Two problems with Modern Monetary Theory

I spend quite a bit of time (more than I should) engaged in Twitter debates with advocates of Modern Monetary Theory (MMT). Some are generally sensible, while others are convinced they have learned a deep secret which enables us to have whatever we want without paying for it. Unfortunately, the sensible ones (Meaningful Monetary Theory) don’t do the hard work of correcting the others (Magical Monetary Theory)

A couple of tweets referring to the latter group (followed by the usual long and confused set of responses)

A striking feature of #MMT discussion is that it starts from a presumption of failure. Always supposed to be lots of unemployed resources that can be mobilised by fiscal policy .

When MMT advocates (or anyone else) start suggesting rationing and forced saving are preferable/sensible alternatives to taxation, I don’t think it’s unfair to call them anti-tax. These are really bad ideas, and should be repudiated.

Feel free to add your thoughts

9 thoughts on “Two problems with Modern Monetary Theory

  1. I just like that MMT is starting to encourage some interesting discussions.

    Regarding the first point – if there are unemployed labour resources that can’t be employed by fiscal spending then the remedy is …[different] fiscal spending. Spending to make that resource “available” will have a better impact on lots of lives (note the assumption that you are helping those labour resources not sending them to punitive Centrelink programs).

  2. I just like that MMT has prompted interesting discussion points of late.

    Regarding the first point tho – if the unemployed resources can’t be activated by fiscal spending, then the remedy is …[different]fiscal spending. You could accept that there is a limiting factor, but when it comes to labour resources, the government isn’t powerless when faced with a skills mismatch. Real measures to activate a labour force benefit everybody (addendum: I am of course talking effective programs, not whatever Cntrelink punitive measures are currently favoured these days).

    Even supply and materials could show up a place for industry policy tho I am less apt to argue this point.

  3. Just to play devils advocate on the second point:

    “When MMT advocates (or anyone else) start suggesting rationing and forced saving are preferable/sensible alternatives to taxation, I don’t think it’s unfair to call them anti-tax. These are really bad ideas, and should be repudiated.”

    The creation of superannuation was a mechanism to tamp down on wage inflation, so you can call this enforced savings however many people see Superannuation as the best thing since sliced bread.

    Then again, I’m not going to die on this hill. Obviously forced rationing is Bad*. 🙂

  4. NOTE on John Quiggin on ‘Two problems with Modern Monetary Theory’

    There are NO problems with MMT because it is refuted on all counts. The matter is settled.

    ad Mitchell: Proving Bill Mitchell wrong ― burying MMT for good

    ad Kelton: The page where Stephanie Kelton gets macroeconomics wrong

    ad Mosler: MMT: The one deadly error/fraud of Warren Mosler

    ad Keen: MMT: fraudsters united

    ad Wray: MMT: Agenda-pushing and money-making for the Oligarchy

    ad Godley: Do economists finally wake up from their methodological delirium?

    ad Kalecki: MMT: How mathematical incompetence helps the Kelton-Fraud

    ad Minsky: Profit is the key

    ad Textbook: Refuting MMT’s Macroeconomics Textbook

    MMT refuted in three easy steps

    MMT-Refutation for Dummies

    MMT has been conclusively refuted and MMTers can do NOTHING about it

    Egmont Kakarot-Handtke

  5. Context required J.Q., as follows:

    A striking feature of #MMT discussion is that it starts from a presumption of failure UNDER NOLIBERALISM. There are lots of unemployed resources UNDER NEOLIBERALISM that can be mobilised by fiscal policy.

    By adding the rider “under neoliberalism” the statement can be seen as reasonable. (Apologies for my clunky use of caps for emphasis.) There are lots of unemployed human resources under neoliberalism just as there are lots of wasted and ruined natural resources under neoliberalism.

    Is rationing ALWAYS bad? Right now we have rationing of COVID-19 shots in Australia due to a vaccine shortage. Is there a free market in these shots? Are the richest people the only ones getting shots? Of course not (in general). There is rationing and staged rollout by risk category. A few of Australia’s rich may be getting “off the books” Pfizer shots by any one of a number of the stratagems open to rich people.

  6. Three more problems for MMT;

    “What Is Modern Monetary Theory, Or “MMT”?

    “There are many other economic problems and challenges in the world today. Modern Monetary Theory is not a panacea for them. Even if its insights and policy recommendations become widely known, and even if they are someday fully implemented, societies will still face challenges such as
    ● inequality,
    ● regulatory capture and
    ● predatory financial behavior, including the kind of predatory mortgage lending that led to the worldwide crash in 2008.

    “In order to understand these additional economic problems and dangers, we need to look at economics in a larger context, and correctly situate Modern Monetary Theory within this wider frame.”…

    Why does it seem 2011 was a peak year for MMT writing?

  7. “When MMT advocates (or anyone else) start suggesting rationing and forced saving are preferable/sensible alternatives to taxation, I don’t think it’s unfair to call them anti-tax.”

    Of course rationing and forced saving are in any case a form of taxation under a broad definiton of taxation anyway. And, as you note, an inferior form. Both lower consumption in selected groups, and hence forces saving out of income so macroeconomically, therefore, they both have similar effects on overall activty to taxation anyway.

    Rationing is a particularly inefficient form through the lousy incentives to production and distribution it creates, though there can be times and places (eg a blockaded country) where its distributional effects make it necessary.

    Forced savings is not only similar macroconomically to taxation but actually quite hard to effect, because the additional saving is very easily offset by either changed forms of saving or by more private debt. The fundamental point is that people know better than governments what level of net savings rate they need for their INDIVIDUAL life stage and circumstances and most have ready means to act on that knowledge. Forced savngs is peculiarly suceptible ot Goodhart’s Law. I leave this as a finger exercise, BTW, what this means for compulsory superanuation.

  8. Back in the day, of course, a national superannnuation scheme was flagged in the original Accord as something to be introduced in addition to, rather than instead of, wage increases. The super/productivity tradeoff of 1985/86 was part of the renegotiation of the Accord downwards from its original commitments.

  9. @KT2 It is not a panacea at all but it’s a good start

    @Ikonoclast That clarification is integral

    @john The latter ‘problem’ is meaningless without context. This makes it primarily a political view

    And on the first, there are alternatives to fiscal policy to mobilise resources & there is also repurposing existing resources. It takes fiscal policy & functional finance to reductio ad absurdum conclusions.

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