Today Bill Mitchell posted some draft material from the MMT-oriented textbook he’s co-authoring with Randall Wray, another leading MMT thinker. I thought I’d post a few brief excerpts from it, since they nicely summarize several core elements of MMT. The first point relates to achieving full employment. The second (and related) point is focused on how best to control inflation.
[A] nation will have maximum fiscal space:
1) If it operates with a sovereign currency; that is, a currency that is issued by the sovereign government and that is not pegged to foreign currencies; and
2) If it avoids incurring debt in foreign currencies, and avoids guaranteeing the foreign currency debt of domestic entities (firms, households, or state, province, or city debts).
Under these conditions, the national government can always afford to purchase anything that is available for sale in its own currency. This means that if there are unemployed resources, the government can always mobilise them – putting them to productive use – through the use of fiscal policy. Such a government is not revenue-constrained, which means it does not face the financing constraints that a private household or firm faces in framing their expenditure decision.
To put it as simply as possible – this means that if there are unemployed workers who are willing to work, a sovereign government can afford to hire them to perform useful work in the public interest. From a macroeconomic efficiency argument, a primary aim of public policy is to fully utilise available resources…
But what about controlling inflation you might ask:
…there are two broad approaches to control inflation available to government in designing its fiscal policy choices. The concept of buffer stocks are involved in each…:
Unemployment buffer stocks: The mainstream approach, which describes the current policy orthodoxy, seeks to control inflation through the use of higher interest rates (tighter monetary) and supportive fiscal policy (austerity), which leads to a buffer stock of unemployment…this approach is very costly and provides an unreliable target for policy makers to pursue as a means for inflation proofing; and
Employment buffer stocks: Under this approach the government exploits its fiscal capacity, inherent in its currency issuing status, to create an employment buffer stock approach. In MTT, this is called the Job Guarantee (JG) approach to full employment and price stability…
The MMT macroeconomic framework shows that a superior use of the labour slack necessary to generate price stability is to implement an employment program for the otherwise unemployed as an activity floor in the real output sector, which both anchors the general price level to the price of employed labour of this (currently unemployed) buffer and can produce useful output with positive supply side effects.