I will. 

The idea of Functional Finance was that government should take the actual consequences of the fiscal decisions into account rather than to simply have a blanket rule to never run a deficit. That makes good sense then and now. If deficits cause problems that the model does not take into account, functional finance rules would have to adjusted to take those effects into account. As I discuss in “Functional Finance, New Classical Economics, and Great Great Grandsons” (in Edward Nell and Mat Forstater (editors) Reinventing Functional Finance Edward Elgar, 2003) when inflation became a problem in a way separate from the way Lerner's simple model had assumed, then the rules of functional finance had to be changed to take account of that. The same holds true if debt has consequences separate from those assumed in the model. So the problem is not with the idea of functional finance--choose policy on the basis of its consequences--the problem is with the unthinking way it has been applied.  It is not functional finance that has led to dysfunctional deficits, it is the unthinking (or political) application of it.


Dave   

David Colander
CAJ Distinguished Professor of Economics
Department of Economics
Middlebury College
Middlebury, Vermont, 05753
(802-443-5302)

-----Original Message-----
From: Societies for the History of Economics [mailto:[log in to unmask]] On Behalf Of Robert Leeson
Sent: Sunday, August 14, 2011 9:37 PM
To: [log in to unmask]
Subject: [SHOE] functional finance

Has anyone (or will anyone) defend Abba Lerner against the charge that "functional finance" has led to dysfunctional deficits? 

Robert Leeson