Once again I have been asked to comment on Modern Money Theory, MMT, and the growing interest in it on the ‘left’. What follows is a further, albeit still preliminary, comment on it, as I replied to one of the readers of this blog. (More forthcoming in depth later this summer).
“I’ve been following the various ‘forms’ of MMT being proposed. I intend to join the debate once I finish my next forthcoming book, The Scourge of Neoliberalism, due out in September. My initial impression to date, however, is not positive about monetary solutions of any kind to crises or restoration of economy growth, and that includes MMT.
I sense that MMT is in part Quantitative Easing turned on its head, and I’ve been a strong opponent of QE and all forms of ‘monetarism’ in economics which has always been more ideology than economic science. There’s thus the matter of how much of MMT is economic science and how much of it is economic ideology (meaning misrepresentation of reality in service of particular economic interests).
Another problem with MMT is that it leaves recent capitalist fiscal policy—i.e. massive cuts in taxes to investors, businesses and wealthy 1% unaddressed and in place. That is, the solution is not reversing the $15 trillion in tax cuts for investors, corporations and the rich since 2001, or reversing social program austerity policies; for MMT the solution is just creating more money and using that in lieu of reversing tax and spending trends that have increasingly benefited capital incomes. Furthermore, contrary to MMT, deficits do matter, I believe. Especially when they get exceptionally large. The federal debt will reach $34 trillion by 2028 (due to tax cuts and defense spending mostly). And interest on it will reach $900 billion a year. It’s not the deficit that matters, but the cost of financing, i.e. paying for, that deficit that does matter. To pay for that $900 billion, they’ll have to attack social programs even more aggressively and raise even more taxes on the middle class, the latter of which has now begun this year and will intensify after 2024.
Finally, another initial impression is that MMT strikes me as a kind of ‘accounting ledger’ and/or de facto ‘equilibrium’ approach to economic analysis, neither of which I find very useful to understanding the real world of the economy.
Dr. Jack Rasmus @drjackrasmus
Good Morning. It seems like you might be influenced by the media on this subject. You may like to read this: http://neweconomicperspectives.org/modern-monetary-theory-primer.html
No. I’m reading L. Randall Wray’s book on MMT. But I’ll read your link as well. I’m still open-minded but I have been a deep reader of economic theories of money from Classical economics (the best of whom is Henry THornton, the banker), Marx’s views on money, neoclassical views including Fisher, & his contemporaries, Keynes’ 1926 and 1940 (and the GT) theory of m oney, Hayek and von Mises and the Austrian school, Milton Friedman and his offshoots–and this all has led me to be skeptical of the effectiveness of monetary solutions. But I withhold my final views until having read the MMT stuff thoroughly. (And no, I don’t make my judgments based on the NY Times or Wall St. Journal or Financial Times or the academic journals, which just parrot the same stuff from the business press in a more esoteric way to sound like they know something we don’t. Thanks for your reply. Dr. Rasmus
OK. Thank you for being open-minded. Modern Money definitely says deficits matter and that line about it saying it doesn’t is becoming a little too commonplace.
I have tried to address the most common questions here: http://modernmoneyview.wordpress.com/faqs/
And this will definitely be worth a read in full: https://threadreaderapp.com/thread/1133586537512341504.html
I’ll be interested to see what you ultimately come up with.
Kind regards,
I will be interested to read in what way MMT considers that ‘deficits matter’. And why monetary solutions to crises and growth work, when no variant of monetary solution has ever worked, while QE and the massive liquidity injections since the late 1970s has only produced a fundamental financialization of the global capitalist economy, a shift favoring financial asset investing and markets at the expense of the real economy, the expansion of global shadow banking (aka capital markets), financial speculation and chronic bubbles, and a growing problem of a more rapid propagation of asset price instability into real goods and inputs instability causing deeper recessions and longer recoveries (aka what I have called ‘epic’ recessions of short and shallow recoveries that result in chronic stagnation and repeated short term recessions). The most evident of these events are occurring in the weak links of the global capitalist economy, i.e. Europe and Japan. This is what monetary solutions (liquidity puts by central banks and QE) have wrought. MMT will have to convince me that simply reversing the targeting of monetary injections toward real asset investment will have a positive effect on the real economy–when there’s a massive drag on it due to investor tax cuts, war spending, price gouging by health-pharma, and an integration of global economies that results in a mass diversion of money capital from the US (and EU, Japan, etc.) out to emerging markets. There’s never been a case historically in the last century where monetary policy alone has led to a capitalist real economy recovery from a recession or financial crash. As Keynes himself discovered in the 1930s, you can provide cheap money, or even no cost money, but investment is driven by expectations of profitability, not the cost of money. The only exception to this is if you have public investment in public corporations where government makes investment not based on profitability but on the need for public goods or to create employment when the private sector does not. However that tradition of public investment does not exist in the US (not that it shouldn’t).
But I’ll keep an open mind
Personally I’ve never liked the artificial distinction between monetary and fiscal policy as they are both money-tary.
Many MMTists prefer prudential regulation for financial related markets.
And here is an MMT golden oldie
https://www.nakedcapitalism.com/2010/07/deficits-do-matter-but-not-the-way-you-think.html
I’m not surprised you don’t like the distinction between fiscal and m onetary policy, since MMT apparently shares the bias of QE–namely, that the injection of money capital into the economy is all that is necessary for recovery. But there is a key distinction: monetary policy attempts to stimulate the economy by first providing the money to bankers, investors, etc., in the hope they’ll invest in the real economy and that some of the injection will somehow find its way via jobs and trickle down to wage and earned incomes. Thus the idea that money will eventually stimulate consumption demand. But when the money injection ends up in financial asset investment (stocks, bonds, forex, derivatives, etc.), or flows offshore, or ends up in M&A activity, or is simply redistributed in stock buybacks and dividend payouts–none of which stimulate real investment or create jobs–then it’s clear that monetary stimulus is just an excuse to make the rich even richer. Now, as I understand it so far, MMT proposes to become a substitute for traditional fiscal policy (tax cuts or spending hikes). So it’s not strange that you see a conflating of the two, fiscal and monetary, and don’t prefer the distinction. But there is a distinction between tax cuts for wage earners, or spending programs targeting wage earners, and money injections going first to businesses in the hope it will somehow trickle down (and not get diverted to M&A, financial assets markets, offshore, or to shareholders of financial assets.)
As far as preferring ‘prudential regulation of financial markets’, what we’ve seen in recent decades is mostly deregulation encouraging high risk taking that results in financial markets instability–which hardly may be called prudent.