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On 4/21/20 8:37 AM, MM wrote:
You want me to spend time reading up on the Nicaraguan economy from
decades ago so that I can write an essay specifically for you, because
you can’t be bothered to listen to a recorded interview while you do the
dishes? No thank you.
Actually, I think it is probably beyond the scope of MMT. I just read
Doug Henwood's article that makes clear it is a policy for G7 nations,
especially the USA, not poor countries like Nicaragua. Indeed, I came to
the conclusion long ago that post-Keynesian economics has little to
offer places like Nicaragua. I got to know Nathan Tankus fairly well
when I was writing some stuff about the difficulties of getting Greece
back on the drachma that were cross-posted on Naked Capitalism. As I
began reading Yves Smith's blog and spending some time with her and
Nathan, it occurred to me at some point that they had zero interest in
the global South or what is sometimes called "development economics".
"I did get to explain MMT to Emmanuel Wallerstein recently. He was
non-committal, saying essentially that he did not understand it. Not in
his bailiwick."
--Binoy Kampmark
Doug Henwood:
Another serious problem with MMT is its embeddedness in a rich-country
perspective, and in particular American exceptionalism — in this case
the “exorbitant privilege,” as a French finance minister once put it,
that comes with issuing the world’s dominant currency. Countries around
the world keep their reserves (basically rainy-day funds on a very large
scale held by governments at their central banks) in dollars, which make
them effectively a captive market for US Treasury bonds (which is how
the dollars are kept). Also, major commodities like oil are priced in
dollars, forcing countries to accumulate the currency to pay for
essential imports. That means the United States, exceptionally, can run
giant deficits and borrow on a vast scale with little constraint (so
far). Nor do we have to worry about the value of the dollar (for now,
though you have to wonder how long the exorbitant privilege will last in
a world where US dominance is eroding).
But less privileged countries have to worry about foreign investors
dumping their bonds and driving down the value of their currency, which
would jack up interest rates and inflation. Salvador Allende’s
government greatly increased spending and raised the incomes of the
poorest in Chile in the early 1970s; that worked nicely for a while, but
then inflation took off. Allende wasn’t operating from the MMT playbook,
merely resorting to policies pursued by many progressive governments
facing political opposition and resource constraints. But such
experiments rarely end well, and similar problems would face a poor
country trying to stimulate its way to prosperity today, as we see in
Venezuela now.
Compared to the United States, such countries enjoy less “monetary
sovereignty” — a core MMT concept. A monetarily sovereign state is one
that can spend its currency at will, including from pure keystrokes.
America enjoys a lot of monetary sovereignty; so do Canada, Japan, and
Britain, though to a lesser degree. Those countries need, for example,
to import things priced in dollars, like oil, and the value of their
currency has a direct effect on living standards that Americans are
insulated from because we can print the currency in which that oil is
priced. Brazil, in turn, has even less freedom; it needs harder
currencies like dollars and euros to import commodities and advanced
manufactured goods; and poorer countries like Bolivia or Ghana have even
less. To buy essential imports, these countries often have to borrow in
those hard currencies. To pay off the loans, they need to earn foreign
currency through exports.
MMT has little helpful to say about that situation — in fact, its
advocates sometimes seem to lecture them that foreign borrowing is
risky, which it is, but sometimes it’s the only way you can buy power
plants and locomotives. MMTers like William Mitchell and Wray write as
if borrowing abroad is just a bad choice, and not something forced on
subordinate economies. When I asked Mosler what MMT had to offer Turkey,
a country whose currency has been losing value for the last four years
and had something of a financial crisis in the summer of 2018, he
responded with a bit of avian whimsy: “Without our recipe for Turkey
they’re a dead duck.” (In fact, Turkey had been pursuing MMT-friendly
expansionary fiscal and monetary policies, including state guarantees of
private corporate debt, and inflation was around 11–12 percent and
rising.) Not satisfied with that answer, I said that while I understood
the risks of borrowing in a foreign currency, which Turkey had done a
lot of, there’s not much sophisticated capital equipment available for
sale in Turkish lira. Mosler answered, wrongly, that you could actually
buy “a lot” of such goods in lira, and that “Any nation can sustain
domestic full employment without imports of capital goods” — totally
missing the point that a country looking to ascend in the global
economic hierarchy needs investment goods that are only made in
countries like Germany or Japan.
https://www.jacobinmag.com/2019/02/modern-monetary-theory-isnt-helping
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