Answers from the MMTers

New Economics Perspectives has the article Answers from the MMTers. In the article, they answer questions about Modern Money Theory raised by economist Jared Bernstein. Here is an excerpt from one of the answers that touches on one of my favorite misunderstandings about the Federal Reserve Bank.

The bottom line is that the Fed does not have veto rights over Congress. We rest assured by the twin facts that a) the Fed is a creature of Congress and can be brought to heel should that become necessary, and b) that the exigencies of providing a smoothly functioning payments system leaves no room for the Fed to veto the Congressionally-approved budget under which the Administration operates.

While I like most of the article, I did raise my favorite subtle gripe about MMT.

There is one issue that MMT tends to gloss over. The static accounting balances of the three sectors is true, but that does not necessarily constrain the economy in the short term. MMT has made the argument that with bank created money there is a debit for every credit. What they fail to talk about is that the debit to the private sector is the loan that must be paid back in the future, whereas the money given out in the loan is an immediate credit to the private sector. This time difference in the flow of money has a profound impact on the economy, but not on the accounting static balance. Ironically this very article does admit that Central Banks do not control the money supply.

I am not doubting the validity of MMT so much as I am asking MMTers to stop emphasizing the accounting static balance as an explanation. That is too easy to poke a hole in to try to use this to explain MMT to the unconvinced.

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