Category Archives: Scott Fullwiler

What Is Helicopter Money, Anyway?

By Scott Fullwiler

Clive Crook has an interesting article in Bloomberg that I wanted to quickly touch on as it relates to a number of things that have been central to MMT for years. Crook’s piece does a good job discussing the current realities of the macroeconomic policy mix in the next recession; it also provides a clear example for illustrating differences between MMT and most other economists with regard to how they view the macroeconomic policy mix.

Crook points out that so-called “unconventional” monetary policy operations aren’t unconventional anymore. We’ve had nearly 7 years of ZIRP and various forms of QE in the US alone, not to mention about 17 years in Japan. According to most, thanks to monetary policy, “The world avoided another Great Depression. Yet even in the U.S., this is a seriously sub-par recovery; growth in Europe and Japan has been worse still.” Worse still, Crook says, “Now imagine a big new financial shock. It’s quite possible that all three economies would fall back into recession. What then?”

Continue reading

Replacing the Budget Constraint with an Inflation Constraint

By Scott Fullwiler

Tim Worstall has a post decrying the dangers of MMT ever being used in the real world—even as he recognizes or at least suggests that it might be the correct description of how the monetary system works—and is particularly concerned about Stephanie Kelton’s new appointment as Chief Economist on the Senate Budget Committee. (Note: Randy Wray also posted a critique of Mr. Worstall’s post today.)

Mr. Worstall’s main issue is one we’ve heard hundreds of times before—because MMT explains that currency-issuing governments operating under flexible exchange rates and without debt in a foreign currency do not actually have budget constraints, this opens the door to all sorts of problems if put into practice. We can’t trust our government with this information, in other words—it must be required to match spending with revenues over some period (whether each year, over the business cycle, etc.) or at least plan over some period of time to not allow the debt ratio to rise beyond a modest level.**

Continue reading

CBO—Still Out of Paradigm after All These Years

By Scott Fullwiler

The Congressional Budget Office (CBO) published its long-term deficit and national debt projections last week.  These are the projections most widely cited in policy discussions about long-term “sustainability” of the national debt and entitlement programs.  In this post I focus on a small but very important part of the report—the CBO’s discussion of the “Consequences of a Large and Growing Debt,” which can be found on pages 13-15.  This section can be found in past reports going back several years, and hasn’t change much if it has changed at all during this time.  It is also consistent with the thinking of most economists on these issues.  As readers of this blog will recognize, the CBO’s analysis is “out of paradigm” in that it is inapplicable to a sovereign, currency-currency issuing government operating under flexible exchange rates such as the US, Japan, Canada, UK, Australia, etc.

Continue reading

Krugman Gives DeGrauwe 2011 Credit for What MMT Has Argued for 15+ Years

By Scott Fullwiler

In the comments section of my last post, Neil Wilson linked to this piece by Paul Krugman from last fall.  It’s a useful lecture in that it shows mainstream economists are beginning to understand that currency issuers under flexible exchange rates (a term he actually uses) are not generally subject to bond vigilantes, a condition that applies only to nations without their own currencies, debt in other currencies, and/or fixed exchange rates.

In the paper, as he’s done before, he cites DeGrauwe 2011 as the “seminal” paper demonstrating that Eurozone nations are subject to bond vigilantes while others like the US, Japan, and the UK would not be.  I’ve got nothing against DeGrauwe 2011 aside from his own failure to cite heterodox literature that preceded him by decades in some cases.  Ok, so I do have something against it, but not in terms of content (though I haven’t read closely so perhaps I’d find something).  And in fairness Krugman’s suggestion that DeGrauwe 2011 is “seminal” could be due to the fact that the latter provides a model (though the Kelton/Henry paper I cite below does, too; though it’s quite different, it would not be difficult to build on in the direction DeGrauwe 2011 moves)—and we all know that neoclassicals have difficulties discussing anything outside the context of a formal model (not that models aren’t extremely useful for many things, but they should not be the tail that wags the dog, and for neoclassicals they are essentially that).

Continue reading

Krugman Now Disagrees with His Earlier Critique of MMT

By Scott Fullwiler

In a post yesterday, Paul Krugman notes the CBOs long-term projections for federal government deficits and the national debt now show a reduced projection of nominal interest rates:

This markdown has the effect of making the budget outlook — which was already a lot less dire than conventional wisdom has it — look even less dire.

After a bit of discussion of debt-interest rate dynamics—which I earlier discussed in detail here and in my series here (printable version here)—Krugman explains the importance of understanding currency issuers like the US versus currency users like the Eurozone nations for understanding these dynamics:

Continue reading

“Debt-Free Money” and “ZIRP Forever”

By Scott Fullwiler

I wrote a while back about how neoclassical economists don’t realize their view that interest on reserves (IOR) stops “printing money” from being inflationary also means that it’s impossible to create inflation by “printing money.”  See here.

I’m not 100% sure on this one (and please feel free to correct me if you know better than I do) because I admittedly haven’t given the literature a thorough read, but from what I can tell, it appears “debt-free money” advocates may not realize they are similarly overlooking the actual operations of the monetary system.  So, apologies in advance if I’ve misinterpreted.

From what I’ve seen, “debt-free money” (DFM) advocates want a world in which the government spends via cash (i.e., paper money).  They are against government issuing bonds or any interest on the debt, since that would suggest the government’s money isn’t “debt free” (again, please correct me if I’m wrong in this description).

Continue reading

More on Consolidating or Not

By Scott Fullwiler

As Randy’s recent post on consolidating vs. not explained, a number of critics argue that consolidation doesn’t “really” happen.  Of course, that’s not the point MMT is making, as we’ve noted numerous times, including Randy’s post. Regardless, though, there are real-world governments that do publish consolidated reports.

The UK posted its report here

Neil Wilson has reviewed it for those that don’t want to read through the whole thing here.

Hat tips both to Neil Wilson and Economonitor commenter acornus

Krugman, Helicopters, and Consolidation

By Scott Fullwiler and Stephanie Kelton

Paul Krugman has a new post that explains why the debate over money- vs. bond-financing of government deficits is really much ado about nothing.  In it, he essentially echoes longstanding MMT-core principles, as we will show below.  Indeed, MMT blogs have written as much many times previously (for example, see here, here, here, and here).

Krugman’s post looks at two alternative scenarios:

Case 1: The government runs a deficit, selling bonds to offset the shortfall, while the Federal Reserve does QE

Case 2: The government runs a deficit but does not sell bonds, instead financing all of its spending by “printing money” (i.e. with newly created base money)

Continue reading

Modern Money and Public Purpose Seminar 6

The latest in the MMPP Seminars at Columbia feature NEP’s Scott Fullwiler. The topic of this seminar is Interactions Between Monetary and Fiscal Policy. You can watch below or visit MMPP’s site.

THE PERMANENT FLOOR 2004

By Scott Fullwiler

The discussion over the permanent floor has led to a (in my view) fantastic post from Steve Randy Waldman.  His key conclusions regarding how interest on reserve balances works are the following: Continue reading