MMT explained less derisively
Whenever I derisively tweet about MMT (Modern Monetary Theory), I get a ton of responses claiming that I don't understand MMT. Well, of course, I'm deliberately not describing it as proponents would, but highlighting what I think is wrong with it. In other words, I often describe MMT as an excuse to print money for social programs, but of course, that's not how MMT proponents would describe it.
So in this blogpost, I'm attempting a more neutral description. It's this blogpost that proponents can point to when saying I just don't understand the subject.
Positive vs. Normative
Like all economics, we have the struggle between a positive description of how things work (with no political bias) and a normative, prescriptive discussion of how things ought to work.
MMT should be understood from both points of view.
At its core, MMT attempts to describe how money works from an alternative point of view. From this point of view, it's pretty interesting, and is a perspective worth exploring. This isn't the controversial part, other than to point out that we still lack a lot of data on how things might work in practice, such as using taxation to reduce inflation.
The controversy is that MMT gets bundled with political policy. In other words, when you listen to an economist give a speech, it'll be full of policy proposals, like printing money to guarantee full employment. This is where people like me become derisive. It's the same problem I have with "Austrian" economists that tilt their "positive" description of economics with "normative" ideas.
MMT description
MMT has a different model for the money supply and inflation.
At its core, MMT treats government spending and revenue as a black box. Any government spending creates ("prints") money. Any government revenue destroys money. If there is unemployment, simply print money to employ those workers. If there is inflation, simply increase taxes to reduce the money supply. Instead of a "tax and spend" approach to government spending, it's "spend and tax," where the taxes are whatever is needed to contain inflation, and not otherwise related to the spending. In other words, you don't tax to get revenue to spend, you simply spend whatever is necessary, and then tax people as necessary to contain inflation (which may be more or less than what was spent). Bonds are a means of setting interest rates rather than a means of getting money to spend.
My description here is not quite what you'll read in the Wikipedia article nor what you'd get from asking an AI. My goal here is to demonstrate I understand the subject well enough to give a slightly unusual, and yet correct, description. I'm not simply repeating what I've read elsewhere. Here's what Wikipedia and AIs describe:
Wikipedia: a theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires
AI: Modern Monetary Theory (MMT) posits that governments with sovereign currency can finance spending through money creation without solvency risks, prioritizing full employment and inflation control via fiscal policy.
In any discussion, you'll eventually get to this MMT claim: Countries that print their own currency (US, Japan, etc.) cannot default on debts denominated in their own currency; they can simply print money to cover their debts.
This is a weird statement because of course they can default on debts: printing money causing hyperinflation causes the debt to go to zero. The fact that it's technically repaid doesn't change the fact the bond holder lost all their money. MMT is simply sticking to a self-serving definition of "default."
This isn't necessarily the problem, though. MMT says to not print the money unless the inflation can be contained, such as through taxes or selling more bonds. Their point is that it's inflation that's the primary constraint to spending, not the amount of debt or tax revenue.
But this is the core of the criticism. Mainstream economists believe that we don't understand inflation well enough to contain it when government starts printing money. In other words, everyone (including MMT proponents) agrees that indiscriminate printing of money causes hyperinflation. The disagreement is that MMT promises to do so "discriminately," whereas everyone else believes they can't.
Everything I know about economics suggests that we are far from being able to contain inflation.
Normative policies
The reason I'm derisive about MMT isn't the descriptive aspects of the model, but the way it's twisted to political goals. Any economic theory that includes government policy is suspect. That includes the "Austrian school" libertarian policies that I'm otherwise a fan of.
For example, if you print a bunch of money to employ out-of-work construction workers (as MMT wants), then you'll need to claw back some of the "printed" currency with taxes to avoid inflation. But who you tax makes a difference. Giving such money to consumers increases consumer prices, so ideally, you'll want to tax consumers to prevent such inflation, such as through a nationwide sales tax.
But MMT wants to redistribute wealth: give money to workers and tax the rich. But if you tax the rich in response to higher consumer prices, you won't get the impact you want. You'll mostly reduce asset prices (houses, stocks, fine art, etc.) rather than reduce consumer prices.
The point is that every step where I might want to use the model to describe something in the economy, I see that they've jumped to normative political policy, such as redistribution of wealth.
MMT is absolutely just left-wing policy searching for justification. The more novel the model, the more it's resistant to critics.
Conclusion
The point of this blogpost is to give more opportunity for critics to tell me "I don't understand MMT." I'm describing it in my own words, not simply regurgitating an AI. The next time I derisively describe it, such as "print money for socialist programs," and they say I don't understand it, I'll point them here.