Everything you want to now about MMT

29 Jul, 2019 at 08:36 | Posted in Economics | 2 Comments

One of the positive contributions of MMT, especially from a european point of view, is that it makes it transparently clear why the euro-experiment has been such a monumental disaster. The neoliberal dream of having over-national currencies just doesn’t fit well with reality. When an economy is in a crisis, it must be possible for the state to manage and spend its own money to stabilize the economy.

When the euro was created twenty years ago, it was celebrated with fireworks at the European Central Bank headquarters in Frankfurt. Today we know better. There are no reasons to celebrate the 20-year anniversary. On the contrary.

euroAlready since its start, the euro has been in crisis. And the crisis is far from over. The tough austerity measures imposed in the eurozone has made economy after economy contract. And it has not only made things worse in the periphery countries, but also in countries like France and Germany. Alarming facts that should be taken seriously.

The problems — created to a large extent by the euro — may not only endanger our economies, but also our democracy itself. How much whipping can democracy take? How many more are going to get seriously hurt and ruined before we end this madness and scrap the euro?

The euro has taken away the possibility for national governments to manage their economies in a meaningful way — and in country after country, the people have had to pay the true costs of its concomitant misguided austerity policies.

The unfolding of the repeated economic crises in euroland during the last decade has shown beyond any doubts that the euro is not only an economic project but just as much a political one. What the neoliberal revolution during the 1980s and 1990s didn’t manage to accomplish, the euro shall now force on us.

But do the peoples of Europe really want to deprive themselves of economic autonomy, enforce lower wages and slash social welfare at the slightest sign of economic distress? Are​ increasing income inequality and a federal überstate really the stuff that our dreams are made of? I doubt it.


  1. “The neoliberal dream of having over-national currencies just doesn’t fit well with reality.”

    I am not sure this is neo-liberal. Opponents of the Euro in the 1990s were Friedman, Feldstein and Krugman. Krugman and Feldstein relied on Mundell Optimum Currency Area arguments – very fashionable during the 1990s. Friedman argued that (what he saw as) the major benefits of the euro and fixed exchange rates (reduced uncertainty and transaction costs) could be achieved through exchange rate hedging.

    For sure purely political motives were important. But there were others and these are similar to arguments that go back to figures who are economically very un-neo liberal like Friedrich List. For country;s that cannot be self-sufficient and that must import essential materials (eg oil) and wish to industrialise, which requires the acquisition of essential inputs, they need to buy hard currency (in today’s case that means dollars). This requires that their currencies are convertible. For countries whose previous currencies were the Lira and Drachma, and who were permanently trapped in devaluation/inflationary spirals and terms of trade crises this was particularly applicable.

    The EU, like everywhere else, fell victim to neo-liberalism. However, the Euro, which was put in place before rapid Eastern Expansion, was not entirely a neo-liberal project. Europe needed an institutional mechanism whereby German capital could be transferred to the southern periphery in a way that does not simply rely on monetary flows that cannot be allocated to areas that assist in economic development. (Without such a system we just real estate bubbles etc.). This was supposed to follow monetary union, and might have been more achievable in the smaller union

    A key reason Britain opposed closer convergence in Europe was that it saw the continent as too socialist. Just opting out the Social Charter was not enough. Its ideological opposition was also a major reason it pushed rapid eastern expansion as a means of stopping the Union going beyond a customs union and to find allies in its battle against a Franco-German led ‘Social Europe’. This was true under both Conservative and New Labour governments. The US was also not entirely happy about prospective political union in Europe (that would include a common European defence and foreign policy) and any threat to the US dollar’s hegemony. And some of their reasons were not all bad: multipolar systems are geopolitically the most unstable.

    It’s very ironic that Britain itself was the first to be tossed out the union by its own population.

  2. Very interesting Lars. It has been a steep climb learning economics, but it is time to get my head around MMT.

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