(Bloomberg) --
Modern monetary theorists shouldn't expect a warm welcome in Paris: according to a working paper by Bank of France economists, their ideas are “more of a political manifesto than of a genuine economic theory.”
Francoise Drumetz and Christian Pfister say Modern Monetary Theory confuses legal currency and cash, doesn't acknowledge the importance of policy credibility for a currency, and fails to explain how decisions could be transmitted to the broader economy.
In broad terms, though it's often dismissed by advocates as simplistic, the MMT view is that spending isn't funded by taxes, and that governments with their own currency can just print money and spend it, unless inflation gets out of control.
For the Bank of France economists, there are “strong cautionary tales” against viewing a central bank as a government's fiscal agent, or its independence as a myth MMT is unable to prove its claims due to a lack of formal modeling, they say, and is wrong to suggest there is no relation between fiscal deficits, interest rates and inflation.
The tone of the paper has echoes of the quip used by former Bank of England chief economist Andy Haldane, that MMT is neither modern, nor monetary, nor a theory.
Drumetz and Pfister say that MMT academic publications are very repetitive and “lacking in empirical analysis.”
“They rather prefer to talk between themselves, repeating consistently the same ideas that others formulated in a distant past, disregarding facts and theories that do not fit into their approach, and accusing those who do not share their ideas of being incompetent,” they conclude.
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