Modern Monetary Theory (MMT)

I think this is interesting — certainly clever — and similar in its way to proposals by Bob Hockett and Saule Omarova where they try to squeeze their ideal US financial sector reforms into a shape that requires as little new legislation or disruption to existing agencies as possible. For my money, I think it's essential to establish the MMT Job Guarantee as a clear model for other public provision of essential goods and services, rather than trying to smuggle it in. I mean, neoliberals are not averse to imposing "shock therapy"; why shouldn't we implement our own bold "pleasant surprise therapy"?

The Minimum Wage Jobs (MWJ) Framework is the most operationally efficient version of a Job Guarantee for the United Kingdom. It achieves the dual objective of a modern stabilisation system: eliminating involuntary unemployment while providing a permanent anchor for inflation.

[…]

The framework is a fully distributed policy that requires no new agencies, committees, or open-ended ministerial powers. It functions as a seamless extension of the existing tax and benefit architecture, operating automatically across every region and nation of the UK. The system is designed to be “light-touch,” integrating seamlessly with the distinct tax policies of devolved governments. By processing payments through the established PAYE and RTI frameworks, the policy scales to local needs rather than through central command.

Implementation is pragmatic and low-risk. One-off implementation costs are conservatively estimated at £100 million, with annual running costs under £50 million: less than the current cost of operating the Monetary Policy Committee and the Debt Management Office.

My dear friend and colleague Susan knocks it out of the park here:

I do not invoke democratic “insolvency” as a metaphor. I mean it literally, seriously, structurally. As Kelton and Raworth insist, an economy’s purpose is to thoughtfully and justly provision the society it serves. The question for the rest of us is what must a democracy’s economy be minimally committed to provision if a democratic society is to remain resilient and sustainable?

Just asking that question exposes a quiet but consequential mistake embedded in much of modern economic and political thinking, one that Meadows would have immediately recognized. Ordinarily, we treat public policy as a menu of options, programs to be debated, adjusted, traded--off, replaced, or discarded, one-by-one, depending on the political moment. But it is extremely likely that, in a modern redesign, some public commitments will not be optional. They may be structural. They may be load-bearing. Moreover, they may only work interdependently, as a system. Remove one, and the whole apparatus may not just perform poorly; it may be doomed to fail.

A commentator here drew my attention last night to a new policy paper from the Restore Britain group that has been launched by former Reform MP Rupert Lowe, who now sits as an independent MP for Great Yarmouth in the House of Commons, and who, this weekend, launched his own political party.

That party is called Restore Britain, and sits further to the right than any other likely to attract media attention in the UK at present.

Entitled Mass Deportations: Legitimacy, Legality, and Logistics, this paper claims that the UK could remove every undocumented migrant now living in the country within a few years through sweeping legal change, administrative expansion, and a deliberately hostile environment designed to force voluntary departures. 

[…]

In short, it would be one of the largest state economic programmes in modern British history, put together with the deliberate intention of pursuing hate whilst imposing threats, fear, intimidation, incarceration and violent relocation on many hundreds of thousands, and potentially millions of people.

The supposed numbers involved are staggering. The suggestion is that up to 2 million people might be forced from the UK within three years. About 75% half of those would supposedly leave voluntarily due to the hostile environment the policy would create. That environment would undoubtedly target all migrants, regardless of their legal status. It would be totally foolish to think otherwise. The remainder, the report suggests, would be forcibly removed. Official estimates do not suggest that anything like that number of people are illegally resident in the UK.

[…]

We are often told that the state is powerless. That includes the claim that it is powerless to house people, powerless to fund social security, and powerless to invest in care.

This paper implies something quite differently. The implication is that the state is immensely powerful. The suggestion is that it is capable of tracking, detaining, transporting, and expelling millions. The contradiction is obvious, but it exposes something deeper.

The choice revealed is whether the state wants to do things that are good, to which the answer from the current political establishment is that, apparently, and for reasons that are not clear, it does not, or something straightforwardly evil, which is what this paper proposes, of which it is apparently thought to be capable.

The question is not, then, about whether the state has power. The question is about how that power is used, and to what ends.

John Maynard Keynes, in a 1942 BBC address:

   Let us not submit to the vile doctrine of the nineteenth century that every enterprise must justify itself in pounds, shillings and pence of cash income … Why should we not add in every substantial city the dignity of an ancient university or a European capital … an ample theater, a concert hall, a dance hall, a gallery, cafes, and so forth. Assuredly we can afford this and so much more. Anything we can actually do, we can afford. … We are immeasurably richer than our predecessors. Is it not evident that some sophistry, some fallacy, governs our collective action if we are forced to be so much meaner than they in the embellishments of life? …

   Yet these must be only the trimmings on the more solid, urgent and necessary outgoings on housing the people, on reconstructing industry and transport and on replanning the environment of our daily life. Not only shall we come to possess these excellent things. With a big programme carried out at a regulated pace we can hope to keep employment good for many years to come. We shall, in fact, have built our New Jerusalem out of the labour which in our former vain folly we were keeping unused and unhappy in enforced idleness.

This paper constitutes a first detailed institutional analysis of the UK Government’s expenditure, revenue collection and debt issuance processes. We find, first, that the UK Government creates new money and purchasing power when it undertakes expenditure, rather than spending being financed by taxation from, or debt issuance to, the private sector. The spending process is initiated by the government drawing on a sovereign line of credit from the core legal and accounting structure known as the Consolidated Fund (CF). Under directions from the UK finance ministry, the Bank of England debits the CF’s account at the Bank and credits other accounts at the Bank held by government entities; a practice mandated in law. This creates new public deposits which are used to settle spending by government departments into the economy via the commercial banking sector. Parliament, rather than the Treasury or central bank, is the sole authority under which expenditures from the Consolidated Fund arise. Revenue collection, including taxation, involves the reverse process, crediting the CF’s account at the Bank. With regard to debt issuance, under the current conditions of excess reserve liquidity, the function of debt issuance is best understood as a way of providing safe assets and a reliable source of collateral to the non-bank private sector, insofar as these are not withdrawn by the state via quantitative easing by the Bank of England. The findings support neo-chartalist accounts of the workings of sovereign currency-issuing nations and provide additional institutional detail regarding the apex of the monetary hierarchy in the UK case. The findings also suggest recent debates in the UK around monetary financing and central bank independence need to be reconsidered given the central role of the Consolidated Fund.

A nice little restatement of some basic facts:

I often hear progressives say that Modern Monetary Theory (MMT) is all very well, but given the real politic, within which these debates are contested, it is better to rely on mainstream understandings to make the case for more government spending on progressive goals.

I remind these economists of the way that John Maynard Keynes used the (erroneous) neoclassical concept of marginal productivity theory for labour demand in The General Theory, to allow him to concentrate on the supply side, where he believed the differences between his approach and the orthodoxy could best be highlighted.

It was a decision that he regretted when it became obvious that the orthodoxy manipulated the debate to categorise Keynes’ quibbles as the special rather than the general case.

And the result was the neoclassical synthesis which dominated macroeconomics for the next several decades and allowed Monetarism an easier path and then the current New Keynesian paradigm to emerge.

The essential message of Keynes was quickly lost because he made that sort of strategic error – using neoclassical framing.

This is a brilliant explainer. Here's the punchline:

Industrial policy was once central to the rise of today’s wealthiest nations. Yet, after achieving their own development, many downplayed the state’s role, promoting free-market rules abroad. The climate crisis forces a re-evaluation of that legacy. China offers a striking example of what strategic planning can achieve. Long before emerging as a global leader in green technologies, it used industrial policy to build manufacturing capacity, infrastructure and innovation. Through the coordinated efforts of state-owned enterprises, long-term planning, public procurement and technology transfer, China now leads global production of solar panels, wind turbines and electric vehicles. These interventions have helped drive down global costs, making renewables more accessible and helping to accelerate the energy transition worldwide.

This kind of coordination cannot be replicated by merely relying on market inducements like carbon pricing. When climate action is framed primarily as a problem of mobilising finance, the role of the state is reduced to simply enabling private investment rather than leading the transformation. Public institutions are cast not as planners or investors but as guarantors, tasked with making green investments more attractive to private actors. Tools like blended finance and public-private partnerships are promoted as solutions, but their logic reinforces the idea that structural change must be routed through private investors’ incentives. In practice, this limits the scope of public ambition and steers policy toward projects with clear financial returns rather than broader social or ecological value.

Market mechanisms may help reduce emissions at the margins, and may generate some revenue, but they are not designed to coordinate across sectors, manage trade-offs, or drive large-scale transitions. Treating finance as the central constraint sidelines the essential questions of what gets built, by whom and in whose interest. The belief that markets alone can deliver the necessary scale and direction has not only delayed progress but also distorted priorities—placing finance at the centre while allowing questions of production, capacity, and coordination to fade into the background.

As the United States retreats from managing the international order, returning under Trump to a more transactional and coercive approach to foreign policy—ditching the Paris Agreement, undermining multilateralism, and waging tariff wars under the banner of economic nationalism—it also exposes the fragility of the existing system. The version of globalization built on US financial dominance, free capital flows and market liberalization is beginning to crack under the weight of its own contradictions.

If this chaos has an upside, it is that it presents an opportunity to build an alternative—and radically more just—financial architecture, and to confront the economic orthodoxies that needlessly constrain what is considered possible.

In this paper we provide an in-depth analysis of Pakistan’s macroeconomic situation.
We argue that although the stabilisation program signed with the IMF in November 2008 could
restore some "macroeconomic stability", it will depress the investment and unemployment
outlook, and it will not create the conditions that Pakistan needs for sustainable long-term
development. We put forward the foundations for a sustainable macroeconomic program for
Pakistan. This contains policy advice that differs markedly from that of the IMF. The essence of
the proposal is the consideration that a government that issues its own currency faces no financial
constraints or solvency risk. This implies that the usual “government budget constraint” has no
economic content. Based on this, we examine the potential role that the country’s fiscal and
monetary policies could play in promoting growth and in generating full employment and price
stability.

Theoretically, we make use of a framework that combines Andrew Baker’s work on social purpose with a novel conception of professional legitimacy, which we divide into internal legitimacy and external legitimacy. Especially when they articulate a strong sense of social purpose and are open to co-constitution, such forms of knowledge can have widespread popular appeal while being vehemently rejected by the economics profession. This means that policymakers must examine not just the potential of alternative expertise per se but also weigh the appeal of the two forms of legitimacy against one another. As a result, this framing can help us understand the complex and sometimes non-linear trade-offs associated with upstart forms of expertise.

Yet, this framing also leaves open crucial questions, that should be addressed by future research on the rise of indie economics. Indeed, as a broader field of ‘lay experts’ emerges, potentially challenging and undermining the more centralised form of knowledge production that has been dominant over the course of the long twentieth century, we will need to grapple with new questions of quality control. Science has always had to contend with tensions between scientific rigour and creativity and has developed mechanisms such as peer review to deal with it. But the changes we now face are altering the nature of this trade-off: co-constitution and the enrolment of lay actors can open new intellectual frontiers and democratise science, but they can also open the floodgates for manipulation, pseudoscience, and misinformation of various forms. Future research should explore the mechanisms of quality control (or lack thereof) that are evolving to navigate this new reality.

To return to Daniela Gabor’s question from the introduction, the rise of MMT shows in no uncertain terms we are in a political climate in which trust in mainstream economic knowledge is desperately frayed and – given this lack of trust – anti-establishment credentials become a crucial source of appeal. The rise of alternative forms of economic expertise is menacing to mainstream macro not just to the extent that it competes with it for finite attention, but also in that it is a symptom of the deeper malaise of the discipline and its failure to prove itself fit for social purpose in the face of interlinking crises.