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Friday, April 27, 2012

Mosler - Keen Connection

I was reading a thoughtful blog post from Warren Mosler and when I came across one of his responses it reminded me that there is still significant work that needs to be done to connect MMT work with Steve Keen and the circuitist works that tend to focus on the interactions of banks and individuals in credit and debt formation.  

This raises an interesting question:
Is it ‘better’, for example, to facilitate the increase in spending through a private sector credit expansion, or through a tax cut that allows private sector spending to increase via increased income, or through a government spending increase?
The answer is entirely political. The output gap can be closed with any/some/all of those options.
Is it really entirely political from Keen's perspective?   In one circumstance, say a tax cut, there is no additional private debt added, whereas in the other case of private credit expansion there is necessarily a private debt increase.  I would imagine from that perspective, the latter may pose more of a problem - beyond the politics in so far as it may facilitate an unsustainable debt bubble.

Perhaps the options would mainly be political in an ideal MMT world where policy makers acted as if MMT explained reality, but in the environment we presently live in, I would suggest when given the choice to facilitate recovery between increasing private debt levels or increasing public 'debt' levels, the safest course of action would want to choose the latter.

If one accepts this logic, and admittedly some may not, it shines the light on the ineptitude of current monetary policy and lack of present fiscal policy gumption.

8 comments:

Warren Mosler said...

Agreed, hence my proposal for a full payroll tax (fica) holiday, etc.

best,
warren
www.moslereconomics.com

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