MMT — Keynesianism with an expansionary twist

9 Jun, 2020 at 13:38 | Posted in Economics | 24 Comments

Expansionary policy with a strong redistributive component is an attractive proposal … Higher output and real wages would likely stimulate productivity growth. Global warming can and should be attacked seriously.

With regard to foundation myths for MMT, Chartalism adds little to the observation that a modern macro economy operates on the basis of fiat money supported by state power which transcends enforcing the mere payment of taxes.

unnamedFunctional finance is the heart of fiscalist Keynesianism incorporating automatic stabilizers for the business cycle. The MMT job guarantee proposal could be helpful as a supplement to the existing system of stabilizers …

A fiscal expansion poses the risk of price inflation. It is unlikely to turn into a Wicksellian cumulative process so long as wages are repressed. But ending wage repression is presumably an MMT policy objective …

MMT’s aims are exemplary but their intellectual support adds little to the ideas of Godley, Lerner, and Keynes. The doctrine blends them effectively but is certainly no striking new intellectual synthesis.

Lance Taylor

Taylor may be right on the question of how much — as a macroeconomic theory — MMT really has added to the Keynes-Lerner-Godley-Minsky framework. But there is undoubtedly at least one positive contribution of MMT — especially from a European point of view — and that is that it has made 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 it has imposed in the eurozone, again and again, 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. Bruce Wilder said:
    “Greece, if it was to be required to service its enormous debt, should have been granted authority to tax economic rents in its trade to fund that service […]”
    For me, heterodoxy lies in questioning the idea that the debt needed to be serviced. The ECB could have easily used its power of unlimited liquidity to bail out Greece for a fraction of the trillions of Euros they spent buying corporate bonds to drive up their prices …
    MMT might agree with me, but I go further by saying that if inflation occurs, simply bail out the inflation givers (those who give more than they get from inflation). Use evolved private sector strategies such as inflation swaps to allow inflation receivers to hedge against disinflation by locking in a minimum inflation rate, while inflation givers at the same time lock in a maximum inflation rate. The Fed can manipulate the break-even point by buying and selling inflation swaps, if necessary.

    • Nanikore, in reply to the post quoted in my above comment, said:
      “the Euro, which is essentially a form of German underwriting of the European economy,”
      I think this is wrong. It’s like saying Warren Buffet underwrites the bank that he banks with. The ECB is backstopped by the Fed’s unlimited dollar swap line, not by German taxes. After 2008 the ECB used the unlimited currency swap line for an aggregated $8 trillion. German tax receipts were not needed for this arrangement with the Fed.

      • Robert,
        “After 2008 the ECB used the unlimited currency swap line for an aggregated $8 trillion.”
        Do you have a source for this?
        Was it used?

      • I tried to post the following reply to Henry Rech’s question four or five days ago but it refused to display. Will I have better luck this time?
        Yes, see for a screenshot from a July 2011 GAO report on the Federal reserve (full report: ).
        From Appendix IX starting on page 201:
        “Many foreign banks held U.S. dollar-denominated assets and faced challenges borrowing in dollars to fund these assets.”
        In other words, Deutsche Bank, among others, had dollar-denominated obligations and the ECB got to ask the Fed for as many dollars as needed to pass on to German banks so that investors did not lose money.
        German taxes were not needed; the German banks needed US dollars because they had made promises to pay investors in US dollars but normal dollar liquidity providers were hoarding dollars. So the ECB created Euros (not needing German taxes) to swap for dollars. There were no capacity limits and no rollover limits. Today the swap lines are also being used to ensure that German banks don’t suffer a dollar shortage.
        See also an old Perry Mehrling blog on the global currency swap lines:

        Comment by Robert Mitchell 18 Jun, 2020 #

  2. MMT’s “tax to fight inflation” theory reminds me of locking everyone down to fight the coronavirus pandemic. Egghead economists decree that demand destruction must be done, and use draconian measures relying on state violence to effect such demand destruction. Meanwhile voters experience immediate inflation due to higher taxes, being promised that it won’t last, etc. I would not vote for MMT inflation-control policies. Raising taxes in inflationary times is politically tone-deaf. A model is upheld over individual freedom.

    Also, C. H. Douglas was proposing to print money for a basic income in the 1920s and 1930s. Douglas understood the creditory nature of money long before others.

    As I said in another thread on MMT: full employment, “optimal growth that is sustainable”, and relative price stability should not be the goals of public policy. Individual self-actualization and knowledge advance should be our goals. Output is a political value-laden measure that includes a lot of waste and conspicuous consumption. Employment is too often eye-work (hence a job guarantee just perpetuates arbitrary hierarchies). And inflation is noise, because prices are arbitrary.

  3. Bill Mitchell has published two books and written numerous blog posts on the international application of the MMT macro lens to economics, politics, and society.

    William Mitchell and Thomas Fazi, Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World – Pluto, Books (UK), 2017

    William Mitchell, Eurozone Dystopia: Groupthink and Denial on a Grand Scale – Edward Elgar Co., 2015

    Bill has also blogged pretty extensively on application of the MMT lens to international economics and spcific countries at his blog. These entries are too numerous to cite in a comment. The blog is searchable and the archive is categorized. Scroll down to see the category list in the right column.

    The blog and other information can be accessed through his home page.

    The basic insight of MMT is that economic constraint is the availability of real resources, and that institutional constraints are specfic to countires and regions, e.g., EZ, and that the financial constraints are price stability, exchange rate and balance of payments. In addition, Bill Mitchell has been a constant critic of neoliberalism as elite capture of states’ institutions and apparatus, which is concerned with asymmetric power.

    • Thanks Tom ….

      The dreck that gets hanged on MMT is sight too behold sometimes. Imagine a schematic of a combustion engine copping it for not reveling universal truth or cookie cutter one size fits all economic empiricism that transcends time and space.


      You know how about its all ad hoc, interspersed with historical relevance, and not forgetting the natural background is not steady state.

  4. The recent fashion among MMT advocates for arguing that sovereign currency issuers do not need to issue marketable debt or do not need to tax the rich alarms me. Bill Mitchell recently blogged his conviction that public debt is little more than a scam. I was left with the distinct impression that provocative argumentation is quickly veering off past iconoclasm and into a ditch.

    • I agree Bruce. MMT was welcome because it points out how the monetary transmission mechanism actually works (in Anglo Saxon countries at least). But what it can’t do is give us an adequate explanation and solutions to the problems posed by international capitalism, such as deindustrialisation, and the problems faced by countries with weak industrial and institutional structures, concentrations of wealth and capital, and high import dependence. And like neo-classical macro-economic theory, it ignores power.

      • MMTers do not claim to deal with every single economic problem. MMT deals mainly with problems relating to deficits, govt debts, base money, inflation, unemployment etc. That’s enough to be going on with, isnn’t it?

        Would you blame an eye hospital for failing to deal with broken bones?

        • The invention of a central bank to manage a marketable national debt financed by taxing economic rents was historically the foundation of monetary sovereignty in the evolution of fiat money and a banking system processing credit. That a figure as prominent as Bill Mitchell is in denial about all that suggests a program of ignorance — competing with neoclassical economics to supply agnatology to a world already glutted with teh stupid does not strike me as worthwhile.

          • In the U.S. there has been, since its inception, 3 iterations of the Fed, complicated by national and international history as it moves through it. It has been noted that optics are specific to each period and its folly to mix them over the entire period.


            MMT focuses on the latter with an eye to the future, grievances out of context is a categorical error that encourages erroneous conjuncture and rhetoric. Per se early days not 10 years ago where many demanded MMT supply a comprehensive plan with rigorous logic [ideology] to support it, attempting to inform that its just an observation about what is on offer in policy formation – cue primal displays.


            I think this says more about the environment its being discussed in … than it is of MMT of itself.

          • See Bruce… its curious that you take an aggressive stance, but when pulled up for omission a response is wanting. I mean we could have expanded into Plaza and its ramifications E.g. capital banks having their bread and butter taken away by the shadow sector which then incentivized them innovate in the C/RE sector and how that all worked out.

            Personalty I find the demands that a grand theory of – everything – akin to Einstein’s failed attempts on this death bed to write a proof based on the notion that the creator would be eloquent be leveled at MMT.

            MMT is not some philosophical relativity about humanity, its just a description of the policy options the accounting realities of some developed nations. Further introspection of FX of younger currencies is another matter and a bit wonkish.

            • I think the discussion here has gone far enough for the moment. Tom’s references etc have to be followed up to take this any further. But for now, t is acknowledged that MMT has made a positive contribution by looking at how the monetary transmission mechanism actually works.

              But that is not enough. People are repeating misconceptions that problems will be solved by countries having their own currencies and leaving the Euro etc. (This by the way has also been repeated ad nauseam by many mainstream economists.)

              That is simply not true for most countries, especially countries that face terms of trade issues, need dollars for essential imports and are reliant on capital inflows to fund structural balance of payments deficits. Even Britain falls into this country, let alone Greece or Spain, not to mention most of the world outside Europe, North America and North East Asia.

              Many countries want hard currency like the Euro, or prefer fixed exchange rate mechanisms like Bretton Woods for very good reasons. The Euro gives countries the purchasing power they need to acquire crucial inputs, and the Bretton Woods shows a commitment by the Superpower to the international monetary and trading system, including a commitment to provide dollars.

              The real issue is, if you have a macro-expansion, will that have multiplier effects, or will it simply aggravate distortions and set off a return to deflationary/inflationary cycles like Greece and Italy experienced in the Lira and Drachma eras. For this you need a proper understanding of capitalism, and the causes of deindustrialisation and the concentrations of capital. (The result of the last boom in the Euro periphery for example was to inflate land prices and force small landowners and businesses into debt, meaning they had to sell their land, in the end worsening these countries’ productive bases and terms of trade and condemning large sections of these populations into poverty, with or without austerity policy.)

              This is not “another issue”; it is at the heart of the matter.

              • I have intended several times to commend your outstanding comments on this post.
                Economic theory regarding money — what money is and how it works — too often forms competing forms of stupidity — faulty accounts of mechanism married to dubious moral and policy imperatives. I think non-economists instinctively want to support elites in responsible administration of the public good of institutionalized money. It is not easy to know what specifically to support when so much of the discussion by even credentialed experts is both stupid and contrary to fact and experience. The good intentions of a general public that wants integrity in public office are subverted by manipulators and fools misusing the rhetoric of “sound money” and austerity. This malpractice has such a long and inglorious history that I would not count on overcoming it more than temporarily.
                I am rather partial to the rhetorical strategy of explaining money as “score-keeping”. When MMT did more of this, I thought their approach more appealing than now. As an institutionalist, I am inclined to see the economy as deeply problematic, composed of a faulty network of imperfectly working kludges to solve problems that may be partly unsolveable in the state of uncertainty we are always in.
                As far as the EuroZone is concerned, I think you are dead-on. The Four Freedoms are an apology for disabling national governments without empowering a supranational set of institutions designed to be resistant to democratic governance. Theoretically, economic rents are necessary to the analysis of what an Italy, or Greece, or any ‘debtor’ nation, including Britain, can do in a contest with the Savers of the North. Greece, if it was to be required to service its enormous debt, should have been granted authority to tax economic rents in its trade to fund that service; for example, they could be allowed to manipulate the VAT on intra-EU, interstate trade to function a bit like a tariff on, say, imports from Germany which were earning high economic rents for Germany, diverting some of that flow of funds to service the Greek debt to German banks. Seems fair. And, it would not require punishing austerity in Greece or fire sales of Greek assets, like ports and public utility power plants. I don’t imagine that is any great insight; I do not offer it as “the solution” but only as an illustration of how feasible approaches are excluded from discussion by an ideological orthodoxy founded on bad theory.
                A real theoretical revolution would allow people to think of possibilities hidden behind neoliberal TINA.

                • Bruce, I think the institutional reform in the EU will come. Merkel and Macron have shown real leadership during Covid19. The European project has been derailed by overly hasty eastward expansion, but after this huge setback I think things are starting to move back in the right direction. Similar to the role the Bretton Woods exchange rate mechanism played in the recovery of Europe and Japan after WWII, the Euro, which is essentially a form of German underwriting of the European economy, will be an important part of channelling surplus funds from the north to the south of Europe which will finally get the chance to get on a sound growth curve.

  5. The arguments for and against the euro are a little more complex than this, and they require proper historic argument. Start with asking yourselves why did Greece and Italy want to join the Euro in the first place. What were their economies like before the Euro? Do you remember the ever increasing numbers of zeros you had to add each time you visited those countries?

    Next question, why did late industrialisers (Germany, Japan through to the Asian Tigers, put a high premium on monetary stability and in the first two case saw joining the Gold Standard as a reason to achieve that objective? What did Frederick List say about this?

    Do you think Sterling would have survived if the central banks, including the ECB and the Fed did not agree to provide dollars? How much sovereignty do you think even Sterling has? Now ask yourself the same question about a Peso, Drachma, or Lire? It was the fact that central banks agreed to do this that Johnson could inflate the economy as he has done. (Ironic, isn’t it – a Brexit PM getting help from the ECB.) It did not get much attention outside the financial press, but this coordinated action by central banks was crucial. It was only this that allowed for the huge stimulus.

    The point is here that is not so simple as to say ‘countries that have their own currencies are free to inflate’ – it depends on how much power you have in the monetary system, your balance of payments position, and your relations with hegemonic states.

    The central banks helped Britain; but they didn’t help during the Asian Financial Crisis in quite the same way. No wonder these countries continue to put a premium on monetary stability.

    Of course MMT applies to the US because it is a hegemonic power with a currency that dominates the trading system. It does not have to buy dollars, it already has them. In a crisis, even if the crisis is in the US (eg Sept 11); people buy dollars. That is what critics mean when they say that MMT is American-centric – a problem I might also add with much of neo-classical economics. (Krugman, for example, just takes his gadgets and applies them to Japan and calls himself a Japan expert.)

    The point is these issues and related ones (eg fixed vs floating exchange rates) are not black and white and can’t put analysed in terms of rational choice models or simple theory, whether it be neo-classical or MMT. They require deep historical and contextual knowledge.

    What is the solution? I think a Marshall Plan for Southern Europe. This will require some institutional integration or at least some centrally determined decisions about the allocation of liquidity to avoid another real estate/credit bubble that led to the Eurozone crisis in the first place. This might actually be happening.

  6. It was MMTers who were screaming from the rooftops during the recession that started in 2007/8 that the world of economics was in danger of being taken over by a bunch of pre-keynsian Neanderthals: Ken Rogoff, Carmen Reinhart and Alberto Allesina to name just three. Meanwhile the self-satisfied “nothing new here” Lance Taylors of this world were nowhere to be seen. Certainly I’d never heard of Lance Taylor before now.

    If the Rogoffs and Reinharts had won the argument, perhaps the Lance Taylors of this world would have been writing patronising articles about how Rogoff and Reinhart etc were saying nothing new.

  7. Tom,
    “MMT has made original and unique contributions, including a new synthesis that corrects the errors of the Keynesian-neoclassical synthesis initiated by Paul Samuelson.”
    Which errors would you say it corrects?

    “…a unique macro theory that synthesizes many previously known factors”
    What are the details of the unique macro theory?

    • 1. MMT economists claim that their theory is unique in that it is the only one on the table that promises to deliver on growth, actual full empoyment, and a reasonable level of inflation (not inflation targeting).

      2; Warren Mosler claims that no one in the economics profession or finance exhibted knowlege of the currency issuer as monopolist and what that implies until he came out with it in Soft Currency Economics. That led to the development of MMT in conjuction with Bill Mitchell and Randy Wray. In her oped in the NYT today, Stephanie Kelton said she was at first increadulous about MMT until she sat down with Mosler and he showed her how the system actually works.

      3. One difference in macro approaches, for example, is that MMT begins with a description of money and institutional operations involving money and proceeds to monetary economics in the vein of Godley & Lavoie, Lerner and Minsky. To paraphrase Aqunia in De ente et essentia, a small mistake in the beginning becomes a large one by the end.

      4. Samuelson begins by assuming ergodicty, as Lars has frequently observed, and based on this investigates supposedly natural regularities after the manner of the neoclassicals using econometrics, MIT type that he was. He does admit on video tape that he realizes the power of the currency issuer but that it shouldn’t get out because politicians and the public couldn’t handle the power, justiffying “the noble lie.” Bernard Leitaer also reports that Paul Krugman told him to stay away from discussing money as a career killer.

      Paul Krugman’s retort to MMT has been, “Where’s your model?” But his own pet ISLM model includes assumptions about monetary operations, money & banking, and finance that are contradicted by monetary authories such as the Bank of England. For example, I far as I know he still believes in government debt issuance “crowding out” investment, although IIRC he did climb down and admit that sovereign currency issuers are different from states that do not issue their own currency, specifically tne EZ countries. As a specialist in foreign trade it is surprising that he did not know this previous to it being called to attention on his blog. He resisted it initially.

      5. As far as the details of the theory go, you’ll have to consult the academic writings of MMT economists for that. MItchell, Wray, and Watts recently published a text called Macroecnomics that gives an overview for students. Economists might start with this as an overview of the theory and then look to some of the academic papers for the details. Different MMT economists have investigated different areas. For example, Scott Fullwiler is an expert on government finance, Eric Tymoigne has written a draft on money & banking from the MMT perspective. Pavlina Tchernova specialzes in the job guarantee. For example, MMT economists have responded to Post Keynesian criticsm of some of the details.

    • Tom,
      Thanks for the fulsome reply.
      And thanks for reminding me about Samuleson’s view’s on ergodicity.
      I think at the moment I sit in the Lance Taylor corner.
      It seems to me that MMT has two claims to fame.
      Mosler was responsible for novel revelations about government spending and financing arrangements and its relationship to central bank monetary operations such that it is fair to say the government faces no financial constraints and that bond issuance is essentially about policy rate setting.
      The JG as an employment and inflation stabilizer appears to be about the only significant theoretical innovation.
      And I get that various MMT proponents have deepened and clarified the Post Keynesian thinking on banking and government finance.
      Having scooted through MWW’s new textbook (I would say it is an excellent and very interesting macro text), I was disappointed to find that there was no section specifically devoted to MMT clearly explaining in detail all of its features. MMT is dispersed throughout the book which makes it, most of the time, difficult to know where conventional PK theory begins and ends. Bill Mitchell says this was done to demonstrate how MMT fits naturally into conventional PK theory. In a 600 odd page book, I am betting no more than 50 pages (and I am probably being generous) are devoted to original hardcore MMT ideas.

      • Fair assessment, I think.

        I would add as a claim to fame the dogged persistence of the MMT economists as a group to bring their views to the fore not only in econ but also finance, government and the media as a way of educating the public about the facts regarding policy space.

        They banged on this hard because they saw that lack of recognition of this was driving the “neoliberal” world into the ground not only economically but also socially, and the EZ in particular. Bill Mitchell, especially, has written on the EZ folly, its consequences and the remedy.

        As Ralph observes below, if there is little new and others knew about this previously, one wonders why they didn’t say so and possibly save the world a lot of grief.

        Of course, the MMT economists were not alone in this push. Wynne Godley preceded them and others like Michael Hudson were ringing the warning bell. Godley may even have played a part in keeping the UK out of the EZ.

        The macro text was not designed to be a summary of MMT but rather for use in teaching in an environment in which students are expected to be exposed to a broad view of econ. It’s more a corrective than a radical departure.

        I would say that the go-to summary on MMT thus far is Randy Wray’s Modern Money Theory (Palgrave Macmillan; 2nd ed. 2015). The ball is rolling now, and I would expect more like this to follow, especially as a market develops for it. MMT has become a hot topic and that has both advantages and disadvantages.

  8. Actually, Wynne Godley pointed out the folly of the euro in 1992, before the inception of MMT. See Maastricht and All That in the London Review of Books.

    The main claims of MMT economists that are original are 1) the observation (Warren Mosler) that a sovereign issuer of a currency has a monopoly over the currency if it chooses to exercise it, ) the MMT job guarantee, which is different from previous proposals in that it contains a price anchor (chiefly Bill Mitchell and Warren Mosler), 3) a combination of macroeconomics, money & banking, accounting, and finance, and 4) a unique macro theory that synthesizes many previously known factors in order to resolve the trifecta of optimal growth that is sustainable, actual full employment in the sense of a guaranteed job offer for all willing and able to work, and relative price stability that controls for inflation.

    In each of these areas, MMT has made original and unique contributions, including a new synthesis that corrects the errors of the Keynesian-neoclassical synthesis initiated by Paul Samuelson. Keynes and early Post Keynesians such as Robinson and Sraffa had already refuted key assumptions of the neoclassical model.

    • Yes, Godley’s 1992 piece is one of my absolute favourites!

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