MMT (Modern Monetary Theory) – What Is It and Can It Help?

Recently, a “heterodox” school of monetary economics known as Modern Monetary Theory, or MMT, has gained attention, and a debate between proponents of MMT and “mainstream” economists has raged in the blogosphere. MMT is most usefully viewed as an alternative lens on the monetary and fiscal system rather than as a competing theory per se. Its main insight is that governments cannot really “run out of money” (in its own economy at least) because they create money when they spend. It might look as if governments have to raise money, by collecting taxes or issuing bonds, in order to spend, but that reflects the institutional design of monetary and fiscal system rather than being intrinsic.

This Study Group will introduce the basic ideas of MMT, referencing the balance sheet mechanics of monetary and fiscal operations; contrast and compare the MMT and mainstreams narratives; and draw out some of the policy implications of incorporating an MMT lens into contemporary macroeconomic policy debates. The Study Group will draw on Paul Sheard’s more than twenty years of experience as a markets economist in Japan and the US.