A critique of Modern Monetary Theory (MMT)
This paper excavates the set of ideas known as modern monetary theory (MMT). The principal conclusion is that the macroeconomics of MMT is a restatement of elementary well-understood Keynesian macroeconomics. There is nothing new in MMT’s construction of monetary macroeconomics that warrants the distinct nomenclature of MMT. Moreover, MMT over-simplifies the challenges of attaining non-inflationary full employment by ignoring the dilemmas posed by Phillips curve analysis; the dilemmas associated with maintaining real and financial sector stability; and the dilemmas confronting open economies. Its policy recommendations also rest on over-simplistic analysis that takes little account of political economy difficulties, and its interest rate policy recommendation would likely generate instability. At this time of high unemployment, when too many policymakers are being drawn toward mistaken fiscal austerity, MMT’s polemic on behalf of expansionary fiscal policy is useful. However, that does not justify turning a blind eye to MMT’s oversimplifications of macroeconomic theory and policy (Read full paper here).
February 9th, 2013 at 9:40 am
I haven’t read all your papers on MMT.
I have read this one.
I’m no expert in predicting the political or economic outcomes from implementing MMT policies. Yes, MMT does have a political component as proclaimed by the MMR crowd.
As to the ‘newness’ of MMT ideas, or even the labeling of such ideas, is this really worth debating? Not sure if you’ve read Wray’s books as he has spent much time trying to prove the ‘oldness’ of these ideas. The pedigree is important in issues of intellectual development, so the whole idea MMT is new seems to be misdirected. It is quite possible MMT offers no new ideas, just the repackaging old ones in a simple, useful manner.
The ‘newness’ issue sounds like sour grapes.
In regards to ‘frictions’ that are ignored by MMT. It is true, there are a lot of old ideas that lack a good theory of explanation. Is MMT really ignoring the ideas you point out or just saying these frictions are overblown in most circumstances? the idea these frictions exist are instead used to justify little or no action.
The ‘frictions’ issue sounds like fear or a conservative reaction to the unknown. As you likely already know, MMT would say a properly structured ELR will address your friction concerns including income distribution.
I’ve not followed the MMT vs. MMR debate as closely as I probably should, but given their desire to do away with the ELR, this paper might have been better directed at MMR.