James Montier will soon have an answer to his question why people hate MMT. MMT is about to hate James Montier too: James Montier: Why Does Everyone Hate MMT?: "Many of the negative articles I’ve read about MMT use the tried and tested method of setting up a straw man purely for the purposes of knocking him down. So, to avoid confusion, I will lay out a simple and straightforward description of what MMT is.... (4) Functional finance, not sound finance. Fiscal policy is much more potent than monetary policy. Fiscal policy should be aimed at generating full employment while maintaining low inflation...
"Functional finance" is a doctrine originated and set out by Abba Lerner: that the most important task of the government is not to balance its budget but instead to buy enough things, especially enough of the time, skill, and energy of works on public projects, to get the economy to full employment. Lerner's doctrine was that the real constraint is not what we can finance but what we can produce, and that there is always a way to finance a production and employment goal as long as that goal is feasible. When I said that "functional finance" is at the core of MMT, I got immediately smacked down by one of the gurus:
Randall Wray: MMT Responds to Brad DeLong’s Challenge: "My powerpoint slide from the year 2000... laid out the various strands of thought incorporated in MMT up to that point.... Notably missing was reference to functional finance.... We ALREADY had our full employment policy: the Job Guarantee (also called employer of last resort, public service employment and buffer stock employment). It was from the very beginning THE central stabilizing component of MMT.... We have never relied the simplistic version of Functional Finance...
If Abba Lerner were here, he might ask: "How is saying that the most important task of the government is to buy enough things to get the economy to full employment different from saying that the most important task of the government is to employ enough people to get the economy to full employment?" I do not think that question has a good answer.
Perhaps the key to the eagerness of Wray to dismiss me (and James Montier) for saying that MMT is Lerner+ is sociological. Perhaps MMT is not model-based ("IS-LM with a near-vertical IS curve") and not idea-based ("Functional Finance") so that it can be guru-based.
#economicsgonewrong
