Dismiss Modern Monetary Theory at Your Peril

A reprinted article from November/December 2019

By Chris Brightman, CFA®

Dismiss Modern Monetary Theory at Your Peril

By Chris Brightman, CFA®

on’t dismiss modern monetary theory (MMT) as unlikely to KEY POINTS Dinfluence policy. This heterodox economic doctrine advocates sharply 1. MMT argues that governments with fiat currencies should coordinate treasury increased fiscal expenditures backed by and central bank actions to fund government programs by directly printing money creation. An alluring promise money, unconstrained by tax receipts or borrowing capacity. of MMT is that it directly confronts a 2. Progressive politicians embrace MMT because the doctrine allows them to perceived flaw in today’s conduct of advocate substantial increases in social spending without imposing the taxes monetary policy by pumping liquidity traditionally assumed necessary to fund such spending. into financial markets as the standard 3. MMT is attracting a growing following because it also promises to reverse the response to stock market and economic contribution to wealth inequality of today’s conventional monetary policy. turbulence. But this inflates asset price 4. Historical experience with policies similar to MMT has resulted in periods of bubbles and thereby exacerbates income high and volatile inflation, which depresses the real returns of mainstream inequality. stocks and bonds. 5. Savers and investors may wish to revise financial plans to allow for the height- Recognize that monetary policy-fueled ened risk of inflation given that policies influenced by MMT appear to be bull markets only benefit the few who increasingly likely. own stocks. Three U.S. billionaires are now collectively worth more than the 160 million Americans in the bottom half of the wealth distribution. A dra- government spending to fund European have become accustomed to the recent matic increase in social spending as levels of social benefits by cutting taxes stable inflation rate achieved through prescribed by MMT advocates may well and raising deficits when in power, and independent central banks may not help alleviate some of this inequality. then demanding austerity to remedy appreciate the misery inflicted by high the accumulating debt when Democrats and volatile inflation. I’m old enough Investors, however, should be aware that are in power. Having learned from this to remember. When I began my first MMT-inspired policy raises the risk of gambit, prominent members of the pro- college economics course, the U.S. infla- inflation. Unexpected inflation shocks gressive wing of the Democratic party tion rate was racing at double digits, cause the prices of stocks and bonds to are now turning the tables. MMT allows while the unemployment rate was plummet. Proponents of MMT may them to promote a massive expansion headed to nearly 11 percent, its post- interpret destruction of financial wealth in government spending without admit- World War II high. Diagnosing the as necessary and beneficial because few ting that a corresponding tax increase cause of that miserable inflation disease of the bottom 160 million hold any (likely a European-style value-added and administering a cure was the most stocks or bonds. A burst of inflation will tax) will become necessary to offset that important practical problem for eco- help level the playing field. spending. nomic policy of the time.

Many prominent politicians currently The frightening problem with this polit- In this article, I summarize the past six embrace MMT more as political strat- ical game of chicken is that we may end decades of monetary policy in the egy than economic policy. Over recent up with a rerun of the Great Stagflation United States to remind readers of the decades, Republicans have successfully of the 1970s and its dismal capital cause of the Great Stagflation of the prevented an expansion of U.S. market returns. Younger readers who 1970s and the pain of repairing the

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damage in the early 1980s. I note that Figure U.S. FISCAL POLICY, 1960–2018 technological advances have since 1 Over the past half-century, tax revenues largely have failed to cover spending rendered the rules of monetarism obso- and control the inflationary impact of fiscal policy. lete. I discuss why today’s complex 4.00% 30% econometric models invite unorthodox 2.00% new theories. I briefly touch upon a 25% potentially more sensible cousin to 0.00% 20% MMT, the fiscal theory of the price level –2.00% (FTPL). I note where MMT departs from –4.00% 15% economic orthodoxy and highlight the –6.00% harsh assessment of prominent econo- 10% mists, notably including those from the –8.00% 5% political left. I conclude by referencing –10.00% the terrible capital market returns of –12.00% 0%

the 1970s. In that decade, cash and 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 6 6 6 6 6 7 7 7 7 7 8 8 8 8 8 9 9 9 9 9 0 0 0 0 0 1 1 1 1 1 bonds provided negative real returns, 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 and stocks provided a real return of ■ Surplus/Deficit % of GDP ■ Federal Expenditures % of GDP ■ Federal Receipts % of GDP about zero. Source: Research Affiliates, LLC, using data from Economic Data, Federal Reserve Bank of St. Louis (FRED) KEYNESIAN POLICY AND INFLATION DURING THE 1960s STAGFLATION OF THE 1970s President Jimmy Carter instituted volun- The fiscal and monetary policies of my AND THE FAILURE OF WAGE tary wage and price controls, which childhood foreshadowed MMT (see AND PRICE CONTROLS proved as futile as Ford’s WIN buttons figure ).1 In 1964, Congress cut income Republicans made a bad situation worse. (Farnsworth 1978). tax rates by approximately 20 percent to In 1971, President Richard Nixon ended boost growth and raise employment, convertibility of the U.S. dollar into gold, Through the latter half of the 1970s and enacting a policy originally proposed by imposed wage and price controls, and into the early 1980s, high and volatile the recently assassinated President John raised tariffs (Ghizoni 2013). In 1972, inflation coincided with rising unem- F. Kennedy. This tax cut, paired with Nixon pressured Fed Chairman Arthur ployment. The unemployment rate rose large increases in government spending Burns to ease monetary policy in order from less than 4 percent in 1969 to for the moon shot, the War on Poverty, to boost the economy heading into the nearly 11 percent by 1982. Whether the and the undeclared (but nonetheless all election of 1972 despite the elevated Great Stagflation was caused by rapid too real) war in Vietnam, fueled an eco- inflation rate. The economy duly expansion of money or by oil price nomic boom along with a jump in the strengthened and Nixon was re-elected shocks remains a subject of debate. inflation rate (Federal Reserve Bank of in a landslide. Beyond debate was the human suffering; Cleveland 1970). From 1963 to 1966, to quantify it at that time, Arthur Okun unemployment declined from 6 percent This episode teaches us about the risks invented the “misery index,” or the sum to below 4 percent, while inflation more of politicizing conduct of monetary pol- of the inflation and unemployment rates, than doubled from less than 1.5 percent icy. Nixon’s wage and price controls which peaked at more than 22 percent in to 3 percent. paired with politically motivated easy the early 1980s. money propelled inflation much higher. Can tax policy control the inflationary The Consumer Price Index (CPI) dou- VOLCKER TAMES INFLATION impact of a too-aggressive fiscal policy, bled from 3 percent in 1972 to 6 percent WITH MONETARISM as asserted by today’s MMT proponents? in 1973. The next huge step-up in Milton Friedman famously stated: In an explicit effort to control the rapidly prices coincided with the oil price “Inflation is always and everywhere a rising inflation rate following the fiscal shocks of 1973 and 1974 (Corbett 2013). monetary phenomenon …” By the time I stimulus of the mid-1960s, Congress CPI soared to 11 percent by 1974. began my study of economics, events reversed course to enact a large tax proved Friedman and his collaborator increase, the Revenue and Expenditure Following Nixon, President Gerald Ford Anna Schwartz prescient. Following Control Act of 1968. Although this led tried to control the then-raging rate of Friedman and Schwartz, I was taught to a tiny and temporary budget surplus, inflation by urging patriotic, voluntary that excessive growth in the money sup- as discussed at length by Arthur Okun action to reduce consumption and ply caused the inflation of the 1970s. (1971), the effort to control inflation increase savings, passing out WIN The growth rate of money, as measured through taxation utterly failed. (Whip Inflation Now) buttons. In 1978, by M2, rose from 1.5 percent in 1960 to

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© 2019 Investments & Wealth Institute, formerly IMCA. Reprinted with permission. All rights reserved. © 2019 Investments & Wealth Institute, formerly IMCA. Reprinted with permission. All rights reserved. NOVEMBER DECEMBER FEATURE | Dismiss Modern Monetary Theory at Your Peril 2019

Figure U.S. INTEREST AND INFLATION RATES, the mid-teens, the growth rate of money, 2 DECEMBER 1960–FEBRUARY 2019 inflation, and nominal interest rates all Control of the money supply finally, but painfully, reduced the high inflation began their decades’ long decline to the and interest rates of the late 1970s and early 1980s. lows of recent years (see figure ).2 18% 16% CONTEMPORARY 14% MONETARY POLICY 12% 10% Advances in financial technology have 8% dramatically changed the nature of 6% money, complicating monetary theory 4% and the conduct of monetary policy. 2% 0% Today, nearly a billion people, many –2% without bank accounts, transact using –4% smart phones. The money supply now 1961 1966 1972 1978 1984 1990 1996 2002 2008 2014 2018 defies practical measurement and theo-

■ 10-Year U.S. Treasury Yield ■ CPI retical definition. Velocity of money no longer appears stable. Because central Source: Research Affiliates, LLC, using data from Economic Data, Federal Reserve Bank of St. Louis (FRED) banks cannot control a money supply they cannot measure, growth of money 3 percent in 1970, to 4 percent in 1975, From the vantage point of the 1970s, no longer provides a practical guide to and then to 10 percent by the early tight regulation of banks and interest the conduct of monetary policy. 1980s. Correspondingly, CPI rose from rates had produced a sufficientlytable s below 2 percent in 1960 to a peak of velocity of money such that economists In place of monetarism’s simple target more than 14 percent by 1980. assumed V was approximately a con- for the growth of money, central banks stant.1 If V is constant, then a change in now target a low and stable rate of infla- M equals the change in PQ (growth of tion, with an emphasis on expectations the nominal economy). Further, when and forward guidance. Actual conduct Monetarism solved the the economy is operating at potential, of monetary policy to achieve this inflation puzzle: Growth real growth is constrained by real inflation-targeting objective relies on of the money supply in resources: land, labor, and capital. If the subjective judgment of policy mak- both V and Q are effectively constant ers informed by well-known models excess of the growth of over the short run, then a change in M including the Phillips Curve (Federal the real economy causes equals a change in P, which is inflation. Reserve Bank of San Francisco 2008) rising prices. and the Taylor Rule (Bernanke 2015). Monetarism solved the inflation puzzle: As became obvious in the Great Growth of the money supply in excess of Recession and its aftermath, however, the growth of the real economy causes the inputs to such simple models cannot When I entered high school in the rising prices. To control inflation, the be estimated with the accuracy neces- 1970s, monetarism already had gained Federal Reserve would need to slow the sary to provide a precise operational influence among Fed economists. growth of money. guide to setting monetary policy. Simply stated, monetarism teaches that an increase in the supply of money A month before I began my university The present state of orthodox monetary causes rising prices. The theory is sum- studies in 1979, President Carter nomi- theory provides little help. Staff econo- marized by the well-known equation nated the then-president of the Federal mists at central banks (and those in MV = PQ, where M is the aggregate Reserve Bank of New York, Paul Volcker, academia who advise them) produce money supply; V is the velocity of to chair the Federal Reserve Board of complex models—as a class they are money, or the number of times an aver- Governors. Volcker embraced monetar- labeled dynamic stochastic general age unit of money is used to purchase ism, intentionally slowed the growth of equilibrium (DSGE) models (Fernández- goods and services in a given period; the money supply, and allowed market Villaverde 2009). DSGE models P is the general price level, for example, interest rates to rise above the double- synthesize several branches of economic the level of CPI; and Q is the quantity of digit level of inflation. After two nasty theory including rational expectations, real goods and services produced, or real recessions in the early 1980s, which co– an endogenous private sector operating annual gross domestic product. incided with a spike in interest rates into within competitive markets, sticky

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prices, and multi-period analysis. In Figure U.S. FEDERAL RESERVE BALANCE SHEET, 2004–2018 theory DSGE models inform policy by 3 The dramatic increase in central bank assets after the past decade forecasting employment, output, and of QE was matched by a similar expansion in liabilities. inflation in response to alternative policy decisions. In practice, DSGE models 6,000,000 seem devilishly complex to most of us, 4,000,000 and the experts who might comprehend them express little confidence in their 2,000,000 s

forecasts. n o i l l i 0 M

Ben Bernanke expressed his opinion D S

about the absence of a well-accepted U –2,000,000 theory to guide monetary policy with his pithy quip, “Well, the problem with QE –4,000,000 [quantitative easing] is it works in prac- –6,000,000 tice, but it doesn’t work in theory.”2 If 2004 2006 2007 2009 2010 2012 2013 2015 2016 2018 current monetary policy appears to be a ■ ■ ■ set of ad hoc practices in search of an Liquidity Facilities and Other Assets Agency & MBS Holdings U.S. Treasury Securities ■ ■ ■ applicable theory, then we shouldn’t be Currency Bank Reserves Other Liabilities surprised that heterodox theories are receiving increasing attention. Note: MBS is mortgage-backed securities. Source: Research Affiliates, LLC, using data from FactSet. THE FISCAL THEORY OF THE PRICE LEVEL borrowing more than can be repaid from larger QE undertaken in Japan has not John Cochrane (2019) asks, “Is there future tax receipts produces inflation. produced inflation. Japanese debt mone- a theory of inflation that continues to tization has coincided with a tightening work as we move to electronic transac- The FTPL helps explain why QE has not of fiscal policy and declining deficits. tions and a money-less economy?” His yet caused inflation. In ourtwenty -first answer is the fiscal theory of the price century economy, central banks have As its name explicitly asserts, the key level (FTPL). accumulated enormous quantities of gov- insight of the FTPL is the importance ernment debt on the asset side of their of fiscal policy to the determination of In common with MMT, the FTPL holds balance sheets, matched by bank the price level and the rate of inflation. that a government spending its own fiat reserves and currency on the liability A corollary is the relative impotence currency has no nominal budget con- side of their balance sheets (see figure ).3 of monetary policy. Cochrane (2018) straint. Most debt issued by governments Correspondingly, commercial banks concludes with the statement, “The is nominal, not real. (Real government possess enormous quantities of excess Fed is nowhere near as powerful as debt includes inflation-linked bonds and reserves on the asset side of their balance conventional wisdom suggests.” borrowing denominated in a currency sheets. Because central banks now pay These assertions of the impotence of backed by a real asset such as gold.) interest on bank reserves at rates approx- monetary policy and the primacy of Increases in nominal government bor- imately equal to the yield on short-term fiscal policy are echoed by MMT. rowing that exceed the real value of government debt, when a central bank future primary budget surpluses neces- conducts open market operations, it MODERN MONETARY THEORY sary to repay that debt will increase the merely swaps bank reserves for govern- I attempt an explanation of MMT with price level (inflation) to keep the real ment debt, both obligations of the some trepidation. Little of MMT is value of the borrowing equal to the real government paying the same rate of published in the traditional manner. value of the future budget surpluses. interest (Board of Governors of the Federal MMT’s promoters communicate their Reserve System 2019; Fagan 2018). ideas primarily through blogs and pod- More formally, the FTPL posits that casts. Even progressive economists, B/P = present value of future budget Such swapping of equivalent financial who support a larger role for govern- surpluses, where B is the nominal instruments, as in QE, has no direct ment and downplay concerns about amount of government borrowing and effect on the money supply or the rate of deficit spending, struggle to explain it. P is the price level. This simple equation inflation (Brightman 2015). The FTPL Paul Krugman (2019a) has likened his provides an intuitive sense of why explains why even the proportionally engagement with MMT advocates as

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playing Calvinball, a fictitious game in such as infrastructure, research, educa- warn of its dangers. Kenneth Rogoff which the rules are constantly changing. tion, and health care—then government (2019) refers to MMT as “nonsense.” Nonetheless, here I go. spending for such programs may well Krugman (2019b), though deeply sym- provide an economic return above the pathetic to progressive policy goals In common with Abba Lerner’s theory foregone alternative private invest- and deficit spending, says unequivocally of functional finance (Lerner 1943), ments. Advocating an expansion of that “the MMT people are just wrong.” MMT argues that governments should government investment thus resides Larry Summers (2019) calls MMT a coordinate monetary and fiscal policy well within the bounds of conventional “recipe for disaster.” to ensure full employment. Stephanie macroeconomics. Kelton (2019) explains Lerner’s As Bill Dudley (2019) explains: approach like this: “The government should use its fiscal powers (spending, Where then does MMT MMT hasn’t worked out well for taxing and borrowing) in whatever other countries. Consider Germany manner best enables it to maintain full depart from orthodoxy? in the 1920s, or Venezuela and employment …” So far, such a descrip- MMT asserts that Zimbabwe more recently. The US tion of MMT seems to align with government investment tried a milder version in the 1960s mainstream Keynesian proscriptions and 1970s, when the government for fiscal policy. doesn’t crowd out private tried to pay simultaneously for investment because the Vietnam War and Lyndon A seemingly more sensational claim government spending creates Johnson’s Great Society programs. of MMT is that governments with fiat The result was inflation, America’s currencies can fund any amount of gov- bank reserves, which lowers withdrawal from the gold standard ernment spending simply by creating interest rates. The obvious and the demise of the Bretton new money. We might reasonably objection to this assertion is Woods system of fixed exchange assume that such a radical change in rates. The Fed had to increase inter− policy would require abolishing central that real resources are finite. est rates to double digits in the late bank independence. MMT advocates do 1970s and early 1980s, at great not explicitly promote this change, so far economic cost, to get inflation back as I can find. Rather, they envision a Where then does MMT depart from under control. consolidated treasury and central bank. orthodoxy? MMT asserts that govern- In the U.S. context, Congress would ment investment doesn’t crowd out Dudley’s warning resonates with me. direct the Fed or its successor to create private investment because government I vividly recall the stagflation of the whatever amount of money is necessary spending creates bank reserves, which 1970s, the pain measured by the misery to fund government spending. lowers interest rates. The obvious index, and the two recessions of the objection to this assertion is that real early 1980s as I began my first profes- Released from the constraint to fund resources are finite. To the extent that sional job search. government spending with taxes, pro- government directs investment of finite moters of MMT back a massive increase real economic resources, less of those FINANCIAL MARKET in government control of the economy, finite resources will be available for pri- IMPLICATIONS OF MMT from universal health care and free vate investment. As Fed Chairman What does a return to stagflation, simi- college education to an immediate Jerome Powell recently testified before lar to that of the late 1970s, imply for transition to clean energy as well as gov- Congress: “The idea that deficits don’t capital market returns? For the full ernment jobs for all of the unemployed. matter for countries that can borrow in decade of the 1970s, bonds and cash MMT acknowledges that too much gov- their own currencies I think is just provided negative real returns as ernment spending might cause inflation, wrong. .… We’re going to have to either unexpected inflation turned real rates but that taxes and regulation can and will spend less or raise more revenue.”3 negative (Brightman 2012). If MMT prevent it. Relying on Congress to man- becomes policy, then we can expect a age inflation through tax policy seems James Mackintosh (2019) wryly similar bout of high and volatile infla- recklessly naïve regardless of whether observes that MMT is neither modern, tion leading to negative real returns for it would be theoretically possible. monetary, nor a theory. Nonetheless, bonds and cash. the embrace of MMT by influential To be fair, when markets fail to provide progressive politicians has compelled Would the mighty U.S. stock market sufficient investment in public goods— many prominent economists to publicly provide protection from high and

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volatile inflation? Not if history is our ENDNOTES guide. High inflation is associated with 1 . See Federal Reserve Bank of St. Louis https://www.nytimes.com/1978/01/21/ declining stock prices (Arnott et al. Federal Reserve Economic Data (FRED), archives/carter-economic-message- Velocity of M2 Money Stock, https://fred. asks-voluntary-price-and-wage-brake- 2017). Stocks provided a real return stlouisfed.org/series/M2V. carters.html. barely above zero for the decade of the 2 . See https://www.cnbc.com/2014/01/16/ Federal Reserve Bank of Cleveland. 1970. bernanke-cracks-wise-the-best-qe-joke- Patterns of Federal Government 1970s. The Shiller price-to-earnings ever.html. Outlays and Revenues. Economic Review ratio (P/E) of the U.S. stock market 3 . See https://www.bloomberg.com/news/ (November): 3–14. https://fraser.stlouisfed. dropped from an average valuation of articles/2019-02-26/jay-powell-is-no-fan- org/title/1328/item/4726/toc/34803. of-mmt-says-the-concept-is-just-wrong. Federal Reserve Bank of San Francisco. 2008. 17 at the start of the decade to below 10 Dr. Econ, What Is the Relevance of the Phillips Curve to Modern Economies? in 1977, and then remained in a range REFERENCES between 6 and 10 until 1984. From the frbsf.org (March). https://www.frbsf.org/ Arnott, Robert, Tzee Chow, and Denis Chaves. education/publications/doctor-econ/2008/ present Shiller P/E of 31, this historical 2017. King of the Mountain: The Shiller P/E march/phillips-curve-inflation/. valuation implies a plunge in stock and Macroeconomic Conditions. Journal Fernández-Villaverde, Jesús. 2009. The of Portfolio Management 44, no. 1 (fall): Econometrics of DSGE Models. NBER prices of 70 percent, even before consid- 55–68. https://www.researchaffiliates.com/ Working Paper No. 14677, National Bureau ering the damage to corporate profits. en_us/publications/journal-papers/374- of Economic Research (January). https:// king-of-the-mountain-the-shiller-pe-and- www.nber.org/papers/w14677.pdf. macroeconomic-conditions.html. Ghizoni, Sandra Kollen. 2013. Nixon Ends Real assets provide a measure of inflation Bernanke, Ben S. 2015. The Taylor Rule: Convertibility of US Dollars to Gold protection. Treasury Inflation-Protected A Benchmark for Monetary Policy? Ben and Announces Wage/Price Controls. Bernanke Blog, Brookings.edu (April 28, FederalReserveHistory.org (November 22). Securities (TIPS), commodities, and 2015), https://www.brookings.edu/blog/ https://www.federalreservehistory.org/ real estate investment trusts (REITs) ben-bernanke/2015/04/28/the-taylor-rule- essays/gold_convertibility_ends. may appreciate as and when investors a-benchmark-for-monetary-policy/. Kelton, Stephanie. 2019. Modern Monetary Board of Governors of the Federal Reserve Theory Is Not a Recipe for Doom. attempt to reposition for an inflationary System. 2019. Credit and Liquidity Bloomberg Opinion (February 21). regime. Unfortunately, today TIPS Programs andthe Balance Sheet. 2019 https://www.bloomberg.com/opinion/ (August 13, last update). https://www. articles/2019-02-21/modern-monetary- provide real yields below 1 percent, federalreserve.gov/monetarypolicy/ theory-is-not-a-recipe-for-doom. commodities pay no real yield at all, and bst_openmarketops.htm. Krugman, Paul. 2019a. Running on MMT REIT prices are highly correlated with Brightman, Christopher. 2012. Expected (Wonkish). New York Times (February 25). Return. Investments & Wealth Monitor 27, https://www.nytimes.com/2019/02/25/ the U.S. stock market. no. 1 (January/February). 24–29, 34. opinion/running-on-mmt-wonkish.html. https://www.researchaffiliates.com/ ———. 2019b. MMT, Again. “The Conscience of a documents/IWM_Jan_Feb_2012_Expected_ Liberal Blog.” New York Times (August 15). Repositioning portfolios to hold capital Return.pdf. https://krugman.blogs.nytimes. assets domiciled in countries with more ———. 2015. What’s Up? Quantitative Easing com/2011/08/15/mmt-again/. conservative policies provides an alter- and Inflation. Research Affiliates Lerner, Abba. 1943. Functional Finance. Fundamentals (January). https://www. Bradford Delong’s Grasping Reality. https:// native approach to protecting portfolios researchaffiliates.com/en_us/publications/ www.bradford-delong.com/2013/04/abba- from inflation. Such protection comes at articles/364_whats_up_quantitative_ lerner-1943-functional-finance.html. easing_and_inflation.html. Mackintosh, James. 2019. What Modern a cost. The premium the wealthy pay Cochrane, John H. 2018. Four Heresies of Monetary Theory Gets Right and Wrong. willingly to protect real purchasing Monetary Policy. Defining Ideas, Hoover Wall Street Journal (April 2). https:// power at least partly explains the current Institution (March 1). https://www.hoover. www.wsj.com/articles/what-modern- org/research/four-heresies-monetary- monetary-theory-gets-right-and- negative real interest rates charged on policy. wrong-11554177661. Swiss bank deposits. ———. 2019. The Fiscal Theory of the Price Okun, Arthur M. 1971. The Personal Tax Level. Self-published. https://faculty. Surcharge and Consumer Demand, chicagobooth.edu/john.cochrane/research/ 1968–70. Brookings Papers on Economic One way or the other, a return to high papers/fiscal_theory_book.pdf. Activity. Brookings Institution 1: 167–211. and volatile inflation can be expected to Corbett, Michael. 2013. Oil Shock of 1973–74. https://www.brookings.edu/wp-content/ FederalReserveHistory.org (November 22). uploads/1971/01/1971a_bpea_okun_ depress future capital market returns. https://www.federalreservehistory.org/ hymans_taylor_eisner.pdf. Informed investors can prepare by par- essays/oil_shock_of_1973_74. Rogoff, Kenneth. 2019. Modern Monetary Nonsense. Project Syndicate (March 4). ing back positions in mainstream stocks Dudley, Bill. 2019. Budget Deficits Still Matter. Bloomberg (February 19). https://www.project-syndicate.org/ and bonds, diversifying into real assets, https://www.bloomberg.com/opinion/ commentary/federal-reserve-modern- and revising down future real return articles/2019-02-19/budget-deficits-still- monetary-theory-dangers-by-kenneth- matter-sorry-mmt-proponents. rogoff-2019-03. expectations. Fagan, Doreen. 2018. Why the Fed Pays Summers, Lawrence. 2019. The Left’s Interest on Banks’ Reserves. Open Vault Embrace of Modern Monetary Theory Is Chris Brightman, CFA®, is chief investment Blog, Federal Reserve Bank of St. Louis a Recipe for Disaster. Washington Post (March 4). https://www.washingtonpost. officer and member of the board of Research (April 11). https://www.stlouisfed.org/ open-vault/2018/april/why-fed-pays- com/opinions/the-lefts-embrace-of- Affiliates. He earned a BS in finance from interest-banks-reserves. modern-monetary-theory-is-a-recipe-for- Virginia Tech and an MBA from Loyola Farnsworth, Clyde H. 1978. Carter Economic disaster/2019/03/04/6ad88eec-3ea4-11e9- University, Maryland. Contact him at Message Asks Voluntary Price and Wage 9361-301ffb5bd5e6_story.html. [email protected]. Brake. New York Times (January 21).

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