MMT – The Good, The Bad And The Ugly

Modern Monetary Theory (MMT) is in the news a lot lately. And that has resulted in a number of “critiques”. Most of these critiques are, to be blunt, trash. You see, the thing is, MMT is really, really confusing and most people don’t get it right at first. So we tend to see lots of “critiques” of MMT that aren’t based on a sound understanding of it. I know this because I went through a phase almost 10 years ago where I first encountered MMT, though it was largely right and then realized it had some potential problems. I critiqued it and learned along the way that some of my early critiques were wrong. I’ve learned a lot over this time and I still think there’s a lot more good than bad in MMT. But for those interested, here’s how I see the good, the bad and the ugly in MMT.

First, it’s useful to provide an overview of what MMT actually is because this is what trips most people up. MMT is a macroeconomic theory of full employment and price stability that argues that the government is the monopoly supplier of money. Because it issues THE money (currency) it can always afford to spend in nominal terms. In other words, the government cannot run out of money. This also means that the traditional idea that the government needs money before it spends is misleading. The government doesn’t need our tax dollars to spend money because it can literally print money if it has to.

Further, the government causes all sorts of problems by creating a currency. This includes the need to obtain money from the government to pay taxes in the money that it creates as well as the need to obtain jobs so we can obtain an income denominated in the currency that the government requires those taxes to be paid in. So, MMT argues that unemployment and a shortage of desired financial assets can result if the government does not spend enough into the economy. They propose to resolve this mainly through a Job Guarantee program that would provide full employment to everyone willing to work. The Job Guarantee is an essential part of the theory because it is the element that supposedly solves the problem of full employment and price stability.

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