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39 Cato J. 529 (2019)
Modern Monetary Theory: Cautionary Tales from Latin America

handle is hein.journals/catoj39 and id is 538 raw text is: MODERN MONETARY THEORY: CAUTIONARY TALES FROM LATIN AMERICA Sebastian Edwards During the last few years an apparently new and revolutionary idea has emerged in economic policy circles in the United States: Modern Monetary Theory (MMT). The central tenet of this view is that it is possible to use expansive monetary policy-money cre- ation by the central bank (i.e., the Federal Reserve)-to finance large fiscal deficits, and create a jobs guarantee program that will ensure fill employment and good jobs for everyone.' This view is related to Abba Lemer's (1943) finctional finance idea, and has become very popular in progressive spheres. According to MMT supporters, this policy would not result in crowding out of private investment, nor would it generate a public debt crisis or inflation outbursts.2 Cato Journal, Vol. 39, No. 3 (Fall 2019). Copyright © Cato Institute. All rights reserved. DOI: 10.36009/CJ.39.3.3. Sebastian Edwards is Henry Ford II Distinguished Professor at the Anderson Graduate School of Management, UCLA. This article is a revised version of his Hoover Institution Working Paper (www.hoover.org/sites/default/files/research /docs/19106_edwards.pdf). The author thanks Michael Bordo, Edward Leamer, Jos6 De Gregorio, Scott Sumner, and Alejandra Cox for beneficial discussions of ear- lier versions of this article, and Doug Irwin and John Taylor for their support. 'See Wray (2015) for details. The term modern is supposed to be an inside joke, and refers to a statement made by Keynes in A Treatise on Money (1930: 4), where he says that, for at least 4,000 years, money has been the creation of the state. Money is whatever the state accepts in payment of taxes (see Knapp [1904] 1924). 'See, for example, Forstater and Mosler (2005), Tymoigne and Wray (2013, 2015), and Wray (2015) and the literature cited therein. Scott Sumner has dis- cussed MMT in depth in his blog. See Sumner and Horan (2019).

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