I recently made a video explaining modern monetary theory, albeit not for the first time.
What we did note when that video was complete was that almost every section within it could, in fact, also be used as a YouTube short on an aspect of MMT.
We put out the first of these a couple of weeks ago, before Trump decided to take over the whole world agenda. Now that things are just a little quieter again, we are putting out some more.
This is the second, on a particularly important point, which is that it is wholly appropriate to call MMT a theory, but that does not mean that it tells you what to do:
This is the transcript:
Let me make a simple comparison.
Think of physics. Gravity explains what happens. It's called a theory, by the way, and it does not then tell you whether to jump off a cliff.
MMT is like that. It's also a theory, but just like gravity, modern monetary theory explains how the economy works, but it doesn't write your budget for you or tell you what your politics should be, and this is really important.
MMT describes what money is, how government spending occurs, what taxation does, why borrowing is different for states and households, and what constrains government in reality, and this is important because most people don't understand any of those things.
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I liked this response from Greta Thurnberg
“To be fair, I don’t have any ‘views on climate change’ either. Just like I don’t have any ‘views’ on gravity, the fact that the earth is round, photosynthesis nor evolution… But understanding and knowing their existence really makes life in the 21st century so much easier”.
Richard, I have to admit that I struggle with some of your links to physics – this MMT “theory” or the quantum ones. If these concepts help you think things thru, that’s great …. But do they help to explain or are they then unnecessary abstractions?
People knew that objects, like hammers, fell. An *attempt to explain* the natural phenomenon that objects seemed to attract each other (ie a theory) was developed, and was shown it could be extrapolated and applied to things like planetary motion. Newton’s theory of gravity is a good explanation for a lot of situations, but has now been superseded.
I still see MMT as a *description* of what actually happens, as part of a man-made process – controlling creation and destruction of money by fiat.
You say yourself
“MMT *describes* what money is, how government spending occurs, what taxation does, why borrowing is different for states and households, and what constrains government in reality, and this is important because most people don’t understand any of those things.”
I see more value in more people understanding that MMT is simply a description of day-to-day activity rather than anything more abstract. I’m a big fan of keeping everything simple.
In essence, MMT isn’t trying to explain something complex or magical (magic money tree?) or that needs to be evolved if the economic conditions vary. That’s what the spivs and neolibs would like normal folk to believe. (“Its all too hard for me to explain to you, dear.”).
It’s simply a description of what governments do. This description clarifies that “availability of money” is not the primary constraint on government policy. All the politics flows from that …. Such as why do our representatives make those choices and not others?
I am baffled.
You say the theory of gravity is a simple explanation of an observed phenomenon – which still works in almost all situations – and you like it.
Then you say you want a simple explanation of how money works – which is what MMT is.
You do, in fact, seem to want what I have just done.
And this is a short – link to the long video for the whole explanation.
I hope you can see why I am baffled.
Gravity and MMT are not an abstractions. They are explanations of the observable facts.
What is a theory? To quote Wikipedia:
“A scientific theory is an explanation of an aspect of the natural world that can be or that has been repeatedly tested and has corroborating evidence in accordance with the scientific method, using accepted protocols of observation, measurement, and evaluation of results. … Established scientific theories have withstood rigorous scrutiny and embody scientific knowledge.”
They theory of gravity explains why hammers (and apples, and leaves) fall – there is a small but remorseless fundamental force of mutual attraction between masses. Newton’s law (F=GMm/r^2) turns that simple insight into a mathematical equation that can be tested empirically.
MMT explains how money is created and destroyed in the modern state. No doubt you could add some equations to explain aspects of that if you wanted.
I don’t really understand why this is difficult. (That said, I don’t find the parallels between economics and quantum theory very helpful, but others do, so there we are. Some poetry moves one person but not another.)
Thanks.
I agree, unsurprisingly.
I agree with the post. 🙂
Actually, MMT is a better theory than gravity (with apologies to both Newton and Einstein).
MMT accurately describes what happens in all relevant circumstances.
Gravity, by contrast, works brilliantly on a human or solar scale but fails to accurately describe the motion of stars within galaxies or the motion of galaxies within galactic clusters. That’s why physicists introduced dark matter to resolve these anomalies. Dark matter is supposed to be something we can’t see, hence dark, and that also doesn’t interact with the normal matter that we see. We don’t know what it’s made of (if it exists at all). That’s a bit suspect as a theory in my opinion. Recent observations show that even dark matter doesn’t describe the motion of stars within galaxies very well (it’s rather better with the motion of galaxies themselves).
So currently theories of gravity are incomplete but MMT is complete. 🙂
🙂
I like it
Excellent post! I have often felt that the ‘theory’ part of MMT exposed it to being considered little more than a disputable opinion from cranks. That the indisputable reality of Gravity is also a theory, helps enormously. Thank you.
Thanks