Modern Monetary Theory (MMT)

If global energy consumption returns to its pre-pandemic growth rate, it will be almost impossible to transition to a zero-emission or net-zero-emission energy system by 2050 in the absence of large-scale CO2 removal. Since relying on unproven technologies for CO2 removal is speculative and risky, this paper considers an energy descent scenario for reaching zero greenhouse gas emissions from energy by 2050. To drive the rapid transition from fossil fuels to carbon-free energy sources and ensure demand reduction, funding is needed urgently in order to implement four strategies: (i) technology change, i.e., implementing the growth of zero-carbon energy production, end-use energy efficiency and ‘green’ energy carriers, together with ongoing R&D on CO2 removal; (ii) reducing climate impacts; (iii) reducing energy consumption by social and behavioural changes; and (iv) improving human wellbeing while increasing social justice. Modern monetary theory explains how monetary sovereign governments, with their own fiat currencies, can create the necessary funding without financial constraints, although constraints do result from the productive capacities of their economies. The energy transition could be part-funded by a significant transfer of resources from monetary sovereign countries of the global North to the global South, financed by currency issuance.

MMT had been making inroads before the pandemic in terms of the number of lawmakers who were starting to ask whether they had gotten some big things wrong over the years. I was in meetings in Washington, DC, in February of 2020 with very high-level members of both the House and the Senate. This was leading up to the November 2020 election. So I’m sitting there, and they’re talking about the Trump administration’s massive tax cuts, how they increase the deficit and the national debt, adding some $2 trillion to deficits with total disregard for the fiscal impacts.

This is what Republicans always do when they have power. They don’t care about debt and deficits. They focus like a laser on passing their agenda. So they got their huge tax cuts passed.

Democrats fall for this story every time. When they get into power, they try to tighten the purse strings and say, “We’re going to be good stewards of ‘taxpayer money’ and try to avoid running deficits” and all that. Meanwhile, the Republicans never do that. They just use the deficit to pass their agenda.

Democrats had me come in and they said, “Listen, we think we’ve been misled about the risks of deficits. We don’t think that these things are the bogeyman that we’ve long been told, that it’s the road to ruin.” MMT had caused them to rethink these things.

The job guarantee is a policy innovation that helps create full and meaningful employment for all via direct job creation. It is a voluntary program open to every working-age person who is ready, willing, and able to work. It provides living-wage employment opportunities in public service projects that tackle social and environmental needs. The program is funded nationally, administered locally, and available in every community.

A job guarantee would go a long way toward helping people afford housing by locating living wage jobs in communities with cheaper housing. However, for the Job Guarantee to deliver the stability and prosperity we hope to see in a people’s economy, it should be paired with a guarantee of homes to everyone. Without a Homes Guarantee, real estate developers, mortgage brokers, and landlords will do everything in their power to capture the increased Job Guarantee earnings. Speculators who treat housing as an investment vehicle leave properties vacant to manipulate prices, systematically pushing people into homelessness. Lacking an alternative due to chronically underfunded public housing and a federal government legally barred from building new housing, many people have no choice but to rely on the private sector. Because the private sector has near total control over the housing stock, and housing is so fundamental to life, it is easy for speculators to bully people into paying more and more of their income. If we want our people’s economy to include quality, stable, community-controlled housing for all, we need the Homes Guarantee to provide an alternative to the speculative housing system.

Kalecki is really considering a fully employed private sector that is prone to inflation rather than a mixed private-Job Guarantee economy. The Job Guarantee creates loose full employment rather than tight full employment because the buffer stock wage is fixed (growing with national productivity). The government never competes against the market for resources in demand when it offers an unconditional job to any unemployed workers under a Job Guarantee. By definition, any worker who takes a Job Guarantee job has zero bid in the private market (that is, no private firm is prepared to pay for their labour at the prevailing wages and prices).

The issue comes down to whether the Job Guarantee pool is a greater or lesser threat to those in employment than the unemployed when wage bargaining is underway. This is particularly relevant when we consider the significance of the long-term unemployed in total unemployment. It can be argued that the long-term unemployed exert very little downward pressure on wages growth because they are not a credible substitute.

The Job Guarantee workers, however, do comprise a credible threat to the current private sector employees for several reasons: […] 

Under the JG scheme, the government continuously absorbs workers displaced from private sector employment. The “buffer stock” employees would be paid the minimum wage, which defines a wage floor for the economy. Government employment and spending automatically increases (decreases) as jobs are lost (gained) in the private sector. The approach generates full employment and price stability. The JG wage provides a  floor that prevents serious deflation from occurring and defines the private sector wage structure.

[…]

In this paper I develop the argument that the NAIRU is a costly and unreliable target for policy makers to pursue. It is argued that full employment demands that policy emphasise the number of jobs rather than some politically acceptable (though high) unemployment rate. Many commentators who are otherwise sympathetic to the goals of full employment are skeptical of a policy approach that chooses along the lines of the JG to endogenise the budget deficit. There is a fear that it will make inflation impossible to control. To answer these claims, the inflation control mechanisms inherent in the JG model are outlined. The final section indicates other issues that are relevant but not addressed.

Undated, with the usual quotes plus quite a few that are new to me.

According to the Bank of England;

"... Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.
The reality of how money is created today differs from the description found in some economics textbooks.".

This is  a  discussion  of how  best  to  reconcile  the demands  of War  and  the  claims  of private  consumption.

We already have the financial wherewithal needed to afford whatever is technologically possible. We do not need to go hat-in-hand to rich folks to get them to pay for it. We do not have to beggar our grandkids to pay for it. We do not have to borrow from China to pay for it. We do not have to get the Fed to “print money” to pay for it. All we need to do is to remove the self-imposed constraints, the myths, and the misplaced morality; then budget for it, approve the budget, and spend. No new spending process is required. Follow the normal procedures that the Fed and Treasury have developed. That is how you pay for it.

As the great J. Fagg Foster (1981) said, “Whatever is technologically possible is financially feasible.” There is really no other reason to have a financial system. If you know how to build houses but your financial system cannot find a way to make them affordable, then you must replace that system with one that will.

It is possible that we will need to constrain domestic consumption in order to release resources for the GND effort in a noninflationary manner. The problem is not that we cannot financially afford the GND—government can always bid resources away from private use by paying higher prices—but spending on the GND will generate private income that can support higher bids in competition with the government for scarce resources. This is the real reason that tax hikes might be desirable: to reduce private income and thereby remove competition for resources.

The purpose of this white paper is to publicly present the fundamentals of MMT

What is MMT?

MMT began largely a description of Federal Reserve Bank monetary operations, which are best
thought of as debits and credits to accounts as kept by banks, businesses, and individuals.
Warren Mosler independently originated what has been popularized as MMT in 1992. And while
subsequent research has revealed writings of authors who had similar thoughts on some of MMT’s
monetary understandings and insights, including Abba Lerner, George Knapp, Mitchell Innes, Adam
Smith, and former NY Fed chief Beardsley Ruml, MMT is unique in its analysis of monetary
economies, and therefore best considered as its own school of thought.