What is Modern Monetary Theory?

Before we begin, let me just say this is not an introduction to Modern Monetary Theory (MMT).

I’ve been trawling my new local haunt over at Macrobusiness but to understand what I’m about to say (or rather quote) you will need to have some passing familiarity with Modern Money Mechanics.  What caught my eye was a comment by someone using the ever popular nom de guerre Montgomery Burns from July:

To the extent that MMT is a description of the operational and accounting realities it is not an ideology any more than me saying my car is white is an ideology [unless it is not white :) ]. If we get a budget surplus in this country we will have a private sector deficit (we run a current account deficit). That is just a statement of accounting e.g. when I asked Saul Eslake about this when he wrote a column a couple of months ago he produced treasury estimates that showed a decline in the private sector (in the event of a government surplus).

Some MMT commentators attach an ideological perspective to that operational understanding but people need to distinguish between editorial and fact. MMT is independent of ideology. As Harrison himself says MMT is not incompatible with libertarian views (because it is a description of the monetary system).

Most, if not all, economic ideologies seem to derive from gold standard days and apply gold standard thinking which is why they don’t get it and why they keep frakking up the economy, and why they can’t distinguish Greek debt from Japanese debt.

The short answer of course is one is sovereign in its own currency (it issues it) and the other is not.  I would love to see a copy of those treasury estimates Saul Eslake produced, assuming of course Burns recollections are correct.

I do note that Monty alternates pseudonyms but his gravatar is always consistent.



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