A rebuttal to the Guardian monetary theory article

An Australian based author and ex-banker Satyajit Das, has written a piece on Modern Monetary Theory in the Guardian.

Entitled ‘Spending without taxing: now we’re all guinea pigs in an endless money experiment’ is a headline that seems designed to raise the critical temperature…

He needs to realise that it is not an experiment. It is, in fact reality – and nobody is suggesting spending without taxing. We need the tax to take money out of the system – otherwise if GDP grows at say, 2% and annual government expenditure is around 40% of that GDP figure as it is in most OECD countries (these are all rough, ball park figures just to demonstrate the principle) by the end of three years you will have spent 120% of GDP into your economy and it will have expanded by just over 6%. There will be far too much money sloshing around for the available goods and services – the more especially as private banks are still probably going to be creating their share of new money in the form of loans.

Spending without taxing is not a good idea and I’m unaware of anyone who thinks it is!

The next byline is ‘No government has openly embraced modern monetary theory, but many of the radical doctrine’s core principles are informing today’s policy decisions’.

Again I’d suggest it is not a question of embracing a theory but just recognising how things work.

There is then a summary of the Job Guarantee: ‘the source of useful, well-compensated work is unclear‘. Well just at the moment I would suggest finding jobs for people is no problem, though he makes a valid point around warehousing the unemployed and that has never been something I have in any way supported – indeed it doesn’t work.

He could have pointed out that to have a buffer stock of unemployed when you can have government create money in order to put the currently unemployed to work is logically, completely inconsistent…

The article continues:

Second, excess government spending and large deficits financed by money creation risk creating inflation. MMT argues that this is a risk only where the economy is at full employment or there is no excess capacity, and can be managed by fine-tuning intervention.

Some MMTers may argue this but I think readers of Progressive Pulse will be on board with tax looking after inflation as I’ve already mentioned. ‘Deficits’ are – however large -actually someone’s credit – someone’s valuable asset – why wouldn’t governments give those people who wish to invest, an opportunity to save? And this critic is actually an ex banker? I’m sure he has never saved (not).


Third, MMT may weaken the currency. Roughly half of Australia’s government and significant amounts of state, bank and business debt is held by foreigners. Devaluation and loss of investor confidence in the stability of the exchange rate would affect the ability to and cost of borrowing overseas and importing goods. The expense of servicing foreign currency debt would rise.

There is no evidence offered for MMT weakening the currency – the basic MMT idea is actually how fiat currency operates! So we are asked to believe that these foreign savers would withdraw their investments because the way currency operates doesn’t please them. Really? And when this borrowing in government created currency will, by definition, never default and they get interest as well…

And should the debt interest rate rise surely Quantitative Easing suggests that that can be rectified – by government created money…

Fourth, while available to nation states able to issue their own fiat currencies, it is unavailable to state governments, private businesses or households who are major borrowers in Australia.

Under the current system it is absolutely true that Australian State Governments cannot issue currency (I wonder is he suggesting they should?). I’d suggest they should – as well as all local authorities in the UK.

But none of this is at all relevant or due to MMT.

Indeed if private banks can spend money into existence it is pretty anti-democratic not to allow local government to do the same.

Of course central government will probably usually oppose this – because it would much reduce their power and that is really -essentially – what money is about…

Fifth, who decides the target employment rate or UBI payment level? …How will policymakers control the process or what would happen if MMT failed?

MMT cannot fail – it is not a theory but a fact. It describes how money works – and – as ever – the theory bit is just unfortunate – probably because no central bank has had the courage to fully endorse it. Nonetheless money creation is described by it!

The theory delegates management of MMT operations to politicians, rather than unelected economic mandarins. But financially challenged elected representatives may be poorly equipped for the task. Political considerations and cronyism may influence decisions.

That’s democracy.. and that’s why we should be treating it with a lot more respect.

Sixth, there are implications for financial stability. Lower rates, the result of central bank debt purchases, and inflation fears might drive a switch to real assets, increasing the price of property and shares representing claims on underlying cashflows. It may encourage hoarding of commodities. This exacerbates inequality and increases the cost of essentials such as food, fuel and shelter. Fear of debasement of the value of paper money, in part, is behind unproductive speculation in gold and cryptocurrencies.

This is true – but has nothing at at all to do with MMT!

Seventh, MMT might undermine trust in the currency. Instead of spending the payments, citizens may question a world where governments print money and throw it out of helicopters.

I doubt people will be unwilling to accept money that falls from the sky – it is only a banker for whom this is entirely normal practice, who could suggest that somehow citizens will find this unacceptable!

Finally, Japan’s use of persistent deficits to boost short-term economic activity and incur government debt (currently more than 260% of GDP, compared with a global average of about 100%) does not prove the effectiveness of MMT. The country’s circumstances are unique and it has been mired in stagnation for three decades with its GDP largely unchanged.

The ‘effectiveness of MMT’ is only a thought process. Japan is still with us – and still an effective economy quite regardless of bankers’ preconceptions.


MMT’s allure is the irresistible promise of freebies; full employment, unlimited higher education, healthcare and government services, state-of-the-art infrastructure, green energy and “the colonisation of Mars”. But monetary manipulation cannot change the supply of real goods and services or overcome resource constraints, otherwise prosperity and utopia would be guaranteed.

There is no allure of MMT. It is fact.

It certainly cannot change the resources of real supply and MMT certainly never suggested that…

While the current game can and will continue for a time, the bill will eventually arrive. The borrowings will have to be paid for out of disposable income, higher taxes or through inflation, which reduces purchasing power, especially of the most vulnerable, and destroys savings. Other than nature’s free bounty, everything has a cost.

My Italics on the last sentence. This is a banker who has no idea about the environmental costs of financialised capitalism.

Borrowings are from whom exactly?

And where did that lenders’ money come from?

Government creates money – borrowings are from those people to whom the government has given (probably too much) money.

This is a banker who still thinks the government is a household.

Regrettably and unfortunately we cannot believe absolutely everything we read in the Guardian…


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  3. Bill Hughes -

    Das obviously hasn’t read Stephanie Kelton’s book and tries to make crude right-wing political arguments to what he thinks as MMT as a strange left-wing conspiracy theory to try and ruin the economy for their own ignorant (in his opinion) purpose. The Australian currency hasn’t suffered as far as I know from any MMT-induced reason so his arguments do not stand up to the first hurdle of maintaining a currency’s value by controlling inflation – no excessive inflation has taken place in Australia.

    1. iangreenwood -

      What about the privatisation of state and federal banks (and demutualisation of building societies leading to Perth’s (Granted more moderate) explosion of property prices and tightening of the “mortgage belt” to 6 times the lower incomes?

      For example $40k in mid-1980s “growing” (inflating really) to $300k in 2010s. That is nearly 8 times in 30 years.

      Whereas Treasury targets stated as 2% to 3% compound up to less than 3 times initial prices the 30 years before even at 3%.. Complacency in public and government has caused all this excess consumption we see around.

      Then looking in my sister’s ceiling space recently i find insulation tossed around due to the Aircon operatives’ ignorance. Not sitting snugly around the vent into each room. Action required by AU-Gov! On both counts: 1) special-purpose 20-year money at 1.5% and 2) for complete ‘enveloping’ thoroughly done right down to dug-in External Wall insulation (where possible, particularly rear and sides of all buildings down to foundation strata) multi-foils in lofts, warmth-storage under floors {no extraction cost, so warmth in Winter, interseasonally via excess Summer solar-thermal stored deep underground and full-sheet 60 mm P/U under roof-tiles preferably double-layer including multi-foil under rafters. FUNDING high-street “free” commercial bank money ’20-year money’ charged at 1.5% with the 0.5% ring-fenced for Green Education, books, libraries, true education. OPENS THE DOOR TO ADJUSTABLE MONEY for different regions, different purposes

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  5. Peter May -


  6. Schofield -

    Dot joining up is in scarce supply in the Western world largely due to lazy right-wing politicians and selfish mainstream media owners and bankers. If Satyajit Das had taken the trouble to read up on the history of the introduction of paper based currency in the American colonies he would never have written the tripe about MMT that he wrote. Dot joining up takes effort something that Libertarian or Neoliberal mindsets have a serious problem with!

  7. Pingback: A Guardian article on the threat from modern monetary theory was quite staggeringly wrong. This is the rebuttal. - FileHog.com

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