Modern Monetary Theory (MMT) does not change things in an instant

11 min read

The idea that MMT can just change politics and economics the moment people engage with its ideas is wrong.  While I very much believe in the efficacy of MMT, I do not accept some of the views about how it should be taken up by politicians.  Particularly, the suggestion that leftist and progressive politicians should lead with the ideas of MMT.  That they should be bold in talking about the real limits of government spending, when that government has the sovereign powers to create a currency.  From the perspective of MMT, currency is introduced into the economy through government spending,  it withdraws currency through taxation.  This is contrary to the orthodoxy of seeing taxation as a revenue and government spending as an expenditure.  MMT aficionados become hot under the collar when they hear politicians, media presenters and lay persons relating tax to spending:  that all government spending must be matched up to tax revenue.

A short while back I found myself responding to a blog post from the heterodox economist Bill Mitchell. British Labour has to break out of the neo-liberal ‘cost’ framing trap. Bill was incredulous with the British left, that John McDonnell (Shadow Chancellor) and Jeremy Corbyn (Leader of the Opposition) had abandoned progressive economics. There is another out to day. British labour lost in a neo-liberal haze. Mitchell’s argument is that UK Labour are being lured into the neoliberal thinking because they are explaining their economic policy based on tax and spend.  A crime against MMT.

Now I have greatest respect for Bill Mitchell, I have learnt a great deal from his books, his blog and various videos on YouTube.  It is his writing that has helped me understand post-Keynesian economics and MMT.  It has empowered me politically.  While the economics is crystal clear, I feel Bill has a blind spot politically.

I’ve also had arguments on social media with MMT supporters about this.  And it is perhaps my own research in education that makes me realise why the introduction of a new theory or a new idea—no matter how brilliant, how insightful or how effectively and accurately it reflects the real world—does not change people’s thinking and behaviour easily.

The reason for this is to do with human reasoning.  There is a duality in our reasoning facility.  At one level, we are rational and logical.  We have the capacity to consciously reason based on the evidence, assumptions and premises in front of us.  At another level we are highly intuitive, we make judgements based on the situation we see in front of us.  With this kind of reasoning we draw much less on our capacity to consciously reason.  We rely on our experience and judgement.  We rely on our memory and previous experience.

For the most part, humans are much more reliant on intuitive reasoning than they are conscious reasoning.  The reason is simple, conscious reasoning requires much more effort, the mental processes required draw on the body’s resources.  Unlike a powerful computer, human beings are not able to sustain conscious logical and deliberative reasoning for sustained periods.  We therefore must rely on our intuitions.

But if we were simply to rely on our intuitions, our social lives would be chaotic.  It would be an interaction of individuals making fairly random intuitive judgements and responses to the situations they met.  Fortunately, we have culture to overcome this.  This provides us with a shared pattern of behaviour to make our actions more predictable and more understandable for each other.  Call it what you will, these are life’s protocols, mores, manners, and even language.  It is like much of our behaviour is pre-programmed but constantly adapting. Vary it too much and your behaviour appears abnormal or even unacceptable.

My research has been largely about the professional learning and development of mathematics teachers in secondary schools.  I have observed many lessons and they mostly follow similar patterns, like a cultural script.  The teacher begins by explaining or demonstrating a mathematical method or idea.  The students will follow this with practice on exercises or working through textbook questions.  Even the dialogue follows fairly predictable patterns.  Notably, the initiation-responds-feedback routine of teacher-student dialogue predominates.  The teacher asks a closed question to the class, a student responds and the teacher replies yes or no.  It is predictable classroom rhetoric.

The classroom is an intense and demanding place.  The teacher has little opportunity to consciously reason through their actions and decisions in carrying out their teaching.  They are relying on patterns and routines, heuristics and cultural scripts in order to make complex social interactions more predictable.  By the same token, students also become familiar with the cultural script and the ground rules.

And this is how I understand the frustrations of MMT economists.  Why is it that we have a theory that is so good, it explains the economy so effectively and so comprehensively but everyone is not using it?  And I felt the same way when I started researching the professional learning of mathematics teachers.  Why is it that we know so much about learning, through a combination of anthropology, sociology, psychology and neuroscience?  Why isn’t the teaching and learning that I observed in the mathematics classroom reflecting this knowledge?

My explanation, which draws on the work of philosopher and cognitive psychologist, Philip Johnson-Laird, is in the duality of human reasoning and the limitations of our capacity to consciously reason.  Furthermore, it is our reliance on culturally defined patterns of behaviour and thinking.

That is not to say, humanity is incapable of change, that it is incapable of adopting new ideas, new thinking and acting in different ways.  However, the assumption that new ideas will simply change behaviour, no matter how good that idea is, simply misunderstands the nature of human thought and behaviour.

In terms of economics, the orthodoxy that government spending is dependent on taxation is not simply a construct of neoliberalism—of liberal economics—from the last few decades.  No, once we start to dig and search for the origins of this thinking we go back centuries.  Mark Blyth, in his recent book, Austerity: The History of a Dangerous Idea, sees the source of cultural thinking about economics in the work of John Locke in the 17th century.  It can be tracked through the work of Adam Smith and David Hume, for example.  It is embedded within cultural thinking about political economy, it is a fundamental cultural artefact: that in order for government to spend it must raise tax.

Of course, this is reinforced by the media and by mainstream economics.  It is easy for people to accept since it is analogous to every individual’s experience of their own personal finances.

So, we do not simply change people’s thinking with a radical idea.  We need so much more.  Education is at the heart of this, people need time to think about and muse on how the economy works.  People need teachers to guide and challenge their thinking and help bring heterodox economic ideas into everyday use.  It is complex, demanding and it needs time and investment.

I acknowledge therefore, that no political leader, however progressive will be in a position in the current cultural orthodoxy to change thinking.  No matter how eloquent, how compelling and how richly they explain MMT, without addressing cultural dispositions towards economic ideas, thinking will not change.

However, what political leaders can do is move the argument on.  They can present progressive economic ideas in terms that mean things to people.  At the same time, as Jeremy Corbyn and John McDonnell have done, they can get more people talking about how the economy works and in many cases people are reaching for further understanding.  This presents an opportunity for heterodox economics, such as MMT.  People are looking for something different.

It is important to think about economics in political economic terms.  Orthodox economics lends itself to the worst forms of exploitative capitalism, like for example, neoliberalism.  There are indeed vested interests in retaining the status quo.  You don’t have to listen to the BBC for very long or read any of the UK’s leading newspapers to realise how embedded politically and culturally, orthodox economics is in our society.  Vested interests prefer it that way and will do everything to retain it.

It is necessary therefore, that any project to revolutionise the economic thinking of the masses is seen as a political project.  That doesn’t mean that progressive forces seize power and impose new economic thinking.  No, it is a more consensual project.  One that must concurrently develop economic thinking and political purpose.  This is about the development of economic literacy in tandem with political empowerment.  These two elements are inseparable.  You can’t have political empowerment without economic literacy.  MMT aficionados recognise this and find it frustrating, understandably.  However, they must also recognise that economic literacy only comes through political empowerment and action.

I was listening to a podcast from Novara Media on Saturday as I pottered round the house. The Long Depression: Michael Roberts on Capitalism and Crisis.  The presenter James Butler questions the guest, Michael Roberts, about post-Keynesian economics.  As a Marxist economist, Roberts puts forward a view not dissimilar to the one that I present here.  It was interesting, as I was made to think about tensions between Marxist economics and post-Keynesian MMT.  The former, as described by Roberts, is rooted in a political struggle of between capitalist and proletariat.  On the other hand, MMT does not have the political dimension.  It is an economic model with political consequences.  As this discussion unfolded, between Butler and Roberts, I found myself in sympathy with both positions.  I have a good understanding of MMT but also recognise that economics is necessarily a political project. In other ways Marxist and post-Keynesian economics are not incompatible.

And this is why I ask that progressive economists back the UK Labour Party, Jeremy Corbyn and John McDonnell.  Their proposal for the economy, while not exactly in the language of MMT is not inconsistent with it either.  I refute the claim that it is neoliberal. If we are generous, we can see that they are attempting a combined political and economic project.  Increasing public spending, progressive taxation and potentially greater regulation of the financial sector.  However, they are using the language of the economy that people are familiar with.  As a political project, their aim, in my opinion, is to make government more democratic and transparent.  It through this that economic literacy can be expanded.

At a personal level, this is the first time in my fifty-two years that there has been anything close to the faintest sniff of something radical or different.  We must support it.

12 thoughts on “Modern Monetary Theory (MMT) does not change things in an instant

    1. Steven Watson Post author

      Thank you Nigel. It appears I am in the habit of producing misleading titles. I wrote something recently about the British Labour Party and put it on Facebook. The very first comments were reassuring people that I was in fact being positive about the Labour Party. I had to change the title. Perhaps I should do that here too.

      It is clear that we agree on so many things. I thank you for your encouraging remarks about my analysis.

      I do have one observation to make about Jeremy Corbyn. I feel I have to defend his charisma. This is a personal experience of course. Until Jeremy emerged as a candidate in the Labour leadership elections in 2015, I was ambivalent about politics. Certainly leftist, but ambivalent nonetheless. His candidacy got me involved in politics. It has also changed the direction of my research. I began by researching the professional development of mathematics teachers, in the last two years has turned towards the political economy of state education. I also believe that he is offering a very different kind of political leadership. Not like the presidential styles of Margaret Thatcher or Tony Blair, it is a moral deliberative and consultative leadership. Much more appropriate for sharing power.

      Enough of gush! Thank you again Nigel for your comments.

      Reply
  1. Simon

    Great article Steve. I think MMT people get frustrated because the MMT insight operates like a ‘Gestalt’ transformation and the world and its possibilities seem quite expansive and utterly different. So it can appear like a ‘conversion’ experience but without the theology and metaphysics.

    You are quite right to pint out the role of education here. My son is about to take A level economics and I am aware that much of what he will learn will represent the standard view of Government spending and banking. I think there is a groundswell of interest in money since 2008 and this will expand but until economics becomes a standard school subject from, say, year 7 ( I think it is in Steiner Schools) and there is a representation of how ‘social purpose’ can be furthered and children are helped to see that ‘the way things are’ socially are not rooted in something metaphysical, things will not change much.

    I agree with you about Labour but they could have at least challenged May when she used the word ‘bankruptcy’ the way she did- both Greenspan and Trump even have made it clear ‘America can never default.’ I think Labour can drop in the more obvious tit-bits.

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  2. Neil Wilson

    “However, they are using the language of the economy that people are familiar with. ”

    They are, but that requires that they use the poison word – tax.

    And just using that means they won’t get elected on the economy.

    Eventually somebody has to tell the truth. There are analogies that people are familiar with that can ease the transition. In particular you can go after the bankers – because taxing bankers just means restricting who and what they can lend for.

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  3. Andy

    “And this is why I ask that progressive economists back the UK Labour Party and Jeremy Corbyn and John McDonnell. Their proposal for the economy, while not exactly in the language of MMT is not inconsistent with it either. I refute the claim that it is neoliberal. ”

    Their constantly repeated mantra against the Tories is that they have failed to cut the deficit.
    That is about as neo-liberal as it gets in my view. How does that help educate anyone ?
    It simply reinforces the perception that the UK must balance its books.

    Reply
    1. ItsThatIdiotAgain

      “Their constantly repeated mantra against the Tories is that they have failed to cut the deficit.
      That is about as neo-liberal as it gets in my view. How does that help educate anyone ?
      It simply reinforces the perception that the UK must balance its books.”

      It was what *they* said they were going to do, and singularly failed to do (since, so far as I can tell the Tory thinking on the economy is about as woolly as it comes, this should be no surprise).

      I have no problem with beating them with their own stick. If you have a larger stick, then use that too.

      Prove, in layman’s language, to the man on the Clapham omnibus, (or indeed the man in the white van), the flaw in their thinking, and you will have that bigger stick.

      Reply
  4. andy blatchford

    There are no short cuts.

    I come across MMT way back (or so it seems) back in 09, spent a couple of years studying and felt confident enough to start commenting at non MMT blogs, particularly BTL on newspapers mainly the DT where there were 3 or 4 of us, The Guardian a few more etc.
    In the years since the growth has been huge (Facebook used to have just a couple of groups & pages, I have lost count now), got involved with the Green Party (even stood for Parliament in 15 & will be again next month (Nothing to gain standing down in Kent, it’s a neoliberal hell hole). I got involved as realised there was no other way but to push inside a party. It is working but does take time, harder in the LP but go to conferences, go to meetings it is the only way.
    Be aware of Lerner’s law yourself though.

    Reply
  5. Scott Fullwiler

    You might look at how Stephanie Kelton is going about this, which may have added balance to your characterization of some MMT economists . . . She’s been patiently making her way into the very top of internal policy discussions in Washington for the past 2+ years (believe me, there’s far more going on behind the scenes now in these discussions, not infrequently involving MMT, than any of you know). I did a search to confirm you did not mention her at all in this piece. The difficulties of changing minds and the need to build trust is not lost on most of the MMT academics–recall that until recently we were completely ignored even in our own academic field. And while many in our field would still label us as cranks, note how far we’ve come very, very quickly while the pace grows still faster. But, yes, it’s very good and also necessary to help many of our friends understand that it was never going to be as simple as just “being right,” and to possibly invoke Stephanie’s example of patience, building trust, educating, and making friends (rather than enemies).

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  6. Gen Dau

    This short essay is tepid, feckless, and lacking in political common sense. if its recommendations were followed, the virtues of deficit spending and the idiocy of austerity, the discussion of which predate MMT, would probably *never* get back onto the political agenda, at least for decades. Even in the stridently neoliberal US, the number of people and labor unions and candidates (including Sanders) calling for the end of deficit hawkery and austerity and the revival of deficit spending has been markedly increasing since 2008. And even Donald Trump is trying to wean the Republicans away from their deficit-cutting fetishism, which is beginning to look threadbare to the public. This is because people are refusing to shut up about the virtues of deficit spending. Just as Americans can revive talk about the virtues of the New Deal and WWII public debt, surely the nation that produced Keynes can come up with some eloquent spokesmen and -women who can remind the British people about he positive effects of deficit spending during the 1930s, WW II, and the postwar period and about the harmful effects of recent Tory austerity and budget-cutting fetishism. They can also point out that both deficit-cutting fetishism and austerity are political strategies and have harmful economic effects on 95% of the population. The Labour Party should carry out widespread political-economic education on a few basic points that can be fairly easily grasped by voters, such as 1) the successful history of deficit spending, 2) the difference between a household budget and a national budget, and 3) why deficit-cutting fetishism helps only the top %5. Even the “paradox of thrift” could surely be explained very powerfully by Corbyn and other Labor candidates if they took the time to discuss it in clear, ordinary language using everyday metaphors. Labour also ought to reprint Abba Lerner’s short, clearly written 1943 article “Functional Finance and the Federal Debt”
    http://public.econ.duke.edu/~kdh9/Courses/Graduate%20Macro%20History/Readings-1/Lerner%20Functional%20Finance.pdf
    and put it on their homepage and on fliers. Corbyn should also sponsor basic lectures on Keynes for himself and all Labour MPs and new candidates so they can sharpen their arguments and learn how to frame them for ordinary voters. Political campaigns are a FORM OF EDUCATION, and if Labor doesn’t start educating ordinary voters, no matter what their “education level,” then the virtues of deficit spending will remain tragically hidden from most of the public.

    All economics is political economy, whether or not most universities still give Political Economy classes or not. Political economy is the great tradition, and it still remains valid. While MMT does not base itself on political foundations in the narrow sense, it is profoundly political in its social implications, even though these implications are not drawn out and explicated by all exponents of MMT. All national budgets are highly political creatures, so the principles invoked to craft them must invariably have a political dimension. That holds for MMT as well. For example, MMT did briefly make national headlines in the US in 2011, when the idea of minting a trillion-dollar or multi trillion-dollar coin was discussed as a way to avoid a budget crisis caused by budget hawks who wanted to shut down the government. Even the relatively conservative Paul Krugman supported the minting of such a coin. Eventually opposition from Obama and the Fed blocked the proposal, though it was proposed for purely economic reasons — to allow the US government to go on paying its debts. However, a major reason — probably the major actual reason — the platinum coin proposal was rejected was because, as Joe Firestone and many others pointed out, the coin proposal would also allow the government to spend much more on welfare and on investments in the public sphere, political uses of the budget which would inevitably accompany the coin’s use for purely economic reasons. Thus the rejection of the coin was made mainly for political, not economic, reasons — in short, to enforce austerity. However, it was a wonderful educational moment, and the next time there is a US budget crisis, the large-denomination coin will probably come up again, and it may eventually be minted. Political-economic education takes time, so it should start as soon as possible — and especially during political campaigns. Public education is too important to be left up only to the schools.

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  7. Dominic

    Excellent post Steven. I couldn’t agree more if I’d written it myself.

    Gen Dau. Your unnecessarily rude opening sentence demonstrates perfectly that although you may understand MMT, you apparently have little idea about how to persuade human beings to your argument.

    I’m rather baffled as to how anyone can believe that Jeremy Corbyn and John McDonnell would have any hope of getting elected if they made a serious attempt at overturning the deeply embedded neoliberal economic paradigm. It would be political suicide; they would be laughed out of Parliament, even by their own MPs. Being utterly correct would offer no protection against the forces of the neoliberal vested interests that would be marshalled against them.

    They may as well start arguing that the world is flat or that the Sun moves around earth, so deeply ingrained, self-evident, intuitive and easy to explain is the current paradigm. You only have to spend a few minutes reading comments on politics pages on Facebook to come across multiple examples of how most ordinary people think about the economy.

    “Labour bankrupted Britain”
    “Magic money tree”
    “Keep within our means”
    “Balancing the budget”
    “Tax and spend”
    “Maxing out the national credit card”
    “We’ll end up like Zimbabwe”

    In other words, how they have been trained to think by neoliberal propaganda for decades.

    Thankfully Corbyn and McDonnell understand this and know that the only way to change the paradigm is to get their hands on the levers and demonstrate that MMT accurately explains how the economy works in the real world.

    Even if they do manage by some miracle to get elected, those forces that benefit hugely from the status quo – the richest and most powerful people, corporations and government agencies on earth, the people that own and control almost the entire mainstream media, would throw everything they have at the Labour government to ensure they fail. I would genuinely fear for Jeremy and John’s lives if they are able to actually do what they say they want to do.

    I’m in awe of their courage, perseverance and commitment to at least trying to rebalance the British economy in favour of the many.

    Reply
  8. Sheena

    Thank you Steven for this as it opens a window of opportunity for me. I am not an economist but not being stupid I knew that what has been happening for at least the past 40 years had to be wrong. I have read about MMT and it has made sense but I am totally unable to explain it to friends in such a way that they stop saying I am wrong. Also when I hear the critics of Corbyn’s acceptance of ‘tax then spend’ I could scream because I know that the MSM would hammer him for being a fruit cake. I think those of us on the left or centre need to start discussing MMT with each other. I have faith in Corbyn and his team and am hopeful that he intends to move things along while taking the majority with him. The “Maxed out on the Credit Card” is very engrained in people’s minds!” I fell for it because it made some sort of sense given the complexities of economics for most lay people!

    Reply
    1. Steven Watson Post author

      Hi Sheena
      Thanks for reading it. It has taken me two years from a standing start to learn enough about MMT to be able to explain.

      Reply

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