Modern Monetary Theory
Atomic claims
Modern Monetary Theory (MMT) is a heterodox macroeconomic framework.
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MMT holds that a government issuing its own non-convertible fiat currency cannot be forced to default on debt denominated in that currency.
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Under MMT, the limit on a monetarily sovereign government's spending is inflation and real resources, not solvency.
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MMT developed in the 1990s.
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MMT developed from chartalism, functional finance and post-Keynesian economics.
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MMT is rejected by most mainstream economists.
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Warren Mosler's paper 'Soft Currency Economics' is an early founding text of MMT.
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L. Randall Wray's Understanding Modern Money gave MMT its first book-length academic treatment.
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The name Modern Monetary Theory is generally attributed to Australian economist Bill Mitchell.
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The name Modern Monetary Theory alludes to John Maynard Keynes's discussion of 'modern' state money.
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MMT draws on Georg Friedrich Knapp's chartalism.
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Chartalism holds that money is a creature of the state.
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MMT adopts Abba Lerner's 'functional finance'.
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Functional finance holds that fiscal policy should be judged by its effects on employment and inflation, not by budget balance.
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MMT uses Wynne Godley's sectoral-balances accounting.
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In sectoral-balances accounting, a government deficit equals the non-government sector's surplus by identity.
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MMT proponents hold that taxes do not fund a currency issuer's spending in an operational sense.
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MMT proponents hold that taxes create demand for the currency.
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MMT proponents hold that taxes remove purchasing power.
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MMT proponents hold that bond sales manage bank reserves.
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MMT proponents state that their argument applies fully only to countries with their own floating, non-convertible currency.
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MMT proponents state that their argument does not apply to eurozone members.
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A federally funded job guarantee is the standard MMT proposal for full employment and price stability.
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The MMT job guarantee builds on Hyman Minsky's 'employer of last resort' concept.
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Stephanie Kelton's The Deficit Myth (2020) is the best-known popular exposition of MMT.
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Stephanie Kelton served as chief economist for the Democratic staff of the US Senate Budget Committee.
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Stephanie Kelton advised Bernie Sanders's 2016 campaign.
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The main academic centers for MMT have been the University of Missouri–Kansas City, the Levy Economics Institute of Bard College, and the University of Newcastle, Australia.
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In a March 2019 IGM Forum survey of leading US academic economists, no respondent agreed with two statements attributed to MMT about deficits and money-financed spending.
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Federal Reserve Chair Jerome Powell told the Senate Banking Committee in February 2019 that the idea that deficits do not matter for own-currency borrowers is 'just wrong'.
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A US Senate resolution condemning MMT was introduced by Sen. David Perdue in 2019.
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The 2019 US Senate resolution condemning MMT was reported as S.Res.182.
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MMT authors said the IGM statements misrepresent their position.
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MMT authors state they regard deficits as constrained by inflation.
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Critics argue that MMT's claims are either conventional or wrong.
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MMT assigns inflation management mainly to fiscal policy.
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Critics, including Summers, Rogoff and Krugman, argue that assigning inflation management to fiscal policy is politically impractical.
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Critics argue that assigning inflation management to fiscal policy risks fiscal dominance of the central bank.
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N. Gregory Mankiw and others say MMT lacks a formal model.
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Post-Keynesian critic Thomas Palley argues that MMT understates inflation constraints.
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Whether Japan's high debt with low rates supports or undermines MMT is disputed.
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Whether the inflation that followed pandemic-era deficits in 2021–22 supports or undermines MMT is disputed.
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No consensus exists regarding the empirical record of MMT.
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How far MMT applies to countries dependent on imports and foreign-currency finance is debated.
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MMT argues that monetarily sovereign governments are not financially constrained by revenues or debt.
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A monetarily sovereign government is one that issues its own non-convertible fiat currency.
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Under MMT, taxes do not finance government spending.
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Under MMT, spending is constrained only by the real availability of resources and the resulting threat of inflation.
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MMT builds upon the chartalist theories of money developed by G.F. Knapp.
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MMT posits that for a monetarily sovereign government, government spending operationally precedes taxation.
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According to MMT, the primary macroeconomic purpose of taxation is not to fund government operations.
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According to MMT, taxation is used to create demand for the government's fiat currency.
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According to MMT, taxation is used to withdraw purchasing power from the private sector to control inflation.
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MMT asserts that the issuance of government bonds functions to drain excess reserves from the banking system.
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MMT asserts that the issuance of government bonds helps the central bank maintain its target interest rate.
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MMT asserts that the issuance of government bonds does not function to finance budget deficits.
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MMT theorists state that a binding constraint on government spending is the availability of real resources, such as labor and materials.
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MMT theorists state that a binding constraint on government spending is the inflation that occurs when spending exceeds the economy's productive capacity.
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Economist Stephanie Kelton is a prominent advocate of MMT.
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Former hedge fund manager Warren Mosler is a prominent advocate of MMT.
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A federally funded, locally administered Job Guarantee program is a core policy proposal frequently bundled with MMT.
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Advocates argue a Job Guarantee program would serve as a macroeconomic automatic stabilizer.
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MMT diverges from mainstream Keynesian and neoclassical macroeconomics.
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Mainstream Keynesian and neoclassical macroeconomics traditionally argue that sustained government deficits crowd out private investment by raising interest rates.
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Mainstream economists, including Paul Krugman and Lawrence Summers, strongly contest MMT's assertion that fiscal policy can effectively and rapidly manage inflation.
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Critics argue that relying on Congress or parliaments to raise taxes to fight inflation is politically unfeasible.
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Critics argue that relying on Congress or parliaments to raise taxes to fight inflation is too slow compared to the monetary policy tools used by independent central banks.
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Mainstream macroeconomic theory asserts that large, persistent government deficits increase interest rates.
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Mainstream macroeconomic theory asserts that increased interest rates crowd out private investment.
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MMT proponents dispute that large government deficits crowd out private investment.
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MMT proponents argue that deficit spending inherently puts downward pressure on interest rates by flooding the banking system with reserves, unless the central bank actively intervenes to raise rates.
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Critics argue that the implementation of MMT effectively requires the operational consolidation of the Treasury and the Central Bank.
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Mainstream economists consider central bank independence essential for maintaining long-term price stability.
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External references: Wikidata Q496647