From the summaries I have read, some of the central propositions of MMT draw a false conclusion from two sensible premises. 1) Countries that print their own currencies do not have to default on excessive debts. They can always print money to pay off debts. True. 2) Inflation in the end can and must be controlled by raising taxes or cutting spending, sufficiently to soak up such printed (non-interest-bearing) money. True. The latter proposition is the heart of the fiscal theory of the price level, so I would have an especially tough time objecting.My gut agrees with Cochrane's "It does not follow" statement and the paragraph it came from. And since I'm not yet talking about what I want to talk about, let me say I have finally figured out what my problem is with statements like "Countries that print their own currencies do not have to default on excessive debts." My problem with such statements is simple: ALL COUNTRIES SHOULD PRINT THEIR OWN CURRENCIES.
It does not follow that the US need not worry about deficits...
Statements about "countries that print their own currencies" treat (or seem to treat) such countries as a special case -- especially when the statement gets repeated as often as this one does. And that's a dangerous thing, because it may lead people to believe that countries NOT printing their own currencies is the normal condition and countries printing their own currencies is not the norm.
Anyway, what I wanted to talk about is the part where Cochrane says "... raising taxes or cutting spending, sufficiently to soak up such printed (non-interest-bearing) money." And the part of that that draws my attention is the part in parentheses: "non-interest-bearing" money.
As Cochrane sees it, raising taxes would be a way to take more non-interest-bearing money out of the economy. As I see it, that would raise the ratio of interest-bearing to non-interest-bearing money, which is exactly the wrong thing to do.
Policies which let us write off our interest expenses are policies that encourage people to be in debt. I would replace such policies with policies that reduce our taxes when we make extra payments on our debt. These would be policies that actually help people get out of debt. By this change we would change a world that maximizes debt into a world that minimizes it. We would slowly but permanently reduce the cost of finance in our economy. We would free up our money to be used for consumption and investment; to be used, in other words, to increase aggregate demand.
And "rentiers" would have to go get jobs.
2 comments:
" My problem with such statements is simple: ALL COUNTRIES SHOULD PRINT THEIR OWN CURRENCIES."
That's absolutely correct. However when small defenseless countries like Iraq, Libya, Syria, Venezuela try to do that they get attacked and their leaders regime changed out of existence.
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Statements about "countries that print their own currencies" treat (or seem to treat) such countries as a special case
That's because they are special cases. Most countries do not have their debt denominated in their own currency. That's what the world bank and IMF are all about. Most countries have their debt in Dollars or Euros or in a few cases gold or Rubles or Yuan. There are only a handful of countries that have their debt denominated in their own fiat currency.
Having debt denominated in their own currency is not the norm. Only the G20 countries have that luxury and less than 1/3 of those countries have all their debt in their own currency.
"Most countries have their debt in Dollars or..."
Yeah, I figured that might be.
"Having debt denominated in their own currency is not the norm."
Sounds like the modern version of colonialism.
Thanks Jim.
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