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MMT reaches the letter pages in the Financial Times

Letter to the Editor printed in the Financial Times 11th May 2011

From Mr Ralph Musgrave.

Sir, According to Martin Wolf, Lawrence Summers (Barack Obama’s former chief economic adviser) is not sure whether an “expansionary fiscal contraction” is expansionary (“Why British fiscal policy is a huge gamble”, April 29). But it is worse than that: the economics profession is not even sure how expansionary an expansionary fiscal policy is, because of crowding out. This would be funny if the consequence were not millions of homes repossessed worldwide and lives wrecked.

I suggest that the solution to this farce is to abandon the distinction between fiscal and monetary policy, as advocated by Modern Monetary Theory. Under this regime, government simply creates new money and spends it (and/or reduces taxes) in a recession. Conversely, when inflation looms, government reins in money via extra tax (and/or reduced public spending) and “unprints” it, or extinguishes it. As to government debt, that becomes near irrelevant: it can gradually be whittled down to near zero and be left at that level.

Ralph Musgrave,

Durham, UK

Posted in Money Systems, News, Resilient Investment.

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