[Discussion] Modern Monetary Theory

Disclaimer: I am not an economist, but I took some classes in college. I have been reading and learning about MMT for several months.

What is Modern Monetary Theory?

MMT is a framework, or lens, on how to view the monetary operations of a government that controls its own fiat currency, like the US, or UK, or Japan, etc. It is a description of how things work in practice and a predictor of outcomes for certain behaviors. It is NOT a policy prescription, or a magic solution. It doesn't say what we should do, but it makes clear what the lies are, and makes some suggestions as to what's possible.

The basics:

  • A fiat currency itself is a simple public monopoly.  
  • The US government levies taxes payable in US dollars.
  • The US dollars to pay those taxes or purchase US Treasury securities can only originate from the US government and its agents. 
  • The economy has to sell goods, services or assets to the US government (or borrow from the US government, which is functionally a financial asset sale) or it will not be able to pay its taxes or purchase US Treasury securities. 
  • Governments that control their own fiat currency can never become insolvent, because they can always print more of that currency.
  • Government monetary operations are nothing like a household budget, and shouldn't be talked about like one.
  • Currency enters the economy when it is spent or loaned by the government, and taxed out later.
  • That currency is created by plussing up a number in a spreadsheet, it doesn't come from anywhere.
  • Deficit spending increases the balance of savings accounts in the private sector and public agency funds.
  • Governments set the value of their currency by the prices they are willing to pay to procure their resources, and the tax burdens they levy to create demand for that currency.
  • Deficits are not "leaving a burden on our children" because they don't have to actually be paid off, and we could pay it off at any time by printing the money and editing the spreadsheet.

Getting Started:
White Paper
Soft Currency Economics by Warren Mosler
Seven Deadly Innocent Frauds by Warren Mosler

The Deficit Myth by Stephanie Kelton
Modern Monetary Theory and its Critics

The MMT Podcast



I love this thread.

Wish I had time to dig into Aetius's responses, sorry. But thanks for posting. It's interesting to see the more traditional school's critiques.

And bear in mind that while MMT is on one fringe of current economic theory, Aetius at least flirts with the other fringe. The stuff I posted lies in the middle of the two extremes, somewhere on the modern New Keynesian side. (Which makes sense as the Saltwater school won the historical debate since the 70's - 90's policy domination of the Freshwater economists, as the latter's predictions of market behavior repeatedly failed over time and did not account for irrationality in the markets.)

Finally finished my taxes (irony?) and a few other house projects, so I might finally get some time to sit down and go through Aetius' interesting posts. At least I was able to update the Original Post a little bit and format it better.