Synthetic MMT: Old Line Keynesianism with an Expansionary Twist
31 Pages Posted: 8 Nov 2019 Last revised: 14 Aug 2020
Date Written: October 2, 2019
Expansionary macroeconomic policy with a strong redistributive component is an attractive proposition, most recently launched on the basis of Modern Monetary Theory or MMT. The Theory is a synthesis of familiar ideas, newly relevant but scarcely path-breaking. Its basics – Chartalist or fiat money, functional finance, and models based on consistent national accounting – come straight from Maynard Keynes, Abba Lerner, and Wynne Godley. Functional finance is the heart of fiscalist Keynesianism built upon automatic stabilizers for the business cycle. MMT’s job guarantee proposal is one more stabilizer which could be a modest helpful supplement to the system which exists. National accounting comparisons of a possible MMT package with the 2008 crash and the Trump tax cut are presented with emphasis on autonomous shifts in demand. The package could have problems with debt sustainability and external balance. Inflation is unlikely if wage repression in the USA is not reversed. But strong wage increases are presumably a goal of MMT.
Keywords: MMT, Modern Monetary Theory, functional finance, structuralist inflation theory
JEL Classification: E5, E12, E17
Suggested Citation: Suggested Citation
https://doi.org/10.36687/inetwp103 , Available at SSRN: https://ssrn.com/abstract=3482211