Does Anyone Actually Know What MMT is?

As many regular readers know by now, I had a rather public falling out with MMT earlier this year leading to the creation of Modern Monetary Realism.  This was in large part due to disagreements over the Job Guarantee and the fact that many MMT founders said you can’t have MMT without the Job Guarantee (JG).  Specifically, Bill Mitchell said the JG was “central” to MMT.  Pavlina Tcherneva then wrote a piece at the MMT website asking if the JG was “crucial to MMT” in which she said:

“The JG is not just an afterthought to MMT but a crucial component that has so far offered the most coherent counter-cyclical economic stabilizing mechanism.”

It became clear that MMT was a macroeconomic theory that offered comprehensive solutions to price stability and full employment with the JG being the “most important policy proposal” (Wray’s words) in achieving this.  If you believe in unemployment buffer stocks you weren’t working under the theoretical framework that has come to be known as MMT.  So you can see how some of us find it odd that Randall Wray, an MMT founder, wrote a piece yesterday directly contradicting the comments of his founding colleagues saying:

“So, can we have MMT without a JG? Certainly!”

What makes this comment even more bizarre is that Wray wrote a piece earlier this year confirming that Mitchell’s comments were right and that price anchor (JG) was something we “need”:

“Bill’s post led to a bit of a scuffle over what is actually in MMT—with Cullen arguing that the Job Guarantee cannot be a component, while Bill insisted that it mustbe. Warren has sided with Bill and written very persuasive comments arguingthat we need the price anchor.”

So earlier this year MMT included the JG and this fellow named Cullen was wrong.  But the MMT of today doesn’t include the JG and this fellow named Cullen appears to have been right?  So the obvious question is – does anyone actually know what Modern Monetary Theory is?

About

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering asset management, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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I'llHaveADouble
4 years 7 months ago

To me – just an interested outsider – the crucial components are:

1 Money is created by spending, destroyed by taxing.

2) In practice, it doesn’t matter how deficits are financed.

3) Monetary policy is the following: setting the upper boundary of the overnight rate with the discount rate; setting the lower boundary with the interest paid on reserves; if it so chooses, setting upper boundaries on rates for government assets of any maturity; and determining the quantity of reserves in the banking system.

4) Monetary policy stops working terribly well at the zero lower bound unless the central bank is buying things like new goods and services instead of government bonds. At that point, “fiscal” and “monetary” policy dovetail together, revealing the joint nature of the Treasury and Federal Reserve.

5) Sectoral balances matter, and government deficits help the private sector amass assets and feel less like the sky is falling.

6) Nominal shocks can and should be countered by fiscal policy.

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Erik V
4 years 7 months ago

Cullen,

I think you’re right on about MMT not being a coherent theory, and additionally not politically possible in our lifetimes. I think there is a huge a opporunity for MMR to become the economics of the future, combining the best elements of the left and right and some of our own. We need a plan to share the knowledge more, and get MMR into the mainstream. We need to continue to infiltrate mainstream outlets like we did with John Carney at CNBC. Then take over think tanks, university econ departments, etc, until finally the politicians wake up to reality and we can actually start implementing rational policy.

Guest
studentee
4 years 7 months ago

lots of delusion on this little blog, but this takes the cake

Guest
4 years 7 months ago

It’s problematic when you try to define MMT. There is no official that declares what is or is not MMT. So everyone can have a different view… and be right!

That said, one objective of MMT is to get the operational realities of the monetary system right, correct accounting logic of real world transactions, correct tactical knowledge on how to achieve ends for a monetary regime, You need that in order to have an honest framework for discussing policy or you come up with bad conclusions (like the federal government will go broke).

Like all engineers, they have ideas on what policy they’d like to see to optimally achieve certain ends. This is where the developers differ somewhat, and is the cause of your post.

They all build on Minsky, who used a stylized model of the economy that centered around financial instability inherit to capitalism. Given this “feature” of capitalist economies the MMTers want the government to do something to prevent depressions and hyperinflations. They see existing macro-policy as having failed achieved its aim of price stability and TRUE full employment, true as defined as everyone able and willing to work able to find a job. You see economists haven’t figured that one out, so they redefined unemployment as NAIRU.

There are some conservative MMTers such as yourself who don’t like the Job Guarentee, there is room for disagreement in MMT over what government should or shouldn’t do for the people living under a given economy, but the debate won’t be an honest one unless both share a proper understanding of our monetary system.

Guest
AK
4 years 7 months ago

Upon reading Wray’s article, it really doesn’t sound like he’s saying anything new.

He’s clearly saying that MMT still gives useful insights even when a JG isn’t implemented.

But the MMT position is, and always has been, that NOT implementing a JG is a bad policy choice.

It’s just the standard MMT position, nothing new.

Guest
JK
4 years 7 months ago

Whether the JG is integral to what “is” MMT is indeed confusing. Who knows what they will ultimately decide, or if there will ever be a consensus. Such is the nature of language and how we categorize. Pluto used to be a planet, but not anymore.

I hope if Wray & company ultimately decide that the JG is not integral, that they take the time to explain why they previously argued that it was but now no longer believe that.

Back to the point of language and categorizing: would it be considered a JG if instead of providing employment for any and all willing and able unemployed workers… the U.S. government instead subsidized training and schooling?

What “is” gets tricky.

Guest
AK
4 years 7 months ago

As to your second point about training and schooling – I don’t think that would count as a job guarantee of any sort, because ostensibly you wouldn’t be getting paid for training – you would simply be paying less than you otherwise would thanks to the government subsidy. Therefore you still return to your first position, that the unemployed remain unemployed.

Not saying the training subsidy is necessarily a bad idea – just saying that it doesn’t necessarily do anything for unemployment caused by an output gap.

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JK
4 years 7 months ago

Ok, so what if the U.S.Gov actually paid people to get training and schooling? (bare in mind I realize this would then require the U.S.Gov to subsidize all education).

Guest
AK
4 years 7 months ago

I suppose that would semantically fall into the category of a guaranteed job. However, I think that there are plenty of jobs that would instantly add value -> production ->, which aids the JG’s role as an automatic stabiliser. Those should be targeted first. This is all implementation, really.

But like I said, I’m not necessarily against training, where there exists a clear and obvious need for it and a bottleneck exists. This could be dealt with by way of subsidy and other programmes quite separate (and more politically palatable) than a JG.

Guest
AK
4 years 7 months ago

Yes, I agree with your observations on language.

All a theory “is”, is the body of work that has been written on that particular subject by its exponents. Since the JG has featured as a part of MMT from day one, it’s hard to see how it can not be a central part of MMT now or in the future.

Even if all the MMT writers decided that they didn’t like the JG anymore, it would still make more sense to then start writing under a new banner, as this site has decided.

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