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Monday, February 7, 2022

MMT Wrangling Back...

There was a NY Times article about MMT that caused my Twitter timeline to explode. All I can say: read my book (MMT and the Recovery). (Also: please ignore all my incorrect prognostications about the current recovery, thanks.)

Why buy my book?

  • It’s cheap, at least the e-book edition. (The paperback has to cover more costs, so I can’t keep the MSRP too low. But even it is incredibly cheap if you compared it to anything produced by an academic publisher.)

  • It’s succinct. My objective is to minimise the amount of text, while keeping it easy to read.

  • One of the distinguishing features (I believe) is that I have a chapter on MMT debates. The introduction of MMT is done without going to far into detours about competing approaches (to keep the text clear), and then I look at critiques. I am obviously biased, but a reader should be able to work around that bias to get a feel for the two sides of debates.

I will split this article into two pieces: did anything new come up in the recent kerfuffle, and a discussion of MMT resources (that are not my book).

Anything New?

I did not read the NY Times article that triggered this whole thing, but I instead saw a lot of points that got stirred up on Twitter. Some of the complaints seem to be new.

As far as I can tell, the new story is that countries (like the United States) “implemented MMT” (or some such), and it didn’t work out according to plan. So, boo MMT.

To me, that is self-evidently nuts, but hey, I’m biased. Here is my rundown of complaints I have seen, with a definite inflation sub-theme.

  1. There were no policymakers anywhere following a full script of MMT policies in the aftermath of the pandemic. You will read “what about country X?” from people whose main interaction with MMT is misrepresenting it.

  2. Some MMTers would have supported particular policies in particular countries. Can we really pin bad things happening (mainly inflation) on just one policy? What exactly did the MMTers say?

  3. The strongest complaint I see is that people demand MMTers come up with an anti-inflation policy. The problem here is straightforward: whatever policies MMT proponents have discussed, nobody pays attention to. Anything other than rate hikes — which are assumed by practically everyone to be the best way to control inflation — is ignored. I am not in the policy recommendation business, so I am not the person to pursue this line of discussion.

  4. There is a related complaint that MMTers did not predict the extent of current inflation. Considering that the consensus — including neoclassical central bankers — expected inflation to return to around 2% after a hard-to-predict surge, I am unsure why MMTers are being singled out for any alleged forecast miss. Although MMTers can write triumphalist prose, I cannot recall them arguing that they have the ability to churn out exceedingly accurate inflation point forecasts in the presence of what are arguably unprecedented shocks. Although some individuals will have good forecasts — at any given time, somebody has to have the forecast closest to the data — the issue is whether a “school of thought” has models that consistently forecast the data accurately. In the case of inflation, that would make breakeven inflation trading a solved problem. I am no longer close to that market, but I see no indication that is the case.

  5. One final complaint is that MMTers somehow underestimated the political toxicity of inflation. To me, that is just elementary political economy. The people who are continuously droning on about the political toxicity of inflation are hard money bugs. MMTers tend not to be hard money bugs. I suspect that if you polled MMT proponents, they would prefer to have a period of high inflation and a reduced loss of employment instead of low inflation and exceedingly high unemployment. That is a political/moral preference, and unless somebody can work out the Grand Unified Theory of Ethics, I doubt that there is a “right” answer.

My inflation view is straightforward: inflation is complicated, and aggregated models have serious defects. Those defects are discussed in post-Keynesian critiques of neoclassical methods, and I have not dug deep enough into the topic to be able to contrast and compare the MMT’s inflation story versus the non-MMT post-Keynesian story.

What is MMT (Sigh)?

I wrote about this in my book, with a one section summary of main points. An un-edited first draft appeared here, but for a mere few dollars, you can get the edited version here. (OK, fine, time to stop plugging the book. But yes, if you have a topic of interest that is in my book, there is probably an initial draft on my blog. Not my Substack, since I started that later.)

But, I want to offer a key point: MMT is a body of thought, not a single model. If you want to ask something about MMT, you need to ask: does this request make textual sense if you replace “MMT” with “<an entire economics school of thought>”?

Models (Sigh)

The other thing are models. Neoclassical macro theory can be described as: take the canonical RBC model, and then keep adding epicycles to it. Neoclassicals will jump up and down and cry about “epicycles,” but those “imperfections” and “frictions”? Those are epicycles, pal.

Like every other reputable body of scholastic thought, heterodox economists question the wisdom of fixating on a questionable model and then adding epicycles to it.

Simple canonical models exist in MMT — I describe one in my book — but the literature does not consist of adding epicycles to those models. So it makes no sense to fixate on such models.

What to Read?

For someone with no background in economics, Stephanie Kelton’s The Deficit Myth is the obvious starting point. It is a best-seller for a reason.

For more advanced readers, things are more awkward. The textbook Macroeconomics by Mitchell, Wray, and Watts is presumably considered the “MMT Economics 101 textbook.” The problem is that it is economics 101, and it overlaps with post-Keynesian economics. If someone wanted to distinguish PK economics and MMT, it might be awkward. Some of the most distinctive parts of MMT are also done very briefly.

  • I like Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems by L. Randall Wray. It is a primer, but it covers the major topics of discussion. A reader might need to dig through references on topics of interest.

  • Warren Mosler has a website with his books (including free versions). The texts are more self-contained, and less tied to the broader post-Keynesian literature.

  • There are a number of monographs that I discuss in my book, but they tended to be on specific topics.

  • Bill Mitchell’s billyblog was an early entry to the blogosphere, and probably has the equivalent to a dozen academic texts posted over the years. It includes links to resources, including the educational programme MMTed (

  • New Economics Perspectives has a variety of resources, including an online version of the Wray primer.

  • For a journal article database, there is maintained by the Gower Institute for Modern Money Studies.

I am not an academic, and I do not have access to a research library. I cannot easily offer an exhaustive literature survey. That said, I was taught how to do literature survey, even during the cave man days where publication databases did not really exist. (There might have been something in the library, but from what I recall, it was not a great help.) The key is that you need a topic of interest; “MMT” is just too nebulous. You need to identify an MMTer (and not a critic!) who has written on the topic, and ideally it is a well known paper. You then read the paper, and then look at the citation chain. What previous articles were seen as important? Read the interesting-looking ones. Repeat.

No Substitute for Hard Work

I have rock solid credentials in applied sciences and mathematics, and a couple of decades of experience as a rates analyst. In topics of governmental finance and bond markets, I am arguably an authority. I can just state from my position of authority that in the domains of economics I am interested in, MMT is useful, and neoclassical economics not.

If you do not want to trust my authority, you either end up trusting someone who probably knows less than I do about these topics, or you have to do the hard work of analysis yourself. If one distrusts arguments from authority (I do!), you need to roll up your sleeves and do the work of reading. This is very different than the conduct of many mainstream economists, that insist on critiquing MMT without seriously reading a single academic text written by MMT proponents.

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(c) Brian Romanchuk 2022


  1. May I propose Modern Mother#^{%ing Monetary Theory, in which inflation is noise and full indexation solves it once and for all?

    1. You didn’t pay attention to what I wrote when I discussed this topic with you. Since you are continuing with this, I suggest that you ask yourself: how does anyone post a price in an economy where every single transaction is indexed? What are the “units”?

    2. Brian, may I apologize profusively if the noise in my personal life led to my missing an opportunity to continue an earlier conversation with you?

      As for your questions "how does anyone post a price in an economy where every single transaction is indexed? What are the 'units'?", may I refer you to "Towards An Understanding of the Real Effects and Costs of Inflation", by Stanley Fischer and Franco Modigliani?

      《The other source of the effects of inflation in a fully indexed economy is the "menu costs" of changing prices. In principle, most prices in the indexed economy could be quoted in the unit of account, the cost of a commodity basket. In that case, the costs of changing nominal prices would be largely the costs of calculating the nominal amount to be handed over in each transaction, based on the stated indexed price of goods. There would be no need to change marked prices in an indexed economy more often than in a non-inflationary environment. [Page 8]》

      Can you post prices in nominal dollars, and convert them to units of real purchasing power?

      With technology unenvisioned by Fischer and Modigliani in the 1978 paper cited above, can we maintain real purchasing power stability even if nominal prices rise unboundedly?

    3. 1) We had a long conversation already in which I said it won't work.
      2) Creating a commodity basket that is used as a price reference is just creating a currency pegged to a commodity basket. Currency pegs blow up. Even if we ignore that, look at any commodity index in dollar terms. It's more volatile than the CPI. Expressing prices in terms of the commodity index would create more inflation than expressing prices in dollars.

      You need to post a price. It has to have units.

  2. If your dollar-denominated income increases in lockstep with posted dollar prices, can you (automatically) convert posted nominal prices to units of your real purchasing power? If you pay 30% of your nominal income on rent today, why can't the Fed guarantee that you will not pay more than 30% of your nominal income on rent next month, no matter how high or fast nominal prices change?

    In other words, why can't unlimited, continuous COLAs eliminate nominal inflation as something that needs to be worried about?

    1. What is a COLA? You agree to an initial nominal price, then future payments are scaled. That works for recurring payments.

      Most people do not set up recurring payments for groceries, gasoline, etc. All those are in nominal dollars.

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