Bernie Economics: Deficit Owls and MMT

[Agony]

Bernie's appointment of Dr. Kelton may be an indication of what we can expect his position as President on Economic Policy to look like...
http://www.washingtonexaminer.com/sanders-names-deficit-owl-his-chief-economist/article/2557903
http://stephaniekelton.com/2013/06/28/biography-2/

Dr. Kelton was formerly Editor-in-Chief of NewEconomicPerspectives (now William K. Black)
http://neweconomicperspectives.org/category/stephanie-kelton

NEP hosts an MMT primer for those who want to know "what's up with that?"
http://neweconomicperspectives.org/modern-monetary-theory-primer.html

The FIRE sector noticed!
http://www.forbes.com/sites/timworstall/2015/01/12/watch-out-mmts-about-as-bernie-sanders-hires-stephanie-kelton/

Cheers!


Go Bernie!

[hedda_foil]

1. Three cheers for Bernie!

For the DU economics wonks, though, I have a question.

What's the difference between MMT and good old fashioned.Keynesian economics?

[marym625]

3. Good question

I don't fully get it either

[PETRUS]

5. You might think of it as an addendum/update.

After reading several hundred pages about MMT, I don't remember running into anything that contradicts Keynes. MMT is about the ramifications of a sovereign, nonconvertible fiat currency. This is the nature American money now, but it wasn't when Keynes was writing. I don't know if that answers your question adequately.

[hedda_foil]

6. Thanks, Petrus. That helps a lot.

[PETRUS]

7. My pleasure

The basic ideas about money in MMT aren't new, and it's apparent that Keynes understood them. My impression of MMT is that's it's not only a description of how things work, but also advocacy - e.g., if we were still on the gold standard the MMT crew would probably be suggesting we get away from it. I'm biased on the subject, and think Dr. Kelton and others are doing valuable work.

[Jim Lane]

8. I agree - the emphasis is on the "sovereign, noncovertible currency".

A European country that's on the euro, or a U.S. state, may choose to borrow to support a particular expenditure, but it won't be able to repay that borrowing except through taxation or further borrowing. By contrast, the U.S. government today (i.e., since 1933) completely controls its own currency. If it borrows dollars, it can repay the loan by printing dollars. (The need for paper currency is limited; in practice, the U.S. would "print" most of those dollars through crediting accounts at the Federal Reserve, but the basic point is still the same.)

The significance of 1933 is that the U.S. went off the gold standard. Before then, it was constrained by its promise that dollars could be redeemed for gold. Ending the gold standard meant that the dollar was a nonconvertible currency.

The analysis of sovereign nonconvertible currency is the addendum to Keynesianism. Suppose that a U.S. state is suffering from economic contraction. The Governor's Keynesian advisers tell her to run a budget deficit. This will pump more money into the state's economy, and the growth in aggregate demand will reduce unemployment. An MMT adviser says, "I would agree completely if we were talking about what the U.S. government should do about a slumping national economy. The problem here in our state is that we don't have a sovereign currency. If we run a budget deficit, we're borrowing money (i.e. dollars), and we'll have to repay that loan at some point, through some means other than just printing dollars. We have to bear that in mind; as a practical matter, it's a constraint on our ability to run a deficit."

The worst situation is if a government that doesn't control its own currency starts running unsustainable deficits. Lenders, fearing default, demand higher interest rates, which the government can afford only through additional borrowing. This could (and did) happen to Greece. MMT explains, however, that Greece and the United States are in fundamentally different situations. It's why the deficit hawks' dire predictions of runaway interest rates, based on U.S. federal government deficits, have so totally not come true.

[Enthusiast]

2. No Trickle Down Third Way bullshit for Bernie!

[marym625]

4. +1000