In this issue

Modern monetary theory, essential or hogwash?

Sri Lanka’s central bank and economic policymakers are convinced that modern monetary theory (MMT) can steer the country away from the abyss it confronts. Since the onset of the pandemic, the economic theories of John Maynard Keynes are seeing a revival. Several variants of Keynes’ theories, now called post-Keynesianism, an eclectic mix of ideas that remained in the fringes are now creeping into the mainstream. One of the most popular of such post-Keynesianism concepts is modern monetary theory.

That inflation has kept low even with low-interest rates in some parts of the world has caused some to question Milton Friedman’s theories that inflation is a monetary phenomenon.

Recently, two of Sri Lanka’s top economists, former Central Bank Deputy Governor W A Wijeywardena and think tank Verite’s, Research Director Deshal De Mel joined us to dissect what MMT is and how it may play out in Sri Lanka.

MMT theorists are not averse to inflation or deny its impact. They agree inflation could trigger at some point, and that trigger point will vary from country to country. They argue that once high employment or a level of economic activity is reached, or demand grows to generate inflation, governments can, at that point, raise taxes and pull excess cash out of the system.

The economist on our panel suggested, not in the same words, but that’s a load of hogwash to suggest that excess liquidity will play out that way in Sri Lanka’s due to its weak public finances and large foreign debt payments. Read that discussion starting on page 110.

Echelon Magazine Description:

Intelligent Storytelling

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