Summary:
Modern Monetary Theory (MMT) has gained prominence since the global financial crisis. The rising star US politician Alexandria Ocasio-Cortez said recently we should be “open” to its ideas, and some mainstream economists have given it a (qualified) endorsement. For many, it offers a powerful critique of the damaging austerity policies that were implemented in the western world since the global financial crisis, and an important plank of new progressive thought. MMT also has many critics.
For the tax justice movement, however, MMT opens an important debate about the role of tax. One of the MMTers’ central arguments — that governments don’t need tax revenues if they want to spend money — seems to conflict with our argument that governments must tax rich corporations and crack down on
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Modern Monetary Theory (MMT) has gained prominence since the global financial crisis. The rising star US politician Alexandria Ocasio-Cortezsaid recently we should be “open” to its ideas, and some mainstream economists have given it a (qualified) endorsement. For many, it offers a powerful critique of the damaging austerity policies that were implemented in the western world since the global financial crisis, and an important plank of new progressive thought. MMT also has many critics.
For the tax justice movement, however, MMT opens an important debate about the role of tax. One of the MMTers’ central arguments — that governments don’t need tax revenues if they want to spend money — seems to conflict with our argument that governments must tax rich corporations and crack down on tax cheating and tax havens in order to pay for roads, schools, teachers and hospitals.
To illustrate this clash, take the words of UK Shadow Chancellor John McDonnell during the Panama Papers tax haven scandal that “every pound avoided in tax by the super-rich is a pound desperately needed by our National Health Service, our schools and our caring services.” We’d strongly agree with this statement — though Bill Mitchell, a prominent MMT economist, attacked it as a “dangerous and misguided narrative for progressives to engage in,” because it “fuels damaging myths” about how the tax and spending system works.
This blog asks some big questions about MMT. Is it ”correct“? If not, how not? But if so, is it compatible with tax justice – and could it even be useful? Is tax justice useful to MMT? We’ve given MMT a partial endorsement and suggest there is no real conflict between MMT and tax justice — that tax justice doesn’t especially need MMT, but without tax justice, MMT is incomplete. You can listen to a discussion here exploring these issues in this Taxcast Extra below: (our monthly podcast, the Taxcast is available here)
Modern Monetary Theory offers a powerful critique of the damaging austerity policies that were implemented in the western world since the global financial crisis, and it's an important plank of new progressive thought. BUT one of its central arguments — that governments don’t need to raise taxes in order to spend money - contradicts what we know to be true at the Tax Justice Network - that governments must tax the rich, and corporations, and crack down on tax cheating and tax havens in order to pay for roads, schools, teachers and hospitals.
In this Taxcast Extra Naomi Fowler discusses Modern Monetary Theory, its contributions and its limits, with Professor of Practice in International Political Economy, City, University of London Richard Murphy (also of Tax Research UK) and John Christensen of the Tax Justice Network.
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.
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