By Anton Tonev 25-08-2020

Resource Optimization vs Surplus Distribution: The Case For Modern State Economic Planning

(12 min read)
Resize text:


Modern Monetary Theory (MMT) has finally hit the popular media circuit, generating widely divergent and, sometimes, passionate responses. And rightly so. The flaws of our understanding of how the monetary transmission mechanism works, and its actual flaws, indeed, were clearly exposed during the 2008 financial crisis. While MMT was a theory already present before 2008, it started to become popular really after the crisis. And while it may not bring anything substantially new to the table, it has managed to combine and focus our economic thinking to the issue at hand in a novel way. It has, therefore, been very beneficial in extending the discourse of how to reform the monetary system to serve the economy better.
Macro Hive’s John Butler has written a good critique of MMT in two parts, here and here. While acknowledging MMT’s flaws, I still find myself largely in its camp, coming from a big picture view of how ‘money’ should be created and distributed in the economy and, in that light, taking a different view on the concept of ‘government’ planning vs the ‘free market’ trial and error approach.
My basic premise is the following: since the end of the Bretton Woods Agreement and the full abdication of gold from the process of economic management, the ‘free market’ has done an outstanding job in resource optimization but has failed to distribute properly the surplus thereby created. MMT has brought to the surface this failure and should be credited in keeping the discussion going on how the state, through the Treasury and CB, can be more involved in the economic management process.
The Context Behind MMT
One of the main critiques of MMT is that ‘there is no free lunch’. That is unsurprising since the entire study of economics is largely based on the principle that resources are scarce, i.e. economists try to find how best to optimize resources in an environment of scarcity. Barring mining asteroids or accessing deep space, resources are indeed not unlimited on Earth. However, the spectrum between scarcity and abundance is vast, and it is equally wrong to abide by each of these extremes. Also, one needs to take into account the demand side of the equation: yes, supply is limited because Earth is final; but if demand is also restricted (population declines, etc.), supply may take ‘a really long time’ to extinguish and so may become ‘unlimited’ for all intents and purposes.

TO READ THIS HIVE EXCLUSIVE
SUBSCRIBE TO MACRO HIVE PRIME

£39/month thereafter

For access to our Slack Chat Room, where we discuss all things markets with our researchers and subscribers

START YOUR FREE TRIAL


MOST READ

ECB Preview: Biding Time Until June (2 min read)

By Caroline Grady | Apr 20, 2021
Stepped up PEPP purchases since the 11 March ECB meeting leave little need for any policy changes at this week’s governing council meeting...

Russia Sanctions: The Shock That Never Came (5 min read)

By Tatiana Orlova | Apr 16, 2021
The most important measure bars US entities from newly issued local sovereign debt, effective from 14 June. The ban includes debt issued by the CBR...

Weekly Vaccination Update: J&J Pause and EU Supply Schedule (1 min read)

By Sam van de Schootbrugge | Apr 14, 2021
In this prime tracker, we review the latest vaccine developments globally. This week, we’ve added some brief commentary...

PREMIUM CONTENT

ECB Preview: Biding Time Until June (2 min read)

By Caroline Grady | Apr 20, 2021
Summary Thursday’s ECB meeting is unlikely to…

Five Things You Did Not Know About China (2 min read)

By Bilal Hafeez | Apr 13, 2021
China is a global economic superpower, yet…

Want To Join Our Community Of Leading Investors And Researchers In Our Slack Chat Room?