Monetary Realism

Understanding The Modern Monetary System…

Things We Never Said…

I am a little surprised by the backlash over the work we’ve been doing on S=I+(S-I).   Several of the MMT founders have been out in force in recent days downplaying our comments and claiming that we think we provided some “smoking gun” debunking MMT (something we never said).  I believe MMTers are overreacting to a critique and what is in fact just a clarification….But let’s set the record straight on a few things since MMR is getting dragged through the mud here on other websites.

MMTer Neil Wilson has accused us of being “supply siders” because we believe the economy should be ultra productive.

What we really say: the economy is made up of producers AND consumers.  There is no such thing as “supply side” being “right” or “demand side” being “right”.  They are two sides of the same coin.  MMR acknowledges the reality that production ultimately plays an important role in helping to grow the coin, but we by no means take the supply side position that supply creates its own demand.  In fact, we broadly acknowledge the powers of government and the fact that the government can help bolster economic growth through deficit spending.  In fact, the very first story here at MMR was about the TC Rule, which currently calls for substantially larger deficits.  So I have no idea where anyone could possibly get the impression that we are “supply siders”….Are we balanced?  Yes.  Do we believe government can be used in very positive ways?  Yes.  Do we believe production matters?  Yes.  Do we believe demand matters?  Yes.  Do we believe in supply side and trickle down economics?  Absolutely not.

MMT Founder Randall Wray later laid into MMR in an interesting piece on the NEP website.  Among the various mischaracterizations:

“Here is what the MMR folks claim about it:
“Hence, our focus on S=I+(S-I) with the emphasis on the idea that “the backbone of private sector equity is I, not Net Financial Assets.” The idea is not novel, but simply clarifies the understanding of the private sector component.”

The equation is attributed to the “brilliant” analysis of some JKH—who is roundly praised by all those at MMR for coming up with the smoking gun against MMT and Godley’s sectoral balance approach.

This is the fundamental MMR equation that proves MMT wrong? The thing in parenthesis is excess or “net” saving. It is supposed to be eye-popping and revelatory, indeed, revolutionary in the deep meaning it exposes. It says that household saving is equal to investment plus the excess of saving over investment!”

The last sentence in the quote he uses is “The idea is not novel, but simply clarifies the understanding of the private sector component.” But then he goes on to argue that we claim to have found the “smoking gun” that “proves MMT wrong”?  This is precisely why this argument has been so blown out of proportion.  A simple clarification is being viewed as something that we never claimed it was.   It’s almost as if Wray didn’t even read the quote he used to prove (?) his point.  The reality is that MMTers have been unclear at times about the sector balances position and it created confusion for many readers.  All we did was clarify the position.  I don’t know why that is a bad thing?  We certainly don’t claim to have debunked MMT over a simple rearrangement of a basic equation….

He later says we ignore private sector debt even though it’s at the very core of the point we’re making here:

““Ok fine. But note that if the household sector continually ran deficits against the business sector (even with the private sector in balance) we could still get into trouble—and get a Minsky-type debt deflation simply because households cannot service their debts to firms. And also note it does no good to go the other way: what if firms went increasingly into debt against the household sector? Yes, they could get into trouble if gross income flows were not enough to service debts.

But MMRers ignore that as they jump to the conclusion that it is perfectly fine if the business sector’s deficit exceeds the household sector’s surplus—so the private sector taken as a whole is running a deficit.”

In fact, private sector debt is the essence of my entire macro framework from the last 5 years – the balance sheet recession.   If anything, MMRists are OVERLY concerned with private sector debt levels.  We have never stated that it’s “perfectly fine if the business sector’s deficit exceeds the household sector’s surplus”.  I find it practically incredible that Wray begins his piece discussing the importance of “fact checking” when it’s clear that he has almost no idea what our positions are and has clearly done close to zero research on what we’ve published.  But he’s lashing out in what reads as a highly emotional and irrational response in a need to defend MMT against any and all criticisms….

Personally, I think the whole MMR vs MMT thing is getting blown way out of proportion.  MMR and MMT disagree on some pretty major points, but in the end we agree on a whole lot more than we disagree about.  That doesn’t mean we’re going to be traveling the same paths together at all times, but disagreements will arise and I just hope that we can discuss these important topics in a way that removes the personal aspects and blatant mischaracterizations so that we can focus on helping readers better understand the monetary system.


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.

View all posts by

130 Responses

  1. AWK says

    Cullen Roche
    I’ve really stopped caring what MMTers think. They burned this bridge and then came back and nuked it. MMTers never wanted to share the spotlight with me so now I am perfectly fine shining it very brightly on them.


    I’m having a bit of a problem reconciling your statement above and those since with this “apology” from you:

    I’ve been reading a lot of posts on other sites about you and MMR and I now understand why you feel unfairly attacked and mistreated. (Since you told me you didn’t want to rehash it and provide links after my inquiry at Pragcap). However, because I see much promise in your future and ability to change things for the better, I’m writing this to you to beg you to find a path above the fray. Learn to be patient and know when to keep your mouth shut or keyboard silent. Don’t assume that any bridges are burned and take no actions to make it worse. Always keep out a hand of peace and reconciliation. If your adversaries want to behave like asses let them. You don’t have to respond to every other slight. Perhaps let your surrogates fight the nasty battles with no upside instead of you, when necessary.

    You’re an impetuous young man and a bit thin-skinned. I’ve seen far worse schisms and fights and people treated worse than you who later healed the breach and later became friends and allies. To be frank, I think sometimes your counterattacks have also been over the top and you get too prickly with innuendo and martyrdom. Your treatment of Joe Firestone above is an example of you far from your best. IMO he clearly put out the olive branch to you and you were pretty cold verging on rebuke, It appears you took a very brutal interpretation of what he said and distorted it into a quotation he never apparently uttered. Bury the hatchet with him and any others where you’ve been so impetuous.

    Remember the saying “the best revenge is living well”. Maybe an even more pertinent saying here would be the best revenge is being proven right. I remember when I was about your age I invented something I thought could save many lives and make a lot of money. I fought to develop this invention against some severe headwinds, in particular, one major Japanese company went out of their way to say the invention would never work and went after me publicly as I sought funding and support. I even discovered some borderline illegal maneuvers on their part and wanted to make a very public spectacle that may have led to lawsuits. I wanted to explode. I was very fortunate to have a wise mentor who helped me navigate those dangerous waters where I would have drowned. He helped me enlist others to neutralize my enemies when necessary while I remained above the fray and developed the invention. Ten years later, it was this very Japanese company in a bidding war that bought my patents. I can’t tell you what an awesome feeling that was and if I’d burned my bridges it never would have happened.

    Cullen, if you haven’t already, please think deeply about what you hope to accomplish with MMR and what type of leadership/ spokesman role you wish to develop in the future. If you just want to have a cool website hashing out some ideas that’s fine. If you want to have a major say in the public arena that enables your influence to profoundly guide public or private education and policy some day that’s a different ballgame. If you’re not sure, don’t foreclose on your future potential by burning bridges and getting drawn in to petty arguments.

    In you, I see the potential to go far. You don’t see me writing similar critiques to Wray or Mitchell because I don’t see them having what it takes to really break through to the big time. I don’t even think Mosler has what it takes (he’s a dull speaker) which is too bad since he’s super sharp and the logical founding leader.

    You’re young, impetuous, and immature. But you’re also very smart, driven, presentable, hard-working, and passionate about what you believe in and I think with some seasoning you will come out on top.

  2. AWK says

    I just hope your underwear is clean Cullen. Does currency defacement with streakmarks reduce its value?

  3. Cullen Roche says

    Look, I have zero interest in having this same debate with MMTers once every few months. It’s my opinion that there are enormous holes in the premise for the JG. If you want to read my opinions then see below. But I can’t be having this same debate with MMTers once a week. You guys will never change your stance so there’s no point arguing with you.

  4. AK says

    1) Well if we agree it doesn’t “require” the monopolist argument lets just leave that out of these debates.
    2) I’ve already said that there’s no particular reason why specific jobs must be permanent.

    3) Here is where I feel the crux of our misunderstanding/disagreement is.

    Of course implementing a jobs programme would be a massive undertaking. And thus, like any large human undertaking, it could conceivably fail due to poor implementation. I don’t think any serious MMTer has ever ignored this fact. Even Mitchell has said things along the lines of “the JG may well fail because no-one shows up”.

    But a failure of implementation is not a failure of theory. There are 1001 reasons why an internal combustion engine could fail to operate. Every single one of those reasons has to do with implementation, and none have to do with the theoretical basis of the combustion engine itself.

    Same with JG. The job guarantee is central to MMT not for political reasons, but because of the simple MMT observation that a labour buffer stock is always required in the current monetary system. Following from that, MMT sees a clear advantage in making the labour buffer stock as productive as possible, and hence insists that they should be paid more to do something instead of less to do nothing.

    Like the internal combustion engine, the above thinking is sound. And that is precisely where MMT stops. Implementation could well fail. But MMT says nothing about implementation.

  5. Cullen Roche says

    Yeah, I guess I am walking down the middle and getting battered by both sides….The right calls me a socialist. And the left calls me a neocon. Cant win. Oh well.

  6. BT says

    In a booming economy, where there is demand-pull inflation, govt deficits create credit and therefore push inflation higher than it otherwise would be. This causes interest rates to rise in response to higher inflation. Higher interest rates discourage private sector borrowing/credit creation (mainly mortgages).

    In a slump, where there is private sector deleveraging and a lack of demand-pull inflation, govt deficits restore credit growth and GDP growth without triggering higher inflation.

  7. Oilfield Trash says

    “Liberals and Conservatives are childlike: they refuse to make trade-offs, since these require analysis, judgment, sacrifice and maturity. Those who want everything packaged into a neat ideological bundle, “liberal” or “conservative,” are often disappointed.”

    We used to be more mature on how we framed our political differences and cared mored about getting it right and less about winning. I remember in the past you could walk down the middle more and not get run over, for now those days are gone. You have to pick a side before you can get into the debate.

  8. Ramanan says

    Luigi Pasinetti wrote in “Keynes And The Cambridge Keynesians”:

    Joan Robinson’s flirtation with Marx is very curious. It has all the charm of a meeting and all the clamour of a clash. She is no doubt attracted by Marx’s general conception of society. She finds in Marx much which she approves of. But she finds his scientific nucleus embedded in and in need of being liberated from ideology. To obtain this, she says, one must work hard. Her writings on Marx are specifically aimed at “separating the wheat of science from the chaff of ideology”. Needless to say, this has caused her a lot of trouble with the Marxists. It should be kept in mind that in continental Europe, discussions on Marx have a long and complex tradition of philological heaviness and ideological passion….

  9. Cullen Roche says

    Thanks Oilfield. I’ll be careful panning in MMT waters though. I thought the political right was tough, but man. I’ve met a whole new animal in the political left in recent months….

  10. Oilfield Trash says

    Fair enough but just be careful what streams you decide not to pan for nuggets.

    I actually am glad you choose to take this fork in the road. I think the horizontal level is much more dynamic and interesting than the vertical. As I have posted before

    MMT focus on the origin of money might cause some (me included) to ask does it matter, and make a reasonable argument that it is not a important issue; since the limitations relevant for the origin of something (eg, airplane) might not affect what it evolves into (eg, rocket flight).

    Hopefully MMR will be more interested in what Modern Monetary systems have evolved into and less of their origins. Of course understanding the differencing between an airplane and a rocket will require alot of heavy lifting.

  11. Cullen Roche says

    I’ve really stopped caring what MMTers think. They burned this bridge and then came back and nuked it. MMTers never wanted to share the spotlight with me so now I am perfectly fine shining it very brightly on them.

  12. Oilfield Trash says

    Economists from different schools behavior towards each other often is boiled down to the following.
    1. Disagree over fundamentals
    2. Argue past each other
    3. Dispute the facts
    4. Fail to communicate because of different assumptions or different definitions of the same terms. This is why in the physical sciences math plays such an important role. The proof that 1+1=2 is accepted by all. S=I+(S-I) goes from a clarification (purpose) to a smoking gun rebuttal of MMT (interpretation).
    5. Impossible to decide best theory by appeal to facts
    6. Academics often talk of bying thick skinned but in reality have very fragile elitist egos. Meaning if you do not have a PHD you cannot play in my sand box.

    When I read the CNBC story and saw

    “The problem with constantly thinking in terms of a consolidated …. If all this just “nets out” to you and is therefore uninteresting, you aren’t really doing economics at all. You are doing something else that may be interesting but it isn’t economics. It isn’t a new economic perspective or heterodox economics or any kind of economics at all.”

    I do not understand how anyone would not think a strong response would not be forth coming. After all John basically told MMT’ers that what they were doing was not economics, which if as an economist you build your career around such things you might take it a little personal causing you to overreact (see note 6).

  13. Ramanan says

    Yes it was humorous being called supply-sider by Wilson. You explained your position well in your blog.

  14. Cullen Roche says

    I actually find you most reasonable Bob. Can’t say the same about all of your colleagues, but it’s unfair of me to generalize. At least you stick to the facts. I don’t know if you get all the facts right (at least in my opinion!), but you do stick to your facts…. :-)

  15. Bob Roddis says

    Oh, come on now. There’s nobody worse than Austrians:)

  16. Cullen Roche says

    Interesting. I find it humorous how people go all in on supply side or demand side. Even an amateur economist would understand that they’re two sides of the same coin. As if one is the holy grail….Of course, MMTers have gone out of their way to pin us as supply siders and republicans because they’re on the opposite side of the political spectrum and feel the need to marginalize us because they’ve marginalized themselves by being so extreme in their politics….But whatever. I’ve stopped caring what MMTers think. They’re worse than Austrians.

  17. Ramanan says


    Slipped out of my mind yesterday.

    There’s an article titled “Kaldor And The Kaldorians” written by John E King in the book “Handbook Of Alternative Theories Of Economic Growth”

    and he says that Kaldorian policies are sometimes called “supply-side Keynesianism” !

  18. Not an Economist says

    VERY well said…

  19. Not an Economist says

    “Anyone familiar with Pragcap knows that I run a tight ship over there, but try to keep a very open mind and fair approach to commenters.” – I agree (been a regular reader for more than a year now)

    “Everyone gets a chance to posit their opinion, but no one is allowed to insult or get out of hand.” – I agree

    “This is not a healthy way to debate, spread a message and teach.” – I agree

    “I’ll put the clamps down on the conversations here like I do at Pragcap.” – I look forward to agreeing! :)

    BTW, as you know no one (including me) is “forced to read this endless nonsense”, we come here on our own. I just wanted to share one person’s perspective of how DIFFERENT this site is (feels?) vs. Prag Cap. And for me, not different in a good way. I highly respect the work you have done at Prag Cap and look forward to continuing to visit often.



  20. Michael Sankowski says

    This is very good to hear. Thanks.

  21. Ben Wolf says

    I’m sorry but that’s a ridiculous statement. You aren’t here to have an adult conversation, and we aren’t here to humor you.

  22. gyges.h says

    I see you editing your comment and I like what you say, but seriously, don’t sweat it. You’re not dealing with antagonist readers. You’re just dealing with antagonist detractors. Cater to your readers. We’ll sort it out. When you see us not getting it or completely misunderstanding, THEN step in. Until then pick your battles. Save your krebs cycles for thinking, not reacting. This goes to you too, MMT.

  23. gyges.h says

    Like I said this morning, we’re human and it can be hard not to engage. But for what it’s worth, this–I shudder from calling it a debate–this back-and-forth has been illustrative and illuminating to me, and I’m probably not alone.

    I see you (et al) repeating your points over and over, and it makes me wonder why it’s so hard for someone to get what you’re saying–why it’s necessary for you to repeat yourself especially in terms of the JG. But that is a signal to me that you are challenging some really closely held beliefs. I’m not talking about mere intellectual loyalty, I mean challenging cherished beliefs. Where I do wish in my perfect debate unicorn-land that you wouldn’t engage so often and instead just do what you did above and “talk to the hand” by posting a simple link to the *actual* stated positions, I too am a human and as you know from what I wrote this morning I took that Wray piece as sort of a hit piece (and not just on you but on multiple targets) and that sort of “making it personal” makes it very hard not to respond.

    It’s a fine media line. I inserted the word media for a reason. Suppose you just did not answer the mischaracterizations. Some take that as the old legal tacit of judgment nihil dicit (he who does not deny, admits). Well that’s not good in this sound-bite culture–of which the blog conversations we say would at first glance seem to dispel but on a more panoramic view is seen to be still ‘sound bite-ish’, but where in video media someone might have 5 seconds to deny or suffer the default-admission, here in the realm of words it takes more typing to accomplish the same. A picture being worth a thousand, so to speak. So you have to deny. Or so it seems. All of this is perfectly understandable by a media savvy creature like me.

    But I dare you, and I dare the MMT adherents (and I use adhere in the technical sense) to rise above and just ‘talk to the hand’ and plop the link of positions in. LET US, the reading users, sort it all out. I don’t need you or Wray or anyone in between to sort it all out for me. I find a lot of value in the discourse, even the inflammatory moments, but I’m intelligent enough to sort it out between the lines without you having to “hold the line”. Somehow I think it will be easier for you and the other MMR people to do this than the MMT people, for what to me are obvious reasons. Where you (MMR et al) show willingness to admit the other side, I see far more recalcitrant (sometimes apparently intentionally so) behavior from the MMT folk. To someone like me who pays attention to many levels of the debate, this is also very instructive. So take heart, do what you do, don’t sweat the small stuff, and 100 other helpful maxims that might keep you on course.

  24. Cullen Roche says

    1) The whole basis of the JG is built on the monopolist argument. I never said the JG “required” the monopolist argument, but that’s how MMT frames it….

    2) UE benefits in the USA pay about 15K a year. The JG would more than double that. I don’t see how the two are all that comparable? And the fact that we always pay UE benefits is not the same as the job being permanent.

    3) The JG would be the largest bureaucratic undertaking in human history. I don’t see how anyone can say it’s just a different version of UE benefits? It’s apples and oranges. But MMTers nonchalantly discuss the JG like it’s just another govt program….

  25. Cullen Roche says

    It’s funny. I’ve spent 3 years running Pragcap and never run into anything like this in my entire time on the site. And I’ve had some back and forths with the most political people on the planet (or so I thought). I’m generally super tolerant and open minded with readers. Anyone familiar with Pragcap knows that I run a tight ship over there, but try to keep a very open mind and fair approach to commenters. Everyone gets a chance to posit their opinion, but no one is allowed to insult or get out of hand. But being on the receiving end of an MMT attack is like nothing I’ve ever been involved in. Their attack against me following the JG debates (from some of their highest people) was beyond shocking. And frankly, I am ashamed that I’ve engaged them to the extent that I have and dragged myself through the mud….

    Apologies to all who have been forced to read this endless nonsense. Maybe this helps some of you see why we need to distance ourselves from MMT. This is not a healthy way to debate, spread a message and teach. I refuse to be associated with people who approach the world in this manner. And I regret that it’s devolved to this and that I’ve contributed in negative ways. I’ll put the clamps down on the conversations here like I do at Pragcap. This sort of thing can’t happen in the future. Sorry to all the readers out there….

  26. AK says

    1) I have provided a pretty clear step-by-step explanation as to why the job guarantee does not require any use of the concept of a “monopoly” (however one chooses to define it). If you disagree, please point out which specific part of my explanation on the JG required “monopoly”.

    2) Functionally, how is that not the same thing? Under welfare benefits, you are given a claim on resources (money) to do nothing. Under a job guarantee, you are given a bigger claim on resources (money + benefits etc.) to do something. As for JG permanence – I have read nothing in any of the MMT JG literature that says you will be given one permanent role forever under the JG. The literature that I’ve read simply says that there will be a pool of jobs available.

    (As a side note on this point, it may interest you to know that in many Western countries such as Australia, it is already possible to stay on steady unemployment payments forever for doing nothing).

    3) The government is perpetually paying out some level of unemployment benefits so the current buffer is not temporary, it’s permanent – it simply fluctuates in size. That is precisely how the JG is designed to work as well – as a transition mechanism to private sector employment. Most of the literature makes that pretty clear.

  27. Not an Economist says

    I had the opportunity to spend a great deal of one-on-one time with my 3 year old daughter last week as my wife recovered from surgery. It was a great time because my daughter and I grew a lot closer (and my wife is doing well). During the week we spent quite a few days at our local parks playing with all the neighborhood kids. As will often happen when kids play together they squabbled, argued and engaged in name calling despite agreeing on the big picture (playing is fun!). I got back on the web today to engage in some adult conversation and found myself back at the park…

  28. Cullen Roche says

    1. The JG has everything to do with the monopolist argument. If you don’t understand this then you don’t understand MMT.

    2. The govt is not the employer of last resort. Temporary and meager unemployment benefits are not the same as offering anyone a potentially permanent $16/hr job with full benefits.

    3. Again, the govt is not the employer of last resort. You’re just conflating a temporary buffer with a permanent one. They’re not marginally different. They’re totally different.

  29. AK says

    I’ve already mentioned that the job guarantee has nothing to do with a government monopoly on money.

    It has everything to do with the fact that the government ALREADY acts as the employer of last resort when it hands out unemployment payments for a net value-add return of absolutely zero.

    I don’t see how anyone can disagree that the government is already the employer of last resort. Once that is accepted, I think everything else is a rather logical conclusion.

  30. Cullen Roche says

    Gold is money. Then again, my underwear can also be money. Of course, the trouble with money is not in defining what it is, but getting someone else to accept it….