Paying for a Green New Deal with Modern Monetary Theory


The Real News Network has the article Paying for a Green New Deal with Modern Monetary Theory.

Dean Baker is being awfully disingenuous. In the big picture he is right, but what he loses in the details is terrible.

This was quite effectively demonstrated in the recovery from the Great Recession, in which the United States, the eurozone, and Japan have all struggled to increase their rates of inflation. In all three cases, the large-scale printing of money had a modest impact, at best, in raising the rate of inflation.

You cannot cite this experience without raising the question of the conditions under which this experience occurred, and what might happen under different conditions. The answer to what happened in the recent near economic collapse was that consumer demand was very low. Corporations were cutting capacity to shrink to the size of consumer demand. The infusion of money did not cause consumer price inflation because the infused money was not invested in hiring people to increase production capacity which was already too high relative to the level of consumer demand. Instead, the infusion of money was used to raise stock prices and some other asset prices. Much of the money was used to buy Treasury securities which essentially gave the money back to the Government for safe keeping. If for some other reason, consumer demand came back, all that excess money put into the economy by the central banks might come out of hiding to overstimulate the economy and create inflation.

The upshot of this analysis is that governments need the proper mix between creating money and raising taxes. The proper mix changes with the circumstances.

Applying Modern Money Theory (MMT) is no better than applying neo-liberal economics if you do it without a deeper understanding than a few of the standard buzz words. I am surprised that Dean Baker could mess this up so badly.

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