"There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen." Frederic Bastiat
The «populist race» in the U.S., a shown by Bernie Sanders’ the plans to eliminate student’s debt.
Senator Bernie Sanders (I-Vt.) recently announced a proposal to eliminate student loan debt. He intends to pay off a total of $1.6 trillion, while financing the expenditure with a new tax on “Wall Street speculation.”
Student debt can be a serious burden for recent grads, especially those who fail to acquire high-paying jobs. And the intention to help those with serious financial burdens is commendable. But eliminating student loan debt would do more harm than good.
The last few weeks have seen a spike in commentaries surrounding modern monetary theory (MMT). A column by Prof. Stephanie Kelton, Andres Bernal, and Greg Carlock at Huffington Post and an endorsement from Representative Alexandria Ocasio-Cortez (D-N.Y.) have triggered negative responses by a number of reputable economists. George Selgin, Larry Summers, Paul Krugman, and Ken Rogoff (just to name a few) have all expressed concerns (to put it mildly) about the implications of applying MMT.
A common thread in these (and other) responses is that it is not clear what MMT really stands for. Advocates of MMT seem to use conventional terms in unconventional ways, and that creates confusion. On top of this, what exactly MMT means changes as time goes by, thereby adding frustration to confusion.
At its core, MMT maintains that a government cannot go broke as long as it can issue its own currency. Large fiscal deficits can be paid for by “printing money” (or, more technically, monetizing deficits). Standard monetary theory maintains that such a policy causes inflation. MMT, in contrast, holds that such a policy is not inflationary, because there are idle resources.
The Sound Money Project
Essay Contest is designed to promote scholarship in monetary and macro-
economics. More specifically, it aims to encourage those working at the
cutting edge of the discipline to consider the monetary institutions
that would reduce nominal disturbances and promote economic growth.
Prompt: In
1971, President Richard Nixon ended convertibility, thereby eliminating
the last vestiges of the gold standard. The classical gold standard,
which prevailed from 1873 to 1914, had anchored inflation expectations,
enabled longterm contracting, and promoted international trade. This
historical experience has prompted several reconsiderations of
resumption over the years, including the Gold Commission in 1980, the
International Financial Institution Advisory Commission of 1998, and,
more recently, calls for a Centennial Monetary Commission. What are the
merits of returning to the gold standard? Is such a system feasible
today?
Prizes: First Prize $10,000 Second Prize $2,000 Third Prize $1,000
Winners will also be invited to participate in the Sound Money Project annual meeting in Great Barrington, Massachusetts.
Eligibility: The
contest is open to graduate students, post-graduates, untenured
professors, and tenured professors from any discipline. Former winners
and current AIER fellows are ineligible. Former entrants are eligible,
but must submit new essays.
Rules: Essays
must be the sole and original work of the entrant and not previously
published. They should be in the format of a scholarly article. Any
standard citation format (e.g., MLA, APA, Chicago, Harvard, etc.) is
acceptable. Essays may either be written specifically for the contest or
arise from previous work (e.g., term papers, dissertations, research
projects, etc.). Essays shorter than 4,000 words or longer than 12,000
words will not be considered. AIER-affiliated scholars are ineligible.
To
illustrate the problem, Eichengreen offers three scenarios. In the
first scenario, a cryptocurrency issuer maintains 100 percent dollar
backing for coins in circulation. This is similar to how a currency board
works. Since such an arrangement requires the issuer attract and hold
dollars in order to expand the supply of coins, the cryptocurrency will
not be subject to a speculative attack. However, this also means the
issuer cannot invest those dollars since it must hold all of them to
back the cryptocurrency.
Unable
to earn interest on the float, a cryptocurrency issuer would find it
challenging to profit while holding 100 percent dollar reserves. It
would also struggle to offer a competitive return and, hence, attract
customers. Why would one exchange a widely used dollar for an illiquid
cryptocurrency, which is harder to use and does not offer a competitive
interest rate?
Punto de Vista Economico 