The article transcript of a video interview has two key sections.
"It just says, 'Hey, if you're borrowing your own currency, you can just have infinite amounts of money,” Gundlach said in a recent wide-ranging conversation with Yahoo Finance.Then,
"Basically, what they're doing is they're saying, 'As long as the interest rate is below the growth of the economy, then everything's fine. And, so it's OK to have basically tons of debt as long as the economic growth is there, and so on,'" the billionaire explained.
"When you issue all the bonds for 10 or 30 years, that's a fixed interest rate. So the fact that interest rate is lower than the growth of the economy — that sounds pretty good — but what happens if the growth of the economy turns negative?” he asked.One of the key MMT recommendations that Gundlach somehow missed in his research was that the overnight rate would be locked at 0% and that bonds would no longer be issued. (Given that the possibility that he would no longer be able to make bond yield forecasts was such a horrifying prospect that this was subconsciously blanked out.)
So, in order for things to go badly, the economy has to have a negative nominal GDP growth. If the government is spending oodles of dollars, are we seriously going to believe that the economy will shrink in nominal terms? (In case why this is unlikely is not obvious, one may look up the relationship between the price deflator and nominal GDP.)
One could raise any number of serious objections to various MMT policy proposals, but the prospect of nominal GDP growth dropping below the "cost of funding" is not one of them. As result, although it would be interesting to have another debate about MMT, it is literally impossible to so in this case.
Why the Misrepresentation?The only interesting thing is why Gundlach so badly misses the mark. Two possible explanations appear to be.
- He watched the wrong videos. The concepts of MMT were presently either incorrectly, or in a fashion that would be misunderstood by someone with a conventional mindset.
- It is part of a deliberate strategy to push MMT outside the acceptable bounds of discourse. (For example, it is a signal that nobody working for Gundlach should mention MMT in internal meetings.) Although that sounds like a bit of far-fetched conspiracy theory, it was certainly how the mainstream economics profession historically reacted to things like Marxism. Certainly this explanation seems to be behind some of the misrepresentations of MMT by some mainstream economists (a popular pastime about a year ago now).
My concern with presenting MMT is the desire to change the framing of the language around government finance. Although that is a laudable goal, you run into two issues when presenting to an audience with a more conventional mindset. In addition to wanting to convince them about your theories, you also need to convince them to change how they express ideas. The second step may easily be harder than the first. As a result, I generally try to keep my explanations more conventional, only highlighting differences when there is a big operational difference between theories.
Looking forward, I hope that someone will actually read some legitimate MMT literature and have something new and interesting to say about it.* (I need fodder for articles...)
* The "external constraint" is neither new, nor interesting.
(c) Brian Romanchuk 2019