However, here is the best response to the critics I\u2019ve seen:<\/p>\n
Why Does Everyone Hate MMT? Groupthink in Economics, by James Montier March 2019<\/em><\/a><\/p><\/blockquote>\n
Not only does he take down prominent critics like Summers and Rogoff, he also provides a very useful 400 word summary of MMT. Some of you have asked for a concise statement, and this is as good as you\u2019re likely to find.<\/p>\n
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- Money is a creature of the state. Money is effectively an IOU. Anyone can issue money; the trouble is getting it accepted. The ability to impose taxes (or other obligations) makes a country\u2019s \u2018money\u2019 valuable.<\/em><\/li>\n
- Understanding the monetary environment is vital. The monetary regime under which a country operates matters. Any country that issues debt only in its own currency and has a floating currency can be thought of as being monetarily sovereign. This means it cannot be forced to default on its debt (i.e. the U.S., Japan, and the UK, but not the Eurozone or most emerging markets).<\/em><\/li>\n
- An operational description of the monetary system is critical. Understanding that loans create deposits (which in turn create reserves, aka endogenous deposits create loans. For example, knowing that government deficit spending creates reserves and drives down interest rates is vital to understanding Japan\u2019s bond market.<\/em><\/li>\n
- Functional finance, not sound finance. Fiscal policy is much more potent than monetary policy. Fiscal policy should be aimed at generating full employment while maintaining low inflation (rather than, say, achieving a balanced budget position). A Job Guarantee scheme is an example of a useful policy option to effect this outcome (acting like a buffer stock in a commodity market) in the eyes of MMT.<\/em><\/li>\n
- Limits are real resource and ecological limits. If any sector of the economy pushes it beyond the limits of capacity, then inflation will result. If a government spends too much or taxes too little, it can create inflation, but there is nothing unique about the government sector in this regard. These are the limits that matter \u2013 people, machines, factories \u2013 not \u2018financing\u2019 constraints.<\/em><\/li>\n
- Private debt matters. Even in a monetarily sovereign state, private debt matters. The private sector cannot print money to repay its debts. As such, it has the potential to create a systemic vulnerability. Think Minsky\u2019s financial instability hypothesis: stability begets instability.<\/em><\/li>\n
- Macro accounting (Godley style) keeps us honest. One sector\u2019s debt is another\u2019s asset. So, the government\u2019s debt is the private sector\u2019s asset. Understanding how one sector relates to another using a sectoral balance framework is very helpful, as is understanding the Kalecki profits equation, or the way reserves work in a financial system. Accounting isn\u2019t glamourous and identities shouldn\u2019t be taken as behaviours, but they can help us spot unsustainable situations.<\/em><\/li>\n<\/ol>\n
I urge you to read the rest of his piece. It is spot-on.<\/p>\n
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![\"\"](\"https:\/\/www.transcend.org\/tms\/wp-content\/uploads\/2019\/05\/l-Randall_Wray-e1558518343792.jpg\")
<\/a>Wray is a professor of economics and research director of the Center for Full Employment and Price Stability at the University of Missouri-Kansas City. His current research focuses on providing a critique of orthodox monetary policy, and the development of an alternative approach. Wray is the author of <\/em>Money and Credit in Capitalist Economies, 1990, and <\/em>Understanding Modern Money: The Key to Full Employment and Price Stability, 1998. He is also coeditor of, and a contributor to, <\/em>Money, Financial Instability, and Stabilization Policy, 2006<\/em>, and<\/em> Keynes for the 21st Century: The Continuing Relevance of The General Theory, 2008<\/em>. He taught for more than a decade at the University of Denver and has been a visiting professor at Bard College, the University of Bologna, and the University of Rome (La Sapienza).<\/em><\/p>\n