Getting a handle on Modern Monetary Theory (or trying to) on “Warren Mosler: What Modern Monetary Theory tells Us about Economic Policy”

“Warren Mosler: What Modern Monetary Theory tells Us about Economic Policy” (Institute for New Economic Thinking, July 2013)

This interview focussing on Warren Mosler’s explanation of Modern Monetary Theory was the first in a series of video interviews made by the Institute for New Economic Thinking in 2013. Mosler is the president of a financial services firm, Valance Company, and is one of the founders of Modern Monetary Theory which challenges conventional beliefs about how money operates in modern economies and offers explanations and solutions to addressing and solving current problems and crises in Western economies. The theory has attracted quite a bit of attention in recent years to the extent that it and Mosler were the subject of a New York Times article in 2013 which portrayed him as an enthusiast for government deficit spending.

Anyone wanting to know what Modern Monetary Theory is all about and whether it is a credible alternative to neoliberal economics or just a rehashed version of Keynesian economics or social credit theory won’t find very much in this video that explains what it is in a nutshell. The interview takes the form of a conversation that ranges over a number of topics such as the Global Financial Crisis of 2008 and how various countries were affected and their response to it. Particular financial and accounting issues are discussed but the basic thrust of MMT – what it believes a healthy functioning economy should look like, what philosophical assumptions underpin its ideas, and what the roles of governments, corporations, individuals, households and other stake-holders are or should be in an economy governed by MMT – is not explained. People outside the US not familiar with the particular problems of the US economy will be confused. Mosler speaks quite softly and quickly so much of what he says can go over listeners’ heads.

Mosler notes that most current crises in modern economies have arisen due to mistaken ideas about how money circulates and economies operate, and to existing economic paradigms that circumscribe economic thinking and shut off options and solutions to those making economic policy. (Of course there is also the fact that governments are beholden to those who fund their election campaigns and who demand that governments follow particular economic belief systems and ideologies that benefit them, and not the Great Unwashed who participate as voters.) Mosler states that governments that issue currency are actually always financially solvent: a revelation that will surprise most people. Government spending stimulates money creation and circulation, leading to job creation; the goal being to generate full employment. The function of taxation – incidentally Mosler advocates abolishing income tax and replacing it with a real estate tax (a land tax maybe?) – is to ensure people use the currency, to regulate demand and control inflation, and to help stimulate even more government spending if needed, rather than to force ordinary working people to forgo spending so that they can have the public services they need. According to Mosler, governments should spend as much as they want and budgetary controls are not needed. (The fact that in the US, the Department of Defense’s spending runs into the billions and billions with no apparent controls and very few knowing where much of that money goes suggests that budgeting and controlling expenditure are very abstract notions indeed.)

I’m sure if the interview had been a bit more structured and less conversational, it would flow more awkwardly and unnaturally but at least most viewers would get a handle on the basic ideas of MMT and how it is similar to Keynesian economics and other alternative theories on the function of money in societies and how to run economies. Those interested in how MMT works are directed to the Wikipedia article on the subject.

There have been criticisms hurled at the theory from economists but these criticisms seem to stem mostly from the critics’ own biases against MMT and concentrate on details of MMT rather than on its fundamental beliefs and ideas.

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