Twin deficits – another mainstream myth
The headline news for today was that the actor Kevin McCarthy died at the age of 96. He was the star of the legendary 1956 science fiction movie the Invasion of the Body Snatchers which was about a doctor who tried to tell the world that it was being invaded by the emotionless alien Pod People. The movie was in the “so bad that it was good” category. Given the ending was open, perhaps we can persuade some of the Pods to return and subsume a few neo-liberals and also some progressives who have neo-liberal tendencies. There has been a lot of noise lately about why Modern Monetary Theory (MMT) is essentially misguided because it ignores the dangers of the external sector. The claim goes that while there is no financial constraint on government spending, expansionary policy leads to an expanding current account deficit and rising foreign debt levels which are unsustainable over any period longer than a few years. Okay, we have heard this all before. Here are some thoughts.