A bit about MMT
The Politeconomics[1] channel again explains for MMT. I really like how every time there are more and more conditions for MMT to work. Now it turns out that structural issues are important, energy sovereignty, food sovereignty and complex exports are needed. It also turns out to be important that the country is not corrupt (wow, institutions matter!).
Karl Popper introduced the concept of "immunizing stratagems" into the philosophy of science. These are auxiliary statements for the theory. For example, Galileo's law of falling bodies assumes the absence of air resistance (two different-sized objects of different shapes and masses, starting to fall at the same time, will fall with the same speed and constant acceleration if free fall occurs in a vacuum). In general, to test the hypothesis, we need an absolute vacuum. If it is not, we will not get the desired result, if it is, we will get [2]. In itself, the presence of "immunizing stratagems" is normal. It is not normal to abuse them. If for each objection you have an additional auxiliary hypothesis, it turns out that it is impossible to refute your original thesis at all. Here with MMT comes out every time. Monetary sovereignty used to be enough, now complex exports, energy and food sovereignty, and the right institutions are required. Next time, the requirements of the invisible pink unicorn will appear.
When a contradiction appears in the same mainstream of economic science, and there is an understanding that it is important, the theory is revised. For example, the assumption that the economy has reached a stationary state in the Solow model (per capita GDP no longer grows, economic growth rates become near zero at some point) and thus the convergence of countries in terms of development level is predicted - the developed ones stop growing, the developing ones catch up with them, then everything is together enjoy the maximum they have achieved. Over time, it became clear that there was no convergence. As a result, a new generation of economic growth models appeared, in which technological progress appeared not only as some additional external variable, but as something that is formed within the economy itself, and this gives impetus to further growth (if you are interested in more details, I have a good one on my channel conversation[3] with specialists in macroeconomic dynamics about economic growth).
In general, this is why Popper proposed to impose a restriction on immunizing stratagems. That is, the theory must be formulated in such a way and with such methodological rules that it can be tested. Of course, in real life, this regulatory requirement is far from being always met, but scientists still try to adhere to it.
Well, it's also funny. The author of the channel writes that MMT critics often do not understand how the banking system actually works and how exactly the central bank conducts its operations.
First, it is erroneously assumed that the central bank actually controls the money supply, when in fact the money supply is an endogenous variable determined by the private sector (consumers, businesses, and banks). The central bank is simply satisfying the needs of the market to keep short-term interest rates at a stable target level, otherwise it will cause instability in financial markets.
There is no doubt that the central bank is looking at demand. The fact that demand is one of the benchmarks too. But! First, the Central Bank is autonomous in decision-making and has its own goals for inflation and financial stability. And if the goals of the Central Bank diverge from the goals of demand, so much the worse for demand. Secondly, then this statement should also be extended to the monopoly, they say, it also focuses on demand. But the monopoly has its own optimality parameters - costs. And if the monopolist maximizes profit, then he looks not only at demand, but compares it with his costs, determining the optimal volume of production. I have no objection that demand is important. Yes it's true. But this does not make the parameter strictly endogenous. In the end, the goals of the Central Bank can be very contrary to the goals of commercial banks, the implementation of which may be beneficial to a particular bank, but detrimental to the financial system as a whole.
And the second objection is that prices are rising because inflation is imported. First, it is imported, there is no doubt about it. Secondly, it is now a lot where it is imported. But not everywhere this was accompanied by loose monetary policy. Therefore, only part of the price increase can be explained by supply factors and imports of inflation. At a first approximation, this seems obvious.
So it goes.
Grigory Bazhenov 2022-07-11
