A very detailed walkthrough of Modern Monetary Theory, the big new left economic idea.

The Gower Initiative for Modern Money Studies has the Facebook post A very detailed walkthrough of Modern Monetary Theory, the big new left economic idea.

This leads to a Vox article Modern Monetary Theory, explained.

Modern Monetary Theory is having a moment.

The theory, in brief, argues that countries that issue their own currencies can never “run out of money” the way people or businesses can. But what was once an obscure “heterodox” branch of economics has now become a major topic of debate among Democrats and economists with astonishing speed.

This article is an OK explanation, but it does not show a really deep understanding. What disturbs me in particular are the frequent statements that “this is not a problem now” without a word about exactly why it is not a problem now, but what would be the circumstance in which it would be a problem.

Here is one example of what I don’t like.

In the discussion of hyperinflation, there is no real mention of the cause of many past hyperinflations. In most of those cases, if not all of them, there was a sudden drop in the supply of goods relative to an existing supply of money. If the definition of inflation is too much money chasing too few goods, that situation can occur because of a change in the supply of goods as well as a change in the supply of money. People have been conditioned to always think only of the supply of money. The government reaction to the drop in supply and resultant inflation, might have been to print more money, but that was certainly a misbegotten strategy that made matters worse.

There is a reason why William Mitchell, L. Randall Wray, and Martin Watts wrote the book Macroeconomics to explain all this, as the article mentions. Attempts to write a short explanation inevitably lead to their own failures. Do not fall into the trap of thinking that having read a brief introduction equips you to be a consultant on or a teacher of the subject. I am no consultant or teacher, but even I see the failings of the brief explanation.

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