I respond to the back-and-forth between Paul Krugman and MMT proponents (Wray, Galbraith).
I will put this caveat up front: I may not 'get' MMT...despite reading numerous papers, blogs, etc. on the subject. I don't see this as my failure. I see this as the proponent's of MMT's failure. They only ever respond with vague notions - never anything substantial. This is a challenge. Try convincing me. Because if you can't convince me, you sure as hell won't convince mainstream economics, or this country.
Krugman and Wrary back and forth: HERE
Garth Brazelton July 20 at 1:36pm - my general discussion with an MMT proponent
Still not convincing. No economist denies the obvious that technically the government faces no legal or operational constraint to money creation- or I should say bank reserves so as not to contradict circuitism. Krugman makes a valid argument that the government does however face choice of default or risk hyperinflation. Wray counters that by either putting his faith in politicians (which never makes for good policy) or then denying the problem outright by pointing to automatic stabilizers. I would say his latter argument is more assumption laden than anything I've ever read in any mainstream text. Who is to say the stabilizer would offset the spending over time? If taxes do need to be raised because spending occurs past so-called full employment (which is defined as what by MMTers), who is taxed and for how long? And politicians will do this for economic reasons only? I don't think so. MMT is the challenger - it has the burden of proof here.... So far I don't see remotely resembling a useful or reasonable argument to justify it's existence as a "theory.". It keeps saying that everyone else thinks the government is operationally constrained. No one is saying that. I at least am saying they are "effectively" constrained due to the reality that there are costs associated with deficits (including country credit ratings and foreign perception which seems to be often ignored by MMTers), which MMTers seem to just shrug off.
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Now, my thoughts...
So very clearly, Wray does not agree with me that defaults matter / are a policy concern. Wray is suggesting governments would 'rationally' fight against hyperinflation - that assumes a lot about the abilities and intellect of politicians, which I for one, am not going to go there. As Zimbabwe attests (and I know quite a bit about Zimbabwe), hyperinflation can develop faster than most politicians can draft 800 page pieces of legislation - let alone passing it.
Countries can go bankrupt. If we reach the point where our currency is worth less than the stuff we use to wipe our asses with, then we will become Zimbabwe. That may not be government bankruptcy, but that is private sector bankruptcy as corruption, cronism, milita activity along with the inevitable call for price controls, net capital outflow (flight) ensues. Worse case scenario but it's possible - and MMT (chartalism) is all about telling people that all this stuff is 'impossible.' Once the government is over-thrown (like Zimbabwe almost was) ...well...there's your governmental default... there's your restart button.
Even if it doesn't reach that extreme, the fluctuations in exchange rates, price levels, tax levels, the level of uncertainty that all that would create (something 'true' followers of Keynes and Minsky should appreciate) would surely become serious problems. I don't prefer deflationary risk to inflationary risk - I recognize the pitfalls of both - frankly, in this recession, I don't see risk of either to any huge degree right now. If prices started declining dramatically in the broad economy I'd be concerned, but they are not. I agree Ricardian equivalence (so called) is perhaps the most idiotic idea ever to come out of economics - but it doesn't follow that we should be creating inflation expectations by actually creating inflation risk via spending.
In the end, DUH, the government is monopolizer of our currency. That doesn't mean anything special - and no real economist is saying otherwise. It's pretty clear the Chartalists have this obsession with talking about how the government is not operationally constrained and about absolutes (very much counter to the post-Keynesian tradition which I find interesting). They seem to ignore that we, and the government are all politically, economically, and realistically constrained. In the end, I don't want to put all that power in the hands of politicians. I'm no monetarist, but they are correct in their critique of fiscal policy in this regard.
I remember when post-Keynesianism used to stand for realism and challenging assumptions. It was about promoting certain regulations and private market behaviors to fix the inherent problems in the private sector of a capitalist society - not about liberal spending. Government can do good work, and some spending is important which I've talked about here before (infrastructure, promoting a new direction in terms of energy) but to base a whole monetary (really, a fiscal) movement around amorphous 'spending' is contrary to common sense. Chartalism is not seemingly based in reality and is riddled with assumptions - They have created this Bolshovikian "reality" in their own minds - that our politicians can save the day and smooth out the business cycles - that deficits don't matter because we are going to create this automatic employment mechanism - a philosophy not wholly different from the 1960's Keynesians. If this is the new post-Keynesianism, count me out.