MMT Is From Venus

Analysts and, begrudgingly, mainstream economists, seem to be coming around to the notion that fiscal-monetary "partnerships" (wherein central banks enable and explicitly accommodate government spending) are likely to define the macro narrative in the years ahead. In a sense, this is a circular, semantic debate. A common refrain (which I've used in these pages, mostly for the sake of avoiding confusion at a time when the general public is just now beginning to realize what deficits and debt ac

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26 thoughts on “MMT Is From Venus

      1. Already did that 2006 to 2008 when most of the scrap metal went from the US to China for their Olympic Birds nest and the huge dams.
        Whats really needed is a huge push for a remedial education system and a age/skills tiered minimum wage.

  1. Ironically, some inflation via MMT, or other government spending, would help reduce personal debt, as increased demand from people that rely on a paycheck, would feed through to increased hiring and wages, which would slowly eat into student loan, mortgage, credit card, auto debt… etc. personal debt is a tax on future spending and matters a lot more than government debt.

  2. I’m having trouble understanding a world where MMT is the norm. Is the utopian MMT world a place where everyone eventually lives in a mansion and eats steak and lobster. It sounds great, but why would a rancher or fisherman go to all the trouble of supplying steak and lobster when the government will just hand out money?? But then it seems to center around the USA printing the reserve currency. Does this also mean that everyone in Zimbabwe and Ecuador and Thailand will also enjoy the miracle?? If not, i don’t think this would end well. And how do you measure wealth when you can just print what you think you need?? What actually is an MMT dollar worth?? Why bother having an income tax?? That just seems to be a repressive way to extract money from the poor and another quandary for the rich to avoid paying. As MMT is supposedly now in effect, I guess we’ll all just have to sit back and wait for this to sink in. It’s like no longer having a defined value to tie the worth of your money to. I hope it won’t be like being on the Edmund Fitzgerald without a rudder or a compass.

    1. Man O’ Lourdes – the small bit of reading I’ve done suggests that there is a bit of constraint, in theory. When inflation rises too much, legislators will hike taxes to cool things down.

      Two interesting points there.

      One is that taxes are now a monetary policy lever rather than a source of revenue. Ponder that one for a moment.

      The second is related — why would any politician on a two year term ever vote to raise taxes soley to cool down inflation?

      But those are in a pure MMT system. The closest real world example we have is Japan. What a disaster, right? Really?

  3. MMT is being embraced by more and more because we can’t possibly believe in a “balanced budget” in these conditions. The pandemic crisis is proving the basic tenets of MMT (hey, it has persuaded the Fed) as we are increasing the monetary supply without limits and are still worried about deflation. The real test–and the need for a steady and intelligent hand–is keeping the “unlimited” spending confined to creations of recognized value such that inflation does not destroy the process. We have no experience with openly embracing MMT and using its premises to advance greater equality of economic benefits, health care and other obvious benefits. If we spend it on unnecessary defense, walls and other unproductive b.s., inflation will bite us in the ***. But when was the last time you saw a steady and intelligent hand in a position of overall responsibility? Good luck to us all.

    1. Agree use MMT money as a investment in America’s future. Eventually inflation will rise and we will have to raise taxes and interest rates but that could be many years from now.

  4. This post is emblematic of why you are one of the very best reads in finance/econ… a fair treatment of our exchange where many with a platform such as yours would have likely just run over me. Warren Mosler (MMT “founder”) is my mentor, and being that I learned much of what I know from him first hand, I am sensitive to what are often semantic differences in wording that can lead to erroneous characterizations and conclusions. And, since your site is one of the few places that give “MMT” fair treatment, I did think it appropriate to highlight the potential pitfall of describing MMT as something that’s “implemented”. Apologies if my tone implied that I believed you harbored such a misunderstanding. I can’t speak for many of the prominent MMT academics, but I can tell you that Warren Mosler never represent his personal epiphany as if he’d discovered something novel. Quite contrary actually, when he determined (as a bond trader) that buying bonds from the Tsy or the Fed were functionally the same thing and therefore bond sales by Tsy was actually a monetary policy operation and not about funding govt spending. The 1st thing he did was try to find others who saw it the same way to verify his thinking. He was actually surprised by how few people he was able to find that realized that govt spending was not revenue constrained, per se. It simply was not a part of the dominant neo liberal paradigm. And being that MMT is a description of monetary and fiscal operations, the language used matters. For example, many MMT proponents say things like “taxes don’t fund govt spending”, which causes confusion because while govt spending isn’t dependent upon tax revenues, tax liabilities are necessary to create demand for the govt’s otherwise worthless currency.

    I also challenge the premise that the public would push policy towards inflationary overspending if it understood that the federal govt wasn’t revenue constrained. I think most empirical evidence actually points to a public and politicians that are more tolerant of unemployment than inflation.

  5. Gentlemen, I appreciate your comments. I read them and re-read them. I am no closer to knowing what an MMT dollar is worth or how you peg it’s value. it sounds like taxes and inflation are used as controlling instruments to try to keep the dollar within whatever range the government and the fed deem necessary and that the government is being relied on to keep the printing presses from overheating. Fat chance.

    1. The USD is a simple public monopoly… USD can only come from the govt and it’s agents (TSY, Fed, chartered commercial banks, etc.), or it’s counterfeit. Consider that bank created money denominated in USD nets to zero (bank deposits are the acct holders asset and the bank’s liability, and are off set by loans which are the bank’s asset and the borrower’s liability). Monopolist are necessarily the price setter. Therefore, the price level is necessarily a function of prices paid by the government’s agents when it spends, or collateral demanded when it lends. Said in another way, the USD is worth whatever one must offer to attain it. 6 min of labor at $10/hr, for example. And since, in the first instance the govt is the ultimate source of USD, it’s the price setter whether it (or we) realizes it or not. Market forces continuously discover all other prices as expressions of relative value to the prices set by govt. This is always the case whether you believe MMT to be an accurate description or not.

  6. Again…I thank you for your reply. But again it seems to revolve around the reserve currency, The US dollar. If MMT is universally accepted by the populous, what happens in countries and their people if they don’t deal with the US dollar in everyday life. There have been several articles written about the cracks appearing under the dollar from the antics of the Trump administration and it’s ham-handedness in dealing with other nations. it may be the reserve currency now, but… if you have two or even three reserve currencies does it still work? Or do they compete with each other until one is declared the winner? Maybe I’m too old to worry about this.

    1. While a paradigm may be universal, descriptions are necessarily specific. The description of one system does not preclude one from having understanding of another.

      Also, I reject your premise that anything I said is dependent upon being the “reserve currency”. My description applies to CAD, JPY, GBP, AUD, etc. What is it that you think relative value means?

      And consider that “reserve currencies” are just an artifact of trade policy and other institutional structures. For example, in order for CNY supplant USD as “reserve currency” Chin would have to accept running large and persistent trade deficits and potentially higher unemployment.

      1. MoL brings up a basic point. The US can pull off MMT given its reserve currency role. Japan can do it because it does not rely on foreign buying of their government bonds. Australia relies on foreign capital, so any major move into MMT is out. Canada? Not sure but probably not.

        1. This isn’t really true. Australia doesn’t have to issue any bonds at all if they don’t want to. Alternatively, they can buy them from themselves, like they’re doing right now under YCC. An AGB is just an interest-bearing Aussie. In order to grasp this, you really have to stop persisting in mistaken beliefs about what debt, taxes, and deficits are. This essentially applies to any currency-issuing, advanced economy. Obviously, when you start talking about real EMs (Australia is sometimes loosely classified as such, but it’s a DM) it gets considerably more indeterminate, but arguing this point when it comes to GBP, AUD, CAD, JPY, etc. is fruitless. It’s not that you’re “wrong”, it’s that the concept of “right” and “wrong” has no meaning here. MMT is just a description of how it works in currency-issuing, advanced economies. No advanced economy really “needs” to borrow or tax first before spending. It’s just not true and it’s also not how it works in real life.

          1. “Relying on foreign capital” is something different from borrowing in other currencies. Borrowing in USDs (or EUR or JPY or etc.) if you’re an EM can be disastrous because you can’t print the currency that you borrowed in. That’s not the same thing as foreign investment in local currency bonds, which can always be paid off by definition because they are denominated in the home currency, When that home currency is issued by a reliable, stable, advanced economy, there really isn’t a problem.

  7. Good point there. Singapore could do it. But that runaway inflation risk a la Zimbabwe usually lurks for EM countries which get shut out of USD denominated markets.

    An interesting case is India. “Hot money” flows in & out of the country pretty regularly wreck havoc on domestic money markets and interest rates. Perhaps that has to do with the convoluted structure of their capital markets and banking system. Dunno.

    In any case, it has been gratifying to see “austerity” as the go-to response to a downturn lose almost all credibility post 2008 and now watching the Calvinist doctrines embedded in conventional economic and political theory being called into question.

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