Tag Archives: Modern Monetary Theory

Inside Modern Money Theory: Our Route to Full Employment and No Debt

By Rollo Martins
Cross Posted from PolicyMic.com

America has a tool that millennials can — and should — use to trump all the negatives that are piling up at their doorsteps (the high unemployment, international competition, and all that college debt). This tool is called the U. S. dollar, which aligned with a fiscal policy designed for growth and prosperity, would eliminate their debt and give them full employment for the remainder of their lives.

A sea-change is occurring in economics and the University of Missouri-Kansas City is leading the way. Combining a fiscal policy geared toward prosperity and growth with a new understanding of what fiat currency means for the country, the economists there are touting what is being called Modern Money Theory. MMT turns traditional neoclassical economics on its head: Instead of tax then spend, it’s spend then tax. In other words, we can spend whatever we want. (But I oversimplify: There is still inflation to worry about.) This is all great news for the country, and for the millennial generation in particular.

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Some Thoughts on the Dual Mandate: Right Goals, Wrong Agency?

By Stephanie Kelton

The statutory objectives for monetary policy known as the “dual mandate” were imposed by Congress as part of the the Federal Reserve by Act of 1913.  The mandate charges the Federal Reserve with responsibility for achieving two broad macroeconomic goals: “maximum employment and stable prices.” Much has been made (especially by those on the left) of the benefits of having a dual mandate.  In contrast to the European Central Bank, which operates with a single mandate — price stability — the dual mandate is supposed to ensure a more balanced outcome in the public’s interest.

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Doctrine of Mathematical Impossibilities

By J.D. Alt

There’s a joke about a farmer and his pig. The pig is covered with a patchwork of large and small Band-Aids. A puzzled visitor asks the farmer: “Why is your pig covered all over with Band-Aids?” “Well,” says the farmer, “obviously, I can’t butcher him all at once: if I cut out too much he might die—and then I’d soon have nothing to eat.”

Most people who hear this joke chuckle to themselves (in a sickly way) because they intuitively realize the absurdity of the farmer’s misunderstanding the true nature of his resources. It is exceedingly odd, therefore, that most of these same people find it difficult to understand that our political and economic leaders—and the mainstream media that covers them—view the U.S. economy with exactly the same logic as the farmer views his pig. 

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An MMT vs Austrian Debate Post-Mortem Part V of V: Coda

By Rohan Grey

[Part I] [Part II] [Part III] [Part IV] [Part V]

So there you have it. As far as I can tell, Murphy effectively conceded that the Austrian School’s economic analysis is inapplicable to contemporary policy discussions that assume as a pre-condition the basic features of our existing monetary and political system.

Instead, the substantive contribution of the Austrian school to contemporary economic debates lies in its normative critique of representative government and public law, and its attempt to provide a practical blueprint for a post-revolutionary economic system based around an absolute respect for private property rights above all other values.

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An MMT vs Austrian Debate Post-Mortem Part IV of V: The (Legal) Extension of the MMT Case

By Rohan Grey

[Part I] [Part II] [Part III] [Part IV] [Part V]

Don’t be confused by surfaces; in the depths everything becomes law.”
- Rainer Maria Rilke

As noted at the end of the previous section, I found the debate engaging but ultimately frustrating, as Murphy’s critique of the coercive nature of our modern monetary system, while morally seductive, begged the question: “Ok, but what is your alternative?”

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A Plan for All the Detroits Out There

By Marshall Auerback, Stephanie Kelton and L. Randall Wray

Should the federal government bailout Detroit?  That’s the question everyone is debating.  We think the discussion should be expanded well beyond this narrow question.  Detroit is the canary in the coal mine, but it’s symptomatic of a bigger problem, which is the lack of jobs and decent demand in the economy.

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An MMT vs Austrian Debate Post-Mortem Part III of V: Democracy, Taxes, and the Currency Monopolist

By Rohan Grey

[Part I] [Part II] [Part III] [Part IV] [Part V]

As mentioned at the end of the preceding section, Murphy’s major outstanding critique of the MMT analysis was that it presumed the existence of a state with a currency monopoly by virtue of its taxation power – or, as Murphy’s described it, MMT was “in favor of robbing liquor stores” in order to ensure a demand for its currency. In my opinion, this critique was underdeveloped, since it did not articulate why the problems identified were worse than the problems of any other feasible system.

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An MMT vs Austrian Debate Post-Mortem Part II of V: Monetary Operations vs. Political Economy

By Rohan Grey

[Part I] [Part II] [Part III] [Part IV] [Part V]

As will be clear to anyone who watches the entire thing, there was very little clash by the end of the debate on the operational mechanics of the modern monetary system:

Murphy: In particular, what makes the Austrians different from other schools of thought, even other nominally free market schools like the Chicago economists – Milton Friedman, guys like that – the Austrians have a very particular view of what interest rates do.

So the Austrians say “look, the interest rate is a price, and in that respect it is like any other price – it communicates information about the real world. It’s not an arbitrary number – it really means somethingand if the market interest rate is supposed to be 7 percent and the Federal Reserve makes it 0.25 percent, that’s going to screw things up.

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An MMT vs Austrian Debate Post-Mortem Part I of V: Preface

By Rohan Grey

[Part I] [Part II] [Part III] [Part IV] [Part V]

[If you are interested only in the substantive analysis of the debate, skip directly to Part II]

On July 4th, the New York Times published a profile written by economics journalist Annie Lowry on former hedge fund manager and maverick economic theorist Warren Mosler. The school of thought Mosler subscribes to, known as “Modern Monetary Theory” or “MMT,” has been covered by a number of journalists (see, e.g. here, here, here, and here). MMT purports to combine insights from a range of historical monetary theorists with an understanding of contemporary monetary operations to construct a progressive meme for money that drastically differs from most standard economics textbooks.

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Former Deputy Secretary of the U.S. Treasury Department Endorses Modern Monetary Theory (MMT)

By Stephanie Kelton

Three months ago, Frank Newman sent me a book entitled Freedom From National Debt.  I finally got around to reading it — all 89 pages.  It’s a little book, packed with evidence that America is being held back by incorrect assumptions and misguided fears about the national debt and government finance in general. Here’s the takeaway:

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