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

And while doing my research, I stumbled on this great interview with Professor Steve Keen titled, “Does Modern Monetary Theory make sense?”

I have greatly simplified MMT - no denying that. There were points when I was reading about the relative slope of the IS curve of Keynesians versus MMT’ers and I had a slight moment of panic that I was back in my third-year Economics class after having missed the past two weeks of classes.

How about I try to explain MMT in contrast to the policies of the past decade?

Let’s step back and think about what’s happened in our economy since the Great Financial Crisis and then think about how MMT changes the equation.

There can be no denying that the grand credit super-cycle has seen more and more debt being piled on to an ever growing mound. In 2007 it looked like we had hit the Minsky moment when no more debt could be balanced on the teetering edifice, and when the final piece of the Jenga puzzle was removed, it started to come tumbling down. At this point, private credit had entered into a deflationary self-reinforcing credit destruction loop which would have resulted in a cleansing reset of the entire system. Yet this would have been extremely painful and it soon became clear that the government didn’t have the stomach to live through this sort of reset. So they flooded the system with money through quantitative easing - much to the howls of protest from the economic and Wall Street elite who insisted this would cause inflation. But much to almost everyone’s surprise, there was almost no inflation - at least little inflation as we generally think about it. There was plenty of financial asset inflation as all that new money pushed down interest rates and caused asset prices to lift, but the average worker saw little benefit from the Fed’s largess. You see, even though the Fed was busy buying everything with a CUSIP, the Federal Government was in the midst of one of the biggest cuts in discretionary spending in the history of the United States.

I try to keep my politics to myself, but I can’t hide my feeling that socialism for the rich is not a fair way to run a society. You can’t have a heads-I-win-tails-you-lose situation for banksters and other well-connected parties, but the moment that the economy starts to gain traction, the Fed needs to tamp down on the brakes for fear of inflation.

Regardless of whether you agree with my view or not, it doesn’t matter.

The public has woken up to the fact that supply-side-trickle-down economics is not helping them anywhere near as much as promised.

You might think these sorts of tax-cutting pro-business policies are the best thing for our economy. So be it. Reasonable people can have differing opinions. But the tide is shifting away from this belief, so it really doesn’t matter what you, or I, or even the smartest economist in the world believes.

Society’s mood has changed and Stephanie Kelton’s concepts will continue to gain supporters.

If I had told you four years ago that the following picture wasn’t a photoshop, you would have probably told me I was nuts.

Trump was elected due to a profound disappointment with the status quo. It’s easy to forget but even Obama was elected on a platform of hope and change.

Don’t underestimate how pissed off the average American is (and Canadian, Frenchman, Englishman, etc… for that matter). Monetary stimulus with fiscal austerity doesn’t do anything except make the rich richer.

MMT is a novel, ambitious, and a little bit scary. I get it. But let me let you in on a little bit of a secret - young people aren’t afraid of trying something new. They know the system isn’t working and are desperately looking for an alternative. I think they found it in MMT…

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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.