The Bad : Monetary crankery

This section is completely wrong. There is absolutely nothing wrong with using “government” to refer to whatever agent performs any action binding on the society as a whole. If the US Constitution and Congress, for prudential reasons, requires that two keys be necessary to launch new money, the two guys with the two keys, constitute “the government” for that particular governmental function. Other combinations — Congress and the President — enact legislation together. Are they not “the government” either?

If any particular MMTer commits a semantic faux pas by referring to the Treasury as “the Government,” all we can say is that someone was sloppy with their words. Replace “Treasury” with “government” and continue to march. The facts remain the facts.

Because these usages are logically sound, there is nothing “dubious” about the “semantic” claim that taxes do not fund government spending. On the contrary, the claim that taxes do fund governments spending is metaphoric. Taxes may be necessary to prevent money-printing from being unduly inflationary. In such a case, the taxes “fund” the spending by making it feasible and wise, but they do not “fund” it by providing the funds. If you can understand these two usages of “fund,” you can understand MMT. If not, then, like the author, you can’t.

MMT is essentially monetary physics. In physics, intention does not matter. It makes no difference why a pol thinks he has to raise taxes. He has to raise them because, if he doesn’t the currency will explode. He may have other reasons, but the universe is not accountable for his ignorance.

Monetary independence matters

The nonsense continues. Thus, we find a reference to PZIRP as an “MMT policy.” It makes much more sense to say that the default interest rate paid by the government should be zero absent a reason to use monetary policy to slow the economy, i.e. to sideline money. I don’t doubt that there are some MMTers who advocate PZIRP, but I don’t see it as an essential inference.

Fiscal policy is too blunt an instrument and too politically difficult. Adjusting interest rates to affect spending is just easier to do. MMT says that fiscal policy can do the job as a matter of theory, not that human politicians can thread that needle in the real world. That does not make MMT “wrong” or “untrue”; it makes it a target and not a requirement.

The problem here is simply the author’s weak grasp of logic. MMT removes certain objections from certain policies — deficit spending, ZIRP, etc. It does not claim that removing those objections removes all objections except when there are in fact no remaining objections or those that remain are not dispositive.

Think of the guy who asks if he will be able to play the violin after hand surgery. Before the surgery, he can’t play the violin regardless of his skill, because his hand is injured. After the surgery, whether he can play the violin depends on his skill. If we assume that everyone on the planet is suddenly afflicted by operable hand dysfunction, and someone proposed a way to restore hand function magically, this author would say “The fix doesn’t work, because some of these people won’t be able to play the violin.”

MMT frees the government from the constraint of a balanced budget and imposes instead a constraint of inflation. That’s all it does. Whether we can handle that truth has nothing to do with whether MMT is an accurate description of fiat currency.

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At the end of the day, this article attacks MMT by attacking the humans who would apply it. The “soft budget” argument is sound psychology and may be a reason to rein in spending. It may even be a good reason to impose a prudential hard budget constraint. Nothing about that line of reasoning is inconsistent with MMT.

My car’s speedometer “goes up to” speeds that the tires cannot withstand and the engine governor won’t allow, all of which are way higher than the law allows. But the fact remains that the engine can propel the vehicle to a certain, very high speed. Whether that’s useful information isn’t clear, just as whether MMT is useful information isn’t clear. I think the case is better for MMT, because some level of deficit spending can exist without bringing about the horribles associated with soft-budget syndrome. But arguments about flawed human nature simply have no bearing on the accuracy of MMT as an explanation.

The world couldn’t handle Galileo. Eppur si muove.