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Macroeconomics US Inflation Read next:

Colby Smith
An MMT response on Venezuela's
what causes inflation long and
winding
73
road to debt
MARCH 1, 2019 11:00 AM restructuring
By: Guest writers 2 HOURS AGO
0
By: Colby Smith
This week in testimony to the Senate Banking
Committee, Jay Powell, Chairman of the
Federal Reserve, offered a verdict (https://ww
w.cnbc.com/2019/02/26/fed-chief-says-econo
mic-theory-of-unlimited-borrowing-supported-
by-ocasio-cortez-is-just-wrong.html) on
modern monetary theory. "The idea that
deficits don't matter for countries that can
borrow in their own currency I think is just
wrong," he said. It was a victory for the
movement, of sorts: modern monetary theory
is now unavoidable. It now must be addressed
in a committee hearing of the US Senate.

It's an idea being contested right now on

finance and economics Twitter, which sounds
like a silly thing to say but is not, because the
people who read and write econ Twitter are
the people who explain economics in
newspaper articles and academic papers for
the rest of the world.

Which is how yesterday we got an emai from

three MMTers: Scott Fullwiler, Professor of FT Alpha Tweets
Economics at the University of Missouri, Colby Smith
Retweeted
Kansas City; Rohan Grey, a Doctoral Fellow at
Robin Wigglesworth
Cornell Law School; and Nathan Tankus, @RobinWigg
Research Director of the Modern Money That means US companies
Network. They wanted a chance to respond to have handed nearly $8 trillion
to their shareholders since
several recent articles, our piece on how the US the financial crisis. To put that
financed the second world war (https://ftalpha in context, they could buy the

ville.ft.com/2019/02/13/1550057130000/How entire UK, Italian, German,

Spanish AND French stock
-the-US-actually-financed-the-second-world-w market for that.
ar/) among them. Here, in their own words:
9h

For two decades we and our like-minded

Jamie Powell
colleagues have been putting forward the idea Retweeted
that a monetarily sovereign country like the Football on BT Sport
United States with debts denominated in its @btsportfootball

own currency and a floating exchange rate 3/3/18: Southampton 0-0

Stoke
cannot “go broke”. We have been writing about 5/3/19: Real Madrid 0-2 Ajax
this and all the myriad implications this has for
From battling relegation to
macroeconomics under what has come to be
tearing apart the Bernabeu.
known as Modern Monetary Theory.
Dusan Tadic that is obscene!
Excitingly, last month representative
Alexandria Ocasio-Cortez brought attention to
our views when she said that MMT should be Embed View on Twitter

“part of the conversation (https://www.busines

sinsider.com/alexandria-ocasio-cortez-ommt-
modern-monetary-theory-how-pay-for-policies
-2019-1)". This set the economics and finance
media ablaze with renewed commentary. In a
major step forward, the broad consensus of
these pieces in a series of outlets has been to
agree with my colleagues and I that the only
limit on government spending is inflation. The
acceptance of this crucial tenet of MMT is very
welcome and new. It was not too many years
ago that throughout the economics press it was
commonplace to present MMT as a wild new
theory and speak in worried uncertain terms
about the possibility that bond markets would
refuse to buy US treasury securities, causing a
debt crisis. We are thrilled to move past this
stage in the public macroeconomic debate.

Unfortunately, while the press has been willing

to agree with this major proposition, it has not
been willing to follow its implications. Josh
Barro writing in New York Magazine (http://n
ymag.com/intelligencer/2019/01/modern-mon
etary-theory-doesnt-make-single-payer-any-eas
ier.html) particularly articulates what seems to
be the emerging response to MMT in the press:

If the government prints and spends money

when the economy is at or near full
employment, MMT counsels (correctly)
that this will lead to inflation, and
prescribes deficit-reducing tax increases to
reduce aggregate demand and thereby
control inflation. See how we have ended
up back where we started? Whether you
take a Keynesian view or an MMT view, if
the government spends more, it’s likely
going to need to tax more, sooner or later.
[...] Whatever the Federal Reserve’s
demerits, the idea of depending on
Congress to pass surplus-generating tax
increases in order to keep the economy
stable and prevent runaway inflation gives
me hives.

Contrary to Barro’s assertions, we have not

“ended up back where we started." MMT’s
approach to budgeting and designing a
macroeconomic policy framework for a Green
New Deal with price stability is radically
different from current Congressional practice
and there are no other modern proposals like it.
First, when we suggest that a budget constraint
be replaced by an inflation constraint (http://n
eweconomicperspectives.org/2015/01/replacin
g-budget-constraint-inflation-constraint.html),
we are not suggesting that all inflation is caused
by excess demand. Indeed, from our view,
excess demand is rarely the cause of inflation.
Whether it's businesses raising profit margins
or passing on costs (https://www.sciencedirect.
com/science/article/pii/B97804445323810000
65), or it’s Wall Street speculating on
commodities (https://academic.oup.com/rfs/ar
ticle/28/5/1285/1867225) or houses, there are
a range of sources of inflation that aren’t caused
by the general state of demand and aren’t best
regulated by aggregate demand policies.

Thus, if inflation is rising because large

corporations have decided to use their pricing
power to increase profit margins at the expense
of the public, reducing demand may not be the
most appropriate tool. The recent controversies
over rising housing rents (http://citeseerx.ist.ps
u.edu/viewdoc/download?doi=10.1.1.555.3043
&rep=rep1&type=pdf) and drug prices
demonstrate that we need alternative tools in
place to manage the power of big business and
ensure their pricing policies are consistent with
public purpose. The experience of the last
decade inadvertently reflects the potential
strength of alternative inflation-fighting tools,
as one of the reasons inflation has remained
below target for the past ten years is legislated
cuts to medicare and medicaid payments (https:
//www.frbsf.org/economic-research/publicatio
ns/economic-letter/2017/november/contributi
on-to-low-pce-inflation-from-healthcare/).

Because of the pricing power of big companies,

whichever administrative agency or agencies is
responsible for managing aggregate demand
should not be responsible for overall inflation
on its own. It should either share joint
responsibility for keeping inflation on target
with other agencies responsible for regulating
business pricing power (https://hdl.handle.net/
2027/mdp.39015016798764?urlappend=%3Bs
eq=51) or new price indices should be
constructed that exclude concentrated markets
where prices are clearly acyclical (https://www.
frbsf.org/economic-research/publications/econ
omic-letter/2017/november/contribution-to-lo
w-pce-inflation-from-healthcare/).

Second, we do not believe that any and all

inflation that does result from excessive
demand can and should be addressed by higher
taxes. This is a distortion of our view, as years
of publications can attest. When MMT says that
a major role of taxes is to help offset demand
rather than generate revenue, we are
recognising that taxes are a critical part of a
whole suite of potential demand offsets, which
also includes things like tightening financial
and credit regulations to reduce bank lending,
market finance, speculation and fraud.

Assessing the potential inflationary effect of

new spending proposals also requires seriously
assessing how underutilised our existing
resources are. This requires detailed, expert
analysis from a range of industry analysts; not
just statistical regressions on aggregate
economic data by macroeconomists.

At the same time, we must also confront the

fact that the fossil fuel, real estate, defense, and
financial industries are too large, too dirty, and
eat up too much of our national resources. They
must be shrunk one way, or another. Thus,
another way to offset excessive demand
pressure is to tighten environmental and other
forms of regulation, which would disemploy
people and resources in those industries, and
free them up to be redeployed in green
production as part of the broader economic
transformation of the Green New Deal. Our
current political leaders tend to oppose such an
approach on the grounds that demand is
limited and jobs are a rare, scarce commodity,
so each existing job must be preserved at all
costs. MMT allows us to recognise that the
government can commit to real full
employment. We can instead focus on
increasing the quality of jobs and ensuring our
economy generates prosperity for everyone.

In addition, we must recognise that the Green

New Deal is about creating new resources over
the medium term, which will in turn expand
green output to further accelerate the
decarbonisation process. This is not our current
approach. Instead the Congressional Budget
Office continually defines potential capacity
down from what it actually is (http://jwmason.
org/slackwire/the-big-question-for-macroecon
omic-policy-is-this-really-full-employment/),
creating a vicious self-fullfiling cycle defined by
low productivity and lost output. To address
this failure, the Congressional Research Service
(as well as other budget advisory organizations)
will need to be enlarged to do the analysis
necessary to find the right mix of inflation
offsets that best move forward the task of
decarbonizing our economy. There is no
alternative if we are going to succeed at averting
climate change.

Regardless of which policy tool is used in a

particular context, demand management in
general needs to lean much more heavily on the
appearance of bottlenecks in specific industries
instead of simply tracking changes in a general
price index. The immediate signs of bottlenecks
are large and sustained rises in unfilled orders
for specific goods and services. Preventing
shortages is after all what demand management
is first and foremost about and price indices are
misleading policy targets when they include
factors that are insensitive to demand and
would be counterproductive to manage with
demand. The more actively we regulate big
business for public purpose, the tighter the full
employment we can achieve and the more
resources we can devote to the Green New Deal
while preserving price stability.

Third, when we do advocate using tax increases

to address inflationary pressure, we are not
suggesting that Congress attempt to raise taxes
in real time after inflation has already emerged.
Indeed, our approach is precisely intended to
avoid a situation in which Congress merely
spends without paying attention to inflation
dynamics until it is too late. Thus, we argue
varying tax rates and other inflation offsets
should be included in the budgeting process
from the outset. In our approach, an MMT-
informed Congressional Budget Office would
produce detailed reports of how specific
spending or lending proposals would increase
demand and which sectors and regions would
be most affected, and would monitor
inflationary pressures closely to determine the
appropriate policy response based on specific
conditions. This would be a radical
improvement over the current CBO scoring
process, which looks only at dollar values in
aggregate, and treats all sources of revenue as
equal. This crude approach can easily lead to
mistaken conclusions, like that Elizabeth
Warren’s wealth tax could adequately “pay for”
large spending proposals, when in reality, such
a tax would not be likely to reduce overall
demand by very much in the areas that the new
government spending would be directed
towards (even if it was still desirable from an
equity standpoint).

Beyond an improved Congressional budgetary

process, there are well-established approaches
to policymaking that can assist us in managing
inflationary risks. For example, we have long
recommended strengthening automatic fiscal
stabilisers. Indeed, our principal policy
recommendation is a Job Guarantee (which is
part of a Green New Deal) which automatically
creates more jobs as people need them, but
does not continue to spend greater and greater
amounts once the economy reaches full
employment. Other ways we can strengthen
automatic stabilisers include savings policies (h
ttps://www.unz.com/print/Colliers-1949apr30
-00082/) and no longer indexing tax brackets
or indexing them to an inflation target instead
and introducing more tax brackets so that as
incomes rise faster than the inflation target a
higher percentage of income is progressively
taxed. With these tools there is much less need
to rely on day-to-day discretionary decision
making like is currently the case with the
Federal Reserve’s management of interest rates.

That said, we are not against one or more

agencies being given additional tools to
collectively manage demand on a discretionary
basis. It is unclear where this myth came from
but it doesn’t come from our extensive
publication record- in academic journals or in
the blogosphere. One of us long ago suggested
in the Financial Times (https://ftalphaville.ft.co
m/2013/08/06/1593422/guest-post-dual-man
date-right-goals-wrong-agency/) the goal of
delegating responsibility for day-to-day
demand management to an independent agency
was a good one but that the Federal Reserve
was the wrong agency. As we said then:

Whereas Bernanke only hinted at the need

for a fiscal partner, former Fed Chairman
Marriner Eccles openly advocated the use
of fiscal policy as the most effective way to
fight both unemployment and excessive
inflation. In the depths of the Great
Depression, Eccles pushed for a payroll tax
cut, calling it ‘the most important single
step that can be taken’ to stimulate
consumer buying power. Years later, just
prior to the near tripling of US war
expenditures, Eccles urged lawmakers to
raise the payroll tax in order to stave off an
inflationary episode. Indeed, as his Special
Assistant made clear in the following letter,
Eccles considered adjustments in fiscal
policy (in this case an increase in the
payroll tax) to be ‘the most effective anti-
inflationary means of reducing purchasing
power.

Commenters are not wrong that some of these

proposals and tools will be controversial. What
is ignored by this criticism is the fact that our
current approach of managing inflation on the
backs of a very indebted and underemployed
public is also controversial. Indeed, the Federal
Reserve has historically been a conservative
institution biased against full employment. To
ensure the Green New Deal creates and
maintains true full employment, we will need a
new macroeconomic framework that brings in
many currently excluded institutions and
stakeholders, and abandons our reliance on
interest rate adjustments as a primary tool for
stabilising demand.

Modern monetary theory has a range of policy

implications that bring us to an entirely
different policy world, rather than back where
we started. A Green New Deal must include
some mixture of the policy instruments we’ve
laid out if it successfully plans a new green full
employment economy with price stability.
Budgeting the traditional CBO way will focus
attention on the wrong issues and fail to offset
the inflationary potential of this necessary new
spending. As we’ve said, there are a number of
taxes -- especially on the rich -- which offset
much less GND spending than their dollar
amounts would imply. This does not mean that
we shouldn’t tax the rich -- they are too rich. It
just means Congress needs to look elsewhere if
they’re going to fully offset the inflationary
potential of this spending. We can afford a
Green New Deal and we can accomplish it as
well. We just need the right policy tools to make
sure it's successful.

Copyright (http://www.ft.com/servicestools/help/copyright
) The Financial Times Limited 2019. All rights reserved.
You may share using our article tools. Please don't cut
articles from FT.com and redistribute by email or post to
the web.
Print a single copy of this article for personal
use. Contact us if you wish to print more to
distribute to others. © The Financial Times Ltd.
 73

Read next:
Colby Smith

Venezuela's long and winding

road to debt restructuring
The country owes a lot
of money to a lot of
different people.
2 HOURS AGO By: Colby Smith
0

COMMENTS (73)

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surfbo 2 days ago

Sounds like a Soviet era five year plan.

Report Share 3 Recommend Reply

Wicked_Chicken 2 days ago

I'll admit I am not an MMT expert...but reading the article, how

does MMT not devolve over time to typical socialists central
planning and it's repression of creative life in a diverse, multi-
cultural environment. Capitalism isn't perfect by any stretch
and regulation is needed...I would say in certain industries
more than we have now, but I don't think this would work or it
would at least require a bureaucratic regulatory apparatus just
as sprawling as the defense industrial base. And what is the
downside if this is wrong..."Oops, sorry, your money is now
worthless". That seems like a pretty big downside risk to
me...just ask the Venezuelans.

Report Share 3 Recommend Reply

MMT Mike 2 days ago

@Wicked_Chicken ".. how does MMT not devolve

over time to typical socialists central planning .."

Well, that is a political question, isn't it it? Why

should that be excluded, if it is the democratic
choice of the electorate?

The basic essence of MMT (incl. the Job Guarantee

buffer stock program) is that it can deliver 'full
employment with price stability', to a vastly
improved degree of precision than that offered by
the decades of neoclassical/neoliberal domination
(as made distinct by MMT scholars).

And that it can achieve that, regardless of near any

percent of GDP constitutes the Private sector vs
that of (direct provision) Gov sector, in society.

MMT is not a set of political policies. It is macro

economic structural knowledge, and operational
methodology. The Job Guarantee comfortably
stands on its merit as an enhanced automatic
stabiliser to the economic/business cyclicality, that
no one disputes exist. Even whilst its social, and
'human capital' development merits are also self
evident, by the vast majority of research evidence
into the value of work and educational continuity.

Report Share 1 Recommend Reply

Tim Young 2 days ago

The MMT idea that governments spend money into

circulation is factually incorrect - governments raise the
money they spend by taxation or borrowing first. But if you
assume that spending does come first, and control inflation
with taxes, then, as Josh Barro says, you end up where you
started. My own explanatory analogy for MMT is that it is like
a theory of a train that that postulates that the carriages drive
the locomotive. You have to look at the train carefully to
understand that such a theory is incorrect, but the whole train
ends up in the station at practically the same time.

If you do believe, like the authors, that inflation could be

controlled using taxes, but aim to distribute spending and
taxes to optimise the economy, then MMT really comes down
to a laudable plea for structural reform, but perhaps the hope
of being more acceptable because spending is seen to be
sensibly guided to approved activity before people consider
taxes. However, whether taxation can be sufficiently
large, rapidly varied and precisely targeted in detail to manage
inflation well is doubtful.
But the dangerous feature of MMT, which the authors barely
go into here, is its blandishment, especially appealing to the
left and greens, not to worry about fiscal deficits and hence
public debt - especially dangerous because debt issuance
provides another way of withdrawing "excess" money that
would otherwise prove inflationary, but a way more
immediately palatable than taxation. To sell debt to the
private sector, and especially the non-domestic private sector,
it must bear interest, and whether the debt is paid off or not,
this interest burden requires transfers to the private sector.
While it is true that a sovereign money debt issuer can always
pay this interest in their own currency and so never need
default, remember that as debt increases, the implication is
that, if inflation is to be held down using taxation, an
increasing proportion of taxation goes towards interest
payments. It seems very likely to me that at some point, this
tax-to-transfer will become politically unacceptable, and
inflation will be allowed to rise.

Report Share 3 Recommend Reply

marginalEfforts 2 days ago

Capitalist production has always been underwritten by the

subsidy of despoiling our environment. We now find ourselves
and subsequent generations needing to pay this overdue
debt. It will be very costly to do so effectively. While i
appreciate the spirit of MMT to counter austerity policies and
prod fiscal expansion, it seems to me a diversion from meeting
head-on the overdue exorbitant costs required in repairing
our environment. This unpaid cost of production has
subsidized both producers and we as consumers. The effects
of facing this bill of damage cannot be seen as an economic
stimulus. It is a cost, a debt, and will be unpleasant for all of
us. It is my opinion that progressives need to be clear that
this cost entails a 70-80% tax of the wealthy as an essential
and necessary element if we're serious about meeting the
challenge of climate apocalypse.

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Redant 3 days ago

Thinking just as an investor, how are companies to plan and

invest if government is manipulating demand? And how
should I make investment decisions - choose what companies
to own - in that circumstance? This article seriously proposes
demand management at the industry level. In the limit, isn't
this what killed Soviet planned economies? It certainly is NOT
what the Chinese have done. They have invested like crafty
capitalists to meet export demand, and used excess capacity
to satisfy internal demand. I think the people behind this
proposal are nuts with delusions of grandeur.

Report Share 5 Recommend Reply

Cesira 2 days ago

@Redant Governments always have, if you wish,

manipulated demand--in some cases increasing it
(increase defense spending, increase spending on
armaments). Indeed the Washington Lobby swamp
is full of special interests seeking to game
regulations of various types in order to increase the
'demand' for their product. Tweaking patents to
avoid public interest patent limitations now
accounts for 50% of the profits of big Pharma.
So...step out of the 'free market' bubble for minute,
look around you and note the incentives to burn
fossil fuels, the incentives to pay less than the living
wage and so forth. The issue is not 'manipulation'
but regulation in the interest of the many people
living here and not the few who evade tax and
speak to the hungry of wonderful times to come.

Report Share 2 Recommend Reply

Redant 2 days ago

@Cesira @Redant There is a huge distance

between "regulation" and what these authors
describe. Some of what they propose is extremely
specific, down to the industry level, yet they do not
discuss risk at all - I mean, the risk taking that
generates innovation and allocates capital. Nor do
they discuss how to manage the interactions
between the industries and sectors that they
propose to manage.
At the simplest level, consider why it is hard to be a
successful stock picker: you have to decide not only
what to get into, but when to do that, how much,
and when to get out, and what to get into next. If
you choose wrongly, you don't do well, and even the
most educated investors choose wrongly most of
the time. Now, these MMT people what to empower
the government to make such choices, to affect risk
taking and innovation with all the political and
economic consequences that would imply. Sorry to
say, @Cesira, that would be manipulation and it
would be recognized as such, it would crash and
burn economically and politically.
It is obviously true that sometimes, extreme
capitalism goes wrong. Look at U.S. healthcare. But
I do not want to live in a world where I might make
an investment, take a risk, and have it arbitrarily
ruined by bureaucrats with no skin in the game.
And tell me, how would bureaucrats regulate
demand for, let's say, the Internet and all its
services? The consequences of innovation are only
clearly discernible long after the fact, and at such a
moment, there is still always the question of how a
decision now will interact with what may happen
next.

Regulation is needed sometimes. Economies should

broadly serve their participants and their owners.
But MMT doesn't really tell us how to do that, and
regulation as you call it will always be hard. It is
extremely difficult to even articulate clearly what
should be bureaucratically optimized and what
should be harmed.
 Report Share Recommend Reply

Redant 2 days ago

@Cesira @Redant Even if MMT provides

mechanisms for such manipulation, it does not tell
us what to manipulate or regulate, nor how much,
nor when. Those are political decisions that effect
the economy profoundly, which the authors of this
piece want us to delegate to the sorts of
"regulators" who have given us Brexit, and the
perpetual disparities between Germany and Italy.
Thank you but no.

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beezer 3 days ago

The first post graduate level MMT text rolled out Friday.
Chucking the moneterists can't be far behind.

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rabidlyambivalent 3 days ago

Highly intelligent people saying silly things like MMT and

Green New Deal seems to be a deliberate attempt to reanchor
the public debate in the US away from the extreme right and
towards the center. Certainly AOC has said as much. Part of
the lattempt by what passes in the US as the left wing to fight
the right wing by adopting their dirty tricks. In this case at the
cost of losing their intellectual honesty.

Report Share 2 Recommend Reply

Joerg Washington 3 days ago

@rabidlyambivalent Extremism garners support,

but can then be hard to stop. AOC's ignorance of
history apparently includes Robespierre. This does
not question her good intentions.

Report Share 1 Recommend Reply

rabidlyambivalent 3 days ago

Some non sequiturs here. It is hardly controversial that

countries who can print their own money and that issue debt
only in their own money cannot “go broke” as they can simply
print more and hyperinflate. It does not follow that price
controls are a feasible response. It is true that many deficit
hawks confuse household finance with sovereign finance, and
that fiscal policy is an underused tool. It does not follow that
monetary policy is irrelevant, as fellow MMTer Kelton argues
in her concurrent Bloomberg feud with Krugman. Let’s ground
this debate in actual historical experience and not things that
only an academic could believe, As Richard Pryor said, who are
you going to believe - me, or your lyin’ eyes?

Report Share 1 Recommend Reply

Clint Ballinger 3 days ago

@rabidlyambivalent "It does not follow that

monetary policy is irrelevant" Where has it been
effective in the medium- to long-run?

Report Share 3 Recommend Reply

rabidlyambivalent 3 days ago

@Clint Ballinger - not the place to have such

fundamental discussions. I refer you to the work of
the many brilliant economists like Krugman,
DeLong, Wolf, Rodrik, Eichengreen, etc. One may
disagree with their politics and their incomplete
knowledge of finance, but on economic theory they
offer reality based macro models that are useful for
booth investment and policy making.

Report Share 1 Recommend Reply

Clint Ballinger 3 days ago

@rabidlyambivalent " Krugman, DeLong, Wolf,

Rodrik, Eichengreen, etc." None of these have
empirical evidence supporting the belief that
interest rate manipulation is a useful policy. Where
have you seen empirical evidence supporting your
belief that "It does not follow that monetary policy is
irrelevant"??

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2 replies
CPD707 3 days ago

Memories are short. There are limits to everything. The US

learned this lesson painfully with its stagflation experience of
the 1970’s and early 1980’s, which derived from its “guns and
butter policies of the 1960’s. During the 1960’s, the US
pursued “Great Society” programs while also waging and
escalating a costly war in Vietnam along with a Cold War with
the Soviet Union. By reaching far beyond its economic
capability frontier, it took a US Fed Funds rate of almost 20
percent in the early 1980’s and vibrant US economic revival
almost thirty years to reverse what was wrought back on the
inflation front back then.

The US still holds the world’s reserve currency which supports

the argument put forth in this article for now, but China is
catching up. I would urge the readers of this article to look at
the countries of the world today and where they have their
reserve swap lines today versus just seven years ago. China is
integrating itself within global financial construct, which will
inevitably create a system that will become markedly less US
Dollar centric.

With change coming, economic propaganda as proposed in

this article is extremely dangerous for the future trajectory of
the US. And ironically, I suspect that many of those providing
supporting comments for this article are writing in from
Russia. The Cold War isn’t over after all. It is just being fought
very differently and “hearts and minds” are involved.

Report Share 1 Recommend Reply

beezer 3 days ago

@CPD707 Ahh. another paranoid patriot.

Report Share 1 Recommend Reply

CPD707 3 days ago

You bet comrade.

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A. B. 17 hours ago

@CPD707 I don't suspect Russians posting here -

 but Chinese are a different matter.

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emjaytee 3 days ago

You are suggesting that companies can pass on cost increases

or increase profit margins without excess demand??

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HundredthIdiot 3 days ago

To focus on the climate change part, it seems to me that if the

goal is to direct human effort towards investments that
prevent future climate catastrophe, and away from things
which don't prevent that, it would be better to create policy
that achieves that end directly, e.g. to pick one example, stop
spending money on prolonging life via developing drugs for
old people diseases. How does keeping retired people alive
help save our future?
But those conversations won't happen because they're hard.
But that's what's facing us with climate change - hard
decisions. Instead we get economics waffle from all sides.

People have limited capacity. If you need them to stop doing

one thing and start doing another, be clear about why and
then try and get it done through whatever policy transmission
mechanism is most effective.

This idea that you just need to spend more on green stuff
without spending less on other stuff implies that there is spare
productive capacity sitting around that won't create more
emissions when utilised. That seems extremely dubious.

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Wenren 4 days ago

A very poorly thought through, disorganized article as though

the anonymous guest writers were college freshmen dividing
up a term paper by sections without any coordination -- while
high.

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JP 4 days ago
While MMT does a OK job of defining current concepts of
money it has a political agenda. Here is the best analysis I
have found:

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

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Joerg Washington 4 days ago

That moment, while visiting the asylum, that you realize the
doctor lecturing you in measured tones is in fact a delusional
patient.

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A. B. 17 hours ago

@Joerg Washington So true - in fact the entire

MMT cast could produce Marat-Sade without new
additions. They even have a female star to act as
Charlotte Corday.

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Shaughraun 4 days ago

What the authors propose is, in fact, putting the US on a war

footing like that instituted during WWII, with the chief
distinction that this time the enemy is climate change.

Would it work? Probably, yes, if Americans were to experience

something on the order of Pearl Harbor.

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Shaughraun 4 days ago

China has practiced MMT for the past thirty years: virtually
unlimited credit creation. After years of truly stupendous
growth, though, they now face a debt crisis, out-of-control
inflation/collapse of the RMB; capital flight. . .

And they had the advantage of close control over taxes,

interest rates, reserve requirements, investment in capital
projects, currency value, capital import and export, etc.. etc.
The US is far less centralized; I just don't see most Americans,
let alone the libertarians, agreeing to the massive intrusions
that would be needed to put this into practice.

Still, the US, with the exception of four years under Clinton,
has had to run a deficit in order even to approach full
employment. At least two of the reasons that debt has been
rising inexorably in the United States for several years are (1)
the country’s rising income inequality and (2) its persistent
trade deficit.
Surprising as it may seem at first glance, these two conditions
operate the same way: they distort the level and structure of
American savings. As long as income inequality remains high
and the United States runs large deficits, the resulting savings
distortions will continue to mean that U.S. debt levels have to
rise to prevent the economy from slowing and unemployment
from rising.

https://carnegieendowment.org/chinafinancialmarkets/78
304

In other words, deficits are a symptom of the real malady. The

Democrats should stop obsessing about MMT and
concentrate on reversing income inequality and the trade
deficit.

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Shaughraun 4 days ago

Corollary: both China and the US are debt junkies.

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tayer 4 days ago

@Shaughraun China has foreign debt denominated

in foreign currencies of around $1.6 trillion.

80% of that is in US dollars, 6% in euro, and 4% in

Japanese yen. That's not practicing MMT.

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wije 3 days ago

 @Shaughraun We've been hearing for years that
China's economic collapse from debt is just around
the corner. So when will it take place?

China's not the only country that used credit

creation to finance its growth. It worked for Japan
until its central bankers decided Washington
Consensus economics was the way to go:

https://www.youtube.com/watch?
v=p5Ac7ap_MAY&t=3218s

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Mishkin 4 days ago

How does MMT explain what’s happening in Venezuela w

annual inflation over 1,000,000% and accelerating?

Seems like they got the money printing part of MMT down
right. Where did they go wrong? Did they fail to raise taxes on
consumers enough to clamp down on excess demand? Or has
the government gone too easy on private business? If
Venezuela had more taxes on consumers and more business
regulation, then they could feed themselves?

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Whistling throughh the graveyard 4 days ago

“Assessing the potential inflationary effect of new spending

proposals also requires seriously assessing how underutilised
our existing resources are. This requires detailed, expert
analysis from a range of industry analysts; not just statistical
regressions on aggregate economic data by
macroeconomists.” This is Ivory Tower nonsense. ‘Detailed,
expert analysis’ is precisely what communism was supposedly
founded upon. That didn’t work out so well.

“There is no alternative if we are going to succeed at averting

climate change.” Any time someone – particularly an
academic trying to re-make policy – says ‘there is no
alternative’, then it is good policy to RUN away from what they
are proposing. This is totalitarian thinking.
“In our approach, an MMT-informed Congressional Budget
Office would produce detailed reports of how specific
spending or lending proposals would increase demand and
which sectors and regions would be most affected, and would
monitor inflationary pressures closely to determine the
appropriate policy response based on specific conditions.”
Because the Federal Reserve (which essentially does exactly
this) has so effectively been able to do this? Where have
these people been for the last dozen years??????

MMT translated: ‘Put us in charge! Yes this only works if we

are omniscient and omnipotent, and nobody has been
omniscient before. But let’s start with the omnipotent part –
give us (a bunch of academics at 2nd and 3rd tier institutions)
that, and assume the omniscience will follow!’ As badly as the
current orthodoxy has managed the economy, MMT would be
far, far worse. Giving academics and other dreamers
omnipotence has been tried before. It doesn’t work…

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beezer 3 days ago

@Whistling throughh the graveyard I believe

TINA (there is no alternative) came from Maggie
Thatcher who, along with RR, ushered in the forty
year disaster called neoliberalism. I love to read
neoliberals interpret MMT through their neoliberally
brainwashed eyes.

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nothing but the truth 4 days ago

"we suggest that a budget constraint be replaced by an

inflation constraint"
BTW, the US inflation number is wildly understated.
Restaurants have been raising prices 25-50% lately, still the
number is "too low". Healthcare and shelter inflation is well
known.

The problem is that the inflation is a calculated number, which

cannot be independently verified as the raw data is a state
secret (apart from the gimmicks of the calculation itself).

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randomthought 4 days ago

MMT comes across as a laboured attempt to explain to
Congress (and in particular, the Republicans) that they should
pay less attention to fiscal discipline. The fatal flaw in the
theory is that there isn't anyone in Congess who is paying
attention to fiscal discipline. The Republicans were just
kidding.

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MMT Mike 4 days ago

@randomthought Actually, there is - but it's the

Democrats, not the Republicans. The latter only
pretend they care about Deficit spending when not
in office.

Sadly, the Republicans, as Cheney as VP famously

said, that know deficits in absolute, 'money', terms
don't matter. But they only ramp them up to gift
more cash to their Capital owner class buddies, to
minimal effect on agg demand and jobs for the
labour class majority.

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Nick Name 5 days ago

MMT is a panacea. In that it seems to be used to justify

infinite public spending on whatever the proponent's pet
project is.
Yet no one seems to be able to clearly explain to me how it
works in practice. And if you can't easily explain it to me then
you've got no chance with your average joe sixpack or
republican senator.

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Thomthumbsblues 4 days ago

What do we need? A more educated population?

Better roads and bridges? More solar and wind
power? A modern healthcare system that provides
healthcare to everyone? How do we get it? We print
money and direct our resources towards achieving
those goals. What do we get. A better educated
population, better roads and bridges, clean efficient
 energy and a healthier population. We don’t get run
away inflation and everyone wanting to consume
more nick nacks!

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Meh... 5 days ago

“The idea that deficits don't matter for countries that can
borrow in their own currency I think is just wrong”

MMT doesn’t argue deficits don’t matter, it simply argues that

the constraint in deficits isn’t some magic debt to gdp level
but rather when deficits become inflationary.

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kris. 5 days ago

When I used to comment on FT Alphaville, circa 2013-2014,

MMT was a huge topic in coordination with Naked Capitalism.
I explained to the audience that MMT is nothing new, Soviets
tried horrendously for 70 years with the Gosbank.

MMT = Soviet Gosbank. Allocating dollars (ro rubles) into

people's accounts leads to nobody wanting to work, precisely
like in the USSR. By the way, there was a "job guarantee" in
USSR, meaning that everybody was FORCED to work, as
nobody wanted to work due to MMT (aka Gosbank) allocating
money out of nothing in everybody's account, hence economic
output collapsed.

Please, quit with this "modern" thing. This is Soviet Monetary

Theory.
Gosbank here

https://en.wikipedia.org/wiki/Gosbank

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Sovavia 5 days ago

The current low inflation is principally due to the private debt

overhang (too little demand): it does not matter which
perspective gets this right (only that it does so).

Indeed, how have long-term bonds and base gold fared since
2007?

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Empiricist 5 days ago

I was feeling quite sympathetic to MMT as a theoretical

framework, but this rambling article has really put me off.
Clear end of this should be nationalisation:

"The more actively we regulate big business for public

purpose, the tighter the full employment we can achieve"

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peter2108 5 days ago

@Empiricist Agree. It was the sudden excursus into

tackling Climate Change that really threw me.

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Meh... 5 days ago

@Empiricist

Not sure why ownership is relevant to the question

of regulation?

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Avraam J. Dectis 5 days ago

Great column!
I did see one big mistake and a couple small mistakes.

The big mistake is hitching MMT to any other issue, in this

case ecology and picking fights with big industries, like
defense. This unnecessarily muddies the issue and generates
well funded opponents. Stick to the virtues of the economics
and leave the politics for a later date - if you want to win.

The second mistake is failing to propose the abolition of the

income tax. Income tax is extremely inefficient, bureaucratic
and unnecessary in MMT. This is very doable and should be a
key component. Adopt it - if you want to win.

You do need an independent agency to manage demand,

Congress is not nimble enough.

Avraam Jack Dectis

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FearTheTree 5 days ago

@Avraam J. Dectis So long as we focus on the

demand of the median household, I agree

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Dr Havoc 5 days ago

It seems to me that the MMT crowd is saying that inflation is

the only limit to running deficits, but inflation is not really a
limit because other sources other than expansion of the
monetary base can cause it.... So is there a limit or not. If
inflation is the limit then it does not matter what causes it,
since MMT Theory agrees that expansion of the monetary
base in inflationary. If inflation is not the limit then we are
back to voodoo economics where a country that can borrow in
its own currency can borrow arbitrarily much.
Its time MMT advocates stop hiding behind artificial
complexity and state their case. Are deficits limited by
inflation or not and most importantly do deficits have an
economic cost or not.

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beezer 3 days ago

@Dr Havoc Resources comprise the limit. Can't buy

what is not for sale.

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