Ten questions about MMT (Modern Money theory)
Inflation. Money. Full employment. Protectionism. Devaluation. Public debt. Interest rate. Physical constraints. Default. Sovereign money
1. Does the injection of money into the economy to ensure full employment generate inflation. And if it does, how do MMTers suggest to keep such inflation under control? Is there a level of inflation associated with full employment that is considered acceptable?
2. If it is possible to curb inflation with full employment, once full employment is achieved, how can you still control inflation? In a condition of full employment of production inputs, what does an injection of money generate, over the subsequent years, excluding an increase in productivity?
3. One way of regulating inflation is through taxation. With production inputs consistently in use and constant injections of money, isn’t there a risk of being forced to increase taxes year after year?
4. You said in Rimini that “MMT involves no financial constraints, but physical constraints remain”. Would a production increase for anti-inflationary purposes imply side effects such as a population increase, higher water and energy consumption, an increase in greenhouse gas production, etc.?
5. In which sectors and at what conditions should unemployed people temporarily hired by the State work?
6. Doesn’t the adoption of MMT in an open economy involve the risk of encouraging protectionism among States? If one State provides help to its own companies, whether directly or indirectly (for instance, through currency devaluation), wouldn’t these companies have a competitive advantage over those based in countries where the government is not as prone to state intervention? What is the MMT position on protectionism?
7. Doesn’t international trade risk being complicated by a free floating exchange rate system?
8. When a State devalues its currency, doesn’t it risk devaluing also its debt held by domestic companies, therefore determining, over time, a demand for higher guarantees, compared to those currently accepted with the Euro?
9. MMT maintains that a State issuing its own currency at a fixed rate cannot fail. Does this means that such a State, with a debt as high as 300% of GDP, for example, would have no problems? Did Russia suffer a default in 1998? This book by Reinhart and Rogoff http://www.nber.org/papers/w13882.pdf includes a list of historical defaults: what is your opinion about it?
10. If public debt is not a problem, what is the purpose of issuing government bonds? And how would the interest rate on such securities be determined?