Everything You Wanted To Know About MMT (But Were Afraid To Ask)

Here are the policy implications of accepting MMT:

  • governments cannot go bankrupt as long as it doesn’t borrow in another currency
  • it can issue more dollars through a simple keystroke in the ledger (much like the Fed did in the Great Financial Crisis)
  • it can always make all payments
  • the government can always afford to buy anything for sale
  • the government can always afford to get people jobs and pay wages
  • the government only faces two different kinds of limitations; political restraint and full employment (which causes inflation)

The government can keep spending until they begin to crowd out the private sector and compete for resources.

And in fact, Stephanie Kelton argues it is immoral to not utilize this power to fix problems in our society. From an interview she gave,

“if you think you can’t repair crumbling infrastructure or feed hungry kids, unless and until you find some money somewhere, it’s actually pretty cruel because you leave people who are struggling in a position where there are still struggling and they are hurting, and they are not properly taken care of…”

I know what you are thinking. Sure sounds like socialism.

But MMT is not socialism. Not by a long shot.

MMT’ers don’t necessarily believe in taxing the wealthy and redistributing it to the poor. Though they do believe the way conventional economics and politicians think about money is wrong.

I know it seems insane to think about the government as not having to worry about deficits and debts. It doesn’t seem to make sense. How can a government just spend money without having to worry about paying it back?

It’s like when Kramer got lost downtown. Remember the terror in his voice when he realized he was at 1st and 1st - where the same street intersects with itself at the nexus of the universe?

But here is another way to think about it. If you have an economy with underused capacity, having the government spend on infrastructure or other societal useful endeavors is actually raising the total GDP of the country.

Yet isn’t that just Keynes theory? Yeah, trying to wrap my head around the difference between Keynes and MMT took me a while, but I think I got it.

Keynesians are still tied to the idea that we are bound by fiscal constraints whereas MMT’ers believe that the only real restraint is inflation.

I heard an economist the other day on Bloomberg say something about the dire state of the global economy because of the stretched balance sheets of the various sovereigns. He said something to the effect of spending will collapse because “who has the capacity for fiscal spending?”

And this is the conventional thinking that prevails almost everywhere.

But MMT’ers would argue that by not spending now, we will be harming our productive capacity in the future. Ultimately it makes no sense to have economic capacity sitting fallow because of a self-imposed worry about paying back a debt that is denominated in an asset that only the government can create.

But, but, but… won’t that create inflation? Yup! Darn right it will, and that’s the point. MMT’ers believe that inflation is the only true constraint a government faces.

As I was learning about MMT it made me wonder if Richard Koo (balance sheet recession fame) was also an MMT’er. After all his belief in the paradox of thrift causing a self-defeating vicious circle seems straight out of MMT’s theories.

So far I have named all these rather left-wing proponents of MMT, but is it truly the domain of the far left? Well, interestingly, former hedge fund manager Warren Mosler has run for office numerous times as an MMT advocate. I dug up this interesting debate between Warren and this Austrian economist.

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Gary Anderson 4 months ago Contributor's comment

MMT doesn't have only inflation to fear. It has the bond market to fear. Massive collateral destruction and margin calls the world over. Remember when W Bush spent like a madman and Cheney said deficits don't matter? Well, about that time US productivity declined and the Great Recession was on. Helicopter money would control the growth of the money supply. I don't see that happening with MMT.