MMT “explained”

Bloomberg has a new article that attempts to explain what MMT is all about. It begins by quoting yours truly:

“MMT has constructed such a bizarre, illogical, convoluted way of thinking about macro that it’s almost impervious to attack,” Bentley University economist Scott Sumner claimed recently on his blog

Their explanation begins as follows:

A good place to start is with a simple description that you can carry in your pocket: MMT proposes that a country with its own currency, such as the U.S., doesn’t have to worry about accumulating too much debt because it can always print more money to pay interest. So the only constraint on spending is inflation, which can break out if the public and private sectors spend too much at the same time. As long as there are enough workers and equipment to meet growing demand without igniting inflation, the government can spend what it needs to maintain employment and achieve goals such as halting climate change.

If you’ve absorbed that much, you’re already ahead of a lot of the critics. 

Unfortunately, I’m not ahead of the critics, as I have no idea what that means. All I can ascertain is that they don’t think we need to worry about accumulating too much debt. I say that because they say we shouldn’t worry about accumulating too much debt. But is even that interpretation accurate? Not in the world of MMT:

Another misconception is that MMT says deficits never matter. On March 13 the University of Chicago Booth School of Business published a survey of prominent economists that misrepresented MMT that way, leaving out its understanding that too-big deficits can cause excessive inflation.

OK, so perhaps we do need to worry about accumulating too much debt, as it could lead to high inflation? I’m confused.

MMT also draws on the “functional finance” work of the Russian-born British economist Abba Lerner, who wrote in the 1940s that government should spend what’s required to achieve its goals, deficits be damned. 

OK, so now deficits don’t matter anymore. Whatever you accuse the MMTers of saying, they can find a quote that says the exact opposite. Now you might argue that they’re only saying deficits don’t matter when they are directed toward “goals”, and we all know that the goals of progressive politicians are a clearly delineated highly scientific concept. “We need precisely $X trillion to meet our goals, and not a penny more. Any additional spending beyond $X trillion would exceed our “goals” and lead to inflation.” Is that the idea?

The article is packed full of puzzling claims:

Modern Monetary Theory says the world still hasn’t come to terms with the death of the gold standard in 1971, when President Richard Nixon declared that the dollar was no longer convertible into gold. In the modern era of “fiat” currency, MMT says, the U.S. and other big economies no longer need to worry about having enough gold to back their paper money, so they’re free to print however much they need.

I think mainstream economists understand that money is not backed by gold and that the central bank can technically print almost unlimited amounts (barring government restrictions). The debate is over the effects of doing this.

Unless they mean that some economists don’t understand that central banks always have enough “ammo” to hit their target. But do even MMTers understand that?

MMT claims to be the legitimate heir to the theories of Britain’s John Maynard Keynes, who created the field of macroeconomics during the Great Depression. Keynes coined the term “paradox of thrift.” His insight was that while any single household can dig itself out of a hole by cutting spending when its income falls, the economy as a whole cannot. One household’s spending is another’s income, so if everybody cuts back, no one gets paid.

Of course this is wrong, as even modern Keynesians recognize. The economy can reduce overspending by shifting resources from consumption toward saving/investment. The final sentence confuses “consumption” with “spending”, an EC101 level error. At an aggregate level, spending includes investment spending. One can debate the zero bound problem, but this article seems to imply the paradox holds when not at the zero bound. it doesn’t.

MMT rejects the modern consensus that economies should be steered primarily by the raising and lowering of interest rates. MMTers believe that the natural rate of interest in a world of fiat money is zero and that pegging it higher is a giveaway to the investor class. They say tweaking interest rates is ineffectual because businesses make investment decisions based on prospects for growth, not the cost of money

The first and final sentences are defensible, but what comes between . . . oh boy! First of all, there is no distinction made between real and nominal interest rates. I have to believe they mean real interest rates, as the alternative to is too horrible to contemplate. But why are natural real interest rates zero, and how does the central bank “peg” real interest rates?

MMT says that, contrary to appearances, banks don’t make loans out of deposits. Rather, they make loans based on the demand for borrowing, then the borrowers stash the proceeds in the bank. Anyone they write a check to simply makes a deposit in another bank. The bottom line is that loans create deposits rather than deposits creating loans.

It may not make sense to talk about deposits creating loans, but it’s equally silly to talk about loans creating deposits. As Krugman once said, “it’s a simultaneous system.”

MMT challenges a core principle of conventional economics, which is that an increase in budget deficits will tend to raise interest rates, all else equal. Just the opposite, it says, sounding a bit like the White Queen from Alice in Wonderland. When the government spends more, the private sector gets the money and puts it in the banking system. With more money in the system and no increase in demand for it, interest rates will tend to fall, not rise, MMT says. That is, unless the government chooses to soak up reserves by selling bonds, which it doesn’t have to do.

So economists argue that debt financed budget deficits raise interest rates, and MMTers respond that they are wrong if you assume the deficit is not debt financed. Okaaay.

And what is the level of nominal interest rates in Latin American countries that relied on money creation to finance their deficits, not debt? I know, they didn’t follow some other provision of MMT. Stephanie Kelton once cited Japan as providing an example of how to achieve low rates with big deficits. Yes, you can hold down rates with near-zero NGDP growth over 25 years—that will “work”.

MMTers hold that inflation isn’t primarily the result of excessively strong growth. They blame much of it on businesses’ excessive pricing power. So before trying to choke off growth to kill inflation, they would try to break up monopolies and stop banks from making too many loans. 

This theory was discredited by the early 1980s, and for good reason. It doesn’t explain either time series or cross sectional variation in inflation rates.

Critics of MMT reject its reassurance that a country with its own currency doesn’t need to worry about deficits. After all, it’s been proven that a nation that loses the confidence of the world’s investors will see its currency plummet. As recently as 1976, the U.K. was forced to appeal to the International Monetary Fund to stabilize the value of sterling. Wray said the U.K.’s mistake was trying to peg its currency to the dollar and the crisis eased when it allowed the pound to float.

Devaluation? What could go wrong? Have you checking the UK’s inflation rate during the 1970s?

MMT’s critics argue that trying to use fiscal policy to steer the economy is a proven failure because Congress and the president rarely act quickly enough to respond to a downturn. And they say politicians can’t be relied upon to impose pain on the public through higher taxes or lower spending to squelch rising inflation. MMTers respond that they also oppose fine-tuning and instead want to use automatic stabilizers—including the jobs guarantee—to keep the economy on track.

So we are going to achieve our 2% inflation target with “automatic stabilizers”? And what happens when President Trump decides to massively increase the budget deficit when the economy doesn’t need more spending? Who will keep inflation on target, if not the Fed?

What’s more surprising is how much flak the school of thought is taking from liberal economists who’d appear to be natural allies, such as Larry Summers, the former Treasury secretary and former Harvard president.

This might be the most puzzling comment of all. You tell all these brilliant Ivy League macroeconomists that they are fundamentally wrong in their understanding of macroeconomics, and that only a few people at places like UM Kansas City understand what’s really going on, and you are surprised that they are skeptical? Say what you will about my views; I’m not surprised that MM was not welcomed with open arms.

I sometimes have commenters discussing whether MMT “works”. That’s not even a question. Something can’t “work” unless it’s a coherent policy that can be explained and then adopted. MMT has not even reached the stage where it’s possible to discuss whether it “works”, or whether the data tends to confirm its views. For that, they need a hypothesis that impartial observers can understand.

Please don’t ever leave another comment discussing whether MMT “works”, or I might ask you to explain what it is. And I am 100% sure you will fail, because I can always find a quote from this article that proves your interpretation is wrong.

HT: Dilip


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63 Responses to “MMT “explained””

  1. Gravatar of rayward rayward
    21. March 2019 at 09:46

    I’m reminded of what Peter Thiel said about Donald Trump during the 2016 campaign: “I think one thing that should be distinguished here is that the media is always taking Trump literally. It never takes him seriously, but it always takes him literally. … I think a lot of voters who vote for Trump take Trump seriously but not literally”. What MMTers have done is to take conservatives literally but not seriously, for conservatives defend tax cuts for the rich that are projected to produce and do in fact produce enormous increases in public debt while using the same increases in public debt to insist on the necessity of cutting social security after the tax cuts have been implemented and the debt rises(see Martin Feldstein’s piece in today’s WSJ). MMTers use the same slight of hand to insist that deficits created by spending on social welfare programs don’t matter while decrying increases in debt caused by tax cuts for the rich.

    Now on the criticism of MMT relying on fiscal policy rather than monetary policy to achieve not only full employment but to avoid inflation as being politically naive, one might make the same criticism for relying on projections of future NGDP to set monetary policy today, that it too is politically naive to believe that the Fed will simply rely on projections of the future by soothsayers, I mean qualified academics, in setting monetary policy today. But what about tying monetary policy today to an NGDP futures market, with the Fed buying public debt if the futures market indicates too low NGDP or issuing debt if the opposite. Will the Fed have more confidence in the soothsayers participating in the futures market than academic soothsayers?

    This post is not to defend MMT but to put it in the context of the wizard of the west Peter Thiel, who, by the way, committed Silicon Valley blasphemy last week when he stated in a dialogue at Harvard that so-called tech ain’t the path to prosperity and that more investment needs to be made in “real” technology if we are to have sustained high levels of economic growth. Should we take Thiel literally and seriously?

  2. Gravatar of Matthew Waters Matthew Waters
    21. March 2019 at 10:25

    MMT is Laffer curve for liberals. The Laffer curve has a coherent, accurate concept that 0% and 100% tax rates both yield zero revenue. But then Republicans are adamant tax rates are always under the Laffer curve peak.

    For MMT, the starting points are also correct. Indeed, a country cannot default on debt in its own currency and thus faces an inflation constraint. But the US is currently at or very close to an inflation constraint of 2%. Also, going to 4% inflation would not allow for much more monetized spending.

  3. Gravatar of ConspiracyTheorist ConspiracyTheorist
    21. March 2019 at 10:57

    Modern Monetary Theory is a psyop to discredit market monetarism by confusing the issue. MMT? MM? Regular people could never grasp the difference but now MM will be associated with crazy MMT and that will do damage to it’s reputation.

  4. Gravatar of ssumner ssumner
    21. March 2019 at 11:29

    Rayward, You said:

    “This post is not to defend MMT”

    Really? Comparing MMT to Trump is not defending them?

    As far as your comment that the Fed is trying to “avoid” inflation, I’m speechless. Just yesterday Powell said the Fed was trying to increase inflation. You might want to check out what the Fed is actually trying to do, and then think about how Congress would achieve those objectives.

    Matthew, No, MMT is nothing like the Laffer Curve, which is a clear and easily explained concept. Supply side econ is obviously debatable, but everyone understands what they are advocating.

    MMT is a confusing mess. No one outside the movement has a clue as to what they are saying.

    You said:

    “For MMT, the starting points are also correct. Indeed, a country cannot default on debt in its own currency”

    Sure it can. Suppose the Fed refuses to monetize the debt. It is independent. Russia defaulted on rouble debts in 1998, despite the fact that technically they could have printed money to pay their debt. Is default likely? Of course not. But not impossible. It’s a political decision. Even Greece did not have to default; they could have cut government spending sharply.

  5. Gravatar of Brian Donohue Brian Donohue
    21. March 2019 at 12:05

    MMT is dumb, but printing money to finance government (with its attendant inflation) strikes me as more honest and fair than adding to the debt, for intergenerational reasons.

    Increasing taxes might be better still, but politically more difficult.

    Cutting spending is best of all. On some planet I suppose.

  6. Gravatar of ssumner ssumner
    21. March 2019 at 12:50

    Brian, Printing money to pay for spending isn’t really an option. You can get at most about 4% of GDP, and that requires more than 200% inflation. Not going to happen.

    Agree about cutting spending. We even have one political party that favors cutting spending —the Libertarians.

  7. Gravatar of rayward rayward
    21. March 2019 at 13:38

    I appreciate Sumner’s pain, he on the verge of professional triumph at the end of his career, and along comes pretenders. It’s not fair. No, it’s not. So Sumner becomes . . . Trump, blasting away at his real and imaginary enemies. Get a grip Sumner.

  8. Gravatar of Matthew Waters Matthew Waters
    21. March 2019 at 14:21

    Well, I simplified the “starting points” of MMT down a lot. In theory, a government could work exclusively through creating new money with spending and destroying money with taxes. It would be a very dumb form of government, but you can put it down on paper.

    I also live in a red state and the “always to the right of peak” Laffer curve arguments are very common from wealthier Republicans I know. I don’t mean some sense of dynamic scoring of tax cuts, but truly that tax cuts will absolutely and certainly pay for themselves.

    I guess if I had to choose between the crazier school: supply-side or RBC school or MMT, I would choose MMT. But, well, I recognize the impulse to start from your preferred government policy paying for itself and work backwards to more contortionary arguments.

  9. Gravatar of kevin kevin
    21. March 2019 at 15:04

    From a philosophy of science perspective, MMT as currently defended by its advocates is not even wrong. I will continue to hold this view until some MMT economist gives an example of a realistic situation, which if it happened would disprove MMT. MMT is either hopelessly full of contradictions, or it has created a tautology by redefining commonly used economic words for its own purposes (such as declaring printing money as a form of fiscal policy). Either one would result in MMT being not even wrong.

    EMH and MM are at least defensible as scientific theories. If a 5 sharpe strategy exists after t-costs it follows EMH is wrong. If the Fed randomly declares the money supply will double henceforth with no other forward guidance and the exchange rate doesn’t move then MM must be wrong.

  10. Gravatar of Michael Sandifer Michael Sandifer
    21. March 2019 at 16:05

    Scott,

    Matthew Waters is onto MMT. It’s similar to a link I provided on another post.

    Implicit in MMT is the idea that there shouldn’t be central bank independence. The central bank can and should buy up whatever interest paying assets necessary to keep nominal interest rates at zero. So, when the government spends money, it is then literally spending it into existence.

    They would then use this spending to not only to address potential demand short falls, but to make investments that would improve productivity, such as in education or roads. Positive NPV government investment would mean inflation is under control, in their view. If there are too many negative NPV spending projects, spending cuts or tax increases would control inflation.

    That’s their view. Like Matthew, I think it’s dumb and would lead to great monetary instability and high inflation. But, that’s the MMT view.

  11. Gravatar of Michael Sandifer Michael Sandifer
    21. March 2019 at 16:07

    Oh, and they do recognize real resource constraints.

  12. Gravatar of Lorenzo from Oz Lorenzo from Oz
    21. March 2019 at 16:11

    Is MMT a theory, or a wish to have a theory? Would it be easier to work out the characteristics of the underlying wish?

  13. Gravatar of Benjamin Cole Benjamin Cole
    21. March 2019 at 16:19

    When Ben Bernanke visited Japan in 2003, he advocated money-financed fiscal programs.

    Japan, alone among developed nations, sidestepped the Great Depression by utilizing money-financed fiscal programs.

    The experience of Japan in 1930s shows that it is a modern-era mistake to conflate federal deficit spending with social welfare spending. Japan printed money to run a war machine.

    And indeed today one could posit the US financed two foreign wars by borrowing or printing money, $7 trillion of it.

    But the real question is this: Scott Sumner advocates balanced federal budgets but the use of quantitative easing, perhaps even over a longer term, such as we see in modern-day Japan.

    Are balanced federal budgets but chronic QE really just a form of MMT?

  14. Gravatar of Alan Luchetti Alan Luchetti
    21. March 2019 at 16:41

    “I might ask you to explain what it is. And I am 100% sure you will fail, because I can always find a quote from this article that proves your interpretation is wrong.”

    The article is wrong. Quotes from it prove zilch. It’s a misstatement by a bunch of econ writers new to the topic and deeply imbued with hold over commodity-currency thinking. Read the Mitchell-Wray-Watts book that they bowdlerised.

  15. Gravatar of Kevin A Kevin A
    21. March 2019 at 16:52

    Scott,

    In 2012, I traded political futures on Intrade, back when our masters at the CTFC allowed us to do so. My most profitable trade was investing in Mitt Romney to become the Republican nominee for president, netting me a little over $4000.00.

    Naturally, with such a large sum invested, I was a frequent commentator on the websites discussion forum dedicated to the prediction. I had delightful conversations about why Romney would win, explaining my position with data and polling. The forum nearly died when Romney wrapped up a few critical states, that is, until one participant arrived.

    This person had a wild theory that Romney was unacceptably toxic due to his Mormonism and that delegates, against the wish of the voters, would nominate Gingrich instead. He never backed up his claims with links or polling, or by citing precedent or legal material: he just blathered on, constantly rebutting any argument against him with rambling non-sequiturs until people stopped posting. He kept it up until Intrade formally closed the market.

    I realize until after what he was likely up to: He likely bought Gingrich after it was clear to most sane people that Romney would win and the price of the bet was low. Then, using the forum, he was trying to convince someone, anyone out there, that Gingrich could win. Even if he could up the chance of Gingrich winning by just 1%, he would make good money, a classic pump and dump.

    Obviously, he was debating with an ulterior motive, one that would serve to enrich him. He was not, more pointedly, arguing in good faith.

    When you discuss MMT, I am reminded of this person I met so long ago. They have a lot in common with their debating techniques, although a key difference is that I’m fairly certain the betting gentleman never earned anything, whereas the MMT theorist have been booted to a part of the mainstream that frankly their theory doesn’t warrant.

    When you debate MMT, you are going around in circles with them on purpose. Their goal isn’t to win the debate, just to use misdirection, strawman and obfuscation to convince enough of the right people that it looks like they are winning. Had they studied conventional economics, it would be much harder to be in the position they are in today. They are not arguing in good faith.

    Afterall, would Stephanie Kelton be an economic advisor to the democrats, had her theory advocated for prudence instead of monetized spending straight from the Fed?

  16. Gravatar of Michael Sandifer Michael Sandifer
    21. March 2019 at 17:57

    It’s a real scandal that the Democratic Party has had MMT economists as economic advisors. It might get a lot more attention if even worse things weren’t going on in the White House on a daily basis.

    With the rise of old backbenchers like Bernie Sanders and the adoption of MMT, the Democrats start to head in the direction of Jeremy Corbyn. That means adding economic incompetence to their political incompetence, although Sanders is a popular politician.

  17. Gravatar of Benjamin Cole Benjamin Cole
    21. March 2019 at 18:30

    Michael Sandifer:

    I probably hold the D-Party in even lower regard than you (though the GOP is hardy admirable either).

    That said, what is the difference between US macroeconomic policy 2008-2013, and what is MMT?

    Side note: MMT does not equal social welfare or green spending. Japan used MMT to finance a war machine in the 1930s (and sidestep the Great Recession).

    Near as I can tell, MMT is a national government spending more than it taxes, to stimulate output. It can print or borrow the extra money.

    The current MMT crowd says deficits do not matter, nor the national debt.

    In other words, the MMT crowd has been running Washington DC since the Ronald Reagan days….

  18. Gravatar of Matthew Waters Matthew Waters
    21. March 2019 at 18:32

    Bringing up Laffer curve and supply-side economists was an unfortunately distraction.

    Since some MMTers are here, can they answer some basic questions:

    1. If the Fed implemented a low-rate Treasury peg like they had in the 1940’s, how would deficits have to change to maintain 2% inflation? What about 4% inflation?

    2. In your framework, was Stephanie Kelton correct to say that Democrats don’t need to worry about funding Medicare-for-all?

    You can probably guess my opinion. If you really tried to make an honest framework out of MMT, we would have cut deficits considerably to achieve 2% inflation with a 1940’s Treasury peg.

  19. Gravatar of ssumner ssumner
    21. March 2019 at 18:33

    Rayward, You said:

    “he on the verge of professional triumph at the end of his career,”

    Are you off your meds again?

    Matthew, You are missing the point. MMT is nothing like supply side because one theory can be explained and the other cannot. Perhaps both are loony, or both are sensible. But they are nothing at all alike, as one can be explained and the other cannot.

    Michael, So you are claiming that if the trend rate of inflation is 20%, MMTers favor pegging real interest rates at negative 20%? Whatever.

    Ben, You said:

    “But the real question is this: Scott Sumner advocates balanced federal budgets but the use of quantitative easing, perhaps even over a longer term, such as we see in modern-day Japan.”

    Which Scott Sumner endorses Japanese monetary policy? I’d like to meet him.

    Alan, You said:

    “The article is wrong.”

    Why am I not surprised?

    And I can’t wait to spend many hours reading a 600 page book on MM. Right after I finish Das Kapital. Seriously, isn’t the whole point of this to put out an article that would make a mainstream economist WANT to read that book? And just where is the article that will whet my appetite?

    Kevin, I’ve never seen a shred of evidence that MMTers have any influence at all. Can you provide such evidence? It’s not like they will be advising the next Democratic president.

  20. Gravatar of Michael Sandifer Michael Sandifer
    21. March 2019 at 18:37

    Scott,

    No, I’m claiming that MMTers talk about pegging short-term nominal rates at 0%. I don’t know where the -20% figure comes from, and I don’t claim their perspective makes sense. I’m just summing up what aI see them say as I understand it.

  21. Gravatar of Michael Sandifer Michael Sandifer
    21. March 2019 at 18:39

    Ah, -20% would be real rates in your scenario. Yes, well they don’t seem to talk about real rates. Again, I don’t claim their ideas make sense.

  22. Gravatar of Michael Sandifer Michael Sandifer
    21. March 2019 at 18:40

    That said, there are also some MMT advocates I’ve seen who are simply against the government issuing debt, or think that government issued debt shouldn’t pay coupons. But, of course, that’s different than having 0% nominal rates.

  23. Gravatar of Michael Sandifer Michael Sandifer
    21. March 2019 at 18:47

    Benjamin Cole,

    MMT is far different than policy from 2008-2013. For one thing, there was lots of controversey over even what would have been an inadquate stimulus, if not for monetary offset, which made it irrelevant from a macro perspective. And Obama was dying to make a deal to cut the deficit, which is the exact opposite of what MMT advocates, especially with the economy under capacity.

  24. Gravatar of Kevin A Kevin A
    21. March 2019 at 19:15

    Scott,

    Sure. Ala politico Stephanie Kelton is on of the top 50:
    “thinkers, doers and visionaries transforming American politics in 2016.”

    Presumably, transforming American politics means she has influence. We could really go into depth about MMT influence, but you just wanted a shred of evidence so I will content myself with what I’ve said.

  25. Gravatar of Benjamin Cole Benjamin Cole
    21. March 2019 at 19:25

    Add on:

    Okay, the MMT crowd says, “Deficits don’t matter.”

    In other words the MMT crowd has been running Washington, DC since Ronald Reagan.

    Okay, since 1980 real per capita GDP has nearly doubled. Not bad!

    https://fred.stlouisfed.org/series/A939RX0Q048SBEA

    Inflation has fallen from high single digits to low single digits. Not bad!

    Interest rates have fallen (10-year US government bonds) from 12% to 15% to about 2.60% at present. Not bad!

    https://fred.stlouisfed.org/series/IRLTLT01USM156N

    Okay, can we go over this again?

    MMT is a disaster-in-waiting. The US bas been running an MMT macroeconomic policy since 1980. MMT is a disaster-in-waiting.

  26. Gravatar of Michael Sandifer Michael Sandifer
    21. March 2019 at 19:43

    Benjamin Cole,

    The Reagan years introduced supply-side economics to a degree, and as Bruce Bartlett has said, one reason deficits were so high under Reagan is that the administration often overestimated the rate of inflation in future years. Those weren’t MMT years at all.

  27. Gravatar of H_WASSHOI (Maekawa Miku-nyan lover) H_WASSHOI (Maekawa Miku-nyan lover)
    21. March 2019 at 19:46

    I believe their religious will be wide spread-ed out in the US. As in the same root of some arrogant US foreign policy.(one more degree of freedom?)

  28. Gravatar of Kevin A Kevin A
    21. March 2019 at 19:47

    Oh the link:
    https://www.politico.com/magazine/politico50/2016/stephanie-kelton

    Benjamin,

    The rationale between the two is quite different, and that matters.

    Reaganomics was premised on the idea that strong economic growth from debt financed tax cuts would generate enough revenue to offset the tax cuts.

    From what I understand of MMT, government spending is literally limitless as long as the government has a complimentary tax policy.

    Those two have different implications.

    I think the biggest flaw in MMT, or at least, a version of MMT, is the belief that taxes imbue a currency with legitimacy.

    People want dollars because they have an expectation that their dollars can be exchanged for real resources. That value comes from, at least partially, stable management of the money supply. You can’t flood the USA with trillions in dollars, cratering the value of the dollar, and then reestablish the value with high taxes.

  29. Gravatar of Benjamin Cole Benjamin Cole
    21. March 2019 at 20:23

    Michael Sandifer:

    Hey, I am all for less, much less government regulation, and supply-side etc. I advocate an Constitutional abolition of property zoning.

    Reagan ran big federal deficits, and de-reg was much bigger under Carter.

    That’s not me talking, that is Allan Meltzer, the right-wing economist from the Reagan days. Reagan also was something of a protectionist. I actually liked Reagan, but hagiography is not history.

    From what I can tell, the MMT crowd has run Washington DC since and including Reagan, with the possible exception of Clinton, who ran balanced budgets.

    Some say Allan Meltzer, the right-wing economist, Carnegie Mellon professor, and author of the well-regarded A History of the Federal Reserve is an acerbic fellow. Maybe so.

    Nearly forgotten today, a younger version of Meltzer served as an Acting Member of President Ronald Reagan’s Council of Economic Advisers in 1988-9. Ten years after his stint on the CEA, Meltzer recounted the Reagan Days (1981-1989), in a piece entitled, “Economic policies and actions in the Reagan administration.”

    Meltzer’s chastising study reads in part—

    “Uncertainty and lack of a coherent monetary policy were not limited to 1981-82. During the years 1984-87, the Reagan administration shifted from a freely fluctuating exchange rate to encouraging dollar devaluation first by talk and then, in 1986, by increasing money growth. These actions were followed by a decision at the Louvre in January 1987 to set a band for the exchange rate against principal currencies. Within a few months, the dollar was overvalued relative to the agreed-upon rates, so maintenance of the band required increased money growth in Germany and Japan and lower money growth in the United States. The band required higher interest rates. Between July and October 1987 interest rates on long-term U.S. government bonds increased approximately 25 percent (from 8 1/2% to about 10 1/2%). When anticipations of further increases in interest rates contributed to a rather dramatic decline of prices on the world’s stock exchanges, the administration
    shifted its position again. The dollar declined about 8 to 10 percent below the presumed bottom of the previous band.
    It is difficult to find a consistent pattern, much less a coherent policy, in these shifts within less than one year from efforts to force devaluation by raising money growth and lowering market interest rates to a program of stabilizing exchange rates, lowering money growth, and raising interest rates and then to a program of lowering interest rates and allowing the dollar to fall. The shifts suggest an extremely short-term focus….” (boldface added.)

    From Meltzer’s perspective, the Reaganauts stomped on the monetary brakes in 1981, then once inflation slipped towards 5%, they gunned the accelerator again. Thereafter, they had an incoherent policy.

    Okay, monetary policy was a mess, by Meltzer’s lights, although the curious placement of monetary policy within the Reagan Administration, and not within Chairman Paul Volcker’s somewhat independent Federal Reserve, is puzzling. Meltzer seems to imply Reagan called the shots, and Volcker complied. As in Fed Chairman Arthur Burns’ compliant dance with President Nixon.

    But what about Reagan’s fiscal policy?

    Here, Meltzer is again the scold.

    “Why did the Reagan administration choose to run deficits that are large relative to previous peacetime experience in the United States? One possibility is that the deficits were not anticipated. This is improbable….”

    Meltzer concludes the Big Reagan Deficits stemmed from increased spending, as tax receipts as a fraction of GDP stayed within historical ranges.

    As a final slap, Meltzer also concludes Reagan “did very little to implement a deregulation policy. If we include protectionist actions affecting imports with deregulation, the Reagan administration’s record on deregulation is poor.”

    Meltzer is a tough, even acid critic. But he was there, and very knowledgable.

    The Temple of Macroeconomics has many fables, totems and hagiographies.

  30. Gravatar of Benjamin Cole Benjamin Cole
    21. March 2019 at 20:26

    Scott Sumner:

    Okay, enlighten me.

    What should Japan’s monetary or macroeconomic policy be? Yes, I know NGDPLT.

    But what tools to get there?

    I assume you are for balanced federal budgets. Japan is not there, but is aiming….

    You have advocated negative interest rates—Japan has them but maybe deeper?

    You have advocated QE until it works. It has not yet worked yet in Japan.

    What gives?

  31. Gravatar of Benjamin Cole Benjamin Cole
    22. March 2019 at 02:39

    Yields on 10-year German government bonds fell below 0% today.

    So what does government finance and macroeconomics mean when a government can be paid to borrow?

    Suppose this becomes the norm for developed nations with any sense (ie, not Greece or Italy).

  32. Gravatar of Ralph Musgrave Ralph Musgrave
    22. March 2019 at 03:45

    That Bloomberg article is useless. It claims that controlling monopolies and “businesses’ excessive pricing powers” is an important element of MMT’s preferred way of controlling inflation. Well that’s news to me!

    I’ve supported MMT for about ten years and have read a good thousand articles and blog posts by MMTers. I’ve never noticed much stress being put on control of monopolies and cartels, desirable as that is.

    The Bloomberg authors admit they got the latter information from a Financial Times article (which itself was not representative of MMT thinking.) That’s typical of what so called “journalism” consists of: don’t bother doing any detailed research – instead, just see what other journalists are saying, and repeat it.

  33. Gravatar of Dilip Dilip
    22. March 2019 at 04:42

    Scott — Is there a case to be made that you are mixing up deficit and debt in your post as some MMT outlets are complaining? The place where you quote the Chicago Booth School Of Business study, it actually talks about deficit while you interpret it as accumulation of too much debt. Does that change anything about your post?

  34. Gravatar of Ironman Ironman
    22. March 2019 at 04:50

    Back in 2016, we ran a series on Examples of Junk Science, where we worked our way through a checklist for how to detect pseudo science using numerous recent examples from economics, finance, and other fields. The only item that weren’t able to check off the list during the time we were running the series was under the category of “clarity”, which MMT might provide a potential example for inclusion. Here’s how the checklist describes the category:

    To qualify as science: “Scientific explanations must be stated in clear, unambiguous terms.”

    How pseudoscience is different: “Pseudoscientific explanations tend to be vague and ambiguous, often invoking scientific terms in dubious contexts.”

    Basic examples: “Phrases such as ‘subtle energy fields’ and ‘sustainable development’ may sound impressive, but they are essentially meaningless.”

    The lack of clarity aspect keeps coming up whenever anyone outside of the Modern Monetary Theory booster club tries to explain or critique it (and it’s quite possible it trips over other categories in the checklist). If anyone writes up a focused article on the topic, we’d love to incorporate it into the series.

    Here’s the link to the junk science detection checklist: http://politicalcalculations.blogspot.com/2009/08/how-to-detect-junk-science.html

    And here’s the link to the overall series: http://politicalcalculations.blogspot.com/2016/12/the-examples-of-junk-science-series.html

    Separately, George Selgin has a good article describing another problem with MMT, where he describes it as the return of the trillion dollar “Big Coin Gambit” that was a fun topic several years ago.

    https://www.alt-m.org/2019/03/20/mmts-big-coin-gambit/

  35. Gravatar of W. Peden W. Peden
    22. March 2019 at 05:43

    As far as I can tell, the key ideas that separate MMT from mainstream macro are actually nothing to do with public finance, but rather:

    (1) A “trigger” approach to the effect of AD on inflation (no significant inflationary effect until full employment, i.e. a roughly flat SRAS curve).

    (2) A cost-push analysis of inflation outside of full employment.

    (3) Often some Old Keynesian/Post-Keynesian/circuit theory ideas about the ineffectiveness of monetary policy, at least to some degree.

    Since these are the important differences, but MMTists and their critics tend to think that the important differences concern public finance, the debates are just as awful as Scott suggests.

  36. Gravatar of W. Peden W. Peden
    22. March 2019 at 05:44

    Oh, and when asked to defend (1-3), most MMTists are all at sea, because they’re either unfamiliar with the last 60 years of macroeconomics or they think that they can safely dismiss it.

  37. Gravatar of Bob Bob
    22. March 2019 at 05:48

    Scott,
    Another great post. Going forward I will use use my refrigerator to store food and cool my house in the summer. Since the refrigerator absorbs the heat in the food, and the cold food in turn absorbs heat in the room, it produces a net decrease of heat in my house with no offset. That is unless my refrigerator releases that heat back in to my house- and why would it do that? Modern Thermodynamic Theory.

  38. Gravatar of Becky Hargrove Becky Hargrove
    22. March 2019 at 06:18

    My biggest concern with all this is society’s growing willingness to use deficits as a tool for practically everything. That tool simply isn’t as useful as it appears for the use and preservation of knowledge, because debt forcefully negates the importance of personal reciprocity (mutual assistance) in the present. We have tried to integrate extensive service activities into the larger economy in the last century on formal terms, yet have done so in ways which needlessly and completely destroy the value of the time commons for lower income levels. Economic time potential is far more scarce than is realized, and MMT would only harden what are now becoming class divisions, should it be put to use for too long. The present expectation of making future generations responsible for today’s budgetary shortfalls, so as to pay for the high skill value in non tradable sector activity, is no way to make amends for the extensive time aggregate losses that now leave millions unable to successfully coordinate getting things done with other individuals.

  39. Gravatar of Arilando Arilando
    22. March 2019 at 06:52

    Scott, MMTers do believe that the natural rate of interest is zero in nominal terms:
    http://www.cfeps.org/pubs/wp-pdf/WP37-MoslerForstater.pdf

  40. Gravatar of ssumner ssumner
    22. March 2019 at 11:16

    Kevin, OK, that’s a shred. But I’m still not buying it, not until they can influence the sort of Democratic economists that will take the top positions in the next administration. The Ivy Leaguers.

    Ben, Surprised you don’t know by now. Enough QE to create expectations of 2% inflation, (which is probably almost none.)

    Ralph, So how do you excuse Stephanie Kelton’s response to Krugman? Isn’t she a MMTer? And how about the recent twitter attack on me by Pavlina Tcherneva, which was full of nonsense?

    Dilip, They also say:

    “MMT also draws on the “functional finance” work of the Russian-born British economist Abba Lerner, who wrote in the 1940s that government should spend what’s required to achieve its goals, deficits be damned.”

    Arilando, That’s just horrifying.

  41. Gravatar of Benjamin Cole Benjamin Cole
    22. March 2019 at 17:43

    Scott: okay QE to create the expectation of 2% inflation.

    1. What if the public does not believe QE causes inflation?
    2. What if the amount of QE needed to create 2% inflation is not politically palatable?
    3. Why not dispense with QE and just go to helicopter drops?

  42. Gravatar of Michael Michael
    23. March 2019 at 00:49

    Arilando: Man, that is one depressing paper. Beyond some annoying factual issues, it goes on for pages and pages and then, at the heart of the paper, in the very soul of it where you might expect to find the key argument they have to support their assertion….they just assert it again. I’m going to paste the whole of page 10 here, because it’s breath-taking in how disappointing it is:

    ” In the contemporary economy, government ‘money’ includes currency and central bank accounts known as member bank reserves. Government spending and lending adds reserves to the banking system. Government taxing and security sales drain (subtract) reserves from the banking system. When the government realizes a budget deficit, there is a net reserve add to the banking system. That is, Government deficit spending results in net credits to member bank reserves accounts. If these net credits lead to excess
    10reserve positions, overnight interest rates will be bid down by the member banks with excess reserves to the interest rate paid on reserves by the central bank (0% in the case of the US and Japan, for example). If the central bank has a positive target for the overnight lending rate, either the central bank must pay interest on reserves or otherwise provide an interest bearing alternative to non interest bearing reserve accounts. This is typically done by offering securities for sale in the open market to drain the excess reserves. Central bank officials and traders recognize this as “offsetting operating factors,” since the sales are intended to offset the impact of the likes of fiscal policy, float, etc. on reserves that would cause the fed funds rate to move away from the Fed’s target rate.

    Our main point is, in nations that include the US, Japan, and others where interest is not paid on central bank reserves, the ‘penalty’ for deficit spending and not issuing securities is not (apart from various self imposed constraints) ‘bounced’ government checks, but a 0% interbank rate, as in Japan today.

    The overnight lending rate is the most important benchmark interest rate for many other important rates, including banks’ prime rates, mortgage rates, and consumer loan rates, and therefore the fed funds rate serves as the ‘base rate’ of interest in the economy. In a state money system with flexible exchange rates running a budget deficit—in other words, under the ‘normal’ conditions or operations of the specified institutional context—without government intervention either to pay interest on reserves to offer securities to drain excess reserves to actively support a non-zero, positive interest rate, the natural or normal rate of interest of such a system is zero.”

    I just…that last part is the most disappointing thing I’ve gotten out of this most recent flare-up of interest in MMT. That last sentence just RE-STATES the thesis of the paper and we’re supposed to accept it. That’s not the way this works! You’re supposed to give us the WHY and HOW!

    They try to back it up with ’empirical’ evidence, but the empirics FOLLOW the theory. You support an existing theory with empirical evidence. Empirical evidence on its own is nothing, just data! You’ve got to use it for something! Their empirics are weak, to begin with: There are a LOT of theories that propose to explain Japan, you’ve got to explicate your theory in a way that demonstrates it explains Japan BETTER than the alternatives! I’m not going to bother hunting down Fullwiler paper, I don’t understand the relevance of the interest rate channel to the point they are pretending to make BECAUSE THEY HAVEN’T BOTHERED TO EXPLAIN ITS RELEVANCE.

    And the student behavioral experiment….just, ugh.

    I would pay attention to what Michael Sandifer has to say, he seems to have the clearest understanding of what the MMT ECONOMISTS believe (as opposed to the pundits, who seem to have no idea what MMT is about other than WHOOO FREE MONEY!) here. There are some obvious weaknesses to be attacked in the broad outlines he’s explained.

  43. Gravatar of BrianJ BrianJ
    23. March 2019 at 07:08

    Scott,

    MMT is 90% descriptive in nature, and 10% prescriptive. The strength of MMT lies in the descriptive side. Ie; we are not on a gold standard anymore, therefore, any questions as to ‘how are we gonna pay for xyz’, or ‘how do we reduce the national debt’, are stupid and are gold standard type questions that we need to get away from. Admittedly, MMTers don’t do a good job separating the descriptive from the prescriptive and confuse a lot of people.

    However, don’t throw MMT in the trash just because you don’t agree with the federal job guarantee, Fed pegging rates at zero, etc. This is the prescriptive side of MMT which is certainly up for debate.

    Focus on the descriptive side so we can move forward with higher quality discussions regarding the economy.

    I feel I’m as objective as anyone regarding MMT, so reach out if I can help you understand better.

    Thank you,
    Brian

  44. Gravatar of ssumner ssumner
    23. March 2019 at 12:05

    Ben, Do you ever get tired of asking me the same questions, over and over again?

    Michael, Thanks for that info; you saved me a lot of time. It seems like they just ignore the Fisher effect. But why?

    Brian, I’ve read many MMT articles over the past 10 years. They are all a mixture of incorrect and misleading statements. I am still waiting for something of value. But when I ask for insights I keep getting directed to places that make silly claims.

  45. Gravatar of Week Recs: March 23, 2019 – Fake Muse Week Recs: March 23, 2019 – Fake Muse
    23. March 2019 at 13:11

    […] MMT “explained” (The Money Illusion) – Unsurprisingly, MMT has many critics. Scott Sumner, one of the critics quoted in the Bloomberg guide, provides his rebuttal at his blog here. […]

  46. Gravatar of BrianJ BrianJ
    23. March 2019 at 19:01

    Thanks for the reply Scott,

    For the record, I have known Warren Mosler for 25 years and have been very close to the MMT crowd for that long, but I do not call myself an MMT disciple as I don’t love the job guarantee, pegging rates at zero, and some other prescriptive stuff. And I was a portfolio mgr at a large hedge fund for a long time; not an economist. I actually talk to students at Bentley about the descriptive side though.

    If you ever want to talk face to face over a coffee or something, I’m available. I feel like I could clear things up for you. Not trying to convince you, but just clear things up.

    Best,
    Brian

  47. Gravatar of ssumner ssumner
    24. March 2019 at 08:16

    Brian, I’d be glad to discuss ideas (but I’m not at Bentley anymore), I live in California.

    But the best way to convince me is to direct me to a written article that clearly explains their ideas. I’m still waiting for someone to do that. Instead, I’m directed to Bloomberg pieces by Stephanie Kelton, which make no sense.

    It should not be hard to explain an idea, I do it everyday in my blogging.

  48. Gravatar of Brian Brian
    24. March 2019 at 10:11

    Scott,

    I agree that Kelton is not doing a good job explaining MMT. Her mistake is that she is mixing up prescriptive stuff with descriptive stuff and throwing in some politics on top of it. All confusing. Just don’t get hung up on pegging rates at zero and some of the other ‘effects’ of ‘printing money’. You have to start with the descriptive side.

    By the way, in the article above, you say;
    “I think mainstream economists understand that money is not backed by gold and that the central bank can technically print almost unlimited amounts (barring government restrictions). The debate is over the effects of doing this.”

    I completely disagree. Mainstream economists continue to talk about US debt, and debt financed deficits, etc. Bottom line is, the US dollar is simply a unit of measurement to a true Fiat issuing G’ment. It’s like inches to a carpenter. Treasuries are not debt to the G’ment as most people think of debt.

    You should stop reading articles on MMT until you read L. Randall Wray’s book, Modern Monetary Theory, A Primer on Macroeconomics for Sovereign Monetary Systems. It’s an easy read. Good for the beach this summer. You owe it to your readers to read. I will send you a copy if you promise to let me know what you think after reading it.

    And again, thank you for your replies, I do appreciate the exchange.
    Brian

  49. Gravatar of ssumner ssumner
    24. March 2019 at 20:03

    Brian, That’s not how things work. i have no intention to read someone’s book on MMT, or Austrian economics, or RBC, or FTPL, or Keynesian economics, or monetarism, etc., unless I am motivated to do so. Time is limited. So what would motivate me?

    1. Positive reviews by people I trust.
    2. Shorter articles written by the same author, which present interesting ideas.
    3. It has a big influence on public policy, so I need to know about it even if I don’t agree.

    MMT books are not praised by anyone I respect. I’ve never read an MMT article that presented any interesting ideas. (And it’s actually not hard to present interesting ideas in an article on the macroeconomy.) And MMT has no influence in the public policy world.

    If someone tells me, “Yes, the shorter articles written by Wray seem silly, but you should spend many hours reading his longer work”, I’ll politely decline. People who are truly brilliant (say Friedman, Krugman, Summers, etc.) know how to make their points in a clear and concise way.

    And you are wrong about Treasuries. The fact that we have fiat money, and can theoretically inflate away debt, is not a reason not to regard it as a liability. That’s because the Fed is not likely to inflate away the debt, and hence the Treasury will have to finance that debt with future taxes. Having fiat money doesn’t change that reality. It just means that money creation is always an alternative option when considering default, which is not the case for gold standard or euro countries.

  50. Gravatar of Brian Brian
    25. March 2019 at 04:45

    Scott,
    So you’re saying that you only read people with whom you agree? And you’re too lazy to put in the effort to understand people you disagree with but that doesn’t stop you from criticizing them? That’s what it sounds like to me, and is a big problem in this world today. Echo chambers. You still might disagree with them, but put in the effort.

    As for treasuries, let me ask you this question; what if the Treasury stopped issuing term securities altogether, and just left the reserves in the banking system? And let’s say the Fed paid a higher rate on reserves so rates overall don’t fall, say the average treasury rate. You would have =>Zero new ‘debt’ that you’re worried about since reserves aren’t counted towards the national debt, no threat of future tax hikes as you say, and it’s not inflationary as we all learned w/ QE (and the NY Fed even wrote a paper why reserves aren’t inflationary) Why not?

    Treasuries are not debt as most people think of debt! Not in a true sovereign fiat world anyway. They are a monetary policy tool that allows the Fed to maintain interest rates, that’s it. More reserves in the system (say, from a deficit) drive rates down (as Kelton says), and treasury issuance drains the reserves so the rate does not go down.
    Make sense?

  51. Gravatar of ssumner ssumner
    25. March 2019 at 06:28

    Brian, You said:

    “So you’re saying that you only read people with whom you agree?”

    Wow. Just wow. That’s what you took from my previous comment? And people ask why I find MMters to be idiots. That has to be the dumbest comment I’ve read in months. I’ve wasted an enormous amount of time reading MMTers, and responding to them.

    And interest bearing reserves are obviously “debt”, regardless of what you call them.

    You said:

    “More reserves in the system (say, from a deficit) drive rates down (as Kelton says)”

    Worked well in the 1960s!! Have MMTers even heard of the Fisher effect?

  52. Gravatar of Brian Brian
    25. March 2019 at 18:46

    Scott,

    Sorry for the delay in this post, I was at Bentley today teaching MMT to some bright students who will be running the world pretty soon.

    Man does Montier nail this one, especially the name calling! Describes you to a tee.

    https://www.gmo.com/north-america/research-library/why-does-everyone-hate-mmt/

  53. Gravatar of ssumner ssumner
    27. March 2019 at 16:54

    Brian, They may be bright, and they may be running the world someday, but it won’t be with MMT ideas.

    Sad to see Bentley hiring people who don’t know how to read.

  54. Gravatar of ssumner ssumner
    27. March 2019 at 16:55

    And I wonder how you’ll react when these bright students ask you about the Fisher effect.

  55. Gravatar of Brian Brian
    28. March 2019 at 07:22

    Scott,
    Let me get your take on something; Let’s say the g’ment runs a deficit, but does not issue treasuries to ‘fund’ said deficit. (I’m getting rid of self imposed constraint that says the Treasury can’t run an overdraft at the Fed for this example) So we end up with excess reserves in the banking system equal to the deficit. What do you think the effect of this would be on short rates, ie Fed funds rate? Also assume that the deficit had no effect on growth. (I’m trying to isolate the reserves here)

  56. Gravatar of monogurui monogurui
    29. March 2019 at 08:57

    Though you’ve addressed the question to Sumner, this is a question we find of interest so we’ll take a crack at a response (with the caveat that our own personal views are that fiction tends to more accurately reflect reality than nonfiction, re a kind of monogurui effect (and as coming from the viewpoint of those who believe monetary policy should be used as a tool for the implementation of an effective communism, a phrase we imagine might possibly make some blanch)). We think the effect on the federal funds rate of the move you describe would probably be negligible in either direction. Where you would see the effect would be in a flattening of the multiplier. Scott’s earlier comment, suggesting Japan’s policies over the last few decades as an example of a method by which government policy can, but perhaps should not, keep nominal interest rates and inflation low, is particularly perceptive and constructive in this area. You could probably add the post-crisis QE implementation of the U.S. as well. In our view, one could use both of these as empirical examples of how some versions of MMT might play out if put into practice. Both were cases where the intent, as we understand it, was to increase aggregate money supply as a way of pushing up aggregate demand, with the assumption that the multiplier would be unaffected, but the result was that base money supply increased but the multiplier decreased along with it, leaving the effect on demand, probably not zero, but much weaker than intended.

    Some prescriptive formations of MMT would certainly be different than the U.S. and Japan examples here in the sense that their motivation is directed, not on pushing up overall economic production exclusively, but on funding perceived progressive initiatives for a general greater social good, and we do think this an area of concern that is complex and worthy of intense and spirited debate, but we also think a healthy concern for how such policies affect economic growth is warranted, as there does seem to be substantial historical evidence that increased economic growth and more expansive flows of credit and financial capitalism are powerful forces for addressing inequity and poverty, and for helping to ultimately make a better world.

    & as long as we’re responding to queries not addressed to us we’ll crash on Benjamin Cole’s. If we were Japan we’d continue to issue long term debt but cease to monetize it, with the idea that the way to push inflation is to expand the yield curve rather than dampen it.

  57. Gravatar of Becky Hargrove Becky Hargrove
    31. March 2019 at 12:57

    monogurui,
    It’s one thing to have the good fortune to expand yield curve for services when individual incentives are aligned, altogether another when government determines who gets paid what and who does what. I suspect this would be a problem – for instance – for firemen who decide they deserve the same pay as the local police department. Nevertheless, Noah Smith is a lot more explicit, about all that lovely expanded yield curve in this post:
    https://noahpinionblog.blogspot.com/2019/03/examining-mmt-model-in-detail.html

  58. Gravatar of ssumner ssumner
    31. March 2019 at 19:00

    Brian, One can find examples of anything from deflation (Japan) to hyperinflation (Zimbabwe) from money financed deficits.

  59. Gravatar of Michael Michael
    31. March 2019 at 21:10

    Scott, just for edification purposes, looks like someone is taking the opportunity to dig into an MMT textbook. This may be the opportunity to actually nail down what the hell these people are talking about.

    First part:

    https://www.reddit.com/r/integralds/comments/b5z4hj/the_mmt_textbook_post_1_of_n/

    Second:

    https://www.reddit.com/r/badeconomics/comments/b7h27s/accounting_for_mmt_another_post_on_the_mmt/

    Sorry for them being reddit posts, but I’m sure this is something you must be at least a LITTLE curious about, what with the total failure of its public advocates to actually explain MMT economics over the last few weeks.

  60. Gravatar of Brian Brian
    1. April 2019 at 10:50

    Michael,
    Scott is not curious about it, not even a little. And the best book on MMT is Randall Wray’s Primer on Modern Money Theory, 2nd edition which was published in 2015. It’s a short and easy read if you want to understand MMT. Mainstream economists are lazy and refuse to read anything more than an article in a newspaper about MMT but yet feel that they know enough about it to bash it, just as Scott admits to me above.

    Scott,
    You can’t possibly point to Zimbabwe’s hyperinflation and say it was money financed deficits that were the cause! What about supply side of the economy that was decimated after the war and signing of Treaty of Versailles? Hyperinflations are always idiosyncratic, and you cannot throw a ‘money financed deficit’ blanket over examples of hyperinflation in the past. That was an effect, not a cause.

  61. Gravatar of W. Peden W. Peden
    2. April 2019 at 12:14

    “You can’t possibly point to Zimbabwe’s hyperinflation and say it was money financed deficits that were the cause! What about supply side of the economy that was decimated after the war and signing of Treaty of Versailles?”

    I’ve heard about long and variable lags, but Zimbabwe (as part of the British Empire) being a signatory to the Treaty of Versailles seems a bit too early to cause hyperinflation in the 21st century. “Idiosyncratic” indeed…

  62. Gravatar of Brian Brian
    2. April 2019 at 18:17

    Oh man, i’m an idiot. Got my hyperinflations mixed up. Thx for pointing out. Supply side of Zimbabwe was decimated also. And point about the blanket still stands.

  63. Gravatar of Ironman Ironman
    6. April 2019 at 11:51

    Scott – Cullen Roche has been following MMT for almost a decade – he’s written what may be that short, relatively coherent primer you’ve been seeking:

    https://www.pragcap.com/the-shortest-and-best-mmt-primer-youll-ever-read/

    He also doesn’t think much of the theory (much longer read):

    https://www.pragcap.com/modern-monetary-theory-mmt-critique/

    The TL;DR: Roche thinks MMT starts from a solid base but goes off the rails.

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