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A Beginner’s Guide to MMT

159 points by uptown 8y ago

jonahhorowitz 8y ago
It seems obvious once you think about it that at the federal level taxes don't pay for spending. The fed can print as much money as it wants. Taxes only serve to remove excess cash from the economy and keep inflation down.
- ip26 8y ago
  Or, even more abstractly, they serve as an alternative to inflation, which devalues money indiscriminately. Printing money and taxation both transfer value to the fed; but the latter can be crafted & targeted while the former cannot. In practice perhaps the most significant realization of this is that inflation is a tax on wealth while our system today is mostly a tax on income.
  - vanterdon 8y ago
    Your last point is a great one and reflects the economic literature on the subject in that inflation is effectively a tax on money holdings.
- hackeraccount 8y ago
  Eh, is that obvious? In some sense I don't pay for a burger with money from my job. I use my credit card to pay for burgers. So it's like I just print the money I need. Of course none of that is true. The fed could in theory print all the money it wants just like I could I theory borrow all the money I want. Both of us realize that there's a limit to how far that can take us.
- sdfin 8y ago
  Look at Argentina: there is a very high inflation, and also there are very high taxes. I mean that what you mention does not look obvious to me, as you can reach a point where even very high taxes cannot counter inflation.
  - conanbatt 8y ago
    I generally agree, but take Argentina with a grain of salt. It is an exceptional economic case on any and all measures.
- conanbatt 8y ago
  Its one way of doing it, but think that tax policy you can control: you can make it progressive, or give credits, or do something else. Printing money affects all the currency, and has uneven effects of all kinds, including favoring the banking sector the most.
crdoconnor 8y ago
>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 That's not in the slightest bit surprising. Larry Summers instinctively sides with the large banks and has essentially built an entire career off that. He was also one of the advisors to the Soviet Union breakup who told them how to privatise in such a way that oligarchs captured most of the wealth.
bryanlarsen 8y ago
another primer: https://www.bradford-delong.com/2019/01/what-is-modern-monetary-theory.html https://www.bradford-delong.com/2019/01/what-is-modern-monet...
- peisistratos 8y ago
  The chart in the Bloomberg article is pretty great. Delong is left-leaning by the way, meaning not just conservatives see this as nutty. Left leaning Paul Krugman sees MMT as nutty https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wonkish.html https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wo... Even further left, Doug Henwood is down on MMT https://www.jacobinmag.com/2019/02/modern-monetary-theory-isnt-helping https://www.jacobinmag.com/2019/02/modern-monetary-theory-is... It's not just conservatives who are down on this. Left and center-left economists see MMT as wishful thinking.
p_roz 8y ago
It’s immediately obvious that increasing the money supply and spending the money will result in inflation. MMT says that the only constraint on spending is inflation, but also turns around and says that you can always print more money. That’s a contradiction. Printing more money does not change the real wealth in the economy. You can’t create additional purchasing power with an increase in the money supply because prices will adjust to the new level.
- klaudius 8y ago
  Yes, but you can steal by diluting the value of existing money.
  - SubiculumCode 8y ago
    You do not own the value of the dollar you hold in your hand...you just own the IOU. The value of the dollar is what other people deem it to be worth, and you cannot own that. If I have a car, I own the car. If you break in and steal the car, then you have stolen from me. But if the car company that produced the car decided to overproduce so that there is an excess used car supply in the market (lowering prices), well sorry friend, but the car company didn't steal from you.
- brianjcohen 8y ago
  > MMT says that the only constraint on spending is inflation, but also turns around and says that you can always print more money. That’s a contradiction. The article follows that up by saying: >> 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 later on: >> To stabilize employment, MMT would add a federally funded, locally administered job guarantee. Government would employ more people in slumps than in booms. So I think the idea is that MMT recognizes that inflation would indeed occur if you kept printing money without a demand for that money, which they say will be supplied by government-sponsored full employment. What I don't understand is: is there a situation in which full employment has already been achieved and the government just keeps printing money for new initiatives, and we're back to inflation?
Proven 8y ago
Completely crazy. Ten years of QE produced nothing, so we need to try harder. MMT and Unveraal Basic Income - that will like totally save us, dude!
currymj 8y ago
The mainstream way of thinking says "the government must tax in order to spend" whereas MMT says "if the government wants to spend it will have to tax".
- jonahhorowitz 8y ago
  I think it's more "the government must spend to be able to tax"?
  - doppelganger27 8y ago
    I'm no expert on this, but I think that wording suggests that the government's goal is to tax, but it seems to me that a government really wants to spend. My understanding of MMT is that it removes the direct relationship between the ideas of spending and taxation, instead tying them both to inflation. Spending increases inflation by adding currency into circulation, and taxation decreases inflation by removing it from circulation. Although I'm not sure how that fits into a one-liner :)
    - chombier 8y ago
      Government also needs to tax to ensure sufficient demand for its money ("taxes drive money")
ThirdFoundation 8y ago
A fear of mine is that MMT gains enough traction to be implemented, but only partially. Similar to what has happened with the ACA. For argument's sake, let's just assume MMT is a sound theory. Regardless, if it's only half-implemented -- without all components for regulating taxes, inflation, and spending -- it could be an absolute disaster. Additionally, there are concerns about having the government itself involved with regulating inflation and business cycles. An independent Fed, at least in theory, allows for the fed to take a longer view of the economy even if politicians have incentives to care only about the next election cycle. All it would take is one conservative majority congress to semi-dismantle any MMT mechanism and completely mess up any "controls" put in place by MMT proponents. That being said, it is refreshing to have different ideas being taken seriously enough to enough mainstream conversation. I don't think the field of economics is "solved" (probably far from it) so I think good ideas that challenge the status quo are generally good.
- mdparker89 8y ago
  I see this problem with a lot of big policy. It's sold as a rewrite when in practice it has to be implemented as an incremental refactor. The two have different implications and trade offs. A partial rewrite is often the worst place to end up.
- thadjo 8y ago
  I'm not sure if you need all of the parts in place to see if / how it works. The fed could start offsetting deficits to the tune of $100B to the treasury and see how the USD, bond markets react. If inflation goes up, it could in theory, be offset with a tax scheme inline with MMT. I'm not saying this would be terribly smooth, but I do think it is possible to test parts MMT in relative isolation.
- iooi 8y ago
  For what it's worth, the ACA was pretty successful before it was slowly gutted by the current administration. Around 12M people signed up at its peak. Generally, incremental changes are better than a "perfect" solution that comes in a lot later.
SubiculumCode 8y ago
That was refreshingly NOT a hatchet job article on MMT...meaning it didn't wildly misrepresent MMT.
0815test 8y ago
Relevant: https://www.themoneyillusion.com/mmt-explained/ https://www.themoneyillusion.com/mmt-explained/ (This is a post by Scott Sumner, who is also quoted near the beginning of this article. His earlier post is at https://www.themoneyillusion.com/wrong-in-a-very-confusing-way/ https://www.themoneyillusion.com/wrong-in-a-very-confusing-w... and is also worth reading for context.)
deleted 8y ago
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mdo123 8y ago
You can debate inflation, but does anyone really expect our government to do the right thing when it comes to spending and taxation?
jimbo507 8y ago
mmmmmmmm MMT! Finally some sensible financial policy. Did the New Deal result in inflation? Did the Wall St bailout result in inflation? Does productive investment, private or public, result in inflation? Why do we care so much about inflation?.... oh yea, because it spooks bondholders! Boohoo - 'en marche MMT!'
vasilipupkin 8y ago
Macroeconomics is a sufficiently complex topic that trying to understand it or discuss it at a "beginner level" is almost pointless. At that level, all you need to know is that any theory that promises some certain knowledge of what's going to happen if this or that happens and that it's all very simple, is almost certainly wrong.
- jonny_eh 8y ago
  It doesn't promise certainty, it just points out that certain levers may be connected in ways we didn't realize.
- tchaffee 8y ago
  > trying to understand it.. at a "beginner level" is almost pointless. Starting at the beginner level is where everyone starts when they want to learn something. By definition. Hardly pointless.
  - vasilipupkin 8y ago
    it's pointless if the plan is to learn at beginner level and stop there and then believe that you have a reasonable level of understanding to formulate opinions. If the plan is to learn it at the beginner level in order to keep learning and get to advanced level, then I agree it's not pointless
jimbo507 8y ago
mmmmmmmm MMT! Finally some sensible financial policy. Did the New Deal result in inflation? Did the Wall St bailout result in inflation? Does productive investment, private or public, result in inflation? Why do we care so much about inflation?.... oh yea, because it spooks bondholders! Boohoo - 'en marche MMT!' I think we obsess over inflation because it's an elite creditor concern, so it dominates headlines - but the real economic killer is deflation, when the population's debt grows and eats away their purchasing power....
mason55 8y ago
I was surprised to see a reference to "loans create deposits" in this article. I thought that concept was very well accepted and wouldn't have considered it to be part of MMT? Is the MMT part of this just that it also applies to the Treasury/Central Bank relationship and not just retail banks? > 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.
- holymacaral 8y ago
  A lot of MMT is just restating things Keynesians and Austrians already know and pretending it's some brilliant idea. For instance, they think it's a big breakthrough that the government can pay down debt by issuing more currency. We already know the government can do this, and we also know why it's a bad idea.
  - CPLX 8y ago
    > we also know why it's a bad idea Do tell.
    - holymacaral 8y ago
      Countries can and have defaulted on debts issued in their own currencies. If you printed your way out of debt that would be a default in all but name. You would cause a collapse of credit and a collapse in confidence in the currency itself.
      - CPLX 8y ago
        > Countries can and have defaulted on debts issued in their own currencies. Really? How? > If you printed your way out of debt that would be a default in all but name. Oh, right, actually they don't. So in fact it is actually impossible to default on debt in your own currency and you're admitting as much. > You would cause a collapse of credit and a collapse in confidence in the currency itself. Right. And a reduction of value of a currency is also called inflation. Which is pretty well accounted for within the discussion.
holymacaral 8y ago
MMT is a rationalization for unlimited spending & economic control. Do you really think AOC, Warren, Sanders actually understand the theory of MMT which they advocate (if not by name)? The MMT theorists began with the conclusion they wanted and concocted a theory to get there. This is policy shaping theory at its finest.
- airstrike 8y ago
  It's also such a disingenuous name – "modern" monetary theory. To the layman, it automatically reads like a new and improved understanding of Economics, when in reality it's just another theory, and not even a very mainstream one at that.
  - chombier 8y ago
    It started as a joke. It's called "modern" because it only applies to the past 4000 years. https://www.nakedcapitalism.com/2018/10/randy-wray-modern-monetary-theory-came-mmt-include-mmt.html https://www.nakedcapitalism.com/2018/10/randy-wray-modern-mo...
    - airstrike 8y ago
      That might very well be an interesting bit of trivia but it doesn't make it less disingenuous
- kaycebasques 8y ago
  Based on the names that you supplied, I'm guessing that you assume that MMT is a left-wing idea. I think the bigger reason to pay attention to it is because it has support on both sides of the American political spectrum. Read The Macro Tourist's post [1] for a pragmatic trader's take on the matter. He also suggests that Trump is already an implicit proponent of MMT, what with his increased spending and decreased tax revenue. [1] https://www.themacrotourist.com/posts/2019/01/23/mmt/ https://www.themacrotourist.com/posts/2019/01/23/mmt/
  - 8y ago
erentz 8y ago
Probably dumb question: if debt and deficits don’t matter and a country can just print money - how does that explain cases where countries have defaulted and other countries and their own citizens lose confidence in the currency? I also don’t understand how the jobs guarantee is supposed to work. Presumably if we had work to be done we would have open positions for it. Now we have to magic up jobs, which means diluting jobs other people currently do and the income the currently derive from it, or make pointless “dig and fill” hole jobs. Won’t all this just make everything a hell of a lot less efficient? And won’t it worsen potential economic recovery? You’re depriving potential new industries or business from labour because that labour is working for the government. You’re also preventing government departments (or wherever those jobs go) from improving their own services. To pick a historical example, instead of moving to computerizing records taking away jobs it would now be necessary to continue to do things on a typewriter because you need to keep the jobs. This in turn removes money flowing from the government to computer industry, which helps to drive up and develop whole new businesses and industry that drive the economy. That is, is there not a risk that the way the jobs guarantee is described as helping during the downturns could actually hinder recovery and development of new industry? OTOH why I like UBI is it still leaves all those incentives to do new things in place.
- ergothus 8y ago
  > Presumably if we had work to be done we would have open positions for it. I don't follow the presumption. There's no shortage of work out there to be done, we just don't have the means to PAY for it under the current system. Now, you might not think MMT does either (in real terms), but the world is NOT short of work to be done. > Now we have to magic up jobs, which means diluting jobs other people currently do ...which doesn't follow if your first point fails.
  - erentz 8y ago
    > There's no shortage of work out there to be done Ok, I have to agree with this to a certain point as it’s an argument I find myself making in change resisting organizations. But the implication here is that there will always be no shortage of low end minimum wage work and that the best way to discover and assign that work is via a centralized means. So with a jobs guarantee we have to invent a government system that identifies and assigns jobs that need doing in an efficient manner. No one has done that yet. > which doesn't follow if your first point fails. I’m not sure it’s entirely failed. Because although the ideal is “there is always more work you can shift to once this job is done” that is simply not what happens in practice. People and organizations don’t behave that way. Try working in an organization facing disruption, or an old developing world government department where people rely on it for their job, etc. It is full of resistence to anything that might put at threat peoples jobs. I’ve worked at places as recently as 2010 that still had telex operators who came to work and sat their doing nothing all day because the telex systems had been decommissioned. This is what you get with jobs guarantees.
the_optimist 8y ago
A credentialed economist should put a stake through the heart of the heart of MMT. Two simple critiques: 1) Relative to a financial statement (i.e. budget), it is difficult to predict and measure inflation. This difficulty lowers the likelihood of government fiscal responsibility and increases the likelihood of devestating inflation. 2) A basic second-order effect: What happens when people realize transfer medium is being debased? They'll obviously try not to store value in that transfer medium. How will volatile inflation affect the use of the transfer medium? Why wouldn't users switch to a better store of value, like every single developing market that has ever lost control of its currency? I am embarrassed for profession of economics that MMT is being entertained as a viable "new-old idea." Of course the government can debase the numéraire of the economy. Obviously, doing so transfers value from non-government to the government similar to taxation. The financial statement of the economy has to balance. This is merely a backdoor way of transferring assets in a deeply unaccountable way.
- thadjo 8y ago
  > This difficulty lowers the likelihood of government fiscal responsibility and increases the likelihood of devestating inflation. I share this worry too, but it's not like there's currently any political appetite for fiscal responsibility. I wonder if the threat of inflation and currency volatility would actually serve as better stick, than what we currently have which is continuing to run up a massive debt which will be terrible for our children?
- mason55 8y ago
  Right, it seems like the problem is more political than economic. Point 2 obviously flows from point 1, so the argument is whether point 1 is valid or not. In theory there might be viable ways to control inflation via taxes and other ways of soaking up extra money supply that's created by printing/spending. The implementation will be difficult though, especially if it's driven by a political process. Even if you initially start with something that has all the correct automatic adjustments built in (assume this is possible), there's always the risk that a new gov't breaks it. I think that for a change in paradigm like this to be successful you'd need stronger guarantees that things would stay in place long term (similar to UBI actually).
throwawaysea 8y ago
It occurs to me that the primary motivation for politicians to give MMT any attention is because it ostensibly enables their otherwise impractical spending plans, due to the scale of spending proposed in policies like Medicare for All (M4A) or Green New Deal (GND). The interpretation undertaken by these politicians is frightening, at least to me, since it seems like spending that is unchecked. I can't help but think that rather than starting with a principled look at macroeconomic theory, this is really just politicians figuring out which theory or economic "camp" enables them, and then throwing their weight behind it. In today's age of populism both on the left and right of the American political spectrum, I am extremely wary of proposals for such widely-scoped and fundamental changes to be undertaken just because they have received wide attention very recently. After all, MMT is not new - it is a rehash/repackaging of principles that have been studied in economic theory before.
40acres 8y ago
I think MMT is an interesting school of thought because the economy has been reacting in a way contrary to what the data suggests. We're in the tenth year of an economic expansion and wages are only just starting to increase -- and at a modest pace at that. The amount of inequality in our economy is not accurately represented in GDP or unemployment. You would think inflation would perk up this long into an expansion but since most of the gains have gone to the wealthy (who don't spend as much as their income as normal folk) the economy is not as dynamic as we thought it would be. Even with the recent tax cut the economy is only growing at 3%. Combine these factors with the fact that there are at least three huge areas for government investment: health care, renewable energy, infrastructure. If you believe climate change is an existential threat to our society -- does it matter that we have a balanced budget while we try to tackle it? Especially if recent trends suggest that massive deficit spending WILL NOT cause an inflation catastrophe?
- mindslight 8y ago
  > You would think inflation would perk up this long into an expansion but since most of the gains have gone to the wealthy (who don't spend as much as their income as normal folk) the economy is not as dynamic as we thought it would be This is exactly what happens when new money in injected at exclusive points. The upper class accumulates ever more financial power, while the lower class is kept fighting over the scraps. An amount that could be a major life changing expense for most of the country is presently a throwaway gadget purchase for someone working for the banksters in NYC or the surveillance industry in SF. Financially, MMT is analogous to a kid not being stopped for taking money from their parents' wallets to buy candy, so they move on to taking larger sums - whether this is actually a problem entirely depends on how much their parents make. Financial deficits only work as long as they do not undermine faith in the issuer. For the US, this effectively based on energy (historically including Saudi Arabia) and military might. "Withdraw" at a rate faster than "depositors" will tolerate, and faith in greenbacks will collapse. MMT is especially ironic because it's gaining political support in the name of "going green". But it's actually the same vein of consumerist greenwashing as that "third R" - recycling. Heating up the economy fundamentally causes more crap to be produced ("full employment" !). If you want to conserve earth's natural resources and leave that carbon in the ground, support simply letting natural deflation actually occur. I will say however, that if MMT can end up justifying an alternative to just dumping most of the consumer-bound printed money into the housing sector, that alone could be a great thing.
hackeraccount 8y ago
MMT seems to me like a plea to politicians to get rid of the independent federal reserve. MMT would create a situation where the goals of the Federal government and the Federal Reserve would be in direct conflict. I have no doubt that Federal Reserve would lost such a conflict but we'd all be worse off.
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iooi 8y ago
Recently a younger friend realized that if they wanted to major in Economics, the only option at most schools is a B.A. instead of B.S. At first I thought it was a bit dramatic for schools to differentiate that specific field so much, since I would think it belongs firmly with other STEM fields, but it's definitely the right call. That such a basic question like how inflation is created (is it when you print the money, or when that money is spent) is still a topic being debated really makes you want more from the field. Is there really no way to experimentally test these questions?
karl11 8y ago
To anyone who hasn’t been totally brainwashed yet one way or the other, a great piece of writing on MMT: https://www.epsilontheory.com/modern-monetary-theory-or-how-i-learned-to-stop-worrying-and-love-the-national-debt/ https://www.epsilontheory.com/modern-monetary-theory-or-how-...
identity_zero 8y ago
The Bitcoin community ironically supports MMT in order to accelerate the decline of traditional financial institutions. I can't believe people take MMT seriously.
mikhailfranco 8y ago
1. Inflation favors debtors over creditors. 2. Inflation is caused by printing money. 3. Governments can print money. 4. Governments are debtors. Guess what happens next ...
- imtringued 8y ago
  5. Government increases taxes to curb inflation.
patfla 8y ago
The economy is like an (enormous) electrical circuit with, crucially, non-linear elements. Mainstream macroeconomics models that poorly which we've seen well demonstrated over the last 10 yrs although there were earlier demonstrations, e.g. stagflation in the 1970's. MMT, while as the article indicates heavily politicized, adds, I think, some insights. For one, money is not exogenous. That is, it doesn't come only from the Fed, banks also in effect create money when they write new loans. Also, what are savings (not necessarily a question raised by MMT)? They're an accounting identity in mainstream macro and supposedly investment = savings. Too simple. Why is there a 'savings glut' in E Asia at the same time that investment in China is remarkably high? And so it goes. Some steps forward, how many back - don't know but the article does demonstrate just what a political football MMT has become - I'm sure AOC is great but I'm not sure she's an expert in economics. I'd like to see a better theory of non-linear dynamics in economics. The non-linear elements are basically feedbacks where feedbacks allow components of systems to adjust more quickly to changes elsewhere in the system. A forest fire (speaking metaphorically) clears an area of land? The first species to recolonize the land are those that get there quickest. You need to be quick when opportunity arises and feedbacks jumpstart you. To go back to the electrical circuit - have we even adequately characterized the components (resistor, capacitor, etc.) that go into making up an economic electrical circuit? Also as regards China. China accedes to the WTO in 1999 and only 8-9 yrs later (2007-2008) the circuit blows itself out. Add a huge new power source without compensations elsewhere in the circuit and it will likely fry itself and here we are more than 10 yrs later with the smoldering wreckage still visible. Although if you've come of age in the last 10 yrs, this might not be visible to you. An interesting thing to study is global capital flows - something like the electricity of the system. There was something somewhere where Joseph Stiglitz said: we need a better theory of finance. That is, we really don't know how this shit works.
anm89 8y ago
Assume someone with a biology PhD explained to you that the sky was actually purple because of a hidden extra cone your eye possesses that was perceiving light that your brain was canceling out. This somehow sounds plausible, and it's impossible for non biologist me to disprove but at the end of the day I can look up at the sky and say"no, I'm confident it's blue". This is MMT. MMT says: "government debt isn't really debt and acquiring massive amounts of it that can never be payed off wont ever have consequences because of x, y, and z mental gymnastics". You don't need a PhD in economics or to be able to disprove everyone one of the Arcane mental gymnastics performed to understand that "government debts are real and they can have consequences". You don't need any special economic training to understand that if you owe someone money, then next month you have a bit less money because you have a debt payment. There are a million caveats, and fifty people with 10$ words that you can't argue because you don't know what they mean because they don't mean anything will explain to you why you are the dumbest person on the planet for believing that "government debts are real and they can have consequences". It's ok though because you can look up at the sky and know what color it is. (don't take the sky example too literally, i know it doesn't really make sense).
- JamesBarney 8y ago
  > You don't need any special economic training to understand that if you owe someone money, and you can't pay it back, it might not end that well Not such a big deal if you own a money printing machine.
- tristram_shandy 8y ago
  The point is that the government doesn't need to borrow any money in the first place. The government needs money only to buy the goods and services of the private sector in the service of the public interest. There is no other utility for money in the modern state. The government no longer needs to keep stocks of gold, the government can create "digital gold" as needed. Recall why the government needs to print money: because money is an abstraction, a fungible token that represents a constant fraction of the total real wealth in the the entire economic system. If we keep producing more goods and services, but don't produce more money, we enter deflation. To avoid deflation, the government needs only to ensure that the amount of money in circulation increases in line with any increase in economic output. As long as this is managed proficiently, the economic system will be stable. The government increases the amount of money in circulation by purchasing goods and services from the public. To this end, the government can offer citizens money in exchange for labour that serves the public interest and fulfill both its economic and pro-social obligation. What's the point of the government creating these abstract value tokens, giving them to us, and then demanding them back? And furthermore, why does the government need to borrow arbitrary amounts of similar tokens from other governments? It doesn't. Our current system is a relic from the days of governments using a limited, fungible, physical resource (gold) which didn't linearly scale with economic growth. The government no longer needs to borrow tokens, it needs only to create more of them, and should only occasionally need to remove tokens from circulation (taxation) as a way to account compel pro-social behaviour -- e.g. carbon emission taxes.
rafiki6 8y ago
Ugh...it seems that no one in the media actually understands what MMT is saying and what's underpinning it. http://www.levyinstitute.org/publications/modern-money-theory-101 http://www.levyinstitute.org/publications/modern-money-theor... MMT isn't actually proposing anything, but rather is simply explaining how money in the modern economy of a country like America, who's currency is a fiat currency and effectively underpins the currencies of many other much smaller economies, behaves. That's all it does. In essence, conclusions can be drawn about government debt from this. Politicians are doing this. MMT scholars and economists happen to agree with them because of what MMT shows. Scientifically or rather economically, MMT isn't much different from something like the Credit Theory of Money, in that all it's attempting to do is explain the real behavior of money as opposed to the fiction we create about money in order for our society to function. MMT does develop this idea of a deficit dove vs. deficit owl, which is where all of this comes from. If you read the article I linked above, you'll see that MMT is mostly focused on deficit spending during a recession.
- apo 8y ago
  From the introduction of that paper: One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints. Not only can they issue their own currency2 to meet commitments denominated in their own unit of account, but also any self-imposed constraint on their budgetary operations can be by-passed by changing rules. As such, this type of government is not financially constrained in the way that non-sovereign units are, so that it can focus on issues such as full employment and price stability. This reads very much like the articles on MMT that I've been seeing. Explaining why "monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints" seems a lot like a green light for deficit spending. Maybe not advocacy, but something that will be used by advocates. I see it as similar to the way a research article might say that leafy green vegetables are good for you without telling you to eat them. Later, the article continues: "... All these institutional and theoretical elements are summarized by saying that monetarily sovereign governments are always solvent, and can afford to buy anything for sale in their domestic unit of account even though they may face inflationary and political constraints." Saying a company is solvent to buy another doesn't mean that the writer is advocating the purchase, but it may be used by board members advocating the purchase. Theories never advocate, they attempt to summarize a model of how something works. Unfortunately, the model that MMT describes ignores very important details, such as the way that the implosion of debt-fueled asset bubbles interact with political systems to cause further bubbles.
apo 8y ago
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. Today's inflation manifests itself, not in consumer price increases, but in asset bubbles. Asset bubbles always pop, usually uncontrollably. The last major asset bubble nearly took out the US economy with it. The next one may finish the job. Debt matters because the only politically palatable cure for the aftermath of a debt-fueled bubble is more debt. And more bubbles.
maerF0x0 8y ago
> 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. IMO this is a failing assumption that is designed to benefit politicians who make entitlement promises in the future (you can use inflation to undermine the truth of those promises)... While thrift may initially lead to a stutter/halt in the economy, eventually people will get desperate enough to work for less or products will devalue to lower prices, debtors will accept lower interest rates or even less than principal. I have long felt that America needs a strong depreciation period so that worker's wages can fall to reasonable values in the world wide scene. (The only reason a living wage is $15 an hour is because so is the price of a burrito w/ tip) ...
- mattmcknight 8y ago
  In addition, like most half-baked economic insights, it considers the economy of a country a closed system, as if other countries don't exist to buy products when prices fall.
User23 8y ago
MMT has been getting a lot of press lately. I wonder what submarine[1] is responsible? Here's the thing: MMT isn't a policy position. It's simply an attempt to accurately describe how the monetary system actually works from an operational perspective[2]. It was a reaction against the Krugmanite nonsense that has no basis in reality and describes the activities of no market practioners. Anyone curious should read the linked primer, but the core principle of MMT is that Taxes drive the value of money. The sovereign's power to impose taxes that can only be paid in the sovereign's liabilities creates an intrinsic demand for those liabilities, which is to say money. Even the gold standard worked this way. The government used to print gold certificates and use those to buy bullion from miners! And of course gold certificates were accepted to extinguish tax liabilities. That said, a number of MMT theorists are in fact politically liberal and believe that the government should use its monetary sovereignty to interfere more in the economy. It's valid to object to claims like "every dollar of spending has to be funded by a dollar of taxes" because they are observably false. But you could be a hard money conservative goldbug and MMT would STILL be a theoretically valid understanding of how money works. The theory correctly describes the consequences of using a currency the sovereign cannot issue, be it gold, or another sovereign's liabilities. One area where MMT does hand-wave a bit is on the importance of business investment in creating additional demand for the sovereign's liabilities. While from an authoritarian perspective the power to tax and imprison suffices to create demand for sovereign liabilities, in terms of having a society that isn't awful to live in it's really nice to have lots of businesses doing interesting things that can be paid for with those sovereign liabilities too. I suspect this is partially why proponents of the theory are so bullish on the sovereign controlling more of the economy, they fail to adequately consider the indirect consequences. Or they simply don't care or even consider a command economy a feature rather than a bug. I don't know. So, please, don't confuse the factual descriptive theory with the subjective policy recommendations some people attempt to justify with that theory. The theory can only describe what government CAN do. What government SHOULD do is not dictated by MMT. Edit: I discovered MMT during the first Greek debt crisis when lots of economists were going on about how America was going to be the next Greece. Farcical, but I guess it got clicks? This[3] is a nice overview of why the USA isn't like Europe. Of course this isn't really news, since Wynne Godley described the problem in 1992[4]. [1]http://paulgraham.com/submarine.html http://paulgraham.com/submarine.html [2]http://neweconomicperspectives.org/modern-monetary-theory-primer.html http://neweconomicperspectives.org/modern-monetary-theory-pr... [3]http://neweconomicperspectives.org/2011/09/mmp-blog-16-unusual-case-of-euroland.html http://neweconomicperspectives.org/2011/09/mmp-blog-16-unusu... [4]https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-all-that https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-al...
conanbatt 8y ago
Im surprised that nobody mentions that the core communicational message has been done before: Milton Friedman always said that deficits are not a problem, because you can print them away. He would then continue: "The problem is spending, thats what you have to cut". (MMT, however, took the exact opposite stance). Just modern keynesians wanting to confiscate savings somehow, and what better way than to print money. But even then, MF would say "You print money, reduce your deficit and your currency devalues to match your import/export". MMT has less weakness in inflation as it has in the exchange value of the dollar. You dont want to mess the dollar value because it might take away its role as a world reserve currency, meaning everything gets way more expensive for the us if that happens.
AnimalMuppet 8y ago
So if I understand correctly, MMT says that, when the economy has slack (and therefore unemployment) in it, the government should print money to buy stuff until inflation appears, and then should collect taxes to quench inflation. I see three problems - two major and one minor. First, spending and taxes are controlled by Congress. MMT would therefore ask Congress to manage the economy. That seems like an incredibly bad idea. If you think Congress has done a good job of running the rest of the country, it might sound reasonable. But given Congressional approval numbers, nobody actually thinks that. Second, this assumes that following this approach will get us to full employment at the same time or before it gets us to inflation. That sounds reasonable... but what if it's wrong? What if, say, the constraint on the economy is physical stuff rather than people? We might be able to have the government hire people to do jobs that don't require any stuff... if they're watching for this kind of problem and respond appropriately. Again, though, it's Congress that's going to be controlling this. Do you really trust them not to mess it up? Third, a minor note: When inflation starts, shut of the spending, don't just raise taxes. Otherwise, you have the economy hitting the limits, government using a lot of the output of the economy, and what's left for the non-government getting taxed. It would be better for the government to release some of the resources that it's using, and if inflation continues, then tax.
- bubbleRefuge 8y ago
  Mostly the economy has built in automatic stabilizers such as unemployment compensation. Recession = less tax receipts = more unemployment, food stamps, etc = bigger deficits untill the deficits are big enough to stimulate growth again. It would be good to get rid of the debt ceiling which is a ridiculous prop. Congress can do that. Secondly it would be good to give the federal reserve or other independent policy makers the ability to control payroll taxes to stabilize the economy in a pro-cyclical fashion. When the economy is booming, and we want to curtail inflation , increase payroll taxes, when the economy soft, lower payroll taxes.
nonbel 8y ago
MMT = next step to hyper-inflation of the USD Do people really disagree with this?
harekaze 8y ago
I found a critique of MMT, by another (seemingly) heterodox economist, which outlines the difference between MMT and some superficially similar heterodox perspectives. It worths a read, in my opinion. https://sovereignmoney.eu/modern-money-theory-revisited https://sovereignmoney.eu/modern-money-theory-revisited
teslaberry 8y ago
hilarious remy. you younguns cannot even remember 8 years ago. the answwer is ALWAYS PRINT MORE MONEY BABY!!!! PRINT WEALTH!! https://www.youtube.com/watch?v=EoS52fVtVQM https://www.youtube.com/watch?v=EoS52fVtVQM
teslaberry 8y ago
Print THE MONEY , PRINT THE WEALTH! BEST RAP EVER. https://www.youtube.com/watch?v=EoS52fVtVQM https://www.youtube.com/watch?v=EoS52fVtVQM
dimitar 8y ago
MMT is neither modern (its basically Abba Lerner's "functional finance" from the 40s), nor it's even a coherent theory. MMT fans don't like to draw up models that can be understood by other economists. With functional finance you knew exactly where Lerner stood and his claims were challenged with real-world data and the theory faded with relevance. With MMT if you try to challenge them in any way they will claim that they are misunderstood - the "not a true Scotsman fallacy". This is why MMT is ignored in most academic circles - it doesn't bring anything new, and neither it does in a scientific way and understandable way. There is also the question of politics - there is a perception that mainstream economists are right wing that is why somw turn to "heterodox" economics. Of course this is non-sense, and mirrors libertarian obsessions with Austrian school economists. Mainstream economics can inform both left-wing and right-wing policy making, just fine.
elamje 8y ago
It seems that the risk here is more of the perception flavor. That is, the strength of the USD, has a lot more to do with peoples perception of the USD. Similar to how the stock market reacts psychologically to perceived changes in companies management or performance, the USD, could easily be under the same influence - only staying stable as long as it has because Americans and foreigners view the Dollar as “safe”. Considering most people don’t look into underlying phenomena, but tend to rely on surface level notions like governments printing money as needed = bad, I would say the public perception of the usd could go south. No one, to my knowledge, has ever been taught that a government should print money as it needs. If no one believes that is a good thing, then people will lose confidence in the USD as a store of value, which is when inflation starts to get out of control.

159 points by uptown 8y ago

It seems obvious once you think about it that at the federal level taxes don't pay for spending. The fed can print as much money as it wants. Taxes only serve to remove excess cash from the economy and keep inflation down.

ip26 8y ago
Or, even more abstractly, they serve as an alternative to inflation, which devalues money indiscriminately. Printing money and taxation both transfer value to the fed; but the latter can be crafted & targeted while the former cannot. In practice perhaps the most significant realization of this is that inflation is a tax on wealth while our system today is mostly a tax on income.
- vanterdon 8y ago
  Your last point is a great one and reflects the economic literature on the subject in that inflation is effectively a tax on money holdings.
hackeraccount 8y ago
Eh, is that obvious? In some sense I don't pay for a burger with money from my job. I use my credit card to pay for burgers. So it's like I just print the money I need. Of course none of that is true. The fed could in theory print all the money it wants just like I could I theory borrow all the money I want. Both of us realize that there's a limit to how far that can take us.
sdfin 8y ago
Look at Argentina: there is a very high inflation, and also there are very high taxes. I mean that what you mention does not look obvious to me, as you can reach a point where even very high taxes cannot counter inflation.
- conanbatt 8y ago
  I generally agree, but take Argentina with a grain of salt. It is an exceptional economic case on any and all measures.
conanbatt 8y ago
Its one way of doing it, but think that tax policy you can control: you can make it progressive, or give credits, or do something else. Printing money affects all the currency, and has uneven effects of all kinds, including favoring the banking sector the most.

crdoconnor 8y ago

>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 That's not in the slightest bit surprising. Larry Summers instinctively sides with the large banks and has essentially built an entire career off that. He was also one of the advisors to the Soviet Union breakup who told them how to privatise in such a way that oligarchs captured most of the wealth.

bryanlarsen 8y ago

another primer: https://www.bradford-delong.com/2019/01/what-is-modern-monetary-theory.html https://www.bradford-delong.com/2019/01/what-is-modern-monet...

peisistratos 8y ago
The chart in the Bloomberg article is pretty great. Delong is left-leaning by the way, meaning not just conservatives see this as nutty. Left leaning Paul Krugman sees MMT as nutty https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wonkish.html https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wo... Even further left, Doug Henwood is down on MMT https://www.jacobinmag.com/2019/02/modern-monetary-theory-isnt-helping https://www.jacobinmag.com/2019/02/modern-monetary-theory-is... It's not just conservatives who are down on this. Left and center-left economists see MMT as wishful thinking.

p_roz 8y ago

It’s immediately obvious that increasing the money supply and spending the money will result in inflation. MMT says that the only constraint on spending is inflation, but also turns around and says that you can always print more money. That’s a contradiction. Printing more money does not change the real wealth in the economy. You can’t create additional purchasing power with an increase in the money supply because prices will adjust to the new level.

klaudius 8y ago
Yes, but you can steal by diluting the value of existing money.
- SubiculumCode 8y ago
  You do not own the value of the dollar you hold in your hand...you just own the IOU. The value of the dollar is what other people deem it to be worth, and you cannot own that. If I have a car, I own the car. If you break in and steal the car, then you have stolen from me. But if the car company that produced the car decided to overproduce so that there is an excess used car supply in the market (lowering prices), well sorry friend, but the car company didn't steal from you.
brianjcohen 8y ago
> MMT says that the only constraint on spending is inflation, but also turns around and says that you can always print more money. That’s a contradiction. The article follows that up by saying: >> 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 later on: >> To stabilize employment, MMT would add a federally funded, locally administered job guarantee. Government would employ more people in slumps than in booms. So I think the idea is that MMT recognizes that inflation would indeed occur if you kept printing money without a demand for that money, which they say will be supplied by government-sponsored full employment. What I don't understand is: is there a situation in which full employment has already been achieved and the government just keeps printing money for new initiatives, and we're back to inflation?

Proven 8y ago

Completely crazy. Ten years of QE produced nothing, so we need to try harder. MMT and Unveraal Basic Income - that will like totally save us, dude!

currymj 8y ago

The mainstream way of thinking says "the government must tax in order to spend" whereas MMT says "if the government wants to spend it will have to tax".

jonahhorowitz 8y ago
I think it's more "the government must spend to be able to tax"?
- doppelganger27 8y ago
  I'm no expert on this, but I think that wording suggests that the government's goal is to tax, but it seems to me that a government really wants to spend. My understanding of MMT is that it removes the direct relationship between the ideas of spending and taxation, instead tying them both to inflation. Spending increases inflation by adding currency into circulation, and taxation decreases inflation by removing it from circulation. Although I'm not sure how that fits into a one-liner :)
  - chombier 8y ago
    Government also needs to tax to ensure sufficient demand for its money ("taxes drive money")

ThirdFoundation 8y ago

A fear of mine is that MMT gains enough traction to be implemented, but only partially. Similar to what has happened with the ACA. For argument's sake, let's just assume MMT is a sound theory. Regardless, if it's only half-implemented -- without all components for regulating taxes, inflation, and spending -- it could be an absolute disaster. Additionally, there are concerns about having the government itself involved with regulating inflation and business cycles. An independent Fed, at least in theory, allows for the fed to take a longer view of the economy even if politicians have incentives to care only about the next election cycle. All it would take is one conservative majority congress to semi-dismantle any MMT mechanism and completely mess up any "controls" put in place by MMT proponents. That being said, it is refreshing to have different ideas being taken seriously enough to enough mainstream conversation. I don't think the field of economics is "solved" (probably far from it) so I think good ideas that challenge the status quo are generally good.

mdparker89 8y ago
I see this problem with a lot of big policy. It's sold as a rewrite when in practice it has to be implemented as an incremental refactor. The two have different implications and trade offs. A partial rewrite is often the worst place to end up.
thadjo 8y ago
I'm not sure if you need all of the parts in place to see if / how it works. The fed could start offsetting deficits to the tune of $100B to the treasury and see how the USD, bond markets react. If inflation goes up, it could in theory, be offset with a tax scheme inline with MMT. I'm not saying this would be terribly smooth, but I do think it is possible to test parts MMT in relative isolation.
iooi 8y ago
For what it's worth, the ACA was pretty successful before it was slowly gutted by the current administration. Around 12M people signed up at its peak. Generally, incremental changes are better than a "perfect" solution that comes in a lot later.

SubiculumCode 8y ago

That was refreshingly NOT a hatchet job article on MMT...meaning it didn't wildly misrepresent MMT.

0815test 8y ago

Relevant: https://www.themoneyillusion.com/mmt-explained/ https://www.themoneyillusion.com/mmt-explained/ (This is a post by Scott Sumner, who is also quoted near the beginning of this article. His earlier post is at https://www.themoneyillusion.com/wrong-in-a-very-confusing-way/ https://www.themoneyillusion.com/wrong-in-a-very-confusing-w... and is also worth reading for context.)

deleted 8y ago

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mdo123 8y ago

You can debate inflation, but does anyone really expect our government to do the right thing when it comes to spending and taxation?

jimbo507 8y ago

vasilipupkin 8y ago

Macroeconomics is a sufficiently complex topic that trying to understand it or discuss it at a "beginner level" is almost pointless. At that level, all you need to know is that any theory that promises some certain knowledge of what's going to happen if this or that happens and that it's all very simple, is almost certainly wrong.

jonny_eh 8y ago
It doesn't promise certainty, it just points out that certain levers may be connected in ways we didn't realize.
tchaffee 8y ago
> trying to understand it.. at a "beginner level" is almost pointless. Starting at the beginner level is where everyone starts when they want to learn something. By definition. Hardly pointless.
- vasilipupkin 8y ago
  it's pointless if the plan is to learn at beginner level and stop there and then believe that you have a reasonable level of understanding to formulate opinions. If the plan is to learn it at the beginner level in order to keep learning and get to advanced level, then I agree it's not pointless

jimbo507 8y ago

mmmmmmmm MMT! Finally some sensible financial policy. Did the New Deal result in inflation? Did the Wall St bailout result in inflation? Does productive investment, private or public, result in inflation? Why do we care so much about inflation?.... oh yea, because it spooks bondholders! Boohoo - 'en marche MMT!' I think we obsess over inflation because it's an elite creditor concern, so it dominates headlines - but the real economic killer is deflation, when the population's debt grows and eats away their purchasing power....

mason55 8y ago

I was surprised to see a reference to "loans create deposits" in this article. I thought that concept was very well accepted and wouldn't have considered it to be part of MMT? Is the MMT part of this just that it also applies to the Treasury/Central Bank relationship and not just retail banks? > 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.

holymacaral 8y ago
A lot of MMT is just restating things Keynesians and Austrians already know and pretending it's some brilliant idea. For instance, they think it's a big breakthrough that the government can pay down debt by issuing more currency. We already know the government can do this, and we also know why it's a bad idea.
- CPLX 8y ago
  > we also know why it's a bad idea Do tell.
  - holymacaral 8y ago
    Countries can and have defaulted on debts issued in their own currencies. If you printed your way out of debt that would be a default in all but name. You would cause a collapse of credit and a collapse in confidence in the currency itself.
    - CPLX 8y ago
      > Countries can and have defaulted on debts issued in their own currencies. Really? How? > If you printed your way out of debt that would be a default in all but name. Oh, right, actually they don't. So in fact it is actually impossible to default on debt in your own currency and you're admitting as much. > You would cause a collapse of credit and a collapse in confidence in the currency itself. Right. And a reduction of value of a currency is also called inflation. Which is pretty well accounted for within the discussion.

holymacaral 8y ago

MMT is a rationalization for unlimited spending & economic control. Do you really think AOC, Warren, Sanders actually understand the theory of MMT which they advocate (if not by name)? The MMT theorists began with the conclusion they wanted and concocted a theory to get there. This is policy shaping theory at its finest.

airstrike 8y ago
It's also such a disingenuous name – "modern" monetary theory. To the layman, it automatically reads like a new and improved understanding of Economics, when in reality it's just another theory, and not even a very mainstream one at that.
- chombier 8y ago
  It started as a joke. It's called "modern" because it only applies to the past 4000 years. https://www.nakedcapitalism.com/2018/10/randy-wray-modern-monetary-theory-came-mmt-include-mmt.html https://www.nakedcapitalism.com/2018/10/randy-wray-modern-mo...
  - airstrike 8y ago
    That might very well be an interesting bit of trivia but it doesn't make it less disingenuous
kaycebasques 8y ago
Based on the names that you supplied, I'm guessing that you assume that MMT is a left-wing idea. I think the bigger reason to pay attention to it is because it has support on both sides of the American political spectrum. Read The Macro Tourist's post [1] for a pragmatic trader's take on the matter. He also suggests that Trump is already an implicit proponent of MMT, what with his increased spending and decreased tax revenue. [1] https://www.themacrotourist.com/posts/2019/01/23/mmt/ https://www.themacrotourist.com/posts/2019/01/23/mmt/
- 8y ago

erentz 8y ago

Probably dumb question: if debt and deficits don’t matter and a country can just print money - how does that explain cases where countries have defaulted and other countries and their own citizens lose confidence in the currency? I also don’t understand how the jobs guarantee is supposed to work. Presumably if we had work to be done we would have open positions for it. Now we have to magic up jobs, which means diluting jobs other people currently do and the income the currently derive from it, or make pointless “dig and fill” hole jobs. Won’t all this just make everything a hell of a lot less efficient? And won’t it worsen potential economic recovery? You’re depriving potential new industries or business from labour because that labour is working for the government. You’re also preventing government departments (or wherever those jobs go) from improving their own services. To pick a historical example, instead of moving to computerizing records taking away jobs it would now be necessary to continue to do things on a typewriter because you need to keep the jobs. This in turn removes money flowing from the government to computer industry, which helps to drive up and develop whole new businesses and industry that drive the economy. That is, is there not a risk that the way the jobs guarantee is described as helping during the downturns could actually hinder recovery and development of new industry? OTOH why I like UBI is it still leaves all those incentives to do new things in place.

ergothus 8y ago
> Presumably if we had work to be done we would have open positions for it. I don't follow the presumption. There's no shortage of work out there to be done, we just don't have the means to PAY for it under the current system. Now, you might not think MMT does either (in real terms), but the world is NOT short of work to be done. > Now we have to magic up jobs, which means diluting jobs other people currently do ...which doesn't follow if your first point fails.
- erentz 8y ago
  > There's no shortage of work out there to be done Ok, I have to agree with this to a certain point as it’s an argument I find myself making in change resisting organizations. But the implication here is that there will always be no shortage of low end minimum wage work and that the best way to discover and assign that work is via a centralized means. So with a jobs guarantee we have to invent a government system that identifies and assigns jobs that need doing in an efficient manner. No one has done that yet. > which doesn't follow if your first point fails. I’m not sure it’s entirely failed. Because although the ideal is “there is always more work you can shift to once this job is done” that is simply not what happens in practice. People and organizations don’t behave that way. Try working in an organization facing disruption, or an old developing world government department where people rely on it for their job, etc. It is full of resistence to anything that might put at threat peoples jobs. I’ve worked at places as recently as 2010 that still had telex operators who came to work and sat their doing nothing all day because the telex systems had been decommissioned. This is what you get with jobs guarantees.

the_optimist 8y ago

A credentialed economist should put a stake through the heart of the heart of MMT. Two simple critiques: 1) Relative to a financial statement (i.e. budget), it is difficult to predict and measure inflation. This difficulty lowers the likelihood of government fiscal responsibility and increases the likelihood of devestating inflation. 2) A basic second-order effect: What happens when people realize transfer medium is being debased? They'll obviously try not to store value in that transfer medium. How will volatile inflation affect the use of the transfer medium? Why wouldn't users switch to a better store of value, like every single developing market that has ever lost control of its currency? I am embarrassed for profession of economics that MMT is being entertained as a viable "new-old idea." Of course the government can debase the numéraire of the economy. Obviously, doing so transfers value from non-government to the government similar to taxation. The financial statement of the economy has to balance. This is merely a backdoor way of transferring assets in a deeply unaccountable way.

thadjo 8y ago
> This difficulty lowers the likelihood of government fiscal responsibility and increases the likelihood of devestating inflation. I share this worry too, but it's not like there's currently any political appetite for fiscal responsibility. I wonder if the threat of inflation and currency volatility would actually serve as better stick, than what we currently have which is continuing to run up a massive debt which will be terrible for our children?
mason55 8y ago
Right, it seems like the problem is more political than economic. Point 2 obviously flows from point 1, so the argument is whether point 1 is valid or not. In theory there might be viable ways to control inflation via taxes and other ways of soaking up extra money supply that's created by printing/spending. The implementation will be difficult though, especially if it's driven by a political process. Even if you initially start with something that has all the correct automatic adjustments built in (assume this is possible), there's always the risk that a new gov't breaks it. I think that for a change in paradigm like this to be successful you'd need stronger guarantees that things would stay in place long term (similar to UBI actually).

throwawaysea 8y ago

It occurs to me that the primary motivation for politicians to give MMT any attention is because it ostensibly enables their otherwise impractical spending plans, due to the scale of spending proposed in policies like Medicare for All (M4A) or Green New Deal (GND). The interpretation undertaken by these politicians is frightening, at least to me, since it seems like spending that is unchecked. I can't help but think that rather than starting with a principled look at macroeconomic theory, this is really just politicians figuring out which theory or economic "camp" enables them, and then throwing their weight behind it. In today's age of populism both on the left and right of the American political spectrum, I am extremely wary of proposals for such widely-scoped and fundamental changes to be undertaken just because they have received wide attention very recently. After all, MMT is not new - it is a rehash/repackaging of principles that have been studied in economic theory before.

40acres 8y ago

I think MMT is an interesting school of thought because the economy has been reacting in a way contrary to what the data suggests. We're in the tenth year of an economic expansion and wages are only just starting to increase -- and at a modest pace at that. The amount of inequality in our economy is not accurately represented in GDP or unemployment. You would think inflation would perk up this long into an expansion but since most of the gains have gone to the wealthy (who don't spend as much as their income as normal folk) the economy is not as dynamic as we thought it would be. Even with the recent tax cut the economy is only growing at 3%. Combine these factors with the fact that there are at least three huge areas for government investment: health care, renewable energy, infrastructure. If you believe climate change is an existential threat to our society -- does it matter that we have a balanced budget while we try to tackle it? Especially if recent trends suggest that massive deficit spending WILL NOT cause an inflation catastrophe?

mindslight 8y ago
> You would think inflation would perk up this long into an expansion but since most of the gains have gone to the wealthy (who don't spend as much as their income as normal folk) the economy is not as dynamic as we thought it would be This is exactly what happens when new money in injected at exclusive points. The upper class accumulates ever more financial power, while the lower class is kept fighting over the scraps. An amount that could be a major life changing expense for most of the country is presently a throwaway gadget purchase for someone working for the banksters in NYC or the surveillance industry in SF. Financially, MMT is analogous to a kid not being stopped for taking money from their parents' wallets to buy candy, so they move on to taking larger sums - whether this is actually a problem entirely depends on how much their parents make. Financial deficits only work as long as they do not undermine faith in the issuer. For the US, this effectively based on energy (historically including Saudi Arabia) and military might. "Withdraw" at a rate faster than "depositors" will tolerate, and faith in greenbacks will collapse. MMT is especially ironic because it's gaining political support in the name of "going green". But it's actually the same vein of consumerist greenwashing as that "third R" - recycling. Heating up the economy fundamentally causes more crap to be produced ("full employment" !). If you want to conserve earth's natural resources and leave that carbon in the ground, support simply letting natural deflation actually occur. I will say however, that if MMT can end up justifying an alternative to just dumping most of the consumer-bound printed money into the housing sector, that alone could be a great thing.

hackeraccount 8y ago

MMT seems to me like a plea to politicians to get rid of the independent federal reserve. MMT would create a situation where the goals of the Federal government and the Federal Reserve would be in direct conflict. I have no doubt that Federal Reserve would lost such a conflict but we'd all be worse off.

deleted 8y ago

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iooi 8y ago

Recently a younger friend realized that if they wanted to major in Economics, the only option at most schools is a B.A. instead of B.S. At first I thought it was a bit dramatic for schools to differentiate that specific field so much, since I would think it belongs firmly with other STEM fields, but it's definitely the right call. That such a basic question like how inflation is created (is it when you print the money, or when that money is spent) is still a topic being debated really makes you want more from the field. Is there really no way to experimentally test these questions?

karl11 8y ago

To anyone who hasn’t been totally brainwashed yet one way or the other, a great piece of writing on MMT: https://www.epsilontheory.com/modern-monetary-theory-or-how-i-learned-to-stop-worrying-and-love-the-national-debt/ https://www.epsilontheory.com/modern-monetary-theory-or-how-...

identity_zero 8y ago

The Bitcoin community ironically supports MMT in order to accelerate the decline of traditional financial institutions. I can't believe people take MMT seriously.

mikhailfranco 8y ago

1. Inflation favors debtors over creditors. 2. Inflation is caused by printing money. 3. Governments can print money. 4. Governments are debtors. Guess what happens next ...

imtringued 8y ago
5. Government increases taxes to curb inflation.

patfla 8y ago

The economy is like an (enormous) electrical circuit with, crucially, non-linear elements. Mainstream macroeconomics models that poorly which we've seen well demonstrated over the last 10 yrs although there were earlier demonstrations, e.g. stagflation in the 1970's. MMT, while as the article indicates heavily politicized, adds, I think, some insights. For one, money is not exogenous. That is, it doesn't come only from the Fed, banks also in effect create money when they write new loans. Also, what are savings (not necessarily a question raised by MMT)? They're an accounting identity in mainstream macro and supposedly investment = savings. Too simple. Why is there a 'savings glut' in E Asia at the same time that investment in China is remarkably high? And so it goes. Some steps forward, how many back - don't know but the article does demonstrate just what a political football MMT has become - I'm sure AOC is great but I'm not sure she's an expert in economics. I'd like to see a better theory of non-linear dynamics in economics. The non-linear elements are basically feedbacks where feedbacks allow components of systems to adjust more quickly to changes elsewhere in the system. A forest fire (speaking metaphorically) clears an area of land? The first species to recolonize the land are those that get there quickest. You need to be quick when opportunity arises and feedbacks jumpstart you. To go back to the electrical circuit - have we even adequately characterized the components (resistor, capacitor, etc.) that go into making up an economic electrical circuit? Also as regards China. China accedes to the WTO in 1999 and only 8-9 yrs later (2007-2008) the circuit blows itself out. Add a huge new power source without compensations elsewhere in the circuit and it will likely fry itself and here we are more than 10 yrs later with the smoldering wreckage still visible. Although if you've come of age in the last 10 yrs, this might not be visible to you. An interesting thing to study is global capital flows - something like the electricity of the system. There was something somewhere where Joseph Stiglitz said: we need a better theory of finance. That is, we really don't know how this shit works.

anm89 8y ago

Assume someone with a biology PhD explained to you that the sky was actually purple because of a hidden extra cone your eye possesses that was perceiving light that your brain was canceling out. This somehow sounds plausible, and it's impossible for non biologist me to disprove but at the end of the day I can look up at the sky and say"no, I'm confident it's blue". This is MMT. MMT says: "government debt isn't really debt and acquiring massive amounts of it that can never be payed off wont ever have consequences because of x, y, and z mental gymnastics". You don't need a PhD in economics or to be able to disprove everyone one of the Arcane mental gymnastics performed to understand that "government debts are real and they can have consequences". You don't need any special economic training to understand that if you owe someone money, then next month you have a bit less money because you have a debt payment. There are a million caveats, and fifty people with 10$ words that you can't argue because you don't know what they mean because they don't mean anything will explain to you why you are the dumbest person on the planet for believing that "government debts are real and they can have consequences". It's ok though because you can look up at the sky and know what color it is. (don't take the sky example too literally, i know it doesn't really make sense).

JamesBarney 8y ago
> You don't need any special economic training to understand that if you owe someone money, and you can't pay it back, it might not end that well Not such a big deal if you own a money printing machine.
tristram_shandy 8y ago
The point is that the government doesn't need to borrow any money in the first place. The government needs money only to buy the goods and services of the private sector in the service of the public interest. There is no other utility for money in the modern state. The government no longer needs to keep stocks of gold, the government can create "digital gold" as needed. Recall why the government needs to print money: because money is an abstraction, a fungible token that represents a constant fraction of the total real wealth in the the entire economic system. If we keep producing more goods and services, but don't produce more money, we enter deflation. To avoid deflation, the government needs only to ensure that the amount of money in circulation increases in line with any increase in economic output. As long as this is managed proficiently, the economic system will be stable. The government increases the amount of money in circulation by purchasing goods and services from the public. To this end, the government can offer citizens money in exchange for labour that serves the public interest and fulfill both its economic and pro-social obligation. What's the point of the government creating these abstract value tokens, giving them to us, and then demanding them back? And furthermore, why does the government need to borrow arbitrary amounts of similar tokens from other governments? It doesn't. Our current system is a relic from the days of governments using a limited, fungible, physical resource (gold) which didn't linearly scale with economic growth. The government no longer needs to borrow tokens, it needs only to create more of them, and should only occasionally need to remove tokens from circulation (taxation) as a way to account compel pro-social behaviour -- e.g. carbon emission taxes.

rafiki6 8y ago

Ugh...it seems that no one in the media actually understands what MMT is saying and what's underpinning it. http://www.levyinstitute.org/publications/modern-money-theory-101 http://www.levyinstitute.org/publications/modern-money-theor... MMT isn't actually proposing anything, but rather is simply explaining how money in the modern economy of a country like America, who's currency is a fiat currency and effectively underpins the currencies of many other much smaller economies, behaves. That's all it does. In essence, conclusions can be drawn about government debt from this. Politicians are doing this. MMT scholars and economists happen to agree with them because of what MMT shows. Scientifically or rather economically, MMT isn't much different from something like the Credit Theory of Money, in that all it's attempting to do is explain the real behavior of money as opposed to the fiction we create about money in order for our society to function. MMT does develop this idea of a deficit dove vs. deficit owl, which is where all of this comes from. If you read the article I linked above, you'll see that MMT is mostly focused on deficit spending during a recession.

apo 8y ago
From the introduction of that paper: One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints. Not only can they issue their own currency2 to meet commitments denominated in their own unit of account, but also any self-imposed constraint on their budgetary operations can be by-passed by changing rules. As such, this type of government is not financially constrained in the way that non-sovereign units are, so that it can focus on issues such as full employment and price stability. This reads very much like the articles on MMT that I've been seeing. Explaining why "monetarily sovereign governments1 have a very flexible policy space that is unencumbered by hard financial constraints" seems a lot like a green light for deficit spending. Maybe not advocacy, but something that will be used by advocates. I see it as similar to the way a research article might say that leafy green vegetables are good for you without telling you to eat them. Later, the article continues: "... All these institutional and theoretical elements are summarized by saying that monetarily sovereign governments are always solvent, and can afford to buy anything for sale in their domestic unit of account even though they may face inflationary and political constraints." Saying a company is solvent to buy another doesn't mean that the writer is advocating the purchase, but it may be used by board members advocating the purchase. Theories never advocate, they attempt to summarize a model of how something works. Unfortunately, the model that MMT describes ignores very important details, such as the way that the implosion of debt-fueled asset bubbles interact with political systems to cause further bubbles.

apo 8y ago

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. Today's inflation manifests itself, not in consumer price increases, but in asset bubbles. Asset bubbles always pop, usually uncontrollably. The last major asset bubble nearly took out the US economy with it. The next one may finish the job. Debt matters because the only politically palatable cure for the aftermath of a debt-fueled bubble is more debt. And more bubbles.

maerF0x0 8y ago

> 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. IMO this is a failing assumption that is designed to benefit politicians who make entitlement promises in the future (you can use inflation to undermine the truth of those promises)... While thrift may initially lead to a stutter/halt in the economy, eventually people will get desperate enough to work for less or products will devalue to lower prices, debtors will accept lower interest rates or even less than principal. I have long felt that America needs a strong depreciation period so that worker's wages can fall to reasonable values in the world wide scene. (The only reason a living wage is $15 an hour is because so is the price of a burrito w/ tip) ...

mattmcknight 8y ago
In addition, like most half-baked economic insights, it considers the economy of a country a closed system, as if other countries don't exist to buy products when prices fall.

User23 8y ago

MMT has been getting a lot of press lately. I wonder what submarine[1] is responsible? Here's the thing: MMT isn't a policy position. It's simply an attempt to accurately describe how the monetary system actually works from an operational perspective[2]. It was a reaction against the Krugmanite nonsense that has no basis in reality and describes the activities of no market practioners. Anyone curious should read the linked primer, but the core principle of MMT is that Taxes drive the value of money. The sovereign's power to impose taxes that can only be paid in the sovereign's liabilities creates an intrinsic demand for those liabilities, which is to say money. Even the gold standard worked this way. The government used to print gold certificates and use those to buy bullion from miners! And of course gold certificates were accepted to extinguish tax liabilities. That said, a number of MMT theorists are in fact politically liberal and believe that the government should use its monetary sovereignty to interfere more in the economy. It's valid to object to claims like "every dollar of spending has to be funded by a dollar of taxes" because they are observably false. But you could be a hard money conservative goldbug and MMT would STILL be a theoretically valid understanding of how money works. The theory correctly describes the consequences of using a currency the sovereign cannot issue, be it gold, or another sovereign's liabilities. One area where MMT does hand-wave a bit is on the importance of business investment in creating additional demand for the sovereign's liabilities. While from an authoritarian perspective the power to tax and imprison suffices to create demand for sovereign liabilities, in terms of having a society that isn't awful to live in it's really nice to have lots of businesses doing interesting things that can be paid for with those sovereign liabilities too. I suspect this is partially why proponents of the theory are so bullish on the sovereign controlling more of the economy, they fail to adequately consider the indirect consequences. Or they simply don't care or even consider a command economy a feature rather than a bug. I don't know. So, please, don't confuse the factual descriptive theory with the subjective policy recommendations some people attempt to justify with that theory. The theory can only describe what government CAN do. What government SHOULD do is not dictated by MMT. Edit: I discovered MMT during the first Greek debt crisis when lots of economists were going on about how America was going to be the next Greece. Farcical, but I guess it got clicks? This[3] is a nice overview of why the USA isn't like Europe. Of course this isn't really news, since Wynne Godley described the problem in 1992[4]. [1]http://paulgraham.com/submarine.html http://paulgraham.com/submarine.html [2]http://neweconomicperspectives.org/modern-monetary-theory-primer.html http://neweconomicperspectives.org/modern-monetary-theory-pr... [3]http://neweconomicperspectives.org/2011/09/mmp-blog-16-unusual-case-of-euroland.html http://neweconomicperspectives.org/2011/09/mmp-blog-16-unusu... [4]https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-all-that https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-al...

conanbatt 8y ago

Im surprised that nobody mentions that the core communicational message has been done before: Milton Friedman always said that deficits are not a problem, because you can print them away. He would then continue: "The problem is spending, thats what you have to cut". (MMT, however, took the exact opposite stance). Just modern keynesians wanting to confiscate savings somehow, and what better way than to print money. But even then, MF would say "You print money, reduce your deficit and your currency devalues to match your import/export". MMT has less weakness in inflation as it has in the exchange value of the dollar. You dont want to mess the dollar value because it might take away its role as a world reserve currency, meaning everything gets way more expensive for the us if that happens.

AnimalMuppet 8y ago

So if I understand correctly, MMT says that, when the economy has slack (and therefore unemployment) in it, the government should print money to buy stuff until inflation appears, and then should collect taxes to quench inflation. I see three problems - two major and one minor. First, spending and taxes are controlled by Congress. MMT would therefore ask Congress to manage the economy. That seems like an incredibly bad idea. If you think Congress has done a good job of running the rest of the country, it might sound reasonable. But given Congressional approval numbers, nobody actually thinks that. Second, this assumes that following this approach will get us to full employment at the same time or before it gets us to inflation. That sounds reasonable... but what if it's wrong? What if, say, the constraint on the economy is physical stuff rather than people? We might be able to have the government hire people to do jobs that don't require any stuff... if they're watching for this kind of problem and respond appropriately. Again, though, it's Congress that's going to be controlling this. Do you really trust them not to mess it up? Third, a minor note: When inflation starts, shut of the spending, don't just raise taxes. Otherwise, you have the economy hitting the limits, government using a lot of the output of the economy, and what's left for the non-government getting taxed. It would be better for the government to release some of the resources that it's using, and if inflation continues, then tax.

bubbleRefuge 8y ago
Mostly the economy has built in automatic stabilizers such as unemployment compensation. Recession = less tax receipts = more unemployment, food stamps, etc = bigger deficits untill the deficits are big enough to stimulate growth again. It would be good to get rid of the debt ceiling which is a ridiculous prop. Congress can do that. Secondly it would be good to give the federal reserve or other independent policy makers the ability to control payroll taxes to stabilize the economy in a pro-cyclical fashion. When the economy is booming, and we want to curtail inflation , increase payroll taxes, when the economy soft, lower payroll taxes.

nonbel 8y ago

MMT = next step to hyper-inflation of the USD Do people really disagree with this?

harekaze 8y ago

I found a critique of MMT, by another (seemingly) heterodox economist, which outlines the difference between MMT and some superficially similar heterodox perspectives. It worths a read, in my opinion. https://sovereignmoney.eu/modern-money-theory-revisited https://sovereignmoney.eu/modern-money-theory-revisited

teslaberry 8y ago

hilarious remy. you younguns cannot even remember 8 years ago. the answwer is ALWAYS PRINT MORE MONEY BABY!!!! PRINT WEALTH!! https://www.youtube.com/watch?v=EoS52fVtVQM https://www.youtube.com/watch?v=EoS52fVtVQM

teslaberry 8y ago

Print THE MONEY , PRINT THE WEALTH! BEST RAP EVER. https://www.youtube.com/watch?v=EoS52fVtVQM https://www.youtube.com/watch?v=EoS52fVtVQM

dimitar 8y ago

MMT is neither modern (its basically Abba Lerner's "functional finance" from the 40s), nor it's even a coherent theory. MMT fans don't like to draw up models that can be understood by other economists. With functional finance you knew exactly where Lerner stood and his claims were challenged with real-world data and the theory faded with relevance. With MMT if you try to challenge them in any way they will claim that they are misunderstood - the "not a true Scotsman fallacy". This is why MMT is ignored in most academic circles - it doesn't bring anything new, and neither it does in a scientific way and understandable way. There is also the question of politics - there is a perception that mainstream economists are right wing that is why somw turn to "heterodox" economics. Of course this is non-sense, and mirrors libertarian obsessions with Austrian school economists. Mainstream economics can inform both left-wing and right-wing policy making, just fine.

elamje 8y ago

It seems that the risk here is more of the perception flavor. That is, the strength of the USD, has a lot more to do with peoples perception of the USD. Similar to how the stock market reacts psychologically to perceived changes in companies management or performance, the USD, could easily be under the same influence - only staying stable as long as it has because Americans and foreigners view the Dollar as “safe”. Considering most people don’t look into underlying phenomena, but tend to rely on surface level notions like governments printing money as needed = bad, I would say the public perception of the usd could go south. No one, to my knowledge, has ever been taught that a government should print money as it needs. If no one believes that is a good thing, then people will lose confidence in the USD as a store of value, which is when inflation starts to get out of control.