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The effectiveness and primacy of fiscal policy – Part 2

This is the second part of a three-part series discussing the political issues that give me confidence in the primacy of fiscal policy over monetary policy. The series is designed to help readers see that the recent criticisms of Modern Monetary Theory (MMT) as being politically naive and unworkable in a real politic sense have all been addressed in the past. In Part 1, I gave examples of how ‘agile’ or ‘nimble’ fiscal policy can be when an elected government has it in their mind to use their spending and taxation capacities to change the direction of the non-government economic cycle. It is simply untrue that fiscal policy is inflexible and cannot make effective, well-designed policy interventions. In this second part, I will address aspects of how such interventions might be organised. Specifically, some people have advocated that MMT might replace the so-called ‘independent’ central bank, with an ‘independent’ fiscal authority, which they seem to think would take the ‘politics’ out of fiscal policy decision-making and focus it on advancing the well-being of the people. The intentions might be sound but the idea is the anathema of what progressives, interested in maintaining democratic accountability would propose. I consider such an independent fiscal authority would constitute the continuation of the neoliberal practice of depoliticisation and further increase the democratic deficit that is common in our nations these days. Politicians are elected to take responsibility and make decisions on our behalf. They should be always be held accountable for those decisions and not be allowed to defer responsibility to an external source (like an ‘independent’ central bank or an external fiscal authority).

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