I agree with Dan Kervick on a lot of what he and the other MMTers say. Certainly the belief in the powers of Monetary policy are a little overdone in people like Sumner and company.
I largely am intrigued by the call of MMT theory for a Job Guarantee (JG). I myself want something like this-I believe we should bring back the old Public Works Administration-permanently. Like the MMTers who call for the JG to be permanent-the government as Employer as Last Resort-I would want PWA to be permanent through good economic times as well-through booms as well are busts.
For more on this see Pavilina R. Tchererneva http://www.levyinstitute.org/pubs/wp_534.pdf
However, as I suggested in my last post, I'm not sure about a recent debate between Dan and Krugman where he crtitized Krumgan for calling for more inlfation. For my first post on this
http://diaryofarepublicanhater.blogspot.com/2012/04/mmt-mm-smackdown-scott-sumner-vs-dan.html?showComment=1333987286319#c3632485205574200656
It seems that it might make some difference how the inflation is transmitted? Sumner argues that it's a good thing if it's demand side triggered negative if it's triggered on the supply side.
http://www.themoneyillusion.com/?p=13846&cpage=2#comment-148891
Kervick in particular is skeptical of the emphasis of Fed action in general. He does admit that fiscal action could generate inflation too. In reality it would have to to have any benefit wouldn't it? The idea of MMT is that is you guarantee a job to everyone who wants it-that is for the unemployed the government gets them a job-where all JG workers are paid the exact same low wage-the number is typically about $8 an hour you will help the unemployed of course but you can limit inflation by keeping the wage fixed at $8 and not linking it inflation. The wage is to be increased only by a discretion. There's a suggestion of a fiscal rule-yes this is why I think MMT is the converse of MM, they want a fiscal rule while Monetarists like monetary rules-where the wage might rise every five years or ten years. If this limits inflation it is only because it's nto indexed to inflation. But by doing so means lower wages and less consumption out of the JG workers-and in reality deflationary wages. Their purchasing power will go increasingly down.
The other advantage of JG is to limit distortion of the economy by keeping wages beneath the private sector. If we had a JG at $8 tomorrow that would cause a one time inflationary effect as wages would be pushed from $7,25 to $8. which is over 10% but this would be one time.
Let's read Krugman in his own words:
"would a rise in inflation to 3 percent or even 4 percent be a terrible thing? On the contrary, it would almost surely help the economy."
"How so? For one thing, large parts of the private sector continue to be crippled by the overhang of debt accumulated during the bubble years; this debt burden is arguably the main thing holding private spending back and perpetuating the slump. Modest inflation would, however, reduce that overhang — by eroding the real value of that debt — and help promote the private-sector recovery we need. Meanwhile, other parts of the private sector (like much of corporate America) are sitting on large hoards of cash; the prospect of moderate inflation would make letting the cash just sit there less attractive, acting as a spur to investment — again, helping to promote overall recovery."
Right now I see little reason to be concerned about inflation. Anything that the Fed or fiscal authorities could do to help employment would be definition be inflationary. The JG idea is interesting-again I support getting a job to everyone who wants one-with the government being the ELR. However, even the JG avoids too much inflation only by keeping the wage paid to JG workers very low and deflating for a long time. If you assume that, that might seem to mitigate inflation. But again isn't some inflation to the good? Is the goal really an economy with 0% inflation? I think not.
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