Sumner vs. Tom Hickey on MMT http://diaryofarepublicanhater.blogspot.com/2013/11/tom-hickey-explains-mmt-to-sumner.html
I see my earlier piece on Sumner's take on MMT made it to Mike Norma'n's blog-which I got to admit I find kind of exciting. Hickey explains what MMT actually does believe in response to Sumner's piece.
http://diaryofarepublicanhater.blogspot.com/2013/11/sumner-on-achilles-heel-of-mmt.html
Here is Tom:
"What Scott Sumner doesn't seem to want to understand is that MMT favors fiscal policy based on functional finance over monetary policy involving interest rate setting. His scenario depends on interest rates only and doesn't take into account what MMT actually is about, namely, the replacement of monetary policy run by the central bank ("monetarism") with fiscal policy under the direction of the political authority ("fiscalism"). Instead, Sumner only argues within his own paradigm, the assumptions of which MMT rejects."
http://mikenormaneconomics.blogspot.com/2013/11/mike-sax-sumner-on-achilles-heel-of-mmt.html?utm_source=twitterfeed&utm_medium=twitter&m=1
However, I can imagine what Sumner might say to that-he's constantly saying that interest rates aren't a good guide to the stance of monetary policy, that what matters is NGDP or maybe nominal wages. I'm not saying Sumner is right about this just that this is what he might say. For example here:
http://www.themoneyillusion.com/?p=23083
Tom makes the political argument for fiscal policy over monetary which I think has a good deal of credence as I recently argued.
http://diaryofarepublicanhater.blogspot.com/2013/10/central-bank-independence-and-scott.html
No question he's right that this recession has shown that the size of the monetary base doesn't matter. The best Sumner can do is argue that it matters when the economy is more healthy.
Just as I supposed in my MMT-Sumner piece, Hickey confirms that MMT favors a permanently zero interest rate as fostering investment. What makes post Keynesian economics generally different is the lack in the belief in a 'long run' but rather that the LR is just a collection of short runs.
If the CB sets the interest rate at zero, then banks will have a lower cost of lending and can lend less expensively, which they will tend to do in a competitive market. This will favor investment, e.g., permanently low long term rates for residential RE.
"MMT regards monetary policy as ineffective in controlling inflation, which result either from supply shortages, e.g., the Arab oil embargo, or demand outstripping the capacity of an economy to meet it. If the government deficit spends to the degree this creates or contributes to excess demand at full employment, then inflation will result. The obvious answer is to cut spending and increase taxes to reduce demand."
"MMT is fiscalist, holding that demand is the key fundamental and the chief objectives are full employment along with optimal output and relative price stability. "
"MMT is anti-monetarist, holding that the size of the monetary base is essentially irrelevant, as QE has shown, the quantity theory has been discredited and interest rates are at best a shotgun, whereas fiscal policy can be tightly targeted. In addition, interest rate setting involves picking winners and losers."
"Rather than using interest rates to conduct policy, MMT would use fiscal policy in accordance with the sectoral balance approach and functional finance, along with the MMT JG as a price anchor. "
I see my earlier piece on Sumner's take on MMT made it to Mike Norma'n's blog-which I got to admit I find kind of exciting. Hickey explains what MMT actually does believe in response to Sumner's piece.
http://diaryofarepublicanhater.blogspot.com/2013/11/sumner-on-achilles-heel-of-mmt.html
Here is Tom:
"What Scott Sumner doesn't seem to want to understand is that MMT favors fiscal policy based on functional finance over monetary policy involving interest rate setting. His scenario depends on interest rates only and doesn't take into account what MMT actually is about, namely, the replacement of monetary policy run by the central bank ("monetarism") with fiscal policy under the direction of the political authority ("fiscalism"). Instead, Sumner only argues within his own paradigm, the assumptions of which MMT rejects."
http://mikenormaneconomics.blogspot.com/2013/11/mike-sax-sumner-on-achilles-heel-of-mmt.html?utm_source=twitterfeed&utm_medium=twitter&m=1
However, I can imagine what Sumner might say to that-he's constantly saying that interest rates aren't a good guide to the stance of monetary policy, that what matters is NGDP or maybe nominal wages. I'm not saying Sumner is right about this just that this is what he might say. For example here:
http://www.themoneyillusion.com/?p=23083
Tom makes the political argument for fiscal policy over monetary which I think has a good deal of credence as I recently argued.
http://diaryofarepublicanhater.blogspot.com/2013/10/central-bank-independence-and-scott.html
No question he's right that this recession has shown that the size of the monetary base doesn't matter. The best Sumner can do is argue that it matters when the economy is more healthy.
Just as I supposed in my MMT-Sumner piece, Hickey confirms that MMT favors a permanently zero interest rate as fostering investment. What makes post Keynesian economics generally different is the lack in the belief in a 'long run' but rather that the LR is just a collection of short runs.
If the CB sets the interest rate at zero, then banks will have a lower cost of lending and can lend less expensively, which they will tend to do in a competitive market. This will favor investment, e.g., permanently low long term rates for residential RE.
"MMT regards monetary policy as ineffective in controlling inflation, which result either from supply shortages, e.g., the Arab oil embargo, or demand outstripping the capacity of an economy to meet it. If the government deficit spends to the degree this creates or contributes to excess demand at full employment, then inflation will result. The obvious answer is to cut spending and increase taxes to reduce demand."
"MMT is fiscalist, holding that demand is the key fundamental and the chief objectives are full employment along with optimal output and relative price stability. "
"MMT is anti-monetarist, holding that the size of the monetary base is essentially irrelevant, as QE has shown, the quantity theory has been discredited and interest rates are at best a shotgun, whereas fiscal policy can be tightly targeted. In addition, interest rate setting involves picking winners and losers."
"Rather than using interest rates to conduct policy, MMT would use fiscal policy in accordance with the sectoral balance approach and functional finance, along with the MMT JG as a price anchor. "
Again, just to play devil's advocate, it could be pointed out that deficits don't necessarily lead to inflation as the Reagan deficits proved. The supply siders and liberal opponents were both half right-the deficits weren't inflationary but contra the SSers, there were huge deficits.
I recently wrote about Larry Lindsey's SS manifesto back in 1990-when their smugness was at its zenith with three straight Republican landslides.
Again, he is right that the deficits didn't prove inflationary but he is really being sophistical when he tries to claim that the Reagan tax cuts didn't have much to do with the deficit-he estimates that it was 'only 30%'-which is a pretty big chunk I think.
As to Tom's idea of a Mosler-Sumner debate it's a nice idea but no way will Sumner do it-he's been refusing to engage anyone who questions his core theories for some time now. Incidentally does anyone know if Mosler and Bob Murphy plan to ever have their debate? Or did they already have it?
yeah they had their debate a while ago:
ReplyDeletehttp://www.youtube.com/watch?v=cUTLCDBONok
Im always amazed at the MMter argument that OMPs are ineffective at at stoking demand and causing inflation. Lets perform a thought experiment for a minute here Mike. Suppose that the Fed under Janet yellen decides target gdp growth in excess of 40 percent. (Just to pick a number) In order to accomplish this she rams through a decision to buy the ENTIRE national debt, all 17trillion Treasury securities. Do you SERIOUSLY think, along with the MMTers, that this would have effect?
ReplyDeleteThis comment has been removed by the author.
Deleteaccording to Sumner it would only have an effect on NGDP if it was permanent. Correct?
DeleteNo one is arguing that if the Fed bought the entire national debt, meaning everyone with a savings account at the Fed now got a checking account the Fed (and no more savings accounts were allowed) that this would have NO effect! What they are arguing is that this could in no way target a GDP of 40%. It would have an affect on GDP but it would be unable to target a number.
DeleteAre you telling me that if all safe saving vehicles like Treasuries or bank savings accounts were outlawed that no one would save? More specifically no one would save money? All we would see is massive spending? If thats so than that is no target thats just pure mayhem that is being induced.
Edward I would believe that would have an effect. However at this point would it not be fiscal policy?
DeleteMy argument with Sumner is largely about his idea of monetary offset and the zero fiscal multiplier.
I'm also not sure how nonconventional MP is supposed to work. I agree that if the Fed did all this it would be huge but again, this is really fiscal policy.
What it seems to me is that Sumner has no problem with anything as long as it's done via the Fed rather than the Treasury. Why this matters so much I don't get. This is why I think Montearism has a political agenda though it claims otherwise.
"This is why I think Montearism has a political agenda though it claims otherwise."
DeleteJust like the guys who proclaim "Its not about the money"..... Its always about the money for them. When monetarists claim its not about the politics.....
I dont undersand why they cant just say its about their politics..... thats not something to be ashamed of per se. But I think it has to do with wanting to look like they've just examined all the facts and the facts lead them here. Until people point out they have conveniently ignored certain facts. Any examination of facts must be interpreted through some lens, that lens is politics. There is no A-political lens available.
Monetarists like Scott think that a small cadre of wealthy people should be making all the important monetary decisions (as if they dont via our fiscal channels too!). Thats a preference not something you arrive at by looking at all possibilities and determining its best. We havent nor could we explore all other possibilities. Scotts alter ego Morgan pretty much tells it like it is, we will not get anything that the owners dont want and the owners dont want govt.
"I dont undersand why they cant just say its about their politics..... thats not something to be ashamed of per se. But I think it has to do with wanting to look like they've just examined all the facts and the facts lead them here. Until people point out they have conveniently ignored certain facts. Any examination of facts must be interpreted through some lens, that lens is politics. There is no A-political lens available."
DeleteGreg I think you've nailed it here. Bingo. When I've associated MM with the Repbicans Sumern claims it's because I'm wrongly introducing politics but as you say there is no purely apolitical lens available.
This is why I appreciate Morgan Warstler-he admits the real appeal of MM is what the original Monetarism was about-helping forward the Republican agenda through the back door.
Sumner's very clever trick is to con people that he somehow occupies this A-political lens.