society, government obtains its revenue from coercion, from taxation...If taxation is permanently short of the style of expenditures desired by the State, how can it make up the difference? By getting control of the money supply, or, to put it bluntly, by counterfeiting....[We must stop the central banks] To save our economy from destruction and from the eventual holocaust of runaway inflation, we the people must take the money-supply function back from the government.John, what really separates the MMTers from the Austrian school, and others, is their view that the U.S. debt can be paid off with newly created "U.S. notes" and that this will not be inflationary. Further, they want to replace current Federal Reserve notes with the newly created "U.S. notes". They some how see all this money printing as non-inflationary!
This is one dangerous view.
John, you go on:
There's a lot more to MMT than its view of monetary operations and government funding, however. They believe the government should guarantee jobs for everyone, that the financial system tends toward crisis and corruption, that capitalist economies are not self-regulating, and that fiscal policy should be measured by its effect on the economy not on whether budgets are balanced. Some of this is fine, other parts I regard as distractions (such as the jobs guarantee).John, there is nothing right about these views. The financial system doesn't tend toward crisis. An economy where money is controlled by a central banks, such as the Federal Reserve, is prone to crisis, but takeaway central bank money manipulation and the crises disappear. When MMTers say that "capitalist economies are not self-regulating" that sounds to me like they are calling for more government regulatory agencies, which is how power centers are developed and can be used to corrupt.
And as far as "fiscal policy should be measured by its effect on the economy," the first question that comes to mind is does this mean this supersedes private property that as long as something is good for the economy, it can be taxed away from an individual? Further, just how do you measure what is good for an economy? Value is subjective. What may be viewed as good by one person, may be viewed as a total annoyance by another. Thus, it is extremely dangerous to go around talking about what is "good for the economy, especially when you are talking fiscal policy.
I think you get some of this, John, when you write:
But my biggest point of departure with the MMTers is they display a political and economic naivete when it comes to the effects of government spending. When they talk about spending it is almost always in terms of abstract aggregates, which is weird for a school of economics so focused on the specifics of monetary operations. What this means is that they miss the distortions of crony capitalism the accompanies so much government spending.But, it goes beyond crony capitalism. Even if we assume government was run by a bunch of saints, there is no way for them to determine a collective good for the economy, since values are subjective and change from person to person.
That's why when you write:
So my recommendation to the MMTers is that they stop talking about spending in the abstract. Start talking about spending that leads to crony capitalism and spending that does not. Get on the side of the anti-crony, Tea Party brigades. There's a natural friendship to be made.I must disagree. Battling cronyism, although cronyism is real, won't solve the problem of having choices made at a central power level, rather than by individuals. You just can't eliminate the fact that subjective values, eliminate the possibility of choices being made at a central authority that will be "good for all.".
In other words, from start to finish, there is nothing positive or correct about the MMT policies or thinking.