Using MMT to fund full employment shocks the economy---inflation and destabilization ensure it.
Gerald Epstein 19, Ph.D. in economics from Princton, Professor of Economics, founding Co-director of the Political Economy Research Institute, University of Massachusetts-Amherst, 2019, “What’s Wrong with Modern Money Theory? A Policy Critique,” Palgrave Macmillan, https://doi.org/10.1007/978-3-030-26504-5, ghs—gc
The key MMT macroeconomic policy proposal is that government spending should target full employment, and that the central bank should keep interest rates low by monetizing the debt.7 Moreover, the government should not worry about “financing the budget” through taxes or cuts in other spending. This is functional finance with an MMT twist. MMT advocates argue that at full employment, the fiscal authorities should raise taxes or cut spending to drain demand from the economy to maintain full employment without inflation (Wray 2012; Palley 2013, 2015; Tymoigne and Wray 2015). In this rendering, then, macroeconomic policy should be guided by fiscal spending to achieve full employment, and the policy should be subject to an inflation constraint managed by fiscal policy tools. Monetary policy, in turn, should focus on keeping the interest rate low. Palley has addressed the problems of using fiscal policy to fine-tune the economy to reach full employment without excessive inflation (Palley 2013, 2015). These are familiar from the old debates about fine-tuning vs. rules and emphasize uncertain lags, uncertain shocks to the economy, and poor understanding of key parameters such as multipliers associated with different policies and the shape and position of the Philips Curve. In addition, there are many related problems associated with this idea of fine-tuning fiscal policy at the point of full employment: how exactly do we define full employment? What about underemployment? What about variations in labor force participation rates over the cycle? There are additional problems. What happens when the economy crosses the threshold between the unemployment/low taxes world and to the full employment/higher taxes world: Let’s say we do know where to set the full employment threshold. We are now introducing a massive shock into the economy when we cross into full employment. That is, just before full employment taxes are very low. After we cross the threshold, all of a sudden, the government is collecting a significant amount of taxes. How do we avoid a significant destabilization?