I found this comment on Twitter by Matt Yglesias interesting. He says:
“I think MMT/NGDPLT synthesis is the advance we need.”
Why is it interesting? Because it’s precisely what I discussed the other day in my response to the Woodford paper. Monetary Realism was formed with the express intent of helping to describe how the monetary system works in its current form. It is a pure description of the institutional structures that exist and how they work to impact the economy. The view is entirely based on understanding how the machine works. We did not start from an ideological position. We started from a position of fact based on the actual institutional design of the system. And we’ve left the policy entirely out of it. In fact, one of the main intentions behind MR is that we can better understand how the system works and remain flexible on policy given the changing landscape of the economic environment. No school has the policy ideas exactly right. And through understanding how the system works we realize that there’s actually a lot right in these differing schools.
The problem with much of economics today is that most schools of thought start with an ideology, build a policy objective around that ideology and then create some description of the monetary system that makes that ideology appear more credible. MR does the exact opposite. We describe the system for what it is based on its institutional design and then say “you decide how to implement policy based on these understandings”. In other words, MR bridges the divide that exists between all these different schools because it’s through our understanding of the system that we realize there are bits and pieces of each school that are correct. That’s why you see Market Monetarists, Circuitists, Keynesians, Austrians and MMTers all agreeing with parts of MR….It’s the synthesis Matt Yglesias wants and probably doesn’t know exists….