I find the need to pen this open letter in (hopefully) supportive criticism after attending one-too-many workshops on economics-related topics where a supporter of Modern Monetary Theory (MMT) takes the floor to “explain” (at length and often out of context) that all the social goods we want can be afforded because the government can print/create money.
In writing this, I am not addressing the MMT academics and thought-leaders whose political values I probably share and whose knowledge of economics exceeds mine. Indeed, in part, I write because I think this work is being undermined by some MMT followers.
As I listened at the most recent workshop to the MTT-for-beginners lines I was reminded of my early days of politics where Trotskyists would intervene at every meeting to tell us that the problem was capitalism and could only be solved by revolution (oh, and “do you want to buy our newspaper?”). They appeared not really interested in the issue or immediate problem being discussed. Their main intent appeared to be getting converts to the cause (and selling newspapers).
The content and values of MMT are very different, but at times the behaviour – or at least the vibe – appears eerily familiar. My concern here is heightened by my long frustration with “panacea economics” – which I defined previously as proposing a particular idea as a simple and singular answer to fundamental structural issues. I hate to see MMT, with its detailed analysis and rich post-Keynesian background, presented in this way. Moreover, as I have found in conversations with workshop/audience members after several of these occasions, the MMT intervention is a turn-off which alienates other activists.
Getting Better Informed
The reality is that political economy is complex. I could read Stephen Hawking’s A Brief History of Time, but would not feel confident in publicly arguing astrophysics. Similarly, reading Stephanie Kelton’s The Deficit Myth is not enough to make me an expert on MMT or economics. Both books are great, with much bigger theories simplified for public consumption, but that is also a limitation. For instance, Kelton’s book does not explain or justify many of the macroeconomic relations and assumptions behind the theory – because that is not its point. Similarly, (in my reading) Kelton’s book has no theory of class, power or social change – although I am less clear whether that is because it was just beyond scope, or because MMT has no such theory. Anyway, Kelton’s intro book made me want to dig deeper – not just more MMT, but also critiques from the left and right.
I read a range of critiques from both the right and the left.[1] Some criticisms were lame caricatures of MMT or simply name-calling rather than analysis. However, what emerged in the more serious arguments were pretty grave doubts about the MMT/Chartalist history of money (the state preceding and creating money), some complex theoretical differences around the nature of money, the scope of aggregate demand in stimulating the economy, the role of the state in economic management, and (as I argued in my previous post) what constitutes full employment and whether it is possible.
I am not sure how much the followers of MMT understand these arguments or accept the MMT position on these issues. And maybe a knowledge of academic nuances doesn’t matter, although I am always wary of unexamined political/theoretical assumptions. More broadly, it is always a difficult balance between crediting expert over amateur knowledge (think climate change or vaccines) and not wanting to bar people from public debate because they are not academic experts in a field.
What is Wrong with the MMT Presentation?
Beyond the theoretical differences above, what was of particular interest in my reading was that many of the critiques on both the left and right agree with MMT’s description of how money is made, and the ability of currency-issuing governments to create money. MMT’s big trick is neither new nor unrecognised – but the use and implications of that trick are disputed. And that makes the issues complicated.
The table below is an attempt to summarise a few of the key simplistic MMT claims put forward at the various meetings I am referring to, and why I think they are problematic.
| MMT – Simplistic Claim | What it sounds like at a community meeting | Why it is more complicated |
| When governments can issue currency, they can never run out of money. | I know this thing about the economy that most economists, central bankers and governments all around the world don’t! | The government can issue money, but can it control its value – or other economic variables which make that meaningful? And the MMT argument does not apply to Australian state governments. |
| Since the government creates money, and taxes it back later, we don’t need taxes to pay for services. | We don’t need to pay taxes – hooray! | If you need taxes to stop the inflationary impact of issuing money, then you really do need taxes if you are going to pay for services. It is just done in a different order. And as Kelton (and others) note, taxes are needed for other reasons – like redistribution of wealth. |
| Since we don’t need taxes to pay for services and governments can never run out of money, we can always afford to fund cultural, environmental and social programs. | Problems of power and prioritising expenditure don’t matter because there is no scarcity problem and there is money for everything. | (As MMT argues) there is a constraint in the full employment threshold, so the extra MMT money we are talking about is only the amount of government expenditure that would take us to full employment (if possible). After that, it is inflation or not funding services. |
| The government’s debt is simply the community’s surplus – no problem! | Instead of taxing the rich, we are going to borrow money from them and create a revenue stream for them. | Following Piketty: government debt (bonds) are owned by one sector of the community – the rich – while the interest paid constrains government expenditure on the services to the community more broadly. |
| Governments usually issue money as debt through the central bank, but they don’t have to. They can change the current institutional arrangements of how we issue money. | MMT is right, the system can be changed (so the critique that MMT does not describe how the system works misses the point) . But issuing money as bonds and debt rather than as cash is seen (in theory) as a safeguard because, as Shaikh notes, many governments with the power to issue fiat money have ended up with hyperinflation. So change is possible, but is not without risk. | |
| A Jobs Guarantee is a way to enact social programs, and it acts as an automatic stabiliser for the economy. | A Job Guarantee is: 1. A brilliant panacea OR 2. Just another doomed employment program OR 3. A contradiction. | There are practical challenges in implementation, and a problematic history of political capture and mixed results. But in theory, is the JG primarily an economic stabiliser (which expands/contracts with economic changes) or a social program which provides jobs and services which would not otherwise be provided? If the former, the social programs disappear in the boom times, and if the later, the JG may not fulfill its stabilising function. |
Conclusion
The point here is not what is right and wrong. There are certainly MMT arguments to address some of the complexities here, but there are also strong well-informed critiques from people who share similar values. In the end, much depends on the macroeconomic/philosophical framework and assumptions used. And this is why the simple assertion of MMT “facts” often does not carry much weight. Indeed, such assertions are likely to alienate rather than convince or encourage the audience – especially when people in the room have interrogated their own frameworks and/or have an understanding of heterodox economics.
My final plea to MMT followers is to keep advocating for state economic intervention, for investment in the things that make for a better society, and especially in support of unemployed and disadvantaged people. But don’t make the mistakes of Marxists of the past who tied all political change to a particular theory.
[1] From the far right, there is this from the Centre for Independent Studies, and this from the Mises Institute. From the left there was a mix of lame and serious political economy critique from Booth, a broad consideration of assumptions and outcomes from Shaikh, plus an ill-tempered but interesting “debate” between MMT guru Bill Mitchell (blogs 1 and 2)and Marxist economist Michael Roberts (blog, reply to Mitchell).
