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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].





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.

Not liberal, progressive. The submarine is progressive leftists using MMT as a justification for supporting progressive policies like tackling climate change or funding public education.

Another Central point which has not been mentioned here is that since government imposes a tax on a society in the base currency, then by definition it controls unemployment in that base currency. As a result, the government should offer or provide a job guarantee in order to close that gap. Note to socialist/alarmist types, this is a job that would put a floor on labor.

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