Modern Monetary Theory (MMT)

Wielding the power of credit, commercial banks get to determine the allocation of investment and therefore determine what gets produced.  They make these decisions based on whatever production is most profitable, regardless of whether it is beneficial or destructive. As a result, we get massive investment in things like fossil fuels, beef and SUVs, because these things are highly profitable to capital, and chronic underinvestment in necessary sectors like renewable energy, regenerative agriculture and public transit, because these are less profitable or not profitable at all.  

This dynamic is what explains the fact that high-income countries – like the United States and Britain – are characterized by extremely high levels of resource use and yet still fail to meet many basic human needs. It is because investment is controlled in an undemocratic way, and is totally unaccountable to society.

Credit guidance can help deal with this problem.  We need a democratically ratified framework to guide private investment in line with social and ecological objectives rather than just profit maximization. What are our main goals and values as a society? What do we need to accomplish? What forms of production should be increased in order to improve human well-being?  What forms of production are destructive and unnecessary and should be scaled down?  These questions should be democratically determined and a credit guidance framework should be established accordingly.

Planet Money has obtained a secret government report outlining what once looked like a potential crisis: The possibility that the U.S. government might pay off its entire debt.

It sounds ridiculous today. But not so long ago, the prospect of a debt-free U.S. was seen as a real possibility with the potential to upset the global financial system.

[…]

The report is called "Life After Debt". It was written in the year 2000, when the U.S. was running a budget surplus, taking in more than it was spending every year. Economists were projecting that the entire national debt could be paid off by 2012.

This was seen in many ways as good thing. But it also posed risks. If the U.S. paid off its debt there would be no more U.S. Treasury bonds in the world.

"It was a huge issue ... for not just the U.S. economy, but the global economy," says Diane Lim Rogers, an economist in the Clinton administration.

This is the paper I will give at this year's System Dynamics conference in Bergen, Norway, on August 4-8 2024. It should be of use to anyone trying to argue sense with politicians.

Abstract

Modern Monetary Theory (MMT) is a non-mainstream economic theory that contradicts conventional economic analysis of government debt and deficits. We use the system dynamics program Minsky to develop a mathematical model of MMT. This model shows that the core tenets of MMT are correct, and Neoclassical arguments about government debt and deficits are wrong.

Sergeant Simon Wren-Lewis of the Status Quo Squad, saying "Move along! Nothing to see here!"

Is Labour’s fiscal policy rule neoliberal? That is the charge some on the left, particularly followers of the Modern Monetary Theory (MMT) movement, have laid against Labour’s fiscal credibility rule (FCR). MMT stands for nothing very informative, but it is a non-mainstream macroeconomic school of thought aligned to the left. Bill Mitchell, one of the leading lights of MMT, has run a relentless campaign against the FCR through his blog. As my own work with Jonathan Portes helped provide the intellectual foundation for the FCR, I will try and explain why I find the charge of neoliberalism nonsensical.

 The following searchable document is the complete White Paper as published as an Appendix to the paper by H.C. Coombs (1994) 'From Curtin to Keating: The 1945 and 1994 White Papers on Employment', Discussion Paper, North Australia Research Unit, Australian National University.

It is the only on-line archive of the full paper in its original format that I am aware of. I have corrected some formatting issues that were in the Coombs Appendix version. 

Professor Wray explores the origins and nature of money from the #MMT perspective.

In this exceptionally thought provoking session Professor Wray links money to debt. He explains the historical connection between the the invention of writing as a way to keep track of credits and debits.

My first budget day as a trader was in 2009. There was still a Labour government back then and Alistair Darling and Gordon Brown were adamant it was time to tax bankers’ bonuses. I was a banker but a very poor, very young one. Around that time I slept on a broken mattress and used a little plastic hose from Argos to take showers while sitting in the bath.

I was worried. But I turned round to Billy, and Billy wasn’t worried. He was laughing. He was leaning back, pointing at me, and laughing. He stood up and grabbed me hard by the shoulders. “Don’t worry, Gal. They’ll never tax us,” he said.

I was at the recording of this, and quite awestruck by Stephanie's skill as a communicator.

When governments say they can't afford to fix climate change or lift kids out of poverty are they speaking the truth? American economist Stephanie Kelton challenges economic orthodoxy in her book The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy. She joins Natasha Mitchell in conversation.

Degrowth lacks a theory of how the state can finance ambitious social-ecological policies and public provisioning systems while maintaining macroeconomic stability during a reduction of economic activity. Addressing this question, we present a synthesis of degrowth scholarship and Modern Monetary Theory (MMT) rooted in their shared understanding of money as a public good and their common opposition to artificial scarcity. We present two arguments. First, we draw on MMT to argue that states with sufficient monetary sovereignty face no obstacle to funding the policies necessary for a just and sustainable degrowth transition. Increased public spending neither requires nor implies GDP growth. Second, we draw on degrowth research to bring MMT in line with ecological reality. MMT posits that fiscal spending is limited only by inflation, and thus the productive capacity of the economy. We argue that efforts to deal with this constraint must also pay attention to social and ecological limits. Based on this synthesis we propose a set of monetary and fiscal policies suitable for a stable degrowth transition, including a stronger regulation of private finance, tax reforms, price controls, public provisioning systems and an emancipatory job guarantee. This approach can support broad democratic mobilization for a degrowth transition.

The central argument of this book is that the foundations for sustainable prosperity lie in an approach to economic management based on modern monetary theory and a job guarantee. This approach builds on the work of Keynes, Kalecki, Minsky, Davidson, Godley and other Post- Keynesian economists—as well as research by behavioral economists including Simon, Kahneman and Loewenstein—to explore the role that a permanent, equitable job guarantee could play in building an inclusive, participatory and just society. Orthodox (neoclassical) economics, in its various forms, has failed to deliver sustainable prosperity. An important reason for this failure is its lack of realistic foundations. It misrepresents both human nature and economic institutions, and its use as a frame for the development and assessment of economic policy proposals has had disastrous consequences for social inclusion and the quality of life of millions of people. This book discusses an alternative, more realistic and more useful set of economic foundations, which could deliver the opportunity of a decent quality of life with dignity to all.