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MMT, deficit financing and printing money

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By sumanasiri liyanage

E-mail: sumane_l@yahoo.com

“We need a mechanism where money flows out to the economy directly and permanently.” -Kikuo Iwata

Two prominent economists in Sri Lanka, Dr W A Wijewardene, a former Deputy Governor of the Central Bank of Sri Lanka and Prof Sirimevan Colombage, Professor of Economics, Open University of Sri Lanka, published two articles in The Island and Daily FT last week criticizing the extant monetary policy paradigm of the Central Bank of Sri Lanka (CBSL) alleging that the CBSL while distancing itself from inflation-oriented policies has begun to follow closely the policy framework that derived from the main tenets of Modern Monetary Theory (MMT). MMT as new discourse on the monetary-fiscal policy mix gained credence among left leaning Democrats especially during the presidential campaign in the US. Why is the issue of MMT raised in the Sri Lankan discourse? According to Prof. Colombage, Central Bank Governor Prof. W.D. Lakshman’s recent statement at an economic forum that domestic currency debt in a country with sovereign powers of money printing is not a huge problem is in close affinity with MMT argument.

The two economists agree that the continuation of present policy paradigm of the CBSL will necessarily lead to disaster. Dr. Wijewardene in the form of a conversation between two popular tele- drama characters, Ashini and Sarath Mahattaya, gave a clear and lucid narrative on the MMT, tracing its historical roots. This is very useful to economic students. At the end of the conversation with his granddaughter, Sarath Mahattaya, Dr Wijewardene’s narrator had concluded: “So, the present Government’s reliance on MMT is like getting a demon to work for it. If it does not play the game within limits, the demon will turn back and swallow it. This should be properly understood by the present Government’s top policymakers who advocate printing of money to pay for Government spending”. Of course, Dr Wijewardene has admitted that the government may borrow moderately. “What I mean by moderately is that money printing should not cause unwarranted unaffordable inflation”.

Prof Colombage seems to be more reserved giving the impression that MMT may be okay for advanced countries like the USA and Japan with reserved currency, but not for a small country like Sri Lanka. I am sure he may be thinking of the proposal by the former deputy governor at the Bank of Japan Kikuo Iwata. Moreover, he seems to think that MMT like policies are unavoidable at present conjuncture. He writes: “The recent monetary expansion points to imminent dangers in adopting MMT-style monetary policy in a country like Sri Lanka, though such policy stance might be unavoidable amidst the unprecedented economic setback caused by the COVID-19 pandemic.” 

This article intends neither to defend the extant monetary policy of the CBSL nor to posit that the main arguments of the MMT are correct. For myriad of reasons, it is hard to say that the CBSL policy per se is governed by MMT. Nonetheless, the interpretation of the MMT given by Dr. Wijewardene and Prof Colombage appears to have missed some of the complexities of the MMT argument as their contestation of the MMT seems to be based on the neo-classical and monetarist premise that money supply is exogeneous. On the contrary, post-Keynesians and MMT theorists posit that money supply is endogenous and linked with the effective demand. Hence, deficit financing does not necessarily lead to inflation.

 

Modern Monetary Theory

MMT proposes to bring the government to the fore. According to Randall Wray, the main weakness of macroeconomics texts and teaching today is that they start with unanswered question. Where does money come from? Modern macroeconomics skips this question leaving it to circular reasoning. As a result, in present day macroeconomics textbooks the government is brought in not in Chapter 1 as it should be, but in Chapter 8 or 10.

Secondly, the MMT may not be reduced to a notion that upholds deficit financing through printing money. It posits referring to historical evidence a nexus between printing money and redemption of tax. Hence, Dr. Wijewardene’s following statement is a result of simplistic reading of the MMT. Critiquing Stephanie Kelton, he writes: “One of the bold statements of Kelton is that taxes are charged for paying for government expenditure is mere fantasy. That is because there are many other ways of paying for such expenditure such as printing money. Governments can pay for expenditure by borrowing. When it comes to repaying, they can print money and repay the debt. So, there is no problem.”

Thirdly, MMT does not totally neglect as critics say the possibility of inflationary pressure as a result of deficit financing. It has its own explanation of the phenomena of inflationary pressure before achieving full employment and hyper-inflationary situations.

A simple MMT macro model is adequate enough to demonstrate the complexities of its basic postulates. Scott Fullwiler’s MMT macro model as summarized by Michael Roberts is presented below:

Basically, he starts off with a Keynes/Kalecki post-Keynesian macro model of aggregate demand.  This model is simply an identity.  There are two ways of looking at an economy, by total income or by total spending and they must equal each other.

Thus National Income (NI) = National Expenditure (NE).

Following the ‘Keynesian Marxist’ Michal Kalecki, we can break this down into:

(NI) Profits + Wages = (NE) Investment + Consumption. 

Now there are two sorts of income and two sorts of spending. Since rent and interest are paid from Profit, those payments may be excluded.

If we assume that all Wages are spent then and all Profits are saved, we can delete Wages and Consumption from the identity.  So

Profits = Investment

But Scott re-expands the parts on the right-hand side to look at flows, so that wages that are saved are added back with profits to get Private Saving (so assuming some household saving); and he also adds in Government saving (taxation less spending) and Foreign Saving (net imports or current account deficit).

Thus, Profits as a separate category disappears into Private Savings and we get:

Investment = Private Saving + (Taxation – Government Spending) + (Imports – Exports)

But then Scott also dispenses with the separate category Investment and converts it into Private Saving less Investment or the Private Sector Surplus.  So now we have Private Sector Savings (Wages saved plus Profits less Investment).  So Scott continues:

Private Sector Surplus = Government Deficit + Current Account Balance

Or

Private Sector Surplus – Current Account Balance = Government Deficit

This is the key MMT identity.  It argues that if the Government deficit rises, then assuming the Current Account balance does not change, the Private Sector Surplus (Wages saved +Profits less Investment) rises.  The MMT conclusion (assertion) is that increasing the Government deficit will increase the Private Sector Surplus . And if we exclude Wages saved (the MMT identity does not) and the Current Account balance, then we have:

Net Profits (ie Profits after Investment) = Government deficit

And we can conclude that Government deficits determine Net Profits ie Profits less Investment.

Suppose that the Current Account Balance remains unchanged, an increase in Government Deficit leads to increase in PSS that equals Wages Saved + (Profit – Investment). Assuming that all wages are consumed we may write the fundamental equation of MMT as follows:

Net Profit = (Profit – Investment) = Government Deficit

The above equation shows that Government Deficit increases net Profit.

MMT posits that an increase in government deficit leads to expand the economy that in turn leads to increase the tax base.

 

Deficit Finance and Inflation

Can deficit finance lead to inflation? MMT has two answers to this question. Agreeing with the post-Keynesians, MMT posits that a continuous increase in money printing through deficit finance after achieving full employment would generate an inflationary pressure. If the resources are not fully employed, deficit financing would not necessarily lead to inflation. Besides, this full employment inflation, Randall shows that inflationary pressure may occur if increased government expenditure focuses on elite projects and highly skilled employment. Such an expenditure may create more what David Graeber called “bullshit jobs”.

MMT has multiple weaknesses. However, those weaknesses have nothing to with the critique of MMT by mainstream economists. If a country like Sri Lanka adopts deficit financing and printing money in a crisis situation, it is imperative such policies should be accompanied by import restrictions, proper direction of government expenditure and increase of direct taxation. Nonetheless, the government decision to dispossess Eastern Container Terminal (ECT) shows that its directionality is fundamentally wrong.

In lieu of conclusion, it is imperative to note without giving room for a misunderstanding that MMT as well as all the varieties of Keynesianism suffer from basic flaw. They seem to inverse the nexus between human labour, value and money. Michael Roberts has highlighted this in the following words: “They ignore that all the things that we need or use in society are the product of human labour power and under a capitalist economy where production is for profit (ie for money over the costs of production), not need, then money represents the socially necessary labor time expended. We see only money, not value, but money is only the representation of value in its universal form, namely abstract labour as measured in socially necessary labour time. It is a fetish to think that money is something that is outside and separate from value.” Anyway, this would be a subject for another article.

(The writer is a retired university teacher in political economy.)



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Sheer rise of Realpolitik making the world see the brink

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A combined US-Israel attack on Iran.(BBC)

The recent humanly costly torpedoing of an Iranian naval vessel in Sri Lanka’s Exclusive Economic Zone by a US submarine has raised a number of issues of great importance to international political discourse and law that call for elucidation. It is best that enlightened commentary is brought to bear in such discussions because at present misleading and uninformed speculation on questions arising from the incident are being aired by particularly jingoistic politicians of Sri Lanka’s South which could prove deleterious.

As matters stand, there seems to be no credible evidence that the Indian state was aware of the impending torpedoing of the Iranian vessel but these acerbic-tongued politicians of Sri Lanka’s South would have the local public believe that the tragedy was triggered with India’s connivance. Likewise, India is accused of ‘embroiling’ Sri Lanka in the incident on account of seemingly having prior knowledge of it and not warning Sri Lanka about the impending disaster.

It is plain that a process is once again afoot to raise anti-India hysteria in Sri Lanka. An obligation is cast on the Sri Lankan government to ensure that incendiary speculation of the above kind is defeated and India-Sri Lanka relations are prevented from being in any way harmed. Proactive measures are needed by the Sri Lankan government and well meaning quarters to ensure that public discourse in such matters have a factual and rational basis. ‘Knowledge gaps’ could prove hazardous.

Meanwhile, there could be no doubt that Sri Lanka’s sovereignty was violated by the US because the sinking of the Iranian vessel took place in Sri Lanka’s Exclusive Economic Zone. While there is no international decrying of the incident, and this is to be regretted, Sri Lanka’s helplessness and small player status would enable the US to ‘get away with it’.

Could anything be done by the international community to hold the US to account over the act of lawlessness in question? None is the answer at present. This is because in the current ‘Global Disorder’ major powers could commit the gravest international irregularities with impunity. As the threadbare cliché declares, ‘Might is Right’….. or so it seems.

Unfortunately, the UN could only merely verbally denounce any violations of International Law by the world’s foremost powers. It cannot use countervailing force against violators of the law, for example, on account of the divided nature of the UN Security Council, whose permanent members have shown incapability of seeing eye-to-eye on grave matters relating to International Law and order over the decades.

The foregoing considerations could force the conclusion on uncritical sections that Political Realism or Realpolitik has won out in the end. A basic premise of the school of thought known as Political Realism is that power or force wielded by states and international actors determine the shape, direction and substance of international relations. This school stands in marked contrast to political idealists who essentially proclaim that moral norms and values determine the nature of local and international politics.

While, British political scientist Thomas Hobbes, for instance, was a proponent of Political Realism, political idealism has its roots in the teachings of Socrates, Plato and latterly Friedrich Hegel of Germany, to name just few such notables.

On the face of it, therefore, there is no getting way from the conclusion that coercive force is the deciding factor in international politics. If this were not so, US President Donald Trump in collaboration with Israeli Rightist Premier Benjamin Natanyahu could not have wielded the ‘big stick’, so to speak, on Iran, killed its Supreme Head of State, terrorized the Iranian public and gone ‘scot-free’. That is, currently, the US’ impunity seems to be limitless.

Moreover, the evidence is that the Western bloc is reuniting in the face of Iran’s threats to stymie the flow of oil from West Asia to the rest of the world. The recent G7 summit witnessed a coming together of the foremost powers of the global North to ensure that the West does not suffer grave negative consequences from any future blocking of western oil supplies.

Meanwhile, Israel is having a ‘free run’ of the Middle East, so to speak, picking out perceived adversarial powers, such as Lebanon, and militarily neutralizing them; once again with impunity. On the other hand, Iran has been bringing under assault, with no questions asked, Gulf states that are seen as allying with the US and Israel. West Asia is facing a compounded crisis and International Law seems to be helplessly silent.

Wittingly or unwittingly, matters at the heart of International Law and peace are being obfuscated by some pro-Trump administration commentators meanwhile. For example, retired US Navy Captain Brent Sadler has cited Article 51 of the UN Charter, which provides for the right to self or collective self-defence of UN member states in the face of armed attacks, as justifying the US sinking of the Iranian vessel (See page 2 of The Island of March 10, 2026). But the Article makes it clear that such measures could be resorted to by UN members only ‘ if an armed attack occurs’ against them and under no other circumstances. But no such thing happened in the incident in question and the US acted under a sheer threat perception.

Clearly, the US has violated the Article through its action and has once again demonstrated its tendency to arbitrarily use military might. The general drift of Sadler’s thinking is that in the face of pressing national priorities, obligations of a state under International Law could be side-stepped. This is a sure recipe for international anarchy because in such a policy environment states could pursue their national interests, irrespective of their merits, disregarding in the process their obligations towards the international community.

Moreover, Article 51 repeatedly reiterates the authority of the UN Security Council and the obligation of those states that act in self-defence to report to the Council and be guided by it. Sadler, therefore, could be said to have cited the Article very selectively, whereas, right along member states’ commitments to the UNSC are stressed.

However, it is beyond doubt that international anarchy has strengthened its grip over the world. While the US set destabilizing precedents after the crumbling of the Cold War that paved the way for the current anarchic situation, Russia further aggravated these degenerative trends through its invasion of Ukraine. Stepping back from anarchy has thus emerged as the prime challenge for the world community.

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A Tribute to Professor H. L. Seneviratne – Part II

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A Living Legend of the Peradeniya Tradition:

(First part of this article appeared yesterday)

H.L. Seneviratne’s tenure at the University of Virginia was marked not only by his ethnographic rigour but also by his profound dedication to the preservation and study of South Asian film culture. Recognising that cinema is often the most vital expression of a society’s aspirations and anxieties, he played a central role in curating what is now one of the most significant Indian film collections in the United States. His approach to curation was never merely archival; it was informed by his anthropological work, treating films as primary texts for understanding the ideological shifts within the subcontinent

The collection he helped build at the UVA Library, particularly within the Clemons Library holdings, serves as a comprehensive survey of the Indian ‘Parallel Cinema’ movement and the works of legendary auteurs. This includes the filmographies of directors such as Satyajit Ray, whose nuanced portrayals of the Indian middle class and rural poverty provided a cinematic counterpart to H.L. Seneviratne’s own academic interests in social change. By prioritising the works of figures such as Mrinal Sen and Ritwik Ghatak, H.L. Seneviratne ensured that students and scholars had access to films that wrestled with the complex legacies of colonialism, partition, and the struggle for national identity.

These films represent the ‘Parallel Cinema’ movement of West Bengal rather than the commercial Hindi industry of Mumbai. H.L. Seneviratne’s focus initially cantered on those world-renowned Bengali masters; it eventually broadened to encompass the distinct cinematic languages of the South. These films refer to the specific masterpieces from the Malayalam and Tamil regions—such as the meditative realism of Adoor Gopalakrishnan or the stylistic innovations of Mani Ratnam—which are culturally and linguistically distinct from the Bengali works. Essentially, H.L. Seneviratne is moving from the specific (Bengal) to the panoramic, ensuring that the curatorial work of H.L. Seneviratne was not just a ‘Greatest Hits of Kolkata’ but a truly national representation of Indian artistry. These films were selected for their ability to articulate internal critiques of Indian society, often focusing on issues of caste, gender, and the impact of modernisation on traditional life. Through this collection, H.L. Seneviratne positioned cinema as a tool for exposing the social dynamics that often remain hidden in traditional historical records, much like the hidden political rituals he uncovered in his early research.

Beyond the films themselves, H.L. Seneviratne integrated these visual resources into his curriculum, fostering a generation of scholars who understood the power of the image in South Asian politics. He frequently used these screenings to illustrate the conflation of past and present, showing how modern cinema often reworks ancient myths to serve contemporary political agendas. His legacy at the University of Virginia therefore encompasses both a rigorous body of writing that deconstructed the work of the kings and a vivid archive of films that continues to document the work of culture in a rapidly changing world.

In his lectures on Sri Lankan cinema, H.L. Seneviratne has frequently championed Lester James Peries as the ‘father of authentic Sinhala cinema.’ He views Peries’s 1956 film Rekava (Line of Destiny) as a watershed moment that liberated the local industry from the formulaic influence of South Indian commercial films. For H.L. Seneviratne, Peries was not just a filmmaker but an ethnographer of the screen. He often points to Peries’s ability to capture the subtle rhythms of rural life and the decline of the feudal elite, most notably in his masterpiece Gamperaliya, as a visual parallel to his own research into the transformation of traditional authority. H.L. Seneviratne argues that Peries provided a realistic way of seeing for the nation, one that eschewed nationalist caricature in favour of complex human emotion.

However, H.L. Seneviratne’s praise for Peries is often tempered by a critique of the broader visual nationalism that followed. He has expressed concern that later filmmakers sometimes misappropriated Peries’s indigenous style to promote a narrow, majoritarian view of history. In his view, while Peries opened the door to an authentic Sri Lankan identity, the state and subsequent commercial interests often used that same door to usher in a simplified, heroic past. This critique aligns with his broader academic stance against the rationalization of culture for political ends.

Constitutional Governance:

H.L. Seneviratne’s support for independent commissions is best described as a hopeful pragmatism; he views them as essential, albeit fragile, instruments for diffusing the hyper-concentration of executive power. Writing to Colombo Page and several news tabloids, H.L. Seneviratne addresses the democratic deficit by creating a structural buffer between partisan interests and public institutions, theoretically ensuring that the judiciary, police, and civil service operate on merit rather than political whim. However, he remains deeply aware that these commissions are not a panacea and are indeed inherently susceptible to the ‘politics of patronage.’

In cultures where power is traditionally exercised through personal loyalties, there is a constant risk that these bodies will be subverted through the appointment of hidden partisans or rendered toothless through administrative sabotage. Thus, while H.L. Seneviratne advocates for them as a means to transition a state from a patron-client culture to a rule-of-law framework, his anthropological lens suggests that the success of such commissions depends less on the law itself and more on the sustained pressure of civil society to keep them honest.

Whether discussing the nuances of a film’s narrative or the complexities of a constitutional clause, H.L. Seneviratne’s approach remains consistent in its focus on the spirit behind the institution. He maintains that a healthy democracy requires more than just the right laws or the right symbols; it requires a citizenry and a clergy capable of critical self-reflection. His career at the University of Virginia and his continued engagement with Sri Lankan public life stand as a testament to the idea that the intellectual’s work is never truly finished until the work of the people is fully realized.

In the context of H.L. Seneviratne’s philosophy, as discussed in his work of the kings ‘the work of the people’ is far more than a populist catchphrase; it represents the practical application of critical consciousness within a democracy. Rather than defining ‘work’ as labour or voting, H.L. Seneviratne views it as the transition of a population from passive subjects to an active, self-reflective citizenry. This means that a democracy is only truly ‘realized’ when the public possesses the intellectual autonomy to look beyond the ‘right laws’ or ‘right symbols’ and instead engage with the underlying spirit of their institutions. For H.L. Seneviratne, this work is specifically tied to the ability of the people—including influential groups like the clergy—to perform rigorous self-critique, ensuring that they are not merely following tradition or authority, but are actively sustaining the ethical health of the nation. It is a perpetual process of civic education and moral vigilance that moves a society from the ‘paper’ democracy of a constitution to a lived reality of accountability and insight.

This decline of the ‘intellectual monk’ had a catastrophic impact on the political landscape, particularly surrounding the watershed moment of 1956 and the ‘Sinhala Only’ movement. H.L. Seneviratne posits that when the Sangha exchanged their role as impartial moral advisors for that of political kingmakers, they became the primary obstacle to ethnic reconciliation. He suggests that politicians, fearing the immense grassroots influence of the monks, entered a state of monachophobia, where they felt unable to propose pluralistic or fair policies toward minority communities for fear of being branded as traitors to the faith. In H.L. Seneviratne’s framework, the monk’s transition from a social servant to a political vanguard effectively trapped the state in a cycle of majoritarian nationalism from which it has yet to escape.

H.L. Seneviratne’s work serves as a multifaceted critique of the modern Sri Lankan state and its cultural foundations. Whether he is dissecting what he sees as the betrayal of the monastic ideal or celebrating the humanistic vision of an Indian filmmaker, his goal remains the same: to champion a world where intellect and compassion are not sacrificed on the altar of political power. His legacy at the University of Virginia and his continued voice in Sri Lankan discourse remind us that the work of the intellectual is to provide a moral compass even, indeed especially, when the nation has lost its way.

(Concluded)

by Professor
M. W. Amarasiri de Silva

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Musical journey of Nilanka Anjalee …

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Nilanka Anjalee Wickramasinghe is, in fact, a reputed doctor, but the plus factor is that she has an awesome singing voice, as well., which stands as a reminder that music and intellect can harmonise beautifully.

Well, our spotlight today is on ‘Nilanka – the Singer,’ and not ‘Nilanka – the Singing Doctor!’

Nilanka’s journey in music began at an early age, nurtured by an ear finely tuned to nuance and a heart that sought expression beyond words.

Under the tutelage of her singing teachers, she went on to achieve the A.T.C.L. Diploma in Piano and the L.T.C.L. Diploma in Vocals from Trinity College, London – qualifications recognised internationally for their rigor and artistry.

These achievements formally certified her as a teacher and performer in both opera singing and piano music, while her Performer’s Certificate for singing attested to her flair on stage.

Nilanka believes that music must move the listener, not merely impress them, emphasising that “technique is a language, but emotion is the message,” and that conviction shines through in her stage presence –serene yet powerful, intimate yet commanding.

Her YouTube channel, Facebook and Instagram pages, “Nilanka Anjalee,” have become a window into her evolving artistry.

Here, audiences find not only her elegant renditions of local and international pieces but also her original songs, which reveal a reflective and modern voice with a timeless sensibility.

Each performance – whether a haunting ballad or a jubilant interpretation of a traditional hymn – carries her signature blend of technical finesse and emotional depth.

Beyond the concert hall and digital stage, Nilanka’s music is driven by a deep commitment to meaning.

Her work often reflects her belief in empathy, inner balance, and the beauty of simplicity—values that give her performances their quiet strength.

She says she continues to collaborate with musicians across genres, composing and performing pieces that reflect both her classical discipline and her contemporary outlook.

Widely acclaimed for her ability to adapt to both formal and modern stages, with equal grace, and with her growing repertoire, Nilanka has become a sought-after soloist at concerts and special events,

For those who seek to experience her artistry, firsthand, Nilanka Anjalee says she can be contacted for live performances and collaborations through her official channels.

Her voice – refined, resonant, and resolutely her own – reminds us that music, at its core, is not about perfection, but truth.

Dr. Nilanka Anjalee Wickramasinghe also indicated that her newest single, an original, titled ‘Koloba Ahasa Yata,’ with lyrics, melody and singing all done by her, is scheduled for release this month (March)

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