Abstract
Modern Money Theory (MMT) has attracted a great deal of attention and a large number of adherents in recent years. Also sometimes called Modern Monetary Theory, the doctrine’s appeal has largely come from its argument that governments that issue their own sovereign currencies do not have to pay for government expenditures—their central banks can simply create money. Mainstream and heterodox critiques have questioned the theoretical bases and the practical viability of this program. This chapter introduces my critique of these policy proposals based on their limited applicability, their possible dangers for developing countries, the advocates lack of attention to empirical evidence, and the dangerous political message it sends to progressives, among other problems.
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Notes
- 1.
For MMT’s recent popularity among some progressive politicians, see Guida (2019) and Holland and Bosesler (2019). Among the recent well-known mainstream economic critics are Lawrence Summers, 2019, Fed Chair, Jerome Powell (McCormick 2019) and Rogoff (2019). Doug Henwood has recently criticized MMT from the left (Henwood 2019) while James Galbraith has come to MMT’s defense (Galbraith 2019). For important contributions to the earlier, more academic, theoretical debates, see Mehrling (2000), Palley (2015a, b, 2019a, b), and Lavoie (2013). Wray (2012), is a classic presentation and defense of MMT.
- 2.
- 3.
I use the term “orthodox Keynesians” here to refer to economists who actually read and tried to implement Keynesian ideas, as opposed to the neo-Keynesians like Hicks, Samuelson, Solow, Tobin, Summers and others who adhered to a neo-classical version of Keynesianism. Joan Robinson referred to their economics as “Bastard Keynesianism” (Robinson 1974; see Crotty 2019 for a brilliant analysis of Keynes’ economics).
- 4.
Very recently, a key bloc of former mainstream Democratic economist budget hawks in both the Clinton and Obama administrations, have begun to argue for a “new approach” to fiscal policy which is, for the most part, an implicit acknowledgement that the post-Keynesian and heterodox economists have been right about these issues (though they would not admit as much) (Blanchard and Summers 2017; Blanchard 2019; Furman 2016). I will discuss these ideas further below.
- 5.
Wray and other MMT theorists say that their main influence is Hyman Minsky, not Abba Lerner. To be sure, Wray and others have written extensively about Minsky and his work is important for them. But, as I argue later, there seems to be little relationship between Minsky’s work on credit, financial cycles and the need for financial regulations and MMT’s macroeconomic policy analysis. This is an important issue that I address below.
- 6.
- 7.
See the references in footnote 1 above.
- 8.
A lot of the advocacy has been for employer of last resort policies and there has been more of an institutional and empirical discussion of this issue in the literature. My focus, however, is on the fiscal and monetary policies advocated by MMT. Here there has been almost no empirical and institutional discussion.
- 9.
I am aware that there is a debate within MMT circles about whether MMT should exclusively focus on “descriptive” issues or should also address “normative” ones (Wray 2012). Galbraith (2019) defends MMT, for example, by arguing that it is mostly a descriptive theory, not a policy one. My book focuses on the validity of key policy and political messages of MMT so I focus on the normative claims. For a summary of these, see Wray (2012, chap. 6). In this book I will not address various doctrinal or theoretical issues concerning the nature of “sovereign money,” the role of money vs. credit, and so forth, except insofar as these address the specific focus of the book.
- 10.
See, for example, Wray, pp. 112 and 189, and my discussion below.
- 11.
- 12.
See Wray’s cursory mentions on pp. 139, 211, 216. William Mitchell is the main MMT economist who discusses capital controls as a way of protecting developing country macroeconomic autonomy. I discuss Mitchell’s contributions later.
- 13.
See Wray’s claim on p. 72 (Wray 2012).
- 14.
A recent working paper by Nersisyan and Wray (2019) acknowledge that large programs like “A Green New Deal” are likely to have to be “paid for,” though they do not use that terminology.
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Epstein, G.A. (2019). Introduction: Strange Bedfellows and the Rise of Modern Money Theory. In: What's Wrong with Modern Money Theory?. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-26504-5_1
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