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Wednesday, March 16, 2016

'MMT: Not so Modern'

Simon Wren-Lewis:

MMT: not so modern: Followers of Modern Monetary Theory (MMT) often comment on my posts. I had never heard of MMT before I started this blog. From what I could gather from comments

  1. MMT seems obsessed with the accounting detail of government transactions
  2. This seemed to lead to ideas that I thought were standard bits of macroeconomics

Occasionally I would out of curiosity try and read something by MMT’s leading lights, which reinforced these impressions. For example MMTers seemed to think that they had discovered that a government with its own central bank need never default on its debt, but as far as I was concerned that was a standard and rather trivial implication of the government’s consolidated budget constraint. MMTers also seem curiously averse to equations.

Lately these MMT comments have been getting rather annoying, so I thought I would write all this down. Luckily I do not have to, as Thomas Palley has already done it for me (here and here). I have absolutely nothing to add, except to note that the upshot is not that what MMT says about this budget constraint is wrong, but that it was well known long before MMT and that it is hardly a complete macro theory.

Let me give an illustration of this last point. ...

Finally a request. I am bound to get comments on this post disputing what I say, which is fine. But please, for the sake of those people who may still have an open mind, keep these short and to the point. If you accept that a government’s deficit must equal new borrowing plus the creation of new (base) money, there is no need to go into the accounting or transaction details therein.

    Posted by on Wednesday, March 16, 2016 at 08:39 AM in Economics | Permalink  Comments (61)


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