Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Excellent coverage for insight into fiscal policy and MMT ...

MMT Heaven and MMT Hell for Chinese Investment and U.S. Fiscal Spending | Carnegie Endowment - Oct. 2019 |

From these readings (including a 1943 piece on "functional finance" by economist Abba Lerner), we assume that the key insight of MMT is not that debt doesn't matter, as mistaken stereotypical views seem to assume, but rather that governments that issue their own fiat currency have no funding constraints insofar as they do not need to issue debt or raise taxes to spend money. They simply budget the expenditure, and then go ahead and spend the money.

by Oui on Thu Apr 29th, 2021 at 07:29:05 AM EST
[ Parent ]
I like the following quote from the above article a lot and have long been a fan of Michael Pettus:

Advocates for modern monetary theory argue that, for a sovereign country with its own currency, there is no inherently unacceptable level of government debt--that country does not automatically begin to collapse when debt reaches 90 per cent of GDP, or even 200 per cent of GDP. The country appropriates what it believes is necessary for domestic programs, regardless of revenue.

This, however, is almost certainly an unfair caricature of MMT. It assumes that if a country increases debt to fund spending until the economy is at capacity, it will cause the country's debt-to-GDP ratio to rise. But if government spending directly or indirectly causes productive investment to rise in line with the debt, this kind of spending increases both debt and GDP, so neither the debt ratio nor the debt burden changes.

I have long maintained that the purpose of the expenditure is at least as important as the size of the  expenditure, but with an investment time is required for the investment to mature and that has to be taken into account for future investments once investments are underway.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Apr 29th, 2021 at 05:30:11 PM EST
[ Parent ]
Keynes once argued that in a recession it might be good policy to pay people to dig a hole and then fill it in again. This was almost certainly hyperbola, but certainly be preferable to just letting people starve.

But the difference between Republicans and Democrats may not be about the level of deficit spending, at least when their own man is in power. Cheney, after all, said that "Reagan proved that deficits don't matter".

The difference between Reaganomics and Bidenomics may be that Biden insists on the spending being directly on public goods like relieving poverty, improving public healthcare, re-building infrastructure and reducing carbon footprints.

Trump, on the other hand, insisted that increased borrowing should be on funding tax cuts for the rich and for highly profitable MNCs, on the grounds that this would increase investment and eventually trickle down to everyone else.

But as Krugman has pointed out, this increased investment never materialised, to the embarrassment of its conservative advocates, which is one of the reasons they have remained strangely quiet about Biden's proposed spending splurge.  

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Apr 29th, 2021 at 06:29:05 PM EST
[ Parent ]
Macron has applied his version of Trumponomics over the same period, with the same striking lack of results...
The axiom "give money to the rich, they will invest it" is a manifest absurdity, they didn't get rich by being stupid. If good investments are available, they will borrow to invest. Otherwise, they might as well spend it (witness the extraordiary boom in luxury goods and services these last few years).

Pushing on a piece of string...

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu May 6th, 2021 at 10:51:58 AM EST
[ Parent ]


Top Diaries

Herd Immunity .. Filling the Gaps

by Oui - Jul 24

LQD - Long Term Covid: The Brain

by ATinNM - Jul 13

Say No to Racism

by Oui - Jul 12

England surrenders to Covid

by IdiotSavant - Jul 9

Occasional Series