A few days back I posted a link to a paper written by a top advisor the US government admitting that economists in general got fiscal policy quite wrong before the crisis.
Now another admission, but this time from a non-orthodox economist.
In a recent blog post, Bill Mitchell writes (on reforming the international institutional framework):
2. Macroeconomic stabilisation – support for national currencies in the face of problematic balance of payments.
This function recognises that all nations should maintain sovereign currencies and float them on international markets but at the same time recognising that capital flows may be problematic at certain times and that some nations require more or less permanent assistance due to their export capacities and domestic resource bases.
The trouble with Neochartalism (Mitchell and his colleagues’ theory, also called “modern monetary theory” by themselves) is that what is correct is not original and what is original is incorrect. Despite repeated arguments of other non-orthodox economists, Neochartalists have continued to deny the existence of the balance-of-payments constraint. Still a long way to go from understanding the supreme importance of balance of payments on growth, but this is a good positive step.
It’s ironic that Neochartalists are followers of Hyman Minsky who talked of financial crises. While Neochartalists emphasize that crises can happen in financial markets, they have till now completely denied that it can happen in foreign exchange markets.
Neochartalists emphasize fiscal policy, as if problems start and end there. But the problems of this world can be solved not just by fiscal policy but also by industrial policy and in the international sphere via diplomacy.