Regime uncertainty is a term coined by Robert Higgs to describe and ascribe what he believes to be the reason for the lacklustre US economy for the entire 30's and 40's. We now seem to be entering a similar period of uncertainty, and regardless of your opinion of what caused the Great Depression to remain that long, I would credit TODAY's regime uncertainty to a flawed understanding of the economic system by the leaders who shape the policies of the world. All around we see evidence of this flawed framework being put to test, with disastrous results. We need to advance discussion on a better understanding of the financial system, so governments do not enforce cures that only exacerbate the economic malaise, stimulate with measures that kill demand, or moderate bubbles with measures that feed it.
I strongly believe the most urgent problem is lack of aggregate demand. What is the necessary cure? Income creation, which should come as a consequence of creating jobs that produce sellable goods. It is income which creates the demand for the goods being produced by the jobs created. So income should not come by itself as a handout. It should come as a byproduct of a labour force able to find joss when they are truly looking. Neither should jobs created provide insufficient income, or demand will not be sufficiently restored. Of course, each job created must also be productive to society, because income created without the commensurate increase in productivity only leads to a supply shock.
The question to ask is how does income keep on generating itself? All of us want to save in order to create wealth. Who then funds the saving? There should be a default spender of last resort, otherwise, when we all do this saving simultaneously, we all stop earning income from one another. And there should be aggregate confidence in the stability of markets, in the currency, and in the belief that income will continue. What makes this confidence possible? When the economy is backed by an employer of last resort able to issue its own currency. Now that national governments are out of the gold standard, they can print money as necessary to spend. Furthermore, taxation should not be the primary, or even the necessary, funding vehicle of this spending, as taxing people actually takes demand away from the private sector. When government takes money from the people, the people are again out of money.
The cure for the current problem is not austerity. The proper stimulus is not more debt at the household/business level, or a deliberate increase in price level via monetary easing. And asset bubbles are neither properly moderated with austerity measures or monetary easing.
Income creator of last resort
Before the age of industrialization and globalization, a great majority of people still lived off the land. Nobody really died of hunger if he didn't have a regular paying job. Just plant a potato in your backyard, and eat it. Now it's not the case anymore. Nobody has land large enough to cultivate the basic food he needs to feed his family, so he needs a job to earn the money to buy it. There are no more cases of homestead, everybody has to buy his abode, or otherwise rent it. To be able to do so, he needs to earn income.
There's no way for us to get back to the idyllic past of Lincoln's time, when losing income merely means people go back to bartering what they make, eating what they sow, and living on what they build. Now you have to buy everything! If a sufficiently large proportion of people loses their job during a market correction, they will stop buying goods not immediately needed for basic survival. This causes a cascade of further job losses as companies lay off their employees to cover the lost sales.
Nowadays, you need someone all powerful to provide everyone with the job and income to live a basic life - either an all powerful feudal lord, one who has monopoly control of all major factors of production, such that he has no fear of people withdrawing money/income from the system….
…..or a government that knows how to strike the right balance between creating income for the people via spending, and ensuring that the money has value enough to purchase an adequate supply of goods.
There are people who want more government, and those who want less. I think MMT, as a proponent of a way to understand monetary/income transmission throughout the economy, has no particular leaning as it is a purely technical description of how the monetary system currently works.
But I believe there's a time and place for more government, but you have to know what the purpose of expansion is. A valid purpose is helping restore full employment and aggregate demand when private sector initiative is lacking. For sure, we should also develop indicators to know when government should start scaling back, like when interest rates are already going through the roof or inflation is rising. The goal is to make it easier for private sector to start employing again, not to compete with them.