Bill Mitchell — MMT and the MMT Project – Part 1

One of my presentations are the January Sustainability Conference in Adelaide focused on the basics of Modern Monetary Theory (MMT). I was asked by the organisers to provide some clarity on the basics of MMT and to demarcate where MMT starts and finishes. I started the first of two talks I gave at that conference by stating that MMT was macroeconomics. It is within that discipline. It is not within the discipline of law, sociology, psychology, cultural and media studies etc. Macro is macro. I subsequently received a lot of correspondence about this and have had subsequent follow-up conversations with some MMT activists about the meaning of the ‘categories’ I introduced. I thought it would be useful to write an extended account of what I was thinking when I said those things. It will help clarify what I see as the difference between MMT and the MMT Project. You can see exactly what I said if you want to watch the video of the presentation. But, of course, that doesn’t necessarily mean you will ‘know’ what I meant. So this blog post seeks to clarify some of those comments so that everyone explicitly understands what I was talking about. This is Part 1 of a two-part series (split because of length). In Part 1, I discuss the idea that MMT is macro. In Part 2, I discuss what I call the MMT Project and other issues that seem to cause confusion and/or concern.

Must-read.

This is important. It distinguishes between describing and explaining MMT as a macro theory based on institutional operations and stock-flow consistency, which conventional economics do not take into account in the same way, and the project of promoting MMT, e.g, as a policy solution for political consideration. 

To put it another way, MMT as a macro theory is about visualization of potential, , e.g, achieving true full employment by instituting a universal job guarantee, while the MMT project is about actualizing this potential politically through formulating and enacting policy and carrying through on it. The MMT project latter can be approached from a variety of angles.

MMT as a macro theory prioritizes achievement of full employment as a policy solution enacted by the sovereign rather than as the result of an assumed equilibrium resulting spontaneously from natural operation of market forces in a free market. Thus, MMT as a macro theory is an aspect of political economy that claims to provide a solution to the trifecta of production, price stability, and employment, considered as the "holy grail" of macroeconomics. 

Political economy operates on the correct macroeconomic assumption that some key economic factors are dependent on policy choices based on the monopoly power of the sovereign, for example, even in a "free market" system.

Of the MMT "project" AOC recently stated that its basis is organization, in other words, organized political activism. MMT as a macro theory visualizes a route to harmonizing production ("growth"), price stability and employment whereas the MMT project attempts to actualize this vision politically through activism. The MMT project is increasingly active, growing in numbers, attracting people from many fields, and becoming organized politically.

A bit of confusion can arise since at least some of the economists associated with MMT take a policy stance that goes beyond the prioritizing full employment to include a particular approach to "green new deal," for example. 

In the past, Warren Mosler has been politically active in promoting MMT policy solutions and Stephanie Kelton is now the public face of MMT since she has caché as advisor to US presidential candidate Bernie Sanders. So it would be fair to say that some MMT economists are also involved in the MMT project rather publicly. It could also be that MMT economists consult with each other over strategy regarding the project more than they reveal publicly.

All MMT economists agree that the MMT JG is an essential element in MMT as a macro theory adapted to political economy since it is a sine qua non of achieving stable full employment. However, a particular approach to a green new deal is not integral to MMT as a political theory. MMT macro theory just shows how to fund any GND using the government's monopoly power with respect to the state currency resulting from currency sovereignty. 

There could be a variety of ways of achieving this goal of ecological sustainability politically through resource allocation. This would exceed the scope of economics, since the GND is more of an engineering problem. While funding is a necessary condition, it is not a sufficient condition. 

The approach to funding would also involve policy choices, e.g., full government funding, which some recommend, or a mix of public and private funding. Then there is also the issue of fiscal policy choices, e.g., the use of taxation. For instance, tax offsets might have application although that application can never include paying for spending by a currency sovereign.

There is room for disagreement politically in this regard. This involves differences in value systems and world views, for example. 

Bill Mitchell – billy blog
MMT and the MMT Project – Part 1
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia