
A Beginner’s Guide to MMT - uptown
https://www.bloomberg.com/news/features/2019-03-21/modern-monetary-theory-beginner-s-guide
======
the_optimist
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.

~~~
dragonwriter
> A credentialed economist should put a stake through the heart of the heart
> of MMT.

MMT is, AFAICT, pretty soldily grounded recitations of facts about fiat money
that are widely recognized.

It's been embraced by advocates of monetizing fiscal affairs because, well, it
says that there is virtually unlimited short-term capacity to do that in a
fiat-money system. But it's _exactly that temptation in a fiat money system_
that motivated the strong separation we currently have between fiscal and
monetary policy, which includes the whole structure of government financing
operation g as if it were more like a normal participant in the economy.

OTOH, the entity charged with fiscal policy in the US has either been actively
hostile to real needs or asleep at the switch for most of the last couple
decades, and monetary policy alone, as currently structured, directs money
initially into what is often the wrong place, though fiscal policy can help
move it to the right place. The problem with the MMT driven “solution” is it
involves concentrating both fiscal and monetary policy in the hands of
Congress, and if Congress wasn't being completely worthless we wouldn't have
the problem people are turning to MMT to fix.

If Congress were doing good work with fiscal policy but the Fed was screwing
it up with poorly chosen or simply negligent monetary policy, then there would
be a problem that the way MMT is being invoked would present a solution to.

~~~
AnimalMuppet
This, a thousand times.

MMT advocates want _Congress_ to run the economy? _Are you out of your
freaking minds?_ They haven't even managed to pass an actual budget in the
better part of a decade!

~~~
mempko
Let me tell you a secret, Congress ALREADY runs the economy. They just ACT
like they don't. Notice they had no issue implementing tax cuts (increasing
money supply) AND increasing military spending (increasing money supply). They
act like they don't because otherwise, people might wonder "Hmm, if they can
do that for the rich, and they can do that for the military, maybe, just maybe
they can do that for me!". And then people might get _strange_ ideas like,
maybe we can afford universal health care, maybe we can have a system oriented
towards their needs.

So Congress doesn't want the people to know they already control the economy,
because otherwise, people might want them to do the job they elected them to
do.

~~~
WillPostForFood
There is a good case for the exact opposite of what you suggest. Congress
pretends like they have power over the economy, but at best they have minimal
or random effects. They promised economic growth with tax cuts, but what are
the real effects? hard to even tell.

------
40acres
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
> _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.

~~~
izend
Isn't Canada experience in the 90s an example of exactly that. Gov deficits
ran out of control and the current collapse and finally the government had to
cut services (raided the unemployment fund).

------
p_roz
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.

~~~
bryanlarsen
"It’s immediately obvious that increasing the money supply and spending the
money will result in inflation."

The money supply has almost quadrupled in the last 10 years, yet inflation has
been low.

MMT says that spending new money only causes inflation when the money is spent
on stuff the private sector is also bidding for. Since that's pretty much
everything that the government would want to spend money on, MMT &
conventional economics are not in much disagreement here.

"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."

You can always spend more money, but only if you tax enough back to tame
inflation. It's a constraint, not a contradiction.

"Printing more money does not change the real wealth in the economy."

Exactly. MMT doesn't create goods & services out of thin air, but what it does
do is unlock idle capacity in the system. If Joe Sixpack is unemployed, he's a
resource that the private sector is not utilizing, but he's a drain on society
because somebody is paying for his food & shelter. MMT and the jobs guarantee
would utilize that resource for good, and it won't affect inflation or the
private sector as long as the jobs guarantee wage is at the minimum wage mark.

Caveat: beginner level understanding of MMT

~~~
throw0101a
> The money supply has almost quadrupled in the last 10 years, yet inflation
> has been low.

Explained by "traditional" (e.g., Keynesian) economics already:

* [https://en.wikipedia.org/wiki/Zero_lower_bound](https://en.wikipedia.org/wiki/Zero_lower_bound)

When QE was introduced, the US political Right went ape shit talking about
inflation. Krugman (for one) predicted it would be fine because of interest
rates, citing Japan as an example:

> Everyone knows about the infamous open letter warning Ben Bernanke not to
> engage in quantitative easing, lest he cause inflation and currency
> debasement; many are also familiar with the remarkable unwillingness of that
> letter’s signatories to admit, after more than four years of low inflation
> and a rising dollar, that they were wrong.

* [https://krugman.blogs.nytimes.com/2015/02/12/qe-truthers/](https://krugman.blogs.nytimes.com/2015/02/12/qe-truthers/)

If the private sector is not spending, then the public sector (gov't) should
to take up the slack in a lack of demand:

> The problem, of course, is that you can’t cut interest rates below zero (if
> you try, lenders will just hoard cash.) So the Fed simply can’t do what the
> rule says it should.

>

> This is why we need a huge fiscal stimulus, unconventional monetary policy,
> and anything else you can think of to fight this slump. Quite literally, the
> usual rules no longer apply.

* [https://krugman.blogs.nytimes.com/2009/01/17/zero-lower-boun...](https://krugman.blogs.nytimes.com/2009/01/17/zero-lower-bound-blogging/)

There are a finite amount of resources in an economy, and when an "infinite"
amount of cash goes after that, you start to big up prices: inflation. I don't
think that mainstream (Left-leaning) are against deficit spending to boost the
economy; it's just that many of them don't see MMT is adding to what they've
already been saying.

~~~
breischl
>you can’t cut interest rates below zero

Well, he was wrong on that point.

>Crazy as it sounds, several of Europe’s central banks cut interest rates
below zero in 2014, and then Japan followed. By mid-2016, some 500 million
people in a quarter of the world's economies were living with rates in the red

[https://www.bloomberg.com/quicktake/negative-interest-
rates](https://www.bloomberg.com/quicktake/negative-interest-rates)

~~~
throw0101a
> Well, he was wrong on that point.

He revisits the point:

> We now know that interest rates can, in fact, go negative; those of us who
> dismissed the possibility by saying that people could simply hold currency
> were clearly too casual about it.

* [https://krugman.blogs.nytimes.com/2015/03/03/how-negative-ca...](https://krugman.blogs.nytimes.com/2015/03/03/how-negative-can-rates-go/) * [https://krugman.blogs.nytimes.com/2015/03/06/the-below-zero-...](https://krugman.blogs.nytimes.com/2015/03/06/the-below-zero-lower-bound/) * [https://krugman.blogs.nytimes.com/2016/02/12/the-political-e...](https://krugman.blogs.nytimes.com/2016/02/12/the-political-economy-of-interest-rates-revisited/)

The Great Recession was really an "interesting" time for economists: one
usually can't run experiments on macroeconomic theories / hypothesis. :)

------
vasilipupkin
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.

~~~
tchaffee
> 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
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

------
apo
_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.

------
ThirdFoundation
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.

~~~
dnprock
We've already started MMT since 2008. The scary thing: it's been working well.

~~~
chombier
MMT without job guarantee is not quite MMT.

~~~
dnprock
As far as I understand, MMT wants to optimize for full employment. Job
guarantee is a possible implementation. We're at 4% unemployment rate. You can
say we have full employment per the current standard.

------
erentz
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
> 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
> 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.

~~~
mason55
> _But the implication here is that there will always be no shortage of low
> end minimum wage work_

I'm not following how that's implied?

I think the implication is that there's no shortage of work that has positive
value but less positive value than people are willing to pay for it.

Anyway, the idea is that if the economy is in good shape and most people are
employed then the gov't is providing fewer jobs. If you have more slack then
the number of gov't jobs goes up as the gov't spends more money (i.e. pays the
people it's employing) and so the balance between spending and production
doesn't change, thus keeping inflation in check.

~~~
erentz
> I'm not following how that's implied?

The proposed job guarantee talked about is a $15 per hour minimum wage job.

------
anm89
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).

~~~
tristram_shandy
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
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-
theor...](http://www.levyinstitute.org/publications/modern-money-theory-101)

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
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.

~~~
dragonwriter
> 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.

No, MMT is not a green light for deficit spending.

MMT is an explanation for why the entire fiscal model in which “surpluses” or
“deficits” (and even moreso government borrowing and having “debt” to finance
deficits) exists is a misleading façade when governments monetary power is
considered, a holdover that only really makes sense with commodity—rather than
same-government-issued fiat—money.

> Maybe not advocacy, but something that will be used by advocates.

Sure, every theory will be used by advocates of something; MMT isn't used to
advocates of deficit spending, but by advocates of monetizing fiscal policy.
(Though the latter can look like the former if you are stuck on the model of
reality that MMT points out is flawed.)

------
maerF0x0
> 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
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.

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

------
throwawaysea
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.

------
elamje
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.

------
hackeraccount
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.

------
iooi
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?

------
AnimalMuppet
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
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.

------
0815test
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-w...](https://www.themoneyillusion.com/wrong-in-a-very-
confusing-way/) and is also worth reading for context.)

------
jonahhorowitz
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
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
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.

------
currymj
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
I think it's more "the government must spend to be able to tax"?

~~~
doppelganger27
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
Government also needs to tax to ensure sufficient demand for its money ("taxes
drive money")

------
mason55
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
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
> we also know why it's a bad idea

Do tell.

~~~
holymacaral
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
> 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.

~~~
mikhailfranco
[https://scholar.harvard.edu/files/rogoff/files/forgotten_his...](https://scholar.harvard.edu/files/rogoff/files/forgotten_history_of_domestic_debt.pdf)

~~~
mikhailfranco
Sorry, posted the wrong Reinhart paper, should be this one of course:
[https://www.nber.org/papers/w15815.pdf](https://www.nber.org/papers/w15815.pdf)

------
mikhailfranco
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
5\. Government increases taxes to curb inflation.

------
patfla
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.

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

~~~
peisistratos
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-
wo...](https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wonkish.html)

Even further left, Doug Henwood is down on MMT

[https://www.jacobinmag.com/2019/02/modern-monetary-theory-
is...](https://www.jacobinmag.com/2019/02/modern-monetary-theory-isnt-helping)

It's not just conservatives who are down on this. Left and center-left
economists see MMT as wishful thinking.

------
mdo123
You can debate inflation, but does anyone really expect our government to do
the right thing when it comes to spending and taxation?

------
conanbatt
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.

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

------
dimitar
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.

------
nonbel
MMT = next step to hyper-inflation of the USD

Do people really disagree with this?

------
harekaze
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)

------
karl11
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-...](https://www.epsilontheory.com/modern-monetary-theory-or-
how-i-learned-to-stop-worrying-and-love-the-national-debt/)

------
holymacaral
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
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
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-
mo...](https://www.nakedcapitalism.com/2018/10/randy-wray-modern-monetary-
theory-came-mmt-include-mmt.html)

~~~
airstrike
That might very well be an interesting bit of trivia but it doesn't make it
less disingenuous

------
User23
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-
pr...](http://neweconomicperspectives.org/modern-monetary-theory-primer.html)

[3][http://neweconomicperspectives.org/2011/09/mmp-
blog-16-unusu...](http://neweconomicperspectives.org/2011/09/mmp-
blog-16-unusual-case-of-euroland.html)

[4][https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-
al...](https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-all-that)

~~~
mbrock
I think one reply to your concern about the importance of businesses who
accept the currency is this. Businesses will basically want to trade their
goods for any sufficiently liquid asset; government currency has no special
status except that it is what they need to pay taxes. All US businesses might
move over to bitcoin for some reason, but they’ll need USD for all their
taxes, so government currency retains its value as compared to other
conceivable private means of exchange. The theory is about sovereign money in
particular, and the only essential reason businesses are interested in the
national sovereign currency (when they could transact in any medium of
exchange and store value in any valuable asset class) is taxes.

------
crdoconnor
>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.

