Modern Monetary Theory (Canada)

Excerpt

Today – amid the extraordinary circumstances of the pandemic – the Bank of Canada is printing billions of dollars to buy government bonds in order to lower interest rates. For the first time they have moved beyond “quantitative easing” – buying up government bonds in the secondary market to lower interest rates – to direct purchases of government bonds. They are supporting massive federal and provincial government deficit spending. The Bank may not loudly endorse MMT, per se, but they are acting on that basis and demonstrating that the state can indeed always pay for what must be done. Similarly, all kinds of orthodox economists and policy makers have temporarily accepted that a massive increase in public spending can and should be undertaken without raising taxes and almost irrespective of the deficit and debt.

Modern Monetary Theory

Excerpt

The shift in interest [in Modern Monetary Theory] predates the COVID-19 crisis, but the virus has given MMT a huge boost. Governments around the globe have been quick to dramatically expand their budgets in response to the crisis, with deficits of 10 per cent of GDP becoming routine. Economists, even those who have spent a lifetime warning of the perils of budget deficits and government debt, seem to accept these astronomical deficits with equanimity. Stranger still, central banks everywhere are abandoning time-honoured conventions and funding these budget deficits to a greater or lesser degree by buying government bonds – what is often called ‘printing money’. This seems to be the same as the MMT core message – run deficits to maintain full employment and fund them by money-printing. Mainstream economists are adamant that they are not supporters of MMT, although just where they disagree is sometimes unclear.

Post-COVID modern monetary theory

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Mitchell says governments were remarkably successful at providing jobs to people who needed them and there’s nothing stopping them from doing so again. The key to doing it then, and in the future, he says, is having a public sector “buffer stock” of jobs. “In Australia – and I’m pretty sure the same sort of structure operated in New Zealand – you could always get a job in some public sector area,” he says. He’s not wrong. In 1952 in New Zealand, there were just two people receiving the unemployment benefit and 50 registered as unemployed.