Modern Monetary Theory and its Critics

I keep encountering Modern Monetary Theory (MMT) when I read economic reports. I didn't know what MMT meant. So I decided to get this book. I got the paperback with 432 pages. The book has 18 essays composed of both supporters, critics, and one author seemed to be both a supporter and a critic. The book itself was published by the World Economics Association. One small criticism is that I wish the book had a little more information about the essay authors. On a substantive level, I thought that the essays considered collectively provided a good overview of the theory. Since 2008's economic upheaval the U.S. government and the Federal Reserve have implemented many of the policies recommended by MMT such as quantitative easing and very low interest rates. MMT proponents argue that a nation with a sovereign currency has an expanded policy space that permits it to print money to underwrite government programs rather than relying on the power of taxation. Political elites seem to find this theory most felicitous. Whereas 10 years ago 800 billion dollars would have been considered a substantial outlay, now trillions of dollars must be appropriated to be considered adequate. Some of the critics argue that inflation will necessarily follow the implementation of MMT. Currently (late 2021) inflation has risen and we may have a chance to see whether the critics have a point One of the notable comments on page 346 by Louis-Philippe Rich on argued that mainstream economists had enacted "ruthless policies of austerity" in contrast to MMT policies which would not have pursued such policies. The mainstream economists supported policies that "contributed to (growth of) the wealth of the 1%...." Page 346. The policies of quantitative easing and ultra-low interest rates pursued since 2008 are now being accused of benefiting the 1%, so it seems that no matter what policies are followed, the 1% are rewarded. By having a collection of essays, I found the book very readable. There were a range of viewpoints, which contributed to the educational aspects of the book. I think I have some grasp of MMT, including how its proponents present and defend it. With this understanding I find myself in the critics' camp, but the book was valuable for the range of insights that it provided. If you have an interest in MMT, I recommend the book.

I have enjoyed reading the accounts from both sides. A useful book. Thank you

I would recommend reading this book on MMT as it gives you several sides to the subject. I found most of the articles extremely interesting. However, you will need a background in economics to get the most out of it. There are some overarching conclusions I would draw: * MMT is interesting as it stimulates focus on a neglected area of economics - what is money and how does it relate to currency and the real economy. However there is a blurring of the line between money and credit. The private sector i.e. banks also engage in the creation of credit through the fractional banking system but MMT focuses only on the government's role. * Economically MMT seems to be to be a hyper version of Keynesianism - essentially deficit financing. Taxation only takes place as part of demand management/to alleviate inflation. Bonds may be issued by the government but they are not needed to fund government spending. * Politically MMT seems to have originated out of the failure of Keynesian policy making in the 1960s/70s which ultimately led to the neo-liberal governments of leaders like Reagan and Thatcher. Wynne Godley is often cited in the essays - Wynne Godley was an arch-Keynesian who supported significant government intervention in the economy in the form of wage controls, capital controls, etc. Over time he moved towards sectoral macro analysis - the triumvirate of public sector, private sector and external balance - focusing on the financial surpluses/deficits of each. Note this analysis is static, tautological and ignores dynamic elements to capitalism as provided by entrepreneurial activity and the institutional framework. The latter is also a key failure of Keynesian economics - economies shape and shift over time. Output gap analysis is more relevant to a manufacturing-based economy than a heterogeneous service based economy. * There are different versions of MMT - authors vary in terms of how they see its applicability - some think the US is a special case because the dollar is the global reserve currency (the de factor global currency) and so its issuance is unlikely to lead to significant currency depreciation for example. Others extend the analysis to mid-ranking countries and even smaller EM countries provided their currencies fulfill the sovereign requirements. * The bottom line for me is - I don't believe in free lunches generally (I accept that the US is able to buy things from say Argentina with dollars and those dollars are never presented back i.e. they circulate as money in Argentina - so the US has imported something for free. But this is the exception). In the deepest recession a significant fiscal deficit either funded through borrowing or unfunded is likely the best course of action BUT the continued used of both fiscal and monetary policy to prevent every single downturn since 1992 ended up resulting in the GFC because risk taking and leverage increased through that period and ended in catastrophe. * The amusing part of the MMT crew is both their arrogance (they comes across like gold bugs) as you are either mainstream/blinkered or 'openminded' if you agree with them. * The second most amusing part of the MMT crew is the idea that our economic ills have been due to 'austerity' and if only fiscal policy had been more expansionary all our problems would be solved. Fiscal policy has been structurally expansionary for most years since 1945. * As a macro framework, MMT ignores the key determinants of GDP - institutions/supply-side. I find it incredible that anyone can think deficient demand is the problem the West has faced in the last 50 years. Demand has been consistently stoked by both monetary and fiscal policy. Governments can provide a public good framework, fund primary R&D, provide education ,etc but they do not create wealth. * Empirical evidence - we happen to have lived through a disinflationary world over the last 40 years. To argue this is because of insufficient demand is grossly simplistic. See for example Goodhart and Prahan's book The Demographic Reversal for an alternative view. In terms of the specific chapters of the book, I will make some brief comments: Chapter 1 - introduction Chapter 2 - Wray - a good summary of MMT by a key advocate. I don't think his history of money is complete nor do I find is folksy tales about kids washing cars to be good analogies of how the economy works and the government's role in it. Chapter 3 - Anderson - completely unrealistic proposal for an electronic currency to operate alongside the euro in economically-challenged countries like Greece. Chapter 4 - Armstrong - another MMT writer focusing on CB operations. Again if you don't accept the fundamentals of how an economy works you cannot accept the arguments presented here. Chapter 5 Bonizzi et al - a critical essay focusing on the external sector/constraints - something that MMT advocates largely ignore. Several telling points are made in this chapter. Chapter 6 Colander - nuanced article from a sympathetic perspective but calling into question some key MMT assumptions. Chapter 7 Davidson - points out some issues on liquidity ignored by MMT. Chapter 8 - Ehnts & Hofgen - This is where MMT morphs into specific policy programmes like the Green New Deal. Alice in Wonderland economics. Chapter 9 - Kregel - Argues MMT does not accord with economic theory and practice. Chapter 10 - Lavoie - post-Keynesian unhappy with MMT's claims. Chapter 11 - Lawson - critiques MMT's conception of money. If you don't accept the latter you cannot accept MMT. Chapter 12 - Mayhew - another 'friendly critic' pointing out some inconsistencies. Chapter 13 Murphy - article focused on tax. Chapter 14 - Palley - one of the best articles - just runs through some calculations to show how absurd MMT inspired policy prescriptions are. Chapter 15 - Rachon - actually I cannot remember reading this chapter. Chapter 16 - Sawyer- an excellent article taking apart the whole job guarantee programme side of MMT (strictly speaking it is not MMT but a co-traveller). MMT writers believe a highly interventionist government creates a healthy economy. All the evidence points the other way. Chapter 17 - Shipman - another chapter focused on money, currency & time. Chapter 18 - Toporowski - possibly the most bizarre article here - largely a class warfare/attack the 'rich' take. Utterly bizarre take on bond markets - he thinks the rich got rich by holding bonds rather than risk assets and that "the small number of the wealthy who use their privately managed pension schemes as a way of evading tax" !!!!! As though the wealthy have most of their wealth in a pension scheme... Overall a good book with plenty to enjoy. My next move is to read more about money and it's origins.

This is an ideologically based topic for many. That imo harms discussion when views are immovable. A good contribution.

Quite a boring book that repeats the same concept in 100 different ways. It is informative.