Why Are Their Lordships So Frightened of Modern Monetary Theory?

Conor here: It would appear that MMT has caught on enough in the UK that is now being attacked by the lords. The following post details how those attacks are uninformed or intentionally misleading.

By Richard Murphy, part-time Professor of Accounting Practice at Sheffield University Management School, director of the Corporate Accountability Network, member of Finance for the Future LLP, and director of Tax Research LLP. Originally published at Fund the Future

I have already noted the bizarre evidence submitted by Joe Stiglitz to the House of Lords Economic Affairs Committee.

Now, I have been tipped off (by another economist) about the similarly absurd, anti-MMT evidence also supplied by Charles Goodhart and Olivier Blanchard to this committee. Both made their comments in their opening statements, like Stiglitiz did, and without any (apparent) prompting from the Chair.

Goodhart, whose work has become increasingly odd with age, said:

Yes, of course [government debt] matters. It has to be repaid with interest. The Government can always pay it by creating money to pay it off, but that causes inflation. One of the problems with MMT is that it assumes you can wait until inflation hits before doing anything, whereas the inflationary conditions can get worse and lead up to an inflation that is much more difficult to counter when it takes place.

Blanchard said two things that I want to draw attention to in his preamble. The first was:

Coming back to the question on debt, my answer is that debt is costly; I agree with the other two speakers. From an economic point of view, it decreases capital accumulation. Depending on what capital accumulation is decreased, it may be costly or not very costly, but it is an issue. From a fiscal point of view, as Charles said, it requires more taxes in future, although the answer there very much depends, again, on the valuable r-g. When r-g is zero, you can finance the interest for new debt and keep the debt ratio constant, so the cost in terms of future taxes may be quite limited. However, the notion that debt is costless is a non-starter.

The second was:

On MMT, I have never fully understood and, I think it is incoherent. One thing that has been said by some is that the central bank should basically cancel the debt it holds, which would decrease the debt. That is nonsense, but I will stop there.

Let me deal with these, in turn.

Goodhart is wrong: government debt is never paid off. It rolls forward and has increased steadily over time. There is not the slightest evidence that it is ever going to be paid off. In that sense it has no cost. That is hardly surprising: it represents cost-free money creation. We need that money in use. Why does he want to deny that?

Then there is the question of the cost of interest. As Blanchard said later in his opening comment, if r-g (the interest rate minus the growth rate) is zero, then there is no real interest cost either. And as Goodhart noted later in his evidence:

From having been negative, you are likely to get something like 3% to 4% inflation [now], 1% to 2% growth, and nominal interest rates at about 5% on average, so real interest rates on the order of zero.

So, there is no cost to capital repayment, and there is, in the case Goodhart outlines, no foreseeable real interest cost to borrowing. What, in that case, is the question of sustainability that they were pontificating about in a very narrow frame all about?

So, having demolished all they had to say with their own words, let me turn to their MMT comments.

Why did they raise this issue right at the start of their sessions? Could it be that they had been asked to do so?

No one defending MMT is being called, as far as I can see. What are their Lordships terrified of?

And as for the observations: Goodhart could not be more wrong about what MMT says. Its absolute suggestion is that money in excess of what is required to put all available resources to use must not be created if inflation is to be avoided. MMT says the exact opposite of what he claims.

Blanchard is no better. First he declares ignorance. Full marks for honesty and none for competence: why is he so scared of something he apparently knows nothing about. I simply do not believe his claim.

And what is nonsensical about saying a debt, when bought by the person who issued it is, for all practical purposes, cancelled and that if new debt is then issued, it is not in economic substance that which was repurchased? If he cannot comprehend that, then he really should not be giving evidence. This is, after all, what the UK Whole of Government Accounts show precisely because this is, when substance rather than form is considered, what really has occurred.

So let me explain what they clearly do not understand, which is that MMT is rooted in reality.

The question about whether debt is sustainable requires, first of all, the question to be asked, ‘Is the government in debt?’ The answer is it is not.

Second, the question then is, do people want to save with the government? The answer is undoubtedly that they do. It is savings that are credits on the government’s balance sheet, not debt. Now you deal with the uneconomic reality of that. This is what MMT does.

Then, MMT looks more broadly at aggregate demand in the economy and the means of providing the liquidity required to maintain it at full employment levels. That is the question of concern, not the sustainability of debt. The debt is always sustainable if we have the aggregate means to pay for it – which we do at full employment.

The problem for these economists is that they were talking about microeconomic siloes of concern,  not macroeconomic issues of reality. That’s the difference between them and MMT.

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  1. Ignacio

    As a matter of fact MMT thinking is applied whenever considered necessary by the authorities. No limits to spend promoting, let’s say, political partners in countries where you want regime change. No limits to spend in wars here and there. Debt in such cases comes frequently with 0 returns and is not considered costly. This shows that all things with money are arbitrary stuff not really limited by pseudoscientific economic talk. It is only a question of willingness to follow some political agenda.

    1. JohnnyGL

      In this sense, I suppose we have to thank that inadvertantly superb economist, Dick Cheney, for grasping the controversial idea that ‘Reagan proved deficits don’t matter’.

      The evil Neo-Conservatives always want more war, and aren’t about to let some abstract threat of economic crisis slow them down.

      Vietnam War spending really did bring economic costs that helped break the Bretton Woods system, but since then, we haven’t run into economic constraints to our imperialism…at least, not yet…

        1. skippy

          When its to financial elites it just gets cycled back into financial paper which increases its price and does nothing for the broader economy … you know the productive good kinda inflation …

      1. esop

        When Reagan was asked how he would manage the increasing debt loads, his answer was:
        “The debt is big enough to take care of itself”.

        Since April 15, 1971, international capital constraints were abandoned resulting in the elimination of fixed exchange rates, thus causing the globalization that destroyed the U.S. private sector labor unions and allowed businesses to exploit workers throughout the world. Reagan had nothing to do with it, and the trend continued one administration after another.

    2. jefemt

      A matter of Political Will, and Political Won’t.

      Imagine if we could agree on a Kennedy Moon-shot like program for Sustainable Energy and Transportation Infrastructure in the US
      (I know a big ask- Imagine you have a full wallet and full basket of goods we’re in the Economy Store of Imagination now…)

      Imagine if all of the make-work projects were heavily monitored and regulated with labor standards, fair wages, smaller decentralized local and regional businesses providing the work— ie the money hits many more pockets and attenuates the circulation before it inevitably trickles up. Maybe tax the end trickle-up bag-holders for a change?

      We would get the infrastructure, which would be a subsidy to ALL who use and benefit, and perhaps help sustain life and start to limit warming, reverse warming,
      We would see folks employed, and all the attendant ‘good’ that comes from work and fair wages

      Would we see inflation? Too many dollars chasing too few goods? I dunno. I believe those dollars would stay in the consumer necessity categories–
      It seems prices for fundamental capital goods– warehouses, ag land, real estate… they have all ready aggregated into the pockets of the few, and will forever more be beyond Joe Sixpack…

      I can’t imagine anything worse than what we have right now— the wealthiest and corporate interests buying up housing at inflated values, distorting and ruining “Mr Market”,
      same cohort buying up ranch and farm land at per-acre costs that cannot come close to being defended, reconciled, or pencil for a true ag producer.

      I do know this- our local amenity-based economy, and the surrounding ag communities– ‘we’ have truly broken our local economy. Help wanted signs abound as local wages cannot cover rent and cost of living.
      And it’s not only happening in the Rockies. There are no folks left to do the work. Not that the folks would not work, they can’t afford to live.

      And the Political Won’t in my neck of the nation-state, loaded with radical right armed ‘christian’ wingnuts, supporting, aiding, and abetting Oligarch refugees…the assault here is breathtakingly dire and depressing.
      Any vision of an alternative approach will be met with fierce opposition – bellicose belligerence-
      because Freedumb!

      I did just see Japan is apparently looking at stopping its negative interest rate policy. They have 150 year Mortgage terms, and a lot of other financial tools and practices to cope with the implicit recognition of scarcity on a finite closed-loop system: earth, along with some unique cultural and National realities that are difficult to relate to from a western perspective.

      Whatever we are doing, there are a LOT more folks having to deal with the fallout than ever before.

      Be careful to not Become The Other. That sh*t’ll kill ya!

      1. t

        The Kennedy Moon-shot was entirely a Cold War shot at Russia. MAGA is about being the guys who tamed the west and won WWII.

        A lot of folks want you agenda banished – even some who need it.

      2. Adam Eran

        JFYI, I’ve read the government took over 50% of the US’ economy in that big public works project called “WWII”… The (probably inadequate) Green New Deal would only take 5%.

    1. Mikel

      “Both made their comments in their opening statements, like Stiglitiz did, and without any (apparent) prompting from the Chair….’

      In various parts of the world, they are hell bent on making sure budgets are allocated to war-mongering and compound interest and notional value of other assets that are the safety net in a hyper-financialized economy are protected.
      I wonder if a memo even has to go out at this point or do they just reflexively know how to circle their wagons?

  2. JohnnyGL

    One of the biggest problems the anti-MMT crowd has (not that they’d admit it) is trying to explain the economy of Japan. By all the standard economic theories, the country should have had several rounds of a ‘crisis of confidence’ in which all the citizens desperately liquidate their savings and run to another currency (always the USD, of course).

    It’s quite telling that there’s been no sense of urgency to come up with explanations for this. How useful would Astronomy be if the geocentric universe crowd just continuously hand-waved away all the inexplicable movements of the planets and they continued to strut around like they were smartest, most esteemed people in the room???

    1. TimD

      Japan mirrored the US in moving factories offshore, experiencing slow economic growth and needing to pump money into the economy to keep it running. MMT says that’s okay because Japan is sovereign and can keep running deficits to pump the economy up. I haven’t heard the MMT crowd say that the need to run deficits is a symptom of a problem with the economy and here are some changes that will make the economy grow on its own again.

      1. Adam Eran

        MMT says very little about where to invest money–except perhaps in a job guarantee. Michael Hudson is more scrupulous about avoiding economic rent (money paid for unproductive purposes).

        1. TimD

          Yes I agree, Michael Hudson has observed how the modern economy has become more feudalist with oligarchs not really having to compete or pay attention to the rules. When I read Wealth of Nations Smith spent a lot of ink talking about how society was held back by Royalty giving out licenses and permits to print money to their friends and family.

  3. timbers

    “Yes, of course [government debt] matters. It has to be repaid with interest.”

    No, it does not.

    Governments with sovereign currency that issues debt owed to itself does not have pay the debt or it’s interest. Ever. It can cancel it at will, or just keep issuing currency to pay it.

    I know not of MMT, but if this one key fact is part of MMT, it’s good at least up to that point. As such, it is a total refutation of the neo-liberal/libertarian position described as “Yes, of course [government debt] matters. It has to be repaid with interest” as championed by Democrats, Republicans, Neo-liberals, libertarians, and the Wolf Street crowd.

    Too much of this type of MMT can result inflation, but it can also prevent things like The Great Depression and create demand for production when production is out there but not being used, and also tells us there is no reason for cutting off Social Security and Medicaid and Medicare and other needed government services because “deficits”.

    1. LifelongLib

      My (very sketchy) understanding of MMT is that a government that controls its own currency can create (simply by spending) any amount of that currency without taxing or borrowing. The government “debt” is not an amount that was borrowed from someone and has to be paid back. Rather it equates to net private assets. Trying to “pay back” the government “debt” sucks assets from the private sector and results in depressions etc.

    2. Mikel

      See my comment below: “In lieu of any other type of safety net, compound interest gains of savings/assets become the safety net.”
      That’s not any theory. That is what’s going on. That’s why the 401k, etc.

      On another note: The old days of floating checks in a community as a form of currency is instructive. The person or entity that takes the check to the bank instead of floating it to another party as a form of payment takes the check that was on the ledger out of circulation.
      And all that is interesting and with its own caveats because whether or not a check is accepted as payment, especially from a third party, is a matter of trust and faith in credit.

      1. jsn

        Re; “floating checks in a community as a form of currency”, a Minsky quote, “Anyone can make “money”, the trick is getting others to accept it.”

        Personal credit money is contingent on the proximity of means of production: to the extent one’s productive capacity is recognized by others with the necessary surplus, or faith in other credit relations, to float your term, everyone trustworthy (most people) could live off one another’s credit (and those not trustworthy quickly recognized as such). But the “productive capacity” referenced is that of actual producing material goods or benefits, or direct access to them to back the debt in a knowable timeframe, so close to and transparently related to a “means of production”.

        As actual production becomes remote, dependent on unknown intermediaries and unrecognized or understood processes, the social relation breaks down. Money is a social relation, but at scale requires institutions of commensurate scale.

        1. Mikel

          “As actual production becomes remote, dependent on unknown intermediaries and unrecognized or understood processes, the social relation breaks down. Money is a social relation, but at scale requires institutions of commensurate scale.”

          How about a tweak?
          “Money is a social relation, but at scale requires institutions with a commensurate amount of accountability and transparency to inspire trust.”

  4. James E Keenan

    I commented directly on Richard Murphy’s blog on Joseph Stiglitz’s bizarre attack on Modern Monetary Theory before the House of Lords.

    Here, a few comments on the testimony from Charles Goodhart and Olivier Blanchard. Two things are striking. First, how they launch salvos against MMT apparently without being asked about the subject by the Lords. Second, how they conflate the concept of debt sustainability with that of resource sustainability.

    No one would dispute that if a country’s government spent foolishly (e.g., failing to repair roads and bridges), then the future productivity of that country’s economy would be adversely affected. Further, no one would dispute that if a private corporation within a given country foolishly took on debt — whether in its domestic currency or a foreign currency — then that corporation’s future would be cloudy; if many corporations did so, there would be a macroeconomic impact. And if a country’s government issued debt instruments in a currency which it itself did not issue — a foreign currency — then it would have to accumulate that foreign currency in order to meet interest and principal payments. By definition that’s risky, hence possibly not sustainable.

    If, however, a country issues debt instruments only in a currency which it itself issues and controls, then it can meet all payments for interest and principal as they come due. Its debt is sustainable even if its mobilization of resources for the public purpose is not.

    1. jsn

      Also missing is the understanding that the balance of “Government Debt” is privately held monetary assets held in that Government’s currency: to “pay off the debt” is to liquidate private holdings of the Government’s money, to functionally liquidate the economy.

      Double entry book keeping is baffling to people who want “money” to be a “thing” rather than the social relation it actually is: a thing is a thing and requires no balancing entry on someone else’s balance sheet. Not so with a social relation where the meaning comes from the relationship between the counter-parties.

  5. Samuel Conner

    > Goodhart is wrong: government debt is never paid off.

    I believe that there are a number of 19th century examples in US of attempts to reduce the Federal debt to zero. Each one resulted in a depression, for reasons that are obvious from the MMT perspective.


    Personally, the most compelling argument I have encountered has related not to the accumulated “debt”, but to the annual “deficit”. In Randall Wray’s “MMT Primer”, which IMO is well worth the time to read, there is a section on the “causality of the Federal deficit.”

    Prof. Wray argues persuasively that the size of the annual deficit is determined much more strongly by private sector decisions on whether to spend or to save (spending generates additional economic activity and tax receipts; saving basically takes funds out of active circulation in the economy). The government sets its tax and spending policy, but the non-government sector reacts to that, and the net result is that the decisions of non-government actors substantially determine what the net Federal surplus or deficit will be.

    Once one realizes that, the agenda of “controlling the size of the deficit” as a policy objective is seen to be kind of pointless. Instead, one should shape State fiscal policy to accomplish two things — i) accommodate private savings preferences and ii) accomplish beneficial real-world changes in the material circumstances of the Nation.

    What one sees in US is kind of the opposite of both agendas — i) the private sector wants to accumulate savings, but the political leadership wants (or says that it wants) to force private sector dis-saving through government deficit reduction, ii) some of the untouchable parts of the Federal budget (such as the military budget) are those that do the least real-world good and the most real-world harm.

  6. Neutrino

    Down at the pedestrian level, consider a popular quote that would resonate among the masses.

    If you can just print money, why am I paying taxes?

    1. Robert Hahl

      Answer: So that they can print more money. When Goodhart said, “The Government can always pay it [debt with interest] by creating money to pay it off, but that causes inflation,” he should have said the Government can always pay debt by creating money to pay it off, but that causes the need to raise taxes to avoid inflation. Deep down, their real fear is of anything which makes raising taxes seems like a good idea.

    2. Samuel Conner

      I think that a valid MMT-informed answer to this would be:

      the government needs, in order to accomplish its various functions, to purchase a certain proportion of total output. If private sector savings propensities are insufficiently high, funding government operations without taxes (ie, through money printing alone) would result in demand that exceeds the available output capacity of the economy, which would bid up prices for the limited output.

      You can’t “just print money”. The actual limits of the what the economy can produce are an inescapable constraint. These limits are, however, not fixed. During WWII, Federal spending (and, importantly, resource-management) policy accomplished astonishing increases in productive capacity (focused, of course, on war industries) in an amazingly short period of time. US was very resource-rich and its economy had something of an autarkic character. Present-day Western amazement at the resilience of the Russia Federation economy is a bit hard for me to understand; don’t people read history?

      A subsidiary but not insignificant issue is that taxation creates demand for the National currency and contributes to its acceptance among the population as the dominant medium of exchange, which is implortant for acceptance by the population of the State’s proffer of its money in exchange for the real goods and services that the State must purchase in order to function.

    3. ChrisRUEcon

      I loathe the term “printing money”. It has become the worst, most pedantic euphemism exactly because: “resonate among the masses”. The “masses” are not “currency issuers”, they are “currency users”.

      The main purpose of taxes at the federal level is to control inflation. See Beardsley Ruml (via billmitchell.org) for more on this.

      See also my comment from almost two years ago here (via NC). Macroeconomic idiocy abounds – from top to bottom.

      1. Objective Ace

        The main purpose of taxes at the federal level is to control inflation

        Maybe initially, but I would argue it has become a way to redistribute income from the middle class to the rich who can have loopholes aplenty. Warren Buffet is on the record saying he pays a lower tax rate then his secretary

        1. ChrisRUEcon

          > Maybe initially, but I would argue it has become a way to redistribute income from the middle class to the rich who can have loopholes aplenty.

          Exactly this, but in reverse via progressive taxes that take more from the billionaire class! As MMT architecs and adherents say, the taxes aren’t for revenue but to distribute money away from the highest earners do you don’t get top down inflation, skewed (over) consumption of resources (like housing!) and other deleterious effects like say, I dunno, having enough disposable income to buy as many politician as you like!

          I just found out that Yves reposted Ruml’s paper here on NC.
          From the What Taxes Are Really For section:

          1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;

          2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;

          3. To express public policy in subsidizing or in penalizing various industries and economic groups;

          4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.

          [Emphasis mine]

    4. Mikel

      The tax element is there to control inflation.
      The big problem is there is never going to be a “job for everybody that wants one” .
      Not everyone will be able to work until they drop. Even if you could, raise your hand and tell me “that sounds fabulous, sign me up. I’m down to do anything.”

      1. Mikel

        To finish:
        Yes, it is easy to jump to MMT.
        But unless budgetary priorties are reorganized, it seems like just another lever or alternate lever to pull that could generate something like a cantillion effect, wealth inequality generator.

        Talking about any monetary theory should never exclude talking about resource allocation and who has the power. That is where the battle is. Various monetary theories are tools that battling factions use.

    5. Xihuitl

      Can’t find the quote now but somewhere I read some authority saying that the main reason for taxes was to make the citizens resent the federal government.

    6. cousinAdam

      After listening to and learning from MMT gurus here at NC ( I now subscribe to both Stephanie Kelton’s and Steve Keen’s very understandable and enjoyable Substack posts, and Michael Hudson’s podcasts are regularly linked here at NC as well) the “obfuscationists” would have you believe that there is no real difference between a household/ county/ state or federal budget- more debt means more taxes/ bills and some day we’re gonna have to “pay the piper”. Simply put a sovereign government spends money into existence ( turns on the printing press, adds to the “debt “, makes keystrokes at a terminal, what evah) to increase the money supply to stimulate the economy for the benefit of the people. Infrastructure, Education, Health and Human Services, housing assistance and creation, and sadly, the MICIMATT monster that has our Congress by the “short hairs”. Our taxes paid to the IRS, besides contributing to our Social Security accounts, don’t “pay” for anything- except to reduce the money supply- some of that dough that was spent into existence ( The Uncle giveth, and the Uncle taketh away) All governments beneath the sovereign must levy and collect taxes to fund their budgets- not unlike a household. Borrowing is an option of course, as is default and going bankrupt. As Prof. Hudson is known to say, “debts that can’t be paid, won’t be paid!” – and in pre-Biblical times, the Sovereign periodically or in the event of a disaster like a crop failure would declare a “Jubilee Year” – all tax and mortgage debt wiped clean- a literal blank slate so farmers could keep their lands and borrow for next year’s crop – iow business as usual could resume without the banks and “other” lenders ‘hoovering up’ everything. A tradition worth reviving, imho.

    7. redleg

      Many comments above about controlling inflation, but influencing behavior is another reason.
      A third reason is to influence political power by redistributing wealth to and from targeted groups. Right now the targeted groups in the US are a la Dennis Moore- take from the poor (99%) to give to the rich (1%).

      Don’t forget that state and local taxes do fund state and local governments as they don’t issue their own currencies.

    8. Useless Eater

      Taxation helps give fiat currency its value and also helps defeat any competing currencies.

      If you weren’t required to pay your taxes in the currency that the regime issues, then you might not care at all about their currency. You might find some other currency to use. But because you are required by law, backed up by men with guns, to pay your taxes in the regime’s currency, now you have to go out and get some of that currency. So now that currency has value to you, whereas before it might not have had any.

    9. dunkey2830

      Neutrino: “If you can just print money, why am I paying taxes?”
      If one didn’t have to pay taxes one would have no need for that nations currency. Essentially, the taxes give value to the currency.

      Consider Mosler’s oft told story of ‘The Hut tax’ – when the British initially arrived in Africa they wanted to get the natives to work for them – they offered them British money but the natives had no need for such money – they were quite self sufficient happy to keep living the way they were. So the British introduced a ‘hut tax’ – payable only in the currency of British issue. If the residents didn’t pay up, their huts and other properties were burnt down & destroyed.
      Though simple and crude it demonstrates that a need for a currency must be established and maintained – one of the many functions taxes serve in a national economy.

    10. eg

      You are paying taxes because a fiat monetary system BEGINS with the levy of a tax obligation, followed by government spending in the token demanded in payment (to the exclusion of all other forms of payment) of said tax obligation.

    11. fjallstrom

      The government doesn’t need it’s money back from you, it needs the labour and resources you gave up for that money. It needs to tax you to make sure you keep working and producing goods and services for whoever the government makes sure has money. Which is mostly banks, large corporations and government employees.

    12. Adam Eran

      Spending by the monopoly provider of dollars must logically precede tax collection, otherwise no tax payer has dollars with which to pay those taxes. Taxes do not provision such spending–they can’t.

      So why taxes? To create the demand for dollars, which retire an inevitable liability.

      What “tax & spend” misses is the correct sequence. It’s “spend first, then retrieve some dollars in taxes.”

      And what do we call the dollars spent, but not retrieved in taxes…you know, the ones in your wallet?

      Answer #1: the dollar financial assets of the population. Answer #2: the national debt. Both answers describe exactly the same thing, just as your bank account is your asset, but the bank’s liability.

      Incidentally, marching down to the bank to demand it reduce its debt would (if successful) reduce the size of your account. Not very sensible.

  7. Gregory Etchason

    The National Security State is exhibit “A” of MMT. MMT is attacked to cover for what they don’t want to admit. The reality that matters is how the money is spent. US weapons are designed to maximally extract money from the Treasury not win wars, as evidenced by Vietnam, Iraq, Afghanistan and now Ukraine.

    1. Adam Eran

      Kalecki talks about how “defense” spending is designed to produce profits without productivity. I’d suggest this may be a key flaw in capitalism.

  8. TimD

    There was a time when the US had robust economic growth of over 4% and the national debt was decreasing as a percent of GDP. Then Neoliberalism happened with its tax cuts, deregulation, deindustrialization and lack of investment in the domestic economy. Real trend economic growth slowed to 2% and that was combined with deficits that averaged about 5% of GDP. With ZIRP, financing the debt was easy, not interest rates are more normal and the interest on the $34.5 trillion in debt could reach $1 trillion this fiscal year. I totally understand running a large fiscal deficit in times of financial crisis or something extraordinary like Covid. However, the US has had deficits that are twice the size of GDP as normal course of operations. It is like governments are pumping up the economy to make it seem vibrant and dynamic and legitimate, If it cut spending to balance the budget it would probably go straight into recession. MMT doesn’t do much to address that today’s US economy can’t generate enough economic activity to reduce its deficits,

    1. Gregory Etchason

      It all started after WWII. The dollar Hegemon first rebuilt Japan and Germany to compete and take market share from domestic industry. Nixon went to China then quickly closed the gold window expanding to fiat currency. The Dollar Hegemon only works by importing manufactured goods made at “Everyday Low Prices”. You won’t hear BRICs talking about replacing the “Dollar Hegemon”. Only moving on leaving the US trapped in their own mendacity and greed.

      1. TimD

        Well said, I agree the post-war boom should be seen as more of a black swan event. It was just chance that companies paid their taxes, paid employees well and real growth could average over 4% per year. Firms are profit maximizers and always seek ways to lower the cost of production. I could not imagine an American government telling people to forget about that level of growth, this is as good as its going to get and it will probably get worse – after all its more important that companies are profitable in the long run.

        When the US gave up its manufacturing it also gave up its ability to maintain hegemony – although it will take a long time for that to be apparent. Countries that are outside of the West don’t need to rely on it for manufactured goods or financing any longer. The only way the West has to convince other countries to go along with it is by plying them with money or threatening violence. I find it very telling that Biden was unable to turn the Rouble into rubble and even supply Ukraine with enough ordinance.

    2. Samuel Conner

      MMT provides clarity about what the actual constraints on State fiscal policy are. Accurate perception of these is helpful in designing policy.

      > MMT doesn’t do much to address that today’s US economy can’t generate enough economic activity to reduce its deficits,

      Given US private sector savings preferences (the private sector wants to run an annual surplus) and the reality of the structural trade deficit (we are “addicted” to inexpensive foreign goods), the Federal deficit is baked in. The implication, MMT-informed, is that if you want to reduce the federal deficit, you’ll need to either induce the private sector to save less or net purchase less foreign product, or both.

      Private sector dis-saving is hard to induce — how many people want to increase their debt burdens? The most accessible policy would be some form of industrial policy that encouraged “re-shoring” of mature industries or domestic development of new industries. This goes against the free-trade/comparative advantage ideology that underlies the present global trade system. I hope that it will happen but am not confident.

      1. TimD

        By clarity do you mean positions like taxes don’t fund government spending and a country with sovereign money does not have to worry about debt?

        The US private sector may be running savings in the US but it is investing in plant and equipment in other countries where costs are lower and then selling back into the US. I haven’t anything from MMT on how to change this.

        I agree with you that the way the economy is currently structured there won’t be much more re-shoring unless the government recognizes that the current ideology has failed. Until that happens there will be continued slow growth with increasing deficits. But again, I don’t hear much from MMT on that.

        1. Samuel Conner

          by “clarity about what the actual constraints … are” I’m thinking in terms of the unarguable truth that the fundamental limits on what it is possible for a monetary sovereign to do are limits in the real economy (for example, “manufacturing capacity for 155mm artillery projectiles”, a currently relevant constraint), and not limits on the ability of the government to find the funds with which to implement its policies.

          Re: “I haven’t anything from MMT on how to change this [the current flows of capital and goods]”, this is a policy choice, and MMT doesn’t prescribe policy; it clarifies the actual constraints on policy. Having said that, my perception is that most of the people who both understand MMT and are willing to affirm it (I suspect that there are a lot of self-described ‘fiscal conservatives’ in government who understand MMT but conceal that in order to pursue austerity) are of a more progressive policy bent, and I suspect that these people would not look unfavorably on industrial policy to promote reindustrialization of US. The constraints on this actually happening are, I think (and as you suggest), political and ideological, and perhaps also legal (I’m not sure how much or how aggressive industrial policy is permissible under WTO rules).

          1. TimD

            Yes that makes sense. Money can buy shells but it takes a factory to produce them, which means a long lag between when they spend on a factory and the deliveries start arriving.

            In whatever I have read on MMT the proponents are very focused on asserting that money can be spent on social programs, often stating just like how military spending just happens without regard to the budget and debt. Spending on social programs over military is a policy choice too. I would say spending on military at the level the US spends is the wrong choice as well so my heart is with the MMTers. For economics the concern should be why has growth slowed to such a level where the government needs to keep pumping money into the economy to make it seem like the economy is going well. Or what has changed in the economy where it was growing at 4% with debt decreasing as a percent of GDP, to where growth is half of that and the debt is growing at 2 to 3 times the rate of the economy?

            1. Samuel Conner

              > For economics the concern should be why has growth slowed to such a level where the government needs to keep pumping money into the economy to make it seem like the economy is going well

              My perception from what I have read in the non-technical MMT literature is that MMT proponents tend to be less concerned with “rate of growth” and more concerned with “full employment.”

              Bill Mitchell and Stephanie Kelton have written eloquently on how present US policy uses the level of unemployment as the policy lever to control the price level. The Federal Reserve has two mandates from Congress — full employment and price stability, but only one (or maybe one and a half) policy instruments (the overnight interbank interest rate and the bond yield curve). It has redefined “full employment” to mean “that level of unemployment that is compatible with price stability”, and so the level of employment has been changed from a policy goal to a policy instrument, and the level of human suffering is used to control the level of price inflation.

              The MMT proposal to maintain price stability with actual full employment is the “Job Guarantee” proposal, which would abandon the “level of unemployment” as the inflation control policy tool and replace it with the basic wage paid in “Job Guarantee” jobs, that would be funded by the Federal Government but locally managed so that the work that was done would be well-suited to what was needed at the local level. Involuntary unemployment would be eliminated and lots of useful work, that is currently not being done because it is unprofitable from the point of view of for-profit private enterprises, would be accomplished (think New Deal WPA-style projects, for a start, but there is lots more that could be envisaged. Visit any Medicaid-funded LTC facility if the imagination needs stimulation.).

              Here is Randall Wray’s argument for why “employment” should have policy priority over “growth”. It’s the conclusion of a major section, “chapters” 42 to 49, of the MMT Primer that discusses the Job Guarantee proposal.

              1. TimD

                I thought this was interesting from Wray, ” It is much better to create the jobs and then let growth follow, rather than to try to pump up growth in the hope that some jobs might trickle down.” Pray tell, where are these jobs created and who creates them? Obviously we don’t need to worry about the cost because debt doesn’t matter.

                The point that MMT misses is understanding what has happened to the economy that has stopped it from creating those jobs or from creating good jobs like it used to? What has changed and what needs to be done to improve it?

                MMT is quite Hegelian where the idea of sovereign money and what it can do in theory is more important than what is happening in the actual economy.

                1. Samuel Conner

                  > The point that MMT misses is understanding what has happened to the economy that has stopped it from creating those jobs or from creating good jobs like it used to?

                  The problem of underemployment is baked in to the incentives of the powerful in modern economic systems. It precedes the changes of recent decades in the structure of US economy.

                  Another useful article from the history of progressive thinking about modern economies is Mikal Kalecki’s “Political Aspects of Full Employment“.

                  Bill Mitchell argues here that the Job Guarantee avoids the problem that Kalecki describes. It’s a long post, containing a lengthy summary description of the Job Guarantee concept. The latter part interacts with the problem that Kalecki describes, of the political power of enterprise leaders, who prefer that there be enough unemployment that workers are afraid and compliant.


                  I think that MMT has more connection to the real world than you perceive. The people (in principle fiscal conservatives, “hard money” advocates, etc) that MMT proponents are arguing against are, IMO, the anti-realists.

                  The New Deal is, arguably, a good historical precedent for what “money can do.”

                  1. Samuel Conner

                    > what “money can do.”

                    rather, “what intelligent and public-spirited policy can do”. Money is just a tool.

                  2. TimD

                    Throwing money at a “baked-in” problem doesn’t solve the underlying problem. It is like a patient who is bleeding and the doctor gives them a transfusion. When asked why the wound wasn’t closed the doctor says, “we have a sovereign blood system and I can keep pouring blood into the patient until they die of natural causes.”

                    Even with all the new technology and the increase in well-educated people the US economy is experiencing decelerating growth. The amount of deficit spending to keep the economy growing has been growing as a percent of GDP. To someone who studies the actual economy, this is cause for concern. What I get from MMT is, “who cares, we can just focus on full employment because we are monetarily sovereign.”

                    1. Samuel Conner

                      MMT describes how the finances of monetary sovereign states actually function.

                      The truth of MMT’s description does not alleviate policy-makers from the necessity of choosing wise policies to accomplish whatever it is that they want to accomplish.

                      For example, if your policy preference is “defeat Russia”, well, the fact that the US is a monetary sovereign does not alleviate the problem of how to actually configure a military and the underlying war economy to support the military in order accomplish the objective of defeating Russia.

                      The same holds for any other policy objective. MMT does not make “all things possible”. It illuminates the policy freedom that does exist; that policy freedom is not infinite, and depending on the nation’s circumstances it may be quite limited (for example, if one is a small, resource-poor open economy with a non-convertible currency, well … good luck with that).

                      US has a lot of policy freedom that could be used to pursue the well-being of its population. But that’s a policy agenda that the leaders would have to embrace, and then to accomplish the policy agenda they would have to devise appropriate actual policies.

                      MMT implies that the great Barack Obama’s lament that the government was “out of money” is not a valid excuse. But our rulers prefer this way of thinking whenever the population expresses a desire for government “for the people.”

                      That may be what’s going on in the House of Lords, too.

                2. Samuel Conner

                  My apologies for not answering previously.

                  > Pray tell, where are these jobs created and who creates them?

                  “where created”: geographically, where there is involuntary unemployment. It may be objected, “Jesus! That’s everywhere!”

                  Yes, it is.

                  “by whom”: there would need to be created some form of administration with local offices that would administer the program, matching local “unemployed but interested in working” people to local needs for things to be done that were currently not being done.

                  Funding would be centralized, administration devolved.

                  That’s a very vague, high level description. What it would look like in practice is not known, but perhaps at some point we will find out by actually experimenting with the concept. I hope that it doesn’t take another Great Depression to generate the political will to undertake such experiments.

                  As you have noted, “funding” is not the constraint.

  9. Wukchumni

    M MT, fill up the moneybags again…

    One thing i’ve noticed in the happy go lucky digital money era, is there aren’t really many hyperinflation episodes, probably because nobody sees how much money is being created out of thin air, not all that dissimilar to hyperinflation which needs a physical host. the 100 or so instances of it in the past century were all sovereign currencies, so much for a country not being able to go broke.

    It’s brave new world stuff-MMT, but not really.

    Ok, time to pummel me with fiscal brickbats, give it your best shot.

      1. Wukchumni

        When I say go broke, a country’s currency goes broke, take Argentina for instance, 25 years ago a Peso was worth 1 US $, now it takes 400 of them to make a buck.

        Always after the dust clears and a currency is worth bupkis, they come up with a new one, often the changing the name or making it the ‘New Peso’ or other such tomfoolery.

        How people function there currently i’ll never know, but in their favor this is the 4th instance of hyperinflation in 40 years, so they’re experts at coping.

    1. Samuel Conner

      No pummeling from me — there was a time when I, myself, found gold-buggery to be pretty compelling. Back in the ’90s, for example, I was terrified of the prospect that the WJClinton Treasury’s move to shorten the maturity distribution of outstanding Treasure Bill/Bonds, by refinancing maturing long-term issues with shorter duration new issues, to reduce interest expense (at the time, the yield curve on Treasuries was normal, with long-maturity notes having higher yield than short-maturity ones), would result in an interest rate death spiral and US default. Didn’t happen, of course, and MMT explains why. At the time, MMT was much less well publicly-articulated than it would be a decade later when I learned of it. I am very glad that I did learn of it — it helps me to sleep sounder.

      A friendly suggestion — the next time the weather is too inclement for useful outdoor activities and all indoor agendas are accomplished, check out Randall Wray’s “MMT Primer.” It is possible that you will appreciate it as much as I have. Stephanie Kelton’s “The Deficit Myth” is also very helpful.

      1. Wukchumni

        I read Wray’s MMT Primer and sorry, not convinced.

        I come from a historical basis of watching money from the last few thousand years, and money can be anything, for instance in honor of St Patrick’s Day today, the Irish once made money out of cannons, I suspect when the $ crashes and burns, guns might be money in the USA, being one of the most fungible items in these not so united states.

        Gun money (Irish: airgead gunna) was an issue of coins made by the forces of James II during the Williamite War in Ireland between 1689 and 1691. They were minted in base metal (copper, brass or pewter), and were designed to be redeemed for silver coins following a victory by James II and consequently bore the date in months to allow a gradual replacement. As James lost the war, that replacement never took place, although the coins were allowed to circulate at much reduced values before the copper coinage was resumed.


        1. Samuel Conner

          Do you have any objections to the National Accounts Identity? You read about that in Wray’s Primer.

          If you accept the National Accounts Identity (and it’s hard to not accept it, it’s an accounting identity), you don’t have a lot of ground to stand on to disagree with Wray’s assessment of “what is the causality of the Federal deficit?”

          MMT as a description of the finances of monetary sovereign nations is simply “accurate accounting.”

          1. skippy

            Never understood how some think comparisons between bimetallism and MMT are substantiated. In the case of coinage, historically, it mattered not what it was in, gold or lesser metals when the issuers government or authority collapsed. It became spot price or worse and no longer used for satisfying contracts as currency.

            Not that in history if one nation had a bit of a currency drama due to the lack of shiny stuff you could always gin up a war and steal someone else’s shiny stuff. Not that most of the antics were about power and transfer of it to ones brood, currency was just the liquid asset to facilitate all those human foibles.

            Then again sound money types always start from money, never society or how humans are in reality, eons of this with the same results.

            MMT just provides the non ideological or egotistical framework in which debate can be had about policy formation in shaping society, not that under neoliberalism there is no society, just the Market ….

            I say this as someone that was indoctrinated in sound money since a kid, family owns substantial mining property with old 3 gold mines on it from the turn of the 19th century, copper, turquoise. Mining the stuff as a kid and socked a lot away of many decades only to sell the lot post GF when the price went whoosh. Once in a life time opportunity.

            Then after coming to NC in the early days and being informed of MMT, took the time to delve into it, I do have a past in accounting/finance since a kid, came to the conclusion that it was a functional description without all the ideological baggage monetarists and their ilk are burdened with. The same can be said about Orthodox economics IMO, hence why I gravitated to PKE.

            The focus on money just ignores so much and more than not is just a reflection of whatever direction elites are up too.

          2. skippy

            I would add this was the argument about Milton Friedman back in the day and his History[???] Book, which before even digging into the History, was decided that currency/money was always the Culprit [post hoc proper hoc style].

            Worse is this camp always starts off with what humans – are – via deductive reasoning and then call it irrefutable logic.

            This is why Greaber was such a threat to some, did not play rhetorical games or use the methodology Keynes used, actually drilled down into the Anthropology/Natural History on offer today to gain insight of the human condition.

            Better yet the funding sources and networks established to support the sound money camp is a big red flag of concern.

          1. skippy

            An “accounting tool” which got its start as tiny clay tablets with the beginnings of writing on them, noting the commodity they were attached too.

      2. Dick Swenson

        Thank you, Samuel Conner for both your commnts above, and below but especially for your suggstion to read Randall Wray’s MMT Primer (above). Mentionng Stephanie Kelton is also appropriate

        If you are interested in some real background, Google “Warren Mosler.’

        As for the phrase printing mony it should be relegated to the lexicon graveyard along with ‘decimate’ and ‘epicentre.’ Ony the Printing Office of the Treasury can print money. Banks create money when they loan funds.

        1. Samuel Conner

          Agreed — Mosler’s contributions are foundational — funny how it took a banker to figure out how banking actually works. His “Seven Deadly Innocent Frauds” is very helpful.

          For whatever reason, Wray, Mitchell and Kelton have been more visible to me. But I agree that Mosler’s contributions are at the foundations of MMT.


          Re: “printing money”, one still needs to notice (as I’m confident that you do) that bank-created money is not permanent; ordinarily it is eventually repaid, at which point it ceases to exist. State money, once created by State spending, continues to exist until some of it is extinguished as tax receipts.

    2. Robert Hahl

      Why not just raise taxes to curb inflation? If that is not enough, freeze prices but not wages until things come back in balance. When there are things available to buy, the problem with inflation is not that prices are too high, but that people don’t have enough money to buy them.

      1. cfraenkel

        Because that’s really what this argument is about. They don’t want to. They have stacked the deck to funnel more and more of the cream to the top of the pyramid, and don’t want to have to take their hands out of the cookie jar.

      2. Jason

        Because you’ll lose elections. It ain’t just policymakers who believe taxes are needed for spending. Ordinary people think the same too. They won’t accept the idea that the government would raise taxes to reduce their nominal incomes just to keep inflation down.

    3. LY

      Because most of the world wants to run trade surpluses with the US, so their capacity is soaking up the money creation.

      Also, those sovereign currencies were pegged to gold, and for most of modern history, silver.

    4. Susan the other

      Would the “Lords” rather go back to living in caves? I think you, Wuk, would survive quite well in a nice cave with a southern exposure. I would too but my money would be totally worthless. So MMT is basically saying that if we want to maintain value – of society, of wilderness, of ecology, of technology and all the things we value and have spent millennia creating, then we must balance these valuable things with time invested and money is how we account for that time. Mostly to prevent getting too ripped off by grift and graft. Look at all the good things we have created. Worth gazillions. These guys are pearl clutching over piddly-little trillions. And I haven’t heard any “Lords” denying that time is money. Funny world. I think those guys are ripe for satire.

      1. cousinAdam

        Hear, hear! I would add that said satire should be delivered with pitchforks for emphasis.

      2. Wukchumni


        I’m all for keeping this jury rigged worldwide financial system of ours intact, as the alternative is so very frightening were money as we know it were to become redundant, and as an added bonus it would effect every currency in the world, as they are all backed by nothing other than the QWERTY, and the mouse clique

        Sequoia NP would probably be called ‘Natural Caves NP’ if it weren’t for the forest for the trees, there are about 250 caves to choose from, most of them hidden away far from the maddened crowd

    5. eg

      If your experience of money is that it’s an object (ie. coins or the metal that it’s made of) then your understanding of it will be very different than if you experience it as a system of obligations (which is to say credit).

      Unfortunately for those who think in terms of money as an object, we actually operate in a system where it’s a ledger of obligations (credits and debits) — the objects are just tokens within the system.

      1. Fred Grasser

        And yet – when the financial bubbles burst and crisis hits real hard everyone is heading for cash because an IOU in form of credit money is no longer good enough. Marx’s three functions of money come to mind

  10. Samuel Conner

    I speculate that “Their Lordships”, provided that they actually understand the implications of MMT for what it is possible for Monetary Sovereigns to accomplish in the public interest, might be afraid of public fury at the way the UK government has refused to use what fiscal policy space it does have (which may not be “a lot”; UK is a medium-sized not-resource-rich open economy and faces significant fiscal policy constraints) in the interest of the people of the UK.

    It may be best, from the Lords’ perspective, to try to suppress public understanding of why it actually is that so many of the people of UK cannot have nice things.

    1. Korual

      If you personally had a magic money tree growing in your back garden, would you tell anyone about it?

      Would you F(amily blog)!

      The Lords aren’t stupid, they’re keeping it all to themselves.

      Martin Wolf, financial editor of the Financial Times, wrote an article saying MMT is correct but the electorate and politicians can’t handle the truth.

  11. James T.

    The idea of MMT is really illogical and to me is just a way to support our horrible management of our country. Yeah maybe the US will never have to pay anything back and maybe in the fantasy world we live in everyone will forever accept the USD because they know we are so brilliant and amazing. The fallacy of looking back 50 years or so and say see nothing has happened so it never will violates my basic understanding of history. I would argue if money does not really matter then why did we invent fiat currency in the first place. I am not on the level as many of you in relation to the financial system but the one thing I sure hope is that your right. In the mean time accepting only a few owning everything which is the direction we are heading would definitely make money insignificant. Thank as always for the great article and amazing discussion forum which really facilitates opening my mind to new ideas and other opinions.

      1. redleg

        Not only that, but the value of currency pegged to a resource such as gold is arbitrary. It can be changed at any time for any reason.

    1. eg

      Er, money as credit is as old as the Bronze Age civilizations. This says precisely nothing about the competence of the politicians running the show (to the extent that the oligarchs which own them allow).

      I interpret the significance of MMT to be that widespread understanding of it would throw responsibility for economic outcomes back upon our elected representatives who have espoused fairy stories to the contrary in order to dodge accountability for their (in)actions.

  12. Eclair

    So, I found a graph of the US money supply (M2) levels from January 1959 to January 2024, and it rises (skyrockets?) from $286.6 billion to a peak of $21.7K billion in August 2022, then drops to $20.8K billion in January.

    US population doubles in that same period, from roughly 174.2 million to 333.3 million. Doubling the 1959 money supply would equal roughly $580 billion. So, we have a lot more money per capita than in the 1950’s.
    But, we also have giant smart fridges that pop ice cubes out the door and pocket-sized phone that give us instant access to music, information on almost any subject, maps, restaurant reviews, Uber rides and take photos. Plus medical advances like practically non-invasive cataract surgery and replacements for hips, knees and teeth. Oh, and, a climate that is increasingly unstable.

    But with this amount of money sloshing around, we should be able to provide a basic subsistence income for everyone: shelter, adequate food, medical care, at least at a 1950’s level. Oh, and top-notch education for our kids. Where has all the money gone?

    1. Samuel Conner

      > But with this amount of money sloshing around,

      I think that it isn’t sloshing, more nearly “sitting there, slowly oozing through the cracks”, getting spent somewhat more frequently than “once per year” (GDP/M2 is somewhat larger than “1”).

      US has sufficient real productive capacity to adequately provision its population with food, housing and many other necessities (I’m not sure that our present medical care system is adequate, between the erosion of the medical workforce during the pandemic and future increased care requirements, again due to the pandemic).

      There is not yet political will to provide “universal concrete material benefits”. I suspect that part of the problem (aside from the malice of sociopaths among the elites) is that basic universal programs would require a sufficiently large proportion of total output that it would be necessary to significantly raise taxes in order to maintain price stability (as discussed earlier in this comments thread). This is not popular among the people who have the power to influence policy.

      Perhaps US should be thought of as an “anti-social democracy”.

    2. eg

      Your question speaks to distribution — a concept banished from the models of the orthodoxy which acts as a priesthood justifying the status quo.

  13. Keesa

    MMT is a stillborn concept because in the present day, after USA tried printing money, stopped printing money, and also did all kinds of tricks, politicians and bureaucrats have realized that tricks of circulation cannot save capitalism, and thus they need the new theory for either direct investments or new kind of state enterprise or something like that. MMT died before coming to the testing stage because the age it was born in and was born for is already over

    1. Yves Smith


      MMT is how a fiat currency system works. It is not a “stillborn concept”. It is in use right now, all the time, by sovereign currency issuers. The fact that some choose to operate as if they were still on a gold standard system or currency users does not invalidate MMT.

    2. Adam Eran

      You remind me of my mother asking which countries use MMT. I responded by asking her which countries follow the law of gravity. Those were the ones “using” MMT.

  14. Mikel

    In lieu of any other type of safety net, compound interest gains of savings/assets becomes the safety net when resources of all kinds are are badly allocated.

  15. Mikel

    The elephant in the House of Lords:

    The UK can’t maintain a fleet of ships like it used to, but the City of London can brilliantly hide money from the taxman.

  16. dunkey2830

    I think this is a pre-emptive attack on MMT by the wealthy ‘lords – severely ‘shell shocked’ at the extent of the unprecedent devastation inflicted on both Establishment parties by the electors of Rochdale – Galloway’s Workers Party attracted twice as many votes as both Labour & Conservative combined.
    The second placed ‘Independent’ candidate also attracted more votes than both Labour & Conservative combined. Such a political drubbing has never before occurred in British History.
    Sure the denial by both establishment parties of an obvious, undeniable genocide in Gaza is a factor in that electorate – but the nationwide loss of credibility ‘leaders’ suffer in supporting that ongoing lie is the proverbial albatross around the neck of the elitist rulers. People with basic human morals can’t vote for them any more.

    But why the attack on MMT?
    I suggest it is because the Workers Party now accepts the macroeconomic reality of MMT – though they have not publicly advocated same, it is steering their economic policies. If one listens to what Chris Williamson has to say on macroeconomics he is unmistakeably MMT informed – Bill Mitchell, on return to Australia after recently visiting the UK said in a recent blog that the Workers Party “understand Modern Monetary Theory (MMT) yet choose (in their words) ‘strategically’ to ignore it and, instead, mouth mainstream economic fictions to avoid ‘scaring the horses’..”

    Brit wealthy elites sense that an economic reckoning is looming – they are preparing the ground to repel a challenge to THEIR treasured neoliberal serving economic order.
    If the momentum of UK voter rejection of the ‘establishment’ political parties continues on present course it could well lead to that ever so necessary macroeconomic showdown – so long needed to halt the downward spiral of an already impoverished working class.

    In my opinion the British and European working classes have suffered sufficient growing deprivation under neoliberalism to be now in a mood to listen intently to an alternative macroeconomic reality that offers real hope for their future.
    More of the same economic medicine just will not cut it any longer – the product of ‘economic orthodoxy’ has failed the people – due crisis of Ukraine, Covid and Gaza ‘establishment’ trust is gone .. and they now know it.
    Panic stations rule.

  17. Ingolf Eide

    MMT accurately describes the workings of a fiat money system where the sovereign issues its own currency.

    That’s certainly useful but I don’t think someone like Mises, for example, would have found anything surprising about MMT as far as its descriptive accuracy is concerned. Where he would have differed is in some of the conclusions drawn.

    Nor would Mises have had any problems with National Accounts identities. Per Samuel Connor, accounting identities . . . can’t not be true. Here too, where Mises would have differed at times is in the conclusions drawn about causation. As Bill Mitchell put it, “. . . we need to understand both the accounting aspects that are true by definition as well as the underlying theoretical structures which drive the balances.”

    Here’s one example where I think some MMT enthusiasts get the causation wrong: The notion that the private sector is reliant on government deficits for net saving.

    If we change “net saving” to “net financial saving”, it’s obviously true (ignoring net exports). However, the most important economic activity is often tucked inside sectoral balances. Like investment. It’s already accounted for in arriving at the private sectoral balance.

    Some of the better performing economies run balanced budgets, even at times surpluses, like Switzerland or Sweden. They also tend to have high savings rates (low 30s) and relatively high investment (mid to high 20s).

    Others, like the US and the UK, run perennial fiscal deficits. They have low savings (mid teens) and low investment (high teens to low 20s). In recent years, both occasionally slipped into negative net savings, most unusual and clearly harmful in the long run.

    1. skippy

      Problem with all that is America as Reserve Currency has to run deficits and trade imbalances.

    2. Samuel Conner

      > The notion that the private sector is reliant on government deficits for net saving.

      The causational argument made by Randall Wray in his MMT Primer runs the other way — private sector net saving (leaving aside the external sector for the sake of simplicity in my comment; MMT encompasses that too, as you know) substantially determines the size of the government deficit.

      Having spent a dollar into existence by purchasing goods and services, if that dollar (I’m assuming one dollar net of any tax receipts that may have been generated by the original purchase, for example taxes on profits earned from goods purchased or income taxes for employee services) stays in a bank account for the rest of the accounting period, it generates no further economic activity and adds to the deficit exactly one dollar.

      If the owner of that dollar instead spends it, it generates more economic activity and more taxes on profits and income, which reduce the deficit, and the residue again lands in someone’s bank account. It will either be saved or spent by that bank account’s owner, and the cycle continues.

      Private savings choices determine the magnitude of the Public deficit.

      MMT proponents are keenly interested in investment in the real economy. The argument is whether the size of the Public deficit per se should be a policy objective and a constraint on real world policy agendas in the Public and National interest. I find the MMT argument that it should not be an objective or considered to be a constraint to be a compelling argument.

      That still leaves open the harder real-world questions of “what would wise policy actually look like?” MMT is not a policy prescription, simply an understanding of how sovereign money actually works.

      1. Ingolf Eide

        Samuel, apologies for not replying sooner. I checked in for about a day and a bit and assumed the caravan had moved on. Today’s check-in was on the off chance.

        Anyway, couple of thoughts.

        I wholly agree with your last paragraph . . . the tough bit is what should be done with the “freedom” granted by fiat sovereignty.

        There’s no doubt the sectors influence each other in reflexive ways. My guess is the extent and direction of causality probably moves around a good deal and is almost infinitely complex.

        As to what drives deficits I lean towards the greater agency lying with government. Setting aside politics per se, seems to me the only real constraining force the private sector can exercise is through balking at bond issues.

        I take your point that what the private sector does with the proceeds of deficit spending will influence the ultimate deficit but I’m not sure how big a factor that is.

        Simplistically speaking, once a government has decided on its fiscal policy, I think the main effect of private sector decisions on savings plays out in the external balance.

        These few thoughts come with plenty of caveats. I’ve arrived at them in a gradual fashion over the years and certainly don’t pretend they line up with any particular orthodoxy. Nor do I have any wish to argue in their defence too hard. My interest in threads like this is mainly to see if anything comes along that shifts my views and hence brings me a little closer to a deeper understanding of the given topic.

        Appreciate your response.

        P.S. Is there any way to get email notifications of responses on NC?

  18. Keesa

    It’s a stillborn concept because governments are going away from monetary policies towards more heavy-handed direct approach. At least they’d like to, there’s just no theory for post-neoliberalism yet. I’m sorry if this sounds callous

    Bourgeois economics to begin with are a pseudoscience, and those serve as a postfactum justification for the policies implemented. MMT is refused by their lordships because it came too late, there’s no place for MMT because their lordships need weapons and to somehow restart, “reshore” their industries, and MMT is just the flavor of the old same neoliberal thing

    It’s like trying to peddle liberal markets to a feudal economy – neither nobles or nascent industrialist class there need that, they need strong state policies, either king’s or dictator’s, for creating the industry first. After that stage of development, liberal markets may finally come in. Regardless whether or not MMT would have worked in the past decade(s), it’s not useful to their lordships. They’ll find themselves a flavor of (neo)fascism eventually, anyway, because they always arrive at that solution. If you want MMT to be relevant, modify it to suit the needs of the future, not of the dead neoliberalism era

  19. Mark Dempsey

    For a little related blog self promotion, an answer to conventional economics’ take on debt: “Fiscal Restraint is Dead”…and I say “thank goodness!”

    Meanwhile, regarding conventional economics: From: “Alice’s Adventures in Equilibrium”: “Much of what passes for economic and financial analysis is incoherent. I’ve chosen that word carefully. The problem is not that the beliefs of investors are “less true” than they think. It’s that many of the most commonly repeated phrases don’t mean anything close to what investors think they mean. It’s that many of these belief systems are inconsistent, confused, or rooted in false premises. They are incoherent in the same way that it’s incoherent to debate how many pine trees are planted at the edge of the earth, how many aardvarks you need to start a thunderstorm, or how the gold coins in the pot at the end of the rainbow are invested. That’s not to say that incoherent beliefs have no impact on the markets. But it does mean that the speculative market impact is entirely the product of what Buddhists might call ‘mental formations’ that may not, and need not, have anything to do with reality, and leave investors vulnerable because of it.” – John P. Hussman, Ph.D. President, Hussman Investment Trust, [Hussman Funds]

  20. Ingolf Eide

    “And what is nonsensical about saying a debt, when bought by the person who issued it is, for all practical purposes, cancelled and that if new debt is then issued, it is not in economic substance that which was repurchased.”

    Richard, would you be good enough to lay out the nitty-gritty details of this process, how it works in practice in the UK case? I’m assuming, by the way, the above was in response to Blanchard’s comment that:

    “One thing that has been said by some is that the central bank should basically cancel the debt it holds, which would decrease the debt.That is nonsense, but I will stop there.”

  21. podcastkid

    Everyone’s ahead of me here; yall are more learned. But I feel I must state a simple person’s opinion.

    So, for instance, I think Jim Kavanagh recently put the spending question in a frame that one can jiggle around some (meaningfully) like an equation. Nothing particularly deep about this time he broached the subject. Nothing particularly spectacular; he makes comments like this routinely (but each time lately I can relate to the riled-upness more). Maybe some of his opinions on other things are too bold, but IMO he’s got the spending issue down to where you can re-describe it accurately without going too far from his version. The degree to which the tax-solution-people don’t see where he’s right is IMO a problem [re which I think Jack Rasmus agrees with to some extent, though Rasmus endorses big spending on what needs it]. But what I think some MMT folks [perhaps including Kavanagh] may not quite get is that when the work force gets burnt out plus ideologically disillusioned, then you have trouble. There’s also trouble due to at that point the work force might have been losing skills. What I say is Kavanagh is wrong to the extent he does not realize the mechanism that creates too much inflation when too much money is created…is real. But of course the mechanism is not an exact thing as it works its way across diverse nations and currencies. It works in a stretchy rattletrap [but to me amazing] way without an exact law [remember, I confess to knowing little economics and little Marx]. Like the price of oil for instance. The US could appropriate 40 trillion for building a bullet train from NYC to DC in 3 yrs; but the amount appropriated would not overcome the inherent infrastructure creation limitations the system had allowed itself to acquire. Most of the “created” money that’s wrecked the-economy-as-a-whole has been defense spending [think bombs to drop on Gaza], and, once it’s been spent/created, what we can do about the wreckage is limited.

    At an arbitrary get-go point in time create more [spend more on] healthcare staff slots (which’ll go up against private equity right off the bat). That’s one sure way to inject value into the-overall-economy.


    1. Samuel Conner

      You are describing real economy constraints, which are indeed real and are the fundamental constraint on what can be accomplished through State spending. MMT fully embraces this, but it may be that not every non-academic MMT enthusiast who speaks in support of MMT fully grasps this.

      I fully agree that public investment in the healthcare system would be a way of increasing real-economy productive capacity. IMO changes away from the current “for profit” system would be helpful, but I won’t hold my breath. One gets the sense that everything is becoming like Boeing.

      Cynically, what will probably happen instead of public policies to protect worker health is that the disabled workforce will simply be replaced with imported workers.

      1. podcastkid

        Thanks for your response.

        …but it may be that not every non-academic MMT enthusiast who speaks in support of MMT fully grasps this.

        Well, MMT is not being proclaimed so much these days as the magic answer, so I think you’re right. But it’s still too abbreviated by some who speak in support of it.

        …would be a way of increasing real-economy productive capacity.

        My quibble is only a small quibble. It’s only a matter of how it’s spoken of when there’s only time for limited words. What we can see is what nobody wants to detail (accurately) is that globalization is quintessentially the thing Jacque Ellul called technique. We can’t just hope for more self sufficiency; globalization will not just go away because some humans can see we need another way. I usually would prefer the word “value” to “productive capacity,” or to at least add it in. In each case of explaining an advantage we must I think mention what capacity has actually put in the warehouse…iow unfortunately the VALUE of the thing we have to trade. All who speak in support of it have not all been through the hoops of discovering the depths (sadism) of what nutball managers have done to the outlook of workers and potential workers these days. Miraculously it hasn’t been done yet to many “imported workers,” which means someday the “disabled” workforce should try to realize that the former will oft times be way better suited to look after them when their time starts to run out. It’s a humbling thing for some to realize, but actually segues well with a solution to what many see now as some kind of ultimate threat (the border etc).

        BTW it’s obvious organic crops…that require more human workers than chemicals…will end up outselling products derived or consisting of GMO.

        1. Samuel Conner

          Not sure that I fully follow you, but I sense that you are arguing, at least in part, for more attention to “use value” as opposed to “exchange value”. This would argue for more localized conceptions of “productive” economy that are configured to local needs and resources. I agree.

          Regarding the flows of less-disabled workers, this may be a partial solution to problems in the richer nations as their present workforces are progressively disabled by incompetent or malicious public health policies, but what will that do to the “labor drain” nations, that themselves are not doing a great job of protecting their populations from creeping mass-disablement?

          The fiscal policy freedom implied by MMT does not solve the problem of global declining value-production due to world-wide democidal public health policies.

          Faced with that, to borrow an expression from Job, there is not much to do other than to put one’s hand over one’s mouth, and be struck with awe.

          1. podcastkid

            Guessing I’m more concerned with ‘exchange value,’ but will look it up.

            …but what will that do to the ‘labor drain’ nations, that themselves are not doing a great job of protecting their populations from creeping mass-disablement?

            Good question, and to answer it one would really have to grok MMT in all its dimensions. Suppose we did like Nader advocates and cut down on H1 whatever visas. That would be one thing. But if we only cut down on half, perhaps MSF and the Cuban doctors could train as they practice? But you’d have to really know what MMT would cause in a negative sense…if the US and UN “created” enough funds to make the training possible.

            Memory’s getting dimmer these days some…you mean like in Job 38?

            1. Samuel Conner

              I was thinking the beginning of chapter 40, but I had to look it up. Memory does age.

              I don’t think we will be able to thoroughly anticipate the positive and negative impacts of policy; if it happens at all (I am not optimistic about actual futures, however cheerful I try to remain about possibilities) it will be “learn by doing”, New Deal-style, hopefully with a good impacts-measurement agenda as part of the experiments.

              1. podcastkid

                I don’t think of AI as in the least bit sentient; I only think of it/them as big programs constantly learning, like the weather ones. Maybe a discussion could begin like weapons inspections. We tell China: our program says do thus and such; and OTOH China tells us: hey, our enviro program says do this instead [but they don’t seem enthusiastic about theirs either]. Then both sides could examine each others’ programs. That would be one approach to transitioning, no? Re the recent article on transitioning, I haven’t looked at it yet.

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