RandomGuy
01-04-2012, 01:58 PM
Modern Monetary Theory: Government debt is meanless. Government can, and should be printing money like all get out, to get the economy moving again.
Interesting bit from, you guessed it, the Economist
I tried to get the most important parts of this VERY long article.
http://www.economist.com/node/21542174
-----------------------------------------
Marginal revolutionaries
The crisis and the blogosphere have opened mainstream economics up to new attack
....
These three schools [Keynes, Austrian, MMT] of macroeconomic thought differ in their pedigree, in their beliefs, in their persuasiveness and in their prospects. Yet they also have a lot in common. They have thrived on the back of massive disillusion with mainstream economics, which held that the economy would grow steadily if central banks kept inflation low and stable, and that there were no great gains in the offing from fiscal expansion, nor any great cause for concern over financial instability. And they have benefited hugely from blogging.
....
What’s more, put into the context of a pathetic response to the current crisis, the ideas offered by these very different schools all take on a similar form: that policymakers are overly worried about something that should concern them less. The Austrians see the bogeyman as deflation, the fear of which inflates bubbles. The market monetarists, diametrically opposed, see exaggerated fear of inflation. And the economy is getting too little help from fiscal stimulus, according to neo-chartalists, because of the government’s superstitious fear of insolvency.
The clearest example of the power of blogging as a way of getting fringe ideas noticed is “The Money Illusion”, a blog by Scott Sumner of Bentley University, in Waltham, Massachusetts. In the wake of the financial crisis Mr Sumner, a proponent of market monetarism, felt he had something to say, but no great hope of being heard.
...
A real solution
If the target were not believed, the Fed would have to do whatever it takes to hit it. That might include “heroic” purchases of assets, on a bigger scale than anything yet tried by the Fed or the Bank of England. Even then, people might refuse to spend the newly minted money, or the banks might also refuse to lend it.
But there are ways to make people spend, say market monetarists like Bill Woolsey of The Citadel, a military college in South Carolina. The Fed could impose a fee on bank reserves, leaving banks to impose a negative interest rate on their customers’ deposits. That might simply serve to fill up sock-drawers as people took the money out of their accounts. But eventually, instead of hoarding currency, they would spend and invest it, bidding up prices and, with luck, boosting production.
Thanks largely to Mr Sumner’s campaign, a growing number of mainstream economists—including Mr Krugman—now favours looking at a change to NGDP targeting. At its November meeting the Fed’s policy committee discussed the pros and cons of such a move—remarkable in itself for an idea so marginal just a couple of years ago. It did not, though, sweep all before it. Some committee members worried that switching to a new targeting regime could “risk unmooring longer-term inflation expectations”. If inflation were allowed to rise to 5%, for example, people might regard that as permanent and set wages accordingly, even as output returned to normal. To show its mettle, the Fed would then have to restrict growth; the costs of proving its seriousness might swamp the benefits of the new regime.
...
In the neo-chartalist view of the world, fiscal policy comes to resemble monetary policy. When the Treasury spends, it adds to the supply of money in circulation. When it taxes, it withdraws money. So for neo-chartalism to work as intended, budget-makers must both tighten policy once demand has been restored and inflation threatens and also be credible in their commitment always to do so. Otherwise self-fulfilling expectations of inflation will take root, as they did in the 1970s. That period of stagflation demonstrated the need to leave macroeconomic stabilisation to forward-looking technocrats—central bankers—thought responsive to economic news and unresponsive to political demands. If you can imagine fiscal policymakers in Congress allowing the economy to be run in such a way, then you too can be a neo-chartalist.
Clearly the tea-partiers who would not party with Mr Mosler during his Senate bid will have none of this. Ron Paul, the libertarian Texas congressman whose 2008 presidential campaign was one of the foundations of the tea party, and whose 2012 campaign is currently enjoying an enthusiasm few would have predicted, is a balanced-budget zealot, and from his pulpit as chair of a House subcommittee on monetary policy lambasts quantitative easing as “financial malfeasance”; indeed he advocates abolishing the Fed itself.
....
---------------------------
Gauranteed to drive followers of Ron Paul nuts.
Interesting bit from, you guessed it, the Economist
I tried to get the most important parts of this VERY long article.
http://www.economist.com/node/21542174
-----------------------------------------
Marginal revolutionaries
The crisis and the blogosphere have opened mainstream economics up to new attack
....
These three schools [Keynes, Austrian, MMT] of macroeconomic thought differ in their pedigree, in their beliefs, in their persuasiveness and in their prospects. Yet they also have a lot in common. They have thrived on the back of massive disillusion with mainstream economics, which held that the economy would grow steadily if central banks kept inflation low and stable, and that there were no great gains in the offing from fiscal expansion, nor any great cause for concern over financial instability. And they have benefited hugely from blogging.
....
What’s more, put into the context of a pathetic response to the current crisis, the ideas offered by these very different schools all take on a similar form: that policymakers are overly worried about something that should concern them less. The Austrians see the bogeyman as deflation, the fear of which inflates bubbles. The market monetarists, diametrically opposed, see exaggerated fear of inflation. And the economy is getting too little help from fiscal stimulus, according to neo-chartalists, because of the government’s superstitious fear of insolvency.
The clearest example of the power of blogging as a way of getting fringe ideas noticed is “The Money Illusion”, a blog by Scott Sumner of Bentley University, in Waltham, Massachusetts. In the wake of the financial crisis Mr Sumner, a proponent of market monetarism, felt he had something to say, but no great hope of being heard.
...
A real solution
If the target were not believed, the Fed would have to do whatever it takes to hit it. That might include “heroic” purchases of assets, on a bigger scale than anything yet tried by the Fed or the Bank of England. Even then, people might refuse to spend the newly minted money, or the banks might also refuse to lend it.
But there are ways to make people spend, say market monetarists like Bill Woolsey of The Citadel, a military college in South Carolina. The Fed could impose a fee on bank reserves, leaving banks to impose a negative interest rate on their customers’ deposits. That might simply serve to fill up sock-drawers as people took the money out of their accounts. But eventually, instead of hoarding currency, they would spend and invest it, bidding up prices and, with luck, boosting production.
Thanks largely to Mr Sumner’s campaign, a growing number of mainstream economists—including Mr Krugman—now favours looking at a change to NGDP targeting. At its November meeting the Fed’s policy committee discussed the pros and cons of such a move—remarkable in itself for an idea so marginal just a couple of years ago. It did not, though, sweep all before it. Some committee members worried that switching to a new targeting regime could “risk unmooring longer-term inflation expectations”. If inflation were allowed to rise to 5%, for example, people might regard that as permanent and set wages accordingly, even as output returned to normal. To show its mettle, the Fed would then have to restrict growth; the costs of proving its seriousness might swamp the benefits of the new regime.
...
In the neo-chartalist view of the world, fiscal policy comes to resemble monetary policy. When the Treasury spends, it adds to the supply of money in circulation. When it taxes, it withdraws money. So for neo-chartalism to work as intended, budget-makers must both tighten policy once demand has been restored and inflation threatens and also be credible in their commitment always to do so. Otherwise self-fulfilling expectations of inflation will take root, as they did in the 1970s. That period of stagflation demonstrated the need to leave macroeconomic stabilisation to forward-looking technocrats—central bankers—thought responsive to economic news and unresponsive to political demands. If you can imagine fiscal policymakers in Congress allowing the economy to be run in such a way, then you too can be a neo-chartalist.
Clearly the tea-partiers who would not party with Mr Mosler during his Senate bid will have none of this. Ron Paul, the libertarian Texas congressman whose 2008 presidential campaign was one of the foundations of the tea party, and whose 2012 campaign is currently enjoying an enthusiasm few would have predicted, is a balanced-budget zealot, and from his pulpit as chair of a House subcommittee on monetary policy lambasts quantitative easing as “financial malfeasance”; indeed he advocates abolishing the Fed itself.
....
---------------------------
Gauranteed to drive followers of Ron Paul nuts.