The Auld Bird

@AndyLippok Sorry, I mute for MMT.

It is perfectly possible to formulate MMT using the language of temporary equilibrium theory. One reason, perhaps, why that exercise has not yet been attempted is that it forces the modeler to make internally consistent statements about concepts they take for granted. For example, Randall Wray in his treatise on MMT acknowledges that if the economy is at ‘full employment’ a government that consistently finances additional expenditure by money creation, will cause inflation. But he does not define full employment. Where I agree with Randall Wray, is that under some circumstances money financed expenditure will increase employment. Where I disagree with Wray, is that increasing employment is always a social good. Unlike Randall, I have a fully articulated theory of what it means for an economy to be at full employment. static1.squarespace.com/static/573b5f2… MMT economists assert that the government does not need to balance its budget and that — under some circumstances — deficits can, and should be, financed by money creation. I agree. But how large should the deficit be? Is there an optimal size fo government debt? MMT has no answer to that question. Neoclassical economics does. Peter Diamond in his 1965 paper, “National Debt in a Neoclassical Growth Model”, showed that government debt can, under some circumstances, increase social welfare. The reason is that, even at full employment, the interest rate in a competitive economy can be less than the growth rate. And in that case, money or debt financed expenditure is costless. @wbmosler Warren Mosler, in his seminal article on MMT, uses the analogy of a family whose parent issues tokens. If he had pushed that analogy further to recognize that generations overlap and trade with each other, he might have rediscovered Diamond’s work. Importantly, Peter’s work does not imply that government can or should increase the value of its liabilities without limit. My reading of MMT critiques of neoclassical economics suggests that most of the critics, perhaps not all, have a very limited view of what is taught in graduate economics programs. I have my own speculations about the nature of the quantum universe. But I do not share those thoughts on X because I have a very limited knowledge of what is taught in graduate physics programs. I am a consumer of works by theoretical and experimental physicists, not a producer. If I were to wade into debates on the nature of the universe, I would try to do it with a degree of humility and without the use of expletives and insults that have been displayed by some of those on this forum who feel compelled to attack mainstream economics without apparently understanding what they are attacking.@albertobisin @RelearningEcon @ProfHall1955 @GeorgeSelgin @JesusFerna7026 @ProfSteveKeen @sndurlauf @StephanieKelton