Job Guarantee as a Policy Variable

The Job Guarantee is the most natural implementation of the concept of having the central government act as a price setter. By making an open bid for labour at a fixed price, an effective minimum wage is created in the economy, and it will eliminate almost all involuntary unemployment. This discussion will not cover the tricky question of implementation details, but will instead discuss how this fits in with the Monetary Monopoly model.

(Note that this is the final article in a sequence, the previous article discusses the theoretical concept of a policy variable.)

MMT And Policy Variables

One of the distinctive features of Modern Monetary Theory (MMT) is the choice of variables used by policymakers to guide he economy. The choices are unconventional: interest rate policy is downplayed or even eliminated, while the requisition price used by the fiscal arm of government is emphasised. This can be seen in the structure of the Monetary Monopoly model (link).

The Monetary Monopoly Model

What I refer to as the Monetary Monopoly Model is the simplest possible mathematical model that captures basic concepts from Modern Monetary Theory (MMT). Despite its simplicity, it gives a good feeling of how a sovereign could pin down the value of a brand new currency (relative to existing currencies, or the value of real goods or services). However, the model makes almost no assumptions about private sector behaviour, and such assumptions would be needed to simulate an existing industrial capitalist society. The reason to start with this model is that the discussion of those behavioural assumptions will drown out the MMT-specific parts of the model.

MMT Critics And Banks

As seen in some comments on my recent articles, critics of Modern Monetary Theory (MMT) often complain about MMT's treatment of banks. I am largely mystified by these criticisms, as they obviously miss the point. Very simply, the existence of banking system, and the fact that bank deposits to be considered to be part of monetary aggregates, is well understood within the MMT literature. The only real debate is about the implications of private banking. To what extent the banking system matters, it is in reference to the business cycle. You would need to read MMT journal articles to judge how well those authors describe the business cycle. One generally notes a lack of reference to said journal articles in criticism. As such, until there are references to said literature, the criticisms should not be taken too seriously.

MMT And Price Level Determination

What determines the price level is a theoretical topic that pops up in Mosler's White Paper on Modern Monetary Theory (MMT - link to my discussion). Mosler's argument is that only MMT provides a proper understanding of price level determination. That is a strong claim, and difficult to assess. However, the discussion of price level determination is a distinctive part of MMT, and should receive greater prominence in discussion.

The Debt-To-GDP Ratio Does Not Matter: The Fiscal Constraint Debate

Most debates around Modern Monetary Theory (MMT) revolve around the role of operations and the meaning of the “fiscal constraint”: what are the limits on fiscal policy? (The focus on this one topic is either the result of this being the most interesting topic, and/or critics not being bothered to read anything else in the MMT literature.) These debates are typically uninteresting, because they end up being purely semantic debates, and the two sides actually agreeing on the underlying principles. To avoid wasting time on such debates, we need to re-cast the debate into a debate over something concrete. In the absence of a discussion of a specific policy, I believe that the best way to phrase the debate is as follows: does the government’s debt-to-GDP ratio matter?

MMT Primer: Mosler's White Paper

Warren Mosler, one of the founders of Modern Monetary Theory (MMT) has a white paper (link) that acts as a summary of MMT. It is brief (1300 words), and does meet the objective of offering an overview of the question "What is MMT?" for more advanced readers. The brief nature of the paper means that not everything is covered, so I would point out that it does not represent all of MMT.