MM vs. Krugman vs. MMT: Political and Definitional Debate?

     This is what a commentator had said at the Money Illusion and I'm beginning to think he may be right. It's definitional in the sense of what is called "fiscal" or "monetary." How we define these terms is itself a deeply political question.

    So we have Sumner's famous denial of fiscal stimulus whereas the MMTers turn it around and greatly prefer fiscal stimulus. Listen to Cullen Roche:

    .”Yes! I don’t like Monetary Policy that much. I think it’s about the worst way possible to get the economy moving, and it’s at least as distortionary as fiscal policy, if not worse.
But- it can and does work. We know it works on real estate lending as it’s primary channel to impact the economy, and well, sometimes we need more homes and buildings.

“To me, the bigger issue is not that the Fed tries to control interest rates and credit channels, but that we allow banks to be money issuers without strict oversight. If we’d had a simple 20% down law the crisis would have never happened. Instead, it’s the wild west and the bankers are out running around doing whatever they want knowing that when they screw up the taxpayer will step in. That’s what the kids call epic fail.”

      http://monetaryrealism.com/monetary-vs-fiscal-policy-vs-oversight/
    

     As mentioned above, there was that interesting commentator, AFB, at the Money Illusion who said this:

     "The more I read it, the more I find this whole MMT/Krugman/Market Monetarism debate to be boring. None of you disagree on the substantive theoretical economic issue, you disagree on DEFINITIONAL and POLITICAL ISSUES."

     http://diaryofarepublicanhater.blogspot.com/2012/04/dan-kervick-on-scott-sumner.html

     In that previous post I commented about Dan Kervick's idea that the Fed in and of itself is not a good institution because it's unelected and seemed to suggest that even if it does the right thing-buys houses and bridges it's still problematic as it's unelected. I disagreed with that and still don't agree. However, in a way Dan's take on this relates to AFB's point that the real argument among the various schools-MM on the Right, Krugman in the Center, and MMT on the Left is definitional and political.

   What's definitional is whether you call a particular action fiscal or monetary. For example if the Fed does an helicopter drop is that fiscal or monetary stimulus? MMers say monetary, the MMTers say it's fiscal. Why does defining it one or the other matter so much? Because the definition is a political matter.

   Another interesting suggestion was made by Nathan in a comment at New Economic Perspectives that what monetary policy can't do is dictate the shape of aggregate demand but only the size. In my previous post-linked above-I had made a reduction absurdem about what if the Fed intended to add $50,000 stimulus to the economy today? Would you prefer that Bernanke did this by buying a few T-bills or sending you a $50,000 check?

   While perhaps the macroeconomist would say there is no difference in terms of its overall welfare effect on the economy, that we're up $50,000 even way for you personally it would make a huge difference. If you were short money your welfare would be greatly enhanced by the check, whereas the T-bills would have minimal effect for you.

    If for example your daughter was very sick and needed an expensive surgery that the $50,000 would cover this exacerbates things by another major factor  in favor of the check -from the stand point of your own personal welfare.

    If we have another Katrina like event where would assistance be more beneficial if we need $100 billion dollars to fully deal with the crisis? Would it be better to have the Fed buy $100 billion in T-bills or send it to the state the disaster occurred at giving the money to the fire department and the Red Cross?

   These are situations that it is not a piece of indifference how the stimulus is translated. It makes all the difference-in other words the shape of such operations are greatly significant.