"If" has only two letters, but it's the biggest word in the dictionary.
IF a country continues to have sovereign printing power
IF politicians don't go crazy with printing money for votes
IF the rich agree to getting taxed to sop up inflation
IF the poor who are hired for entry-level public-sector jobs in recessions go back to the private sector in economic growth (how many entry-level government workers have ever left their jobs?)
IF the Fed can perfectly predict when inflation is kicking in....
Etc.
8
Any economic theory applied to the United States has to be understood in the context of its military power, and its constant exercise of it.
You can talk all you want about supply and demand in the glass shops on main street - but when one owner occasionally walks into one his rivals' shops and smashes everything to bits with a baseball bat and no one does anything about it, that tells you all you need to know about how the economy works in that town.
5
What is the difference between modern monetary theory and supply side economics.
Both produce deficits.
The deficit from MMT is used for social programs and infrastructure.
The deficit from supply side economics is used for tax cuts for the rich.
But both produce deficits.
Whether one approves of either theory depends on one's values.
7
If federal spending starts with a plan that includes spending into those resources (including human) that are in shortest supply on the front end then inflation virtually disappears as an issue. Granted, there are some monopolistic behaviors for natural resource extraction and development that would still hold cost higher than a true free market would demand. But, Asher Edelman has already weighed in on this, 2016, and says that the economy would be stronger with infrastructure deficit spending.
3
Yes, there are some people, even on Wall Street, that endorse at least part of MMT. But compare their recommendations to centuries of human experience, all across the world, where governments print money with abandon: Excessive money-printing is a recipe for upheaval and suffering, the enabler of revolution and tyranny.
Ultimately, government policies are a test of confidence. If the market begins to lose confidence in our bonds and currency, heaven help us.
4
This makes sense. Print money but also spend it. Say the government pays for a commuter train. Everybody using that train is more efficient. Even if only part of the cost of the train comes back in taxes, the economy has gained.
MMT should work as long as no one calls in the government debt. Maybe the government never pays back the debt. So at some far away point the lenders--bond holders--may get stiffed. What would that mean? Disaster. No one would give any more loans to the government. That seems to be the scary part of this idea--another short term vs. long term view of reality.
3
Where to start. So investing in infrastructure if the return is greater than the 10yr. treasury is not inflationary.
I would like to suggest that the trillions we have spent at war paying mercenaries that circulate that money outside of the USA, may also no be inflationary. That money if it stays offshore, doesn't 'chase' fewer goods (Inflation induced).
A little hard to believe but maybe?
1
At some point the US dollar will stop being the reserve currency of choice. Centuries have seen the reserve currency change and it has never been that once lost it came back. At that point The US debt will endanger our prosperity.
4
I'm no economist, but modern monetary theory seems about as well thought out as supply-side economics. It's a theory that supports some policies favored by its adherents, but it's not a complete framework for an economy or even the federal governments finances.
I have no problem with the government running up deficits in the post-Great Recession period, as long as the money was being spent to invest in future economic capacity: repaired and new infrastructure, public education, renewable energy, and so forth. I do have a problem with running up deficits now by giving a tax break to corporations and the wealthy who won't put the money to productive use.
In the end, some principles hold regardless of your theory:
1. Debt eventually matters, because your ability to borrow is only as good as the world trusts your ability to pay. The U.S. is unique in that the dollar is the reserve currency and our stewardship of the US Treasury protects its value, until suddenly the mood changes and we're not. Print too much money and eventually its value decreases, so it's inflation but through the back door.
2. Wealth and income inequality eventually matter, because an economy driven by middle-income consumers stops working when those consumers can't increase their income. The recent tax cut is making this equation worse. Multi-national corporations recording high revenues on their US books may look great for GDP, but that doesn't help US workers.
11
It’s not that MMT is the new law that drives economies. That’s what Ben Bernanke identified in 2005: the global savings glut, which keeps interest rates low and makes deficits look irrelevant. Economists should try to figure out what causes and sustains the glut. My theory is what economist Joe Stiglitz calls rent seeking. Hedge funder Ray Dalio gives us a hint when he says that there aren’t enough investments with an adequate return on investment. This doesn’t seem to make sense when you consider that corporate profits are at record levels and keep rising. But it makes perfect sense that corporations are less willing to invest if rent seeking provides greater profitability without the risk of making investments. This is great for corporations and share holders. Bad for economies and workers.
9
GDP is not the all-important, and not even a good indicator-of revealing a nations' moral standards, its caring for its poor, or any ethical standards at all.
GNP and "growth" is not important! Caring about the ones who need equal education and healthcare and housing and jobs is what is important. Growth kills all life, in many aspects. We are a nation of rich and poor, and killers of all life on earth, if all we care about is a bigger GDP..
2
I'm not an economist but what I am seeing is that the modern world economy has created a Mount Everest of cash for a small powerful handful of people while austerity measures for the masses continue to shrink their prospects for the future.
The current rash of autocratic political candidates, and those already elected like Trump, are taking the opportunity to undermine the shaky remains of democracies and refashion governments into personal empires.
Those who caution that the new progressives are going to far to the left fail to recognize that the right has already jumped off the other cliff.
Maybe MMT is our only hope and people like Sanders and AOC are our best visionaries.
10
I agree with Larry Fink. MMT is garbage. Larry Fink instinctively knows the fundamental law that shapes the Universe: You don’t get something for nothing.
The next thing you know, a garbage President is going to insist the Federal Reserve adopt a garbage economic theory, which will turn the US Dollar into confetti and the destroy not only the US economy but the entire world economy.
3
I fear that MMT theory fails precisely because those resources on which it depends are not infinite. The same forces which become the bane of Ponzi schemes, gold rush city scapes and ecological disasters, operate in our economy.
Inevitably, the individual resources on which endless deficit -spending- depend, whether it is energy, labor or a stable earthly environment, have limited supplies. Even borrowers' taste for purchased debt can wane.
When resources run out -- even as they begin to run out -- the instability of the economic system can crash just as complex plants can.
Consider the complex math for, and dangers that occur with, shutdowns of nuclear plants or oil refineries. Consider the studies and complexities of sudden changes to heat and mass transport surrounding ocean currents, and the impact on the climate of northern Europe.
A theology of endless, and unrepentant, deficit spending will eventually crush some butterfly, and destroy our society.
And, yet this theoretical outcome, likely in the absence of other forces (or even -because- of other forces) may never arrive before the catastrophes bred by other dangers we face -- climate events raise oceans and over run coastal regions worldwide, military and criminal despotism, both drive worldwide migrations in unprecedented volumes.
In the face of all that, Daylilies soon bloom in New Orleans. There will be a French Quarter Fest. Summer Barbecues and Music. The Fly. Food. Joy.
So. Let's Borrow.
2
For what is essentially an economic issue there is excessive quoting what people in finance have to say. A job in finance does not make one an expert on economics.
What does the peer-review research models and empirical evidence suggest. Too little of that here.
Let's hope Paul Krugman has something to say on this.
3
To me MMT employed after the 2008 crash was a pretext to inflate or dilute the value of money.
Assets went up because the value of the USD went down. This devaluation bailed out debtors at the expense of savers who too risk averse to buy assets.
3
I have been saying for years that central banks keep getting inflation wrong because they’re not properly measuring global overcapacity across the spectrum of goods from raw materials to high value added finished goods. I’ve repeatedly written NYT columnists on this point and a couple of them have had the grace to acknowledge that.
The problem is that production of many goods takes place in countries whose governments can and do ignore Western “laws” of supply and demand and choose to keep unprofitable industries humming along. This creates persistently low or even negative inflation.
The danger of MMT is that ROIs take a sudden nosedive. Short of that, it can be useful.
3
For some reason I suspect that Sanders and AOC have no clue about traditional monetary policy and, worse, they are aligning themselves with Trump’s positive view of MMT and it’s magic bullet, printing money.
5
@Al - Do you realize that almost every dollar the government spends goes right back into the private sector economy? Government workers pay taxes and buy homes, cars, durable goods, food, clothing, entertainment, education and medical care in the local economy.
Government procurement pays for raw materials, machinery and heavy equipment, as well as hiring workers who also pay taxes and spend their money locally.
Even or especially safety net programs put money right into the private sector economy. The last time the GOP cut SNAP benefits, Walmart lost so much in sales that their stock went down. Without American consumer with disposable income, our businesses and corporations don't prosper.
2
Excellent article. Nice layman description of MMT and Doctor Kelton's papers. The only thing not mentioned is that MMT is not really a theory.
Theories can be disproven and nobody has disproved an MMT prediction. MMT is really just a model of how sovereign currency governments manage finances - poorly or well. Obama's handling of the Great Recession nicely demonstrates the "poorly" end of that continuum.
PS: Was the usage of Ms. versus Dr. or Prof. a subtle way to marginalize D. Kelton's views in the minds of readers, or do you just ignore the professional titles of everyone NYT writes about?
6
But the last decade was different. When deficits soared after the recession, interest rates fell...
I’m not an economist but it was my understanding interest rates are pegged to the federal funds rate, which has been set to near zero for that very period of time. To say they fell suggests some natural mechanism, which seems like opposite of what happened.
Also, isn’t there is difference between literal printing of currency like The Weimar Republic and having the central bank buy government bonds like they do for quantitative easing?
In addition, if inflation is simply an over-abundance of the money supply then where did all those extra dollars go over the past decade so that we haven’t perceived a decrease in the purchasing power of our currency? Is it a globalization thing and we just haven’t saturated the global economy yet? Obviously there are a lot of dollars around, I’m assuming it is the demand for that enormous supply that is propping up its value. What would cause a drop in demand? I’m assuming that’s when we would notice inflation.
Lastly, I thought it was a settled point that the size of a governments’ debt only matters in portion to the size of its economy. The safe zone is something like 90-110% of GDP. Historically, anything above that usually leads a financial panic. Why no mention of this ratio in the article?
2
The whole reason why some people trade (and bother carrying and transacting) in certain currencies and not others is that they have faith in the currency. Same logic goes for T bills. If the country that tries to adopt these theories begins to borrow from their own currency (and the seignorage slowly disappears in this case because you're the most traded global currency for now and people will slowly see through your tricks), traders may eventually begin to doubt if said country can support these new debts (and still remain competitive income wise) and the value of these T bills and the currency will begin to reflect that as speculators began to cash out and move assets around more to other places. SO... thats a tricky place to be... But it could be a stimulus as long as it doesn't weaken market faith in the petrodollar, since that's the only thing that keeps people continuing to trade in the US dollar. Stimulus would start with a bang and then fizzle
1
Inflation.
Economics is not a science. It's more of a manipulation tool.
Our leaders, for the most part, are owned by wealthy donors and so no matter how many theories of economics that get developed they will always remain academic talking points. Our leaders may repeat the talking points of certain economic positions but what we will get is richer rich people and more poor people who are so under educated they continue to vote for the people who help enslave them.
The thing that is really lacking is a common good. Together we are incapable of doing what is in the common good because we are generally selfish and childish. It doesn't matter if some people would like to work for the common good because most people don't, and they outnumber the people that would.
There is no evidence that higher taxes would be detrimental to the economy.
6
Central banks intervention in there individual markets since the great recession must be considered. Several countries in Europe still has negative interest. Only time will show the fruits of MMT policy. Wait till the seventh inning stretch, another melt down of our own doing?
1
The odd thing about MMT is that it doesn't seem to work anywhere outside the US. Either currencies collapse or negative interest rates are needed to keep things together.
Which ought to make this theory rather suspect to begin with.
6
Trying to figure out AOC's global economics knowledge and experience to justify hwr support of MMT. Or does she just see a way to finance her free, free, free for everyone agenda by printing as much money as it takes? Just printing money creates hyper-inflation. Just ask Germany, Hungary, Zimbabwe. They all learned that lesson. As did to a lesser extent Mexico, Russia and Japan. As Italy and Greece and to a lesser extent Portugal are right now. Look at the EC economies that are overspending. MMT=voodoo economics
6
someone should ask Paul Volcker's opinion on this. I think I know what he'd say. MMT sounds to good to be true.
3
That the government’s expenses are part of demand, and therefore that austerity can cause recessions is not really a new idea: it is the basis of Keynesian demand-side policies.
The idea that it is good policy for the government to borrow money to fund investments with higher returns than the cost of debt isn’t new either. The problem is that it requires the returns to be quantifiable: it works if you want to build a bridge to replace costly ferries, but not really when talking about healthcare, education, or the military: no doubt the economy would be less productive with an uneducated workforce (or a Russian invasion), but do politicians who call for more education or military spending actually make that kind of calculation? Very important point: it also assumes that the debt is paid back as infrastructures age (rarely the case in practice), otherwise our debt just rises as infrastructures are replaced.
I’m not going to applaud the populists who claim everything will be fine if we cut taxes and spend more, thus avoiding themselves the complicated question of “how do we pay for it” and “will our children also benefit from that”. The downsides are obvious: if conditions change and interest rates actually do go up (not necessarily a bad thing by the way), how do we deal with our now-inflated debt? Will our kids have to pay more taxes and get less public services? They’d better make a stronger case than “AOC and some dude at Goldman Sachs said it’s OK”.
8
A thought/question:
Since 1980 more money has been spent on tax cuts than on infrastructure.
Where would the idea of using government money to fix/update/create the nation's infrastructure rather than giving government money away in the guise of tax reform fit into M.M.T.?
2
The obvious problem with MMT is that politicians will certainly borrow to pay the bills, while expanding spending without regard to return on investment.
Right now, if inflation was 10%, the interest on the federal debt would only be $1800 per household. But as the federal debt rises, when inflation does occur, it will be a disaster of epic proportion.
1
Every economic theory is right, sometimes. Every economic theory is wrong, sometimes. That's because people behave irrationally (economics is a branch of psychology), and their behavior cannot be predicted by any rational theory.
7
Of course Wall Street prefers MMT to paying taxes.
The key is whether MMT is used to actually increase the productive capacity of the American economy (infrastructure investment) or if it's used to inflate the existing assets of idle financial interests (a la bank bailouts).
5
People will believe any excuse for cutting taxes or increasing spending. It applies to both parties, whether it is called "supply-side" or "MMT".
The human capacity for self-delusion is enormous.
5
It's a pretty large caveat if deficit spending is going to be quantified strictly in terms of investment. Trump raised annual military spending by a figure capable of funding universal kindergarten and maternal schools (daycare), as well as free university education. Is that "investment"? He would say so, and his lackeys would line up behind him, but it's not making the economy more efficient or freeing up mothers to return to work.
Not disagreeing with the premise, just saying it will only change the rationale given for the policies politicians already want to pursue. Like how when republicans give national security reasons for invading a country and dems give humanitarian reasons. Same policy, different justification.
4
The wealthy may have gotten a tax cut but the middle class? Not so lucky and not anywhere near as wealthy.
Check your withholding = economic code for you're screwed but we're too chicken to tell you.
5
MMT sounds to me like it would justify a government increasing its deficit spending so as to increase spending if the government were to identify an incremental investment that paid a return greater than the 10-year treasury bill rate. That actually sounds reasonable, the Triborough Bridge was financed along these lines, I believe, and the concept of governmental authorities like the Port Authority is predicated on economic return on investment. The challenge is to bring rigorous and sane business practices to bear on such a government program so govt actually realizes the postulated return. However, when you get to hard to quantify benefits in programs like Medicare for all, I don’t think it would really work.
1
@John McMahon - The average American family spends $28,000 a year on insurance, counting premiums and deductibles but excluding co-pays. With Medicare for All, those costs go away and for LESS than that in taxes, we could insure everyone with coverage as good as or better than they have now.
For those with employer insurance, most don't realize the average employer spends $12,000 per employee on health insurance, and takes that amount right off the top of the salary they'd otherwise be paid. With that $12,000 restored to their paychecks on top of not paying premiums and deductibles, those with employer insurance would also come out ahead.
1
If the new embrace of Modern Monetary Theory by Wall Street translates as "deficits don't matter" then, pray tell, how is that different than the Republican refrain that "deficits never matter when Republican administrations cut taxes," but always matter when Democratic Administrations spend for social welfare programs?
The answer is obviously that is doesn't.
"Mr. Biscardi described himself as a libertarian and conservative. To him, modern monetary theory means not only more government spending on infrastructure (sic.), but also lower taxes on the wealthy (sic, sic.). After all, if government deficits can grow larger, there’s no need to raise as much revenue."
Ask him after the 2020 election and he will sing only half a tune.
Quoting Stephanie Kelton and Warren Moser, long-time advocates of MMT, (and Richard Koo) does nothing to enhance the credibility of your headline. Kelton, et. al. are making a serious effort to create a theory of a full-employment economy. Wall Street is, what Wall St. does. They are at cross purposes.
1
Submit: MMT & conventional economics do not understand code, including monetary code, in a physics, evolution and complexity context.
This fundamental knowledge omission crushes many of the conclusions of both theories because "we don't live in that world anymore, said Mr. Koo of Nomura."
I challenge any NYT columnist and/or any economist to a written discussion re monetary code. I've contacted Ms. Cohen re being a moderator.
I submit y'all have been lethally wrong for decades.
4
the extra money could be used as venture capital to fund an IPO in a company that constructs perpetual motion machines...
8
"The package of eccentric ideas known as modern monetary theory — for example, that annual deficits are too small, and that the United States can essentially print money to pay off its debt..."
Wow, you completely mischaracterize MMT in your opening sentence! Maybe you should have run it by Stephanie Kelton, leading proponent of MMT, who I'm sure would tell you that it would be a very bad idea to print $21 trillion to pay off the public debt. But you don't have to take my word for it:
https://www.bloomberg.com/opinion/articles/2019-03-07/deficits-mmt-and-a-green-new-deal
3
Sounds like the economics version of global warning skepticism. 99% of climate scientists believe in man- influenced global warming, and 99% of economists think MMT is silly. But those other 1% get articles written about them, and lots of followers with political agendas that just coincidentally line up with the temporary advantages of their unique theories.
7
A few years ago Donald Trump responded to a question about massive deficits with a MMT answer of his own.
He brushed off the concern and quipped that all the Fed needs to do is print money and ‘poof’, end of problem.
Trumps response struck me as being insane but Trumps responses always strike me as being insane. Too bad others are naively tagging along with the insanity.
2
@Al--but look at who is following along. Bernie and AOC. Do we really think that AOC has enough knowledge or experience yet in global economics to fully understand MMT? Please, gimme a break. What she and Bernie see is justification to pay for all their cockamamie socialist plans with no regard as to how to responsibly pay for it. Free this, free that for everyone. The govt will just print more money. You cant just print as much money as you want. It creates hyper-inflation.
Just ask Europe in general but specifically Germany, Hungary and Zimbabwe. Look where Italy is right now. MMT is voodoo economics.
4
When I read that “Wall Street, Money managers, chief executives and business analysts” support this THEORY I am certain we are heading for a great fall.
8
Hmmm. This all might work if we need or decide to spend the borrowed money on something we all need,eg Infrastructure, a revised health care system or perhaps a broader education system. But those projects compete with private sector profits and the stock market, so guess what our deficit spending gives us? Tax cuts for profit driven businesses (Trump Tower, Trump University, Trump Golf, hmm how about Trump Medicine?) and the already wealthy stock holders. The government would oversee the AOC, Sanders spending and the Oligarchs hate the idea, and they have fooled enough people to get a tool like trump.
If we have a problem that needs to be solved by borrowing money, we should articulate the problem first, not arrange credit first, that is a recipe for fraud and corruption.
10
Yes to government spending domestically--medicare for all and affordable education, guarantee jobs and repair infrastructure.
No to lower taxes on the wealthy. If they wish to make a profit, let them pay the tax.
12
@betty durso--wheres the economic theory in that comment. That's an I want my cake and eat it too mentality. Give me the poor person everything I want/need for free, and then tax rich people because they're rich and I dont want them to be as rich as they are.
2
@bored critic
The current thinking and action is to give everything to the rich for free. And then tax everyone else who does't have any money. Been great for the rich and not so good for everyone.
Our policy is too make sure that most people are kept purposely in poverty. And that the rich keep getting richer.
The reality is that wealth is taken from the bottom 80% and given to the top 20% and has been done that way for decades since trickle down has been implemented.
So it is the rich who keep getting the free stuff. Time to stop that and allow the rest of us to get what we deserve from their theft.
4
Interesting theory and arguments on both sides. I suspect that the devil is in the details and extremes either way would be what causes the problems. We don’t want to be buy bread with wheelbarrows full of money, neither do we want the country falling to disrepair from being afraid to spend. And,of course,wise spending to benefit our citizens’ needs is paramount, not frivolous for political gain. Good luck with that one.
That point, made often comments by Len Charlap, that major depressions were preceded by surpluses is hard to get past. It can’t be overlooked and needs to be explored further.
Also, was struck by the statement that investors are awash in capital. Yet, we just gave them a huge tax decrease so they would have more. That monetary theory hangs on like an urban legend. Not proven but still repeated.
Also the idea that every dollar the government spends becomes a dollar of income for someone isn’t rocket science. People with little money spend to survive. It goes into the economy.
Seems to me a good idea to help these people coming to our borders would be to invest massively in repairing our infrastructure and hire them as laborers. They are already working other construction jobs. Solve two problems at once.
The truth is that the ideas of I made all my money by myself and I should get to keep it, we shouldn’t help people who are down because they become dependent, and I’m an entitled ba——d are pushed by those with money and believed by shallow thinkers.
15
Tis true that many older economists (including myself) were schooled in the economics of the "closed" economy -- meaning roughly that international capital flows were both small and not considered as variables in the models we played with. No doubt whatsoever that that description has long been false.
Now, as an unschooled amateur observer of present day economic theory, it seems to me that the basics of MMT work for the USA if, and only if, (a) there are other very big savers out there (e.g. China), (b) there are no big demanders of foreign capital (e.g. these days, Europe, Latin America, et. al.) and (c) no other currencies that look as safe to foreign investors as the dollar. In such an environment, the US can run, and has been running, a big current account deficit which gets easily financed by foreigners who, as a whole, need a safe place to put their surpluses.
But just as the old economic theories worked only under their own current circumstances, MMT will also look pretty stupid if and when its own enabling circumstances, unstated in its theory, cease to be true. Let any of the three factors I've mentioned disappear, and baby, watch out!
52
Most rational people would agree economics is a science, not a monetary principle. The primary proponents of M.M.T. quoted in the article are from money managers. Banks, hedge funds and others of their ilk who had no compunctions cratering the world economy by profiteering from mortgage backed financial derivatives using based using rigged actuarial scientific methods. And toss in a couple of democratic socialists who have stated no solution to financing their 'chicken in the pot for all' type policies.
Other heavyweight economists and business arena titans have strong warnings. And academia at a rate of 100% disagree with M.M.T. with labels of 'garbage' and 'crazy talk'. Academia study the science and history of economics to base their opinions. Banks, mutual and hedge fund managers, and economists are touting their 'opinions' on convincing others of how to invest so they and their Firms make millions of dollars in profits. The article doesn't note who concocted the M.M.T. notion money managers are now ginning up. It's certainly not the economic science community.
1
@Doyle if economics is a science, it is well known to be a dismal one. But no scientist except an economist accepts that it is a science at all.
The article is about Wall St. "embracing" MMT. It is therefore unsurprising that the article is filled with the voices of wall st. people.
There are plenty of people in the field of economics who have positive opinions of MMT. It isn't hard to find them if you go looking.
3
@Paul Davis "Plenty" is a fudge word. I'll stick with "Vast majority," just like I stick with the vast majority of climate scientists who say global warming is man made, and a disaster waiting to happen.
2
@Paul Davis
IMO economics is becoming a science in the same way that medicine developed out of of the middle ages. Consider these questions?
> What is the appropriate amount of daily salt consumption to maintain a healthy body?
> How much water should I drink each day?
The answer is complex. You must consider: physical activity, age, air temp and humidity, current health conditions, forms of water or salt consumed. Economics is similar in complexity.
To understand economics we must understand the dynamic relationship between all the agents involved. Like medical science we are much better at economics today due to modeling, data, and experimentation--- science.
MMT describes how things work in a country with a fiat currency. Medical science describes how the body works. Monetary and fiscal policies are like prescriptions. If you get the diagnosis or prescription wrong bad health results. If you get them right, good health results.
Lets agree, first, on how the economy works, then debate policies. Unfortunately, I see most arguments are differences in beliefs of how it works.
3
MMT is misnamed. As the subtitle of Randall Wray's book (Modern Money Theory - 2012) calls it, it is a "Primer on Macroeconomics." It is not about monetary theory; it is a map about how money moves around in an economy – macroeconomics. As with all maps, it may be useful for navigating to those entrenched in the existing money system.
MMT accepts the existing money system as is, and goes further to make the definition of money what money is today – money created by the commercial banks as debt-credit, authorized and guaranteed by our government. It redefines what it means to create a money supply, by insisting that authorizing and guaranteeing are the same as creating new, and by defining the government's ability to go into unrestricted debt as a form of 'money creation.' MMT sidelines the idea that a debt-credit relationship for government constrains its power, adds interest expense, and shifts wealth from the many to the few. By defining money as the system we have now, it ignores other options, including money created as asset money by a democratic government. There is an international movement to change the money systems that deserves equal coverage.
3
If misconceptions like these spread, maybe it’s time to invest in Swiss Francs. The Swiss will hold longest against this nonsense, and their money will be worth something, unlike the US dollar...
All currencies are Fiat currencies.
Here is a fact that MMT ignores completely: In the history of the world, there has never been a fiat currency (currency not backed by gold) that has not failed. Every great society in history had a downfall so why would America be any different? Deficits may not matter today but when the next black swan event occurs, it could be the end of our economy as we know it. And this will happen as history shows us. It’s just a matter of when.
2
Germany printed lots of money as well decades ago - and we all know what happened.
The bankers see huge profits for the short term as money (even worthless money) is pumped into the economy - and we know what has happened in the past.
Liberals see it as a way, in the short term (which is all any politician is worried about), of having people hold wads of money in their hands. The fact that such would be worthless is unimportant - it's the image that is. We know what happened in the past in several economies worldwide.
The academics are right.
5
Critical to this discussion are the pragmatic government spending policies responsible for the economic development of the USA beginning with Alexander Hamilton, and epitomized by presidents Eisenhower and Kennedy. They spent heavily on technology development, funding our university research and technology companies, that has led to the current technological superiority of the US. Government sets this into action long before venture capitalists will dare risk their money, driving new technologies, new companies, and indeed, new industries. Excellent reads on this include Cohen and DeLong (2016), and Mazzucato (2015). Unfortunately, our economic model for success in the US is now being ignored by Trump, but embraced by Germany, China, and South Korea. We must spend, spend big, but return to pragmatic spending policies instead of our ill-informed ideological policies that took root during the Reagan years.
29
@Greg Maguire, Ph.D.
Don't read Brit govt economists. They know nothing about the USA. Waste of time and effort.
And "pragmatic spending? Like Detroit? Thanks for the laughs, but this is serious stuff. Try reading about GNP/debt ratios, if you can.
1) MMT is awful, but 2) when has Bernie Sanders ever stated support of MMT?
Whee! This MMT discussion is perfect for the mad hatter’s tea party where we’re currently trapped. The “debt” accruing to this mindless supercharging of the the economy is the acceleration of pollution and climate change. The debt will be repaid — with ruinous interest — by our children.
3
I didn’t hear anything in this theory ( in this article, at least) that addresses how the never-ending, ever-growing national debt gets paid, without impacting the nations ability to invest and respond to economic catastrophes and maintain the reserve status of the currency.
The underlying issue is one of confidence. The value of the currency and trust in the viability of the nations debt requires a reliable clear path for its repayment outside of financial engineering. Financing large scale projects for productivity, competitiveness and efficiency with debt can make sense; funding tax cuts to those parties who will not increase any of those objectives, via debt, erodes that vital basis for trust. The recent GOP tax cuts come to mind.
18
@MassBear agree that tax cuts for the rich don't work anymore, and that the quality of spending is paramount.
As far as "repaying the debt", it's constantly being repaid via individual redemptions, and then it's renewed with new investment. It's not just one static pile of uncollected money that's replacing money that's in circulation.
Per capita debt is perhaps a more instructive figure, if it's presented along with per capita ROI - part of which is the quality of life in this country. If a country has $X amount of wealth, it's distributed in some fashion among the population. As that population increases, either the amount of total wealth must increase, or else everyone is, on average, poorer. It's the distribution that we need to work on!
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@MassBear
The answer is 'Never.', Silly.
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@cdm
That's absolutely wrong. There's the productivity factor -- going from horses to trucks. The world is not zero-sum. Look at China.
MMT is so laughable, CBS should buy it, to replace BBT.
It's great to see more coverage of this topic. A few thoughts:
1. MMT argues that the real constraint on government spending is inflation, not how much money can be brought in by taxes and borrowing. Treasury simply directs the Fed to credit the supplier bank accounts electronically.
2. Under MMT, government would spend what it takes to maintain full employment (preferably with a job guarantee as an automatic stabilizer), and raise taxes or borrow to drain money from the system if inflation accelerates.
3. The University of Chicago survey was a joke; the questions were off-target and MMT economists would have answered the same way. The questions from the survey over the past year increasingly get head-scratching responses even from the participants.
4. The sectoral balance framework is mainstream economics, not MMT. It is based on an accounting identity that must hold true by definition; the Wikipedia article gives a good summary and graphics. Essentially, the sum of deficits or surpluses in the government, private, and foreign sectors must add to zero.
5. We should test MMT, by printing money to pay off student loans and begin paying for in-state tuition.
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MMT is a purely rhetorical strategy. It offers nothing new or insightful. It’s just normal Keynesianism.
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Yikes what would Milton Friedman say about these ideas if he were still with us ? Wait, I think I know. I also think I know what he'd say about todays big-spending Repubs.
For those of us who took their econ courses back in the 70s & 80s, uncle Milty was the one who made so much sense with his piercing logic of simple but eloquent explanations about economics and especially the Fed & the money supply.
Gosh I miss that guy and do we ever need him more than ever today !
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Both pro and anti-MMT claims sound correct. MMT seems to be working within a range created by better risk-return trade off on publicly funded projects but there is certainly an upper bound on that. Perhaps, a closer analysis of the source of return on Govt investment can help find that upper bound.
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What isn't to like about the theory? We can have our cake and eat it too, with no repercussions to future generations. It seems to me a theory that was written for the time we live in by the Republican Party. That being said, some MMT commentators I have listened to also suggest with full employment, low interest and low inflation you should be reducing the deficit.
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Where is the rigorous empirical proof? Economists, many of whom are beholden to political interests that color their vision, love their theories and ideas, but I've yet to see any real empirical analysis. The fact that event A followed event B is not proof that A caused B - but it seems to be enough proof for most economists.
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Attaboy!
The so-called president has given us the "best" (or worst) of ALL worlds - huge deficits WITHOUT the corresponding infrastructure investments.
Seems to me that just like every BULL MARKET that throws up investment geniuses by the bushelful most of whom turn out to be shining comets speeding through the darkening investment skies, MMT will draw huge support - especially from those governments determined to LOOT their countries - and then, like those genius-comets, disappear, until the next crop is ready to flash through.
Wonder if people will notice how worthless their money has become, even if there are a few new bridges and pot-hole free interstates......?
Deflation could be the disaster which lies ahead, you know...
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@AWENSHOK people will need to understand that the value that they think has disappeared from their money turns up in those safer bridges and interstates. Or maybe the extra defibrillators at the fire department, or roads with solar panels in the shoulder and lines to enable self-driving, self-powering vehicles. All of which means they don't have to spend that "missing" value on those things we enjoy that the "free market" just doesn't seem to be able to provide.
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If wall street thinks this is a good idea, it means they see an opportunity to make money off it, thus again scamming the other 99%.
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The New York Times coverage of MMT is as dangerous as giving space to climate change deniers. I am an academic economist. There is no debate, whatsoever, left-wing or right-wing, about MMT.
Indeed, I hesitate to even call it a theory, since the proponents don't seem to be able to even write down a logically consistent version of their ideas. They like to, as Paul Krugman has pointed out, play rhetorical games and shift goalposts. For instance, Kelton's description of MMT is simply an accounting identity - uncontroversial. The idea of a jobs guarantee is one that many economists feel totally comfortable thinking about (but generally oppose - much better to pay unemployment and let a worker spend time finding a job that is a better match to their skills, rather than sweep the streets!). But the idea that deficits are by and large noninflationary even at massive scale: it is insane.
For those confused, the logic is simple. An economy has a given productive potential. Giving people more dollars does not magically allow us to create two widgets with the resources that previously created one. When the economy is in recession, there are resources (labor, especially) going unused, and therefore there is scope for juicing the economy with fiscal or monetary policy to induce those resources to be used productively. But when the economy is producing at its potential, this is no longer the case. MMT fundamentally disagrees. On what grounds? It's madness.
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@KB
I encourage you to expand this, and submit an opinion piece to the Times!
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@KB You're missing it.
The point is that the money created to employ the otherwise idle resources is water under the bridge as long as the otherwise idle resources are paid to do something productive. Create a widget, not sweep the streets.
The US can put the idle to work renewing infrastructure, and that infrastructure will pay for itself in economic growth, all while giving the employed the dignity of a productive life.
Inflation happens because resources are already employed, and of course we don't want the federal gov't creating money to bid up prices. But until resources are at productive full employment (i.e., not while economics professors are greeting customers at Walmart) the monetary sovereign should put people to work.
Deficits at massive scale certainly can be inflationary - but it's not always. It's when they bid up prices for scarce resources.
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At 4% unemployment, and with a lot of capital chasing too few investment opportunities, the economy is running full tilt. Throwing more money at it won’t help. Who would you employ to build those bridges, and how would you convince them to do it? With a whip maybe?
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Nothing good will come of this. It's like the "New Era" in 2000, when the old rules stopped applying and tech stocks could go nowhere but up. Furthermore, it's no coincidence that Trump wants to politicize the Federal Reserve with mentally challenged little boys. And now, the little girls (Cortez) want to join in.
Surely if you're old enough to remember the situation that preceded Paul Volcker's first go-around, then you should be worried about the stability of your Social Security and purchasing power.
The people running this country are intent on erasing any social benefit paid by the government. Example: DeVos turns down 99% of student loan public-service forgiveness applications, despite the laws that have been enacted, while Trump creates a sideshow for the clueless peasants over on Twitter. Another example: Romney says getting rid of Obamacare will affect "only" 20%. With the global economy, Republicans think American has too many "useless" people.
Apparently, a lot of 1 percenters think they could make quite a lot of wealth off the crashing of our monetary system. They'll do anything to rule the world.
Why don't we stop them?
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MMT is well suited for USA. USA like most sovereign countries can print money. The crucial difference is the value of this printed money to the rest of the world. As long as the mighty U.S. dollar is valuable like gold was in the past, U.S. treasury can simply print money. This will not work for any other country. The United States should boldly make use of this financial super power of the dollar!
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@Albanywala But it’s other countires, such as China, that are buying the debt and thus keeping the US government and economy afloat. And “MMT” assumes that this money will be fully or sufficently utilized productively to keep the machine rolling. Goid luck there. What this all telks ne is how even more interconnected the world is economically and thus how widespread the next downturn will be. Capitalism is still ruled by the dynamics of supply and demand.
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Seems to me the real issue is one of degree of self-discipline, and collective (government) self-discipline to not diminish the value of the dollar too much so that inflation suddenly starts unfolding & too-little, too-late measures are implemented to restrain the diminishing, if not ruinous inflation.
Keynes demonstrated what works---not the connotations that are routinely pushed about by television talking heads, and politicians for their own partisan purposes.
Taxes--dirty word, NEVER raise, always diminish---from the GOP has caused many of today's problems. {Pay as you go still wisest} Borrowing from currency you can control how much of it there is (backed by the Full-Faith-of-Federal-Government-will-be-paid-0N-TIME-IN-FULL) for various improvements & replacements in America's infrastructures (not just highways) routinely demonstrate a multiple of "returns" that benefits society.
Lastly, but not least, it should not be an undue burden upon the poor--60% of Americans according to Dalio's latest??-- whilst the wealthy merely question whether to eat Filet Mignon or Crab for dinner. Shameful buying of education for their entitled spawn, etc. More taxes upon wealth and more spending to benefit poor the ticket.
MMT is merely a lens to see the current problems.
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