Is there really a freelance in finances -the pitfalls of MMT (modern money theory) -Ins the Japanese finances in the corona (Kazumasa Kokuro -3rd)

In the first and second columns, the current strict Japanese finance situation and the limits of the Bank of Japan's different dimensional easing, but rather, there is a claim that "the budget deficit should be further expanded."

"MMT (modern money theory)" is the theory of heresy that has a significant impact on this claim.The theory was originally proposed by Professor Stephanie Celton of New York State University, and has begun to spread on the Internet in the United States and Japan.Recently, bookstores in Japan are lined with books related to this, which seems to have a significant impact on people's thoughts.

However, mainstream economists, such as Professor Kenneth Logov, Professor Kenneth Logov in Harvard University, and former Secretary of Finance Summers, strongly criticize MMT's theoretical validity of MMT.Is the current situation.

Which claim is correct, a heresy or mainstream?The conclusion is that the point of Professor Logov of Harvard University and former Secretary of the U.S. Samers are more correct.The biggest defect of MMT is that MMT does not deeply consider the difficulty of fiscal democratic control, but will be described in order, including other recognition problems.

First, in order to cover the budget deficit, it is generally called "Finance Finance" to issue a new statutory currency and directly undertake government bonds issued by the government, but MMT is aggressive in fiscal finance.Inspire the use.

To briefly explain this theoretical framework, let's consider it in a closed economy.At this time, the IS balance of "private savings (S) = private investment (I) + fiscal deficit (G -T)" is established, but if the IS balance is not established in the orthodox economics, interest rates are on the market principle.It fluctuates and the IS balance shall be automatically established.However, in MMT, the private pure savings (S -I) at the time of full employment are structurally determined, and there are cases where IS balance alone is not established by the market mechanism, and in that case, it is necessary to have a budget deficit.。

This claim is close to a traditional Keynesian theory, which emphasizes the principle of effective demand, and is not new.Rather, what is new is to claim the issuance of legal currency as a source of financial deficit.

That is, what MMT claims is the active utilization of "finance finance".For this reason, MMT means (1) expansion of government expenditures, tax reduction = new issuance of statutory currency, (2) Reduction of tax and government expenditure = recovery of legal currency, and in private savings in full employment (S).We propose a policy to control the budget deficit (G -T) so that -I) is used.

However, MMT does not allow unlimited issuance of legal currency.If you know that the budget deficit is harmful, you have the idea that you should reduce the budget deficit to the appropriate level at that time.

However, the biggest defect in this idea is that under democracy, the side effects of the budget deficit can be performed promptly.

First, what are the side effects of the budget deficit?There are various problems, but the most serious side effects of budget deficit may be the occurrence of high -rate inflation and the distress of legal currency.It is unlikely that the fiscal finance will have a major impact on the current prices if you pay 100,000 yen to all the people, but if you pay 100 million yen to all the people, there is a possibility that a high rate of inflation will occur.expensive.High -rate inflation is disturbing the economy, so if the cause is the budget deficit, it is necessary to reduce the budget deficit, but in the first place, it will quickly and accurately reduce government expenditures and increase taxes under democracy.Is extremely difficult.

The unable to increase the tax increase can be easily predicted from past experiences on raising the consumption tax rate.For example, in 1997, the consumption tax rate increased from 3 % to 5 %, but it took 17 years to increase the consumption tax rate to 8 % in 2014.Since the consumption tax rate was raised to 10 % in October 2019, it took a long time from 1997 to 22 years.In addition, the social security reform of Honmaru is difficult to proceed.Japan and other countries have long been worried about the problem of budget deficit, but if social security expenses and tax increase are possible politically and easily, Japan should have ended in Japan.That is, MMT does not consider the difficulty of fiscal democratic control.

Politicians compete in elections in search of votes.At that time, the budget is expanding in response to the demands of voters and profit organizations, while politicians are not pleased to impose taxes on voters.Rather, tax reduction is welcome.In other words, in democracy, finances are exposed to budget expansion and tax reduction political pressure, and it is not easy to block the mechanism of the current politicians and voters in which the budget deficit rises.

One of the authors of the famous book "Deficit Democracy -What Keynes has left" (Nikkei BP Classics) and Buchanan, a winner of the Nobel Prize in Economics, "balances finances under democracy and prevents the government from enlarging.You have to obligate the financial equilibrium in the constitution. "

Another major problem that has a large gap between the heretical school supporting MMT and the orthodox that is not the same is the recognition of financial collapse.This seems to be because the definition of fiscal bankruptcy does not match, but the MMT faction claims that "defaults for domestic currency government bonds in developed countries such as Japan will not occur."

Japan's Finance Law prohibits "financial finance" in principle in Article 5, but in the proviso of this article, financial finance is possible in the scope of the amount of the Diet resolution.For this reason, even if there is a possibility that the issued government bonds cannot be redeemed for any reason, if the financial finance can be procured, the default of government bonds will never occur.This is theoretically correct, but in such a situation, it is better to think about what will happen at that time if you do a fiscal finance.Let's think in a Japanese case to enhance the specific image.

As described in the first column, the government issues more than 129 trillion yen government bonds and raises financial resources throughout the city.The issuance of government bonds due to the city digestion in FY2020 and 2021 exceeded 200 trillion yen.If the reimbursement resources for government bonds cannot be raised, if the financial finance has been made at least once and the issued government bonds are redeemed, will this bonds of over 200 trillion yen be really digested in the city after the following fiscal year?

In the first place, the fact that the financial finance was performed to repay government bonds means that it is no longer possible to procure government bond redemption resources by normal means (eg, tax increase, expenditure reduction and refinancing bonds).So it should have the same message that government bonds were defaulted.

In such a situation, few financial institutions will undertake government bonds.Even if the government bonds of 100 trillion yen are undertaken, if prices are doubled due to fiscal finance, the government bonds that have been undertaken will only be 50 trillion yen, and it will take on such government bonds.Is a significant loss.

Nevertheless, for example, if the financial institution manages to digest 100 trillion yen out of the 200 trillion yen government bonds, if the remaining 100 trillion yen can not be digested, the finance finance will be performed again.I have to have the Bank of Japan take on government bonds again.This is a very dangerous loop, and as this situation continues, a higher rate of inflation may progress, and the so -called "financial inflation" may become more serious.

The risk of fiscal inflation has also experienced in Germany after World War I and Japan immediately after World War II, and from its historical lessons, the independence of the central bank is enhanced and the fiscal finance under the Financial Law.Don't forget that it is banned.In other words, there is basically no free lunch in finances.

In this sense, it is necessary to deepen the message that the following points on page 216 to 234 of "Democratic Democracy" will poke to us in modern times (the underline is the writer).

⇒ Kazumasa Kokuro's column "I cut Japanese finances in Corona's evil" If you want to read the second time, click here

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Kazumasa Kokuro

Professor of Hosei University Faculty of Economics

Graduated from Kyoto University Faculty of Science and completed Ph.D.After joining the Ministry of Finance (currently the Ministry of Finance) in 1997, he has been an incumbent since 2015, after working as assistant to the Survey of Customs Bureau, the Chief Researcher of the Ministry of Finance, and Associate Professor Hitotsubashi University.Many of the Ministry of Finance Finance Research Institute, Senior Researcher, Economy, Trade and Industry Research Institute Consulting Fellow, Special Investigation Studies, Japan Finance Society, etc.His main books include "Deep Structure of Financial Crisis -asking for Deep Tax Increase, Pension, and Deficit Government Bonds" (Single Book / NHK Publishing Shinsho), "Economics of Pharmaceutical Price" (co -author / Nihon Keizai Shimbun Publishing)"Construction" (single book / Nihon Keizai Shimbun Publisher), etc.

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