Bill Black: Modern Monetary Theory Is On the March (#MMT)

By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Jointly published with New Economic Perspectives

Modern Monetary Theory (MMT) continues to advance rapidly.  We are past the first phase of reaction (first they ignore you), deeply into the second phase (then they attack you), and expanding the ranks of the third phase (then you win).  We are very early in the third phase, winning with increasing numbers of people, but still a minority view.

One of the proofs of MMT’s advances is a nearly respectable treatment by the Wall Street Journal as the feature of a news article.  The other major proof is the pathetic efforts of MMT critics quoted in the article to attack MMT.  The article, implicitly, admits that MMT scholars have repeatedly proved correct in their predictions that the existing and projected U.S. fiscal budget deficits would not trigger damaging shortages of real resources that will cause damaging levels of inflation.  The article, implicitly, admits that nations with fully sovereign currencies are vastly less vulnerable to economic injury from budget deficits.

The article implicitly admits that MMT opponents’ predictions have failed and that reality has repeatedly falsified their archaic monetary theories that described nations living under the gold standard and therefore lacked a fully sovereign currency.

In theory, high debt levels should cause interest rates to rise. That’s because investors will demand higher returns to compensate for the risk they take on when the government borrows at unsustainable levels or because they worry that so much debt could trigger inflation. The need to finance such high levels of debt also makes less money available for other investments.

In practice, investors are happy to keep lending to the U.S. in good times and bad, regardless of how much it borrows. In 2009, for instance, when the Obama administration’s stimulus efforts sent federal deficits rising to almost 10% of GDP, the highest since World War II, the interest on 10-year Treasury securities remained below where it had been before the recession.

Many Republicans warned the U.S. was pushing itself to the brink of a fiscal crisis and pressed Mr. Obama to rein in spending. Economists debated how much debt a nation could hold before it crimped growth. In one paper, Harvard University economics professor Carmen Reinhart and Kenneth Rogoff, a former chief economist at the International Monetary Fund, found that countries with debt loads greater than 90% of GDP tended to have slower growth rates.

Those three paragraphs demonstrate the falsification of archaic monetary theory.  First, in the most important policy predictions in the lifetime of virtually all living economists, the archaic theory failed every predictive test and led to policy proposals that were spectacularly harmful. Second, and even more implicitly, MMT’s predictions proved correct and MMT scholars’ policy advice proved accurate and exceptionally helpful in reducing the severity and length of the Great Recession.  The article reports as if there were only one monetary theory – the archaic one.

Third, the article does not explain that Reinhart and Rogoff’s ‘finding,’ as MMT scholars predicted and demonstrated was false.  The journalists should have given special kudos to graduate economic students at U. Mass for demonstrating the falsity of what Reinhart and Rogoff “found.”  Their data also showed, consistent with MMT and contrary to Reinhart and Rogoff, that nations with fully sovereign currencies showed far greater resilience.

Fourth, the first paragraph of the article quoted above inadvertently demonstrates the key weakness of archaic monetary theory substituting conclusory adjectives to ‘prove’ the point that their theory asserts.  What are “high debt levels?”  How much “higher” interest rates do government bond investors supposedly demand in response to “high debt levels?”  (Note that the archaic model piles undefined adjective upon adjective to build their strawman arguments.) What supposedly represents “unsustainable levels” of government debt?  Again, the one effort to convert these vague adjectives into a real standard produced Reinhart and Rogoff’s embarrassing fake fiscal cliff.

Fifth, the last sentence of the first paragraph quoted above wins the prize for piling on vague adjectival ipse dixitsas a substitute for any evidence.

The need to finance such high levels of debt also makes less money available for other investments.

One, MMT shows that governments with fully sovereign currencies do not “need” to “finance” their debt.  Two, what does the phrase “such high levels of debt” mean?  Three, how much “less money” is “available.”  Four, what “other investments” supposedly will lack “money?” MMT makes clear that a nation with a fully sovereign currency cannot lack “money” to undertake “investments.” MMT makes clear that real resource constraints can actually serve as constraints.  Scholars, and finance professionals, overwhelming agree with MMT on the issue of real constraints.  Five, the journalists did not inform their readers that MMT scholars correctly predicted that the fiscal stimulus program responding to the Great Recession would not “crowd out” access to finance.  The reality is that corporations are sitting on unprecedented amounts of cash and engaging in record stock “buybacks” – so the “crowding out” prediction of archaic monetary theorists was, again, falsified.

The journalists then create two false contrasts – status and ideology.  They note that “prominent” economists agree that MMT scholars’ predictions proved correct.

Now, some prominent economists say U.S. deficits don’t matter so much after all, and it might not hurt to expand them in return for beneficial programs such as an infrastructure project.

“The levels of debt we have in the U.S. are not catastrophic,” said Olivier Blanchard, an economist at the Peterson Institute for International Economics.

The journalists implicitly contrast Blanchard with Stephanie Kelton.

Some left-wing economists go even further by arguing for a new way of thinking about fiscal policy, known as Modern Monetary Theory.

Note that MMT scholars are not “prominent,” even if like Kelton they have held high positions of authority and even if like Kelton, Randy Wray, Mat Forstater, and Scott Fullwiler they have predictive records, demonstrated for two decades; that are the envy of the most “prominent” economists in the world.  It is no insult to Blanchard to point out that each of the four MMT scholars that did key work at UMKC got the most important macroeconomic issues of our lives correct, while the IMF leadership largely got those issues wrong.

Note that Blanchard is at the Peterson Institute.  Pete Peterson is a Wall Street plutocrat who created an institute to push his ultra-right wing deficit hysteria and odes to austerity in order to push for the privatization of Social Security – Wall Street’s greatest dream.  Blanchard’s macroeconomic conversion based on reality falsifying Peterson’s worship of austerity speaks well of Blanchard.  The journalists treat Blanchard as free of any ideology, while defining Kelton as exemplifying “left-wing economists.” Ideology does not define MMT or the scholars who identify with MMT.  MMT began as an accurate description of how fully sovereign, partially sovereign, and non-sovereign currencies actually operate and the implications of those differences for proper policy.  MMT does not answer whether we should fund particular government projects – it addresses the capacity and results of funding such projects.  These are common, but unworthy journalistic tactics.

Here is the journalists’ response to Kelton’s explanation of MMT.  The response grudgingly admits that MMT scholars’ predictions about the most important macroeconomic issue of all living economists’ lives proved correct.

So far the runup in government debt has not led to steep price increases. Inflation has stayed at or below the Federal Reserve’s target for most of the past quarter century.

Yes, “so far” (over a decade), but hyper-inflation might be right around the corner!  Of course, interest rates on U.S. debt and inflation are both low and the Fed has been consistently unable to meet its (very low) inflation target goal because inflation and interest rates have been exceptionally low for over a decade despite increased federal debt.  Notice that the journalists revert to misleading adjectives – “the runup in government debt has not led to steep price increases.” It has not led to any meaningful “price increases.”  Indeed, inflation, for a decade after stimulus, remains so miniscule that the Fed views the inflation rate as too low – not too high.  The Fed, despite aggressive monetary policies designed to increase inflation to the Fed’s target rates, has consistently failed to do so.

The best part of the article, however, was its implicit demonstration that MMT’s severest critics have nothing.  Ad hominem attacks demonstrate that economists follow lawyers’ guidance – when the facts are strongly in my favor I pound the facts, when the law is strongly in my favor I pound the law, and when the facts and law are against me, I pound the table.

Alan Auerbach, an economist at the University of California at Berkeley, says the MMT view “is just silly” and could lead to unwanted or unexpected inflation.

Here is the great thing about attacking scholars’ theories that are “just silly” – it is simple to point out the theoretical and recurrent predictive failures that a “silly” theory inevitably produces. Auerbach had his chance, but he pounded the table because he has nothing.  The truth is that Auerbach has never read the MMT scholarly literature. We know this because Auerbach, like Blanchard, has moved increasingly into greater agreement with MMT’s precepts and policies.  Auerbach’s attacks on MMT are purely ad hominem because they are based on a strawman view of MMT of his own creation not informed by reading the scholarly MMT literature.

Next, the WSJ article went to the laziest critique – one that ignores MMT precepts to attack MMT.

Meantime, Greece and Italy are two recent examples of countries that appear to have hit thresholds where high debt loads lead to higher interest rates and economic pain. The U.S. may have such a threshold too, just not yet seen.

Greece and Italy do not have sovereign currencies. MMT scholars, particularly Kelton, predicted that the creation of the euro would cause great harm to European nations with weaker economies such as Greece and Italy.  Japan, which has had debt levels nearly three times recent U.S. debt ratios, cannot produce even modest inflation despite stringent efforts. The WSJ reduces itself to the equivalent of warning that there “may” be dragons beyond some point on the map!

The journalists end with a ‘parade of horribles.’  If the dragons were they real, they would falsify ‘modern macro’ rather than MMT.

By continuing to run large deficits, says Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, the U.S. is slowing wage growth by crowding out private investment, increasing the amount of the budget dedicated to financing the past and putting the country at a small but increased risk of a future fiscal crisis.

Market interest rate signals can be misleading and dangerous. By blessing the U.S. with such low rates now, he says, financial markets just might be “giving us the rope with which to hang ourselves.”

Goldwein has no known relevant scholarly record.  He is a minor Pete Peterson operative.  His “crowding out” assertion is bunk in general and his compounding assertion that it explains weak wage growth compounds its baseless nature.  Nothing has crowded out private investment. Despite record low interest rates for over a decade, deliberate management choicesnot to invest in new plant and equipment and R&D and instead to do unprecedented levels of stock buybacks designed to raise the value of corporate CEOs’ shares have limited private investment. Goldwein does not even attempt to support his assertions with data or logic.

Instead, the facts force Goldwein into a startling charge that falsifies all of his neoclassical economic nostrums, not simply his Pete Peterson debt hysteria.  Neoclassical economics and finance predicts that creditors’ anticipation of future inflation largely drive present longer-term interest rates.  This is essential for modern macro’s bedrock rational expectations theory.  In his desperate effort to resurrect the validity of his debt hysteria in the face of supposedly catastrophic debt levels producing exceptionally low long-term interest rates, Goldwein tosses neoclassical economics’ most sacred cows (efficient markets and rational expectations) into the trash by pronouncing that “market interest rate signals can be misleading and dangerous.”

Put aside for the moment the hypocrisy of the fact that debt hawks have proclaimed for decades that nearly every small increase in interest rates is a clarion signal that the markets believe that government debt has reached such high levels that severe inflation is imminent.  In every modern case, reality has falsified these myths.

My colleagues and I have been making the point for decades that “market interest rate signals can be misleading and dangerous.”  Interest rates for extremely risky and fraudulent loans are, prior to financial crises, frequently glaringly too low.  First, the overall level of interest rates for lending becomes too low when an asset-pricing crisis is growing.  Second, the risk ‘spread’ between highly risky and low risk assets typically falls to ludicrously low levels as an asset-pricing crisis nears the “Minsky moment.”  The problem is not the capital markets’ inability to take into appropriate account future inflation, but the fact that markets encourage asset-pricing bubbles that render “interest rate signals … misleading and dangerous.”  Markets are frequently grotesquely inefficient and rational expectations theory is irrational.

It would be wonderful if Pete Peterson’s operatives joined us in fighting neoclassical fictions that Peterson has long spread.  It would be wonderful if Pete Peterson’s operatives joined us in fighting epidemics of “control fraud and predation” and warning against the bubbles that those pathologies hyper-inflate.  It is these fraud epidemics that hyper-inflate bubbles that are the Achilles’ “heel” of capital markets, core neoclassical theories, and financial crises. The firms that finance the fraud-inflated asset bubbles fit the metaphor about giving the private sector the “rope” with which they will hang the economy.

Capital markets have not displayed recurrent critical failures in modern times about anticipated inflation.  The opposite is true.  One of the best predictors of serious recessions are inverted yield curves.  Yield curves invert overwhelmingly based on future expectations of overall interest rate movements, rather than asset-specific credit risks

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  1. richard

    Can someone explain an “inverted yield curve” a little? I got that the yield curve expresses the difference between long and short term interest rates, the “yield” a lender would get from a loan,
    and I guess I get that inverted is when it’s turned around or oppositie
    but I’m not sure what “normal” is in this regard, or even which should be higher in interest rate, short or long term loans (slightly embarrassed not to know)

    1. Spoofs desu

      The phrase, inverted yield curve, refers to the graph where the time to maturity (e.g a 10 year treasury is 10 years to maturity) is on the horizontal axis and the vertical is the interest rate/return, annualized. So, “normal” would be a line graph where interest rates increasing as the time to maturity increases. When the curve is inverted, it is the opposite: as time to maturity increases return decreases.

      Theoretically, if you are locked into a long term bond or yo are lending longer term, you should demand a higher interest rate because the risk of lose is higher over time. When it is inverted, this logic doesn’t make sense, in terms of efficient free markets.

      Related, one main, traditional mechanism of a functioning banking system is that bankers borrow short term (I.e low interest) and lend long (I.e high interest rates) at profit. Banks do this for both investment and consumption. Basically, it is just the cost of money that has different time prices based on the duration of the contract of the loan or bond, etc.

      Thus, the fed can manipulate this mechanism by targeting the short term interest rate which in turn effects the banks lending at long term. This in turn effects the growth/aggregate demand in the economy.

      When the curve is inverted (or flat) this traditional process/theory breaks down.

      However, I think, in recent decades, interest rates and, fed policy in general, are more and more used to stimulate demand/consumption by decreasing the incentive to save. The inverted yield curve really drives by changing the trade off between consumption today and consumption tomorrow. I.e my money is worth less tomorrow so I am more likely to consume today thus increasing aggregate demand/gdp today. They are just front loading demand.

      Anyway, hope that makes sense…

    2. djrichard

      It’s interesting to see what’s been happening since the Fed Reserve paused their tightening. The 13 week treasury yield hasn’t been doing a thing – consistent with the Fed Funds rate not going anywhere. Today it’s at 2.37%. But after some noise, the 10Y yield has been on a trend line down. Today it’s at 2.64%. So there’s only 27 basis points separating the two. If 10Y continues its trajectory down it will be interesting to see if the Fed Reserve tries to stave off an inverted yield curve by lowering their rate. They’ve done that once before, back in 98 when people weren’t paying so much attention. If they did something similar this time, I think it would cause more than a few tremors.

  2. ChristopherJ

    Thank you, Bill, and I hope we can continue to make progress. Yet, there are many public servants who are paid to deny that MMT is anything more than a passing fad…a curiosity….
    Funny how MMT works for the wealthy, yet when more crumbs are demanded, we are told: well how are we going to pay for that?

    If we are to have any chance as a species, we need to start MMTing like mad to clean up the damage we’ve done.

    Yeah, nah, sorry, there’s no profit in that, which is why we are doomed. They will hold onto their wealth and power until the last minute…

  3. Skip Intro

    So the WSJ has to drop two heaps of debunked Fake News (the Loanable Funds Theory, and the deadly Reinhart & Rogoff GDP propaganda) into the story and still manages to make the argument for MMT. At least they are arming their less discerning readers with a pair of canards that are easily shot down.

  4. The Rev Kev

    For those who missed the story of how Reinhart & Rogoff screwed up their paper-

    It took a bunch of students to debunk this paper. However, this paper was used anyway to justify bringing in austerity into several countries which resulted in catastrophic consequences and the premature deaths of god knows how many thousands of people. Maybe even tens of thousands of people. Didn’t seem to have hurt Rogoff though as I have come across his name from time to time and never in a good way for us muppets. His latest crusade is to have countries abolish cash and go completely digital. I am sure that Mark Blyth would have a lot to say about the subject of Kenneth Rogoff.

    1. rob

      rogoff was just “the harvard economist” used as a “voice of reason” on an NPR story 2 days ago. about going cashless…. and the US could be there in 5 to 7 years….. they always pick such winners…. NPR (national propaganda radio)

  5. gallam

    “market interest rate signals can be misleading and dangerous.”

    This statement may well be true, but I’m not too sure that it is particularly relevant to the world in which we live. Is there one country in the developed world where you can observe a market based interest rate signal? The Fed’s balance sheet alone exceeds four trillion dollars. To give that balance sheet number some context, in 2006-7 you could significantly move the price of the 30 year US long bond with $50m distributed between eSpeed and Brokertec.

    The concerted destruction of markets for government debt is a radical policy and its effects are greatly underestimated. There has not been a proper test of the non-MMT version of this story, because the central banks have been busy pursuing MMT with an enthusiasm bordering on derangement.

    1. Samuel Conner

      Until Central Banks are prepared to directly monetize public deficits for public purposes, I don’t think it will be accurate to accuse them of “pursuing MMT”. QE is, IMO, fundamentally, in terms of the internal logic that ‘justifies’ the measures, about 2nd-order stimulation through interest rate suppression and perhaps wealth effects in the asset-holding classes (and perhaps a gift to the financial system in the form of reduced funding costs). What has been and still is needed is 1st-order stimulation through direct purchases of goods and services. The CBs are not there yet, it seems to me.

  6. Acacia

    Thanks much for posting this. My grasp of MMT is pretty rudimentary, so perhaps someone could help me to understand a few points that Black makes in passing.

    First, regarding the low inflation levels and that both the Fed and Japan have repeatedly failed to meet their targets, this is of course true. However, according to John Williams’ Shadow Stats, inflation is actually higher than reported and the numbers are in effect being cooked by a changed reporting methodology. Tbh, I don’t know how to evaluate this or whether the difference really matters as far as MMT is concerned (Black’s point about “higher” being relative stands), but I assume it does matter for many people who are on fixed incomes. So, how should I understand this?

    Second, I get the argument that national debt isn’t as odious as the debt hawks claim, when the currency is sovereign, and some critics are trying to compare non-sovereign with sovereign (e.g. Greece vs. Japan). Still, I wonder what the endgame looks like.

    Perhaps Japan is a good example here since the national debt is highest in the world? Then again, maybe not, because if I understand correctly the BoJ is dabbling in stocks, buying JGBs to prop up their price, buying REITs, etc., and putting all of this on their balance sheet. As many of you will know, there has been debate in Japan about raising the consumption tax and one of points made in that discussion (by two U. of Tokyo economists) has been that the debts pretty much cannot be paid off, even if the consumption tax were raised to around 25%, IIRC. The population of Japan is shrinking and eventually all the futon money will come out of the futons. Maybe this is an unanswerable question, but I’m wondering: what’s the endgame in this situation? Does MMT mean that debt could go to, say, 400% and it wouldn’t matter? Again, how should I look at this?

    1. voteforno6

      I think one of the points that could be made is that countries with fully sovereign currencies don’t even need to issue “debt.”

      1. Allegorio

        Debt free money issued by the Treasury and not private banks to invest in productive capacity, not consumption is the only way forward, both to save the planet from the ravages of capitalism and to pay off the debt, the debt of ordinary citizens and not the money looted by the kleptocrats. Productive capacity as in solar collectors on every building and mass transportation. All the money invested in autonomous vehicles that will never work, but we are unable to build a high speed line between San Francisco and Los Angeles. The irrational ideology of the political classes is truly a marvel. Of course, they already have autonomous vehicles, namely chauffeur driven.

    2. Adam1

      “…both the Fed and Japan have repeatedly failed to meet their targets…”
      I probably can’t give a full reply, but I’ll try to give a quick summary of key issues here…
      1) One key item is that monetary policy is never just simulative or just restrictive. It always is both and it is hard to understand ahead of time what the net effect will be. Rising interest rates increase the cost of borrowing and that forces some consumption to not happen. However, rising interest rates also means rising interest income which can stimulate the consumption of some actors within the economy.
      2) Most central banks are run by economists who still don’t really understand how it all works (scary huh). They lower rates thinking they are stimulating the economy and raise them to slow the economy. For example, during the middle of the crisis the FED dropped rates to almost zero and government interest payments to the economy dropped by almost $100B per quarter. Between 2011 and 2016 when rates were effective zero continuously interest payments by the government averaged about $420B per quarter. Today, with higher rates, those payments have grown to about $560B per quarter – $140B more interest income that can be (potentially) spent.
      3) Far too many economist, directly or indirectly, believe that the amount of money in the economy is what causes inflation. This belief is usually derived from confusing correlation with cause. Many things can create inflation within an economy… monopolistic pricing, currency depreciation, excess aggregate demand beyond output capability, a shock to supply (i.e. oil embargo). Rising prices will ex-post fact cause the amount of money to rise – rising auto prices means rising car loan amounts and loans create deposits (money).

      “I get the argument that national debt isn’t as odious as the debt hawks claim…”
      One of the keys is to understand the balance sheet of a currency sovereign. You will hear naive commentators admit that it a government sovereign in its freely floating fiat currency can never go bankrupt because they can always print more money to service their debts. The problem with this statement, while true, is that it reveals they don’t understand why. In the USA, a US dollar bill is a liability of the government; as is a US Treasury Bond. The dollar bill pays no interest whereas the bond does. The amount of debt outstanding is just a mirror reflection of the amount of non-government (private) savings in excess of non-government (private) debt; all surplus must have an equal sized deficit somewhere within the economy as the net must at all times equal zero. When the Clinton administration was running government surpluses the private sector was amassing massive amounts of debt and it CAN go bankrupt.

      “Does MMT mean that debt could go to, say, 400% and it wouldn’t matter?”
      Do you lose sleep worrying about the $12T in deposits held by all US commercial banks? I mean some of that money is probably yours. I’d suspect you don’t worry at all about it because you see your deposits as an asset, however those deposits are a liability to the bank. Government debt is a liability to the government but an asset to its holder… including pension funds, various bond funds, and maybe even your 401k. The total government debt is just the excess government spending that has yet to be taxed back, but there is also no requirement to tax it back unless everyone decides to convert that savings into consumption beyond the capacity of the economy to produce. It’s best to remember that the deficit each year is a residual. It’s an outcome of the net savings behavior of the non-government sector. And asking a government that is also the largest consumer in the economy to balance its budget as an objective is a good recipe for disaster… All surpluses (savings) and all deficits must equal zero… that very easily can create a spiraling decline until there is ZERO savings and zero budget deficit. Not a place anyone would want to be.

      1. Adam Hill

        “…both the Fed and Japan have repeatedly failed to meet their targets…”
        Ugh forgot the most important item… most central banks cannot actually create demand and hence directly impact inflation rates. Monetary policy is basically swapping various financial assets to change the pricing structure (interest rates) of those assets. For the central bank to actually impact aggregate demand and inflation it would need to buy new cars, build new office buildings, etc… Most central banks are not legally allowed to do those things and the few that can don’t.

    3. Woozel

      As many of you will know, there has been debate in Japan about raising the consumption tax and one of points made in that discussion (by two U. of Tokyo economists) has been that the debts pretty much cannot be paid off, even if the consumption tax were raised to around 25%, IIRC.

      Japan is the monopoly issuer of it’s own sovereign currency and it’s national debt is denominated in that currency. There will never be a point where the Japanese Government will be unable to pay it. Taxes don’t fund the government. They’re a tool used by Government to drain money from the economy.

      1. Michael Green

        I don’t think taxes drain money from the economy, since the money raised is immediately spent. They redirect the money. If used well, they take money from where it is achieving little, to where it will achieve more.

        1. Todde

          Taxes drain money, govt spending creates it.

          If the government would run a surplus, it would drain money from the economy.

    4. Skip Intro

      A basic thing to remember when thinking about Japan, e.g. is that that debt is denominated in Yen, so it would never be too high to pay off, since they can print all they need.

    5. eg


      What is this “endgame” of which you speak? Sovereigns are not like households in many respects, including the fact that householders are mortal, and sovereigns are not.

      So, their only endgames are civil wars, revolutions and/or being conquered by another sovereign.

    6. sierra7

      “Does MMT mean that debt could go to, say, 400% and it wouldn’t matter?”
      Only if it means using the money for public infrastructure, better public education, mass transit systems that really work, ridding our system of lead weighing college debt on our youngsters…….you get the picture….

  7. Tinky

    Indeed, inflation, for a decade after stimulus, remains so miniscule that the Fed views the inflation rate as too low – not too high.

    Sorry, but WTF? In an effort to support MMT, Bill Black (of all people) resorts to a measure of inflation that essentially ignores fundamental costs such as housing, healthcare and transportation?

    Furthermore, there has been severe inflation in both stock and property markets as result of the Government’s response to the previous crisis, and the consequences of the bursting of those bubbles have yet to be felt. Does Black simply ignore inflation that doesn’t serve his argument’s purposes, or does he believe such inflation to somehow be positive?

    Finally, for the moment, have any MMT proponents addressed the question of how the U.S. Government might be constrained from using its printing press to support its already grotesquely bloated military budget? In other words, if Government debts don’t matter, who exactly, will see to it that the “money” is spent in ways that actually benefit, rather than degrade both the country and the world?

      1. Tinky

        That data does not reflect reality, either. Do you not see how dramatically, for example, medical expenses have risen for average Americans? According to, per capita healthcare expenses in 2007 was ~$7630; in 2017 it was ~$10,730. That’s a 40% rise in 10 years. Do you consider that to be “minuscule” inflation, to use Black’s word?

        With regard to your second point, please explain how politics and policy might possibly be separated from MMT? To argue that the power to create infinite amounts of “money”, and assign where it will be spent, is not an intrinsic problem with the theory, strikes me as being spectacularly naïve.

        1. larry

          The theory says that a sovereign government with a sovereign currency system has no financial constraints. This does not mean that it is not constrained per se. There are always resource constraints. This only means that in not paying for something, like say Medicare, the government can not truthfully say that it has run out of money. Not improving medical care has to be justified by pointing to a paucity of doctors, nurses, medicine, etc.

          The theory does not strictly specify policy positions. If a government wishes to privatize Medicare in order to reduce public spending on health care, MMT does not have a position about this. What MMT shows is that the government has the money to spend but for reasons urelated to the amount of money available to it, it has decided to not spend its money in this particular way. This decision will be political and not economic.

          Medical expenses have risen for the average person. A sovereign government with a fiat currency system can deal with the finances involved in this rise. That they do not is for ideological reasons, not financial. In addition, sovereign governments with fiat currency systems do not use taxes to underwrite expenditure. So, they do not need to find the funds so that they can spend. They simply create their spending out of thiin air. Both Greenspan and Bernanke have admitted this.

          1. Tinky

            Thanks Larry, but I do understand most of your points, and am not seeing how they address my concerns.

            As it stands now in the U.S., politicians largely do the bidding of wealthy individual donors and corporations. They then often make policy based not on what might truly benefit the country and the average citizen, but rather on what will benefit their sponsors, and them (indirectly). This is, I imagine that most will agree, a terribly flawed system.

            Now, of course I understand that MMT itself doesn’t address such issues, but I really cannot understand how proponents of such an economic system can fail to address the obvious and necessary connection, and its deeply problematic implications.

            1. eg

              Crawling will be necessary before walking, and walking before running.

              Your frustration with the egregious policy priorities of your governing bodies is understandable, but MMT is silent on such decisions. It simply defines the fiscal space available to the currency issuing sovereign, and puts the lie to the “fiscal constraint” narrative that continues to be used to undermine those calling for progressive policy options by introducing the “how are you going to pay for that?” canard.

              MMT is about monetary operations, not the political decisions such monetary operations make possible.

              1. Tinky

                Yes, technically sovereign governments can “pay” for anything they like with “money” created out of thin air. But as there are certain to be adverse consequences stemming from the abuse of such power, so absent a credible argument for how MMT might instead be used benevolently, and for the greater good, any reasonable application of the theory is likely to remain a pipe dream.

                I’m all for World Peace, and can wax eloquent about its attendant advantages. But getting there in practice is a rather different matter.

                1. eg

                  Perhaps you misunderstand me — your government is ALREADY operating under the monetary principles described by MMT, and there are those who would argue that they already abuse that power through military adventurism and tax cuts for the rich.

                  Fearing abuse of power by progressives doesn’t help end its abuse by reactionaries.

                  1. Tinky

                    I am well aware that MMT is already in use. My question is how proponents imagine that the abuses might conceivably end.

                    1. pierre

                      MMT proponents are economists, not politicians. Your question is better directed to members of congress who legislate spending bills and hold the power of the purse.

                    2. BlakeFelix

                      A UBI is hard to abuse and lowers inequality, it seems to me, and can stimulate the economy and cause inflation. Control the inflation with a carbon tax and you have a hard to game system that steers the economy in the right direction, and since reducing inequality is the opposite of what rich greedy bastards want there is incentive to not get carried away. Getting the rich greedy bastards to implement it is a problem, but I fear the alternatives are ugly and they have the most to lose.

        2. pierre


          Those numbers could be interpreted in different ways. Could be that more Americans actually went to see their doctors in 2017 or that a greater number of them had been diagnosed with more serious illnesses requiring more expensive treatment and/or procedures.

          But assuming you are right that real inflation is actually higher than we thought it is – though you’re not providing credible verifiable data, but never mind – higher inflation does not falsify the core tenet of MMT which is that a monetarily sovereign gov’t like the US is, and will, not be constrained in its spending by lack of dollars but by real resources which, if in short supply, could lead to inflation.

          Inflation issues are not arguments against MMT because proponents do recognize its limiting factor in federal gov’t spending.

          1. Tinky


            Please do provide “credible” data that U.S. healthcare costs have not risen sharply over the past 10 years. I won’t be holding my breath.

            To your second point, I believe that MMT proponents would benefit from providing a clear and concise explanation of exactly how spending would be constrained. I say that because I know plenty of people who write it off simply on the basis of hearing the oft-repeated “core” tenet that sovereign governments can simply pay all of their bills with “money” created out of thin air.

        3. paulmeli


          Inflation is defined as a “general rise in the price level”.

          Translated that means that in real terms inflation is largely irrelevant. Wages and savings both rise with inflation along with everything else (distributional effects notwithstanding).

          What matters is what an hour of labor will buy.

          Since WWII the buying power of an (average) hour of labor increased until around the 1990’s. Since then it’s been stagnant or has begun to decline.

          The problem is one of distribution, not inflation.

          To lower inflation we would have to unemploy more people.

        4. Skip Intro

          The risk of inflation due to cheapening of money through printing is what MMT debunks. Inflation caused by monopoly/oligopoly rent extraction, as you cite with medical expenses, is another type of inflation entirely, and counting it in an empirical argument against MMT would simply not make sense. MMT is not, and does not claim to be, a preventative cure for any possible source of inflation.

          1. Tinky

            I don’t believe that it does debunk it. The Fed used a form of MMT to wildly inflate stock markets. That inflation is directly related to the cheap money that was made available to corporations, which was then used to buy back shares.

            The trillions of dollars of cheap money that was created by central banks since the last crisis is also responsible for an enormous misallocation of capital.

            1. Grebo

              QE is buying back bonds. That is swapping new no-interest money for existing +interest money. So there was no net increase in the amount of money, merely a change in its form.

              This actually reduced the ‘free’ money that bond holders were getting in interest and so they had to look elsewhere for profits.

              This is a pretty dumb policy to our minds but to their minds it is much preferable to giving new money to ordinary people, or spending it on useful stuff, as most MMTers would recommend.

    1. Acacia

      This first WTF? is something that puzzled me too (cf. my comment above referring to Shadow Stats’ inflation numbers).

    2. William Hunter Duncan

      I agree, it is hard to take MMT advocates seriously when they so enthusiastically offer up Fed CPI numbers as evidence of low inflation. It makes me think most of them make a lot more money than I ever have, that it has been decades since they were down to under $400 to their name like I am, like I have been a dozen times at least since 2008.

      MMT advocates would do well to explain what their theory would do for those of us making half the median income, which somehow in the twisted/demented measurements of these times is about half the population….

      1. Grebo

        It is not that MMTers accept the Fed’s chosen index as the one true index. It is that that is the number it targets and its failure to shift that number speaks to the value of its theories and policies.

        The fact that inflation is popping up everywhere that number ignores speaks more.

        MMT can do nothing for anyone, unless enough people who understand it and want to use it for good get elected.

    3. Adam1

      Are you suggesting that because some areas within the economy are experiencing price inflation that the economy is at full employment and that labor incomes should start rising at equally fast a pace any day now?

      Keeping unemployment elevated isn’t going to help bring healthcare, transportation and housing costs down. You need to enact targeted plans as advocated by MMT supporters.

      “Furthermore, there has been severe inflation in both stock and property markets…”
      Again keeping unemployment elevated is not going to change this. Both of these issues are driven by poor policy activity allowing for criminal behavior in the financial sector.

      “…if Government debts don’t matter, who exactly, will see to it that the “money” is spent in ways that actually benefit, rather than degrade both the country and the world?”
      We call them voters. I’ll grant you that our republic is ill and long term freedom for its populace is in a questionable state, but MMT, at the monetary operational level, seeks to help inform the people about how the system works and to dispel the illusions that people of power wish to maintain so as to keep the mass of voters frightened and divided.

  8. voteforno6

    Good overview, but I do have one quibble: I thought there were four phases (First they ignore / then they laugh at you / then they fight you / then you win). If that’s the case, then I think that we’re actually transitioning from the second to the third phase. It might take a little longer to “win” this one.

    In the opinion of this non-economist, the basic concepts behind MMT are actually pretty simple to grasp. The biggest stumbling block, I think, is that a shift in how someone thinks is required (a paradigm shift, to those of you familiar with Thomas Kuhn’s work). That could take some time.

  9. Ignacio

    And the WSJ article forgets to mention that many critics to public spending are biased in the sense that public spending is always good in defense (“MMTers” in defense spending) while bad for infrastructre, healthcare, education (orthodox only when talking about social spending). Which is specially weird if we take in account that military spending is the most wasteful of those.

  10. Rodger Malcolm Mitchell

    Bill (and Stephanie) are correct on every count.
    With regard to history, read: It is 2019, and the phony federal debt “time bomb” still is ticking
    With regard to Peterson, read: Pete Peterson foundation, your center for economic ignorance, speaks again.
    With regard to debt, read: Duck! The sky is falling and the “debt” is rising!
    With regard to proposals, read: The Ten Steps to Prosperity: Step 1. Eliminate FICA
    With regard to motivation, read: Gap Psychology is everywhere in your life

  11. Barry

    The next thing to watch out for, as MMT becomes a thing whose existence the media acknowledges, is not attempts at refutation, but ALEC-type politicians rushing to make it illegal. That is to say, a renewed push for balanced-budget laws, or to make pay-go a law instead of a congressional rule. Things like that.

    I suspect most people involved with budgets in Washington know MMT is right: so the trick has been to hide this fact. This is why we can spend any amount of money on foreign wars and regime changes while simultaneously claiming we can’t afford for the government to help people.

    As larry said above, MMT makes clear that it is politics, not financial concerns, that drive spending policies.
    And neoliberalism is about preventing the state from ameliorating the suffering of those that Hayek’s Magic Calculator deems undeserving.

  12. Susan the Other

    Thanks for confirming that MMT is on the march. I’ve noticed several essays and comments on the internet, some are totally reactionary but some are informed. In fact even a few on TV. The informed ones are not very negative, they are pretty matter-of-fact. Once you grasp the basic logic of MMT it’s hard to be frightened by it – just the opposite, because it suddenly becomes obvious that neoclassical economics is pretty insane. I look forward to watching the progress.

    1. MikeW_CA

      Love it! Exactly!

      If MMT opponents want any chance whatsoever at discrediting it, they need to convince Republicans to stop running long-term, large-scale experiments that prove MMT’s validity.

      As early as 2002, Vice President Dick Cheney said “Reagan proved deficits don’t matter.” Subsequently, George W. Bush proved the same thing with a tax cut, and later, Trump is proving it again with another.

      It doesn’t take a PhD in Economics to interpret the results of those experiments, either. Ordinary people can see them directly in their own lives. By now it’s becoming obvious to everyone that the question is NOT “can the Government spend more than it collects in taxes without causing calamity?” That question is answered, settled, proven, with a resounding “YES” at least 3 times in the last 40 years in the US.
      By now, everyone is gradually figuring out the question is really “On what shall the Government spend money, and who will it benefit?”

  13. John

    The MMT-inflation issue might be better understood if the distortion effect of monopolies, duopolies, natural monopolies such as health care and (oil and drug) cartel price fixing were better understood. The sovereign can “print” but it also needs to regulate. Taxing billionaires down to mere millions is to curtail the political and market distorting powers the money gives them. When Pete Peterson failed to convince us of his crackpot ideas with a book, he decided to buy a think tank and hire cademic propagandists. He pledged to spend $1Billion to fix the economy. He died last spring leaving about $2Billion behind. The Peterson Institute is dead oligarch mkney speaking from the grave.
    As I saw recently, no one “makes” billions of dollars, they acquire them.
    We need a gilded age refresher course to remind us of the xperiences and wisdom of our grsndparents.

  14. Robin Kash

    How does the status of the dollar as the (for now) world reserve currency figure into the ability of the US to continue growing its debt.
    I read recently a piece by Michael Hudson in which he expressed that the Venezuelan coup was the coup de gras for the dollar’s continuing as the WRC.
    Several countries are working out new settlement arrangements that by-pass the dollar.
    With the dollar’s status in such question, for how much longer will other countries gladly buy our T-bills, no matter the rate?

    1. Yves Smith Post author


      Being the issuer of the world currency means being wiling to run sustained trade deficits so that your currency is held abroad. No other large country is willing to do this. Running trade deficits = exporting jobs. Both China and the Eurozone are mercantilist and strongly prefer running trade surpluses.

      On top of that, the Eurozone is on the verge of having another banking crisis.

      The US also has, even in their diminished state, the deepest, most liquid and cleanest capital markets. We have the best disclosure. So people can park their money in US assets and feel as secure as they can investing in a foreign country.

  15. Sidney Falco

    Occasional columnist Doug Henwood claims he has a critique of MMT in the works for an upcoming issue of Jacobin magazine. As he usually characterizes MMT as “a cult,” I suspect it will not be made in good faith. But he also has a history of failing to deliver on promised projects, so we’ll have to see if it even materializes.

    1. Yves Smith Post author

      I was on a panel a long time ago with Henwood. Even though he has a lot of knowledge about banking and a great memory regarding particular events, he’s really unsound on macro. Basically of the Krugman school, debt is bad, deficits good only when stimulus needed, to be whittled down later. If Henwood has more worked out views, I assume he also subscribes to the loanable funds fallacy.

  16. rob

    The way mr black makes it sound is that the orthodox theories of over spending are not a real constraint . In moderation, of course. But really what is moderate about the spending that has created 22 trillion dollars in federal debt, as of now?
    I actually think that his support for a system that isn’t as frail, as the orthodox economists would have us believe , is a good sign.
    This system that MMT seems to describe, isn’t really about to implode with moderate spending, or non- intrusive tweaking.. The monetary system, is strong, enough to handle a political class who deems all the wrong things to spend money on;like tax breaks for billionaires,or runaway defense spending or wars fought for false pretenses.
    But now its time to get real.
    MMT is the grade school version of the story, in that it only says the system can handle all the other external factors, that have happened in the world in the last twenty years. And there have been a lot of them. The war on terror, the multiple new agencies in the federal gov’t like homeland security, the economic collapse of 2008, and the ensuing creation by the fed of 16 trillion dollars to give to friends of theirs, domestic and foreign banks and corporations. Years of QE policy.goosing the stock market. All this wall street oblige, and nothing for main street…. So the grade school version of the recent past is that the dollar is a valuable brand. And damn near any bit of insanity, isn’t enough to sink it’s viability.
    So now that we are adults, we can move past the limited scope that MMT seems to depict… And get on with what is a better vision.
    If the United States really can create its own money, why can’t we just create it and not have to issue all this debt, that will need to be paid back with more money created later. Which will in turn mean we will have to create more money to pay THAT debt…. ad infinitum. That just doesn’t make sense. If the US is sovereign, why don’t we just create the money from day ONE, and not have to pay any debts.We can just use that money for good.
    I would imagine all the people on wall street whose business it is to sell and handle those debt instruments, wouldn’t like that much. Just like all the health insurance companies won’t like a real single payer plan. I would also imagine the federal reserve owners,i.e. the member bank share holders who have 1st access to the cheapest money, may have to become better business people, to handle the death of their golden goose. When the treasury takes over the role of the federal reserve in creating the money. They won’t even be able to create money when they make loans. They will have to be consumers of money, rather than creators.
    With the federal reserve act creating the modern situation where the federal reserve creates the money, up front, and again the same private banking industry creates more when making loans(with interest owed to them on the front of that loan),all to be backstopped by the debt the treasury creates to balance out the money created by the private banking industry;all just seems too cumbersome and unfair.
    Why doesn’t the united states just create the money from the get go, if it can. Is the fact that it doesn’t now, mean it can’t?Is that what the federal reserve act does, it prevents the government from creating dollars without owing debt to the banks?

    1. skippy

      Before the big panic gov would bail out banks and vice versa, then we got the Fed, there are about 3 distinct periods post that, were in the quasi monetarist period now. Regardless of the currant dynamic about the Fed its the dominate ideology supporting mainstream economics and how the political class avails itself too it.

      MMT basically challenges the above WRT what is possible, contra to hand waving.

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