Magic Pudding Monetary Theory (MMT)

The most important element in understanding how an economy works is to begin from its resource base, its existing infrastructure, its labour force and its entrepreneurs. Then mix in the laws and regulations, along with the personal beliefs of the population about the market economy. If you get just the right combination of all of that, you will get rising prosperity.

Also needed is a system of credit creation and a mechanism for supplying a medium of exchange, but that comes last of all. You have to get the real side of the economy in place and then you can worry about ensuring that the supply of money grows more or less in sync with the number of transactions taking place.

So into this comes Modern Monetary Theory, the realm of cranks of such a spectacular level of ignorance that it is quite astonishing to see these people in action. Warren Buffett Hates It. AOC Is for It. A Beginner’s Guide to Modern Monetary Theory.

This state of confusion isn’t good because Modern Monetary Theory, once confined to blogs and a handful of colleges including the University of Missouri at Kansas City, suddenly matters. In the U.S., the left wing of the Democratic Party is citing MMT to make the case for massive federal government spending on a Green New Deal to wean the U.S. off fossil fuels and fund Medicare for All. It’s virtually certain that MMT will be dragged into the debates of the 2020 presidential race. So the time is right for a semi-deep dive into Modern Monetary Theory—what it is, where it comes from, its pros and its cons.

Are we immune from all this? You better hope so. From the AFR today: Bernie Sanders’ senior adviser has a message for Morrison.

The 2020 US presidential candidate Bernie Sanders’ senior economic adviser, Stephanie Kelton, is urging the Morrison government to ditch its surplus, spend money on climate change and prepare for central bank obsolescence.

Touring Australia as the University of Adelaide’s Geoff Harcourt Visiting Professor, Professor Kelton told The Australian Financial Review people had become less concerned about deficits and that the government should rev up spending through the use of the controversial Modern Monetary Theory.

Bernie Sanders’ economic adviser Stephanie Kelton says the Morrison government should ditch its surplus and spend money on climate change.

“The number that gets churned out of the budget at the end of the fiscal year, is essentially, unimportant,” Professor Kelton said, “Every deficit is good for someone.”

“There’s untapped potential in the Australian economy in the form of idle capacity, especially labour, that the government can afford to run its fiscal policy more ambitiously to make more judicious use of the available resources.

“I would argue that there’s clear evidence that you’re not doing that here in Australia.”

MMT really stands for Magic Pudding Monetary Theory. They are just thieves who will rob you by inflating faster than the rest of us can keep up with their spending. And because they are the government, they will get to spend it first.

My thanks to Spartacus for forwarding these articles.

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16 Responses to Magic Pudding Monetary Theory (MMT)

  1. John A

    The 2020 US presidential candidate Bernie Sanders’ senior economic adviser, Stephanie Kelton, is urging the Morrison government to ditch its surplus, spend money on climate change and prepare for central bank obsolescence.

    Well, one out of three is about the best baseball batting average available (in corporate terms; see Up The Organisation by Bob Townsend).

    Obsoleting the RBA would be a Good Thing, especially given its collective embrace of Magic Pudding thinking. However, ditching the surplus and spending money you don’t have? Not so much.

  2. Leo G

    Obsoleting the RBA would be a Good Thing, especially given its collective embrace of Magic Pudding thinking. However, ditching the surplus and spending money you don’t have? Not so much.

    More Magical Monetary Theatre than theory?

  3. Arky

    how an economy works is to begin from its resource base, its existing infrastructure, its labour force and its entrepreneurs.

    ..
    No.
    Everything flows from culture.
    A healthy culture will produce good(s).
    An unhealthy culture with produce sickness and death no matter what else is going on.

  4. Tom Atkinson

    Steve, the link to the article you cited is broken. Please fix. Thanks.

  5. Ƶĩppʯ (ȊꞪꞨV)

    MMT=communist cucknomics

  6. rich

    MMT is built on a truth = fiat money comes from the government printing it. Paying it back to them destroys it. Spending money they print puts it into circulation with Cantellon effects.

    But Steve is right. The reason why credit expansion and money printing is wrong is because circulating more money doesn’t circulate more needed hospital beds. What it does do is increase the desperation of those using the money to avoid its dilution by spending.

  7. tbh

    Every time I see an explanation of MMT I marvel at how easy its proponents make it sound, but at the same time how wacky it sounds to anyone with an modicum of common sense.

  8. Pyrmonter

    Greg Mankiw has rather a good take on it, which I think I’ve posted before:

    https://scholar.harvard.edu/files/mankiw/files/skeptics_guide_to_modern_monetary_theory.pdf

    What somewhere respectable like Adelaide is doing inviting Kelton to lecture escapes me.

  9. Mother Lode

    Every time I see an explanation of MMT I marvel at how easy its proponents make it sound, but at the same time how wacky it sounds to anyone with an modicum of common sense.

    It always makes me think of conventional current in electronics.

    The conventional current is the notional movement of positive charge through a circuit where it is actually the movement of negative charges (electrons) that move in the other direction that really happening, and conventional current is a kind of derived shorthand.

    MMT just looks at money moving. The important thing is the transfer of goods and services with value in the other direction, and without which the money would not be spent. They think that moving money around creates value.

    Think of it this way – you have a pile of dirt and a hole to fill. Some genius pipes up and says “Instead of lifting that heavy dirt and carry it to the hole, why not scoop up the hole (which must weigh nothing) and put it on the pile. That would be way easier!

  10. Trax

    Lots of reported success coming out of Zimbabwe and Venezuela. If anything went wrong they probably didn’t print enough money and really should have tried harder.

  11. Arky

    MMT is surely just the old trick of inflating away debt?
    While pretending that you are borrowing more because inflation is dead?

  12. Arky

    Or in other words, inflationary policies are coming one way or another, and they just need a fresh coat of deniability on it?

  13. Tel

    https://www.bobmurphyshow.com/episodes/ep-18-warren-mosler-defends-the-essential-insights/

    Bob plays this interview very straight and without confrontation. I could not have done that, I would have clocked the turkey.

  14. Arky
    #3286305, posted on January 8, 2020 at 7:53 pm

    MMT is surely just the old trick of inflating away debt?

    To the point of engaging in massive seignorage so that your currency and banking system eventually collapse.

  15. JC

    It’s not as though MMT has never been tried before. It’s been the monetary system du jour since at least WW2 in sth America. And what success.

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