This is simply delightful

There are some obvious consequences from the understanding that MMT provides. The first is that fiscal policy is always more powerful the monetary policy, and that is most especially the case when interest rates are at or close to zero, as they are now and as they are likely to be for some considerable time to come.

Err, no. That interest rates are near zero (actually, real are significantly negative) which then increases the power of fiscal policy shows, instead, that monetary policy is powerful. Because it couldn’t increase the power of fiscal otherwise, could it?

We could also think on a little more. The P³ tells us that raising interest rates now would be an entire disaster. All have so much debt that the entire economy would fall over. Well, mebbe, mebbe not. But that’s a certain indication of the power of monetary policy, isn’t it? It’s difficult to think of any fiscal policy – one anywhere near the Overton Window perhaps – that could have that effect, no?

Exactly the warnings the P³ gives us against raising interest rates show that monetary policy is in fact more powerful than fiscal. Ho Hum.

2 thoughts on “This is simply delightful”

  1. Reading the whole piece it’s basically incoherent. It reads like the meanderings of a 16 year old adolescent. What’s striking is how many people are invested in this as a Theory (at least on Twitter) – they really seem to be under the impression they have something novel and ‘bombproof’. I don’t give Murphy much credit but at least he appears to have some caveats, which is more than some of the more enthusiastic MMT proponents seem to allow for!

  2. When interest rates were cut (in Jan 2020) the P3 insisted it would make SFA difference. ‘Insignificant and irrelevant’ he said.
    But today an increase would be a disaster of Justinian proportions.

    I suppose two years is enough time for many more changes of view than, so this is consistent by his standards.

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