Whenever discussing the effects of increasing the money supply, we tend to highlight the first order effects: if there’s twice as much money, then prices are expected to double after a while. This effect is already hard for the public to notice compared to straight-up taxation, but the effects during the transition are even more insidious (so called Cantillon effect): some people receive the fresh money first while prices haven’t adjusted, and some people receive the fresh money last (after prices have already almost doubled). The folks who are the furthest away from the source suffer doubly: not only do they not receive any direct subsidies, they must deal with the increased prices before the demand curve for their own products shifts.
More generally on the topic of MMT, they seem to start from sound analysis (ie. money printing can fund things, as many economists had already pointed out) but incorrectly leap from accounting identity (which correlate multiple variables for a given period of time) to a theory of causation (changing one variable at one period of time affects another at the next periods).
Those reviews are very helpful, but looking at “Derek” comments in the Cochrane blog, it is not at all clear whether these are critiques of MMT or critiques of Kelton ( or more specifically what Kelton believes that governments can do given that MMT is an accurate representation).
I am also very suspicious of how this would work within a democratic system. Many countries do not let governments set interest rates—that is the role of the independent central bank to control inflation. I would feel happier about governments printing money if the central bank was also dictating the level of taxation (the amount of money to be destroyed but not how that tax is distributed).
Whenever discussing the effects of increasing the money supply, we tend to highlight the first order effects: if there’s twice as much money, then prices are expected to double after a while.
This effect is already hard for the public to notice compared to straight-up taxation, but the effects during the transition are even more insidious (so called Cantillon effect): some people receive the fresh money first while prices haven’t adjusted, and some people receive the fresh money last (after prices have already almost doubled). The folks who are the furthest away from the source suffer doubly: not only do they not receive any direct subsidies, they must deal with the increased prices before the demand curve for their own products shifts.
More generally on the topic of MMT, they seem to start from sound analysis (ie. money printing can fund things, as many economists had already pointed out) but incorrectly leap from accounting identity (which correlate multiple variables for a given period of time) to a theory of causation (changing one variable at one period of time affects another at the next periods).
There are some other problems… Two critical reviews of Kelton’s book on MMT:
- https://johnhcochrane.blogspot.com/2020/07/magical-monetary-theory-full-review.html
- https://mises.org/wire/review-stephanie-keltons-deficit-myth
Those reviews are very helpful, but looking at “Derek” comments in the Cochrane blog, it is not at all clear whether these are critiques of MMT or critiques of Kelton ( or more specifically what Kelton believes that governments can do given that MMT is an accurate representation).
I am also very suspicious of how this would work within a democratic system. Many countries do not let governments set interest rates—that is the role of the independent central bank to control inflation. I would feel happier about governments printing money if the central bank was also dictating the level of taxation (the amount of money to be destroyed but not how that tax is distributed).