Why This Isn’t The MMT Moment

Austin G Mackell
17 min readApr 27, 2020


Modern Monetary Theory is right about the government’s capacity to spend, but dead wrong about how to use this spending power. A Job Guarantee won’t work. A Universal Basic Income will.

As economic activity plummets and joblessness surges, governments around the world have pulled out their proverbial check-books and begun spending at a level that would normally be considered to reflect the reckless abandon of drunken sailors on the last night of shore leave, but is increasingly viewed as necessary and prudent. Generally, this is framed as an emergency measure, with the expectation, spoken or unspoken, that when the crisis passes, some combination of tax increases, austerity, and the sale of public assets will be undertaken to right the ship and get the government on track to pay down the debt it is currently incurring.

But which crisis do they mean? Is it the narrowly defined pandemic crisis, which we are mostly assuming (perhaps optimistically, perhaps pessimistically) will end in a year or so, when a vaccine is expected to arrive like the cavalry. Or is it the economic crisis the pandemic has triggered, which might reasonably be expected to last years, as the bang created by millions of jobs disappearing all at once reverberates through the economy. Unless, of course, the government steps in with unprecedented stimulus that makes up for the pandemic shaped hole in our collective spending power. But when to step away?

The loss of jobs and income has been more rapid and dramatic than anything in history, including the Great Depression. And already, before the downturn, there had begun to be murmurs that, perhaps, the importance of this whole “balanced budgets” thing might be a little overstated.

Reality might be finally, violently, forcing its way into policy and public discourse, which has long been dominated by the (superficially convincing) idea that governments, like households, must “live within their means” by matching spending to tax incomes, or run out of money and “go broke” — an idea so widely accepted that the IMF has since the 80s made it a pillar of the structural adjustment programs enforced on borrower countries in the third world, and many countries and states, have tried to make it a constitutional requirement. The EU even had a similar rule, enforcing budgetary discipline on member states, but has been forced to trigger the “general escape clause”.

Let us hope that the escape is indeed general and lasting, and that governments don’t rush to lock themselves back in the prison of austerity at the soonest opportunity. These have always been terrible ideas, as the historical record shows. Even at the most superficial level, these ideas don’t hold up: It is possible for governments to run year after year of deficits, and still see debt shrink as a percentage of GDP. But whether this relative measure of debt even matters is also questionable, since governments can actually, contrary to the current taboo, simply spend new money into existence.

Modern Monetary Theory, a variety of post-Keynesian, soft currency economics, accepts all this. It doesn’t consider government deficits a recurrent failure of ill-disciplined politicians, pushing pain onto future generations, but as necessary and good. As its most prominent advocate (and economic advisor to Bernie Sanders) puts it “Government’s deficit is *our* surplus”, with “us” here meaning everybody but the US government (so the US private sector, plus the rest of the world.)

How many times am I going to be forced to Tweet this graph tonight? Bottom line: Government’s deficit is *our* surplus — Stephanie Kelton, 7 sept. 2012

And since the economic ideas that get used in a crisis are, so famously, those which are, as Milton Friedman put it, “lying around” at the time, Kelton and her ideas seem to be coming very much into favour.

It’s worth noting that the nature of this crisis, which involves supply shocks as well as demand shocks, makes it, in some ways, less suited to an MMT driven response than a normal crisis, which is often merely a contagion of falling demand through the economy. That MMT still has much to offer, despite this complicating factor, is a signal of how long and how badly the supply side of the economy had been favored by policy settings. MMT might still be, to some extent, fighting the last war. But that’s ok since that war wasn’t ever actually won.

So far, so good, right?

Sort of.

The MMT crowd is right that the government has far more headroom to spend, and better macro-economic (as opposed to nice-but-silly humanitarian) reasons to do so than their mainstream opponents think. But they are wrong about what to do with that spending power. They correctly understand that government spending is constrained by the economy’s available resources rather than by tax revenue. But their central policy proposal, a “Federal Jobs Guarantee,’’ is a terrible stinky heap of burning radioactive garbage drenched in awful sauce, sprinkled with bad. It’s unfit for purpose, now and later, on its own terms and on any reasonable person’s.

I don’t make these criticisms gleefully, as in general, I am sympathetic to the general thrust of their thinking. But a real friend tells you when you’re wrong, for your own good (and everyone else’s). This basket case of a policy would be a disaster if tried and could discredit the entire school which proposed it, leading to the macroeconomic baby being thrown out with the policy bathwater. MMT needs to be forcefully critiqued, and saved from this glaring flaw. Unfortunately, this flaw is one that most MMT advocates refuse to acknowledge, and will passionately defend. So it must be attacked with equal passion. It’s like the 6 minute back alley fight scene in They Live — they must, despite their protestations, be made to see.

Unfortunately, that won’t be easy. This policy proposal isn’t some early stage-skin cancer that can be easily cut off. It’s tied to macroeconomics deep in the guts of their thinking.

The FJG arises from MMT’s understanding of money. In MMT, money is simply a token used for paying taxes. Governments impose taxes to force people to earn money. As a result, everyone ends up needing a job. To put it another way, the government introduces money and taxes for the purpose of creating unemployment. They create this unemployment in order to get people to work for the government.

The monetary system’s original sin is that it creates unemployment. . . . Money is a public institution that is launched into existence by creating unemployment

-Pavlina Tcherneva

The MMT perspective is that the government has made a mistake by taxing people into needing jobs without also providing jobs for everyone. The Federal Jobs Guarantee is the obvious solution. The government simply creates a job for anyone who wants one.

On the face of it, this story checks out. If the government imposes a universal tax payable only in government-issued money, then it forces everyone to go earn that money from the government, either directly (by fighting in the army, for example) or indirectly (selling food and ale to the soldiers on leave). The government, in this account, sets the value of the currency by setting the wages it pays for the labour it hires. The purchasing power of currency is thereby anchored to labour.

An adjacent school of thinking now emerging, Consumer Monetary Theory (CMT) on the other hand, remains agnostic about particular origin stories, which have partial and overlapping elements of truth, and focuses on the contemporary reality that the economy requires a standard unit of account in which to set prices.

Our dollars represent claim tickets against the economy’s production. Whenever we spend a dollar, we claim for ourselves one dollar’s worth of the economy’s productive output. Consumers are continually buying and using the goods and services that support their livelihoods. They’re redeeming their money tokens in exchange for the economy’s products

Alex Howlett

Money is what you buy stuff with, so it must be anchored to consumer goods and services. For a currency to be useful, its purchasing power has to remain reliably stable with respect to the kinds of things that people ordinarily buy.

It is, of course, true that the imposition of taxes is one important way that governments can validate the money they issue, and thereby mobilise a workforce paid in that money. But the mere imposition of taxes denominated in an arbitrary unit won’t transform that unit into the economy’s currency. If the government demands you pay your taxes in sandbags, you’ll start buying sandbags for tax payment purposes, but nothing much else will change beyond that.

Robbed of its theoretical grounding, the FJG can sometimes seem like a solution looking for a problem, or problems, to solve. Worried about food deserts? The FJG can fund and staff local community organic gardens! Worried about climate change? FJG can also be the green new deal. Child care affordability? FJG! Aged care? Let’s get those unemployed people wiping grandma’s butt!

FJG skeptics might respond that we can solve these problems using this crazy new idea called the “public sector” doing this crazy new thing called “hiring people” using these crazy new doodads called “employment contracts”.

“Sure fine yeah”, say the FJG advocates, “this is like that, but better!” they insist.

The regular old public sector, which hires only those needed to perform specific tasks and provide specific services, would leave out some workers. The job guarantee would hire anyone who needed a job, eliminating “involuntary unemployment” by acting as an “employer of last resort”.

The goal is to keep these people employed during rough times, with the explicit goal of releasing them again when the private sector is labour hungry enough to lure them back with better wages. Built into this policy is an admission that these are non-essential “nice-to-have” jobs since we can forgo them during boom times when the private sector is employing more people. Even in these boom times, though, the FJG would still play an important role, keeping employers honest and fair, by giving workers a permanent alternative.

By scooping up workers as they are discarded by the private sector the FJG could provide macroeconomic benefit, acting as an “automatic stabiliser”, preventing downturns, or at least preventing them from becoming self-propelling juggernauts, by giving jobs to those who get fired, sustaining their spending power when it would otherwise disappear. The idea is that this prevents a cascade of collapsing demand from ripping through the economy.

So how would that work in our present predicament?

Firstly, right now we want people to stay home as much as possible, which makes it more challenging to think up jobs for people to do. That might not be the case during the next big crisis, of course, unless it is. The next economic contraction might well be related to, or at least concurrent with, a climate change disaster, and having people stay home, off the roads and out of factories might be the grim necessity then, as well. But let’s leave that to the side

Instead, let us simply consider that the sheer volume of new applicants would completely overwhelm the system. The existing welfare bureaucracy, which simply has to assess claims and authorise payments, not create jobs and place people in them, cannot keep up with the flood of new applicants for unemployment benefits. I personally signed up over a month ago, and am yet to hear back about my application, except a text message to the effect that I was in the system and would be called with more information, eventually. Similar stories abound worldwide, as a simple google search reveals.

The system cannot cope. And how could it?

Let’s imagine that administration systems weren’t, in normal times, labyrinth and opaque bureaucracies designed to moralistically separate the deserving from the undeserving poor, but efficient and streamlined systems that quickly and cleanly came to the aid of those in need. If they are set up to manage a monthly flow of claims in the tens or hundreds of thousands, how can they possibly deal with the sudden influx of millions, or tens of millions? They can’t, unless they are in normal times running at only 10% of capacity or less.

As Universal Basic Income advocate Scott Santens points out, the welfare system is facing a similar problem to the health system. A sudden flood of people needing help necessarily overwhelms a system calibrated for normal times.

We’re all talking about flattening the curve when it comes to making sure the #coronavirus doesn’t overwhelm our healthcare system, but the same logic also applies to our safety net. Think about everyone at once applying for SNAP. #EmergencyUBI will mean a reduced welfare burden.

- Scott Santens🧢 (@scottsantens) 16 March 2020

This is true of conditional unemployment payments, which require processing by trained administrators, and would be even more true of even the most perfectly designed FJG. How can the same number of staff suddenly deal with ten times as many new applicants?

By the time the backlog has been cleared and people have been put to work, many rent checks will have been missed, many purchases will have been deferred, money will have not been spent, and much of the damage to the broader economy will have already been done.

So it’s a stabiliser. Right. And it works great except when you most need stabilization. It’s like a keel that works great except in exactly the conditions most likely to capsise the boat, or a hurricane shelter that’s only strong enough to withstand a light breeze.

And this macroeconomic failure is mirrored by a similar failure at the personal level: It’s not actually guaranteed, certainly not at short notice.

You have to successfully apply, which might be harder than you think. You have to be placed. There is every reason to imagine administrative issues which will plague this system like they plague current welfare systems worldwide

The FJG is meant to give the average worker leverage, but how real is this leverage?

If you’re being treated unfairly or underpaid at your job in the private sector, you can, so the theory goes, can just walk out that door confident in the knowledge that, just as soon as all the paperwork is done, assuming there are no issues, in a few weeks time, maybe a couple of months max, you’ll be happily working away digging organic gardens in an old person’s home or whatever and able to start paying that rent that was already due last week.

Unless you mess up or someone thinks you did, or lies, in which case there will be some kind of appeals system with some kind of oversight or something. Look, don’t worry, we got your back, we swear. Unless we don’t, in which case it will be your fault, you voluntarily unemployed piece of shit.

Let’s assume for a moment, though, that through some alchemy, the FJG and its administrative organs are able to eliminate all administrative glitches and errors, and scale perfectly to match the fluctuating numbers of the newly jobless, as well as preventing corruption, wage theft and worker abuse throughout their various employment programs. There is still a deeper problem with the very concept of a “guaranteed” job.

For the “job” to be meaningfully deserving of that name, you have to be minimally good at it. You may have to pass a drug test or a “working with children” background check. You have to have a positive attitude, avoid foul language, and not make your co-workers uncomfortable. You have to show up on time, or your boss has to trust you, and believe your car really did break down. Any job is, and by its nature must be, conditional. If it’s a job it’s not guaranteed. If it’s guaranteed it’s not a job — it’s adult daycare.

There’s also an opportunity cost, which MMT ignores, implicit in having people be found jobs to do (rather than finding people for the jobs that need doing). It’s extremely unlikely that the jobs such a program provides will fully utilise the capacities of the people it provides them to. Worse, it will preclude them from developing those skills, by retraining, or starting a new business, or any other undertaking outside the immediate pursuit of waged labour.

It was while on welfare, only engaged in waged labour for a few hours a week, that J.K. Rowling wrote a novel that ended up being a billion-dollar franchise employing thousands and enjoyed by millions. Other writers, including many of those who go on to success, often depend on financial support of one kind or another. What does the FJG offer the aspiring novelist (or artist, or filmmaker)? A condescending smile, and a shovel or a mop.

Just as an FJG punishes and disincentivises these less obvious career choices, it also punishes non-career activity. FJG advocates will argue that activities such as child-rearing, or taking care of your own elderly relatives could be considered work under the program, often adding that the program would be locally administered, leaving the question of what counts as work to these hypothetical local administrators, in their serene objectivity and folksy wisdom. Word’s like “participatory” and “community” are often invoked, to make the whole thing sound less like workfare hell, but it’s all pretty vague.

Or, some other branch of the welfare system will take care of them, say MMT’s defenders. Same goes for the neediest members of society: the homeless, the mentally ill, and drug addicts for example, for whom an FJG does nothing. It’s not designed to. Of course, a lack of universality is part of the problem, especially considering how many things it is designed to do, and its prescription as an overall fix for the ills of contemporary capitalism.

And here we come to what we should be doing with all the spending power that MMT (and others) rightly point out the government has at its disposal, it’s that other idea that’s been “lying around” for a while before the crisis and suddenly gaining traction — but which Kelton and other MMT advocates have consistently resisted and attacked — a Universal Basic Income.

Developed economies, at least, are rich and productive enough that we could provide UBI at a level that provides what most people would consider a minimally decent standard of living.

With this in place, they wouldn’t have to worry about any application forms or proof-of-identity and address, or online systems or mean administrators or new jobs that they might not enjoy. They would always have the option of walking away — they might have to adjust their lifestyle, trading down to a smaller apartment or a less fancy car if they can’t find a new job soon. But the gun, loaded with destitution and homelessness, poverty and humiliation, for themselves and their families, would no longer be pointed at their heads.

Those with big dreams will be free to find out, that, actually, they don’t have a novel (or a screenplay, or whatever) in them. Unless, of course, they do.

Caption: Universal Basic Income left, Federal Job Guarantee right.

But that will be inflationary, MMTers say, in a way that an FJG isn’t. There are three reasons they give for this:

Firstly, a job guarantee “grounds” the value of money by equating a certain amount with an hour’s work. But this mistakes a moral impulse for a causal insight. I can declare this article to be worth $20,000 or a new car, since it represents many hours of reading and thinking over a span of years. But someone else has to agree to the other side of that transaction. If as a seller, I have many people trying to buy the same thing, it doesn’t matter which one of them worked for their money and who got it for free.

Secondly, they argue that a UBI increases spending power without increasing production in the economy, whereas a JG increases both. Or so the theory goes. But will these jobs actually produce desirable consumer goods or enlarge capacity in a meaningful way? Such a goal is challenging enough, without being tripped up by needing to fit the task to the workforce available, rather than the other way round. Just assuming that waged labour must = productive output and leaving the details to be improvised along the way is insufficient.

Will local governments start producing smartphones, sushi, and sneakers in significant numbers? Why not leave this to a private sector, stimulated by increased consumer spending power? Or will they be building new ports, rail and highway networks? Why not simply fund and staff these through the normal public sector mechanisms, rather than starting with a (wildly fluctuating) workforce with an arbitrary rather than appropriate skill set and working backward?

Thirdly, they argue, FJG is targeted, providing incomes only to those who would otherwise not have them, not everyone, so it doesn’t just increase spending power across the board, making it less inflationary. If we want income targeting, we can still have it in a world with UBI. We just do it through taxes. The advantage of this approach is that nobody falls through the cracks. We may fail to tax someone appropriately, but we’ll never fail to give money to people who need it.

There is also an argument that a UBI — often presented as a trap for the poor and a gift to the landlords of the world — would actually actually have a uniquely deflationary effect on housing prices, which are an acute pain point for low and middle income earners. A UBI, set high enough, would make leaving the major labour markets possible for a larger number of people, freeing them up to move and creating greater seller/renter-side competition in the housing market. Replicating this same effect with a job guarantee — by creating jobs where people don’t currently live to incentivise moving there — adds another layer of complexity and difficulty to an already difficult process. Whereas with a UBI this benefit comes inbuilt. People can move anywhere and take their UBI with them. At least some of them will move (back home) where housing is cheaper.

Finally, if we have a problem with inflation, we use taxes to remove spending power from the wealthy and upper middle class, or could tighten monetary policy, which has been overly stimulatory as a way of propping up consumer spending power — a goal for which a UBI would be far more suited to achieve. But MMT advocates know this. And generally don’t consider inflation to be bogeyman that mainstream economists do — except when someone mentions a UBI and they need a reason to shut it down.

If you want to give everyone money, you can. The obstacles can all be overcome. It’s easy. The hard part is you have to want it. This is the real obstacle for MMT advocates, along with the mainstream economists with which they so often butt heads.

When viewed with the cynicism that only a heartbroken idealist like myself can muster, the arguments presented against the UBI look much more like rationalizations after the fact. The real reason why MMT advocates and others oppose a UBI is that, either consciously or subconsciously, they fear the idle, voluntarily unemployed, poor. They are more alarmed by the idea of some undeserving slob getting a free ride than they are of a deserving person being left out, even to the point of poverty and deadly despair.

There are also those who do not hold this belief themselves, on any level, but who fear its ubiquity in the population at large will make a UBI, and any theory or program of change it is associated with, a non-starter. It seems Bernie Sanders, for example, if not his chief economic advisor, falls into this category. Having said plenty of nice things about a UBI, but also that it’s “ kind of a step too far right now for the United States.”

But that was before the crisis. Now he and many others are proposing temporary UBI or UBI-like policies, which studies now show have majority support even among republicans. This is an excellent start. Once people get used to these regular payments, they might more easily be convinced to make them permanent. Nobody outside the closed circle of MMT is talking about an FJG, and they shouldn’t be.

MMT needs to adapt, and stop tripping itself up with a dogmatic attachment to full employment, as a goal and waged labour as a uniquely valuable and fulfilling use of human time and potential, or be left behind, chasing 20th-century goals, as the world moves forward without them.

Originally published at http://austingmackell.wordpress.com on April 27, 2020.



Austin G Mackell

I sell mirrors in the city of the blind. www.writeinstone.com