It seems that an odd, and at one time, unthinkable economic theory is having a little more than its time in the sun. MMT or Modern Monetary Theory has become increasingly widespread in its coverage and has garnered increasing levels of interest, and not just from the typical socialist leaning institutions one might expect, given the nature of this particular theory. Modern Monetary Theory is basically the ‘marketing departments’ moniker for ‘money printing’. It sounds official, well-considered and, well, modern. How could such an appropriately named theory be anything other than as described. The central theme behind it is actually not really new, and has been chugging away quietly in earnest, since approx 1971, when a seismic shift in the global economic structure took place.
Before we consider any particular turning point in the global economic structure, readers would benefit from a little further insight into the inner-workings (or not workings) of MMT, it’s proponents and the range of various offshoots and peripheral implications. Importantly, the core tenets of MMT are focussed on the idea that there are two specific market participants (from a governmental and sovereign perspective) of: “Currency Issuers” and “Currency Users”. This is the overarching element that MMT proponents rely upon to support the merits of the MMT world. In short, it states that as a Currency Issuer can simply print all the ‘currency’ it needs to meet the requirements of its citizens.
It is important to note that generally, MMT supporters regard ‘currency’ as distinct from ‘credit’, or ‘bank credit’ which is produced by the banking system in the normal course of trade. Typically, it is accepted by MMT that a large portion of money in active circulation is indeed ‘bank credit’, as opposed to ‘currency’.
There are two further intriguing elements of MMT, both of which are in diametric opposition to how the ‘average person’ might believe economies operate. The first is that we are wrong to regard taxes as the primary source of income for governments, from which they can spend on infrastructure, schooling, hospitals and so on. MMT proponents suggest that, in fact, it is quite the opposite. They suggest that government spending gives citizens the dollars they need to pay taxes, and further, taxes simply remove from the economy some of the currency which was already issued by the government – and this helps the economy “stay in balance”. Yes, you read that correctly. So, taxes are not what a government should use to provide services, but rather, services are provided to supply tax dollars to be returned. Did someone say “Magic Pudding” for dinner??
The resurgence of MMT in recent years has been closely tied to many of the more extreme left movements finding traction within western economies, particularly the US and UK. The likes of Alexandria Ocasio Cortez of the US Democrats, and Bernie Sanders of the US Democrats are joined by the ‘Corbynites’ of UK’s Labour Party in suggesting that MMT is a sound foundation to support many of their proposed initiatives including the ‘Green New Deal’.
It should be noted that the UK’s Labor Party has deftly sidestepped any official commitment to MMT as an election winning platform. Interestingly, the Marxists and die-hard socialists seem to denounce MMT, although not for reasons of financial prudence and austerity, but rather it is a useless tool designed only to barbarise a sovereign currency, rather than demolish the entire capitalist system as a whole.
A very insightful viewpoint can be found here: https://www.socialist.net/marxism-vs-modern-monetary-theory.htm – although we’ve extracted one of the more poignant points to help readers understand MMT’s position in the world, according to the hard-left: “The aim of the left, therefore, should not be to strengthen the money system, but to abolish it. Implementing MMT’s policy conclusions might end up destroying the value of a currency, but it will not put an end to the power of money. This can only be done by abolishing the system of commodity production and exchange out of which money has historically arisen.”
The looming threat of inflation is almost universally touted as the deal-breaker for MMT’s effective implementation. The fact that Central Banks around the world have effectively flooded capital markets with money supply in recent years, and inflation is nowhere to be seen, is a conundrum that perplexes commentators on the conservative side.
Inflation, at its root, is caused simply by demand outweighing supply. Simple as that. Many argue that the economy has been in terrible shape for so long, that the ‘papering over’ of failing economies with concerted tsunamis of currency creation has hidden the true danger. We now all swim amongst an unimaginable sea of debt, with almost no possibility of ever being able to repay. Proponents of MMT suggest that all is fine, and indeed this is the natural order of things.
There is one element of this argument that is of concern to many. That is, the effective relocation of limited resources from the private sector to the public sector is a worthy and reliable long-term position. If one believes that available resources should effectively be put in the hands of the governments, rather than the dynamic and self-interested direction of the collective citizenry, then MMT may just work.
There is a wonderful piece written by the Australian Broadcasting Corporation’s Gareth Hutchens, which you can read here.
For those more capitalistically minded, the Cato Institute offers a counter argument which can be found here.
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