MMT – NOTHING NEW
Overall, and after reading more extensively about it, including arguments both pro and con, I still do not see what is new or ‘modern’ about MMT. Whether it is, or is not, doesn’t matter. What matters is that it is getting a seemingly inordinate amount of attention and is a subject worthy of comment.
In the journal, Modern Monetary Theory and Its Critics, Edward Fullbrook and Jamie Morgan have compiled and edited a series of essays by various proponents of Modern Monetary Theory or, simply, MMT. The journal is published by World Economics Association and, in the authors’ words, is presented as “a useful contribution to constructive pluralistic dialogue” regarding the subject of MMT.
MMT began to be noticed by academics and others more than twenty-five years ago. It has moved into the limelight more recently with the publication of the book, The Deficit Myth, by Stephanie Kelton.
The title of Ms. Kelton’s book should raise some eyebrows (it has) and serve as a warning to those of sound money persuasion. But its subtitle, in smaller print, speaks volumes; especially for readers with even modest knowledge of history: Modern Monetary Theory And The Birth Of The People’s Economy.
If that doesn’t trigger any special concern, then consider the individuals who are named and referred to in Fullbrook and Morgan’s book as “prominent claimed inspirations and antecedents”: John Maynard Keynes, Hyman P. Minsky, etc., and others. Ms. Kelton, herself, was the chief economic advisor to Democrat US presidential candidate Bernie Sanders. Also, “Congresswoman Alexandria Ocasio-Cortez invoked MMT as a possible means to fund the Green New Deal”.
The proponents of MMT consider it as “as occupying territory most prominently associated with Post Keynesians, but also with some Marxists and other institutionalists”.
WHAT IS MMT?
“MMT provides an analysis of fiscal and monetary policy that is applicable to national governments with sovereign currencies. We argue that there are four essential requirements that qualify a national currency as sovereign in the sense in which we use the term:
- the National government chooses a money of account in which the currency is denominated;
- the National government imposes obligations (taxes, fees, fines, tribute, tithes) denominated in the chosen money of account;
- the National government issues a currency denominated in the money of account, and accepts that currency in payment of the imposed obligations; and
- if the National government issues other obligations against itself, these are also denominated in the chosen money of account, and payable in the national government’s own currency.” …L. Randall Wray
The above explanation is from the essay by Mr. Wray presented in Chapter 2 of Modern Monetary Theory And Its Critics. The specific qualifying condition of a “sovereign currency” is explained by Fullbrook and Morgan in the opening chapter…
“MMT proponents tend to focus on situations where a country has a sovereign currency. This “sovereignty” has various characteristics that an individual country may exhibit in its institutions to a greater or lesser degree. The government (more accurately the state, which each successive government expresses) dictates a money of account and denominates its currency in it and issues that currency. Crucially, the government imposes a critical mass of “obligations” (something that must be transacted, disposed or settled) using the currency and then accepts that currency in payment of the imposed obligations. From the point of view of MMT, the corollary organization of the state framework creates a set of highly significant capacities and consequences: unlike a household the state cannot run out of money, it can always meet itsown obligations in so far as they are denominated in its own currency and it does not, therefore, face a “budget constraint” as this is conventionally understood. It is the scale and characteristics of the economy, the efficacy of government and the institutional specificities of the state and its statutes, but not the capacity to finance, which, says MMT, dictates the current limits.”
SOVEREIGN CURRENCY
Regarding the logic and issuance of sovereign currency, L. Randall Wray writes the following:
“As Keynes said, states have claimed the right to do this for the past 4000 years, at least. With the advent of central banks, some of the logic becomes obscured by the practice.
The list of qualifying criteria that determines which countries qualify as ‘sovereign’, or can issue a currency which is considered sovereign, boils down to a somewhat subjective analysis of a country’s resources, economic stability, level of accumulated progress, degree of independence, etc. In other words, the countries of focus are the wealthiest, most fully developed, and most independent. Those would be the US, China, Japan, UK,, etc.
The qualifying term used throughout the book, by the various contributing authors, is ‘resource’ capacity. The more autonomous and independent a nation is, for example the United States, the more likely that application of MMT could work under the right conditions.
Setting aside for a moment any other qualifying conditions, constraints, or criteria; it sounds as if the designation of a ‘sovereign currency’ is simply an elevated status of fiat currency. Sovereign or not, fiat currencies have an abject history of failure; and the US dollar is already well along the road to failure.
Even if that were not the case, where is the justification or authority that grants a sovereign country or government the distinction that “unlike a household the state cannot run out of money (and) it can always meet its own obligations in so far as they are denominated in its own currency”?
There is no justification within the framework of fundamental financial or economic law, yet sovereign status and the distinctions made in the previous paragraph are treated as matters of fact by proponents of MMT – it is true because it’s true.
NO SPENDING LIMITS, NO BUDGET CONSTRAINTS
One of the primary characteristics of differentiation between MMT and our current monetary system is the absence of government debt. Under MMT, there is no need for the government to borrow money.
Rather than borrow what it needs by issuing notes and bonds, the government spends what it needs, funds its special projects, hires its contractors, and pays its bills before any money is returned to the treasury. There are no budget constraints.
On the other hand, are there any budget constraints now? Congress seems to act as if there weren’t. Other than courtesy lip service to the ‘debt ceiling’, and occasional grandstanding by threatening to shut down the government, representatives and senators of both parties exhibit no fiscal discipline.
They (Congress and the government) are supported in their reckless efforts by a complimentary Federal Reserve. Under MMT, central banks would not be necessary for implementation of MMT, neither are they an impediment to their application and function.
However, proponents of MMT are in agreement about the following as well:
- taxation is not the source of the capacity of government to finance.
The “capacity of government to finance” is associated with its sovereign nation status and is independent of the taxation. The taxation process itself, acts as an inducement to those who might otherwise choose to not accept the sovereign money in payment.
The taxes are due later and do not inhibit or postpone in any way the government’s capacity to spend money. In the meantime, the money enters circulation and provides a medium of exchange for goods and services, pending its return to the government at a later date for payment of the taxes due.
MMT AND NEW OPERATIONAL REALITY
In some ways, MMT is a more factual admittance of what should be an obvious reality. Regardless of any supposed limitations re: a debt ceiling, and independent of all the legerdemain associated with ‘funding’ the government; there are no restraints of material consequence on government spending.
In that regard, MMT proponents refer to its working adoption as operational reality:
“The new operational reality is different. The government spends first, and creates reserves, ex nihilo. It is never revenue-constrained as a currency-user might be.” …Phil Armstrong, Southampton Solent University, UK
From Wikipedia, ex nihilo is Latin for “out of nothing”. That should give pause for thought. Even more telling is an extension of the phrase: ex nihilo nihil fit meaning “nothing comes from nothing”.
Following this through logically and paraphrasing Steve Saville, government spending under MMT is an attempt to “exchange nothing for something”.
(also see Gold, MMT, Fiat Money Inflation In France)
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!
MMT an idea almost as comically unbrillant and doomed to fail miserably as “comparable worth” or “intersectionality” or “5 year plan” or “East Germany”. … Smh
You do well to point out that MMT is simply an observation of what in fact is already going on, and therefore not a theory. It is based on an empirical description of the practice of central banking in a sovereign fiat regime and on sectoral balances (accounting identities).
MMT is very definitely not at the helm, as thousands of pundits assume. An easy litmus test: Is the financial money going to Wall Street? If so, it ain’t MMT.
In the current system, new money is created as loans by private banks with a charter. The loans they make create credit/deposits even though the money is not there, hence the possibility of bank runs and the need for a reserve bank. The current system also “never runs out of money” when it comes to saving Wall Street or waging war — the sums have surpassed previously assumed limits by extra zeroes padded on. MMT simply wants to shift who creates the credit and to what end it is used. The current system gives it to speculators who use it to LBO the economy, monetize any equity, and leave the rest of the population with the resulting debts.
In the past government did impose obligations not denominated in currency, e.g., conscription, not only for military service but to build roads and public works. Many people were not sufficiently part of the money economy and traded with others “in kind”. I have seen this going on in the third world where people make their own houses and clothes, keep their animals and grow crops, and have no money. For them money is infinitely valuable, and they are willing to work at government roads with picks in the hot sun for a pittance, because there is no other way to get money, even though they do exchange goods among each other based on credit (the value of animals, beer, barley, whatever). Economically it is thus possible to get things moving even if the “money has run out”.
No MMT proponent thinks that Mozambique or Zimbabwe can spend their way to prosperity, just by issuing money. There are all kinds of constraints on spending, but “running out” is not one of them, as the Fed has been proving of late. The question is only who gets to create and deploy credit, and to what/whose benefit? MMT proponents differ widely in their answers to these questions, but agree that “running out of money” is a mythical bogeyman. All spending has consequences, but it always a policy decision, and handing the reins to gambling bankers is itself a policy decision.
It is much like the end of the feudal system: Suppose inherited nobility did not control all the land (capital): Could it be used more profitably, to the benefit of others in society? The same question can be asked today with regard to financial capital (still largely based on mortgaging ownership to the land).
Can’t print gold. Fusing the money makers with the policy makers, as MMT does, is fascism and totalitarian and evilly stupid. Thanks for the long song and dance, but MMT is not equivalent to any other macro argument because it is the worst.
MMT is the Eugenics of macro Monetary theory.
Thanks for your thought provoking reply.
I’m curious as to how you see MMT, if it will address Capital mis-allocation, also equality Nationally & Globally?
My point of view is that in some ways it could, in others it won’t.
For instance many folk in Australia (where I’m from) love their footy. The footy is owned & run by private corporations, including the airing rights of the Footy on Pay TV & in corporate media free to air. The commentary too is almost exclusively in corporate media be that print (newspapers) or either Pay TV or Free to air.
The issue is that on these platforms that air this ‘Footy’, there are extensive ‘news’ & current affair services too which one may argue act as propaganda outlets for the Neo-liberal agenda(s) ongoing.
So assuming people still want their footy, that the ‘market place will pay for their footy with the extra cash they have been MMT’d, I would say further allocation of funds to these outlets will not address a fundamental flaw in the free speech debate, important for a healthy functioning democracy & society of equality, that of assuming that there will be grater free will & ‘liberation’ of society towards a more even democratic debate & decision making, a fairer allocation of currency & capital of all forms if you like.
I might add that the ‘service providers’ or corporates involved are likely to want to grab a as big as chunk of this new MMT money supply off of said community as they can get their hands on ( sounds inflationary & more money printing would be required – oh oh!)
I may be wrong & I could use other examples too, and examples contradicting this saying that people will have more currency to give to other News & Media outlets that are Independent, alternative & contrarian too, though whether they would be able to compete with a brainwashing exercise like say the ‘Footy’ example above is rather doubtful for many at this point in time I would think.
Of course all this supposes that there is value in the currency of said nation in the first place. What so of said Nation virtually resource free, how would their people survive when reliant on Labor to produce goods & services for export? How would they pay for imports? Would they be more or less open to foreign manipulation & coercion than they are now?
I believe there are still a lot of unanswered questions that remain regarding MMT, especially questions around whether it really would bring a more equal society & equality globally.