MODERN MONETARY THEORY (MMT) is a description or if you prefer, a systemic analysis of currency as it presently exists.
It reveals that taxation is important in driving demand for currency among other things, including the creation of unemployment. After all, there is no unemployment in a non-monetary economy.
Adam Triggs, a research fellow at the Brookings Institution and Crawford School of Public Policy at Australian National University (ANU) wrote back in 2019 that MMT ‘looks like a solution in search of a problem’. That is not the case. MMT shows that the new economic consensus on the monetary system is false and it also shows what tools are available in the modern money toolkit.
Triggs proceeds:
‘If its [MMT’s] stated objective is to achieve full employment, then it appears unnecessary.’
This simple sentence is misleading in the extreme. MMT is just what exists. It has a preference for sovereign currencies but can explain any monetary system.
The preference for sovereign currency is because it makes available more independent policy space, enhancing democracy. Triggs then defines full employment as an unemployment rate of five per cent. Oh, the horror! This relies on the mythical “non-accelerating inflation rate of unemployment” (NAIRU), which is sometimes transposed with the phrase “natural rate of unemployment”.
|  Is Modern Monetary Theory (MMT) radical? Yes. It is especially radical if we go to the roots of the word ‘radical’ which itself means ‘from the root’.
Is MMT innovative? Only in the sense that it is a synthesis of different strands of heterodox thought, though not all heterodox economists are on board.
Is it a ‘trap for the left’? No, not at all.
Is it difficult to work out what Modern Money Theory is? Only, it seems, if one has been trained in the ‘New Keynesian’ tradition that forms the so-called New Economic Consensus (NEC) in mainstream economics.
While these New Keynesians are vulnerable to the charge that their ideas are ‘not new and not Keynesian’, they are willing to recycle the line that Modern Monetary Theory is ‘not modern, not monetary and not a theory’. Unlike the New Keynesians, however, the MMTers are in on the joke.
Some may complain about the word ‘modern’, as the term can refer both to Keynes’s joke that money has been a creature of the state for ‘the past 4000 years … at least’, and to the period since 1971 when the Bretton Woods standard began to break down.
The word ‘monetary’ is used in MMT to describe the monetary system, not monetary policy – although it does have implications for the conduct of policy.
The word ‘theory’ is used by MMT in the scientific sense. A theory is a fact-based framework for describing a phenomenon. | Professors Edmond, Holden, and Preston are mistaken in that Modern Monetary Theory (MMT) says we should not worry about budget deficits. The effects of budget deficits are significant. As Stephanie Kelton, the most well-known MMT economist in the world, says, we should focus on the deficits that matter. The jobs deficit, the environmental deficit, the deficit of affordable housing for homelessness, and many more. The financial deficit from the budget is the private sector surplus, the money in your pocket and mine.
Keynes used financial praxis to argue for fiscal stimulus in severe recessions, and since financial praxis is always and everywhere an MMT phenomenon, Keynes used MMT.
The professors are also mistaken to say that it is a well-accepted idea that the spending comes first. Many politicians and commentators who talk as if the government spending is like a household budget are economists or have worked in the central bank and Treasury, among other public service jobs. So the television talking heads like financial commentators and public-facing economists such as Stephen Koukoulas and Saul Eslake are not saying these things.
The professors have not been paying attention if they think MMT proponents and economists do not explain when the inflation constraint binds. Every time MMT talks about real resources and their availability, MMT proponents are talking about inflation constraints. The real resource constraint is the inflation constraint. |
Darren Quinn 