Home > Uncategorized > MMT perspective on Biden’s $1.9-trillion big spend

MMT perspective on Biden’s $1.9-trillion big spend

from Lars Syll

The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy: Kelton, Stephanie: 9781541736191: Amazon.com: BooksMMT is about identifying the untapped potential in our economy, what we call our fiscal space … How we choose to utilize that fiscal space is a political matter …

The point is that we run our economy like a six-foot-tall guy who wanders around perpetually hunched over in a house with eight-foot ceilings because someone convinced him that if he tries to stand up tall he’ll suffer a massive head trauma. For too many years, we’ve been crouching down when we could have been standing strong. Irrational fears about government debt and fiscal deficits caused policy makers in the US, Japan, the UK, and elsewhere to pivot away from fiscal stimulus toward austerity in the years following the global financial crisis. This forced immeasurable pain on tens, if not hundreds, of millions worldwide.

The U.S. has a deficit. That’s true. But the problem is not the budget deficit. The real deficits are in the climate, healthcare and infrastructure. How do we tackle those deficits? By spending!

MMT rejects the traditional Phillips curve inflation-unemployment trade-off and has a less positive evaluation of traditional policy measures to reach full employment. Instead of a general increase in aggregate demand, it usually prefers more ‘structural’ and directed demand measures with less risk of producing increased inflation. At full employment deficit spendings will often be inflationary, but that is not what should decide the fiscal position of the government. The size of public debt and deficits is not — as already Abba Lerner argued with his ‘functional finance’ theory in the 1940s — a policy objective. The size of public debt and deficits are what they are when we try to fulfil our basic economic objectives — full employment and price stability.

Governments can spend whatever amount of money they want. That does not mean that MMT says they ought to — that’s something our politicians have to decide. No MMTer denies that too much of government spendings can be inflationary. What is questioned is that government deficits necessarily is inflationary.

  1. March 4, 2021 at 1:02 pm

    What does MMT have to say about poor countries with weak currencies? One could argue that Mugabe was an MMTer.

    • March 4, 2021 at 10:33 pm

      Ultimately, real resource availability constrains prosperity

      “First, where imported food (or other essentials) dependence exists then the well-being of the citizens in that nation cannot be solved within its own borders, especially if its export potential is limited.

      Imposing austerity on these governments is no solution. The world has to take responsibility to ensure that it alleviates any real resource constraints that operate through the balance of payments.

      Note, this is not a balance of payments constraint as it is normally considered. It is a real resource constraint arising from the unequal distribution of resources across geographic space and the somewhat arbitrary lines that have been drawn across that space to delineate sovereign states.

      In this context, a new multilateral institution should be created to replace both the World Bank and the IMF, which is charged with the responsibility to ensure that these highly disadvantaged nations can access essential real resources such as food and not be priced out of international markets due to exchange rate fluctuations that arise from trade deficits.

      Second, there has to be international agreements to outlaw speculation by investment banks on food and other essential commodities.

      Third, a further progressive policy intervention, which, ideally, should be agreed to at the international level should be to declare illegal speculative financial flows that have no necessary relationship with improving the operation of the real economy. I will write more about that in due course.

      In the absence of such international commitments, nations should consider imposing capital controls where they can be beneficial bulwarks against the destructive forces of speculative financial capitalism.

      Please read my blog – Are capital controls the answer? – for more discussion on this point.

      Fourth, in some situations a case can be made to impose import controls on equity grounds where the export base is thin and a nation is struggling to amass sufficient real resources to ‘feed and clothe’ its people.

      While imports are clearly a benefit and exports are clearly cost there are still equity implications involved in the mix of imports that a nation might enjoy.

      I heard once that South Africa had the largest per capita ownership of BMW cars, which is astounding, if true, given the mass poverty of the majority of its population.

      Selective import controls, if they can be effectively designed, can ensure that a nation with a limited export base can import goods and services that target the provision of benefits via imports to the poor in the first instance.

      Fifth, in some cases it will be in the global interest to restrict the capacity of a nation to export. For example, I’m thinking of those arguments where it is better to leave the coal in the ground than to mine it and worsen the environmental damage already existing.

      In those cases, a single nation should not be punished for the pattern of geographic resource distribution and a global response is needed to make sure the damage to that nation’s export potential does not impair its ability to import and fight poverty.”

      • Craig
        March 6, 2021 at 1:06 am

        All of what you say about regulating financial speculation and capital controls for 3rd world economies is correct. However, immediately doubling everyone’s potential purchasing power with a 50% discount/rebate policy at retail sale and implementing a 50% discount/debt jubilee policy at the point of loan signing for big ticket items and other individual green consumer products are such basic and powerfully beneficial actions that they could be done in the most under developed economies.

        Changing the monetary and financial paradigm indeed changes everything…..for the better.

  2. March 4, 2021 at 5:48 pm

    Government spending on services, programmes and infrastructure is not socialism either. That is another bad belief held by many Americans.

  3. Craig
    March 4, 2021 at 8:56 pm

    MMT and its policy suggestions are fine because they are wanting to do what is good and necessary, but their advocates are apparently still unconscious of/unwilling to confront the new monetary paradigm concept that would break up the current monopolistic paradigm, resolve the economy’s major problems by transforming them into their beneficial conceptual inversions, i.e. transform individual and systemic monetary austerity, erosive inflation and financial instability into general monetary abundance, beneficial price and asset deflation and systemic stability via ongoing debt reduction.

    Please consider direct and reciprocal monetary gifting as the new paradigm concept and its very policy expression via a 50% discount/rebate policy at the point of retail sale and a second 50% discount/debt jubilee policy at the point of loan signing for individuals for “big ticket” items and green consumer products.

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