Was Any MMT Proponent CONTAINED IN THE Survey? 2

Was Any MMT Proponent CONTAINED IN THE Survey?

Question A: Countries that borrow in their own money should not get worried about government deficits because they can always create money to financing their debt. Question B: Countries that borrow in their own money can fund as much real government spending as they want by creating money. And in addition, most economists surveyed disagreed with both claims. Fine. But, not fine, actually.

Was any MMT proponent contained in the survey? Don’t be absurd, of course not (there have been a couple from MIT though–perhaps they thought this is close enough). How would a typical MMT proponent have solved both of these questions? I am sure that most could have answered in the same way as other economists. If this is the full case, how come-Chicago Booth preface the study with MMT then?

There are extensive possibilities, none which are attractive for Chicago Booth. Consider Question B first. Or, even better, let’s not. This question is so absurd it merits a response barely. Nobody believes that governments face no resource constraints. O.K., so let’s consider Question A, where some genuine confusion might be there.

Before I start though, I wish to make clear that I don’t purport to learn the whole MMT academic books very well. But I have done some reading and I’ve corresponded with some very smart, very thoughtful MMT proponents. I don’t agree with a lot of their views, but I think I see how some of what they state is both valid and unlike standard thinking. At least, it seems worth exploring.

What I am going to say is my very own interpretation — I am not speaking on behalf of MMTers. Nobody disagrees with this statement. MMTers like to make it explicit because, first, a lot of the general public does not understand this basic fact, and second, this misunderstanding is sometimes (perhaps often) used to promote particular ideological views on the “proper” role of authorities. Mainstream economists, like myself, like to point out what matters is not specialized default but financial “default.” Urgent inflation whittles away the purchasing power of these caught holding old money as new money is printed to pay for whatever. I believe it’s clear that MMTers understand why too.

  • Inflation averages 2% per yr
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This is seen in their constant mention of an “inflation constraint” as determining the economic limitations to government spending. I tried to formalize this idea in my own prior post; see here: Sustainable Deficits. But it’s more difficult than this — and in interesting ways, I think. Consider a large company, like General Motors.

GM issues both personal debt and equity. The debt GM issues are denominated in dollars, so it can go bankrupt. But GM also issues a kind of “money” –that is, I can use recently created equity to pay its employees or even to make acquisitions. The issuing more equity does not expose GM to greater default risk. Indeed, it may very well reduce it if the equity is utilized to buy back GM debt.

If GM is thinking about financing an acquisition through new equity issuance, the dialogue won’t about whether GM can afford to printing the new stocks. Obviously it can print all the stocks it wants. The question is if the acquisition is accretive or dilutive. If the former, then issuing new money can make the value of GM money rise. If the latter, then the new share issue will be inflationary (the purchasing power of GM shares will go down). Quite simply, “deficits don’t matter” in the sense that the exceptional GM liabilities do not matter by itself — what matters is something more fundamental.