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Asking "can modern monetary theory work" is sort of like asking "can I recreationally use heroin and not get addicted". The answer to both of these questions is

Asking "can modern monetary theory work" is sort of like asking "can I recreationally use heroin and not get addicted". The answer to both of these questions is yes, in theory both are possible. But look at the realities of these situations. Historically governments that primarily paid for services by printing money (as opposed to taxes) have rarely, if ever, done so responsibly. In theory it's possible but MMT lacks the economic pushback caused by taxes. Traditionally, when government spending is too high people and businesses complain and the government sees the economy suffering. In MMT, the costs of government spending are essentially hidden. Or in another perspective, the cost of government spending comes in the form of inflation. To the everyday person, government spending is free because they don't see how much of their paycheck is being sent to the government. They only see the cost of government spending once their savings are wipes out by inflation. Could the government maintain restraint and not spend much money? In theory yes, but in practice I am very confident politicians would give in to the temptation to try and carry out utopian policies that are insanely expensive. Just look at what proponents of MMT are promising: a government job for everyone that wants one, free University education, and more. I trust politicians not to abuse MMT as much as I would trust myself to use heroin responsibly, which is to say not at all.

andbberger 8y ago
> Asking "can modern monetary theory work" is sort of like asking "can I recreationally use heroin and not get addicted". The answer to both of these questions is yes, in theory both are possible. But look at the realities of these situations. Sounds like the theory is wrong then
- manfredo 8y ago
  The theory is correct it's just not feasible or reliable to apply. Lots of things have a correct underlying theory but are too difficult to apply. Nuclear powered aircraft is correct in theory. There's no reason why we couldn't use thermonuclear power to spin a turboprop to generate thrust. But in practice, there's no way to make a nuclear pressure vessel light enough to mount on an airplane. At least not with current technology. (Maybe we just have a semantics mismatch of what we refer to by "theory")
  - nostrademons 8y ago
    Communism too, for an example directly related to economics. If the central planning board has perfect information about all consumers' desires and all costs of production and acts perfectly rationally, communism is significantly more efficient than capitalism. The central planning board never has perfect information, and in the absence of it, usually tries to maximize the welfare of the individual humans that make it up. The result was nearly 100 million people killed and widespread suffering, for what was supposedly going to be a utopian society.
    - jl2718 8y ago
      Excellent theoretical analysis. Unfortunately wrong. It assumes that central planning works with perfect information. This would be true if everybody’s primary motivation was for the common good. Maybe true for most people. Not for those who seek power.
      - nostrademons 8y ago
        That's what I mean by "acts perfectly rationally", which is another idealized abstraction that could be defined as "maximizes the unweighted sum of the utility functions given to it". In other words, if we replaced the central planning board with a computer and gave it full information of the utility functions of all citizens and the cost of production for each of these goods and services, it could in theory come up with an ideal solution. Coming up with full information on utility and cost functions across all possible things that could be produced is left as an exercise to the reader.
  - Anderkent 8y ago
    AFAIK there's no actual theory - no specific model one can evaluate. The couple attempts by economists to critique MMT were always met with the response that the thing being critiqued isn't actually MMT (but never with specifics of how it is different).
    - deleted 8y ago
      [deleted]
anm89 8y ago
This is an excellent analogy.
- dools 8y ago
  It's the worst analogy in the history of analogies
iSnow 8y ago
>Asking "can modern monetary theory work" is sort of like asking "can I recreationally use heroin and not get addicted". The answer to both of these questions is yes, in theory both are possible. I would say it's the other way around: MMT works in practice while in theory it should fail. Heroin, not so much.
- AnimalMuppet 8y ago
  I would like to see your evidence that MMT works in practice...
  - dools 8y ago
    MMT is already "in practise". Here is an interview I did with a trader about how government finance works: https://youtu.be/jq6QbMSPoxQ https://youtu.be/jq6QbMSPoxQ
emilfihlman 8y ago
>free university education >a job for everyone that wants one These are not utopian.
- coward111 8y ago
  It's odd that so many people are unable to envision a society where these things are possible. Small minded thinking from an intelligent group.
  - manfredo 8y ago
    It's not just promising a job for everyone and free university education for everyone. It's government funded jobs for everyone and government funded education for everyone. Not even the so-call "socialist" European countries do this. Such a program would be incredibly expensive and would definitely lead to significant inflation if funded through printing money as proposed by MMT.
    - dools 8y ago
      No, it's government funded jobs for anyone unable to find employment in the private sector or in a permanent government role at a fixed, socially inclusive minimum wage. The job guarantee is the primary policy proposal that has been put forward by MMT economists as the best solution to injecting precisely the correct amount of fiscal stimulus to offset the business cycle. Whether or not you fund social programs, healthcare and education as well is a political decision, but hey why wouldn't you. As Warren Mosler puts it: Make the political decision about what the government should provide, set your taxes appropriately and then mop up around the edges with a job guarantee (paraphrased)
evrydayhustling 8y ago
The article argues that it's an even more unstable proposition: you must not only safely use the heroin, you must convince others to invest in your business while you do so publicly! Even if you know in your heart of hearts you will spend responsibly, you must find others to extend the same trust.
- shadofx 8y ago
  Do note however, that powerful nations often do such convincing with the barrel of a gun.
mindslight 8y ago
I totally agree with where you're coming from, and I've written similar comments myself. But the truth is that the government is already quite addicted to printing money in the form of low interest loans, to which the consumer market's primary exposure is the housing sector. Economic and technological progress create natural price deflation. Rather than just letting that happen, the Fed prints ever more money to keep the CPI treadmill running, which is causing housing to shoot through the roof. If MMT could allow new money to be injected into the consumer economy somewhere besides home loans, having more uniform inflation could by itself be a huge win.
WorldMaker 8y ago
> Historically governments that primarily paid for services by printing money (as opposed to taxes) have rarely, if ever, done so responsibly. In theory it's possible but MMT lacks the economic pushback caused by taxes. My understanding is that you and the article here are both missing a concept that most MMT theory flows from taxes. That the "print money to spend" power of MMT is only true when derived from a strong tax policy. The way I've had MMT described to me, in a fiat currency the only inherent value of the currency is its ability to pay taxes to the government. I've heard that tax policy is where MMT sets the value of the dollar (including impacting inflation). It's taxes that keep money moving, which is a critical component to every good version of MMT I've heard (spending isn't useful if it isn't moving after spent). I've heard it said that the best spending polices under some of the best versions of MMT are those described almost entirely as loans to be recouped entirely by taxes eventually somehow (not always directly in the same person's income tax), and that most of the "magic" in the "print money to spend money" ability is in defining what the tax systems and time horizons are for "recouping" those loans.
- AnimalMuppet 8y ago
  The problem with that is that, in the US at least, taxes are set by Congress. Apart from the theoretical difficulties with the picture you present, the practical difficulty is that Congress is a dysfunctional, incompetent mess. Do you trust them to actually tax the right amounts, at the right time, to make MMT work? I don't. I expect them to make a total mess of it, and ruin the economy in the process. I don't want them anywhere near monetary policy. I consider any idea that requires them to correctly implement part of it to be doomed, in practice even if not in theory.
  - dragonwriter 8y ago
    > Apart from the theoretical difficulties with the picture you present, the practical difficulty is that Congress is a dysfunctional, incompetent mess. Do you trust them to actually tax the right amounts, at the right time, to make MMT work? There's no amount to make MMT work: MMT “works” by explaining that the “fisc”, the finite treasury you have to fill with taxes or borrowing in order to spend, is artifice, a set of unnecessary and misleading complications that comes from treating fiat currency as if it were commodity currency; tax and spending levels have monetary effects, and those are the fundamental constraints. > I don't want them anywhere near monetary policy. MMT tells you this is a self-delusion: “fiscal” policy is fundamentally monetary, and moreover it's powerful monetary policy, which the notional “monetary” authority is denied because of a fictitious distinction. If you want an independent guarantor of sound monetary policy, MMT tells you, great, and you can give them control of the level of a universal stipend and/or a parameter that is part of the definition of the tax rates for all tax brsckets, while leaving Congress to set the distributional policy (who is qualified for the stipend, what the other factors in tax rates are, etc.), and its fine because aggregate levels of spending and taxes are no less monetary policy than interbank interest rates sre.
dools 8y ago
The government's spending policy is already legislated. MMT doesn't "work" or "not work", it's an analysis of how currency functions. One can just as easily understand MMT and legislate a balanced budget if one wants to, but one wouldn't do than anymore than remove the oil from their car every time they finish driving it. Once you understand MMT it makes sense to legislate a target of 0% involuntary unemployment. http://www.jobguarantee.org/ http://www.jobguarantee.org/
dragonwriter 8y ago
> Historically governments that primarily paid for services by printing money (as opposed to taxes) have rarely, if ever, done so responsibly. MMT explains the failure and addresses this directly. In fact, it explains the failure as failure to tax. Specifically, MMT explains that spending isn't constrained by revenue, since spending is fundamentally issuing currency, if you eliminate the elaborate rituals by which fiat money issuers pretend to be using a commodity currency that they don't control. But, issuing currency, ceteris paribus, created inflationary which, MMT explains, can be addressed by taxes.

andbberger 8y ago

> Asking "can modern monetary theory work" is sort of like asking "can I recreationally use heroin and not get addicted". The answer to both of these questions is yes, in theory both are possible. But look at the realities of these situations. Sounds like the theory is wrong then

manfredo 8y ago
The theory is correct it's just not feasible or reliable to apply. Lots of things have a correct underlying theory but are too difficult to apply. Nuclear powered aircraft is correct in theory. There's no reason why we couldn't use thermonuclear power to spin a turboprop to generate thrust. But in practice, there's no way to make a nuclear pressure vessel light enough to mount on an airplane. At least not with current technology. (Maybe we just have a semantics mismatch of what we refer to by "theory")
- nostrademons 8y ago
  Communism too, for an example directly related to economics. If the central planning board has perfect information about all consumers' desires and all costs of production and acts perfectly rationally, communism is significantly more efficient than capitalism. The central planning board never has perfect information, and in the absence of it, usually tries to maximize the welfare of the individual humans that make it up. The result was nearly 100 million people killed and widespread suffering, for what was supposedly going to be a utopian society.
  - jl2718 8y ago
    Excellent theoretical analysis. Unfortunately wrong. It assumes that central planning works with perfect information. This would be true if everybody’s primary motivation was for the common good. Maybe true for most people. Not for those who seek power.
    - nostrademons 8y ago
      That's what I mean by "acts perfectly rationally", which is another idealized abstraction that could be defined as "maximizes the unweighted sum of the utility functions given to it". In other words, if we replaced the central planning board with a computer and gave it full information of the utility functions of all citizens and the cost of production for each of these goods and services, it could in theory come up with an ideal solution. Coming up with full information on utility and cost functions across all possible things that could be produced is left as an exercise to the reader.
- Anderkent 8y ago
  AFAIK there's no actual theory - no specific model one can evaluate. The couple attempts by economists to critique MMT were always met with the response that the thing being critiqued isn't actually MMT (but never with specifics of how it is different).
  - deleted 8y ago
    [deleted]

anm89 8y ago

This is an excellent analogy.

dools 8y ago
It's the worst analogy in the history of analogies

iSnow 8y ago

>Asking "can modern monetary theory work" is sort of like asking "can I recreationally use heroin and not get addicted". The answer to both of these questions is yes, in theory both are possible. I would say it's the other way around: MMT works in practice while in theory it should fail. Heroin, not so much.

AnimalMuppet 8y ago
I would like to see your evidence that MMT works in practice...
- dools 8y ago
  MMT is already "in practise". Here is an interview I did with a trader about how government finance works: https://youtu.be/jq6QbMSPoxQ https://youtu.be/jq6QbMSPoxQ

emilfihlman 8y ago

>free university education >a job for everyone that wants one These are not utopian.

coward111 8y ago
It's odd that so many people are unable to envision a society where these things are possible. Small minded thinking from an intelligent group.
- manfredo 8y ago
  It's not just promising a job for everyone and free university education for everyone. It's government funded jobs for everyone and government funded education for everyone. Not even the so-call "socialist" European countries do this. Such a program would be incredibly expensive and would definitely lead to significant inflation if funded through printing money as proposed by MMT.
  - dools 8y ago
    No, it's government funded jobs for anyone unable to find employment in the private sector or in a permanent government role at a fixed, socially inclusive minimum wage. The job guarantee is the primary policy proposal that has been put forward by MMT economists as the best solution to injecting precisely the correct amount of fiscal stimulus to offset the business cycle. Whether or not you fund social programs, healthcare and education as well is a political decision, but hey why wouldn't you. As Warren Mosler puts it: Make the political decision about what the government should provide, set your taxes appropriately and then mop up around the edges with a job guarantee (paraphrased)

evrydayhustling 8y ago

The article argues that it's an even more unstable proposition: you must not only safely use the heroin, you must convince others to invest in your business while you do so publicly! Even if you know in your heart of hearts you will spend responsibly, you must find others to extend the same trust.

shadofx 8y ago
Do note however, that powerful nations often do such convincing with the barrel of a gun.

mindslight 8y ago

I totally agree with where you're coming from, and I've written similar comments myself. But the truth is that the government is already quite addicted to printing money in the form of low interest loans, to which the consumer market's primary exposure is the housing sector. Economic and technological progress create natural price deflation. Rather than just letting that happen, the Fed prints ever more money to keep the CPI treadmill running, which is causing housing to shoot through the roof. If MMT could allow new money to be injected into the consumer economy somewhere besides home loans, having more uniform inflation could by itself be a huge win.

WorldMaker 8y ago

> Historically governments that primarily paid for services by printing money (as opposed to taxes) have rarely, if ever, done so responsibly. In theory it's possible but MMT lacks the economic pushback caused by taxes. My understanding is that you and the article here are both missing a concept that most MMT theory flows from taxes. That the "print money to spend" power of MMT is only true when derived from a strong tax policy. The way I've had MMT described to me, in a fiat currency the only inherent value of the currency is its ability to pay taxes to the government. I've heard that tax policy is where MMT sets the value of the dollar (including impacting inflation). It's taxes that keep money moving, which is a critical component to every good version of MMT I've heard (spending isn't useful if it isn't moving after spent). I've heard it said that the best spending polices under some of the best versions of MMT are those described almost entirely as loans to be recouped entirely by taxes eventually somehow (not always directly in the same person's income tax), and that most of the "magic" in the "print money to spend money" ability is in defining what the tax systems and time horizons are for "recouping" those loans.

AnimalMuppet 8y ago
The problem with that is that, in the US at least, taxes are set by Congress. Apart from the theoretical difficulties with the picture you present, the practical difficulty is that Congress is a dysfunctional, incompetent mess. Do you trust them to actually tax the right amounts, at the right time, to make MMT work? I don't. I expect them to make a total mess of it, and ruin the economy in the process. I don't want them anywhere near monetary policy. I consider any idea that requires them to correctly implement part of it to be doomed, in practice even if not in theory.
- dragonwriter 8y ago
  > Apart from the theoretical difficulties with the picture you present, the practical difficulty is that Congress is a dysfunctional, incompetent mess. Do you trust them to actually tax the right amounts, at the right time, to make MMT work? There's no amount to make MMT work: MMT “works” by explaining that the “fisc”, the finite treasury you have to fill with taxes or borrowing in order to spend, is artifice, a set of unnecessary and misleading complications that comes from treating fiat currency as if it were commodity currency; tax and spending levels have monetary effects, and those are the fundamental constraints. > I don't want them anywhere near monetary policy. MMT tells you this is a self-delusion: “fiscal” policy is fundamentally monetary, and moreover it's powerful monetary policy, which the notional “monetary” authority is denied because of a fictitious distinction. If you want an independent guarantor of sound monetary policy, MMT tells you, great, and you can give them control of the level of a universal stipend and/or a parameter that is part of the definition of the tax rates for all tax brsckets, while leaving Congress to set the distributional policy (who is qualified for the stipend, what the other factors in tax rates are, etc.), and its fine because aggregate levels of spending and taxes are no less monetary policy than interbank interest rates sre.

dools 8y ago

The government's spending policy is already legislated. MMT doesn't "work" or "not work", it's an analysis of how currency functions. One can just as easily understand MMT and legislate a balanced budget if one wants to, but one wouldn't do than anymore than remove the oil from their car every time they finish driving it. Once you understand MMT it makes sense to legislate a target of 0% involuntary unemployment. http://www.jobguarantee.org/ http://www.jobguarantee.org/

dragonwriter 8y ago

> Historically governments that primarily paid for services by printing money (as opposed to taxes) have rarely, if ever, done so responsibly. MMT explains the failure and addresses this directly. In fact, it explains the failure as failure to tax. Specifically, MMT explains that spending isn't constrained by revenue, since spending is fundamentally issuing currency, if you eliminate the elaborate rituals by which fiat money issuers pretend to be using a commodity currency that they don't control. But, issuing currency, ceteris paribus, created inflationary which, MMT explains, can be addressed by taxes.