MMTed - Home Page of Public Education in Modern Monetary Theory

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Well, you may have heard on TV or read in the paper statements like - Won't it be terrible if we ever have MMT? or MMT is dangerous. And there was a Bill before the American Congress a few years ago, calling on the US Congress to declare MMT a danger to American society. And, of course, those who become attracted to the ideas who say things like, oh, Won't it be great if we have MMT? or Won't it be great if we have MMT policies?

So you get these polarised views about this idea that in some way MMT is a regime shift or a shift in policy structures - bad or good.

The problem is that neither conception is valid and MMT is better understood as a superior lens for understanding the operations of the monetary system that we have out there - that we operate within every day.

And it's a superior lens for understanding the capacities of the currency-issuing government and the consequences of using those capacities in different ways.

So it's about the world we live in and if you get paranoid about that, well, then ease up a bit. You'll be OK.

Then the question is, what about policy?

Well, MMT is relatively agnostic about policy and the reason I say that is because to move into policy space and come up with different policies, you need to impose an ideology or a set of values onto your MMT understanding.

So here's an example - we've got a continuum left to right, that's the traditional economic scale. So if you're on the left, you believe in a lot of state intervention and a lot of state activity. If you're on the right, you biased your thinking and your values towards markets - some things like that.

And then on this continuum, we have individualism or libertarianism. And on the other end of the continuum, we've got collectivism. So this is like a social scale.

How collective is your thinking?

How individual is your thinking?

And so take an individual out here, who's like a left winger, believes in a lot of state regulation, a lot of state intervention and believes in society and believes in strong public institutions like health and education and the state taking a major role in climate change and those type of interventions. Now, compare that person to another one out on the other quadrant here, who's a right winger, if you like, who believes that the state should get out of our lives, should free up markets, deregulate, privatise, and let the market sort it all out? Well, those two individuals could have exactly the same MMT understanding, used the same lens, but come up with completely different policy sets - prescriptions - because they've got totally different value systems.

And so it's very important to understand that MMT isn't a regime we shift to and that it's relatively agnostic about policy.

End of Transcript

Study Notes:

MMT is not some sort of regime or a set of policies. A government does not suddenly ‘apply’, ‘switch to’ or ‘introduce’ MMT.

Rather, MMT is a lens which provides a better understanding of the fiat monetary system and the capacity of the currency-issuer. By linking institutional reality with behavioural theories, it provides a more coherent framework for assessing the consequences of government policy choices.

MMT allows us to appreciate that most choices that are couched in terms of ‘budgets’ and ‘financial constraints’ are, in fact, just political choices.

Given there are no intrinsic financial constraints on a currency-issuing government, we understand that mass unemployment is a political choice. Imagine if citizens understood that.

An MMT understanding lifts the ideological veil imposed by mainstream economics that relies on the false analogy between an income-constrained household and the currency-issuing government.

Households always have to finance their spending choices, through earned income, savings, asset sales or through borrowing. A currency-issuing government spends by instructing its central bank to type numbers electronically into relevant bank accounts.

All the elaborate accounting structures and institutional processes that are put in place to make it look as though tax revenue and/or debt sales fund spending are voluntary smokescreens, which serve the purpose of imposing political discipline on government spending.

Insiders know this, but actively decline to share that knowledge with the public.

Renowned British journalist Martin Wolf (2020), commenting on MMT, recently wrote in the Financial Times:

In my view, it is right and wrong. It is right, because there is no simple budget constraint. It is wrong, because it will prove impossible to manage an economy sensibly once politicians believe there is no budget constraint.

Famous US economist Paul Samuelson said something similar during an interview with Mark Blaug in 1988:

I think there is an element of truth in the view that the superstition that the budget must be balanced at all times … Once it is debunked takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have … anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that long-run civilised life requires.

These are profound statements of how a ‘fictional’ world is promoted by mainstream economists to serve as a brake on political volition. While MMT exposes these fictions many economists still think it is better to keep the public in a state of ignorance.

An MMT understanding must be combined with a set of values to define a set of policies. Two people from the extremes of the ideological spectrum can share an MMT understanding but articulate radically different policy mixes.

Thus, it makes no sense to talk about a suite of MMT policies.

2.3 Lens, Ideology and Theory

Study Notes: