MMT and Al Capone

People occasionally ask me what I think about MMT in light of the recent inflation surge. I suppose they believe this will cause me to think less of the theory. Just the opposite is true. On a scale of 1 to 10, my view of MMT has recently gone from 1.0001 to 1.0002.

AFAIK (and with MMT, one can never be certain), MMTers believe that inflation is caused by excessive fiscal stimulus running up against the constraints imposed by the economy’s production limits. Well, we just had a massive fiscal stimulus and inflation rose sharply. So . . .

So why does the recent inflation surge seem to have damaged the reputation of MMT? I suppose because some MMT proponents downplayed the risks of inflation. But that’s an error in judgment about the economy’s growth potential, not a flaw in the underlying model. The model deserves to be ignored, but not because of the recent inflation surge.

Then why do I still rate MMT so low? Because the entire model is utter nonsense, wildly at odds with the historical record. They believe that a fiat money central bank cannot create inflation by boosting the monetary base, even at a time when nominal interest rates are far above zero. That’s preposterous.

Like MMTers, I also underestimated inflation in 2022. (In 2021, I still thought the Fed was serious about FAIT.) That doesn’t make market monetarism wrong. Lots of monetarists and Austrians wrongly predicted high inflation during the 2010s, due to QE. That doesn’t mean monetarism and/or Austrianism are wrong. Lots of Keynesians wrongly expected the sudden austerity of 2013 to slow growth. That doesn’t mean Keynesianism is wrong.

It’s really sad that our profession seems unable to reject the MMT virus for the right reasons, and must instead rely on such dubious methods. It’s like when the Feds couldn’t get Al Capone for bootlegging, and had to convict him of tax evasion. Or they couldn’t get Trump for trying to overturn an election, and instead got him for technical violations in the handling of documents.



27 Responses to “MMT and Al Capone”

  1. Gravatar of George George
    22. August 2022 at 20:25

    “Or they couldn’t get Trump for trying to overturn an election, and instead got him for technical violations in the handling of documents.”

    Overturning the election is what the Democrats did with the rigging of the 2020 election now open source. Illegal ballot harvesting already known, and most recently the election voter roll database was discovered as containing a ‘spiral algorithm’, connected to CCP server in China, all open source.

    The accusation of mishandled documents is easily disproved as yet another lie by the fact that Trump declassified all the information the FBI raided, also all open source.

    All Sox years of the Democrats and their propaganda arm msm spending 6 years falsely accusing Trump was all to make sure their own corruption was kept from view. That failed.

  2. Gravatar of Dr Richard Dr Richard
    22. August 2022 at 21:16

    “The accusation of mishandled documents is easily disproved as yet another lie by the fact that Trump declassified all the information the FBI raided, also all open source.”

    Where is the source that Trump declassified all the documents he possessed from the FBI raid?

  3. Gravatar of ssumner ssumner
    22. August 2022 at 21:36

    Dr. Richard, Obviously Trump did not declassify the documents, and of course it would make absolutely no difference if he had–it would still be illegal. It has no bearing on the crime he committed. Most of his fans don’t know what they are talking about.

    (BTW, I’m not saying it was a serious crime, I’ll reserve judgment until I see the evidence.)

  4. Gravatar of Doug Campbell Doug Campbell
    23. August 2022 at 00:12

    Hey Scott,

    What do you think about “MMT has a point when in a liquidity trap”? I suppose MMT might not be so different to “Keynesianism plus some added jibberish” when in a liquidity trap. And probably I’d rather say that ‘monetary policy is somewhat less effective’ rather than ‘does nothing’ when in a liquidity trap.

    In any case, I just created a nominal GDP prediction market, and, given your own interests, I was going to ask you if you might be interested in posting about it:

    No worries if not and already I apologize for spamming.

    All the best,
    Doug Campbell

  5. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    23. August 2022 at 04:50

    No money stock acting alone is adequate as a “guidepost” for monetary policy. If you get a 200% increase in the primary money stock:

    “Quantity leads and velocity follows” Cit. Dying of Money -By Jens O. Parsson

  6. Gravatar of George George
    23. August 2022 at 04:53

    Dr. Richard: There are two main sources of evidence Trump declassified the docs, despite Sumner’s false ASSERTION he did not, and despite Sumner’s false ASSERTION that keeping declassified documents (WHICH MEANS THEY ARE OPEN SOURCE AND INFINITELY DUPLICABLE) is ‘illegal’.

    If Sumner’s claim that keeping documents is illegal, then both Obama and Bush are ‘guilty’ because they have classified information in their possession. In Obama’s case, there are 33 million documents that have not even been digitized at the Obama PL for almost 5 years after he left office.

    First evidence:

    According to Kash Patel, chief of staff to the Acting United States Secretary of Defense, Trump issued sweeping declassification orders for russiagate documents, and hillary clinton documents, in Oct 2020, Dec 2020, and again Jan 2021.

    This is 100% consistent with Trump’s PUBLIC announcement that that is what he did:

    Next there is this memoranda available in the white house archive:

    What is CRITICAL to know is that as chief executive, Trump had SOLE AUTHORITY to declassify ANYTHING HE WANTS. Constitutionally the POTUS “is” the executive branch. If Trump SAYS “I hereby declassify everything related to Russia hoax”, then THAT INSTANTLY DECLASSIFIES those documents. There is no other federal government authority that has HIGHER authority to declassify than POTUS, there is no logistics process that must occur, there is nothing further that must take place. POTUS says “This is declassified” then those docs are legally constitutionally declassified. Full stop, end of story.

  7. Gravatar of George George
    23. August 2022 at 05:44

    In a prior thread, this totalitarian tyrannical comment was made:

    “I can’t believe people feel so passionately about this search warrant. Thousands of search warrants are issued every day, some justified and some not justified. Trump’s just a person, with no more legal rights than a drug dealer or prostitute. Who cares if the search warrant was justified? It makes no difference. People need to get a life.”


    Get a life? What ‘life’ can there be if the state can at any time just raid your home without any particularity and seize your personal belongings?

    Sumner claims he’s not a CCP lackey, which may or may not be true, but one thing is DEFINITELY true, his ‘logic’ is consistent with CCP logic.

    It’s not that “Trump” is any more special than anybody else, get over your ego! TDS projection is obvious. No, the crucial thing to understand is that if the FBI will violate the constitutionally protected rights of a former President of the United States, then that endangers EVERYONE IN THE COUNTRY. THAT is why this search warrant is so important and yes everyone SHOULD be concerned about it. What is true for Trump’s home is true for everyone else’s home.

    The constitution requires PARTICULARITY in search warrants. Does Sumner even know what that means? No, the proven liars in fake news msm are the sole and exclusive arbiters of ‘truth’.

    Did Sumner even READ the search warrant that was unsealed? Attachment B? It was a sweeping order without any particularity at all. ALL documents passing through Trump’s desk from Jan 2017 to Jan 2021? “as well as ANY OTHER CONTAINERS”? They illegally took his passports, and they even rummaged through the first ladies clothing!

    The search warrant was NOT “just another legal nothing to see here” search. It was an UNCONSTITUTIONAL search that violated the 4th amendment.

    The same FBI unit that raided Mar A Lago is the SAME FBI unit that ran the russiagate hoax, the same FBI unit that gave Hillary Clinton a pass on illegal destruction of 33 thousand emails AFTER a congressional subpoena, the same FBI unit that ran Crossfire Hurricane! Coincidence or is that FBI unit trying to prevent the PUBLIC FROM KNOWING?

    The whole fake news narrative that Trump is guilty of this or that handling of information, or presumed guilty of this or that handling of information, IS A COVER FOR THE DOJ/FBI UNIT’S OWN ILLEGAL ACTIVITIES.

    And that is EXACTLY why Trump is suing the bastards in court, and he’ll win because the Constitution, NOT the FBI, NOT statutes, NOT the fake news msm, is the Supreme Law of the Land.

  8. Gravatar of Bob Bob
    23. August 2022 at 05:50

    The unfortunate reality is that a big route of success in economics involves being close to politics. When the goal is to be an expert for some political group, results don’t matter: Cover for political decisions do.

    MMTers have relevance because they say things that justify what some democrats want. Laffer’s relevance comes from justifying things some Republicans want. The accuracy of the underpinnings of the recomendations only matters when a party can go all out, and it’s all proven to be a catastrophe. See what happened in Kansas, when lowering taxes also meant severe cuts to rural education, including many school closings.

    So it makes perfect sense for MMTers to get discredited for high inflation now, instead of for the theoretical underpinnings making no sense. Scott, your correct critique is completely incomprehensible to a layman. The layman just wants to believe what the MMTer says, because they are recommending something they want. And when you are playing the public influence game, it’s all about convincing laymen.

    You’ve been more accurate than most for decades. The fed has moved, slowly, closer to your general direction. But outside of the wonkiest of economic circles, market monetarism might as well not exist. Hell, barring relatively recent changes, TC doesn’t even cover it in MRU’s economic videos. And that’s because the medicine market monetarism offers doesn’t taste great to anyone, even though it’s likely the most effective. Instead, we ahve some people peddling sugar, and others peddling liquor.

    If the profession fought the virus for the right reasons, they would be completely ineffective. In the same fashion, pointing out that going from 99% tax rates to 98% raises revenue doesn’t mean that going from 15% to 14% will also raise revenue is also ineffective. The human body needs glucose, so let’s feed ourselves mostly through candy!

    We need the bad arguments, whether we like them or not.

  9. Gravatar of George George
    23. August 2022 at 06:25

    I made a mistake in the above post. I forgot to include that the FBI unit that raided Mar A Lago is ALSO the same FBI unit that helped bury the Hunter laptop before the last election, AND the same FBI unit that was disciplined for cooking up phony warrants to spy on the Trump campaign, AND for pushing the fake ‘dossier’, AND the Jan 6th ‘investigation’, AND the fake Gretchen Whitmer ‘kidnapping’ case!


    And what’s totally not fishy either, the Gang of Eight, Pelosi and Schumer and all the rest, are demanding access to all the seized documents from Mar A Lago! Gee, I wonder whether they will selectively leak information to the fake news msm to smear Trump.

    Pelosi explains exactly how they do this, called the ‘wrap up smear’:

  10. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    23. August 2022 at 07:09

    MMT is shades of Huey P. Long, “Every Man a King” and “Share our Wealth” (1934)

  11. Gravatar of William Peden William Peden
    23. August 2022 at 08:15


    I once tried to work out what MMTers were saying and how it differed from mainstream economics. The most important feature, common to all of them, was an off/on model of demand-pull inflation. In an AS/AD framework, this means that the SRAS curve is basically horizontal, so fiscal stimulus is non-inflationary up to full employment. Any inflation before that point is cost-push.

    If I’m right, the best single case against MMT is the example you have discussed before about the shape of SRAS surves: the US economy in 1933. An economy very, very far from full employment still had an increase in prices due to an increase in demand, even though the response was mainly an increase in production etc.

    2021-2022 is not such a good case because it’s easy to point (in an ad hoc way) to things like Putin’s war and covid as cost-push factors. And they do account for about 2 percentage points of inflation, by my estimate, estimated using the relatively modest but nonetheless genuine increases in inflation in Japan, Switzerland, China etc. These economies haven’t had monetary stimulus, but their potential output has been at least temporarily depressed by supply-side factors.

  12. Gravatar of ssumner ssumner
    23. August 2022 at 09:15

    Doug, MMT is still wrong at the zero lower bound.

    Thanks for the link. How hard would it be to get a point estimate of the market forecast for NGDP?

    Bob, The problem with your theory is that the MMTers have no influence. Is Powell an MMTer? Is Biden? Is Yellen? Are any top economists MMTers? Who are the influential MMTers?

    Peden, Yes, I could cite dozens of examples that discredit MMT.

  13. Gravatar of Kester Pembroke Kester Pembroke
    23. August 2022 at 09:21

    Looking at the issue from a UK point of view. MMT teaches us that we need to think in real terms, not money terms. There isn’t a one to one relationship between money and stuff.

    The problem is that there isn’t enough gas, and there isn’t any available UK export capacity to exchange for more gas and support the demand we will get in winter. Even if there were, there’s no guarantee that there is free capacity of gas available to buy and that shipments won’t simply be stopped from gas export nations to protect their local populations.

    Therefore if we don’t suppress demand for gas, there’s a very good chance there simply won’t be the gas to supply into the UK market at any price. At which point we will be rationing by quantity whether we like it or not.

    As MMT explains, it is never a matter of money. There is always the money because government can just create it. The question is whether there is anything available for sale in exchange for the denomination.

    None of the ‘funding’ mechanisms proposed thus far suppress gas usage anywhere else in the economy so it can be transferred to the poor. Nor do they free up export capacity so we can swap it for more gas. Instead they pretend that money is scarce and that if we suppress supposedly scarce money somewhere that will ‘pay for it’.

    An MMT analysis shows that we need gas demand suppression, or we need to transfer that gas demand suppression overseas by strengthening Sterling and pray markets continue to sell and supply to the highest bidder when the crunch comes.

    But most of all we need to get new energy supplies online ASAP. Increasing the cost of investment funding by increasing interest rates won’t work.

    What options are there? Not many, frankly, but in order of preference we could:

    Increase the cost of ’luxury’ foreign imports to suppress UK demand for them or ban/delay their import for the time being. Aiming at Chinese imports is probably best since that should have less blowback on UK exports, and we can leverage the Chinese peg to the US dollar. The result should be a strengthening of the pound which reduces wholesale gas costs in Sterling terms.

    Limit the domestic price cap to a quantity of kWh per meter per billing period. If Rishi wants to keep his new swimming pool warm he needs to be doing it at commercial rates, not domestic ones. There is every chance here that richer people will just pay the price, which may impact the Sterling exchange rate unless it also reduces demands for other imports at the same time. That Labour hasn’t proposed a progressive price cap is just further evidence that it has been captured by metropolitan middle-class types with a Robin Hood LARP fetish.

    Quantity rationing. If we stop price allocating the limited quantity of gas, then we need to replace that with another way of allocating the limited quantity of gas. Given that electricity is generated with gas at the margins, then rolling blackouts are the likely result, particularly if we have a cold winter. Of course the last Three Day week in 1974 resulted in the fall of the Conservatives and the rise of a lame duck Labour administration that ended up calling in the IMF, ruling over a Winter of Discontent and ultimately allowing the rise to power of a certain Margaret Hilda Thatcher…

  14. Gravatar of Michael Rulle Michael Rulle
    23. August 2022 at 10:39

    It is impossible to believe MMT makes sense. As I have often said it is the nihilism of the economics profession. Therefore, virtually no one really believes it.

    Yet, Scott makes an analogy as if it made sense. Why couldn’t they get Trump for trying to over turn an election? Perhaps for the same reason they could not “get him” for colluding with Russia. Because he did neither.

    And while MMT, like many random events, might correlate 1 out of 1000 times with their “predictions”, so might an attempted conviction of Trump correlate with being found guilty.

    So why does Scott think Trump is guilty of anything—-after all by randomness alone you would expect him to be guilty of something, right? Well no, because these are not random accusations, they are made up constructs by idiots, not random accusations.

    Otherwise called obvious lies

  15. Gravatar of George George
    23. August 2022 at 12:11

  16. Gravatar of James Alexander James Alexander
    23. August 2022 at 12:30

    O/T I’ve just been paid an semi-annual “dividend” on my LT TIPS ETF annualised at 9%. Should I buy more given how consistently wrong consensus is on inflation? Not looking for financial advice, of course.

  17. Gravatar of ssumner ssumner
    23. August 2022 at 13:51

    Michael, Trump didn’t try to overturn the election? Is that a joke, or have you become senile?

    So these seven GOP senators that voted to convict Trump—they were paid off by Pelosi? They’re delusional? You must have a theory.

    James, You said:

    “Not looking for financial advice, of course.”

    Good, because you won’t get it from me.

  18. Gravatar of foosion foosion
    23. August 2022 at 14:49

    @James: investing based on recent performance, or coming up with good reasons to invest in recent performers, is seldom a good idea. Essentially no one can predict the market, absent luck or something indistinguishable from luck. Pick a reasonable strategy, stick with it, and don’t invest based on the news or recent events.

  19. Gravatar of Douglas Campbell Douglas Campbell
    23. August 2022 at 21:46

    @Scott. Actually, I agree with you. Often, Keynesians sometimes are a bit wrong at the ZLB. Obviously, even then, there are a hundred things a central bank can still do that can affect growth. Of course, thoughtful Keynesians also recognize this. That said, in the Obama Admin., where I worked, a lot of economists wrongfully thought monetary policy had already done what it could. The solution the President’s top advisors decided on was to do nothing. That said, it was also a situation where the debt itself should have been ignored and the government should have just spent money to employ real resources up until the point it was inflationary. The gov’t should & could have just printed money to cancel its own debt.

    On the nominal GDP market, yes, we can do brackets.

    I’ll need time to model NGDP to make the brackets properly to seed the markets, so we can get probability estimates of different bins. But, it’s doable. Now, I’ll confess, prices are provided for that particular market using a bot from another exchange which is why we chose that cutoff.

  20. Gravatar of ssumner ssumner
    23. August 2022 at 22:03

    Douglas, Christina Romer was supposed to be Obama’s top economic advisor, and she told him early on that the Fed was not out of ammunition. It’s sad that her advice was ignored by the Obama administration. I suspect Obama relied more on Larry Summers because he seemed superficially more “impressive”. Summers gave him bad advice.

  21. Gravatar of James Alexander James Alexander
    24. August 2022 at 00:25

    Oh dear. Irony failure. I wasn’t looking for investment advice, obviously.

    But I was very interested in the message from TIPS about future inflation. The strong message is that it will come back down to 2%. But the chart shows how ridiculously unreliable the market has been (as represented in the chart by consensus inflation projections). Obviously not enough market participants believe it, hence the high “temporary” yield on TIPS.

  22. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    24. August 2022 at 06:48

    We will have years of stagflation. Banks are not intermediaries.

    The economy is being run in reverse. Powell eliminated reserve requirements against commercial bank deposit liabilities. And the last vestige of legal reserve and reserve ratio requirements against the Federal Reserve Note, demand deposit, and inter-banks demand deposit liabilities of the Reserve banks was eliminated in 1968.

    Today the Federal Reserve Note has no legal reserve requirements, and the capacity of the Fed to create IBDDs has no legal limit. These IBDDs are owned by commercial banks; they are bank free-gratis legal reserves and can be converted dollar-for-dollar into Federal Reserve Notes.

    The volume of IBDDs is almost exclusively related to the volume of Reserve Bank credit. When Federal Reserve Banks expand credit, for example by buying U.S. obligations, the balance sheets of the Banks reflect an increase in earning assets and an equal increase in IBDD liabilities, i.e., free-gratis legal reserves (not a tax).

  23. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    24. August 2022 at 06:52

    In 2010, the PBOC’s RRR went to 18.5% – “to sterilize over-liquidity and get the money supply under control in order to prevent inflation or over-heating”

    As I said: The only tool, credit control device, at the disposal of the monetary authority in a free capitalistic system through which the volume of money can be properly controlled is legal reserves. The FED will obviously, sometime in the future, lose control of the money stock.
    May 8, 2020. 10:38 AMLink

    “In 2017-2019, the Fed’s balance sheet run-off shrank bank reserves held at the Fed from a peak of $2.36tn to $1.39tn in September 2019 when repo markets turned disorderly and broke out of the Fed’s desired rate corridor.”

    Fed Balance Sheet Shrinkage Kicks Into High Gear In September | ZeroHedge

    That was due to an interest rate inversion, disintermediation, a nonbank’s outflow of funds or negative cash flow. The FED’s Ph.Ds. in economics don’t know a debit from a credit. The NBFIs are not in competition with the DFIs. The NBFIs are the DFI’s customers. Savings flowing through the nonbanks never leave the payment’s system. But contrary to the DIDMCA, the banks are able to outbid the nonbanks for loan funds.

  24. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    24. August 2022 at 06:57

    The money supply can never be properly managed by any attempt to control the cost of credit. Interest is the price of credit. The price of money is the reciprocal of the price level.

    The effect of the FED’s operations on interest rates is indirect, varies widely over time, and in magnitude. What the net expansion of money will be, as a consequence of a given injection of additional reserves, nobody knows until long after the fact.

    The consequence is a delayed, remote, and approximate control over the lending and money-creating capacity of the payment’s system.

    Link: “HOUSING IS THE BUSINESS CYCLE” Edward E. Leamer

    Problem is, like the GFC, a deceleration in new residential housing exacerbates the existing housing shortage. So existing sale prices are given new support.

    “Even before the pandemic, in 2019, the U.S. was short 3.8 million homes — both places to rent and places to own”.

    The economy is being run in reverse. Lending/investing by the Reserve and commercial banks is inflationary (increases the volume and turnover of new money). Whereas lending/investing by the nonbanks is noninflationary, other things equal (results in the activation of existing money).

    The 1966 Interest Rate Adjustment Act is prima facie evidence.

  25. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    24. August 2022 at 07:48

    “Inventories are growing for homes in the upper price ranges, but limited supply at lower price points is hindering transaction activity.”

    Look for more “tent cities”.

  26. Gravatar of ssumner ssumner
    24. August 2022 at 08:58

    James, I find those graphs to be a bit misleading. They purport to show multiple prediction failures, but in fact show just one such failure (2021-22).

    And right now TIPS markets are not predicting that inflation will return to 2%, they are predicting slightly above 2%, even for the PCE.

  27. Gravatar of James Alexander James Alexander
    24. August 2022 at 14:04

    Agree the end-point of the forecasts keeps drifting up, above 2% for sure, looks like 2.5%. Reflected in TIPS. My point remains: current TIPS payouts seem generous.given scale of current consensus forecasting errors.

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