Via Bloomie comes Mohamed A. El-Erian on MMT:
The current window for the MMT debate has been opened by the protracted period of reliance on unconventional central bank policies that has followed the global financial crisis and the European debt crisis. Despite the initial concerns expressed by some economists, this period of ultra-low interest rates and ballooning central bank balance sheets has not led to any meaningful inflation scare or the crowding out of private sector activity.
…The debate has merit in stimulating greater discussion of whether the global economy’s changed structural parameters, including a permanently lower “r-star,” or natural rate of interest, allows governments to run larger economically sustainable deficits than was previously thought possible. (Additional structural influences include the disinflationary effects of technological innovations and demographic changes.) It comes at a time of concerns about a declining global growth rate, shrinking potential, and a deep inequality trifecta (of income, wealth and opportunity).
The main risk – those “analytical excesses” that I worry about — is that MMT proponents may go too far in building a secular case for fiscal priorities to dictate monetary policy and for printing money to enable ever growing government deficits. More generally, this would also erode central bank autonomy and undermine confidence in the policymaking process, especially during periods of economic/financial volatility and uncertainty.
Spot on. So you take a middle path of cautious experimentation and guarantee central bank independence to ensure any MMT excesses are contained by monetary policy.
For the world of secular stagnation it is a no-brainer.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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