No worries! I’m always happy to help out. The main things are:
1. It’s true that MMT usually recognizes that excess aggregate demand from money printing leads to increases in prices. The main error that MMT makes here is in saying that it is always possible to avoid default by printing money, even if it causes hyperinflation, so that the true constraint on government spending is its willingness to accept inflation, not its ability to continue making interest payments. The Chicago MMT question may have been poorly worded.
2. I think that these observations are just as consistent with a New Keynesian view of a liquidity trap as with MMT, but New Keynesians have the big advantage of their predictions being laid out far in advance – back in the 80s and 90s, in fact. The New Keynesian view makes significant refinements to Old Keynesian theories of aggregate demand in that it clarifies when government spending is effective in increasing aggregate demand without raising prices. Most notably, New Keynesian views model the financial sector in a lot more depth, and there’s a bunch of models explaining why the way the Federal Reserve acted wouldn’t be expected to cause inflation under the conditions it was facing.
3. There are three problems with this idea of the Fed as a captive lender. The first is inflation. To their credit, MMT people generally recognize this, so it’s not a big problem. The second is that the Federal Reserve, and other central banks, are independent: Central banks can make decisions without interference from either the legislature or executive. This is extremely important, because the Federal Reserve needs the ability to communicate clearly to everyone that it’s going to be responsible and keep inflation low, or else people lose confidence in the currency. The Federal Reserve’s independence is to economists what the Supreme Court’s independence is to judges. Because of this, the Federal Reserve is unlikely to print money with the intention of financing government debt, especially permanently – QE has always been intended as a temporary measure to lower interest rates, not as a permanent expansion of the money base, and the Federal Reserve is still collecting interest on the money it lent to remove it from circulation. The final problem is nobody accepting your currency in exchange for goods and services anymore if inflation gets too far out of hand – the Fed can print all it wants, but it can’t force people to agree to actually use the money.
Thanks for the source!
Thank you so much – this is super useful!
If you want me to summarize the mainstream response to MMT, though, here it is:
It’s true that countries don’t have to “Pay back” their debt in the sense of going to $0 debt – but then neither do companies, or even people (Think of elderly retirees with reverse mortgages). However, this is very different from saying that there’s not a budget constraint on a country’s ability to spend. In reality, there are two.
One is savings. A country needs to borrow to finance a deficit. If you have too much debt, you can’t find more lenders, because you’ve already borrowed everything. You also don’t want to try and hit this limit, because when government borrowing increases, this raises interest rates under most (i.e. non-recession) conditions because demand for loans is higher, so increasing borrowing by the government lowers borrowing by the private sector.
Now, here MMT people usually reply that in theory, the government could just keep printing money to pay back its debts. It might cause inflation, which is bad, but you still could. Here’s why economists still say that the fundamental problem with MMT is that inflation is a spending constraint. The problem isn’t just that prices will rise and that’s bad. It’s that if you print too much money, people stop taking it. Venezuela tried this strategy, and quickly found that the only thing that happened was people stopped selling things to the government, because they didn’t want worthless Bolivars anymore. Now they’re reliant on US Dollars to buy anything.
This is just one of many, many mistakes in MMT, but this is one that I can explain without bringing in more math-heavy models.
To be clear, MMT falls on the pseudoeconomic fringes. This isn’t just me saying this, it’s every economist, from Paul Krugman to Noah Smith to… Everyone, really.
The short answer to this post’s title is “No.” All of the policies you have described fall under traditional macroeconomic stimulus, of the kind economists have understood since the time of Keynes.
I believe what you’ve gotten here is a very pop-econ kind of thing that ends up being reported in media, but is a terrible summary of the actual state of knowledge in economics. It’s the sort of thing that people who are very smart but haven’t specialized in the field will tend to pick up from reading on Wikipedia, which has an unfortunate tendency to overemphasize heterodox schools of economics and has difficulty explaining the actual consensus on these issues, typically because the consensus consists of very complicated-seeming mathematical models.