Understanding Modern Money Theory

Modern Money Theory (MMT) is the basis for my understanding of macroeconomics and is one of the reasons why I advocate certain policies over others and why I say seemingly crazy things like "we are not facing a debt crisis."

Randall Wray has just begun a weekly primer on MMT for newcomers to both MMT and economics. I highly recommend following this series to better understand our current economic situation and to understand where many of my posts are coming from.

Modern Money Theory Primer

Good Reads

I apologize for my lack of posting, I still haven't had a lot of time to sit down and write, but I compiled a few good posts to read from others that add to my views on economics.


One from Larry Mishel via Mark Thoma:
We're not Broke

This one hammers home what I have been trying to convey in several posts on this blog.


Another from Naked Keynesianism:
The meaning of heterodox economics, and why it matters

I posted this one because it offers a good explanation of heterodox economics, a camp in which I would probably place myself. It is a bit difficult to read if you haven't taken much economics.


Update: Two more from Naked Keynesianism that explain further the MMT position (that there is no debt crisis).

Monetization of debt: what does it do?

There is no public debt problem in the United States

The first is again a bit difficult to read without much economics background, but the second is short and easy to understand.

Krugman on Taxes and Medicare "consumers"

Here are two very good reads from Paul Krugman. The first is a response to those who refer to Medicare patients as "consumers". His point, I think, falls in line with CST and the dignity of the human person. I think this line of thought should be extended to all "markets" because we are primarily persons and not primarily consumers and thus we should be treated as such.

Patients are not Consumers

The second asks what taxes are for. Those who have read my posts will know that taxes simply act as a drain on the economy by taking away our purchasing power. This is necessary to maintain the value of the dollar and regulate effective aggregate demand. Krugman is right in pointing out that state governments or any governments who are not sovereign in their own currency (Eurozone) must tax in order to remain solvent. Governments sovereign in their own currency do not have this constraint. The Fed doesn't so much PRINT money as it does change the number in our electronic bank accounts. The constraint on sovereign government debt is inflation, not solvency. Here he mentions MMTers which stands for Modern Money Theory (which is less theory and more operational description).

I don't think the effect taxes have on aggregate demand is a secondary issue. In fact, I'd say its primary when we're in a recession. His best observation is this: "We have lots of excess capacity in the economy; the government can easily buy more goods and services without requiring that the private sector buy less." But his next conclusion is wrong, there is no good reason to address the deficit now, and the only reason to address it later is out of concern for inflation and not solvency.

His last paragraph is sadly true. There are many Ph.D. economists who still hold to ideological economies that don't exist, but use lots of fancy jargon to indicate they know what's going on.

What are taxes for?

Do read Krugman's posts! They are short and easy reads.