by From Anne Mayhew I count myself as one of those friendly critics who applaud several of the major MMT contributions to our understanding of the modern American economy. Among these contributions are the emphasis put on the endogeneity of money; the importance of using of a flow-of-funds approach in analysis of the macroeconomy; detailed descriptions of how the FED (Federal Reserve System) actually operates, details usually missing from texts. And from these three emphases the central conclusion of MMT is that the availability of space for fiscal expansion is larger than commonly understood. These three emphases are used to construct a forceful rejection of the argument that financial constraints can require austerity in economies with unused non-financial resources. Although much of
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from Anne Mayhew
I count myself as one of those friendly critics who applaud several of the major MMT contributions to our understanding of the modern American economy. Among these contributions are the emphasis put on
- the endogeneity of money;
- the importance of using of a flow-of-funds approach in analysis of the macroeconomy;
- detailed descriptions of how the FED (Federal Reserve System) actually operates, details usually missing from texts.
And from these three emphases the central conclusion of MMT is that the availability of space for fiscal expansion is larger than commonly understood. These three emphases are used to construct a forceful rejection of the argument that financial constraints can require austerity in economies with unused non-financial resources. Although much of the analysis has been focused on the U.S. economy, the MMT attack on austerity policies as necessary also has much wider application. This I also applaud.
I am, however, a critic, because in their pursuit of policy relevance, MMT advocates too often offer apparently simple solutions to complex issues of political economy. That they do so in the cause of political relevance and journalistic attention does not absolve them of responsibility for over simplifying debate about very serious economic issues. My criticism, and I suspect that of many others, is somewhat difficult to articulate because it rests upon the failure of MMT advocates to use, or at least fully use in practice, the very foundational ideas for which I applaud them. That is, in carrying out their analysis, MMT advocates often come ever so close to denying the endogeneity of money; they use a severely truncated form of flow-of-funds analysis; they do not employ an accurate description of the relationship of the FED to the rest of government. In each of these three cases sleight of hand is used so that it is difficult to pinpoint the exact difference between foundational proposition and analysis/prescription in practice. Now you see it, now you don’t is the lasting impression that I, a friendly critic, often take away from arguments about the importance and validity of MMT. I do not mean to suggest that the MMT advocates are deliberately duplicitous. Instead, I suggest that in their understandable zeal to make policy makers and the public understand how unnecessary governmental austerity most often is, the subtleties of the foundational principles are elided in the interests of journalistic simplicity.
In the pages that follow I will try to explain my understanding of these sleights of hand and discuss why they matter. The sleights of hand of MMT