Explaining MMT While Forgetting Keynes


Naked Capitalism has the article Richard Murphy: For MMT (Long and Wonkish). While it is a mostly good article, it does say something that always irks the heck out of me.

The state will not enfeeble the private sector. That’s already feeble. What it will do is provide it with the contracts and work it needs to survive because it can’t think of what to do for itself.

Doesn’t anybody remember John Maynard Keynes? It is not that the private sector cannot think of what to do. It is that the private sector is behaving perfectly rationally in the face of low demand and high risk. Few individuals in the private sector can afford to take the risk of using their free cash to manufacture stuff that people can’t afford to buy. An individual could bankrupt herself or himself by tying up all their money in producing goods that it might take years for the economy to recover enough to buy.

Only a government that is sovereign in its own currency, etc. and can never go bankrupt has the deep enough pockets to fund the economy into recovery.

It is so simple, so logical, and so true, that I cannot understand how economists can fail to understand this or to remember this. How come all those people in the FDR administration could be so smart, and now people cannot even look back in history to read their explanation of what they did and why it worked?

You might wonder why the rich oligarchs’ don’t want us to remember how the government can help get us out of a recession or depression. When the economy tanks, the oligarchs are the ones with enough money that they can scoop up the nation’s assets at fire sale prices. It is much more profitable to use their money to gain control than it is to risk their money in the messy process of creating more production capacity than there is a current need for. In other words, the rich withhold their money from the economy until it is so starved that people will sell off their assets cheaply. There is a price that is low enough that there is not much risk in paying it, if you have the money. That’s called “buy low, and sell high.”

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