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"Against" and "For" MMT - July 2, 2019

“Illusory Financial Constraints”

 Like the opening rounds of a high school policy debate, the Tribune magazine recently published two articles succinctly titled “Against MMT” and “For MMT”. While the Tribune’s roots colour both as a socialist magazine and its commitment to “reviving this great tradition on the British left”, the articles combine to offer a good discussion on the (perceived) pros and cons of Modern Monetary Theory.

In the first of the series, James Meadway argues that MMT is a disorienting idea that peddles “simplistic monetary solutions to complex problems of political power”. Meadway opens with the admission that MMT economists have “been on the right side” of debates about “private sector borrowing in the run-up to 2007-8” and “the impact of spending cuts after 2008”. However, the praise ends there. In addition to “the grave danger” of inflation, Meadway argues that MMT has a problem “in relation to democratic politics”. Believing Politicians will close the spending taps or will raise taxes in response to inflation only makes sense if “a government [is] unconcerned with elections” and the alternative, an “administrative agency” tasked with controlling aggregate demand would mean “democracy misses out”. On top of other potential problems, Meadway concludes that “we cannot simply flush away our social problems on a tide of government-printed money”.

In the riposte, Thomas Fazi and Bill Mitchell not only rebut many of Meadway’s arguments but have bad news for anyone who is anti-MMT:

“MMT is not a regime that you ‘apply’ or ‘switch to’ or ‘introduce’. Rather it is a lens which allows us to see how our fiat monetary system already works”.

The confusion then comes down to “the application of MMT” and the ways that governments opt to use their abilities. Fazi and Mitchell admit that there are dangers and governments must be “continually analyzing real resource constraints ex ante and avoiding stimulus beyond those limits”. However, the authors argue that despite its shortcomings, “MMT gives us the power to imagine truly transformational politics, without getting caught up in meaningless debates about whether we can ‘afford’ it or not”.

While politically tinted, both articles help flesh out the edges of the MMT debate and are relatively snappy. For readers who want to dive deeper, Bill Mitchell, Warren Mosler, and Martin Watts gave a broad talk on MMT back in May, hosted by the Gower Initiative for Modern Money Studies.