Sunday, October 2, 2016

MMT and Abba

Circa 1999

July, 1999
Functional Finance and Full Employment: Lessons from Abba Lerner for Today?
By Mathew Forstater
The Asian Crisis, with the fallout in Latin America and the transition economies; the Russian default; continuing troubles in Japan; weaknesses in the structure of the European Monetary Union; volatility on Wall Street; deflationary pressures in the global economy: recent economic developments invite a reconsideration of some of our most deeply held beliefs concerning economic theory and public policy. Even within the hallowed halls of mainstream economics, voices of dissent can be heard. Paul Krugman, Joseph Stiglitz, and Jeffrey Sachs are among those whose recent proclamations indicate that we have entered a period in which orthodox views are being openly questioned, creating an atmosphere characterized by a crisis of confidence.
Such periods of impending crisis and open expressions of self-doubt, questioning our most deeply held beliefs about the way the world works, creates a climate in which the ideas of the great unorthodox thinkers of the past may be revisited. The work of those who in the past dedicated their lives to formulating solutions to the challenges of modern capitalist economies may contain lessons applicable to the contemporary situation. It is in this spirit that this paper revisits the early works of Abba Lerner, outlining fifteen such lessons regarding macroeconomic theory and policy, as fresh in the context of the current scene as they were some five decades ago when they were first formulated.
Lesson #1: Full employment, price stability, and a decent standard of living for all are fundamental macroeconomic goals, and it is the responsibility of the state to promote their attainment.
Lesson #2: Policies should be judged on their ability to achieve the goals for which they are designed and not on any notion of whether they are "sound" or otherwise comply with the dogmas of traditional economics.
Lesson #3: "Money Is a Creature of the State"
Lesson #4: Taxing is not a funding operation.
Lesson #5: Government Borrowing is not a funding operation.
Lesson #6: The primary purpose of taxation is to influence the behavior of the public.
Lesson #7: The primary purpose of government bond sales is to regulate the overnight interest rate.
Lesson #8: Bond sales logically follow from, rather than precede, government spending.
Lesson #9: "Printing money" in and of itself has no impact on the economy whatsoever.
Lesson #10: Without a full employment policy, society cannot benefit from labor-saving technological advance, that is, efficiency becomes inefficient. With a full employment policy, labor-saving technical advance becomes truly beneficial to society.
Lesson #11: Without a full employment policy, a country must suffer over its trade balance. With a full employment policy, there is no need to worry about importing "too much" relative to exports.
Lesson #12: Attempts to argue that the deficit and debt are not really as big as they look, or that if we measure them differently or keep a capital account they are not really that bad, are counter-productive.
Lesson #13: When there is unemployment, jobs and money, not resources and goods, are scarce.
Lesson #14: Functional Finance is not a policy; it is a framework within which all sorts of policies may be conducted.
Lesson #15: To achieve full employment, government spending may have to include direct job creation.