Sometime back Joseph Noel Walker, host of the Jolly Swagman Podcast did an interview with the former RBA Governor Ian MacFarlane. I asked Joseph if I could host just the MMT section here but he preferred a link to the full the podcast on his site.
I take it that he has a fear that the podcast will be taken out of context and I understand that fear. This is definitely not the intent, much of the podcast does not revolve around MMT and do not wish to inflict things that are outside the foundational scope of this site on its audience.
The piece on MMT goes for a little over 29 minutes and begins around the 42 minute mark of the approximately 102 minute podcast.
You can click on the link below to go there.
One of the things Macfarlane says is that it is only peripherally about monetary policy but that is part of the point of modern monetary theory, that is not about monetary or fiscal policy but the monetary system.
Macfarlane walks us through the process of the monetary system in an identical way to MMT, from the Treasury to the Central Bank to the Bank to the Bank Customer, maybe with slightly different nomenclature.
The primary difference Ian Macfarlane has with MMT is a normative preference (and remains consistent with MMT) is that he prefers the current method of setting the interest rate by selling securities to the primary dealers (banks) first.
Current RBA Governor Phil Lowe (PDF) has said a very similar thing:
“I am confident that the Australian government will be able to raise money in the capital markets, at very low interest rates, to finance whatever level of spending is required. It’s true that, when they have to repay those bonds to us, they’ll have to raise money in the market. They’ll be able to do that. There’s very strong demand for these securities. The best way of doing this is the government entering the market, paying these low interest rates and deciding how much money it wants to spend.”
From an accounting perspective as Marc Lavoie’s Friendly Critical Look at MMT (PDF) points out this exchange comes out as identical whether the central bank buys securities directly or through the markets. So nothing of substance actually happens in this exchange.
There has been a lot of fightback over MMT from various members of the current economic hegemony but as is increasingly clear, the MMT framework – which is primarily a description of macroeconomic operations – is correct.