Debunking Modern Monetary Theory: the Descriptive Analysis

Stephanie Kelton and other Modern Monetary Theorists (MMT) must be given credit for challenging deficit hawks and austerity advocates. They have moved the conversation of deficits to thinking like a deficit owl. Federal deficits can mean that more money is available to the general public. MMT have also proposed a locally oriented job guarantee program for those that want to work funded by the federal government (employer of last resort). They also establish that Government debt is not the same as household debt. Although maybe, the most important contribution MMT has made is opening up a conversation about where money comes from. When people realize that money first comes into existence by simple keystrokes on a computer the next question should be who controls that privilege and who benefits from it. I was hoping that Stephanie Kelton would clean up some of the MMT precepts with the publication of her new book “the Deficit Myth Modern Monetary Theory and the Birth of the People’s Economy.” Albeit, it remains consistent with Modern Money Theory A Primer on Macroeconomics for Sovereign Monetary Systems 2nd edition. It’s ironic that Kelton uses this quote by Mark Twain; “It ain’t what you know that gets you into trouble. It’s what you know for sure that just ain’t so.” Unfortunately, this quote directly applies to MMT.
How do you build a false premise? Create an over simplified model and lead people down a path dictated by linear logic. Kelton lays out a path analogous to debunked mainstream economic theories like the Kuznets curve or the Laffer curve just to name a couple, all theories that MMT reject and rightly so. What is interesting is that you don’t need any of the MMT descriptive analysis in order to endorse their prescriptive proposals. However, the false assumptions and pretzel logic used to arrive at their conclusions call for closer examination. The following is an analysis of the descriptive rather than the prescriptive aspects of MMT.

spending by the federal Government is financed in advance

All spending undertaken by the Federal Government is financed in advance

Statement by Nathalie Gauthier, Manager of Consultations and Communications Branch of the Department of Finance Canada,

dated October 9, 2020:

To make up the shortfall between the revenue and spending, the Government of Canada issues bonds and treasury bills to raise the necessary funds. The Bank of Canada, as the Government of Canada’s fiscal agent, conducts auctions on behalf of the Government where these securities are sold.

The funds raised through the sale of the Government of Canada securities flow into the Receiver General account. From there, these funds are used to finance program payments or extinguish obligations due.

All spending undertaken by the Government is financed in advance.

Debunking Modern Monetary Theory: the Descriptive Analysis

Modern Money, Forget Theory

Supplement for Modern Money, Forget Theory (pdf)

Modern Money, Forget Theory 2

Supplement for Modern Money, Forget Theory 2 (pdf)

Modern money, Forget theory 3

Supplement for Modern Money, Forget Theory 3 (pdf)

spending by the federal Government is financed in advance

All spending undertaken by the Federal Government is financed in advance

The PDF below is an analysis of Stephanie Kelton's new book the Deficit Myth.

The end of stab with Warren Mosler

Steve Keen has lost his way in a Minsky Maze