At The Australian today comes Alan Kohler hosing MMT:
The trouble with modern monetary theory (MMT) is that, as with fiscal policy generally, it would be run by politicians, and we’ve only fairly recently managed to prise monetary policy away from them.
…monetary policy looks exhausted, at least in terms of stimulating real activity and employment, as opposed to asset prices…So it seems likely that in the next downturn, fiscal policy will come into its own again, because monetary policy either has nowhere to go, or is ineffective.
…As economist Gerard Minack wrote over the weekend: “Excessive money printing is clearly not good, but the simple act of printing money does not put an economy on the path to Weimar. In other words, the problem is not printing money; it is printing money in excess of real capacity limits.”
Quite right. Ideally, MMT would be deployed by some independent body, perhaps associated with a central bank, to avoid pollies getting their hands on unlimited pork. But if not, the above discussion outlines that there are natural limits to it anyway.
So long as the central bank still sets the cash rate objectively then MMT is not going to cause any kind of mass inflation breakout because interest rate will rise. Indeed that’s the point, right? To deleverage economies stuck in the liquidity traps of peak debt by occupying economic slack.
Of course this is going to come with epic waste. And? It’s free. It only needs to do some good to be macro-economically useful.
Moreover, we need to look at the counter-factuals. To not use MMT will mean deeper negative interest rates worldwide, including over time in China as it slows and unleashes a truly monstrous deflationary pulse via a crashing yuan as it goes ex-growth. This will mean secular stagnation continues indefinitely in developed economies, as well as ever deepening class disparities, opening the way even wider for revolutionary populism.
We can already see where that ends: trade wars and, ultimately, shooting wars between the two great powers of the day.
Would Mr Kohler prefer our inept pollies run those instead?