MODERN MONEY THEORY: How I came to MMT and what I include in MMT


New Economic Perspectives has this marvelous article MODERN MONEY THEORY: How I came to MMT and what I include in MMT by L. Randall Wray.

Of all the wonderful wisdom in the article, here is one quote that hits my hot button of agreement.

Monetary policy is weak and its impact is at best uncertain – it might even be mistaking the brake pedal for the gas pedal.

It is remarkable that an expert on the subject of MMT (sometimes mislabeled as Modern Monetary Theory) should emphasize this truth.

I think it is very important to understand that. From the Keynesian economics I learned from Samuelson’s book in 1he 1960s, the explanation is pretty clear. In other words, you can put on the brakes by taking money out of the economy – people cannot spend what isn’t there. Flooding the economy with money won’t make people spend it if there is not enough worthwhile things (investments) to spend that money on. Or as I say, “what part of no freakin’ customer do you not understand”? Hark back to the old analogy that you can drag something by pulling on its string, but you cannot push an object by pushing on its string. I just cannot fathom how Milton Friedman couldn’t get that simple concept. How could all the economists who were fooled by Friedman forget that basic truth?

In the current economic conditions, there is no additional productive capacity that is worth investing the trillions of dollars flowing into the hands of the rich from tax cuts and and Federal Reserve Bank “stimulative” monetary policy. A lot of that excess money is going into inflating the prices of stocks in the stock market. Companies are using what cash they can get their hands on to buy back stock. In essence the fewer and fewer shares there are, the higher their prices. It is also easier to raise dividends per share when shrinking the actual productive capacity of a company if there are fewer shares that get that dividend. People who own keep their shares in a company rather than selling them back to the company are getting a bigger and bigger piece of a smaller and smaller company. They think they are getting rich, but when the stock market finally crashes back to earth, they will find that they are not so rich after all.

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