I have read an interesting reports in the last months that demonstrate there is a…
German Bundestag body’s MMT overview exposes the hidden agenda – the population simply can’t be allowed to understand MMT
The Scientific Advisory Department of the Deutscher Bundestag recently (January 27, 2023) released a discussion paper – Modern Monetary Theory – An overview – which really exposes what all the opposition to our work is about. Initially, I was interested to learn from the discussion paper that I was a US economist after thinking all these years that I was Australian by birth and citizenship. Perhaps that error tells you something about the quality and depth of the research effort that the authors undertook. The paper recognises that Modern Monetary Theory (MMT) is “an economic school of thought that has existed for around 25 years” but is hazy on the provenance, ignoring that at the beginning there was Warren Mosler, Randy Wray and myself. Rather interestingly, the discussion paper claims that there is no disagreement among the mainstream as to the theoretical and conceptual elements of MMT. So the mainstream all agree with us now! That is quite an admission. But, as one gets further into the discussion, it becomes obvious that the authors miss the point when they start talking about MMT policies. What their critique of MMT illustrates is that the real antagonism to our ideas is that they might open up wider policy options to the public than the political process cares to admit. Or, in other words, the real problem is that an understanding of MMT exposes the TINA mantra – that allows governments to maintain policies that advance the interests of the few at the expense of the many – as wanton neglect of the responsibilities of government. That exposure, if sustained, would alter the whole policy terrain and challenge the hegemony of the elites. That is what the opposition to MMT is about.
The BDP rendering of MMT
The Bundestag discussion paper (BDP) is in German and I won’t quote the original and then give the translation.
So someone might quibble with my translation but I doubt there are any subtleties that I missed because I am not a native speaker.
The first part of the paper poses the question: “What is Modern Monetary Theory?”.
We learn that they think it is:
1. “MMT combines various theoretical elements” – “Keynes on effective demand”, “Knapp” on state money, Abba Lerner on “Functional Finance and the Federal Debt” – which is a very limited detailing of the shoulders we stand upon. I would have added other writers – Marx, Kalecki, and more – for example.
2. “MMT focuses on the fiscal policy of a sovereign state that provides its own currency” – which is not really accurate. MMT is a framework for understanding the intrinsic capacities that a fiat monetary system bestow on currency-issuing governments and the consequences of using those capacities.
But it also allows us to understand the consequences of not having currency sovereignty – which is the situation for the 20 Member States of the Economic and Monetary Union, of which Germany is one.
3. “The macroeconomic analysis of the economic cycle is based on the balance sheets of various economic sectors. Balance sheets are a description of reality, which is why the MMT should be viewed as a falsifiable empirical monetary theory.”
MMT is stock-flow consistent – which is not a property that mainstream macroeconomic theory possesses.
To be stock-flow consistent, we have to take into account the stock implications of the flow dynamics of the system, which means balance sheets become a topic of focus, rather than being the whole basis of the analysis, as implied by the Bundestag analysis.
4. The BDP attempts to explain MMT within the framing and terminology of the mainstream, which is the common mistake of critical analyses.
The mistake arises because the framing cannot make sense of what actually is going on in a modern monetary economy.
So the MMT departure from mainstream macroeconomics is characterised by the BDP as a difference between assuming “government spending is funded by taxes” (mainstream)” and the alleged MMT assumption that “government spending is funded by money printing”.
This framing takes us into the mainstream ‘government budget constraint’ framework where governments are financially constrained and they can: (a) raise tax revenue; (b) issue debt; or (c) print money – in order to get the resources necessary to allow them to spend.
Once the analysis starts there, an essential insight into fiat currency-issuing governments is lost.
That insight is that the causality is backwards because there is no financial constraint on such a government.
The capacity to pay taxes comes from the income generated by government spending.
If governments spend more than they take back out of the system in taxes (that is, run deficits), then there are net financial assets created in the non-government sector, which provides the wealth augmentation that allows portfolio decisions to be made that include the purchase of government debt instruments.
So government spending comes first in an intrinsic logic sequences in such an economy.
Further, all government spending is made operational in the same way – through digital credits to bank accounts.
There is no – ‘will we use tax revenue’ or ‘will we issue debt’ type thinking.
The central bank just credits bank accounts on instruction of the treasury of finance arms of government.
To characterise that as ‘money printing’ – and hence the third option in the mainstream ‘government budget constraint’ troika – is to completely misunderstand the reality of government spending.
It gets confusing for the reader I think, when the BDP admits that there are no financial constraints on a currency-issuing government and so spending:
… restrictions are real, not financial.
Once you understand that element of MMT and have firmly expunged the ‘financial constraint’ fiction then it is true that:
The representatives of the MMT thus come to the conclusion that a state with monetary sovereignty has a great deal of economic freedom.
Which is really what disturbs those antagonist to our ideas, but, who, couch that antagonism in fake arguments about the government running foul of the bond markets or creating unsustainable future tax burdens on our children and similar type arguments
5. The BDP also admit that realising that the “modern state can never run out of money”:
… does not mean that the state should “spend unlimited money” at all times … What the state’s room for maneuver is used for depends on political convictions and majorities.
In other words, operationalising the understanding of how the monetary system operates and what the capacities of currency-issuance bestows on government into policy requires the imposition of values and ideologies within the political realities of the day.
Which separates MMT as a lens from policies that might be proposed by those with an MMT understanding.
Which means the policy regime suggested by an MMT economist might range anywhere along the extreme-Right-Left continuum, which doesn’t lead to the conclusion that MMT itself is Left or Right in nature.
6. The BDP notes that in MMT – “The ‘correct’ deficit would be the one that achieves full employment.”
I would more accurately state this as saying that the responsible fiscal stance is one designed to achieve and sustain full employment and the resulting fiscal balance that is consistent with that stance is not a point of interest.
I explain that in this blog post – The full employment fiscal deficit condition (April 13, 2011).
7. The BDP conclude that “the job guarantee is a central element of the economic policy demands of the MMT economists”.
It is in fact the only specific ‘policy’ that is implied by the MMT understanding, which builds on observations that macroeconomic efficiency cannot be achieved if there is involuntary unemployment and an employer buffer stock is a superior option to using an unemployment buffer stock to discipline distributional conflict, which may create inflationary pressures in the economy.
The Job Guarantee is not just an employment creation program. Rather it is an essential aspect of the macroeconomic stability architecture that modern monetary economies should have in place.
So its place in MMT is intrinsic and is quite distinct from policy options that might arise from the expression of our ideological positions.
The BDP Critique of MMT
Interestingly, the BDP begins the critique with this:
The descriptive representation of the real money cycle by MMT and the statements derived from it, such as that money comes “out of nowhere”, is largely shared in the academic world and by central banks.
Okay, that is progress.
So the BDP must accept that all the causalities that flow from the MMT representation is “shared in the academic world and by central banks”.
Which I think is completely false.
If it was true, then central banks around the world would not be increasing interest rates right now, as an example.
The BDP claim that the main rejection of MMT is “directed at the policy recommendations” that MMT makes.
Which fails to understand that there are no policy recommendations emanating from MMT as a body of work.
There are policy recommendations that economists with an MMT understanding might make which reflect their value systems and ideological predilections but that is quite separate from MMT as a body of work – or in the BDP’s words – an “economic school of thought”.
The confusion is reinforced because most MMT economists hold progressive values and when they talk about policy they express those values.
The critics, who have missed the difference between the ‘body of work’ and the policy statements that economists who work within that ‘school of thought’ make, then infer, mistakenly, that the policies advanced are part of MMT.
They are not.
Some years ago I was duchessed, for example, by the Lega Nord in Italy, who had accepted the body of work as being legitimate.
However, the policies they were advancing were the anathema to those which I would accept as being reasonable and I did not communicate further with them.
So with confusion, the BDP then rehearses the usual suspects.
1. MMT is inflationary: “inflationary developments are to be expected with a permanent and continuous expansion of the money supply.”
Who advocates a “permanent and continuous expansion of the money supply” without regard to the development of the productive capacity of the economy and the spending and saving decisions of the non-government sector?
Not one MMT economist I know would advocate such a context-free expansion.
There can be a continuous fiscal deficit if the economy stays within the supply-capacities of the productive sector and the non-government sector as a whole does not spend all its income each period.
That will not generate inflationary forces.
2. The Job Guarantee is “unconvincing” – why?
All the usual furphies are rehearsed by the BDP:
(a) What jobs would these workers perform? The answer is hundreds and thousands which add to the well-being of society and the restoration of our natural environment, and which will never be done if ‘private profit calculus’ was the determining factor rather than social benefit.
I have written extensively about this over several decades – if you want detail go to the category – Job Guarantee – and follow links.
(b) a buffer stock cannot provide jobs that are necessary for the “production of important public goods”.
That is true, which is why there has to be forward thinking and projects designed to be turned on and off to meet the cyclical variability of the non-government sector.
It doesn’t mean that the jobs are not ‘important’.
(c) Job Guarantee jobs will compete against private jobs – so the “state may put additional pressure on private companies through its additional competition.”
The jobs that do not compete with the private companies but are productive and add social value are only limited by one’s imagination.
Having said that, depending on what nation we are talking about, it may be useful for the Job Guarantee to be introduced with an ‘industry policy’ element included, which drives inefficient, low-wage sweat shops in the private sector out of business by where the Job Guarantee wage is set – which effectively would become the minimum wage.
When I did work in South Africa on the minimum wage framework I argued that private jobs that could not meet acceptable minimum wage levels were undesirable and would either have to restructure to become more productive and therefore be able to pay higher wages or just disappear altogether.
(d) The BDP alleges that “it is unclear whether the employees will remain in the state sector instead of switching to the private sector.”
There is no lack of clarity.
The Job Guarantee workforce would be within the public sector. It is not a scheme to provide a sort of ‘wage subsidy’ capacity to the private sector.
(e) The BDP write there is “also a question the question of whether the employees actually have the ability to transfer to the primary labor market”.
There is no compunction on Job Guarantee workers to return back to the private labour market.
Most will when the economy improves because the private employers will bid them back through higher wages and better conditions.
If the private employers don’t offer superior terms to the Job Guarantee then the workers might stay within the Job Guarantee pool.
And there would be no problem with that if they are happy to do so.
The point is that the Job Guarantee offers a permanent job with stable income and other non-wage benefits (holidays, sick leave, training, pension entitlements, etc).
If the private employers cannot do better than that then they will not attract staff.
(f) The BDP claim that private agents will undermine any government that tries to run on-going fiscal deficits and “circumvent the restrictions and the measures” that the government might put in place to avoid such retaliation.
But at the end of the day, if the regulative and legislative framework is properly designed, implemented and enforced, then it is hard for the private sector to circumvent it.
Even if they do that has nothing to do with MMT as a body of work.
It might be that the policies that are advanced at any point in time do not have political credence.
(g) BDP finish with the usual nonsense – that “the thesis of unlimited debt capacity only applies to the USA”.
Well perhaps that is why they wrongly claimed I was a US economist!
As an economist who lives in a small open economy, with only primary commodity exports, and whose exchange rate is at the mercy of the world terms of trade for such commodities, I can tell you that the MMT understanding is applicable to all fiat monetary using economies.
Different strengths in world currency and trade markets render different implications for sure.
But that doesn’t get us very far.
What is completely false is the BDP claim that the arguments about reserve currencies etc “do not contradict their policy recommendations” – that is, the MMT policy recommendations.
Apropos of the discussion above – this statement confuses the framework with the policies that might emerge from apply values to that framework.
The real point that the BDP exposes is that policy is a political act and arises from the conflict of ideologies and values.
The struggle to implement specific policies depends on the balance of power that these competing ideological camps hold.
That struggle is conducted within an environment of ideas and fictions.
The mainstream macroeconomics creates a world of fiction that gives weight to a particular value system and ideological predisposition.
It favour an unequal distribution of income and wealth and using policy to discipline the aspirations of the many so they remain compatible with the maintenance of that system of inequality and power imbalance.
MMT demonstrates the nature of those fictions and once people jettison them they realise more clearly the underlying flaws in the policy regimes that are implemented under the cover of TINA.
They realise that there can be a better world for the many and if that ever becomes universal then the power balances within capitalist societies will change quite dramatically.
The elites simply cannot let that happen, which means they promote all sorts of scams about MMT to avoid people gaining an understanding of it.
That is enough for today!
(c) Copyright 2023 William Mitchell. All Rights Reserved.
This Post Has 16 Comments
Another brick in the wall for shifting the orthodoxy.
How’s about a minor change, Bill, where you say “- in order to get the funds [resources] necessary to allow them to spend”. “Funds” and “resources” are best not used interchangeably, I think.
Might I also suggest another minor change in your post to read “I would more accurately state this as saying that the societally responsible fiscal stance”.
Will they get to understanding that “the economy” is not about (unlimited) funding but about (limited) “resources” and, hopefully, values? Capitalism, as it has become under the neoliberal project, is solely about acquiring capital and all the rest is externalities.
A commonly understood realisation that ultimate fiscal power resides with government and that “the market” only exists, in the manner that it does, via a legislated social licence. Those first principles can’t return to economics soon enough.
P.S. I always thought that you were a closet Yank just bunging on that accent!
I think that the implication you make is that if the population was allowed to understand MMT then it would choose a leftist policy position in line with your own position. What is never clear to me in these posts is what the MMT-based policy options are. So, I empathize with the Bundestag since it is never clear to me what the MMT options are.
“What jobs would these workers perform?”
That’s a framing trick, and I think we should avoid it. Ultimately it doesn’t matter what job a worker does because that is not the worker’s concern. A worker sells their labour hours for money.
What’s done with those hours is then at the behest of the purchaser. The Job Guarantee continues to work at base as long as people provide their hours for the service of others. It’s self consumption of hours a person has been paid for that is fatal to the buffer stock and what triggers the rumbling resentment.
Ultimately if the private sector doesn’t like what people are doing on the Job Guarantee it has a simple solution – hire them to do something else. It’s a problem for bosses, not workers. Getting productive output out of labour hours is, after all, the only reason they deserve to be paid at all.
The ‘what will they do’ line is part of the neoliberal framing trick that wishes to treat everybody as a business selling services not hours. We need to push back on that. Workers sell hours. If they don’t sell hours then they should be getting the full profit share as well as the labour share.
Of course the Job Guarantee should offer the best job experience it can, because it is obviously more economically efficient to generate useful output with those hours and keep the workforce in tip-top condition.
However even if we don’t do that, it will still do its job of maintaining price stability and therefore represents an alternative and superior inflation management approach to adjusting interest rates.
«The BDP claim that the main rejection of MMT is “directed at the policy recommendations” that MMT makes.»
Outright claiming the axioms are correct, but they’re annoyed it implies 2+2=4. Bold, very scientific, move there.
«state may put additional pressure on private companies through its additional competition.»
I though competition was good and led to efficiency gains, but then I remembered how German is protectionist.
«also a question the question of whether the employees actually have the ability to transfer to the primary labor market»
Calvinistic way of saying it’s for their own good that they starve.
«the thesis of unlimited debt capacity only applies to the USA»
And there you go; though shall not anger the hegemony, lest thee seek the blessed system of rules upon you.
It’s all about scape goats.
They are trying to link MMT to the failed macro economic models they have been following since the 1980s – so that they can keep at it.
Let me push just this one platitude: “something must change so everything remains the same”.
I believe that the least moronic aprentices of neoliberal witchcraft (sorry for the extra cliche) must be in a worrying state, as everything that was taught to them as beeing true science is beeing debunked as plain balderdash.
And so, they went back to basic desinsformation tools, as a bid to keep power.
Bill, you say:
“In other words, operationalising the understanding of how the monetary system operates and what the capacities of currency-issuance bestows on government into policy requires the imposition of values and ideologies within the political realities of the day.
Which separates MMT as a lens from policies that might be proposed by those with an MMT understanding.
Which means the policy regime suggested by an MMT economist might range anywhere along the extreme-Right-Left continuum, which doesn’t lead to the conclusion that MMT itself is Left or Right in nature.”
However, that goes into direct contradiction to your claim that “the idea of a Job Guarantee (…) is central to the MMT framework, despite many who claim to be MMTers thinking otherwise”. I understand that people cannot claim to be MMTers if they disagree with the Job Guarantee proposal.
If an extreme-right neo-nazi lunatic wants to use MMT knowlodge to exterminate part of the population by keeping them unemployed on purpose, he would not be an adherent to MMT. Hence, MMT cannot be far-right, as one requires the imposition of values and ideologies to accept the JG.
How to conciliate the claim that the JG is core and MMT and that MMT itself is not Left of Right in nature?
Embarrassing stuff. I just read the article (and my German is good enough to see their failures!). Some extremely weak and desperate arguments:
BDP: “In particular, the question arises as to which tasks these employees should perform, since their assignment should vary greatly over the economic cycle. The production of important public goods would be out of the question, since these goods must be available at all times. In a boom, the production of these goods would cease because workers would not be able to of the job guarantee work.”
What?? It doesn’t matter who is producing them. It is either a private sector player or not and if the private sector is unable/unwilling, such as in a collapse, then they are made by the same workers who made them in the private sector, but who are now unemployed, or they aren’t made at all!
BDP: “On the other hand, if the employees in the job guarantee are supposed to manufacture private sector products, there is a risk of an erosion of the private corporate sector. In a downturn with growing employment in the job guarantee, the state may put additional pressure on private companies with additional competition.”
What are ‘private sector products’? And as above if the private sector isn’t producing because of contraction, they are already ‘eroded’. That’s the point! The claim they are making is the same old ‘crowding out’ argument, easily dismissed. You don’t crowd out a sector which is non-productive or less productive. And isn’t the very point of the JG is to keep people employed until the generally private sector economy isn’t imploding? Also, it’s acknowledged that the point is for such people to be free to feed back into the private sector subject to more attractive job offers. Their argument is groundless.
BDP: “In addition, Beck and Prinz point out that with regard to the job guarantee, which is intended to serve as a kind of buffer (see above), it is unclear whether the employees will remain in the state sector instead of switching to the private sector”
As Bill said there’s nothing ‘unclear’ about it. If the private sector matches the wage and reward structure of the current JG position or betters it, the employee makes a choice. ‘Beck and Prinz’ are confused and falling back into the groove of assuming something called ‘national debt’ on the usual monetarist basis and back to ‘tax revenue’ to use for outlay. It’s embarrassingly dense.
Another useful painting of the big MMT picture by one of its original artists. As far as framing goes, let me suggest that MMT be referred to religiously as “the science of fiat money.” While it’s true that the MMT lens can also be used to describe the limitations of non-currency-sovereign economies, it comes into its own and displays its genius in deconstructing the completely new economic game created by the demise of the gold standard. It’s no less IMHO than the economic equivalent of the Copernican Revolution, the completely new science that flowed from the demise of geocentrism.
The heterodox camp of economists know extremely well the mainstream stuff, especially of the neoclassical paradigm, because they were obliged to go through all the conventional training in economics. This is particularly true for the post-Keynesian school of thought, of which MMT is a vibrant community. However, all mainstream critics of MMT only have an epidermal encounter with its main tenets and try to invalidate it either because of sheer ignorance or in order to preserve a well paying carrier both in academia and central banking.
Hi Prof Mitchell, or to anyone that can answer me.
I don’t have a background in econ, (i’m a math major). I have been self teaching econ very heavily lately, and I’m from New Zealand. Do you know of any good NZ economists that accept MMT and write publicly or have a blog?
The understanding of MMT ultimately allows us to abolish the self-accumulating power of money-capital. That is why the owners of capital are shitting themselves.
Andre asks: “How to conciliate the claim that the JG is core and MMT and that MMT itself is not Left of Right in nature?”
Recently I composed this formulation:
In short, the public sector must be released from the (natural) greed of the private sector, so that resource allocation can be decided by the electorate, not “independent” central banks acting for private sector interests (given that the treasury and central bank of a currency-issuing government can be authorized to finance the government so long as the necessary resources are available for purchase in the nation’s own currency).
So rather than seeing a Left/Right divide, I see a public sector/private-sector divide.
Reply to Andre,
“If an extreme-right neo-nazi lunatic wants to use MMT knowlodge to exterminate part of the population”
By this stage any true appreciation of MMT would have already been jettisoned.
I’m surprised to hear that such lunatics can only right-wing and male.
it’s kind of surreal that neoliberals are more and more revealing that all this international rules business is all about protecting entrenched capital profit while people are so used to not believe their eyes that they just don’t see the complete contradictions.
“What jobs would the workers perform” is exactly the question to be asked about workers who are displaced by productivity improvements. In short, those workers are freed up for higher value work. Except in the case of JG, public benefit, not profitable private benefit, is the objective.
Reply to Sergio
“I think that the implication you make is that if the population was allowed to understand MMT then it would choose a leftist policy position in line with your own position. What is never clear to me in these posts is what the MMT-based policy options are. So, I empathize with the Bundestag since it is never clear to me what the MMT options are.”
One could counter ask, what are the mainstream policy options… for that matter, how long is a piece of string? What you are presenting is a logical fallacy known as “begging the question”.
If you’re a reader of this blog and you’ve never read Bill Mitchell talk about a federally funded Job Guaranty then I’d be very much surprised. That’s one economic stabilising policy option that is pretty central to the MMT project, if not explicitly part of understand how modern money is created, distributed, exchanged and destroyed.
Not throwing human beings under a bus (using NAIRU myths) as a blunt instrument on the economy that attempts to control inflation. In the neoclassical monetary policy understanding, supply and demand driven inflation are indistinguishable, no discernment is ever made or reflected in CB decision making, it’s always the fault of the marginally employed worker who must sacrifice her employment for the greater good. or the fault of the first home owner struggling to make repayments on a mortgage, he must default on her load and lose the first home for the greater good to undo the property bubble component of inflation.
Investment in public housing (remember when that wasn’t seen as a bad thing in the 60s and 70s ending most places in Australia in mid-80s as developers started influencing policy making of state governments) and mixed scale developments with social housing components are one of the few measures a government can take that is deflationary on housing prices. first home owner loans only drive demand, land release doesn’t quell mean demand because the market has a lot of speculators investors looking for capital gains in bubble market, so demand is ever present. Increasing population in cities also keeps rental markets with high levels of demand.
If MMT could tackle just these two issues it would be a revolution in Australian politics. There are of course dozens of other areas — not least in the climate change mitigation and adaptation policy suite spaces — where an MMT understanding of sovereign money creation/destruction and banking system credit-money creation would be beneficial.
By allowing all policy makers and voters — who in the end support or blame certain policies (remember the CT debacle who fell for the Abbott/Credlin nonsense?!) — to see through the 100% false scarce-money-intermediators perception of private banks (as Prof. Robert Hockett puts it we would move policy debates a long way forward. People are led by the nose to believe neoliberalism is in their interests and the only thing protecting them from an authoritarian communist state on the one hand or a fascist dictatorship on the other. We do need to help people to reengage in democracy and see that other options are available and the TINA nonsense since the 80s is a giant web spun to trap us all into a late-capitalist wealth transfer to the super-rich that ultimately is tanking the planet’s carrying capacity and will lead to ecosystems, climate, economic and political collapse before this entry is out on this TINA course we are on.