MMT is a heterodox economic theory that recommends a new approach to fiscal policy (government spending). What is it, and why does it matter -- or does it?
One thing that I've been confused about when reading about MMT in the past is how, exactly, it differs in predictions from "standard" Keynesian macro models (e.g. IS-LM). Have you seen a satisfying answer to this? Both theories prescribe basically unlimited spending to fight demand-side shortfalls (e.g. with the "natural interest rate" is below 0). It seems like any differences between the theories basically stem from the question of whether fiscal and monetary policy are completely independent variables in "normal" (e.g. non demand-constrained times), with MMT'ers basically saying that they can be arbitrarily set completely independently of each other, and "conventional" Keynesian economics saying that there's at least some trade-off between the two (which may well be a worthwhile trade-off to make, for societal good!).
One of the things muddying the waters of this debate is, I think the fact that the actual fiscal (and, to a lesser extent monetary) policy pursued by the government has NOT followed the advice of so-called "mainstream macro"; the fiscal policy in particular has been contractionary exactly when you'd want it to be expansionary, and even the Fed has consistently and predictably shown a heavy bias toward the "controlling inflation" side of their so-called "dual mandate".
In a lot of ways then, I feel like MMT is more a rebranding exercise than anything else - it kinda seems like it's basically trying to pose as a "fresh new theory" in order to get people to take seriously the actual insights about how a country SHOULD respond to demand shortfalls and rising deficits. But that part doesn't seem "new" to me - it's EXACTLY what a Keynesian analysis of the world would tell you what to do. The real problem here seems to be that there are irrational deficit fears and the economists running the show within the government don't seem to really believe their own stated models when it comes to policy implications (not to mention the fact that government fiscal policy is mostly set by non-economists in Congress, at least half of whom are openly disdainful to the very idea of expertise). I guess from a tactics perspective, if MMT can break through some of that by virtue of being "new," that's worthwhile?
I think my main problem with it stems from the fact that MMTers generally position themselves as being so hostile to "mainstream" economics, but then argue against a straw man that seems like it's straight out of the University of Chicago econ department. The actual point of disagreement (whether or not fiscal and monetary policy are completely independent of each other or only weakly coupled/exchangeable during periods of robust economic growth) seems fairly esoteric, and, to be honest, not very applicable to recent economic conditions (we've basically been in some form of a liquidity trap/below inflation targets situation for decades now, and that doesn't show any signs of slowing with increased technological unemployment). I'd love the chance to actually "test" that proposition (since that'd basically mean the economy was doing great and we had smart governance!), but it seems like in the meantime the whole "mainstream vs MMT" debate is basically same-team squabbling, and the real issues are how to get actual government policy (both the Fed and Congress) to take the implications that deficits don't matter in low interest rate situations seriously...
One thing that I've been confused about when reading about MMT in the past is how, exactly, it differs in predictions from "standard" Keynesian macro models (e.g. IS-LM). Have you seen a satisfying answer to this? Both theories prescribe basically unlimited spending to fight demand-side shortfalls (e.g. with the "natural interest rate" is below 0). It seems like any differences between the theories basically stem from the question of whether fiscal and monetary policy are completely independent variables in "normal" (e.g. non demand-constrained times), with MMT'ers basically saying that they can be arbitrarily set completely independently of each other, and "conventional" Keynesian economics saying that there's at least some trade-off between the two (which may well be a worthwhile trade-off to make, for societal good!).
One of the things muddying the waters of this debate is, I think the fact that the actual fiscal (and, to a lesser extent monetary) policy pursued by the government has NOT followed the advice of so-called "mainstream macro"; the fiscal policy in particular has been contractionary exactly when you'd want it to be expansionary, and even the Fed has consistently and predictably shown a heavy bias toward the "controlling inflation" side of their so-called "dual mandate".
In a lot of ways then, I feel like MMT is more a rebranding exercise than anything else - it kinda seems like it's basically trying to pose as a "fresh new theory" in order to get people to take seriously the actual insights about how a country SHOULD respond to demand shortfalls and rising deficits. But that part doesn't seem "new" to me - it's EXACTLY what a Keynesian analysis of the world would tell you what to do. The real problem here seems to be that there are irrational deficit fears and the economists running the show within the government don't seem to really believe their own stated models when it comes to policy implications (not to mention the fact that government fiscal policy is mostly set by non-economists in Congress, at least half of whom are openly disdainful to the very idea of expertise). I guess from a tactics perspective, if MMT can break through some of that by virtue of being "new," that's worthwhile?
I think my main problem with it stems from the fact that MMTers generally position themselves as being so hostile to "mainstream" economics, but then argue against a straw man that seems like it's straight out of the University of Chicago econ department. The actual point of disagreement (whether or not fiscal and monetary policy are completely independent of each other or only weakly coupled/exchangeable during periods of robust economic growth) seems fairly esoteric, and, to be honest, not very applicable to recent economic conditions (we've basically been in some form of a liquidity trap/below inflation targets situation for decades now, and that doesn't show any signs of slowing with increased technological unemployment). I'd love the chance to actually "test" that proposition (since that'd basically mean the economy was doing great and we had smart governance!), but it seems like in the meantime the whole "mainstream vs MMT" debate is basically same-team squabbling, and the real issues are how to get actual government policy (both the Fed and Congress) to take the implications that deficits don't matter in low interest rate situations seriously...