Saturday, August 28, 2010

Bill Mitchell Disses Morgan Stanley

I reported yesterday on a Morgan Stanley report that discusses the state of government finances. Bill Mitchell, a proponent of Modern Monetary Theory (MMT), has a fine critique of the piece:

There is no solvency issue for a sovereign government

…There is no debt crisis in sovereign nations. The only public debt problems that have emerged in the current crisis have been in non-sovereign countries and even then with appropriate “fiscal support” those crisis were managed. I am referring to the intervention by the ECB when they decided to purchase outstanding public debt in the secondary bond markets – which amounte [sic] to a fiscal act within a flawed monetary system.

But blurring the distinction between sovereign and non-sovereign nations is the starting gate for this absurd journey in self-importance that Marès has produced.

The report is “the first issue of Sovereign Subjects” which is “a new Morgan Stanley publication focusing on sovereign risk in advanced economies”. Please write to Morgan Stanley and tell them that the publication is a crock and they should save their time by not producing a second issue.

The first issue of this propaganda document perpetuates some classic myths and then some…

If you’ve ever been dissatisfied with some of the answers that mainstream economics serves up, this guy is required reading (along, I think, with Scott Sumner). I find myself attracted to some of the ideas behind MMT, which shares some characteristics with Post Keynesian thought, though I don’t know if I’d commit wholesale to this ideology…yet. But the more I read and explore economics, the more their ideas make sense – certainly the idea of fiscal austerity in the face of falling economic activity goes against my instincts, especially when monetary authorities aren’t doing enough.

But the read the whole piece…it’s worth your while.

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