Along with Eric Tymoigne, I will be on the “pro-” side of a “pro-/con-” Modern Monetary Theory (MMT) panel at the online part of the annual Canadian Economic Association (CEA) conference (on May 30, the live conference is in early June in my old hometown of Winnipeg). As a non-academic non-economist, if I were smart, I would keep my head down and offer fairly cautious remarks from the perspective of an educated outsider (with obvious biases). Whether that happens when I start opening my mouth remains to be seen (“No plan survives contact with the enemy”).
Blowing the trumpet a bit here Brian, but chapter 5 and chapter 6 of the new GIMMS book (Modern Monetary Theory: Key Insights, Leading Thinkers)cover the external economy and the mathematics of the "MMT-as-currency-killer" argument.
AFAICT the problem heterodox people have with MMT is it doesn't subscribe to their fixed/pseudo fixed exchange rate model - where government remains just another actor begging resources from the private sector. In this model the 'floating rate' is between Treasury and the central bank via the 'bond discount' mechanism and the adjustment is supposed to be government buying more or less stuff based upon what the 'market' is telling them.
Instead MMT pushes the floating rate fully out to the currency area border. ZIRP makes the exchange rate between Treasury and the central bank fixed (no discount). Necessarily this means changes in the terms of trade show up in variation in the price and/or quantity of discretionary domestic imports, rather than trying to prevent changes by manipulating financial exports via interest rate changes.
With respect to the Omran and Zelmer article, I agree with you that it "is one of the most sympathetic treatments [we] have seen from mainstream economists who are also critics", and that "[t]heir focus is on policy recommendations, and not academic theory ...."
I don't know enough about current exchange rate theory or the Canadian economy to comment with confidence on their policy recommendations. However, a couple of their statements struck me as questionable.
They say they are conducting "an examination of whether it is possible to dispense with the conduct of independent monetary policy by central banks, as MMT proposes." (3) My initial reaction was, "Huh? Does MMT say *that*?" I'll grant you that MMT characterizes "central bank independence" as a shibboleth and believes that the effectiveness and power of conventional monetary policy is overstated. But I don't think that means that MMT is arguing for no central bank role whatsoever in monetary policy.
They go on to say, "[T]here are significant risks for a country such as Canada to issue debt with impunity on its own when the economy is weak, unless the money raised is likely to be spent in a way that will generate future income to service the additional debt. Going alone and issuing debt to maintain current living standards, focusing on encouraging present consumption over investment, would be risky even if the economy were operating below potential ...." (9)
Once again, my reaction was, "Huh? Does MMT advocate 'borrowing' to encourage present consumption over investment?" Which MMTers do Omran and Zelmer believe are making that argument? If anything, MMT advocates are alert to the possibility that, in order to make a just transition to a non-fossil-fuel-based economy (a.k.a., a Green New Deal), the government is likely to need to persuade the public to accept restricted consumption for a limited period of time. See Y. Nersisyan and L.R. Wray, "How to Pay for the Green New Deal," https://www.levyinstitute.org/publications/how-to-pay-for-the-green-new-deal, 2019.
Omran and Zelmer also get Randy Wray's name wrong. He's L. Randall Wray, not "Randal L. Wray". (4)
Yes, there was, still is, regulatory failure re pension funding. But could you explain what you mean by "fragile state of the gilt market" to a layperson like me?
No two accounts of the Truss debacle that I have read agree about just what happened. But all seem to agree that she paid the price of trying to be heterodox and the bond vigilantes won. Can you explain the MMT view? What would Warren Mosler have done?
To be sure, if iPhones and foreign holidays increase in price, then I wouldn't shed a tear, but if basic foodstuffs do so then at the very least that's a big political problem.
I cannot give you direct help but I can say the critique of MMT around the external constraint is the only valid area I see to critique MMT. Also I don’t think those critiques hold as Eric Tymoigne demonstrates with his Seven Replies to critiques & Bill Mitchell also demonstrates In relationship to “Thirlwall’s law” but that said if that’s the area of critique, I’m willing to give the con side a listen because as I said it is the only valid area to critique as far as I’m concerned.
Sorry, I don’t know about the 90s & fiscal stuff in Canada. I can always provide the generic version. MMT does not prevent bad policy choices.
I will be interested in the "external constraint" debate. This is always the first concern of those friends I persuade to take an interest in MMT. In the UK we import 50 percent of our food (or 80 percent depending on definitions) so any loss of currency value would immediately hit those on the lowest incomes first.
Blowing the trumpet a bit here Brian, but chapter 5 and chapter 6 of the new GIMMS book (Modern Monetary Theory: Key Insights, Leading Thinkers)cover the external economy and the mathematics of the "MMT-as-currency-killer" argument.
https://doi.org/10.4337/9781802208092.00013
https://doi.org/10.4337/9781802208092.00014
AFAICT the problem heterodox people have with MMT is it doesn't subscribe to their fixed/pseudo fixed exchange rate model - where government remains just another actor begging resources from the private sector. In this model the 'floating rate' is between Treasury and the central bank via the 'bond discount' mechanism and the adjustment is supposed to be government buying more or less stuff based upon what the 'market' is telling them.
Instead MMT pushes the floating rate fully out to the currency area border. ZIRP makes the exchange rate between Treasury and the central bank fixed (no discount). Necessarily this means changes in the terms of trade show up in variation in the price and/or quantity of discretionary domestic imports, rather than trying to prevent changes by manipulating financial exports via interest rate changes.
With respect to the Omran and Zelmer article, I agree with you that it "is one of the most sympathetic treatments [we] have seen from mainstream economists who are also critics", and that "[t]heir focus is on policy recommendations, and not academic theory ...."
I don't know enough about current exchange rate theory or the Canadian economy to comment with confidence on their policy recommendations. However, a couple of their statements struck me as questionable.
They say they are conducting "an examination of whether it is possible to dispense with the conduct of independent monetary policy by central banks, as MMT proposes." (3) My initial reaction was, "Huh? Does MMT say *that*?" I'll grant you that MMT characterizes "central bank independence" as a shibboleth and believes that the effectiveness and power of conventional monetary policy is overstated. But I don't think that means that MMT is arguing for no central bank role whatsoever in monetary policy.
They go on to say, "[T]here are significant risks for a country such as Canada to issue debt with impunity on its own when the economy is weak, unless the money raised is likely to be spent in a way that will generate future income to service the additional debt. Going alone and issuing debt to maintain current living standards, focusing on encouraging present consumption over investment, would be risky even if the economy were operating below potential ...." (9)
Once again, my reaction was, "Huh? Does MMT advocate 'borrowing' to encourage present consumption over investment?" Which MMTers do Omran and Zelmer believe are making that argument? If anything, MMT advocates are alert to the possibility that, in order to make a just transition to a non-fossil-fuel-based economy (a.k.a., a Green New Deal), the government is likely to need to persuade the public to accept restricted consumption for a limited period of time. See Y. Nersisyan and L.R. Wray, "How to Pay for the Green New Deal," https://www.levyinstitute.org/publications/how-to-pay-for-the-green-new-deal, 2019.
Omran and Zelmer also get Randy Wray's name wrong. He's L. Randall Wray, not "Randal L. Wray". (4)
Yes, there was, still is, regulatory failure re pension funding. But could you explain what you mean by "fragile state of the gilt market" to a layperson like me?
I thought the BoE HAD intervened, buying bonds to save the pension funds. What else should they have done?
No two accounts of the Truss debacle that I have read agree about just what happened. But all seem to agree that she paid the price of trying to be heterodox and the bond vigilantes won. Can you explain the MMT view? What would Warren Mosler have done?
To be sure, if iPhones and foreign holidays increase in price, then I wouldn't shed a tear, but if basic foodstuffs do so then at the very least that's a big political problem.
I cannot give you direct help but I can say the critique of MMT around the external constraint is the only valid area I see to critique MMT. Also I don’t think those critiques hold as Eric Tymoigne demonstrates with his Seven Replies to critiques & Bill Mitchell also demonstrates In relationship to “Thirlwall’s law” but that said if that’s the area of critique, I’m willing to give the con side a listen because as I said it is the only valid area to critique as far as I’m concerned.
Sorry, I don’t know about the 90s & fiscal stuff in Canada. I can always provide the generic version. MMT does not prevent bad policy choices.
I will be interested in the "external constraint" debate. This is always the first concern of those friends I persuade to take an interest in MMT. In the UK we import 50 percent of our food (or 80 percent depending on definitions) so any loss of currency value would immediately hit those on the lowest incomes first.