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Tuesday, February 9, 2021

All MMTers Now?

An observation that I have seen various people on Twitter make is the convergence towards the Modern Modern Theory (MMT) view with regards to the recent fiscal policy debate. The debate is about overheating, and not whether bond market or currency market vigilantes will block expansionary fiscal policy. The inter-temporal governmental budget constraint -- and even its ugly stepchild, the r  versus g debate -- is nowhere to be seen. 

There is more to MMT than just the Functional Finance parts, but that was the part of MMT that always generated the most heat in online debates. Should MMTers declare victory?

At the minimum, I would argue that there is a positive element to this development: it is much harder to make bald-faced lies when discussing fiscal policy than was the case in the 1990s or earlier. As such, conversations needs to gravitate towards discussing overheating, not vigilantes.

That said, there is no guarantee that this will be a golden age of economic debate. Overheating risks can be misrepresented in just the same way that bond vigilante risks always were. Furthermore, the U.S. Republican party is currently in disarray, but they will eventually get their political footing. The "oh no, the debt level is a really big number!" story has been so effective for so long that it will not be abandoned. Free market intellectual bubbles will thus gravitate to debt vigilante stories, which means that the topic will still be debated.

From my perspective, this is a concern since I need to decide whether to re-write comments in my manuscript -- we're all MMTers now, yay! My gut reaction is that any such sentiments are premature.

(Update: having just written this, saw my first comment about “unsustainable debt.” Yes, too early to think things have changed.)

(c) Brian Romanchuk 2021


  1. Give them time. Hate to be cynical, but the, "we can't afford it, and austerity" crowd will be back, possibly next year in the lead up to the 2022 mid-terms. The deficit will become a political issue again even with inflation low.

    1. Yes, I just saw a comment about “unsustainable debt,” from someone who I guess is a Republican.

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