Policy Regimes: MMT vs Keynes
Stephanie Kelton, Chair of the Economics Department at the University of Missouri, Kansas City, joins us to discuss Modern Monetary Theory and how MMT policy recommendations compare to those of Keynesians, Monetarists and Real Business Cycle advocates.
Stephanie appeared on Up with Chris last January, ostensibly to talk about the trillion dollar coin, but didn't really get a chance to explain why it's actually not a crazy idea.
We do a little introduction to MMT, and then use the trillion dollar coin to illustrate the principles. MMT and Keynesianism are united in their policy recommendations at the zero lower bound. Brad DeLong remarked on this a while ago:
When will our deficits and debt accumulation start the process of beginning to create real financial risk we need to guard against? We don't know. But we do know that the bond market will be very happy to tell us when the process starts.
Until then, Uncle Warren [Mosler] is right.
What we face here is what I call fiat currency cognitive dissonance syndrome. It makes people a little crazy when Stephanie says things like "$1 trillion? Make it 100 trillion. it doesn't matter unless Congress appropriates funds." Ironically, she echoes the Monetarists and the RBCers when she says we have to look at the real economy. If there is idle capacity and widespread unemployment, choosing to not spend money to bring that capacity online is perverse. The ability of the US to issue a fiat currency that is treated as the world's reserve currency doesn't depend on the bookkeeping the Fed does in approving monetary expansion through the creation of reserves or, yes, a trillion dollar coin. The dollar is the world's reserve currency because it is backed by the enormous physical and human capital that drive the real US economy.