When I do a search on Google for Modern Monetary Theory, these are the questions that (used to) come up under “People Also Ask”!
What is MMT in simple terms?
A correct operational description of a given currency regime/arrangement
Is Quantitative Easing the same as MMT?
No. MMT does not advocate for QE
QE is a financial asset swap of Government Securities for Cash/Cash deposits.
Further Reading: Greg Hannsgen’s MMT does not advocate (or mean) “monetisation“
Is MMT just Keynesianism?
No.
MMT rejects standard Keynesian thinking about “generalised expansion” in favour of employment buffer stocks and hence increased reliance on automatic stabilizers.
Further Reading: Bill Mitchell’s MMT is biased towards anti-cronyism
Does MMT cause inflation?
No. MMT is not something you implement. The constraints are the real resources – regardless of how they became constrained.
Further Reading: Bill Mitchell’s Ultimately, real resources constrain prosperity
What is the MMT rule?
Not sure. Perhaps the inflation constraint rather than being constrained by revenue.
Perhaps spending then taxing and bonds (STAB) rather than TABS.
My personal favourite though
To some extent, everything in the economy is run on buffer stocks and price rules/controls.
Further Reading: Stephanie Kelton’s The Deficit Myth
What are the problems with (modern) monetary theory?
It is accused of providing free lunches. It is also accused of engaging in naive politics. These are false accusations. There is a free lunch in financial arrangements, being a currency monopolist, and a free lunch in how far the production possibility frontier (PPF) can be pushed.
Turning off financing is done the same way it is now, and it is done even better with more automatic stabilizers. No external intervention is necessary.
The only problems with MMT are ones based on foreign transactions, as listed here:
There are five issues that need to be managed when dealing with foreign transactions.
First, pass-through inflation that comes from the rising cost of imports following a depreciation is a relevant concern.
Second, the balance sheet impact of depreciations when foreign currency debts are present is a concern.
Third, the possibility that foreign reserves dwindle and prevent foreign debt servicing and the purchase of imports is also a concern.
Fourth, some countries are highly dependent on food and energy imports and/or cannot develop on their own.
Fifth, if there is no internal desire to accumulate domestic currency, the government's ability to spend without disrupting domestic prices will be limited.
MMT proponents have long recognized these problems, but instead of giving up to the neoliberal policy agenda, they have embraced policies that work around these problems in order to give priority to full employment.
Further Reading: Eric Tymoigne’s Seven Replies to Critiques of MMT
Does Japan practice MMT?
Yes. And No!
Japan’s experience has invalidated mainstream claims about the dangers of “excessive” deficits and debt. While Japan has the highest debt-to-GDP ratio in the world, it has not faced higher interest rates or inflation or has been shut out of credit markets. Instead, the yields on Japanese government bonds track closely the BOJ’s’s policy rate. This is consistent with MMT’s arguments that high deficits and debt, as conventionally defined, need not have negative consequences for a country that has its own nonconvertible currency.
On the other hand, the Japanese approach to policy has been the antithesis of MMT. Instead of a strong fiscal boost, that could have gotten its economy out of the recession that followed the 1980s speculative boom, Japan has implemented small and inconsistent fiscal measures, reversing course more than once. This has led to higher deficits and debt due to automatic stabilizers, while growth has stalled. Instead of learning from this experience, Japan has moved further away from MMT’s prescriptions by relying on unconventional monetary policy measures, such as QE, which have been largely ineffective in boosting growth or reflating the economy.
Further Reading: L. Randall Wray & Yeva Nersisyan’s Has Japan Been Following Modern Money Theory Without Recognizing It?
Which countries use MMT?
All of them. Remember, MMT is a correct operational description of any given currency regime. It is the financial practice of a given nation.
It recommends all countries achieve monetary sovereignty over time.
Further Reading:
Stephanie Kelton’s How Do You Solve a Problem like Inflation
Fadhel Kaboub’s A Financial Sovereignty Strategy for Egypt
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