MMT is perhaps gaining hold in the US as there are some very spurious arguments against it

Modern Monetary Theory (MMT) has received further criticsm in the US – perhaps particularly because that seems to be where it is (can we hope?) gaining a hold.

Britain is still mired in the all-consuming provincial business of Brexit.

This is a writer on ‘Medium’:

“…the treasury can only spend by first ensuring it has adequate funds in its account with the central bank.”

But this start is incorrect, for, as Steve Keen has pointed out, as it owns – in effect – its own bank, it can run if necessary, (as the Bank of England confirms in their staff working paper no 604) on negative equity.

The same article suggests the Federal Reserve is independent, yet goes on to say “the central bank is the agency tasked with controlling the money supply”. Who tasks it? The government of course!

“given that money is fungible it can be difficult to impossible to blame any specific government project on inflation. MMTists would need to demonstrate how such an agency would be superior to an agency that decides on the amount or cost of acquiring money (central bank) ”

This is also delusional. Absolutely all money created is potentially inflationary – to suggest that we should should stop creating some because it is more inflationary, even if we need what the money created is used for, is putting the cart before the horse

“The second issue is whether fiscal policy is an adequate way to control inflation.”

Actually, (the alternative), interest rates don’t work to control inflation as Richard Werner has proved. And with just 57 hyperinflation instances in the period from the French Revolution till 2012 inflation is really not such an accidental disaster. Hyperinflation is always reckless mismanagement – and, incidentally, it is certainly not a disaster for borrowers, which is, actually, most of us.

First they should simply drop the confusing and misleading claims about whether taxes and borrowing fund government spending (framed as describing ‘operational realities’) — at best it’s speaking another language and stifling efforts to get other economists on board with the framework through semantic confusion, at worst it is simply flat out wrong.

Well, it’s either right or wrong – it cannot be degrees of rightness or wrongness…

Second, they should take more seriously the moral hazard issues associated with abolishing central bank independence and should consider instead allowing the central bank or another independent agency to control the amount of seigniorage revenue available to the government for spending. There should be no concern about this being undemocratic or compromising progressive policy, as politicians would be free to appoint who they like to run the agency.

As most Central Banks seem to be based on ex Goldman Sachs staff I rather doubt this precludes moral hazard and do Goldman Sachs do democracy?

It is all so – literally – incredible that I will just say simply that the next writer, a self proclaimed socialist, quotes with a conclusional approval Jonathan Portes’ suggestion that “The claim that that MMT means that a future government can dodge hard choices about how to pay for decent public services is just plain nonsense.

That is no more than a statement of the bleeding obvious. Though it is true that taxation might not be so hard when you know that we spend and tax. It has the distinct advantage that you know that there is no trickle down and money does not grow on rich people.

And isn’t that the real message both of MMT and for the UK especially, of the ‘Joy of Tax‘. Once you know where money comes from and how it is created – we can then use tax for genuine progressive social purposes when we know it has nothing to do with revenue raising?

*Amended  1 March 19 to make clearer:

“Actually, interest rates don’t work to control inflation as Richard Werner has proved.”


“Actually, (the alternative) interest rates don’t work to control inflation as Richard Werner has proved.”



  1. MigT -

    Anyone notice the sheer inconsistency of these supposed MMT takedowns?

    First there are Simon Wren-Lewis types saying MMT’s description of the monetary system is just standard macroeconomics, but with heterodox policy proposals.

    Then others, like this joker, call MMT’s description of the monetary system “crankery” which conflates treasury, govt and central bank, and fails to understand the implications of central bank independence.

    Two days later Kenneth Rogoff has a pop at MMT, wherein he says “the US central bank is not an independent financial entity: the government owns it lock, stock, and barrel”, and calls the US Treasury Department “the Fed’s parent company” (

    Make yer minds up, guys..

  2. B Gray -

    The statement “…the treasury can only spend by first ensuring it has adequate funds in its account with the central bank.” is true but not accurate. U.S. law requires the Treasury to maintain a daily minimum balance of $150B and it cannot borrow money directly from the Federal Reserve to cover a negative equity position. This, however, is an operational constraint to support monetary policy and not a fiscal necessity.

    The Treasury’s central bank account is funded through special accounts in the private banking system known as TLA’s (Tax & Loan Accounts). TLA’s are funded through tax collections and sales of treasury securities. While reserves in the Treasury’s demand account are not part of the money supply, reserves in TLA’s remain part of the money supply until transferred to the Treasury’s central bank account, and are returned once again to the money supply as the Treasury spends.

    The point of all this is to provide a buffer stock of reserves in the private banking system to help stabilize interest rates that might otherwise fluctuate due to the impact government fiscal operations (i.e. taxing and spending) on the private banking reserve supply. Money flows in and out of the Treasury’s account and the TLA’s are carefully coordinated by the Treasury and Federal Reserve every day to ensure a stable supply of reserves within the banking system.

    The unintended consequence of all this is that it gives the illusion that the U.S. government must tax and borrow first in order to fund it’s spending, whereas the reality is these are merely operational rules put in place help support the Fed’s target interest rate policy.

    1. Peter May -

      Thanks for that.

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