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Professors Mazzucato and Murphy don’t understand their own MMT

Prof Mariana Mazzucato telling it like it is, and effectively summarising modern monetary theory whilst doing so, on Newsnight last night

There is ever such a slight problem with this.

The €100 billion “created” by Germany to pay for the war.

It wasn’t created. It was borrowed.

The government decided to amend the constitution to create the fund in order to exempt it from Germany’s so-called debt brake that enforces fiscal restraint. It needed backing from the opposition conservatives as well as the ruling coalition in order to reach the two-thirds parliamentary majority needed for a constitutional change.

Germany’s in the euro, recall? Germany doesn’t have the power of money creation.

Yes, obviously, it is too much to ask that proponents of MMT understand their own fucking theory.

22 thoughts on “Professors Mazzucato and Murphy don’t understand their own MMT”

  1. So, again, forgive my lack of knowledge here, why haven’t they just ‘created’ money over the last X number of decades to solve the problems that arose over those decades?

    Is it perhaps that it isn’t quite as simple as this lady it telling us?

  2. “it is too much to ask that proponents of MMT understand their own fucking theory?”

    Yes, it is too much to ask because the theory isn’t intended as an explanation of anything, it’s intended as a means to an end.

  3. Bloke In Scotland

    Fundamentally, MMT is looking at a tap and seeing free water without knowing a thing about plumbing or flooding.

  4. Harry Haddock's Ghost

    “it is too much to ask that proponents of MMT understand their own fucking theory?”

    Also, is it too much to ask that employees of a national broadcaster funded by a compulsory tax for the good of the nation understand enough fucking economics to point this out?

  5. Creating money can be done at the stroke of a pen. It is after all just a token that can be exchanged for goods and services. What it doesn’t do is create the goods and services.
    If MMT worked like it’s proponents believe any poverty stricken third world state could simply wave the magic MMT wand, create the money and make all their citizens wealthy. Everyone knows that doesn’t work.

    All MMT money creation can achieve is mount a clandestine raid on wealth and savings by eroding them away with inflation and redistributing the wealth elsewhere.

  6. Interestingly Mazzacuto has turned here fire on Management consultancy (I saw a piece by the co-author in City AM)

    I’m not the greatest fan of these consultancies either but the idea they deliver inferior services to academics like Murphy or union dominated public services is risible.

    I’d also echo Harry Haddock’s Ghosts comments – the economic understanding of either Mazzacuto or Murphy has been proven time and again (not least here) to be susbtantially lower than many third world countries. I’d sooner see the Central bank head who worked under Mugabe interviewed as at least he has practical MMT experience. The argument for the license fee is non-existent.

  7. I do apologise for ever suggesting on this blog that I couldn’t believe so many people were so stupid…It’s obviously a dominant gene among certain people.

  8. She doesn’t understand that the only difference between a government and a household is the use of violence.

    My household can’t force you to accept debt I have involuntarily placed on you.

  9. Bloke in North Dorset

    I see we got the usual sleight of hand of pointing out that government spending is not like a household budget and then going on to talk about MMT as if it was a logical consequence that MMT was the only alternative.

    Given that choice I’d go with a government that treated government spending like it was a household budget every day of the week.

  10. VP
    “I’d sooner see the Central bank head who worked under Mugabe interviewed as at least he has practical MMT experience.”

    Hilarious comment thanks. Would love to see that squeezing through the shit-stained sphincter that is the TRUK comments filter.

  11. I wonder how the Hun’s debt brake is going to get on with the new found EU ability to just issue debt all on their own.

  12. “a clandestine raid on wealth and savings by eroding them away with inflation”

    But on the plus side, it’s a clandestine amnesty on debt.

  13. Mazz and Murph you say?

    Verse 1:
    Yo, listen up, let me tell you a tale,
    ‘Bout a theory that’s got some buzz and it’s not for sale,
    It’s called Modern Monetary Theory, or MMT for short,
    And it’s got some folks in the econ world resort.

    MMT, it’s all about the money,
    Printing cash and keeping rates low, it ain’t funny,
    Deficits don’t matter, that’s what they say,
    It’s all good, we can spend our troubles away.

    Verse 2:
    So, let me break it down, this theory’s no joke,
    Governments can spend without worry, that’s the dope,
    Taxes don’t fund spending, they’re just there to control,
    Inflation’s the only threat, that’s the goal.


    Verse 3:
    Now, some folks say it’s crazy, it can’t be true,
    But MMTers got answers, they’ll school you,
    They say we’re not like Greece, we’re not like Spain,
    We can print all the cash we want, it’s not in vain.


    Verse 4:
    So, there you have it, MMT’s in the game,
    It’s a new way of thinking, not the same,
    Some say it’s crazy, some say it’s bold,
    But we’ll see what the future holds.


  14. I thought one of Potato Man’s mantras a couple of years back was exactly the opposite – run the economy like a household or some such bollocks. May well be wrong of course but I’m sure VP or another with eagle eyes can check this.

  15. I’m writing shite. Ignore me. Still can’t make head not tail of either mazu whatever / spudman

  16. [quote]
    Having acknowledged that there are real limits to government deficits (it was never denied), MMT nevertheless makes clear that government deficits are the norm, not the exception. This does not mean that government deficits of any size are okay. They must be consistent with private-sector net-saving intentions. It simply means that ongoing government deficits of some size will be the appropriate policy under normal circumstances. The reason for this is that the non-government sector typically desires to net save. This means, as a matter of accounting, that the government must run deficits.

    This is an identity, true by definition. The financial balance of the non-government sector matches the government’s balance dollar for dollar. Non-government can only maintain a surplus (positive balance) if the government runs a deficit (negative balance). The financial wealth of non-government is nothing other than the accumulated deficits of the government sector.

    Whenever the non-government sector net saves (maintains a surplus), it is spending less of the monetary unit than it earns. The result is unsold output and a signal to firms to cut back production unless the government fills the demand gap through deficit expenditure. By doing so, the government is in a position to ensure all output is sold at current prices and that the non-government sector satisfies its net saving desires. If, instead, the government allows the demand shortfall to persist by not injecting sufficient expenditure of its own, firms will respond by cutting back production. There will be a contraction in output and income, thwarting non-government net saving intentions. If the non-government sector responds by redoubling its efforts to net save, the result is a further shortfall in demand, further contraction of income (as well as tax revenue), more frustration of non-government saving plans, etc. There is no end to the process until either the non-government sector accepts a smaller net-saving position or the government accepts a bigger deficit.
    [end quote]

    —heteconomist (Dr. Peter Cooper)

    What MMT is saying is that government deficits are endogenously-determined. The government can choose to run deficits of the good kind, or do nothing, and run deficits of the bad kind. But run deficits, it will. The deficits of the bad kind will be larger than the deficits of the good kind. Not to mention the higher crimes rates, drug use, etc., that accompany recessions.

  17. “Non-government can only maintain a surplus (positive balance) if the government runs a deficit (negative balance).”

    Is this actually true though, and how would it work?

    Besides, if non-government is producing more than demand requires, cutting back seems the obvious thing to do. Just having government buy the excess regardless seems a bit mega-consumerist to me.

  18. @phoenix

    heteconomist is channelling an extreme variant of JM Keynes circa 1936 (JMK balanced the system by having private savings fall as income fell).

    The broader point is that aggregation across “the non-government sector” is doing a lot of work here. Some bits (middle-aged households) will want to save and some bits (older households, growing companies) will want to dis-save or borrow. The different private actors can trade with each other and get to full employment and the word “government” never appears.

    In a conventional situation with a growing economy, a government and a fiat currency, MMTers have a point but it is much less important than they imagine. Suppose that there is 5% annual growth and that the broad money supply is equal to annual GDP. There is a money multiplier of 10x between base money (govt-provided cash) and broad money. Then the govt does “need” to provide new cash (run a deficit) each year of about 0.5% of GDP to keep the system in balance. But this is a very long way from the expenditure dreams of a Mazzucato or a Murphy.

  19. @Jack C and @Cadet,

    MMT does take that aggregation into effect. Here is one form of the identity taken from Wynne Godley’s sectoral balances equations:

    (G – T) = (S – I) + (M – X)

    The left side of that identity is the government fiscal balance. The non-government sector is the stuff on the right-hand side of that identity, which is the sum of the private domestic sector and the foreign sector. For the US for example, which runs a trade deficit, the government has to cover both the private domestic sector’s and the foreign sector’s desire to net save, i.e., S > I and M > X. For countries that run trade surpluses, the private domestic sector’s desire to net save can possibly be covered in some part by the foreign sector.

    The three sectors always sum to zero.

    (S – I) + (M – X) + (T – G) = 0

    From the perspective of savings, we have this form:

    S = I + (X – M) + (G – T)

    So for the private domestic sector to net save, i.e., S > I, the government and/or the foreign sector has to dis-save.

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