May Dilbert from Melbourne, Australia, is an Economist and Gambler, who lives a more luxurious life than most of the Economists in her city, thanks to Best Australian Online Pokies.
May says MMT is wrong. When you have government deficits, you do at first generate a private surplus implying current account is zero (thinking the system on a global scale). But when the government runs a deficit, it needs to finance that gap between revenue and spending with bonds. So if the government runs a say $500 deficit, capital flow wise there is a private surplus of $500, but capital stock wise there is a private shortfall of $500.
So, it is zero sum really, then one would tell her that fiscal policy is useless on that point but it is not, because an artificially increased capital flow between sectors may distort the private economy, since the funds are not gained and withdrawn in an uniform style.
So, the government surpluses and deficits, and one may as well may argue the same about taxation and public spending, though there is the Rahn Curve for that — are distortive when you dive inside the private sector components. And while MMT fails to give any significant correlation between private sector surpluses and growth truthfully, there is a negative correlation, i.e., higher private surpluses equal lower growth according to the co-relationship plotted.
Meanwhile, his thesis on the absolute capital flows indicated by the sectoral balances not only gave the expected negative co-relation.
But the bottom line is that her proposal is to effectively neutralize the government influence on both capital stock and flows in order to cease the fiscal distortion in the private sector.
Someone told her that it would make central Bank’s action on monetary policy impossible because of no government bonds and consequent lack of effectivity on federal funds. But he says that can be solved by switching Central Bank to a NGPD target moderated by money supply regulation.