In the last few weeks, I've been seeing a lot of buzz about Modern Monetary Theory aka MMT. And most of what I'm seeing is reductionist to the point of absurdity. When I see critics of MMT talking about it, they're mostly using MMT as a shorthand for saying 'unbridled fiscal expansion without any concern for deficits'. I think this has been a very poor and uninformed debate. My guess is that it's been sparked by the public policy views of people like Alexandria Ocasio-Cortez, given the objections some people have to her as a political figure. I could be wrong. But, as someone who's been following this evolving conversation for several years, I thought I'd tell you how I see it.
Just saying I came up with what is now MMT back in 1992 and wrote Soft Currency Economics in 1993 without having read:
or any other writings related to MMT's contributions.
I introduced it to the academic community in 1996 who then looked back and associated it with some of the writings of those economists.
Nice summary, Edward. One thing I would add is the reason MMT doesn't see long term inflation effects as an overriding concern: Their focus on the fiscal as primary method of currency management means that it's easy enough to stamp out those inflationary effects if and when they occur by spending less or raising taxes. This is what most people object to, by, in essence, jumping ahead and presuming inflationary effects of, for example, the GND. What MMT is saying, in essence, is "Hey, you guys skipped a step." You automatically assumed inflation and having to raise taxes which is a non sequitor and a political non-starter, even though that's not a necessary outcome.
I see Lerner and Godley as the keys here...Minsky logically follows from Godley...but the reason MMT has developed such a large online following is an attraction to the Government as currency issuer as opposed to a currency user paradigm: that's Lerner and Mosler. I think this is acknowledged among finance types but not widely shared among the general public and not the message you get from something like mainstream neoclassical monetarism. That's the government as a household fallacy, and MMT is the only school of thought that openly rejects this paradigm, even if lots of people say that it's obvious.
Ed, good article but I think there might be other problems with MMT. While I agree with some of the ways MMT describes the nature of money (ie endogenous), I have serious reservation regarding their prescriptions. My understanding is that to achieve everything they "promote" while keeping long term inflation in check a MMT govt would need to the following:
•Actively busting up the largest parts of the US economy.
•Lots more regulations.
•A Job Guarantee.
•Some form of Capital Control to help with price control.
This reminds me of South American countries....
Edward... I thought it was hilarious how public figures were claiming that gold and bond yields would go to the Moon because of the deficits for a fiat currency like the dollar. one of the things that I struggle with is why the yen always seems to go up when the market is having a risk-off day...Barry
Whoops deleted my comment, thought this was a subscriber post.