McCulley doesn’t embrace everything in MMT, which has won converts among freshman Democrats like Alexandria Ocasio-Cortez as a way to finance the Green New Deal and Medicare For All.
The theory supports a bigger role for Congress in managing the economy, and a smaller one for the central bank. McCulley favors a middle path. He said the MMTers have logic on their side “but they have difficulty dealing with the political reality of an independent Fed.’’
He argues that outside of crisis times like 2008, interest-rate and budget policy should be distinct -– but cooperative. “Congress is going to have to own the unemployment target and the inflation target,’’ he said. And MMT needs to come clean about the need for changes to the Fed’s legal mandate, so it can support deficit-spending.
“They’re scared to actually talk about it plainly,’’ he said. Though he appreciates why they don’t -- because “Wall Street will get wrapped around the axle.”
‘Pathological’ Inequality
Former New York Fed president Bill Dudley called MMT a “crackpot theory” in a Bloomberg Radio interview Wednesday. But the gap between his view and McCulley’s may not be as wide as it seems. Dudley also acknowledged that “better coordination between the fiscal side and the monetary policy side would help the economy” in a downturn.
McCulley says the Great Recession provided insight into how that could work. But he says that too much of the recovery effort was left to the Fed.
The result was “pathological’’ levels of income and wealth inequality, he says. Because monetary policy works “by driving up asset prices. And rich people own assets.’’
This article was provided by Bloomberg News.