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2020-11-02

Mediamacro (macroeconomics as understood by much of the media) treats the economy as a household

The government is not like a household, and trying to treat it like a household causes huge damage.


George Osborne acted as if he didn’t understand that, and it would seem Rishi Sunak does not understand that either. And like Osborne, Sunak too is already causing a lot of damage by worrying about a deficit in a recession. 


Worse still for Sunak deficit obsession seems to have taken on a religious dimension.


This suggests that Sunak, like Osborne, only pretends to misunderstand the nature of government debt. 


For MMT devotees. You say governments should focus on how much resources are used and not the deficit. But that is only true if interest rates are unable to control inflation in booms or you prefer to use fiscal policy to control booms. 


As most people think interest rate policy is both effective at dealing with booms and should be used, then controlling the deficit in booms is important to prevent deficit bias.

 

Try imagining most people are right, and think outside your MMT box.



Mainly Macro 26 October 2020


https://mainlymacro.blogspot.com/2020/10/






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