Lagarde Says MMT Is No ‘Panacea’ But May Help Fight Deflation
IMF chief Christine Lagarde said that Modern Monetary Theory, a progressive economic doctrine that’s drawing attention in the U.S., has little to offer the world economy right now but could prove helpful in crisis situations when prices are falling.
“We do not think that the modern monetary theory is actually the panacea,” Lagarde said Thursday at the International Monetary Fund’s spring meeting in Washington. “We do not think that any country is currently in a position where that theory could actually deliver good value in a sustainable way.”
MMT was founded in the 1990s and has languished in obscurity for much of its lifetime, but it’s now sparking debate among politicians and economists. Underscoring the theory is the idea that government deficits aren’t as dangerous as is usually thought -- for sovereign nations that borrow in their own currency, and so can’t go broke.
The doctrine has won converts among progressive U.S. policymakers, including Representative Alexandria Ocasio-Cortez, who are seeking ways of funding social programs such as Medicare For All and the Green New Deal. It has resonated more broadly because of concerns about slowing economic growth and a lack of traditional central-bank ammunition to counter a downturn.
“It is tempting, when you look at the mathematical modeling of it, and it seems to stand,” Lagarde said. “If the country is in a liquidity trap,” she said, “if there is deflation, then in those circumstances it could possibly work for a short period of time.”
Lagarde is the latest high-profile figure to wade into the debate. Earlier this week the IMF’s chief economist, Gita Gopinath, attacked the theory for offering a free lunch. Other detractors include Federal Reserve Chairman Jerome Powell, BlackRock chief executive officer Larry Fink, and former New York Fed president Bill Dudley.
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