Book Review: Modern Monetary Theory In Addition To European Macroeconomics

Dirk H. Ehnts, a lecturer inward economic science at Bard College, Berlin, has written Modern Monetary Theory in addition to European Macroeconomics. The mass acts an introduction to Modern Monetary Theory (MMT), aimed specifically at the province of affairs inward the euro area. This is distinctive, equally a cracking bargain of the MMT literature discusses the province of affairs of floating currency sovereigns (which is the preferred seat inward MMT, equally distinct from the repose of the post-Keynesian literature, where but about economists are inward favour of currency pegs). The later on chapters of the mass give a historical explanation of the euro crisis, in addition to offers an outline of how the euro surface area tin locomote reformed. The mass is aimed at non-specialist readers.

Book Description

Modern Monetary Theory in addition to European Macroeconomics was published inward belatedly 2016 past times Routledge. The hardback edition is 222 pages, in addition to in that location is an ebook edition equally well. (I read the KIndle edition, in addition to thus I volition non locomote quoting page numbers.)

The mass is divided into iv parts (excluding front/end matter).

1. Part I - Theoretical Foundations. (What is economical activity, anyway?)
2. Part II - Money in addition to Credit.  (Introduction to MMT-style residuum canvass analysis.)
3. Part III - Analysis. (Theoretical model; the province of affairs inward the euro area.)
4. Part IV - Reform.

The ISBN is 978-1138654778.

The next sections volition hash out these parts inward turn.

Part I - Theoretical Foundations

This role has 1 chapter -- "Substance in addition to purposes of economical activity." It is a philosophical give-and-take of the purposes of economical activity. I mostly stick to a narrowly defined role of economic science (which I telephone telephone "bond marketplace economics"), in addition to I volition duck discussing this chapter.

Part II - Money in addition to Credit

This role of the mass returns to the relatively familiar terrain of MMT-style residuum canvass analysis of the economy. It describes how debts dice money, in addition to the operations of the banking system, etc.

This tutorial covers chapters 2-6.

• Chapter 2: Debts in addition to residuum sheets.
• Chapter 3: The creation of depository fiscal establishment deposits.
• Chapter 4: The creation of key depository fiscal establishment deposits.
• Chapter 5: The instruments of a key bank.
• Chapter 6: The creation of sovereign securities.

The fabric is divided into bite-sized sections, in addition to Ehnts covers a lot of background material. For example, what is the TARGET2 organization inward the euro area? Even if the reader is familiar amongst the pop MMT literature, in that location are likely many topic areas that showed upwards inward the euro crisis that are explained here.

This role of the mass ends amongst 2 chapters on to a greater extent than advanced topics: fiscal organization sustainability, in addition to inflation. 

The chapter on fiscal stability discusses the MMT declaration that the authorities acts equally the "'deleverager' of the mortal sector." It too gives a background on depository fiscal establishment rule (reserves, upper-case alphabetic quality requirements).

I volition acknowledge that I remove maintain SFC modelling on my encephalon correct now; I am highly focused on the mathematical side of post-Keynesian economics. (Anyone who thinks post-Keynesians remove maintain an aversion to equations needs to run across my sfc_models package.) As a result, when reading the book, I tended to focus on the to a greater extent than advanced topics. The chapter on inflation in addition to deflation was of obvious interest.

For a reader novel to economics, the give-and-take is quite good. Ehnts offers a proficient summary:

While most people almost instinctively believe that an increase inward the monetary render -- yet that is defined -- leads to inflation, the reality is to a greater extent than complicated. 

The post-Keynesian give-and-take of inflation is complicated; Ehnts offers a reasonable summary for non-specialist readers. However, someone amongst a background inward economics, but who is unfamiliar amongst post-Keynesian theories, would likely desire to a greater extent than detail. For such readers, they would demand to dice to to a greater extent than advanced texts.

(However, if the reader of this review is unsatisfied amongst the "it's complicated" answer, I desire to underline that the alternatives are worse. For example, the key depository fiscal establishment tin somehow motility inflation expectations. How does it plough over this -- orbital remove heed command lasers? Alternatively, inflation may locomote caused past times deviations of the unemployment rate/real gross domestic product from NAIRU/potential GDP. When those model predictions inevitably try to locomote wrong, whoops, NAIRU/potential gross domestic product moved!)

Part III: Analysis 

Chapter nine has the championship "A macroeconomic model." The chapter discusses national accounting constraints on saving, including the accounting identity that oftentimes shows upwards inward MMT discussion:

(S_p -I ) + (T - G) + (IM - EX) = 0.

(This says that domestic mortal sector cyberspace saving (S_p - I), addition authorities sector cyberspace saving (T-G), addition external sector cyberspace saving (IM - EX) must amount upwards to zero: past times definition.)

This chapter would probable locomote really interesting for readers who are non familiar amongst these concepts. At the same time, the to a greater extent than advanced critics of MMT are most probable going to complain almost this chapter. The declaration is that accounting identities are non plenty to depict outcomes; nosotros demand to remove maintain into draw of piece of work concern human relationship behavioural patterns. Ehnt's description of these identities is based upon assumed behavioural patterns; I come about to concord amongst those assumptions. However, nosotros would demand a to a greater extent than advanced technical give-and-take to bargain amongst but about of the criticisms of this MMT-style analysis.

The repose of this role is a give-and-take of the province of affairs inward the euro zone. Ehnts outlines the economical history of the euro from a MMT perspective. His description is done at a relatively high level, equally would locomote expected to having to stand upwards for the history inside 2 chapters. He does a fairly proficient undertaking of skewering but about of the myths associated amongst the origins of the crisis past times looking at the data.

Part IV: Reform

Part IV consists of 2 chapters.

• Chapter 12: How create nosotros restore demand?
• Chapter 13: The future: amongst or without the euro?

The outset of these discusses the job of demand deficiency. As is somewhat predictable, he argues that the authorities sector needs to pace upwards demand inward social club to allow the mortal sector to undergo residuum canvass repair.

For the euro area, the pattern of the euro itself is the original ground non to await such an outcome. Ehnts discusses how the euro could locomote reformed, in addition to possible scenarios for the euro surface area to locomote broken upwards (a peripheral Blue Planet leaves; alternatively Deutschland leaves).

Once again, the give-and-take is at a high level. Unfortunately, the mass does non offering a recipe for easily quitting the euro area.

Concluding Remarks

For non-specialist readers, the mass offers a proficient introduction to Modern Monetary Theory, peculiarly equally applied to the thorny problems of a currency peg organization similar the euro. However, the focus on beingness accessible to full general readers agency that this mass may offering express help for trained economists who desire to larn into the gritty details of how MMT differs from other approaches.

 (c) Brian Romanchuk 2017