What's Wrong with Modern Money Theory?: A Policy Critique

by Gerald A. Epstein

This Palgrave Pivot assesses the validity of Modern Money Theory’s approach to macroeconomic policy, specifically monetary and fiscal policy. Whereas other papers have focused primarily on theoretical and doctrinal issues, this book focuses primarily on an analysis of MMT’s policy approach. Though drawing on academic literature, this book’s approach is empirical and policy-based, making it accessible to scholars and the public alike. It addresses a burning question in the policy and politics of the US and elsewhere where MMT is gaining a policy foothold, especially among progressive activists and Is MMT, in fact, a good guide for progressive macroeconomic policy? The main focus of this book is to explain why the answer to this question is no.

Genres: Economics

100 pages, Hardcover

Published August 10, 2019

Reviews

[T · Rating 4 out of 5]

"The recent appeal of MMT is understandable. For almost forty years, neo-liberal economic theory and policy has dominated macroeconomic policy with its focus on balanced budgets, austerity and the elevation of 'independent central banks' to focus on inflation to the virtual exclusion of all other goals, including full employment [...] mainstream (neo-liberal) economics was used as a justification for macroeconomic policies that tolerated high unemployment, and government budgets that starved important public investments and social programs for the poor and working class." (2)

Gerald Epstein takes Modern Money/Monetary Theory, or MMT, to task, arguing that it "relies excessively on definitional and tautological defenses of their claims about the impacts of these policies", it ignores the fact that empirical work doesn't explain whether MMT would work in developing countries with sovereign policy, it assumes the dollar's hegemony will be a constant in the future with little doubt, it ignores financial instability (despite MMT prophets often being students of Hyman Minsky, a key theorists of financial instability), and also it takes an 'America First' view which is insufficiently internationalist and may actually have negative impacts for poorer countries.

Whilst Epstein is critiquing MMT from the left, he agrees with MMT theorists' support of a Green New Deal and their pushback against austerity. The main anti-austerity authors Epstein's cites are Mark Blyth, Stephanie Kelton and Larry R. Wray, the latter two of which have written popular books on MMT recently. Epstein agrees with much of their politics, but not the specific policies they propose, seeing the the easy answer of "print more money" and "deficits don't matter" as unconvincing. "Moving forward, if we are going to solve the profound problems facing our country and the world, such as addressing the climate crisis, achieving full employment and greater equality, and providing decent health care for all, a more constructive dialogue among economists and policy analysts trying to achieve similar goals would be a very positive step." (97)

[KT · Rating 4 out of 5]

Insightful and well-referenced explanations of Modern Mone(tar)y Theory (MMT) shortcomings

I particularly enjoyed the chapters with regards to:

MMT falling short wrt to developing economies that aren't 'key' currency countries i.e. don't enjoy the 'exorbitant privilege' of enjoying monetary sovereignty in the international sphere

Issues of dangerous financial speculation that often emerge in periods of low interest rates (as advocated by MMT macro policy): "a search for yield" leads investors to take on more speculative and highly leveraged positions to earn a previously expected rate of return