Simon Wren-Lewis — MMT: not so modern

"MMT is not original."

 None of the MMT economists have said that all the ideas on which MMT is built are original. MMT calls many things to atttention that were known previously but and now seem to be ignored. MMT has updated these contributions in light of contemporary knowledge and organized them for understanding financial and economic conditions. 

Randy Wray has said that about the only thing original about MMT is the MMT JG, which is an elaboration of Minsky's approach to a JG. Warren Mosler has also pointed out that his "Soft Currency Economics," from which MMT grew, was based on his insight that a currency sovereign has a currency monopoly, which it seems that no previous economist noticed as such. 

The difference between MMT and the neoclassical based mainstream lies in MMT rejecting conventional assumptions and developing macro economics. It does this along lines previously laid out by Post Keynesian and Institutionalist economics.

"Assuming full employment.…"

This is exactly MMT's criticism of the mainstream. The theory is based on assuming full employment when most of the time the economies of developed countries are operating at defined full employment based on NAIRU, leaving millions willing and able to work without a job offer and calling that "full employment." That is full employment in name only. Assuming something doesn't make it so. Economists often miss this distinction.

Even at full employment as conventional economists define it, a large swath of real resources are purposely idled when the capacity to put them to work is available. MMT shows how to do this without incurring excessive inflationary pressure. Not doing so is highly inefficient, in order words, wasteful. It also degrades the effectiveness of the entire socioeconomic system as MMT economists have documented, so that the damage is collateral as well as direct. It is not only economically wasteful, but also results in social dysfunction and cruelty to the individuals who are rejected as waste.

"This raises the question of why MMT seems to have quite a following. Perhaps it is a reaction to mediamacro’s often implicit assumption that a country like the UK or US could go bust through a forced default. And, to be fair, some mainstream economists seem to want to keep that misapprehension alive, while others take the existence of independent central banks as a binding constraint. It is suggested too often that the government cannot create money in reaction to a funding crisis because this would cause inflation, even when we are at the ZLB, inflation is well below target and the central bank is creating huge amounts of money."

Now that some economists' have figured out that the conventional policy approach is in error, what are they doing about it. It might just be that MMT has it's following because it is proposing policy that adherents view as preferable to the current policy and its dismal results, when people are told that "there is no other way."

Established economists need to start using their bully pulpits to remind that many answers to current issues were provided long ago and seem to be forgotten, ignored, and even denied now.

"Lately these MMT comments have been getting rather annoying, so I thought I would write all this down. Luckily I do not have to, as Thomas Palley has already done it for me (here and here). I have absolutely nothing to add, except to note that the upshot is not that what MMT says about this budget constraint is wrong, but that it was well known long before MMT and that it is hardly a complete macro theory.…"

L. Randall Wray, ON THE SUPPOSED WEAKNESSES OF MMT: RESPONSE TO PALLEY

Bill Mitchell, I wonder what the hell I have been writing all these years

Phillip Pilkington, Palley’s Critique of MMT: Post Keynesian or net-keynesian?

Eric Tymoigne and L. Randall Wray,  Modern Money Theory 101: A Reply to Critics

Mainly Macro
MMT: not so modern
Simon Wren-Lewis | Professor of Economics, Oxford University