Zergatik jakin behar duzun DTMz

Why you need to know about modern monetary theory


Inexplicable problems require a whole new kind of economic thinking – and MMT is more logical than you probably think it is.

James Weir

Jan 28, 2020

(i) Ohiko ekonomia teoria

Conventional economics has struggled to explain much of what’s happening in the world today. How can we have record low inflation and interest rates at the same time? How can some governments continue to increase their deficits and yet their bond yields go down and currencies go up? How on earth can you justify negative bond yields?

(ii) Diru Teoria modernoa (DTM)

There is one school of economic thought that purports to have some of the answers, and has been talking about the inevitability of declining interest rates and inflation for years. Modern monetary theory (MMT) uses iron-clad rules of accounting to offer not just plausible but logical explanations for many conundrums that leave orthodox economists scratching their heads.

But much of what it says is so radically different to what we’re used to that those same orthodox economists ridicule it.

(iii) DTM eta monetarismoa

One of MMT’s biggest problems is its name, which is simply not a good description of what it is.

While it is indeed modern, having been developed in the 1990s, it could easily be mistaken as a new version of “monetarism”, the economic theory developed by Milton Friedman and the Chicago School in the 1960s. This advocated, among other things, that markets are best at determining the optimal allocation of resources, so the role of government should be minimised and indeed fiscal spending is not only ineffective but irresponsible. Its focus on letting markets run free has become the norm across most of the developed world.

MMT is, in fact, the antithesis of monetarism, arguing governments must spend in order to achieve full utilisation of an economy’s resources. In that sense, it’s closer to Keynesianism. Finally, it’s not really a “theory” – it’s actually a straight-up application of accounting rules to explain how money works in an economy where the government controls its own currency. In other words, an economy like Australia’s. It’s not unlike how the “theory” of gravity is simply an application of the rules of physics.

Critically, MMT is not a policy prescription and it’s not politically aligned. It is absolutely indifferent as to who holds the purse strings, it simply explains the mechanics of what happens in the economy when they tighten or loosen them.

(iv) Intuizio kontrako lehen puntua

The first counter-intuitive point MMT makes is that government spending comes first and tax revenue flows from that. This can be tough to get your head around. But if you think about it, there has to be money already out in the economy before you can tax anything (remember, you don’t just go and issue a whole bunch of notes and coins to kick things off because they are a tiny fraction of the total amount of money in an economy). So a government creates money by paying things like pensions and unemployment benefits or spending on infrastructure.

If the government isn’t injecting newly created money into the economy, the only other way it can grow is by people borrowing. MMT recognised ages ago that as people borrow more and more, the only way growth would be supported is through lower and lower interest rates, courtesy of central banks. But at some point, people reach their borrowing limit and then it’s up to governments to create the growth.

(v) Gobernuak eta diru insolbentzia

Another of MMT’s most controversial insights is kind of in two parts. First, since it’s governments that create money they can never be insolvent, which means they are never financially constrained. Second, they are, however, very much constrained by the resources available in the economy.

This usually sends conventional economists into apoplexy. They get stuck on the first part, crying a government that thinks it can spend money at will is a recipe for fiscal disaster and a sure-fire way for an economy to end up crippled with inflation, like Venezuela or Zimbabwe. The problem is, those economists don’t stop to think through the second part.

(vi) Defizitak eta inflazioa

MMT explicitly acknowledges the existence and risks of government deficits and inflation. What it says, though, in a very simplified example, is imagine the economy is like a giant department store where both the private sector and the government sector shop for the things they need, everything from hospitals to cars, workers or soldiers. If some of the stock is not being bought by the private sector, that means there’s excess capacity and you’d expect prices will not be rising. It follows the government is able to go to the store and keep buying things with the money it creates and once the thing it’s bidding for in the shop is sold out (which could be labourers or cement, or widgets) you’d expect its price to rise, indicating it’s time for the government to back off.

(vii) Gobernua eta etxeko ekonomia

Probably the most important thing MMT teaches us is it doesn’t make sense to treat a government as if it’s a household. While it’s intuitively appealing to think a responsible government should live within its means, the reality is the government’s “means” are nothing like a household’s because a family can’t print its own money. Its means are limited by how much it earns and what it can afford to borrow, whereas a government’s means are limited by what’s available in the entire economy.

(viii) Gobernu defizitak eta zor zama

A third insight MMT offers that conventional economists struggle with is government deficits simply represent money the government has put into the economy that year which hasn’t been taken out by taxes. Deficits don’t actually accumulate to become a burden on future generations with crushing interest rates or catastrophically weak currencies. You just have to look at the US and Japan for confirmation of that.


When conventional thinking can’t explain something, it makes sense to think unconventionally. In many ways MMT sounds like stepping through the looking glass, but that’s because for almost 50 years we’ve become conditioned to think of our government as facing the same budget constraints we do. MMT not only provides a logical explanation of what’s happening in the world, but with Australian households up to their necks in debt, it offers a sobering perspective on the Morrison government’s insistence on balancing the budget.


Ikus, iruzkin gisa, Bill Mitchell-ek in Governments can always control yields if they desire


Iruzkinak (8)

  • joseba

    Bill Mitchell-ek in Governments can always control yields if they desire


    Yesterday (January 28, 2020), the major financial daily, the Australian Financial Review (AFR), published an article – Why you need to know about modern monetary theory – which, although containing some errors, represents a very important step in the broader acceptance of our ideas.
    … if MMT was just “an application of accounting rules” then we would have very little to say.
    The clue that the article is a bit confused here is the next phrase “to explain”.
    I put this point to rest in this blog post – Understanding what the T in MMT involves (September 20, 2018).
    Accounting is clearly important to MMT as we aim to be stock-flow consistent.
    The answer requires us to theorise about economic (and human) behaviour.
    What drives saving and consumption decisions by households?
    What drives investment behaviour by firms?
    What drives import spending?
    What drives exports?
    Behavioural theories are required to answer those questions and they are important parts of the body of work that we now refer to as MMT.
    But the fact that the mainstream press is now focusing on the policy dissonance and associating MMT with a way of resolving the ignorance and contradictions that besets mainstream macroeconomics is an important development.
    n that regard, the – Minutes of the Federal Open Market Committee – from the October 29-30 meeting, which record the discussion of the US central bank’s monetary policy setting body, were quite interesting.

    The meeting considered a “Review of Monetary Policy Strategy, Tools, and Communication Practices”
    As governments resist the increasing call to prioritise fiscal stimulus to overcome the policy void, central bankers are trying to come to terms with the options they might have left in an effort to avoid recession.
    Moreover, it is not just recession that is of concern to them. They are also trying to maintain their own credibility by pushing inflation rates up to their explicit or implicit inflation targets.
    The central banks really trapped themselves by articulating their policy stance in terms of an inflation target, which they then call their desired stability levels.
    The problem is that inflation rates have consistently been below their targets despite massive growth in central bank balance sheets as a result of QE and other policy interventions.
    It is only a matter of time, when the consensus will shift and acknowledge that the policy instruments they were using that have failed to achieve their goal to stimulate inflation were motivated by mainstream theory.
    The failure is a failure of that mainstream theory.
    Only MMT has been able to explain this failure.
    The central bank was confirming that it had the policy tools available to cap government bond yields (rates) at whatever maturity it chooses, including all rates.
    That is central bank speak for the central bank using its currency-issuing capacity to facilitate the treasury department deficit spending without any intrinsic need for the latter to match those deficits with debt-issuance in the non-government sector.
    The fact that the US central bank acknowledges this capacity stands in contradistinction to on-going mainstream macroeconomic theory.
    The bond markets can never drive a currency-issuing government into insolvency.
    The bond markets can never drive yields up to elevated levels unless the government (via its central banks) allows that.
    The bond markets are mendicants in this context.
    So the fact that the Bank of Japan has been basically funding fiscal deficits at zero burden without “inflationary consequences” should tell you that the hype around central bank yield capping is ideological rather than sound economic logic.
    And now, the US Federal Reserve is considering returning to a cap system, which it successfully deployed after the Second World War.
    The Wall Street Journal article (January 26, 2020) – Fed Officials Weigh New Recession-Fighting Tool: Capping Treasury Yields – provides some historical discussion about this.
    Also see my blog post – Operation twist – then and now (March 31, 2010) – for more MMT-oriented analysis of the US period of yield capping.
    The WSJ tells us that:
    With yield caps, by contrast, the Fed would commit to purchase unlimited amounts at a particular maturity to peg rates at the target.
    The central bank can always do this.
    There is never a reason for yields on government bonds rising should that be deemed undesirable.
    So the categorical or blanket claim that fiscal deficits will drive up yields is just false.
    Of course, the better solution is for the government to stop issuing debt altogether and instructing its central bank to credit bank accounts when spending needs to be facilitated.
    After all, the build up of the asset side of central banks around the world over the last decade is really just a sign that this has been happening anyway – via some institutional gymnastics that assuage fear but don’t alter the facts.

  • joseba

    Warren Buffett Hates It. AOC Is for It. A Beginner’s Guide to Modern Monetary Theory
    An overview of a once-fringe school of economic thought that’s suddenly of the moment.

    There’s a lot of debate swirling around Modern Monetary Theory—some strident. Its critics call it a hot mess. “MMT has constructed such a bizarre, illogical, convoluted way of thinking about macro that it’s almost impervious to attack,” Bentley University economist Scott Sumner claimed recently on his blog. MMT’s proponents say it’s the critics who are impervious to reason—“part of a degenerative paradigm that has lost credibility,” says Australian MMTer William Mitchell.
    This state of confusion isn’t good because Modern Monetary Theory, once confined to blogs and a handful of colleges including the University of Missouri at Kansas City, suddenly matters. In the U.S., the left wing of the Democratic Party is citing MMT to make the case for massive federal government spending on a Green New Deal to wean the U.S. off fossil fuels and fund Medicare for All. It’s virtually certain that MMT will be dragged into the debates of the 2020 presidential race. So the time is right for a semi-deep dive into Modern Monetary Theory—what it is, where it comes from, its pros and its cons.
    Fortunately, the first academic textbook based on the theory was published in February. The 573-page tome, titled simply Macroeconomics, is by Mitchell, an economist at the University of Newcastle in Australia; Randall Wray of Bard College in Annandale-on-Hudson, N.Y.; and Martin Watts, an emeritus professor at Newcastle. This article is based on the textbook as well as academic papers and blogs by MMTers and their critics.
    A good place to start is with a simple description that you can carry in your pocket: MMT proposes that a country with its own currency, such as the U.S., doesn’t have to worry about accumulating too much debt because it can always print more money to pay interest. So the only constraint on spending is inflation, which can break out if the public and private sectors spend too much at the same time. As long as there are enough workers and equipment to meet growing demand without igniting inflation, the government can spend what it needs to maintain employment and achieve goals such as halting climate change.
    If you’ve absorbed that much, you’re already ahead of a lot of the critics. Because MMT is associated with the Left, some people assume it favors soaking the rich to pay for social programs. In fact, MMT breaks with liberal orthodoxy by saying that while taxes on the wealthy are good for lessening inequality, they aren’t essential to pay for government spending. Another misconception is that MMT says deficits never matter. On March 13 the University of Chicago Booth School of Business published a survey of prominent economists that misrepresented MMT that way, leaving out its understanding that too-big deficits can cause excessive inflation. The surveyed professors roundly disagreed with MMT as described. MMTers cried foul.
    Modern Monetary Theory says the world still hasn’t come to terms with the death of the gold standard in 1971, when President Richard Nixon declared that the dollar was no longer convertible into gold. In the modern era of “fiat” currency, MMT says, the U.S. and other big economies no longer need to worry about having enough gold to back their paper money, so they’re free to print however much they need.
    “I think we are being visited by a presence from Mars today”
    MMT claims to be the legitimate heir to the theories of Britain’s John Maynard Keynes, who created the field of macroeconomics during the Great Depression. Keynes coined the term “paradox of thrift.” His insight was that while any single household can dig itself out of a hole by cutting spending when its income falls, the economy as a whole cannot. One household’s spending is another’s income, so if everybody cuts back, no one gets paid. What you get then is a depression—a situation only government can fix because, unlike the private sector, it can afford to spend freely, putting money in people’s pockets and thus getting the economy back on track.
    In MMT’s reckoning, Keynesianism was gutted in the following decades by successors such as Paul Samuelson, who unrealistically tried to make economics like physics, playing down the role of fundamental uncertainty. MMTers haven’t endeared themselves to the mainstream by referring to that school of thought as “bastard Keynesianism,” a coinage of the late British economist Joan Robinson.
    MMT also draws on the “functional finance” work of the Russian-born British economist Abba Lerner, who wrote in the 1940s that government should spend what’s required to achieve its goals, deficits be damned. Later, Britain’s Wynne Godley developed the concept of sectoral balances, which focuses on the accounting truth that when the government runs a deficit, the nongovernment sector must run a surplus, and vice versa.
    Starting in the 1990s, the budding movement coalesced with the financial and intellectual support of Warren Mosler, a hedge fund manager who lives in the U.S. Virgin Islands and has interests ranging from politics to catamaran design. It ran into skepticism. When Mitchell presented the ideas at an economic conference, he recalls, the first comment was from a man who said, “I think we are being visited by a presence from Mars today.”
    MMT rejects the modern consensus that economies should be steered primarily by the raising and lowering of interest rates. MMTers believe that the natural rate of interest in a world of fiat money is zero and that pegging it higher is a giveaway to the investor class. They say tweaking interest rates is ineffectual because businesses make investment decisions based on prospects for growth, not the cost of money.
    MMTers argue that economies should be guided by fiscal policy—government spending and taxation. They want a nation’s central bank to do the bidding of its treasury. So when the treasury needs money, the central bank accommodates it with a keystroke—creating base money from thin air by crediting the treasury’s checking account. The new textbook says that today, governments “tend to run unduly restrictive fiscal policy stances so as not to contradict the monetary policy stance.”
    MMT says that, contrary to appearances, banks don’t make loans out of deposits. Rather, they make loans based on the demand for borrowing, then the borrowers stash the proceeds in the bank. Anyone they write a check to simply makes a deposit in another bank. The bottom line is that loans create deposits rather than deposits creating loans. This is one aspect of MMT that even some conservative central bankers—including those at Germany’s Bundesbank—agree with.
    To stabilize employment, MMT would add a federally funded, locally administered job guarantee. Government would employ more people in slumps than in booms. Pavlina Tcherneva of Bard College’s Levy Economics Institute is refining the plan. Representative Alexandria Ocasio-Cortez, the Democratic Socialist from the Bronx who’s in her first term in Congress, supports the job guarantee and says MMT should be “a larger part of our conversation.”
    MMT challenges a core principle of conventional economics, which is that an increase in budget deficits will tend to raise interest rates, all else equal. Just the opposite, it says, sounding a bit like the White Queen from Alice in Wonderland. When the government spends more, the private sector gets the money and puts it in the banking system. With more money in the system and no increase in demand for it, interest rates will tend to fall, not rise, MMT says. That is, unless the government chooses to soak up reserves by selling bonds, which it doesn’t have to do.
    The reason the government doesn’t need to sell treasury securities, or levy taxes, to spend money is that the central bank, under the control of the treasury, can pay for everything by conjuring up electronic money. In MMT’s ideal world there would still be taxes, but their main purpose, aside from lessening inequality, would be as “offsets” to keep inflation under control. Taxes would drain just enough money from consumers and businesses so total spending in the economy won’t be excessive.
    It’s tempting to view MMT’s conception of fiscal policy as essentially similar to that of the mainstream—“Hey, they believe in taxes, too!”—but that’s not quite right. MMTers hold that inflation isn’t primarily the result of excessively strong growth. They blame much of it on businesses’ excessive pricing power. So before trying to choke off growth to kill inflation, they would try to break up monopolies and stop banks from making too many loans. “The more actively we regulate big business for public purpose, the tighter the full employment we can achieve,” three MMTers wrote in a letter to the Financial Times’ Alphaville column that was published on March 1.
    With that formula, it’s no wonder that MMT has loud critics on Wall Street, where it’s sometimes derided as Magic Money Tree. What’s more surprising is how much flak the school of thought is taking from liberal economists who’d appear to be natural allies, such as Larry Summers, the former Treasury secretary and former Harvard president. Summers has been making the case that wealthy nations are suffering from “secular stagnation” and require permanently high levels of stimulative deficit spending by governments to keep them out of recession, which is similar to what MMT argues. Yet in a recent Washington Post op-ed, Summers called MMT “fallacious at multiple levels.”
    Summers and others may be worried that MMT will give a bad name to their more conventionally dovish views on deficits. “As long as they’re out there claiming that standard macroeconomics is all wrong, I guess we need to respond,” Paul Krugman, the Nobel laureate who is a professor at City University of New York Graduate Center, wrote on his New York Times blog.
    MMT’s critics argue that trying to use fiscal policy to steer the economy is a proven failure because Congress and the president rarely act quickly enough to respond to a downturn. And they say politicians can’t be relied upon to impose pain on the public through higher taxes or lower spending to squelch rising inflation. MMTers respond that they also oppose fine-tuning and instead want to use automatic stabilizers—including the jobs guarantee—to keep the economy on track.
    MMT’s detractors are skeptical of the idea that the treasury and central bank should work in concert. The Federal Reserve did the Treasury Department’s bidding during World War II, but that “overdraft” privilege was used spottily thereafter and permanently ended in 1981—precisely because economists warned that a subservient central bank would allow inflation to race out of control. They’re also dubious of the jobs guarantee, arguing that if the government’s wage for guaranteed jobs is too low it won’t do much to help unemployed workers or the economy, while if it’s too high it will undermine private employment. Tcherneva’s plan calls for $15 an hour. MMT envisions that government-employed workers would move back into the private sector when the economy strengthened, but that means some government functions would no longer be performed. In an email, Wray said the cyclical fluctuations in government employment are manageable.
    Critics of MMT reject its reassurance that a country with its own currency doesn’t need to worry about deficits. After all, it’s been proven that a nation that loses the confidence of the world’s investors will see its currency plummet. As recently as 1976, the U.K. was forced to appeal to the International Monetary Fund to stabilize the value of sterling. Wray said the U.K.’s mistake was trying to peg its currency to the dollar and the crisis eased when it allowed the pound to float.
    Other disagreements are harder for laypeople to parse. There are complicated arguments over how interest rates are determined and whether the government and private sectors compete for savings, for example. Mainstream economists argue that the correct parts of MMT aren’t new and the new parts aren’t correct. But MMTers point out that the establishment hasn’t covered itself in glory in recent years—largely failing to foresee the global financial crisis a decade ago, for instance. Paul McCulley, the former chief economist of bond giant Pacific Investment Management Co., says that though he’s “not a card-carrying MMTer,” he believes it offers a “robust architecture for a fiat currency world.”
    In any case, the new textbook gives MMT a good slingshot. Samuelson, in the preface to the 1990 edition of his best-selling principles book, wrote, “I don’t care who writes a nation’s laws—or crafts its advanced treaties—if I can write its economics textbooks.” Stephanie Kelton, an MMTer who was the economic adviser on Vermont Independent Senator Bernie Sanders’s presidential campaign in 2016 and is a Bloomberg Opinion columnist, sees the tide turning. In presentations, the Stony Brook University economist likes to flash up a quote that says, essentially: First they ignore you, then they laugh at you, then they fight you. Then you win.

  • joseba

    Does Modern Monetary Theory Have Any Scholarly Validity?

    John T. Harvey

    I want to explain how things work, not what you should believe.

    While there have been a number of pieces of late taking shots at what is called Modern Monetary Theory (MMT), I have yet to read one that has been on target. It appears that there is a great deal of confusion out there regarding what it’s about. I want to try to fix that.
    Actually, this set of economic concepts has been around for quite a while, but it has been receiving extra attention of late because some politicians have been citing it in support of programs they would like to pursue. Indeed, there has been a veritable explosion of coverage. Just type “modern monetary theory” into your Google news search window and you’ll see what I mean.
    As someone who has been a professional economist for over thirty years, I am finding the level of media interest in an economic theory astounding. I can’t remember anything else quite like it. I guess maybe Supply Side Economics might qualify, but that was never more than a simple statement about incentives. MMT, on the other hand, covers federal government budgeting, central bank behavior, inflation, employment, and more. That outlets ranging from the Wall Street Journal to HuffPost are diving into the debate is fascinating and, I think, extremely encouraging.
    Well, mostly encouraging. One problem is that any time something complicated is discussed in the public arena, it necessarily gets oversimplified by both believers and detractors. Articles in professional journals, where authors take pains to carefully explain concepts and offer logical and empirical support for their theories, run 5000 to 10,000 words. More complex ideas laid out in books obviously take much longer. But your typical Op Ed or blog post is closer to 750 words. It is absolutely impossible to adequately explain a theory of any import in that space. This is especially true when that theory flies in the face of conventional wisdom and asks the reader to not only learn a new idea, but stop believing an old one. This is precisely the case with MMT.
    It is therefore of little surprise that there has been so much contention regarding a set of ideas that should not be very controversial at all. They end up being offered here and there in piecemeal, making it difficult to get the broader concepts across even to the curious and open-minded (let alone those who are predisposed to disagree).
    What I would really love to do right now is give you a complete and comprehensive explanation of what MMT is–of course, that’s impossible for all the reasons suggested above (heck, I’m already at almost 400 words)! So, while I will offer some helpful links later, let me just focus here on a few of the ideas attracting the most attention. In fact, let’s make a game of it!
    True or False: Does MMT actually say this?
    Three things before we get started. First, economics is about policy and policy is intended to solve a problem. The problem foremost in the mind of MMT economists is unemployment. Their goal is to make sure that everyone who wants a job, has a job and MMT’s path to ensuring that goes through the public sector (because in the private sector, labor is a cost to be minimized). Second, the aspects of MMT that seem to draw the most flak are not unique to them. I have many colleagues who do not call themselves MMT economists but who believe these very same things. This is not to say that MMT does not make its own unique contributions. Rather, the point I am trying to make is that it is hardly radical, a cult, or “a load of old tosh” as some articles have argued. Third and last, I’m basing what I say below on my knowledge of MMT scholarly research, not on op eds and blog posts. I have known the economists who are at the forefront of MMT for decades and I know their work. I actually don’t even agree with all of it. But, ironically, on those issues that have proved to be the most controversial, I am with them 100%.
    Now on to the game!
    Does MMT actually say this???
    1. The federal government can print its own money.
    TRUE! The reason they say it is quite simple: it can. Not just as an emergency measure, but as something they already do every single day. Heck, the private sector creates money, too, as I explained last week. This isn’t a theory, it’s a legal fact. Period.
    2. The federal government doesn’t have to pay back the debt.
    FALSE. I don’t know anyone who has ever said that, probably because it is not true. Of course they have to pay the individual Treasury Bills when they mature, and they do. There is no reason, however, that they cannot do what every household and business in America can also do, and that is subsequently take on new debt. Nor must its level of debt ever be reduced to zero any more than Exxon’s or CitiBank’s.
    3. The federal government can’t be forced into bankruptcy.
    Another TRUE and again simply because, well, it’s true. The US cannot be forced to default in debt denominated in currency it is allowed to issue. Just as with item #1, this is not a theory, it’s a fact of the law.
    4. We can afford any social program we want.
    FALSE. I don’t know a single, solitary MMT scholar who has ever argued this. Of course not. Money may not be scarce (in either the private or public sectors), but resources absolutely are. If we have the resources, money can be created to use them. If we don’t, then money is irrelevant. The question is never, “Do we have enough money for a border wall, free college, or universal health care?” It’s, “Do we have the resources?” This is absolutely, positively central to MMT and anyone who says otherwise is either ignorant or deliberately misstating the facts.
    5. Financing the deficit by printing money can’t cause inflation.
    FALSE. Nope, they didn’t say this either. If the economy is at full employment and we continue to stimulate demand, then, regardless of how we finance it, of course prices are inflated. Supply cannot keep up with demand. That was precisely our problem in WWII. With unemployment around 2%, we spent in massive deficit and had to introduce rationing and price controls. Every MMT scholar is well aware of this and it has been mentioned many times.
    6. Deficits don’t matter.
    WHAT? That’s such a hollow statement that no MMT economist would ever utter it because it doesn’t even mean anything. Matter how? Matter in that it will cause us to go bankrupt? In that sense, no, it doesn’t matter (see #2). In the sense that it can’t cause inflation? Then it does matter (#5). In the sense that any kind of deficit spending is helpful? Nope. Some of it is a waste of time in that it never really gets to the policy issue mentioned above: unemployment. Deficits DO matter about some things and they DON’T matter about others.
    I’m now over 1000 words so I had better cut it off. My overall point is this: I have yet to read one of these hit jobs on MMT that truly attacked something MMT research argues. Piece after piece that I read in doing the background for this made false claims, confused MMT with other theories, or ignored basic economic principles in their attacks.
    Perhaps the biggest irony of all is that we already basically follow MMT-consistent policies when it comes to things like wars. But our own citizens? Sorry, we can’t afford that!

    P.S. As promised above, here are some helpful links. For something truly comprehensive, go here: MMT Primer
    If you want to see something shorter but still quite in-depth, go here: Modern Money Theory 101: A Reply to Critics
    Finally, here is my 2300-word piece that Forbes was kind enough to accept almost eight years ago. That’s the absolute shortest I thought I could get the ideas across. Even then, it leaves a lot out. The Big Danger In Cutting The Deficit

  • joseba

    MMT and the MMT Project – Part 1

    One of my presentations are the January Sustainability Conference in Adelaide focused on the basics of Modern Monetary Theory (MMT). I was asked by the organisers to provide some clarity on the basics of MMT and to demarcate where MMT starts and finishes. I started the first of two talks I gave at that conference by stating that MMT was macroeconomics. It is within that discipline. It is not within the discipline of law, sociology, psychology, cultural and media studies etc. Macro is macro. I subsequently received a lot of correspondence about this and have had subsequent follow-up conversations with some MMT activists about the meaning of the ‘categories’ I introduced. I thought it would be useful to write an extended account of what I was thinking when I said those things. It will help clarify what I see as the difference between MMT and the MMT Project. You can see exactly what I said if you want to watch the video of the presentation. But, of course, that doesn’t necessarily mean you will ‘know’ what I meant. So this blog post seeks to clarify some of those comments so that everyone explicitly understands what I was talking about. This is Part 1 of a two-part series (split because of length). In Part 1, I discuss the idea that MMT is macro. In Part 2, I discuss what I call the MMT Project and other issues that seem to cause confusion and/or concern.
    Unfortunately, the film seems to have missed the start of the presentation where I made some of the comments that I am addressing in this two-part series.
    MMT is macroeconomics
    At the Conference, I said that Modern Monetary Theory (MMT) is macroeconomics. Macro is macro.
    When we started out, our aim was to present a comprehensive challenge to the existing, dominant New Keynesian macroeconomic framework.
    It was designed to dismantle the mainstream consensus in the macroeconomics discipline.
    Which invokes the question: What is an academic discipline?
    An – academic discipline – is “field of study … a branch of knowledge, taught and researched as part of higher education”.
    A scholar’s discipline is commonly defined by the university faculties and learned societies to which they belong and the academic journals in which they publish research.
    You can see from the taxonomy presented on the Wiki page I linked to above that Macroeconomics is a stand-alone discipline within the broader Economics discipline.
    The historical development of macroeconomics is well-defined and supported by a corresponding literature, conference structures and academic posts within the overall academic hierarchy.
    It subject matter is very well defined.
    Macroeconomics is not law, nor sociology, nor psychology, nor political science, nor economic history, nor cultural and media studies, nor history, nor geography, and so on.
    While these other disciplines (or areas of study) provide institutional context, historical background, insights into human behaviour and the like to help understand the place of macroeconomics in the broad world of knowledge, they are distinct areas of study.
    There is no hierarchy operating here. One discipline is not superior to the other.
    When I was young and starting thinking about what the ‘academy’ might be I became absorbed with the notion of being ‘well read’, which should be the ambition for all of us as a path to intellectual enlightenment – which translates to ‘knowing a lot of stuff’
    So I thought that meant I had to know the classical literature in philosophy, politics, history, mathematics as well as the great writers in fiction (Tolstoy, Camus, Dostoyevsky, Joyce, Hemingway, Dickens, Hardy, Melville, Kafka, Sartre, Brontë, Hesse, to name my favourites among many).
    And I have tried to honour that ambition.
    But as I was also pursuing an academic career after a time, I knew that one had to specialise in a discipline.
    I was helped by the fact that I studied mathematics at University and so I found the mainstream economics to be easy, which gave me plenty of time to indulge in the broader literature (Marx, Kalecki, etc).
    But I also accepted that I would work within a discipline structure and the thing that interested me the most was macroeconomics because it dealt with the big influences on poverty reduction and the attainment of full employment.
    These social issues guided my interest. I had no interest in microeconomics – it was dull.
    But macroeconomics was full of possibilities and was where the main game or contest against the mainstream had to be fought.
    This article – The History of the Academy and the the Disciplines – is interesting.
    All disciplines have their own language and way of thinking. I don’t apologise for that.
    And there are various ways of talking depending on who the audience might be.
    For example, the way in which I will discuss macroeconomics with another macroeconomist, irrespective of their particular view on the discipline, will vary quite dramatically from the way I write my blog posts about macroeconomics.
    And I will discuss macroeconomics quite differently to someone who is discussing macroeconomic concepts from the perspective of another discipline.
    They can cross fertilise each other but there is a distinct field of knowledge that each operates within.
    So at the Conference I said very explicitly that MMT is macroeconomics. It is not law, cultural studies, humanities etc.
    But then I said, that I didn’t want anyone in the room concluding from that that I thought the excellent work being done in these other fields was unimportant.
    I noted that it was excellent that related disciplines in the social sciences and humanities could find the core MMT work to be useful in furthering knowledge in their areas.
    I told the audience that I found that exciting and inspiring. But that doesn’t accept a blurring of the boundaries between all these disciplines.
    It is possible that you might retort that I am ‘institutionalised’ in a sclerotic academic structure (discipline demarcations) and cannot see other possibilities.
    But that doesn’t get us very far.
    If by that you mean we all should aim for a theory of everything and if we don’t do that we are nasty isolationists who don’t want to cooperate or respect other disciplines and cannot see the empowering nature of cross-discipline fertilisation then you have got me wrong.
    Being ‘well read’ and understanding where all the disciplines fit in the scheme of overall knowledge is a good goal to have. But that doesn’t say we should blur the meaning of each discipline by saying everything is everything.
    MMT is macro. That is it!
    By saying that I give the area of knowledge we work within meaning and context.
    And I definitely don’t demean other disciplines that give further meaning to our work or gain extra meaning and leverage from our work for their academic endeavour.
    What is macroeconomics?
    When we were discussing with the publisher (Macmillan) what the title of our textbook should be, I was somewhat insistent that it be simply called Macroeconomics.
    This was in accord with our view that the subject matter, reflecting an MMT understanding of the monetary system, belonged in that discipline and would impart meaning within the academy on that basis.
    But, if you read Chapter 1 of our textbook, you will see we were very careful to note that “This textbook will instead take a broader perspective of the discipline of economics, by including it within the social sciences.”
    We also wrote:
    While we may think it is useful to separate ‘the economy’ from the rest of social life, and to apply ‘economics’ to the study of that area of life, we recognise that the division is necessarily arbitrary. In truth, there is no completely separate sphere of ‘economic life’, meaning that economics is linked to, and incorporates findings from, the other social science disciplines.
    So we were clearly recognising that economics is part of the social sciences and draws on the other disciplines.
    Later in that chapter we argued that “there is no such thing as ‘natural’ human behaviour; rather, it is shaped and changed by institutions, culture and society”, which brings in disciplines such as sociology, law, politics, psychology, anthropology, cultural studies and the like.
    And you will note that I regularly write blog posts that draw on some of those disciplines as a way of understanding why economic trajectories take a certain form that is contrary to the way the mainstream conject.
    There is a section in Chapter 1 “What is Macroeconomics?” where we state that macroeconomics is about the study of the aggregate outcomes of economic behaviour.
    Macroeconomics focuses on a few outcomes at the aggregate level and is considered to be the study of employment, output and inflation in an international context. A coherent macroeconomic theory will provide consistent insights into how each of these aggregates is determined and why it changes.
    We study the “factors that determine the flow of total output produced”.
    We explore what determines total employment and unemployment.
    We consider the determinants of inflation and the way in which a national economy interacts with the rest of the world.
    Implicit in that study are institutional factors (such as the law of contracts, global accords, psychological motivations, etc).
    But in macroeconomics we don’t study those factors. Otherwise, we would be seeking to know everything about everything and that wouldn’t get us far.
    In that vein, we create an organising framework that represents a simplification of the system that is being investigated.
    We also have a section in Chapter 1 sub-titled “The MMT approach to macroeconomics”, which notes that “Modern Monetary Theory (MMT) is distinguished from other approaches to macroeconomics because it places the monetary arrangements at the centre of the analysis”.
    These arrangements are not about the culture of money, or the law of money, but the technical logic that flows from noting that the legal framework specifies the monopoly status of the currency-issuer.
    Another important aspect of MMT as a new way of thinking about macroeconomics is to understand why macro started out in the first place.
    Up until the 1930s, there was no separate discipline within economics. The mainstream neoclassical school thought that macro aggregates were just the result of adding up individual relationships.
    The problem encountered, though, known as the ‘aggregation problem’ is that there was no clear way of adding all the heterogenous individual functions together.
    To avoid that the economists of the day invented ‘representative agents’ (a single aggregate household or firm that behaved like the utility- or profit maximising entities that they theorised about in microeconomics), which really meant there was no macro theorising at all.
    And, in doing so, the analysis fell into error by dint of the so-called fallacy of composition.
    I wrote about this fallacy and why it matters in this blog post (among others) – Fiscal austerity – the newest fallacy of composition (July 6, 2010).
    The fallacy of composition refers to situations where individually logical actions are collectively irrational. These fallacies are rife in the way mainstream macroeconomists reason and serve to undermine their policy responses.
    So some proposition, which make sense at an intuitive, personal level, fails to hold an aggregate level.
    A classic example is the so-called ‘paradox of thrift’ – where individual virtue can be public vice.
    So if an individual tried to increase his/her individual saving (and saving ratio) they would probably succeed if they were disciplined enough.
    But if all individuals tried to do this en masse, and nothing else replaces the spending loss, then everyone suffers because national income falls (as production levels react to the lower spending) and unemployment rises.
    The impact of lost consumption on aggregate demand (spending) would be such that the economy would plunge into a recession.
    As a result, incomes would fall and individuals would be thwarted in their attempts to increase their savings in total (because saving was a function of income). So what works for one will not work for all. This was overlooked by the mainstream.
    The causality reflects the basic understanding that output and income are functions of aggregate spending (demand) and adjustments in the latter will drive changes in the former. It is even possible that total savings will decline in absolute terms when individuals all try to save more because the income adjustments are so harsh.
    But these sorts of insights established macroeconomics as a distinct field of academic endeavour – there was a reason to treat the aggregate or the collective with care and the body of work referred to as microeconomics was unable to provide the same insights no matter how the aggregation problem was solved.
    MMT adds more insights to these basic awareness that the collective is a special place to study.
    The distinction between the non-government as a currency user and the government sector as the currency issuer is crucial to understanding the dynamics of the economic system.
    We engage in that reasoning assuming all the other determinants, such as legal system, are unchanged.
    Why was the macroeconomics terrain largely abandoned by progressive academics in the 1970s.
    In – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017) – we argued that for various reasons, the heterodox economists did not develop a coherent alternative to the mainstream New Keynesian consensus.
    While there was some macroeconomic research published (for example, early 1970s on the profit squeeze as a distributional issue), the progressive narrative became increasing hampered by the acceptance of mainstream views on government financial constraints.
    In this blog post, for example – The origins of the ‘leftist’ failure to oppose austerity (July 22, 2015) – I discussed the 1973 book by US sociologist James O’Connor, which became a sort of bible among the Left as part of their attempt to understand why Keynesian policy era had failed.
    This book and the derivative literature that followed it was extremely influential among ‘left’ scholars and effectively negated their capacity to challenge, what by the mid-1970s, was becoming the Monetarist resurgence.
    He was trying to address the growing claims that the capitalist system was in crisis because the full employment era had created a squeeze on profits (through rising wage demands ahead of productivity), which led to a slowdown in capital accumulation.
    The state was in a contradictory location because, on the one hand, it had to set out conditions to appease capital and encourage their investment, but, on the other hand, it had to provide a Welfare State to “maintain social harmony”.
    O’Connor felt the two aims were incommensurate and forced the state to seek to expand its expenditure share but such an aim was difficult because it meant increased taxes were required.
    So the fiscal bias was for increasing deficits which would eventually lead to insolvency.
    This became a major influence on Left thinking and eventually the dominant progressive narrative in macroeconomics, which persists today.
    We see all sorts of progressive politicians talking about the need for surpluses, bigger surpluses, Fiscal Credibility Rules and all the rest of the mainstream garbage.
    In effect, as the post modern movement started to infiltrate academic disciplines, the progressive academics found new things to study as they conceded the macroeconomic terrain and the contest to the mainstream.
    I wrote about those issues in this blog post (among others) – Moving on from the post-modernist derailment of the Left (December 27, 2016).
    They effectively abandoned Marxian class analysis to understand location and, instead, the ‘post structuralists’ became increasingly popular and argued that we are incapable of understanding the entirety of human society and we must thus concentrate on pieces of this puzzle by seeking information about it rather than drawing generalisations based on the mode of production.
    What we ended up with was the notion that took us away from Marxian class categories and focused, instead, on studying elements of political power, the use of language and narratives as the way of gleaning meaning.
    This is also defines new arenas of political struggle that are diametric to those defined by the class struggle of Marx.
    Here I am referring to the rise of feminism, movements against homophobia, multiculturalism and the other disaggregated (from class) movements that occupy the so-called ‘progressive’ Left these days.
    Marginality is no longer described in class terms but rather in terms of cohort identity and fragmentation of consciousness has resulted.
    Marxian exploitation is replaced by individual cohort oppression as the fundamental expression of struggle. There is nothing general.
    The hegemony of the capitalist gives way to the power struggles between husband and oppressed wife, or gay and homophobic, between racist and object of racism, and all the rest of the individual power struggles that define the cultural struggles.
    So class struggle is not the path to liberation but, rather, laws designed to overturn ‘glass ceilings’ (for example) become the desired end.
    The class struggle was about solidarity of a collective. But this new post-modernist idea of struggle has no collective (society) only unities that span Marxian class boundaries.
    We encounter the strange bedfellow case where feminists (who might be capitalists or workers) are now fighting for the same end!
    Moreover, the institutions that might have evolved (or evolve) to promote the class struggle for workers – such as trade unions or political parties – become subjugated to these non-class struggle foci.
    So we see political parties that were originated to defend the workers as a class against the vicissitudes of capitalist power becoming vehicles that reject the class struggle as the overarching form of the political activity and, instead, become obsessed with issues relating to issues like womens’ rights to be on corporate boards etc as an expression of what they believe to be the progressive voice.
    The focus against ‘capitalism’ is replaced by a focus against racism (for example) and the roots of the racism and the way the capitalists might use the sentiments to divide and conquer the workers is lost.
    By deconstructing and decentering meaning – anything goes, but the development of a working class consciousness that is capable of pushing capitalism towards a more liberated socialist epoch is lost.
    This doesn’t mean these terrains are unimportant or that in criticising the Left obsession with them that a person is racist, sexist or homophobic/transphobic.
    They are all part of the progressive struggle to eliminate tyranny of any form.
    But from my perspective, by diverting the focus away from the macroeconomic contest, the mainstream was left to do what it wanted and we have seen where that has taken us.
    That is why MMT was important.
    We were aiming to renew a contest against the mainstream on the terrain that mattered the most to them – the big picture and the big policy levers, which went right to the heart of the capacity of the currency-issuer and the production of income.
    I hope that this post clarifies my thoughts on these issues so far.

  • joseba

    MMT and the MMT Project – Part 2

    One of my presentations at the January Sustainability Conference in Adelaide focused on the basics of Modern Monetary Theory (MMT). I was asked by the organisers to provide some clarity on the basics of MMT and to demarcate where MMT starts and finishes. I started the first of two talks I gave at that conference by stating that MMT was macroeconomics. It is within that discipline. It is not within the discipline of law, sociology, psychology, cultural and media studies etc. Macro is macro. I subsequently received a lot of correspondence about this and have had subsequent follow-up conversations with some MMT activists about the meaning of the ‘categories’ I introduced. I thought it would be useful to write an extended account of what I was thinking when I said those things. It will help clarify what I see as the difference between MMT and the MMT Project. You can see exactly what I said if you want to watch the video of the presentation. But, of course, that doesn’t necessarily mean you will ‘know’ what I meant. So this blog post seeks to clarify some of those comments so that everyone explicitly understands what I was talking about. This is Part 2 of a two-part series where I discuss what I call the MMT Project and other issues that seem to cause confusion and/or concern.
    The MMT Project
    The other point I want to make is that while I consider MMT to be a body of work that belongs in the macroeconomics discipline, there is a lot of work going on in a related way which I refer to (for want of a better descriptor) as the MMT project.
    The MMT Project encompasses valuable scholarly work from other social science disciplines and humanities that draw on the core technical macroeconomics of MMT to advance knowledge in those disciplines and, in some cases, add wider perspectives to the core MMT knowledge.
    The MMT project is thus much broader than the technical work in macroeconomics that I call MMT.
    As an example, you might like to read or re-read this article from 2017 – A Memo From MMT’s Legal Department – which I think succinctly encapsulates the value of cross-discipline interaction.
    What is interesting in this respect is that progressive social scientists have struggled to glean anything useful from mainstream economics, because that body of work has been largely hostile to progressive ambitions.
    Mainstream economics is biased towards supporting neoliberal aspirations despite what some economists working in that tradition will tell you.
    It also abstracts from a range of important issues – such as the work on human decision-making that psychologists, sociologists and cultural anthropologists do as their core discipline subject matter – which then leads to sterile deductive models and resulting erroneous conclusions.
    I am thinking here of the way in which mainstream economics characterises humanity as rational, maximising units who pursue individual self-interest as their sole goal. Those assumptions are foreign to the way the other social sciences construct human decision-making.
    The thing about MMT – as a body of macroeconomics – is that it liberates our understanding of the capacities of the currency issuer from the harsh mainstream logic that the government is financially constrained and all the baggage that flows from that myth, which reduces the fiscal space available.
    In that sense, MMT opens up new possibilities across all the realms of human endeavour, which other academic disciplines specialise in.
    The MMT Project reflects the fact that these other disciplines have opened up a dialogue with the core MMT academics (that is, the macroeconomists) which can generate two-way enrichment as part of our ambition to be ‘well read’.
    So when I say that MMT is macro, that doesn’t mean I eschew the insights that these other disciplines who are now part of the MMT Project have provided.
    Speaking personally, they have enriched my intellectual life.
    But there is only 24 hours in a day and the harsh reality of life is that specialisation in academic life is inevitable.
    Which is why I largely concentrate on the technical macroeconomics that is MMT and rarely comment on the other valuable work that is being performed within the MMT project.
    But I have been known to deviate from that narrow path and my work with Louisa Connors on Framing and Language is an example of that.
    We have brought together the cognitive linguistic research and the MMT macroeconomics to provide knowledge on communication strategies for progressive activists engaged in political action.
    In this way, the core MMT macro is taken to a different level of dialogue.
    See, for example:
    1. Framing Modern Monetary Theory (December 5, 2013).
    2. The role of literary fiction in perpetuating neo-liberal economic myths – Part 1 (September 11, 2017).
    3. The role of literary fiction in perpetuating neo-liberal economic myths – Part 2 (September 12, 2017).
    I also regularly draw on other social science disciplines to elaborate an understanding of why neoliberalism is flawed.
    And once we get into the realm of policy, then discipline intersection is crucial.
    For example, I am currently building a coalition to outline a transformative agenda for Australia and beyond. We need the assistance of expert climatologists, sociologists, engineers and all sort of other skills to work within the same project.
    As another example, when I was writing – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – it soon became apparent that I had to draw on the international law literature to build a case for a nation unilaterally withdrawing from the Economic and Monetary Union.
    The legal principle of Lex Monetae provides the basis on which a nation is fully empowered to redenominate its assets and liabilities in whatever currency it chooses, including a newly introduced currency.
    So if we were actually implementing a unilateral exit blueprint to restore currency sovereignty, the team would have MMT economists and lawyers who understood MMT, among other professional input.
    I discussed this international legal principle in these blog posts (among others):
    1. Options for Europe – Part 79 (May 6, 2014).
    2. Options for Europe – Part 80 (May 7, 2014).
    The other point to make is that while I can be somewhat definitive about what constitutes MMT – as a body of macroeconomic thought – given that I was one of the original development team, I have no legitimate role in ‘controlling’ what endeavours become part of the ‘MMT Project’.
    Warren Mosler and I have discussed this point in detail over the last few years as the popularity of MMT increased and all sorts of wider applications to other disciplines started to spring up.
    And while much of the work within the ‘MMT Project’ is being done by those with a progressive bent, there is nothing to stop someone from cognate disciplines who has, say, a Right-leaning perspective, embracing the core MMT insights to advance their particular view of the world.
    Finally, I am fully aware that once we start with these demarcation exercises, the fuzzy edges can start to become the story.
    Sometimes it is easier to demarcate what something isn’t rather than what it is.
    The MMT Project is also different to what I have referred to as ‘Post MMT’ (see below).
    The Lens thing
    As our ideas were becoming more well-known, people increasingly would write or state that ‘when we have MMT things will improve’ or we need ‘MMT policies to replace the neoliberal regime’.
    While the motivation was sound – to improve policy to make it advance well-being – the construction was flawed.
    So I came up with the statements that:
    1. MMT is a not a ‘regime’ that we can ‘go to’.
    2. There is no sense in saying “MMT policies are …”
    3. MMT is a lens and enhances understanding of the capacity of the currency-issuing government.
    4. It is not something you ‘do’ but something that is!
    5. An MMT understanding enhances the quality of our democracy because politicians can no longer lie about not having enough money to do something the population deems desirable.
    6. Policy requires us to overlay our value judgements on this understanding.
    Some people take exception to this set of propositions, particularly, because they appear to separate perception from values.
    I know the argument.
    I studied Philosophy 101 where we had deep discussions about value, objectivity, subjectivity, the meaning of life, do I exist?, and all the rest of it.
    I know there is no such thing as a value-free statement.
    Every element in that 6 point list is value-laden.
    So why did I choose to represent the issue in that way?
    Simply because it quickly disabuses people of the conclusion that our work is intrinsically Left or progressive in the political or values sense.
    I wanted it to be apparent that a person with Right-wing tendencies could still reach the same understanding of the monetary system and the capacities of the currency-issuing government as I have.
    I didn’t want to get into a deep and go-nowhere debate about the meaning of life.
    As a progressive, if I can get a conservative to understand that the government is not financially constrained in a logical sense, then I have the basis of a conversation.
    If I start off on a values contest then there is no conversation.
    So I chose to abstract from obvious deep subjective elements that underpin the whole concept of money and all the rest of the building blocks of MMT.
    I find that is a constructive way to go.
    But I know that ultimately everything can be reduced to the subjective … and at that stage there is no where else we can go in the conversation.
    We are then back in a post modernist relativity void.
    Please read my blog post – The erroneous ‘lets have a little, some or no MMT’ narrative (February 20, 2019) – for more discussion on this point.
    The Theory part
    There are still people who claim that MMT is just a description of reality and the use of accounting is a basis of MMT.
    Neither conclusion is accurate.
    Accounting is clearly important to MMT as we aim to be stock-flow consistent.
    But if that is all MMT was then we don’t get far.
    For example, the question is how do those financial balances adjust when one or more changes to ensure that accounting identity is maintained.
    The answer requires us to theorise about economic (and human) behaviour. That is, have conjectures or hypotheses about the way humans behave and what that behaviour means within the institutional framework for economic behaviour.
    The robustness of the theorising is determined by how congruent the statements we make are with the empirical world. MMT has proven to be highly congruent in this respect.
    Behavioural theories are required to answer those questions and they are important parts of the body of work that we now refer to as MMT.
    I have dealt with that issue in this blog post – Understanding what the T in MMT involves (September 20, 2018).
    Post MMT
    I wrote about this issue in the two part blog series:
    1. Reflections on the 2nd International MMT Conference – Part 1 (October 3, 2018).
    2. Reflections on the 2nd International MMT Conference – Part 2 (October 4, 2018).
    The widespread discussions about the idea of an employment guarantee that occur these days is an interesting case of what I think is ‘Post MMT’.
    As I have written previously, from the perspective of MMT, there is one concept of a Job Guarantee – which requires the currency-issuing government to maintain an unconditional job offer to anyone who wants to work at a socially-inclusive minimum wage.
    The job offer is flexible in hours at the choice of the worker.
    The wage would be adjusted over time as national productivity increased.
    The fixed wage offer at any point in time though, is a crucial part of the framework and is what distinguishes the MMT approach from other ‘job creation’ approaches that might be suggested.
    It is the fixed wage offer at the bottom of the existing wage structure that provides the inflation anchor for the economy by allowing the government to use aggregate demand management to redistribute workers from an inflating sector to the fixed price sector if deemed appropriate.
    It is obvious that that structure can be made more complicated with, for example, tiered wage offers and more. But once that sort of option is considered we are moving beyond the MMT approach into something that I have, for want of a better terminology, called ‘Post MMT’.
    So there is one MMT Job Guarantee and any number of ‘jobs guarantees’ in the Post MMT world.
    I only advocate the MMT version for obvious reasons.
    MMT and other things
    The discussion about the ‘MMT Project’ also raises another interesting point, dilemma, call it what you will.
    And this is a fairly sticky wicket to be batting on!
    There is usually a well-defined and informed logic to the relationship between the core MMT macroeconomics and work being done in other disciplines as part of the ‘MMT Project’.
    So, for example, a sociologist concerned with urban poverty and a lack of employment opportunities in the case area they study, will be empowered by MMT because it dispenses with the myths that the currency-issuing government cannot afford to make extra jobs available that are inclusive to the most disadvantaged workers in any geographic area.
    Immediately, their policy options increase and the questions the sociologist, for example, will then start asking and the solutions they explore will widen and differ. Instead of, for example, being locked into the neoliberal ‘training’ box (where unemployment is constructed as the individual’s lack of skills or motivation) and devising all sorts of redundant and ineffective training approaches, whole new work on designing and implementing job creation programs becomes imperative.
    But, there is also a tendency I have observed for every issue that liberals might think important to be called an essential part of the MMT project. I disagree with these types of associations.
    I have seen on social media claims that ‘MMT’ encompasses positions on a whole range of other interesting issues, such as population policy (free movement or otherwise), European union membership or otherwise, gender issues, ethnicity, sexuality and the like.
    As I explained above, none of those claims have merit I am sorry to say.
    The link between MMT and the work within the MMT Project has to have some congruence. It has to be, for example, that the insights that MMT provides, directly reinforce or inform work being done in the broader MMT Project.
    So, to use one example, there is nothing logical that can be derived from MMT to justify claims that to have an MMT understanding one must support complete freedom of movement of people (open borders).
    Those who display an MMT understanding may express views, one way or another on these issues, many of which come under the heading of ‘identity’, but that is not the same thing as saying that these issues belong in the core body of work that we have developed.
    They do not.
    I hope that this two-part series has helped clarify my thoughts on these issues.
    I also reiterate that I adopted a stylistic approach in this two-part series and understanding that fuzzy edges on some of these concepts may be important.
    But in general the points are:
    1. MMT is macroeconomics.
    2. The MMT Project is about work in other academic disciplines which uses MMT insights or broadens the context in which we place the macroeconomic insights.
    3. There are many ideas that do not fit into the MMT-MMT Project nexus – and I used the example of open borders which has become a sort of ‘darling’ issue among some areas within the Left.

  • joseba

    Modern Monetary Theory: Cash-strapped governments a thing of the past?
    States with a currency of their own can never run out of money. That’s a core thesis of the Modern Monetary Theory which spilled over to Europe from the US. German economist Dirk Ehnts elaborates on what it’s all about.
    Policymakers in many nations across the globe including the US and Britain have signaled their intention to move (further) away from rigid fiscal discipline and let the state spend more to increase employment and support the economy at large.
    The Democrats in the US for instance have shown their support for more public spending to make the New Green Deal happen. They thus follow the guidelines of the Modern Monetary Theory (MMT) that sees no wrong in increasing state spending. On the contrary, it notes that under current economic conditions it’s desirable and necessary.
    It goes without saying that the prophets of a balanced budget, who can also and specifically be found in the German government, are having a problem with that theory. German economist Dirk Ehnts tells DW why the critics should think twice before rejecting MMT out of hand.
    DW: You’re in the camp of those wholeheartedly supporting the Modern Monetary Theory. You’re offering a new approach for governments to deal with fiscal resources, but is there really a need for it?
    Dirk Ehnts: Right now, we are going through a phase in the eurozone where unemployment is still high in some member states. Also, the next recession is sure to come at some stage. This is why we have to think hard about how to boost employment and use our resources in a meaningful way — resources that are currently lying idle. In this context, I predominantly think of work rather than natural resources.
    So what then is the fundamentally new approach in MMT that would enable you to achieve exactly that?
    The new approach is that we view state expenditures in all their forms as tax credits. This means that public debt is nothing more than the sum of tax credits held by private households and companies.
    The state is not forced to reduce its debt to zero, and it doesn’t have to. That’s a fundamental difference to the situation of, say, a Swabian housewife. What I mean is that you should not project the logic of a Swabian housewife — who has to finance her spending through income — onto a state which as the very creator of money will always be able to spend more money, that is money which is brought into play by its central bank.
    Right, but if the state in question can, at least potentially, create as much money as it wants digitally, will this not end up in a devastating debt spiral? At least that’s what the critics fear.
    Well, I do understand the people who fear that the state might spend just too much money, also in terms of granting much higher wages to people already employed, and those higher wages could indeed lead to soaring inflation.
    However, much higher inflation rates would not be popular among citizens and older people in particular, since they live on pensions that are fixed. They would vote against the current government on Election Day. Hence there’s little motivation politically to overstep the mark when it comes to state spending and letting the inflation rate explode.
    The ECB and other central banks have already been swamping markets with money for years on end. So, if you will, they’ve already at least partly acted in line with MMT principles. The results of this QE (quantitative easing) policy may, however, not be what you want to achieve. So where’s the difference?
    The ECB has been buying state bonds from the banks. The sellers in question receive deposits in their accounts at the ECB. The snag about it is that contrary to popular belief the banks cannot directly lend this money to households and companies as the latter don’t have any accounts at the ECB.
    As we’ve been able to witness, the real problem has been low credit demand, and in a situation like this the state is called upon to create more demand through state-financed projects. When the state spends more money on such projects, it automatically creates more employment, for instance by more spending on ecologically sound projects envisaged by the Green New Deal or other initiatives.
    That in turn means more income for the workers involved — money that people can use to buy goods. And if there’s more demand for goods, production will go up correspondingly.
    Would you agree that MMT is not applicable to countries without their own currency? And how much of a problem is foreign-currency-related debt?
    Countries without a currency of their own would indeed first have to borrow dollars from international investors, before they’d be able to spend anything. By the way, the same applies to the 16 German states, and it also holds true for the community level.
    As to the second part of your question, foreign currency debt is a big negative factor. Talking about Germany, you could argue of course that the euro is a foreign currency for us, but at the end of the day we would be “too big to fail” within the eurozone, meaning the European Central Bank would never let us default.
    Don’t you see a danger of too much power being conceded to governments in monetary or fiscal matters with MMT in place? After all, central banks are meant to be the guardians of nations’ respective currencies, whereas policymakers might pursue rather short-term political and economic objectives.
    That’s a question of political consequences. More government spending could lead to the use of more resources. But in a situation where we need a Green New Deal and hence a more frugal use of resources, people have a choice.
    If people support the global shift to a greener economy, there’s no more any need to ask whether there’s enough money around to make it all happen. True, companies will continue to ask where to get the money from for their projects, but states don’t have to do that, according to our theory.
    What do you think are the chances of MMT eventually taking the upper hand and replacing today’s conventional monetary policies? After all, the large number of MMT critics can hardly be ignored, can it?
    In economics, you can usually witness cycles of 30 to 40 years for one theory to replace an old one. The current neoliberal theory has been in place since the 1970s or 1980s. It’s become clear over the decades that we’ve encountered a number of myths partly resulting in today’s problems — myths that finally need to be debunked.
    Among those myths are the belief that the central bank is in full control of money supply and the belief that’s it’s in full control of the inflation rate. We’re seeing right now that this is not working.
    And then there’s the myth that the market regulates everything itself, meaning it only takes the state to withdraw to resolve any problems, or the myth that profit maximization should take precedence over the public purpose.
    So, all of that needs reforming; and I do believe that we have the better arguments in this debate and that our ideas will prevail. Sure, it may take a bit of time and patience, but I don’t think it will take ages for MMT to become widely accepted as the norm.

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