I am told that this is the standard response to pro-modern monetary theory posts on social media right now:
Every tool in the MMT toolbox also exists in the toolbox of what might be called more conventional economic thinking, with one exception. It's just not a useful way of looking at the public finances compared to the conventional view.
I think this comment entirely misses the point of modern monetary theory (MMT).
MMT is not primarily about inventing new tools. As a matter of fact, almost everything in the MMT toolbox does already exist in conventional economics. No one disputes that. Those tools include:
- taxes,
- spending,
- borrowing,
- interest rates,
- regulation, and
- capital controls.
The difference is not the tools; it is the questions that MMT lets us ask, and the different constraints it lets us assume exist that make the difference.
Conventional economics starts from the question:
How will the government pay for this?
That immediately frames policy around affordability, market confidence and debt ratios. Politics is removed from the discussion in conventional economics because it is presumed to be constrained as to what it can do by financial markets.
MMT starts from a different question:
Do we have the real resources to do this, and what would stop us?
The constraints are now labour, skills, energy, land, supply chains, ecological limits, and inflation risk, plus political preferences. The government can now decide: it is empowered to do so. MMT permits democratic choice, in other words
That shift really matters. It is, in fact, fundamental. It moves the debate away from false financial scarcity and towards the real-world trade-offs in economics. As a result, it forces policymakers to justify why something cannot be done, rather than hiding behind household metaphors or bond-market folklore to justify inaction.
So, the claim being made on social media wholly misses the point about MMT, and doesn't even explain what the key exception is. That is not because MMT abolishes constraints. Instead, it relocates them from money to reality. That makes it a more helpful way of thinking about public finances, not a less useful one.
If the opponents of MMT are going to come up with a generic response to it on social media, they have to do a lot better than this. When MMT helps us answer questions in ways conventional economics avoids, it is useful, by definition.
And for those interested in comparing the value of theories, watch this:
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The tools may exist…. but the MMT insight is that a screwdriver is for doing/undoing screws, not stabbing things.
🙂
Feynman clip excellent way to round off!!! Nice!
So there are real resources available like you said. You’d like to harness those resources, move them around, organise them to deliver something better than what is being done with those resources at the moment. You can’t implement slavery so you have to pay people. People will voluntarily come off the dole if there’s a job worth doing that pays more than the dole by an amount that beats the loss of leisure time. People will insulate buildings for money, but they won’t do it well under conscription system, so their labour has to be bought. So it brings us back to how do we pay. It’s a short hand way of saying the same thing.
But your six bullet points missed one out – the one that MMT does not have in its box of tools.
Conventional approach to public spending does have it.
You are right that if there are real resources and useful things to do, and if we reject coercion, then labour has to be paid. People will only supply labour if the wage compensates for effort, lost leisure and alternatives. So the question “how do we pay?” is shorthand for “how do we mobilise labour voluntarily?”
Here is the step that matters.
In a monetary economy, payment is not constrained by prior tax revenue. The state pays by issuing money. That is not controversial operationally. What is constrained is whether paying more people will create inflation by competing for scarce resources.
Conventional economics has an implicit tool to deal with that constraint: slack. It keeps unemployment and underemployment high enough that wages are disciplined. That ensures labour is always available at prices the system finds acceptable. This is not an accident; it is built into NAIRU logic. It is the missing tool you are pointing to.
MMT rejects unemployment as a policy instrument, but it does not reject labour discipline altogether. Instead, it relies on capacity management rather than scarcity management.
Full employment is achieved not by conscription or fear, but by:
• creating demand where unused labour exists
• sequencing and pacing spending to avoid bottlenecks
• using taxation, regulation and procurement to release resources from low-value uses
• shifting labour from rent-seeking and speculative activity into socially useful production
• allowing wages to rise where capacity exists, and restraining excess demand where it does not
So the answer to “how do we pay?” is not “with taxes” and not “by magic”. It is: we pay by issuing money, and we decide whether that payment is sustainable by reference to real resource availability, not financial balances.
The tool MMT lacks is not a payment mechanism. It is the willingness to use unemployment as a disciplinary device. Conventional economics calls that realism. MMT calls it unnecessary and socially destructive.
That is the real dividing line.
———
And if you come back again, try using an argument, not word salad.
MMT offers a government job guarantee:
“Under the Job Guarantee program, government offers community service employment to anyone ready and willing to work who cannot find a job in the private sector or regular public sector, no means tests, no time limits.” (Source: The Job Guarantee and Modern Money Theory, https://link.springer.com/book/10.1007/978-3-319-46442-8).
Also:
“A universal job guarantee (JG) .. offers equal access, equal pay, and equal treatment .. The program’s wage and its benefits and working conditions will set the standard that all other employers must meet. It “levels up” by “hiring off the bottom.” It takes workers “as they are,” provides them with jobs and decent treatment, and forces other employers to compete .. also importantly from the MMT view, the JG “anchors” the currency.” (Source: Making Money Work for Us, https://amzn.eu/d/gkM3mre )
See also:
Pavlina Tcherneva — The Case for a Job Guarantee, https://www.youtube.com/watch?v=5EmlviHQT7M&t=6s
It doesn’t offer it.
That is a policy possibility flowing from it.
I do wish people would stop confusing optional policies with the (MMT) description of reality. Clearly, in most places, there is no job guarantee. So it isn’t what actually happens, it’s what some people think would be a good policy and would like to happen. Quite distinct.
MMT is a description of the way economies actually functions (as opposed to conventional economics, based on false rationality, false perfect market knowledge, and the false assumption of equilibrium, or near equilibrium conditions. Conventional economics doesn’t actually work or provide useful predictions).
A job guarantee is policy that might be chosen. Personally I do not support it because I think it is impractical and patronising, and that there are better ways to achieve similar objectives. But reasonable people may differ.
Coincidence is an amazing thing! Yves Smith posted your post from the 20th, “Has Public Debt become Unmanageable” on “Naked Capitalism”, and one of the comments under the article said this:
“Gasp … all MMT did was say this is how it works and then some go pop because (it) shows decades of ideological economics was a farce. Better yet that it has no ideological agenda save a space for a rational framework to discuss policy options and social outcomes.”
The debate that unfolds in the comments section is well worth following, and it even draws in L. Randall Wray to have his twopennoth as well.
https://www.nakedcapitalism.com/2025/12/has-public-debt-become-unmanageable.html
I think the point is that as the wheels finally fall of the neoliberal cart, MMT provides, in the current context, the only rational means of understanding and explaining the situation we are in and signposting the exit. For that reason those committed to the easily falsifiable ideology of neoliberalism think it is a great danger to the current order of things.
Thanks, and much to agree with.
If MMT offers nothing new and is just a restatement of conventional economics, why the hostility to it?
And why are people so desperate to adhere to an existing neoliberal framing which is misleading at best or just plain wrong? You might need to earn or borrow to pay for the groceries or the mortgage, but “tax and spend” is just not how governments work.
The hostility to MMT is revealing precisely because, as critics often say, it “adds nothing new”. If that were true, it would be ignored. It isn’t, because MMT does something that much of conventional economics prefers not to do: it makes explicit what is usually left implicit, and in doing so it removes a great deal of political cover.
MMT does not invent new monetary operations. Central banks, treasuries and settlement systems already work exactly as MMT describes. What MMT does is insist on starting analysis from those operational facts rather than from metaphors. Once you do that, a number of comfortable stories collapse. Governments are no longer financially constrained like households. “Running out of money” stops being a meaningful fear. Bond markets stop looking like disciplinarians and start looking like institutions whose power is tolerated by policy choice.
That is uncomfortable, not because it is radical, but because it is exposing.
Which leads to the second question: why cling to the neoliberal framing? Because it is useful. The “tax and spend” story does several jobs at once. It limits democratic ambition without saying so openly. It turns political choices into matters of supposed necessity. It allows distributional decisions to be smuggled in as technical constraints. And it disciplines labour, public services and welfare recipients while leaving wealth and finance largely untouched.
Most mainstream economists know the household analogy is wrong. Many will even admit it privately. But abandoning it would require a different kind of public debate – one centred on real resources, inflation risk, power and distribution. That is a harder conversation, and one that threatens existing hierarchies. Most especially, it would challenge the economists fight it: their power would disappear, and they are terrified of that.
So MMT is resisted not because it is false, but because it is inconveniently true. It does not promise free lunches. It simply refuses to let bad metaphors do political work. And once you accept that governments do not “tax and spend” the way households do, you can no longer hide behind the claim that austerity, underinvestment and inequality are unavoidable. That is what really provokes the hostility.
“Hostility” towards things that someone doesn’t agree with is inevitable, I think. It’s part of human nature. If you take a step back, then much of the content on this blog, both above and below the line is hostile to perceived neoliberals even if some of this hostility is politely expressed.
From the mainstream economic world, I detect a certain weariness with regards to MMT, or realistically, the suspension of the “full funding rule”. (As is observed here, MMT / print first then tax is what already happens.) It (i.e suspension of full funding rule) is presented by many as some kind of “silver bullet” i.e. an easy choice that hasn’t been taken for ideological reasons when the practical implications of suspending the full funding rule are very real.
e.g. is it really feasible to vary taxes in “real time” to manage inflation? (Reducing will always be politically acceptable. But increasing taxes is always much more challenging, which would obviously pose an inflation risk.) e.g. how much demand is there likely to be for gilts at rates the MMTers would like to offer?
Plus of course the “elephant in the room” is that the history of money printing, however well-intentioned, is not a great advert for it.
Overall MMT as envisaged by Prof Murphy may actually be the “silver bullet”, but it’s easy to see why reasonable people might be sceptical.
First, on “hostility”. Yes, disagreement is inevitable. But there is a difference between criticising an idea and defending a misleading narrative because it is convenient. Much of what is labelled “hostility to neoliberalism” here is actually impatience with arguments that have been shown, repeatedly, not to describe how the monetary system works. Weariness is understandable; clinging to error is not.
Second, on the “full funding rule”. The problem is not that suspending it is a silver bullet. It is that it was never a rule grounded in reality in the first place. Governments already spend first and tax later. Pointing that out is not proposing something radical; it is insisting that policy debates start from operational facts rather than comforting myths. That matters because myths constrain choices.
On real-time tax adjustment: no serious MMT proposal suggests flicking tax rates up and down week by week. Inflation management already relies on blunt, slow-moving tools (interest rates being the worst example). MMT argues for a broader toolkit: targeted taxes on surplus income and rents, regulation, price controls in strategic sectors, public investment to expand capacity, and sequencing of spending. The idea that interest rates are politically easier than taxes is itself questionable when mortgages explode.
On gilt demand: this is often overstated. Gilts exist because the state offers them as a savings vehicle. If rates are lower, demand adjusts, and the central bank can always stabilise yields if it chooses. The constraint here is institutional preference, not feasibility.
Finally, on the “history of money printing”. This is the elephant that is always wheeled in, usually without context. Hyperinflations are associated with real resource collapse, war, political breakdown, or foreign currency debt, not with routine fiscal operations in stable, currency-issuing states. Conflating those cases with contemporary UK or US policy is analytically sloppy.
So yes, reasonable people can be sceptical. But scepticism should be directed at claims, not at straw versions of MMT. What MMT offers is not a free lunch. It offers a more honest account of constraints — inflation, resources, power — and removes the alibi that austerity and underinvestment are unavoidable. That is why it provokes discomfort, not because it is naive, but because it takes away excuses.
I can’t reply directly to Prof Murphy’s response to my original post, so I’m replying to myself.
I’ll confess that I’m something of an “MMT Sceptic”. Not to dispute the mechanism, but to dispute the idea that it really offers anything that isn’t already available. We don’t need MMT to build new social housing etc. We just need an honest government and a realistic electorate in respect of the tax implications. i.e. to move significantly from the current levels of spending and taxation, given prevailing inflationary pressures, more tax will need to be levied, and it doesn’t really matter whether one views this as the government “saving up” to be “able to afford it” or as the government levying taxes to stop currency / value of savings being adversely affected by inflation.
You are right about one thing: MMT does not invent new powers. Governments already have the capacity to build social housing, invest in infrastructure, and expand public services. The obstacle has never been technical feasibility.
Where MMT does matter is in how those choices are framed, justified and constrained.
The claim that “we just need an honest government and a realistic electorate about tax” sounds reasonable, but it quietly accepts a framing that does real damage. It assumes that higher spending must be matched by higher taxes in order to be “affordable”, rather than recognising that the sequencing and purpose of tax are about inflation control and distribution, not funding.
That distinction is not semantic. It changes what people think is politically possible.
Under the orthodox framing, the first question asked is “where will the money come from?”, and that question routinely kills policy before it starts. Under an MMT-consistent framing, the first questions are: do we have the labour, materials and capacity? and what inflation risks arise, and how will we manage them? Tax still matters, but it is discussed honestly, as a tool to manage demand, rents and inequality and not as a household-style savings exercise.
You say it “doesn’t really matter” which story we tell. I disagree, fundamentally. Narratives shape consent. The household analogy has been used for decades to justify austerity, underinvestment and wage suppression, even when inflation was low and capacity idle. Removing that analogy does not remove discipline; it relocates it to reality.
So MMT is not a silver bullet. It does not replace politics. But it removes a false constraint that has repeatedly prevented honest political debate. Without that, calls for “honesty about tax” too often become excuses for doing nothing at all.
I would say that MMT does show that the current framework not only doesn’t, work but cannot work. If you start from the current framework you are doomed to fail (lacklustre growth, crumbling publics services). In that sense the narrative and the understanding does matter.
The current framework is basically the full funding model. This is where the government doesn’t print any money. This is factually wrong. To see this consider what has actually happened. UK national “debt” was about £125 billion in 1983, roughly half of GDP (Bank of England quarterly bulletin, March ’83). Today the debt is about £2.9 trillion, nearly 100% of GDP. Bearing in mind that about £600million of that debt is fictitious, because it is held by the Bank of England owned by the government, that means the government has created (“printed” in the common metaphor), about £2.9 trillion less £600 billion less £125 billion. That is, the government has printed nearly £2.2 trillion pounds over the past 40 years. (And before you start objecting that the government has borrowed that money from the private sector just bear in mind that it couldn’t have “borrowed” it unless it had first been spent into existence. Furthermore, I have not forgotten inflation, it’s simply not relevant). For successive governments who have claimed that they have been balancing the books, creating £2.2 trillion, when they didn’t mean to, is a stupendous failure!
On the other hand, judged trough the lens of MMT, it is inevitable that the government must “print” money and indeed it has done so. So, from that perspective, it is not a stupendous failure; it is necessary and inevitable. The failure of successive governments over the past 4 decades is not that they have “borrowed” too much, it is that they have not “printed” enough money to allow the economy to grow to its potential.
I would say that what MMT offers is an insight into what has happened, what has gone wrong, and how to fix it.
Re “framing”, I think the reality is that whether it’s to control inflation or to be able to “afford it”, the Great British Public will rebel at significantly at tax rises on themselves. (Obviously, most are quite happy for others to pay more tax.)
So I guess the “relax the full funding rule” approach relies on the government being able to find ways to spend productively, without exacerbating inflationary pressures. If spending constraints were relaxed, there would be strong pressure for extra spending on NHS staff, teachers and benefits etc. which however worthy/justified can only add to inflationary pressures, unless the recipients are expected to leave their lifestyles unchanged and leave the cash under the mattress.
You are no sage
And you really are getting very boring.
Politely, go and waste someone else’s time.
I think we know that MMT is onto something when the US government officially condemns it:
US Senate
2023: A resolution recognizing the duty of the Senate to abandon Modern Monetary Theory and recognizing that the acceptance of Modern Monetary Theory would lead to higher deficits and higher inflation. https://www.congress.gov/bill/118th-congress/senate-resolution/89
The US House of Representatives
2021: Recognizing the duty of the House of Representatives to abandon Modern Monetary Theory and recognizing that the acceptance of Modern Monetary Theory would lead to higher deficits and higher inflation. https://www.congress.gov/bill/117th-congress/house-resolution/267
Agreed
The use of the word ‘useful’ in the standard response you quoted is a giveaway. It raises a key issue about both MMT and neoliberal economics: who is it useful to and what is it useful for? And I imagine most of us know the answers to those questions.
In other words “Follow the money!”
As an introvert, I often find myself reaching for ‘I can’t do that’ as an easier (or perhaps more socially acceptable) way of declining an invitation than ‘I don’t want to do that’ with all the requirements to explain and justify that go with it. It has its’ limitations as a way of managing my social life. but it definitely seems like a terrible way to run an economy!
As an aside, I found the recent comments here on Myers Briggs really interesting. I understand it has its’ critics, but I’m an INFJ and was relieved, I guess to find an explanation that helped me understand myself better, and also reassured me that there is nothing wrong with me 🙂 .
I’ve also appreciated the support and understanding you often post about neurodivergence: my 19 year old son is autistic and wasn’t able to finish his a’ levels due to a mismatch between the way his teachers wanted to teach, and the way he prefers to learn. He is gifted at mathematics and chess, which he tutors online, and is currently immersed in learning philosophy and how to live a better life. He is not in education, employment or training (and is supported by me, he receives no state benefits) but I am sure he will find a way to use his talents and make a difference to others as he works out his place in the world. I view his neurodivergence as a gift, and not something to be ‘cured’.
Thank you Richard for all you do and write about. I wish you and your family a very peaceful Christmas and let’s all hope for better times in 2026.
Good luck, Susanne, and to your son. There is a space for everyone, I am quite sure. Finding it is the problem.
We need to be aware that MMT is posing a much more serious question which is the Establishment operated by the rich imposes a “1984 Orwellian psychological regime” on countries, including the UK. Such imposition perpetuates poverty.
With this regime the mainstream media (predominantly owned by the rich) pulls a “kill-switch” on any attempt to convey information by heterodox economists that both the state and licenced banks create money from nothing.
For decades now we’ve been lied to and told that the state has no money of its own. Additionally we are not told that market capitalism can only exist successfully with the state being in a position to create money in conjunction with its power to tax.
All of this is not to say we should not support market capitalism where appropriate. The collapse of communist state capitalism has taught us this. We must, however, clearly recognise the need to set up an “End 1984” movement to enable better democratic control of mainstream media as well as revision of the education system.
https://www.independent.co.uk/bulletin/news/bari-weiss-cbs-news-cecot-prison-el-salvador-b2889089.html
Is the NHS doctor situation a real live situation. We have the medical doctor resources available, un or under employed. We have demand for their services. Why should the government not create the money to fully employ them? Would that be inflationary?
No, in a word.
This is a really engaging post.
Whilst not technically gifted myself, like a good conductor or project manager I am quick I think to see and appreciate ‘technical virtuosity’ in others – a great violin player who could be my ‘first violin’ or lead the cello of brass section; a great quantity surveyor or site manager; a good theory.
This post is an example of such ‘technical virtuosity’ and should be widely read – pdf’d even – and should be digested by all.
It is not just the virtuosity of our host, but the virtuosity of MMT that I am reminded of too.
Never forget that the current dominant Neo-liberal credo we live under is nothing but a reductive, over simplification. Facts are discarded; effects are ignored.
To believe in much of Neo-liberalism is the equivalent of being asked to believe that a cucumber is actually a hammer.
MMT is about hard work. It is not a set it and forget deal like monetarism or other Neo-lib bullshit. MMT is proactive and connected to reality and has the potential to inform the democratic allocation of resources I think much better. MMT is a living thing that is currently not allowed to live.
But there is a huge cost to releasing it, and it is something that worries me. This relates to a post the other day about whether or not we could simply call pleonexia ‘greed’.
As a working class person, I have found enormous benefit over the years in embracing new knowledge and asking why things are as they are. This knowledge can sometimes be a burden in itself but it is worth it. But my point is that it is getting to the stage that the only way the dead hand of Neo-liberalism can be made to release its grip on us if the people embrace this sort of knowledge as MMT and by doing so, free themselves. I think that this the real cost that is not being met – this is the thing that is not being done and if so very slowly.
Until this challenge to everyday citizens is met by the citizenship themselves, then how can they expect better? Currently we/they seem to just expect worse. How do we help the citizen to rise up to this challenge?
Thnks PSR, and you’re too modest. People here value your comments, a very great deal.