Mosler-Keen debate 4PM NYT/9PM GMT Sunday May 6: my points of contention with #MMT

Apr 28, 2018



The debate is now confirmed for a more reasonable hour for me (10PM in Amsterdam) than first proposed (2AM!). So Warren and I will now debate the finer points of MMT and economics in general. At the allotted time, go to and you should be able to watch the debate live. Steve Grumbine will be chairing, and I expect firing questions at myself and Warren.

To "telegraph my punches", of course, in general, I agree with MMT: it is based on the proper accounting of the creation and destruction of money in a mixed fiat/credit monetary economy. Government spending in excess of taxation is (a) perfectly feasible, (b) creates money (and net financial assets for the private sector, without which the non-bank financial sector would necessarily be in net negative equity), and (c) is limited by its practical effects, rather than the prospect that the government can run out of its own promises to pay.

My disagreements are in areas where I think MMT does not go far enough, and also where I think it goes too far:

  • The same accounting that concludes that (a) banks create money (but net  zero  financial assets for borrowers) by lending more than they get back in repayments and (b) governments create money by spending more than they get back in taxation implies that (c) running a current account surplus (exports exceeding imports) also creates money for the surplus country.
I therefore think the widespread MMT position that "exports are a cost and imports are a benefit" are the product of the American origins of MMT, since the US dollar is the international currency, and it therefore doesn't face the international exchange constraints that face other nations.
It also under-emphasises the physical side of economics:  manufacturing is the major source of trade surpluses, and trade surplus nations like Germany, Japan, South Korea (and now China) have both built that manufacturing capability using their trade surplus, and keep that surplus in place by further advancing their manufacturing capability over time.
  • Some MMT advocates interpret the implication of MMT, that all resources including labor can be fully-employed if the government runs a big enough excess of spending over taxation (I refuse to use the word deficit, given its false negative connotations here), to mean that the government "causes" unemployment.
To me, this is rather like blaming cold temperatures inside a house on the air-conditioning system rather than the weather outside. Yes, the house would be warmer if someone turned the temperature up, but fundamentally it's cold inside because it's cold outside.
It also implies that in the absence of government (or equally, if government always ran a balanced budget) there would be no unemployment: in other words, it's Say's Law in another guise.
From my complex systems perspective--and I believe from the historical record of the 19th century when government (including in the USA) was much smaller than today--capitalism is a far-from-equilibrium monetary and physical production system which can crash into a private-debt-driven debt-deflation under its own dynamics. It is not something that reaches the tepid equilibrium of Say's Law.
  • Finally, I think this is bad politics. The bland way in which this is stated in some MMT literature could easily be used by libertarian and Austrian economists to say "well great then, let's abolish government and bring about full employment (via Say's Law).
MMT can instead argue that government can reduce unemployment and stabilize an unstable economy by focusing on the essential contradiction in capitalism that proper monetary accounting exposes: in the absence of government money creation, the non-bank private sector would necessarily be in negative net equity, yet at the same time most economic actors desire to achieve positive net equity. This gives a pure credit monetary economy a necessarily deflationary bias, which net money and private sector financial asset creation by a government than spends more than it taxes can overcome this contradiction, thus allowing both the banks and the non-bank private sector (households and firms) to achieve positive equity.

Apart from these issues, as noted, I'm in agreement with MMT, and of course I acknowledge Warren's role in creating this insight in the modern era, after it was gained by American economists via the WWII experience (including the then Chairman of the New York Federal Reserve Beardsley Ruml), but lost by the rise of American Neoclassicism from Samuelson on.

I'll conclude with images of the long-neglected paper by Beardsley Ruml (1946) "Taxes for Revenue are Obsolete", American Affairs, January 1946, pp. 35-39.

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