“Modern monetary theory (MMT) is dangerous nonsense.”
That line, or something very close to it, is now appearing with weary regularity from left-wing economists and commentators James Meadway, Grace Blakeley, and Paul Mason, and the circle of commentators around Novara Media. It is as if they are desperate to undermine all that Zack Polanski is saying and doing right now, even though some of those people have actually joined the Greens. Their tone is often not just dismissive, but derisive. And yet, when you examine what they say, it becomes very clear, very quickly, that they are attacking a version of modern monetary theory that exists only in their imagination.
They usually make five claims.
First, they suggest that MMT says governments can “print money without consequence”, but that is absurd. No MMT economist has ever said this. MMT quite specifically says printing money has very real consequences if there are no real resources for the government undertaking that exercise to buy. Then there is a very real inflation constraint on its behaviour, and it repeats that point to anyone who will listen as often as it can. This claim is, therefore, complete nonsense. All that MMT describes – accurately – is how money is created and who controls that process.
Second, MMT's opponents claim it ignores the role of tax. Again, they are arguing with a straw man. Taxation is absolutely central in MMT: not only does it explain the central role for a government's legally created currency, which is forced into use in a jurisdiction becase tax must be paid using it, but it also drains excess spending power, meaning tax is an essential tool in controlling inflation, and it is one of the primary tools for shaping the economy, whether by redistribution of income or wealth, or repricing market failure, or shaping fiscal stuimulus. What MMT says is that taxes do not fund spending, but that is a fact. But MMT never says tax is unimportant; in fact, it says the exact opposite.
Third, they say that MMT denies the need for bond markets, and so it is irresponsible. In fact, MMT explains – correctly – that bond issuance is a policy choice, not a funding necessity for a currency-issuing state. The government issues bonds to give pension funds, life assurance companies, banks, foreign governments, and others somewhere to park large sterling balances, to support interest-rate management, and because we have chosen to maintain the ritual of bond issuance established during the Gold Standard era, which ended, at the latest, in 1971. But the state does not need markets to lend it money denominated in its own currency because, first of all, it creates it in the first place, and second, if it wants more of it, then it can create more whenever it wants. Again, this is just an accurate description of reality.
Fourth, they argue that MMT would lead to runaway inflation, but there is no evidence to support this claim. Nothing in MMT recommends permanent fiscal expansion. All MMT says is that the appropriate level of government spending is the level required to deliver full employment and sustainable use of real resources within the economy. Saying so, the inflation constraint is explicit. When critics claim MMT denies inflation, they reveal that they have not read the literature. It would be argued that MMT is obsessed with controlling inflation, but never with promoting it.
Fifth, they insist MMT lets governments off the hook – that it tells politicians they can do everything without choices. In fact, MMT is all about choices. However, it requires those choices to be made honestly. You cannot, for example, blame the markets for austerity once you understand that a currency-issuing state is not revenue-constrained. You have to justify austerity as a political act. That is precisely why some on the left resist MMT: it forces them to own their politics.
So why this hostility from sections of the British left?
There are three reasons, sometimes overlapping.
First, some, and perhaps all, of these commentators have invested their entire political identity in the belief that “the markets” constrain Labour governments. This is their comfort blanket. MMT disrupts that narrative. It says Labour is free to act as it wishes, within available resource constraints. Markets cannot stop it from doing what it wants. The limits on what it does are, then, political, not financial. This has two consequences. First, it takes away the excuses. Secondly, it forces MMT's critics to say what they would do. That is, I suspect, deeply unsettling. This, after all, is much harder than blaming "the markets" for everything.
Second, many of these critics built their arguments during the Corbyn years on a very particular theory of Labour needing to invest to grow. That theory (once my idea of People's QE was rejected) was always based on the assumption that the state must borrow from private markets to fund investment. When MMT points out that borrowing is not the constraint, their entire framework begins to wobble. Rather than rethink their economics, it is easier to mock MMT.
Third, some are not comfortable with MMT's political implications. If a government is not constrained by tax revenue, then the question becomes: who benefits from public spending? Who gains from austerity? Who holds power in the economy? That leads directly to the politics of class and distribution, which these critics of MMT say it lacks within its framework, when the exact opposite is true. MMT does very clearly require that the politics of power be confronted when financial constraints do not exist, because it then becomes clear that it is power (and power hierarchies) alone that prevents things from happening when MMT is properly understood. Many on the political left, in whichever party they currently reside, would seem to prefer to stay at the level of neoliberal accounting identities rather than confront the actual politics of power, which MMT would require them to do.
What are the counter-arguments?
These are straightforward.
First, MMT reflects operational reality:
- Every time the government spends, new money is created.
- Every time tax is paid, money is destroyed.
This is not a theory. It is, in fact, how the Bank of England says the system works.
Second, MMT offers a coherent explanation of inflation. Inflation arises when spending exceeds the capacity of the economy to supply real goods and services. The constraint is real resources, not the Treasury's bank balance. That is why the correct tools to manage inflation are directed at resources, not arbitrary financial targets, which is why interest rate policy can never be effective in tackling this issue. And it also has to be recognised that in practice, we are a small open economy with a floating exchange rate. Inflation, more often than not, is driven by external forces beyond national government control, and realising this is essential; otherwise, you end up with the wrong policy response. Sometimes the correct response is to let that exchange rate float and do nothing else, knowing that such pressures always pass, and usually quite quickly. Inaction can be the right policy choice.
Third, MMT restores democratic accountability. It says governments cannot hide behind markets. If they cut services, cap benefits, or impose austerity, they do so because they choose to and not because the bond markets made them. As we have seen repeatedly this year, markets are not the grown-ups in the room. They are institutions whose power exists because politicians choose to give it to them. MMT demands that this be admitted.
Fourth, MMT is the only framework on the left that takes the climate crisis seriously. The green transition cannot be financed by the private sector. It requires public direction on a scale never seen in peacetime. MMT explains how to mobilise those resources without pretending that taxes on the wealthy must be collected first. That does not mean those taxes should not be imposed; it just means they are not the precondition for action.
Finally, MMT forces the left to stop lying to itself. You cannot build a caring, sustainable economy while pretending that “there is no money left”. Nor can you do it while basing your economics on myths designed to protect the power of finance.
Conclusions
There is nothing radical about MMT once you clear away the caricatures. It describes how money works, it places the real constraints where they belong, and it asks politicians to take honest responsibility for the decisions they make.
That, I suspect, is why some on the left react so angrily. MMT removes their excuses.
And perhaps that is exactly why we need it.
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I think this is why it is important that MMT proponents have discussions with their critics.
Polanski is doing this with the results we see.
If ever there was a need for podcasts with the critics, the time is now.
Paul Mason……………what a disappointment………..anyhow, a ‘Swiss Army knife’ of a post – thank you very much.
The paucity of understanding of MMT betrays that atavistic nature of the trad Left – the trad Left is all about the ‘eternal struggle’ – winning is not the aim, just the struggle which leads to the politics of no ideas, just like Neo-liberalism with its fascist tendencies.
Thank you Richard. This needs to be an article in a national newspaper.
How do those opposed to MMT think money is created?
I am glad you spent as much time as you did on the “WHY do they say these things?” question, because that is where the challenge needs to be.
It’s politics.
The left are entitled to their political opinions, but they are NOT entitled to tell lies about money and MMT to promote them and the reasons behind those lies need to be exposed.
Their dishonesty about money is as bad as, possibly worse than the neoliberal right.
(and I speak as one who attended a campaign training session in central Bristol led by Bastani, in the 2019 election)
In politics, like religion, once ideology and dogma overtake the pursuit of justice and righteousness, then the focus shifts to gaining factional power, rather than achieving functional change.
(Hence the current mess in Your Party.)
My lead question to Novara in a face-to-face interview would be,
“Why do you tell lies about MMT?”
with the follow up of
“Well, here’s 5 lies you’ve told … … … … … what is it you’re so scared of? Why keep pretending that water isn’t wet, or that governments don’t create money?”.
They don’t want to know simply because you are taking away from them their raison d’etre. Rather like witch doctors confronted with real medical knowledge, they are clinging to the wreckage of their handed down wisdom from their ancestors. Their economic ‘knowledge’ doesn’t fit reality, and they have nowhere to go.
They remind me of T S Eliot’s magi who witnessed the birth of christianity, but realised it was also the death of their present beliefs. They journeyed home realising they would have to change and it wasn’t a pleasant prospect for them.
Agreed
A good post.
My only quibble is what you say about MMT as a “coherent explanation of inflation”…. or rather what you omit. Yes, it is a neat explanation but in practice we are a small open economy with a floating Exchange Rate. Inflation, more often than not, is driven by external forces beyond national government control…. and realising this is important otherwise you end up with the wrong policy response.
I have updated for that. Thank you.
Thanks Richard. Paul Mason’s recent article in the New World in which he denounced MMT really infuriated me. It was absolute nonsense. I am glad you have made the point about MMT reflecting operational reality. It is clearly acknowledged in the relevant legislation and is briefly highlighted in the current edition (June 2018) of the Bank of England’s own document “The Bank of England Act 1988 and the Charters of the Bank and related documents”. It would not surprise me if none of these commentators have read, let alone understood, these documents. I agree with your suggestion that they do not do so out of pure political cowardice.
Thanks and much to agree with
“It would not surprise me if none of these commentators have read, let alone WANTED TO undersand”
There you go old chap – sorted. They don’t WANT to understand… because:
Enlightenment is a destructive process. It has nothing to do with becoming better or happier. Enlightenment is the crumbling away of untruth. It is seeing through the facade of pretence. It is the complete eradication of everything we imagined to be true.
Adyashanti.
it’s the path I try to follow, don’t hang on to beliefs (they are probably wrong), be open to change. James Meadway, Grace Blakeley, and Paul Mason………mental pygmies, I pity them. (I watched Meadway @ the Green conf: what an utter pompous pillock… with everybody deferring to him…).
It’s the old saying: “First they ignore you, then they laugh at you, then they fight you, then you win.”
Good to see that we have moved out of the first zone; however, there is still a long way to go. More power to you and ZP, there is clear progress!
I think we are in zone 3
Back in 1992 a colleague passed me a draft paper to read. It came from a Hedge Fund on headed note paper with the strapline…
“First they ignore you. Then they laugh at you. Then they attack you. Then you win.”
It was a primitive description of MMT but the thrust of the paper was that governments could never default in their own currency. Said hedge fund bought local currency debt debt hedged into US dollars earning large “risk-free” spreads.
At the time (1992) we government bond traders said – “of course this is the way money works – why the pompous paper?”
In 1998 after Russia defaulted on its ruble debt and the Hedge Fund took a massive loss some unkind soul found a copy of the paper and pinned it to the wall …. with a minor adjustment.
First they ignore you. Then they laugh at you. Then they attack you. Then…. they laugh at you again.
The author of the paper? Warren Mosler…. (self appointed) “high priest” of MMT.
🙂
Mr Parry I think a spelling error (surely 2 “b”s thus reflecting the debt and its worth no?):
“defaulted on its rubble debt”
Your recent clarification of the glossary entry and this follow up are great. Good job (as always). I believe I’ve got to grips with MMT and countries with fiat economies. At least enough to present it with confidence to my neoliberal relations and to spread the word.
However, and I might be naive here, I live in Cork, Ireland in the Eurozone, so no fiat currency. How does MMT work in this situation? I need to get it right for friends and neighbours here.
How does anything work in the make believe economy that is now what Ireland has? The Euro is the least of your issues.
I wasn’t paying attention when Russia defaulted on Rubl debt. What actually happened -in MMM terms?
MMT says don’t borrow in foreign currency.
MMT says any country that does can default.
That’s why it says don’t do it.
The Russian default in 1998 was interesting. They did have outstanding debt denominated in USD but most was local currency debt. Huge amounts of this RUB debt was held by western European banks in combination with FX swaps to eliminate the risk of RUR depreciation. They owned what appeared to be “risk free” assets delivering USD returns substantially above the USD risk free rate. Of course, monetary sovereignty in RUR meant that Russia could always create the RUR to pay back this debt if/when banks did not wish to roll over their investment but they decided it was better to default than supply huge amounts of money to an already inflationary domestic economy that did not have a functioning tax system. In short, they chose to shaft the foreign banks rather than risk hyper-inflation. It was a reminder that credit quality depends on ability AND willingness to repay.
They kept paying on their dollar bonds in order to keep “good standing” with international markets (perhaps remembering it took over 70 years to regain access to bond markets after the 1917 default).
While they are, obviously, hostile to MMT, isn’t it time they were called by their proper name? Liars?
As an MMT advocate who has never met another human in real life that understands how the economy works, I spend a lot of time trying to look at the counter arguments, very much asking myself “am I the crazy one?? Maybe I’m wrong in this??”. But all I ever come up against are the same arguments you’ve outlined here…i.e a load of arguments that are almost completely contradictory to what MMT actually says.
I’ve come to a similar conclusion to yourself as to why these people are impenetrable despite the nonsense of their arguments…it’s almost impossible to convince people that everything they’ve ever believed is just wrong, even if the alternative is actually better. It’s harder for them to accept that all the hardship they’ve endured is completely unnecessary, than it is to just accept the hardship.
Thanks and gods luck.
Yes, was very disappointing with the analysis on the recent Novara video, I am normally a big fan. I was kind of shocked too when Michael Walker clearly had not bothered to do his homework
https://youtu.be/7X9b8xCVkTM?t=434
And again, it then descends into the usual “economic flat Earthism” (at least that’s how it looks to me) re “you can’t simply spend spend spend” etc (you might fall off the edge of the Earth)
More nonesense from Novara here:
https://www.youtube.com/watch?v=7X9b8xCVkTM
Yet again Meadway – dissing MMT and lying about it. Meadway – a LINO tankie that jumped ship and is now screwing things up in the Greens.
(oh & apparently its dead difficult for the BoW to cancel the bonds it holds – oh go on Meadway – instead of making assertions – explain why………….silence).
They are shown as cancelled on the Whole of Government Accounts – but I suspect Meadway has no clue what accounts are or what they mean, or that double entry is fundamental to economics.
Aaron Bastani from Novara media describes the budget as ‘surprisingly progressive’. He does not begin to explain how he arrived at this conclusion.
It just is not…
Great blog Richard. Great breakdown of how people have forged in themselves identities in reaction to an ideology, and you rightly point out, if that ideology is explained as being false or incorrect, that by default threatens people’s forged identity that they have for years defended.
I’ve only found myself the MMT community’s explanation of how the government actually operates, in the last several months so I am having a lot of catching up. I have been amazed why some seem to be so heavily resistant without offering evidenced based alternatives.
Thanks as ever Richard!
Thanks
I was converted to MMT by the author some time ago and I accept the explanations he advances here. I believe the piece would have even greater authority if it were rewritten in academic language without the personal references and pejorative terms. When they go low, go high.
I have done both.
This is a not an academic site.
… and thank goodness for that.
Michael Obama no longer says when they go low, we go high. The Obama’s know what gets under the skin of Trump and those that are post-truth. Jokes. And there is nothing funnier than the truth. Trump can’t stop talking about birth certificates because he is emotionally out of control and full of rage 14 years on. We need more.
“When they go low” – I get down & dirty in the gutter and go for their giblets. Works every time. 🙂
Fight fair and clean? Nah, fight dirty & win.
I don’t understand how those on the left who were massively in favour of borrowing a lot to money when interest rates were low look at MMT and dismiss it. They appear to me to be tone deaf and addicted to class politics.
I am an advocate of MMT myself and there are other advocates in the Green party’s Economy Policy Working Group. It may be a majority view, but MMT is not, at least yet, formal Green Party policy. Its formal adoption of policy is one of several practical progressive changes to its manifesto that could be made.
MMT is alert to the dangers of excessive inflation, that is above the 2 percent target.
But there is a danger of excessive inflation implicit in the Green party’s program, both as it stands and as it may develop.
First, a progressive tax system would produce a greater tax yield from the rich from both income and wealth, and possibly a reduced yield from poor taxpayers, and redistribution from rich to poor taxpayers, together with full employment would produce more effective demand because of the balanced budget multiplier, with the rich having a lower marginal propensity to spend and the poor a higher such propensity.
Second, MMT with ongoing judicious budget deficits, not necessarily fully covered by borrowing from banks, either in new bond issues or by quantitative tightening, would itself be expansionary, although it should also produce extra productive capacity via increased investment in public services.
And third, a subsistence Universal Basic Income, would itself produce significant excessive yearly inflation. Even without the other two factors, a subsistence UBI, at say 60 percent of the median UK wage, or anything approximating to it, would be ruinously inflationary. It might make 10 percent UK annual inflation a regular thing. 40 million non-pensioner adults would be entitled to a UBI and it would be impossible to claw back this free income from the rich, however progressive the tax system became.
The first two policy items are justified, but the redistribution from a progressive tax system must preponderately take the form of improving public services, under Universal Public Services, disproportionately benefiting the poor, or at least the non-rich, through making public services affordable, available and accessible. In this way, capacity can be increased rather than merely extra demand that UBI or direct redistribution from rich to poor would entail.
There is still urgent work to be done to make the Green Party’s economic policy more coherent and comprise exclusively practical policies. Several omissions must be rectified but the UBI is the most obvious policy that must be dropped.
Much to agree with. But.
In terms of gov investment & taxation – perhaps gov spending needs to be viewed in two ways.
Investment: if it is bricks & mortar, transport, energy – long run assets – takes time to recover the spend as tax. But you end up with assets that give a “yield” (be it in kind or monetary).
Non-investment spending e.g. Basic income. This has a much diff time frame in terms of tax recovery. I’d also question the inflation impact. Poor people are constrained in their spending (they lack money). If they are less constrained, sure they will spend more, but that spending is usually recovered quite quickly as tax. Also the UBI could be gradually introed and thus avoid significant inflationary impacts.
Tax on the rich I see more as a societal modifier – rich buggers have bad habits (conspicuous consumption) which spill over into society – they act like a carrot – look if you work hard you too could have a 1 acre plunge pool (I extemporise) etc. If that dissapears then you end up with a society less focused on CC. Just some ideas.
I have never seen anything like a full examination of how a UBI economy might work. Objections are usually based on “if the economy continues to function almost exactly as it does now, bad things would happen”. In reality, everything would have to change. For example defining a minimum wage is a nonsense: if you offer jobs that people are willing to do for £1/hr, that’s perfectly sensible. If UBI is set at a living wage, there is no need for an on-ramp for taxation… all earnings can be taxed at 40% or more. Businesses benefiting from reduced wage bills may need to have that benefit offset by significantly increased Employer’s NI. And so on.
If you’re going to decry UBI, you should at least do the full work to prove your case. I accept, that is a criticism that could equally be aimed at those who support UBI, with just as little formal study. Both sides of the argument must do better!
I have done the work.
https://classonline.org.uk/docs/2013_Policy_Paper_-_Richard_Murphy__Howard_Reed_(Social_State_-_Idleness.pdf
Seems as though the site with the classonline.org.uk with your pdf has been hijacked by a casino /gambling site :
https://classonline.org.uk/docs/2013_Policy_Paper_-_Richard_Murphy__Howard_Reed_(Social_State_-_Idleness.pdf
A quick search did not find it.
Can it be found elsewhere ?
Also available here https://openaccess.city.ac.uk/id/eprint/16544/1/2013_Policy_Paper_Financing%20the%20Social%20State-_Richard_Murphy__Howard_Reed_%28Social_State_-_Idleness.pdf
So you print some money to funds something desirable – courses for the unemployed sounds good, but it could be anything. Production does not expand as fast as the money supply so inflation shows up. So you have to raise taxes and that’s a political problem.
We have pundits claiming to be serious advocates of MMT saying that when inflation shows up you reduce inflation by actually cutting taxes, in particular VAT, heck even have negative VAT.
It’s a cult when people are deriving solutions like that to inflation.
If you want to attack MMT on inflation, you should at least understand it first rather than making baseless ad hominem attacks claiming it is a cult.
Let me deal with the misconceptions.
First, modern monetary theory does not say governments should just “print money”. It observes that governments already create new money literally every time that they spend. The real question is in that case, are we going to use that power to deliver public purpose, or to appease financial markets while people and resources lie idle? MMT makes clear when choices are needed.
Second, MMT is crystal clear: the constraint on government spending is not money, but real resources. If there are unemployed people willing to work, spending to employ them is not inflationary — it increases the productive capacity of the economy.
Third, inflation is not typically caused by “too much money”. The inflation we faced from 2021 onwards was, for example, wholly caused by external supply chain shocks created by Covid reopening and speculative reaction to war in Ukraine. Economic policy did not create this inflation and monetary policy had no way it could address it. You will have to work hard to find any recent UK inflation created by excess money.
So what about taxes? In MMT, taxes are one of the tools used to regulate inflation by withdrawing money from circulation. But that does not mean “always raise taxes” when inflation appears. It means we should choose the right taxes and the right policies for the cause of inflation.
VAT directly increases prices. So if inflation is concentrated in essentials like energy and food, cutting VAT can help bring those prices down. That’s not cultish — it’s economics practised across Europe. Meanwhile, if inflation is profit-driven, taxing excess profits and regulating abusive market power are the appropriate responses.
There is nothing magical about any of this. It is simply policymaking grounded in real-world conditions, not ideology. And politics matters. Tax decisions must always be democratic ones.
MMT’s offence, to some, is that it reveals what governments can do: invest in people, stabilise prices without punishing the poor, and refuse to be bullied by markets. Those invested in the status quo find it easier to shout “cult” than engage with reality.
But reality remains: governments with their own currency cannot run out of money. They can run out of courage — and too often, they do.
MMT is not a good name. Maybe it will draw less flack if we say its how the BoE says money is created etc.
‘Lord’ Jim O’Neil – one of radio 4’s favourite gurus , aligned himself with your view that the budget does very little . But then said Reeves should have bitten the bullet this early in the terms to benefit later from…..getting rid of the triple lock, raising tax rates, and ‘reforming’ (cutting ) welfare. In other words – continue what the Tories were doing over the last decade – – continue the demolition of the NHS and raise inequality even higher
They all say that welfare spending and the tax system are in various kinds of contradictory messes . But they don’t point to the massive profits made by Tesco and other big business while half of their employees have to draw UC to make ends meet. So UC is a direct subsidy to big business. If there was a way of sorting this out while still protecting small business – that might be a good ‘welfare reform’
O’Neill served the Tories well…
I know it’s probably not practical and may in itself cause job losses BUT the government should recover money from the companies profits the cost of their employees state benefits, as this is the true cost of their labour. That way we are not subsidising their profits
Good luck with that…
I think I’m still favouring replacing “MMT” with something like “sovereign currency powers” from time to time.
“The individuals behind a new political movement must become economically literate, reject neoclassical orthodoxy, establish and widely disseminate a renewed economic discourse and accept the fact that the territory we should be allowed to love again – the sovereign nation-state – evolved as the optimal unit of political organisation [..] Cultural leftists are damaging politics in both a positive and negative mode, with what is present in its discourse and with what is absent – on one hand stirring up divisive cultural antagonisms, while on the other distracting attention away from the efficacy of exerting democratic control over currency issue and investment”
Source: The Death of the Left: Why We Must Begin from the Beginning Again (2022) by Simon Winlow and Steve Hall
https://amzn.eu/d/eNBZpoj
I think it’s perfectly possible to accept the core insights of MMT and still end up with very different political programmes. Once you recognise that a currency-issuing government isn’t constrained by “finding the money”, the real limits become resources, capacity and inflation, not funding. That framework doesn’t inherently belong to the left or the right.
If someone genuinely believes the private sector is more efficient, or that generous social security weakens work incentives, they can still build a right-leaning manifesto within an MMT understanding. Equally, a left-leaning programme can use the same framework to justify stronger public services, redistribution, and a job guarantee. MMT tells us what is possible; politics decides what is desirable.
The real gain from adopting MMT is that it forces a more honest debate. Instead of hiding behind “we can’t afford it”, politicians of all stripes would have to justify choices in terms of real-world constraints and priorities. That would make disagreements clearer, the democratic contest healthier, and the outcomes better.
I’ve noticed MMT being discussed more and more in the press and social media recently, mostly in negative terms, but mostly by right-wingers. A recent article in the Spectator called ‘Zach Polanski’s insane economics’ describes MMT as nonsense and it’s appeal similar to that of conspiracy theories. On X I often see comments like “MMT flat earthers”. The Spectator article referenced a criticism of MMT by Tim Worstell. I’m aware this chap has a blog in which he routinely ridicules your ideas without providing any reasoned arguments, and so I am always suspicious of such people, but I would be interested to know your thoughts on this particular criticism. He says that in MMT, for taxation to successfully reduce inflation (by taking money out of the economy), you would need to tax poor people more than rich people because poorer people have a much higher marginal propensity to spend?
The Spectator article was by the Institute of Ecnomic Affairs spokeperson. ‘Nuff said.
I have a draft response planned to that article.
Instinct would suggest that this needs to be achieved via indirect taxes (VaT) rather than direct so that individuals still have agency over disposable income.
Correct
The owner of the Spectator is Paul Marshall and co-owner of GB News. They are very much a right leaning conservative outlet. I’m not sure MMT suits their world view.
Thanks for this Richard. You haven’t mentioned imports and foreign exchange issues, which came up at an economists debate at the Green Party conference between James Meadway, Josh Ryan-Collins, Faiza Shaheen and Ann Pettifor. On the subject of MMT, James Meadway said he agreed with the description of how government financing works given in the paper by JRC and others on The Self Financing State. But he said the government is only 45% of the economy, while the private sector trades with the rest of the world. The government therefore can’t control the price of money. He gave the example of the price of gas going up and as we import 50% of our gas, which we have to pay for in foreign currency, the value of sterling in foreign exchange markets matters. So, the government can change the amount of money it spends but because we rely on imports it doesn’t control everything.
This is based on my notes so I may have missed out a crucial part of his argument but I found it confusing.
Ann Pettifor said MMT only applies to the dollar. And also that MMT says tax can be used to control inflation, but inflation is largely driven by commodity trading and speculation, which the government and BoE can’t influence.
JRC came back on that so say the UK has a high degree of monetary sovereignty, and the constraint is the currency value. He also said you don’t want to constrain demand through tax but you may want to redistribute. He added that MMT is good on saying the real constraint is resources.
Can you throw any light on this please Richard?
James Meadway is right – we can’t control everything. So? Does he think MMT is disproved becaise we can’t? And is neoliberalsim – which he proposes – is proved as a result.
Ann Pettifor is utterly clueless on MMT, and just offensive when it comes to those who propose it. I have given up with her, and I tried. She is an antisocial human being and at best economically clueless. I regret wasting so long trying to communcate with her on the Green New Deal, which she hindered greatly, IMO.
JRC is right, broadly speaking.
You are right – we can’t control everything. In your example, the massive rise in gas prices, the current dogma would say “raise rates as inflation is going up”… but this is not a great idea. Demand for gas is pretty inelastic so if people are spending more on gas to heat themselves they will spend less elsewhere and the rest of the economy (ex-energy suppliers) will contract and, if anything, rates should be cut to cushion that bulk of the economy. Hiking rates, if it is to be successful in cutting inflation, will cut other prices (as it can’t control international gas prices) and those other prices are someone else’s income. Sometimes (eg. global energy price hikes) it is best to just chill and let it run through the system without fretting over it.
Agreed
I have read two books by Ann Pettifor.
In The Case for the Green New Deal there is a section starting on page 138 headed Against Modern Monetary Theory. I read it carefully and re-read it. It contained several misunderstandings, misstatements and non sequiteurs. And I have re-read it today. It still makes no sense.
For example, She tends to conflate MMT with Quantitative Easing when in fact they are quite separate. QE is the purchase of bonds by the government from the commercial banks (using money created by the BoE), whose immediate result is for bank reserves to rise and interest rates to fall, whereas MMT with deficit financing is the BoE creating more money from nothing to cover the government’s spending directly into the economy.
Then, Ann P says, there is no such thing as debt free money. And she says (page 141) “Both central and commercial banks create credit ‘out of thin air’ but always [her italics] in exchange for collateral, and a rate of interest fixed over time.”
Yes all banks do create money “out of thin air” but the Bank of England’s money creation is quite different from that of a commercial bank.
A commercial bank loan is discretionary and depends on the creditworthiness of the customer. There is usually collateral, always a rate of interest and both the interest and the principal must be repaid to the lending bank. (The rate of interest is not necessarily “fixed over time”.)
But government loans to the government are not discretionary, they are obligatory, given the government has a budget legitimized by a vote in the HoC. Moreover, they do not bear interest, which would be pointless as the government owns the BoE and they do not have to be paid back and incur no penalty if they are not.
Ann P’s GND book and her book the Production of Money are not well produced. There is no index in either.
I can recommend Modern Monetary Theory: A Primer on Macroeconomics for Sovereign Monetary Systems by L Randall Wray, which I read recently and, of course, there is S Kelton’s The Deficit Myth which I re-read recently too.
MMT is not a difficult concept to grasp. Richard explains it well and it should be understood by every serious progressive campaigner.
Ann Pettifor’s attack on me in her book on the Green New Deal was libellous. Time and again I explained to her why she was wrong and that MMT said nothing of what she claimed it did, but she never read a word. Caroline Lucas even brokered an agreement on the issue in 2019, but Pettifor just carried on ignoring it. She even told me it was pure Friedman style helicipter money and even though it was patiently expplaiend to her by me and others that it was nothing of the sort, she persisted with the claim. My conclusion is that she is right up there with Reeves in the deliberate denial of the truth stakes. I will have nothing more to do with her. It’s not worth it.
Long before I attained economic enlightenment here at FTF, Ms Pettifor was on my list of Guardian writers who, it seemed to me, were more interested in preserving the economic status quo (especially for Guardian writers), than in making the world a better place for the many. I haven’t changed my mind.
You were right. If the world changed her whole reason for being would come to an end.
A great article again thank you which links well to one Michael Hudson wrote about how MMT was hijacked post financial crash:
“Modern Monetary Theory (MMT) was developed to explain the logic of running government budget deficits to increase demand in the economy’s consumption and capital investment sectors so as to maintain full employment. But the enormous U.S. federal budget deficits from the Obama bank bailout after the 2008 crash through the Trump tax cuts and Coronavirus financial bailout have not pumped money into the economy to finance new direct investment, employment, rising wages and living standards. Instead, government money creation and Quantitative Easing have been directed to the finance, insurance and real estate (FIRE) sectors. The result is a travesty of MMT, not its original aim.
By subsidizing the financial sector and its debt overhead, this policy is deflationary instead of supporting the “real” economy. The effect has been to empower the banking sector, whose product is credit and debt creation that has taken an unproductive and indeed extractive form.”
Apologies, I see you updated your post to mention imported inflation. I hadn’t seen that when I submitted my comment. I still feel I need a better understanding of the MMT view of imports and currency value, if you can help with that.
It has no view: it just says let the exchange rate float. That is what economic reality requires.
Let’s be honest the mainstream left/centre/right economists believe unquestioningly in their cult orthodoxy. They are too stupid to countenance any challenge even though the challenge actually explains how the real world of money works, not their fantasy rules world.
Perhaps a way forward is for an independent tv production company to produce a tv special about the two curses and the sensible cure offered by Richard. Call it “why your children/grandchildren are not in work”.
Or a games app “kill the two curses”.
Dear Richard,
Thank you for your clear explanations regarding MMT. It’s very much appreciated since (macro-)economics do fascinate me a lot but I have no economical training (I’m a biologist/ecologist actually….). I do understand that MMT proves that central governments (of stable, well-managed nation states) cannot run out of money because they effectively provide it. But what about local authorities? City councils, provinces, federal states,… generally do NOT make their own money, it’s probably illegal even. So these entities of devolved government rely on taxes and handouts from the central government for their funding right? Which means that if the political constitution of a local authority is at odds with the central government a local government’s funding is at risk of being squeezed for political reasons. If the local authority doesn’t want to tax its civilians and companies even more it will have to turn to loans from private banks to continue funding. All of this can effectively lead to severe budget problems felt by the civilians, without easy solution.
This has become painfully clear over the last year(s) here in Belgium where several cities are forced to implement severe austerity programs, my own (Ghent) included, things like day-care, cultural programs, musea, sporting facilities etc are being defunded in order to pay off loans to private banks. The city of Brussels (yes that one, the capital of Europe) is so deep in the red now that private banks have publicly stated that they will no longer provide credit to it.
What does MMT have to say about this kind of situations?
The root cause seems more political than economical but it is explained to (and felt by) the public in a very economical way.
Throughout the world there are many local projects with tokens, coins, vouchers etc that are a bit money-like. Could this offer a real solution for local governments in some way or other? MMT sort of suggests it might work out under certain conditions? Imagine that a local currency is brought into circulation which could boost the local economy and as such avoid the deflation trap of an austerity period and at the same time free up “national” money to service the local council’s private debts. Would this work or am I just another progressive dreamer?
Thanks for your insights and all your efforts
Thank you for your comment.
MMT is very clear on one important distinction: a central government that issues its own currency cannot run out of money. But local authorities are currency users, not currency issuers. They:
• Must fund themselves with taxes or transfers from central government.
• Cannot create the currency they need to spend.
• Can be pushed into borrowing from private banks if central support is withdrawn.
That means central government can squeeze local government for political reasons while pretending that the resulting cuts are “economic necessity”. The consequences, as you note, are austerity programmes that slash childcare, culture and sport while banks still demand repayment. Public services collapse; the profits to finance continue.
MMT helps us name this for what it is: a political choice, and not a financial constraint. A currency-issuing government always has the capacity to ensure that essential local services are properly funded. If it refuses, it is choosing to let libraries shut and museums close. Blaming “lack of money” is cover for ideology.
You also ask a very good question about local currencies and tokens. MMT advocates are usually briadly supportive because they:
• Keep value circulating locally
• Help maintain employment and activity when national government imposes austerity
But they cannot pay taxes or settle bank debt. So while they can mitigate the damage, they cannot replace the funding that should come from the centre. Brussels cannot repay its euro loans in community vouchers. And it’s worth noting that all such experiments in the UK have now, I think ended.
So what does MMT suggest?
• Local services are public goods that central government must support.
• Borrowing from private banks to fund social infrastructure makes no sense.
• Fiscal arrangements should empower local democracy, not suffocate it.
The root cause of the crisis you describe is not economic but constitutional. The power to create money sits at the centre but responsibility to provide services has been devolved downward, threatening local democracy. Until those two things are aligned, austerity at the local level will keep recurring.
You are not a dreamer. You are seeing the system clearly.
And my point is that, as ever, MMT can explain this, and make clear what is required to address the issue, whilst also exposing the hypocrisy of central government politicians who refuse to help. And that is its usefulness.
Thank you for stating this so clearly.
Ever since the coalition government imposed austerity in 2010 local goverment has been left in an impossible position. What did people expect to happen when simultaneously
1 Central government freezes funding to local government
2 Forbid them from raising council tax
3 Impose increased costs by mandating increases in the minimum wage
4 Face increasing demands on statutory services esp Adult Social Care.
Britain is broken because of the failures of political choices made in Westminster yet so often it is local government who have to deal with the consequences in everyday lives.
People are only as smart as the information they have been given. Many have undertaken classical economics degrees believing them to be an accurate representation of economics. Only a small number of people know that “The problem we face is the total dominance of one way of teaching, which promotes the marketisation of society, leading to increased inequality, injustice and significant harm to the natural world.” — Source: https://rethinkeconomics.org
I’m a regular viewer of Novara and one of the main presenters, Michael Walker, can’t get his head round it. I suspect this is part of the problem. Non-economists like Walker and Paul Mason simply have not done the required reading especially the 2014 BoE quarterly bulletin on money creation. I’m surprised about Blakely and Bastani though, get them in discussion with you and they wouldn’t be able to criticise the basic premise of MMT.
Michael Walker is an Oxford PPE graduate! I rather liked Zack’s description of the course, P*** Poor Economics!
On top of what Richard and others have said, I think lefty pundits don’t like the implication that they’ve been tricked into arguing on the right’s terms (as I think some have). As Mark Twain said, “It’s easier to fool people than to convince them that they’ve been fooled”.
This is, as I think you know Richard, a gross misrepresentation of my views on the subject. I’ve never made any of the arguments you’ve outlined here.
The issue with the entire discussion around MMT, as you’ve shown clearly in this piece, is that its proponents believe they’ve discovered the secrets of the universe. They seem to argue that, *if only everyone else would just listen to them*, all the questions, debates and struggles around economic policy would simply disappear overnight. This perspective assumes that decisions about economic policy are made based on rational, intelectual debate – when in fact it is determined based on class struggle between different interest groups. No one seriously believes its *rational* for the government to spend billions on corporate welfare for the fossil fuels or finance sectors – yet this is government policy precisely because the fossil fuels and finance sectors wield such immense power within the British state.
Even if you won the debate on MMT once and for all, capitalists would not cease to organise within the state for spending that benefits capital – because the state is a social relation, not a neutral tool some clever group of technocrats could simply pick up and use as they wish. The austerity regime pursued by the Tories never had any solid evidence base or theoretical backing – it was pursued preicsely because it augmented the wealth and power of those at the top, and crushed everyone else into submission. If you spend all your time lecturing people about how they’re “wrong” about how money is created, you’re not only alienating people, you’re achieving essentially nothing, becuase you’re not advancing an argument that helps to shift the balance of class power in favour of labour.
If everyone woke up tomorrow suddenly accepting all of your arguments, the structure of our society would not change – the British state would continue to create money and dish it out to vested interests in finance, fossil fuels, and defence, while cutting social security and public services on the basis that such spending was wasteful and discouraged work. Fiscal policy is not some neutral, technocratic exercise in determining what’s ‘true’ – it’s a site of class struggle.
Hi Grace,
Thank you for providing this response.
I admit that I find your comments surprising, and even extraordinary.
The surprise is that despite your opening protestation, you in fact go on to confirm that everything I said about those of a left-wing persuasion criticising modern monetary theory is not just correct, but precisely so. I guess that, for that, I should be grateful, and I am.
What you make very clear is that your opposition to MMT is not based upon what it says, or the accuracy of its representation, or its value as a tool in economic management for the left in achieving its goals, but upon prejudice and nothing else. I admire your honesty in exposing your own irrationality.
What is extraordinary is what you, by implication, reveal of your philosophy and the flaky Cartesian enlightenment foundations on which you have built it, almost all of which are shared with antisocial neoliberal capitalism, which, it seems to me, you have accepted that you must succumb to, rather than challenge.
So many issues arise from your comment that I have, in fact, spent a day thinking about them, not least because I was too tired to do anything else, but also because I realise that I will need to respond in what might be a series of blog posts, so illuminating have you been.
I stress, what I will say has nothing to do with you as a person. We have known each other for some time, and I hold you in high regard, but that does not mean that I have to agree with you. And what you have said makes it clear to me by how much we disagree, and how inappropriate your philosophy is for the people of this country, and for the Green Party, which you have joined, to which you do, I think, represent a very real threat. Please look out for the blog posts. They will begin quite soon.
Best regards
Richard
Grace – thank-you for your comments.
The problem I see with your response is that it mentions everyone except my neighbours, on a large S Bristol council estate, who feature only as rather passive and somewhat irrelevant “victims” in your post. At the moment, most of them believe in the household analogy and that taxes finance public spending.
I don’t see any sign that you have considered what might happen once the lower income majority become aware of where money comes from and what taxes are for? That would cause a seismic political shift, and no one, from right, left or centre would be able to hide behind the household analogy to justify spending cuts, or the tax lies, to justify tax rises.
Both cuts and taxes would have to be seen to be for the public good and argued for on their merits. But maybe that’s the problem?
It is almost as if my neighbours’ views are irrelevant, and their considered response (once the truth about public spending, and the function of taxes breaks through), might even interfere with someone’s preferred version of the class struggle.
Would we ALL not be better off knowing the truth?
Or is that only for a privileged elite (whether an elite of the right, of the left or of the wealthy).
Richard is educating people. Are you FOR that, or against it? That’s a simple binary question, for or against the economic education of council estate residents?
Grace Blakely have you got anything constructive to say other than a class war exists? Anybody with a decent brain understands that. The central issue is to point out in detail how that war is pursued by capitalists and in particular their manipulation of public perception in regard to creation of money as our means of exchange. Here’s two starters:-
“Bankers don’t like budget deficits because they compete with bank loans as a source of growth.”
https://www.researchgate.net/publication/265071141_In_Defense_of_Deficits
“The only safety of nations lies in removing the unearned increments of income from
the possessing classes, and adding them to the wage-income of the
working classes or to the public income, in order that they may be spent in
raising the standard of consumption.”
John A. Hobson, Imperialism: A Study (1902)
See page three:-
http://acdc2007.free.fr/klein2020.pdf
Understanding how money is derived for public spending is critical, failing to understand is working class betrayal!
Thanks
Thank you for this. It is important that you keep coming back to this: first because it has a risk of being forgotten, second because you are attracting new readers who haven’t read it before, and third because each time you do you express the ideas with a little more clarity than the last.
And also because each time I read your account of MMT a few more questions come to mind. This time: as a thought experiment, what would have happened if the UK had completely stopped issuing bonds five years ago? Would the economy have continued just the same (which is what you appear to imply) or would there have been an impact on inflation, or the exchange rate (which feeds into inflation), or the level of taxation that would be needed to balance the economy?
I do not argue the UK should stop issuing bonds, so I am not sure the thought experiment worthwhile. I say it should stop QT, and it should make clear to the City that bond issues will be withheld if it tries to push up rates artificially, in the govermment’s opinion. In other words, they can only have the bonds they crave at a price the government thinks acceptable.
I’ve been trying to learn more about MMT through your websites, youtube videos as well as others. I think the main thing that I struggle with, although there is probably a lot that I don’t understand and don’t realise, is what the impact this would have on things like exchange rates. Would the rest of the world treat sterling different if it wasn’t going along with the fiction that most of the rest of the world (USA for example) seem to follow in that they ‘balance the books’. Are there any posts that you have that speak to that point?
Many thanks.
No
And I addressed this very recently.
Exchange rates are set by:
– Real trade
– Real investment
– Interest rates
– Hot money
Search hot money and you should find the material.
As I see it, the basics of MMT are apolitical. Understanding that money is created and destroyed both by commercial and central banks with fiat currencies. However, getting people to accept that I’ve often thought is like telling them that the Earth goes round the sun and not the other way round. Amused to find that Felix Martin uses the same metaphor in his book Money.
I can understand why economists mostly cling to the idea. It was what they were taught and so much else that they were taught to believe (for they are beliefs), falls apart if you understand MMT. Banks with their ability to create money at no cost and then charge interest on it clearly have a huge vested interest. As Josh Ryan Collins points out, it’s a significant factor in property inflation. Bad use of money creation as in QE ending up driving asset price inflation. But profitable for finance.
More depressing that the left and progressives fail to get it for, as you explain, somewhat convoluted reasoning. Keynes worked it out long ago. Put a bit crudely, it was a big part of how we paid for WWII and then the setting up of the welfare state.
I tend to use 2 basic exemplars: given that savings levels are generally so low, where do they think all that mortgage money came from? Have to explain that banks don’t work like building societies… which most people think they do. Then pointing out that when I was in the vaults of a central bank, there were no stacks of bank notes!
Thanks
Thank you so much for writing this. I simply couldn’t understand what the (faulty) criticisms were of MMT which has always seemed to be the a coherent explanation as to how the ‘real world of money’ works.
Furthermore, Bill Mitchell has always taken pains, to say that MMT is a description of operations, independent of a political creed. It is neutral and neither Leftwing or Rightwing.
I feel much clearer now as to the opposing arguments … except these ‘Left’ pundits must know something about Keynesian theory and hopefully Kalecki! And also know … that Paul Samuelson effectively admitted that the economists were lying because they couldn’t trust politicians to know about the capacity to issue loads of money : the ‘admission’ by the BoE that MMT does indeed describe money operations ; that a country like Norway with its Sovereign Wealth fund, has absolutely no need to borrow from the markets but neverthess issues bonds because the financial sectors demand a safe place to put their monies (effectively a high interest account); that Thatcher was roundly criticitised at the time by large number of economists for adopting moneterism, stating that there was “no basis in economic theory or supporting evidence” for the belief that deflating demand would bring inflation under permanent control and automatically lead to economic recovery; and more.
Finally the evident failure of neoliberal policies over the last 40y and the political usefulness of the trap of ‘household’ model. I think it really must be easier to believe a lie than to believe that that they have been fooled.
Btw Joe Guinan, President of The Democracy Collaborative in Washington is a very solid advocate of MMT, although he may have decided not to use that name.
Many thanks.
Appreciated.
The Norway example is very useful. How a country that has no need to borrow still issues bonds
When considering why MMT has so many opponents on the left, I can only really comment as an observer, having never had the first hand experience which you have. So I’ve no doubt you are right in attributing the broad reasons you do. Of course there will be always be a range of reasons for each individual, but I’d add 2 more reasons, though they could easily fall within your broader definitions.
1. I am economically literate, worked in an economic adjacent field (market and political analysis) and have studied political economy at a postgraduate level. It was only 12 months ago that I made I real efforts to fully understand MMT, and it took weeks for it to click. Weeks of real effort at comprehension. And this after reading a lot of David Greber. It was very difficult for me to shake off the conceptual straight jacket I’ve been in for pretty much all my life. I had to be determined to pursue multiple books, papers, podcasts etc. to finally grasp it. I think there’s a very real chance that many critics just haven’t been able to do that.
2. Lack of confidence. After the events above, I kept asking myself what I was missing. Surely politicans, bankers and economists must realise this. I still feel this way, I don’t trust my capacity in the face of experts, even when I genuinely think that I fully understand it (and there are still technicalities I don’t fully grasp). Imagine being a popular left wing economist who embraces this, if you’re not fully confident about your ability to grasp it. This is a problem with any new theory challenging I widely accepted orthodoxy.
And this second point was made worse by the Truss budget. That looks to many with a passing understanding of MMT like a cautionary tale, and evidence of the risks of being wrong about issues surrounding bond markets, government debt and spending.
I still often wonder if I’m wrong. What am I missing? Each time I can’t find it, but there’s always a niggle because I lack full confidence in my comprehension. So I try to keep learning and have an open mind.
MMT is right.
People just refuse to accept the obvious. You did. You still think it can’t be as obvious as it is. But it is.
I can relate to that completely. I worked around different parts of the finance sector, mostly as an outsider or consultant. All the way from building societies, thru different bits of banking to central banking and Treasury. Always assuming the conventional view of money and banking. Over the last 10 years slowly learning more about economics and concluding that it is riddled with flaws and daft assumptions. As someone who did engineering, it’s no science!
Stephanie Keltons Deficit Myth was key in establishing the basics of MMT for me plus following Steve Keen. From Steve, realising how utterly flawed the models that economists put their faith in are. Now it seems obvious but Ive spent time with a significant number of otherwise respectable, politically moderate economists, who cling to the orthodox view. It’s going to be a long haul.
Are there ways governments can twist the use of MMT before an election to deliberately leave a mess for the next government. I agree with Richard’s arguments but still a bit unsure if governments could use it to provide themselves with a short term advantage at the expense of long term stability.
MMT describes how many works.
It does not ordain policies.
These use money. MMT says what is possible. But politicians decide what to do. MMT only sets parameters.
How often do I have to say that?
I assume it should be ‘money’, not ‘many’?
I am struggling to find to what you refer.
I understand what you are saying about what MMT is and believe I have a clear understanding how it works. What I don’t know, or understand, are malicious ways it could be deployed by governments to benefit people (elites) other than society itself and what would be needed to prevent this from happening.
Democracy by and for people. That is the protection. Nothing more or less.
“ How does anything work in the make believe economy that is now what Ireland has? The Euro is the least of your issues.” Agreed
However, I guess I wasn’t clear. How does MMT work in a situation like the Eurozone when it’s not a fiat currency?
It does, at the Eu level.
Genuine question about inflation. I know the orthodox theory says if you expand the money supply faster than the rate of production inflation results. But surely that isn’t an automatic consequence like an action and reaction in physics, doesn’t it still depend on real people in the real world noticing there is more money about and deducing that they can as a consequence raise prices? How does that actually work in practice?
Might you see my post on the quantity theory of money this afternoon.
Perhaps the best response to the Meadways, Masons et al is.. HOW WILL YOU PAY FOR IT?
Your article is a crystal-clear exposition of how MMT works – succinct yet comprehensive. I suspect this could be because you’ve had so much practice. Although it might feel like you’re shouting into the void, as the same commentators wilfully misunderstand your arguments, don’t be discouraged. You’re definitely gaining traction amongst the open-minded. We see it in below-the-line comments, pulling pundits up for household budget nonsense that they’d have got away with a few years ago. Keep up the great work – you’re winning!
Thank you
It seems to me that MMT is not inherently left wing but maybe would disrupt a lot of existing wealth creation structures with vested interests. But it does mean that if it is a correct model of how a sovereign currency economy works almost any current economic policy will probably not work (except as above) as it based on false assumptions. I’ve also been looking at the work done by Prof Steve Keen which once again suggests all our models are wrong. If this information can be brought into and accepted as part of national narrative then there is an opportunity for much more broad political support rather than being gas lighted as a push from the left to get back to the 1970s
Agreed
Steve gets it.
He and I are pretty close economically. And we’re friends.
If we want to shift economic thinking in Britain, then we need more than good arguments. We need the media on side and we need politicians on side, even if that means flattering them a little at first. Most journalists and MPs are not opposed to better ideas. They just want something that feels familiar and safe. The key is to remind them that Britain has already lived through a successful alternative to neoliberal economics. The post war Keynesian period is still remembered as a golden era. It delivered rising living standards, full employment and the creation of essential public services. It worked because government understood that money is a tool to mobilise resources, not a barrier to progress.
That period gives us a thread journalists and politicians can hold on to. Keynesian ideas were once mainstream. They were not fringe or risky. They were simple common sense. When you link modern monetary ideas to that history, you give people something that feels rooted in British experience, not an abstract theory. Once they see that, it becomes harder for them to dismiss the argument out of hand.
We also need to keep pointing out what happens in every major crisis. When things go wrong, governments always spend. They did it in 2008 to save the banks. They did it during the pandemic to protect jobs. They did it during the energy crisis to stop bills spiralling out of control. In each case, intervention worked better and faster than predicted. Spending prevented collapse and put the economy back on its feet. This is the simple truth many commentators avoid. A pound spent into the economy circulates, creates demand, supports businesses and generates incomes. A pound hoarded, whether in private savings, corporate reserves or tax havens, does nothing for society.
If the public hears this from multiple voices, the media will eventually shift. And once the media shifts, politicians will follow. No MP wants to be seen blocking prosperity or clinging to a failed orthodoxy. The aim is not to fight journalists or politicians but to give them a way to join the argument without feeling they are taking a risk. Show them that Britain succeeded once before with active government, and that every crisis today is solved in the same way.
That is how we build a new economic consensus.
Can the success of the Chinese economy be attributed in large part because it recognises the reality of MMT and does this help explain the growth in so many sectors not least renewable energy and AI? It has a strategy to reach an Ecological Civilisation. Whilst China receives much criticism it is worth while examining what it gets right.
Explain in more detail, please.
The Chinese government doesn’t have to be re-elected so it can have a long term plan/strategy for the country. I’d like to understand if countries like China can then take more advantage of MMT than the UK where everything is so short term.
Please understand: the UK does MMT now. It describes what happens. It is not a choice: it is reality.
The choice comes in the political interpretation it makes clear is possible.
The disctinction is vital.
Well Zhao Ziyang who was in charge of China’s switch to market capitalism but ended up under 16 years of house arrest didn’t appear to understand MMT according to his book “Prisoner of the State.” I wonder though whether that was the real reason for him being removed from power rather than his objection to the imposition of martial law which resulted in the Tiannamen Square Massacre. The protests were triggered by the sudden release of state controlled basic commodity prices (the iron rice bowl as it was called) to free market prices which caused sudden high inflation. This sudden release of prices was Deng Xiaoping’s wish but he may also have wanted state creation of money to be spent on public physical infrastucture not so much on public services or subsidising basic commodities because Mao’s fairly rigid state capitalist approach had failed to adequately deliver these basic commodities hence the dreadful famine that killed thousands if not millions.
Richard,
A very good post with lots of great contributions.
I think this blog is important and hopefully the readership is growing.
MMT feels correct to me though of course like all explanations it will have weaknesses I’m sure eg international trade and its importance might be one.
That said your great post makes it clear that for right wing and left wing political parties/commentators/think tanks MMT is awkward to accept and adopt into their respective bodies of thought.
How do we get MMT acceptance across the political spectrum?
I have up to now assumed the left or progressive parties would be easier to persuade but I now doubt that is realistic.
Who to target?
I have been planning a post omen internationals trade this morning – which is a strength and not weakness of MMT. I may finish it today. If not, tomorrow.
Not that I don’t agree with all that you say, however, your 5th point “That is precisely why some on the left resist MMT: it forces them to own their politics”, for me, hits the nail squarely on the head.
Dealing, as I do, with politicians and government officials, there are few who are courageous. Everything is done / not done to avoid potential criticism, etc. It is backside-covering to the nth degree.
To remove the ‘comfort blanket’ of being able to blame someone or something (or move away from just doing soundbites) instead of thinking about and standing-up for the inevitable choices that have to be made, would be too much for the vast majority of politicians. Reeves’ budget is a good example of blaming a whole raft of others / issues that have forced her to the position she had to take.
I’m not for a second saying these choices are easy. In many cases they are not. However, as Stephanie Kelton points out in the Deficit Myth, many elements can actually be built into normal, everyday government policy / budgeting (c.70% in her example) allowing government to focus on the remainder and determining what they will prioritise and how.
It is the lack of courage – or even political conviction (recognising all politicians claim they are working in the best interests of the country) – that frustrates me. There is no reason we cannot base our economy on full employment. This doesn’t eliminate choices around other priorities and how we address these priorities…but at least have the vision, the belief and the conviction to explain why you have made a particular choice at that time, why you prioritised it over another choice instead of blaming something or someone for having forced you to do / not do something (household analogy springs immediately to mind). We can’t do everything at once. Determine you choices / options you have / priorities and have the courage to explain them plainly (not in political double-speak)…even if not everyone might not agree, they will respect the clarity, the difficulty of making a choice and the courage / conviction.
Much to agree with
Thank you once again for the clear explanation about MMT which can’t be repeated enough. Your answer on central and local authority funding helped clarify even further.
I remember when I worked for a local authority having a conversation with the Chief Executive during which he complained about the impossibility of explaining to local people how cuts in services were due to reductions in central government funding rather than simply local choices.
I was intrigued therefore to see that the government is planning to reverse this with regard to SEND funding.
Or are they preparing to say once again ” there is no more money”?
https://www.theguardian.com/education/2025/nov/27/ministers-face-calls-to-explain-how-6bn-send-funding-hole-will-be-paid-for
I fear that this is exactly what they will do, at cost to many tens of thousands, if not hundreds of thousands of young people who will suffer as a result.
Hello Richard.
I have no formal economics schooling. All I know, which is not comprehensive to be fair, is from what I read in my spare time, as I find it interesting.
MMT to me seems logical and straightforward, to the extent that I understand it. As I learn further about it, this hasn’t changed. Before I stumbled upon MMT things seemed a bit smoke and mirrors, contradictions and unanswered questions.
So that leaves me wondering if I’m an unquestioning disciple to the faith, which is ironic given that antisocial neoliberalism exists. However I don’t think MMT requires any faith. It’s there whether you believe or not.
For each criticism of MMT there is a reply that fits neatly into the rest of the framework, like a piece in a wasgij puzzle. Maybe the entire wasgij isn’t complete yet, and because it’s a wasgij I don’t know the final picture, but I can see it’s going the correct way.
This structure and interconnectedness appeals to my engineering brain and just seems ‘right’.
I was thinking as I read through the many replies, that it’s worth remembering that MMT is NOT a policy choice.
To indicate this, remember everything that Maggie Thatcher did was within an MMT framework. She just chose to implement policies that were not progressive. All the progressive policies you write about are also within an MMT framework.
MMT describes how the system functions. The policies derived from this can vary wildly.
I think this is correct but please correct me if it is not.
Precisely correct.
And very timely as I had just decided that I needed to write a blog post on these very points. It will happen soon.
I would love to see Richard debate these points with Meadway or Blakely, those two have poisoned Novara. Novara has interviewed Stephanie Kelton and Randy Wray and they still refuse to get it. Even Helena on there claims to believe MMT yet never stops with the “tax payer money” line. Owen Jones also continously uses the tax payer myth, despite interviews with Richard Murphy. Will they ever stop?
I doubt it.
I have not been on with Owen Jones for ages.
Amazing stuff!
Perhaps you need to do an updated, second edition of Money for a Nothing and my Tweets for free to gather it all together.
That is now planned. Posts now being written are filling in gaps.
I think part of the problem is the counterintuitive nature of modern monetary operations versus 40+ years of fear-mongering. For media outlets like Novara, it can be a difficult balancing act—if you don’t understand that gilt creation essentially piggybacks on general government spending, with the principal ring-fenced in the DMO, it’s easy to play it safe. With so many established journalists, Westminster figures, and finance professors still repeating the obsolete orthodox view, most of Novara walked away from the Stephanie Kelton interview unconvinced because they hadn’t fully grasped the mechanics. The social shame of being perceived as ‘getting it wrong’ can be a strong influence, particularly for public-facing figures. There may also be a disconnect between highly intelligent experts like Prof Murphy and those still learning, because mastery in a discipline can obscure just how difficult it is for a newcomer to navigate this subject for the first time, especially against a strong headwind of disinformation.