By L. Randall Wray
OK, I’m flabbergasted.
I came across, and commented on, a piece by Scott Sumner a few days ago. (DID SCOTT SUMNER FIND MMT’S ACHILLES’ HEEL? ) He claimed he had proof MMT is wrong: if the Fed doubles the base then ipso facto nominal GDP must double and ipso facto MMT is wrong. Well, the Fed tripled the base and nominal GDP didn’t budge. In any case, even if that had worked, it is not evidence against MMT. All Sumner did was to string together a series of non-sequiturs.
Sumner’s also behind an inane proposal that the Fed ought to use its demonstrated impotence to target nominal GDP. Right. I wish the Chairman would reduce the earth’s wobble instead.
By L. Randall Wray
*The title of this post was inspired from a post by Mike Sax.
First an admission. I’m not really a blogger. I occasionally write pieces that somehow find their way onto blogs, but I rarely read or respond to blogs. I have no idea who is who in the blogosphere. For example, I do not know someone named Scott Sumner, who is apparently a Very Important Person in blogoland.
I note that he’s associated with the proposal that the Fed target nominal GDP. When I first heard about this, I thought it was a joke. Yeah, right, might as well have the Fed target the Earth’s Wobble. Gee, I’d really like the Fed to stabilize the tilt, to achieve San Diego’s invariantly moderate climate in upstate NY where I spend much of my time!
By Dan Kervick
Paul Krugman argues in a recent New York Times column that right-wing critics of Ben Bernanke and his colleagues are trying to bully the Fed into a misguided obsession with inflation, and that “the truth is that we’d be better off if the Fed paid less attention to inflation and more attention to unemployment. Indeed, a bit more inflation would be a good thing, not a bad thing.”
Krugman is absolutely right to lament conservative pundits’ and politicians’ obsessions with inflation when tens of millions of Americans are languishing in unemployment, with all of the personal, social and economic misery and waste that unemployment entails. But his argument, which assumes that the Fed can boost employment by engineering higher inflation, is problematic. He defends the inflationist approach this way:
“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.”
I believe this is the wrong approach. The Fed’s ability to boost employment is very limited, well-intentioned citations of the Fed’s full employment “mandate” notwithstanding. Rather than looking to central bankers and the banking system to accomplish a task for which they are not really cut out, we should turn our attention back toward fiscal policy as the primary tool for bringing the country up to full employment and keeping it there. And rather than seeking engineered inflation as the mechanism for boosting spending and employment, we should implement the MMT job guarantee proposal to achieve full employment and price stability at the same time.
Posted in Dan Kervick
Tagged Fiscal Policy, inflation, job guarantee, market monetarism, MMT, Modern Monetary Theory, paul krugman, Pavlina R. Tcherneva, public purpose, Scott Fullwiler, scott sumner, warren mosler, william mitchell
By Dan Kervick
The recent exchange on the nature of banking among Paul Krugman, Scott Fullwiler, Steve Keen and others has been feisty and instructive. But some readers might be left wondering whether the whole exercise is too wonky by half. The anatomical details of banking systems might be juicy and interesting for the academics who like to dissect those systems and dig deep into their entrails. But how significant are the details for practical questions of public policy? They are in fact very significant.