Money, fiscal policy, and interest rates: A critique of Modern Monetary Theory

Thomas Palley

No 109-2013, IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: This paper excavates the set of ideas known as modern monetary theory (MMT). The principal conclusion is that the macroeconomics of MMT is a restatement of elementary well-understood Keynesian macroeconomics. There is nothing new in MMT's construction of monetary macroeconomics that warrants the distinct nomenclature of MMT. Moreover, MMT over-simplifies the challenges of attaining non-inflationary full employment by ignoring the dilemmas posed by Phillips curve analysis; the dilemmas associated with maintaining real and financial sector stability; and the dilemmas confronting open economies. Its policy recommendations also rest on over-simplistic analysis that takes little account of political economy difficulties, and its interest rate policy recommendation would likely generate instability. At this time of high unemployment, when too many policymakers are being drawn toward mistaken fiscal austerity, MMT's polemic on behalf of expansionary fiscal policy is useful. However, that does not justify turning a blind eye to MMT's oversimplifications of macroeconomic theory and policy.

Keywords: modern monetary theory; money financed budget deficits; fiscal policy (search for similar items in EconPapers)
JEL-codes: E00 E02 E10 E12 E24 E40 E58 E62 E63 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2013
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Journal Article: Money, Fiscal Policy, and Interest Rates: A Critique of Modern Monetary Theory (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:imk:wpaper:109-2013

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