Now Winterspeak speaks.
One matter that needs clarification is this.
Like Palley, I am stunned by the claim that MMT rejects counter-cyclical fiscal policy. Certainly contrary to what I've heard, and if Wray really does take this position then we'd have to disagree.The notion that MMT rejects counter-cyclical policy misses the point of MMT, where the fiscal balance expands and contracts with the cycle through automatic stabilization, changes in tax receipts, and the ELR as an employment buffer and price stabilizer. MMT also distinguishes between "good" and "bad" deficits based on whether they are incurred as a result of government adjusting the fiscal balance through proactive fiscal policy to accommodate increasing saving desire or address inflation rather than pursuing a policy like austerity in a contraction, which will only result in growing the deficit through automatic stabilization and reduced tax receipts.
Palley may be thinking of traditional counter-cyclical policy. That's true. They think there is a better way. MMT economists are skeptical of "Keynesian pump-priming," which they view as usually too late to the table and too fraught with political wrangling to be an effective policy tool. However, when the financial crisis hit and caught policymakers unawares, Warren Mosler was in the forefront, recommending providing unlimited liquidity to solvent banks, a suspension of FICA, and per-capita block grants to states. This could have been accomplished overnight whereas the stimulus package that was finally passed took months, was watered down below what models indicated was needed, and then took time to deploy, prolonging the response and watering it down.
Palley on MMT
Winterspeak
2 comments:
Good point: "but I also know that if you start with radically different assumptions you're not going to make progress and MMT attacks orthodox macro at the assumption level."
Good point: "talking about how it is common knowledge that "sovereign issuers of money are not constrained financially in the normal sense". Great. And yet we hear continual talk about the US Govt running out of money. So it may be common knowledge for Palley, but it is not common knowledge more broadly, and if MMT is working to popularize that understanding he should be applauding"
rsp,
MMT economists are skeptical of "Keynesian pump-priming," which they view as usually too late to the table and too fraught with political wrangling to be an effective policy tool.
A couple of points - "pump-priming" is an 1930s Americanism - the idea was that you would need fiscal policy only once, to get the economy back on track. Some modern "Keynesians" adhere to this mistake refuted by the experience of the 30s - which assumes full employment is a natural equilibrium state.
The biggest problem with US old Keynesianism is that it is too top-down, will promote tight full employment and bottlenecks, and therefore be susceptible to inflation in comparison to MMT and Keynes's own bottom-up proposals.
Of course the idea that MMT rejects countercyclical fiscal policy is silly. It rejects to some extent the above kinds of countercyclical fiscal policy.
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