As Marc Lavoie and John Quiggin have noted, there are ‘two MMTs’. Scholars such as Randy Wray, Eric Tymoigne and Scott Fulwiler have contributed to debates on monetary economics, institutional structure and fiscal policy. I disagree with much of what they claim, but have also learned a lot from them.
In contrast, pop MMT is disseminated through non-academic books, blogs and YouTube channels. It crops up endlessly on social media, and like AI slop, increasingly pollutes discussion and impedes debate.
In criticising pop MMT, some accuse me of elitism and condescension towards people who are trying, without academic training, to get to grips with difficult material. I am sympathetic. Media coverage of economics is shockingly bad. It is little wonder that people turn to ‘relatable’ content on YouTube. And the influence of pop MMT hasn’t been all bad: it has provided useful pushback against silly discussions of fiscal policy which fail to distinguish between government and household budgets, assume that taxation must mechanically match spending, and unthinkingly treat public borrowing as harmful.
But pop MMT is increasingly unhelpful. It twists concepts, relies on slogans and semantic tricks, and ultimately contributes to miseducation. In response to complaints about pop MMT, I’m often asked for something accessible that explains the errors.
The readership for this will be relatively limited. For those already unconvinced (or enraged) by pop MMT, I won’t add much. To the devout, I will only demonstrate, once again, my ignorance and intellectual dishonesty; I can only apologise in advance in the hope of limiting the flow of correspondence. This is for the few who are in neither camp: the lay reader who has come across pop MMT, finds the arguments intriguing, but would like to consider the counter-arguments.
Mostly correct?
A lot of MMT, including pop MMT, is straightforwardly correct. Oddly enough, this makes it harder to criticise the parts that are wrong. Proponents are keen to present MMT as a radical new theory which fundamentally changes our understanding of economics and presents a radical break with ‘neoclassical’, ‘neoliberal’, or ‘mainstream’ economics (these terms are used interchangeably without much care for accuracy). In reality, much of MMT is neither new nor wrong: it’s just pretty standard economic theory presented in different language. Proponents are unwilling to acknowledge this.
The central claim of pop MMT is that the government cannot run out of money. Once the consequences are recognised, we are told, this changes everything.
The reality is less exciting. It is true, in a narrow sense, that a government like the UK cannot run out of money, because the Bank of England, a public institution, issues money. However, this changes precisely nothing because it is already well understood by economists (although perhaps not by politicians). Pop MMT proponents often proceed on the basis that economists don’t realise that the central bank issues the currency or, in their preferred, more imprecise, description, that the ‘government creates money’.
There are problems with how conventional economics deals with monetary issues. Nonetheless, the fact that the central bank issues money has been recognised and incorporated into economic theory for at least a hundred years. The disagreement with MMT arises not over whether the government can compel the central bank to finance its spending, but to what extent the government should do this.
The pop MMT obsession with the money-issuing capacity of the public sector leads to an important confusion. While proponents claim to focus on real resource constraints, the opposite is the case: all of the focus is placed on the narrow question, ‘where does the money come from?’. Instead of considering the complex combination of factors that go into determining spending, taxation, borrowing and interest rate setting—production, distribution, employment, inflation, credit, debt, and so on—pop MMT regards the question of provisioning government as nothing more than finding the means of payment. Once one recognises that the government has a printing press, paying for government spending becomes a triviality.
The pop MMT semantic trick
Conflation of ‘means of payment’ with ‘means of provisioning’ is the basis of a semantic trick at the heart of pop MMT. It can be illustrated with an example:
Cats make good house pets. Tigers are cats. Therefore tigers make good house pets.
This is a classic argument structure: there are two premises and a conclusion. Both premises appear to be true and the conclusion follows logically from the premises. However, the conclusion is false. What’s going on?
The fallacy arises from the ambiguity of the word ‘cat’: the word is used with two different meanings. In the first statement, ‘cat’ means ‘the species of small domesticated creatures’. In the second it refers to the larger category of ‘mammals in the family Felidae’. Replace each use of the word ‘cat’ with the appropriate expanded meaning, and the flaw in the argument becomes apparent.
The same fallacy is committed in the following statement:
The central bank issues money. Therefore government spending is not dependent on taxpayers’ money.
The word ‘money’ means two very different things in this argument. The premise refers to the narrow sense of ‘the medium used to make payment’. In the conclusion, ‘taxpayers’ money’ has a broader meaning encompassing issues relating to employment, inflation and more: the reason that taxes are imposed is not to obtain banknotes for the government but for broader economic reasons. Pop MMT partially acknowledges this with the slogan ‘taxes control inflation’ but then obfuscates it by conflating taxes with means of payment.
Consider another example. When I go to the supermarket, I pay for my children’s food using a debit card. It is also the case that I pay for food with my wages: by going to work, I earn money to buy food. Taking it a step further, my labour pays for my children’s food.
These statements—’I pay for food with my debit card’ and ‘I pay for food with my labour’—are separately true. However the argument ‘I pay for food with a debit card, therefore I don’t need to go to work’ is nonsense.
The whole of pop MMT, and the slogans it deploys, rest on this fallacy: by conflating the immediate means of payment with broader economic and political issues, pop MMT brushes aside difficult issues of political economy. One of the silliest pop MMT slogans, ‘money doesn’t grow on rich people’, relies on this fallacy to argue against taxing the wealthy.
While economists understand that central banks issue money, this is not the case for the media and politicians: much debate is conducted on the implicit basis that taxation must mechanically match spending, pound for pound. This is incoherent and dangerous. As already noted, the standard of public debate on these issues is atrocious. But the determination of pop MMT to conflate the idiocy of political and media discussion with the views of all economists who don’t sign up to MMT is profoundly unhelpful.
The deceptions of pop MMT go beyond this fallacy. The claim that MMT is ‘just a description’ of how monetary economies work is straightforwardly untrue. Complex legal and institutional barriers prevent central banks from financing government spending directly. In claiming that central banks currently do finance government spending, pop MMT conflates description with prescription: rather than a description of how things currently work, ‘governments create money when they spend’ is a proposal for how the system should work, according to pop MMT. The normative question of whether governments should routinely rely on central bank financing should be kept separate from supposedly descriptive statements about how current institutional structures operate. I’ll return to that question in a subsequent post.
Critical Macro Finance 