What I really love about Modern Monetary Theory

“David and Goliath” by TELL others about Christ! is licensed under CC BY-NC-ND 2.0

Modern Monetary Theory (MMT) is known for having rabid evangelists who won’t shut up about why our current understanding of money and finance is backwards. I am one of those people. And the source of that energy is simple: we all think MMT is a revolution, and if the powers that be understand it better, we’re convinced the world will be a saner and far more equitable place for reasons I explain in more detail here. But the takeaway from a lot of MMT discussions is that the government can spend more money without fear of inflation. By all means, a lot more money can do a lot more good, but it doesn’t sound revolutionary.

But more money is the tip of the iceberg. What excites me about MMT is not just the ability to spend more money, which we desperately need to create a more equal society, but that it prioritizes two things that everyone wants:

1. Sovereignty
2. Stuff

How MMT prioritizes sovereignty. MMT was the first time I ever heard how a country’s choice of currency underpins its ability to govern itself — via this Money on the Left podcast with economist Fadhel Kaboub. Which money a country spends determines how much money a country can spend, which is a big fucking deal. It’s the difference between feeling like Britain, which makes poor decisions from time to time but at least it’s self-inflicted, and Greece, which makes poor decisions from time to time and then needs to beg the EU to stop its own suffering.

The conditions for financial sovereignty are fairly straightforward, albeit not easy:

1. They have their own currency, like the US has dollars.
2. Their currency “floats,” meaning its value isn’t tied to gold or another currency.
3. All their debt is in their own currency.

The US, Australia, and Japan all qualify for this. The vast majority of countries, including wealthy ones like Italy and France, do not. For folks who use another country’s currency, or tie their own currency to another, or who lend in others’ currencies, they can’t spend their way out of problems like we can. When America needed to fight Nazis, we spent what was necessary to beat them. When predatory banks came crashing down in ’08, we bailed them out. We didn’t have to ask anyone besides ourselves — we just did it. Most countries can’t do that. They have to ask permission to international banks or other nations before they can act, and that blows.

What’s revolutionary about MMT is that it doesn’t say “sorry you’re fucked” to those countries who aren’t financially sovereign. For countries like Senegal, which uses a foreign currency (the CFA franc), MMT provides that three step checklist on how to gain their fiscal mojo back. Obviously getting there is complicated, but at least there’s a path. Most international rule sets are expressly about fucking poor countries over. The rules of colonialism, capitalism, and globalization force poor countries to depend on the rich. MMT is different because it lays out how the poor don’t need the rich to self-govern.

Thinking bigger, while currency is an important tool for sovereignty, other, more direct tools exist too. Promises of food, energy, and water are things rich countries can wave over the heads of poor countries so the poor countries do the rich countries’ bidding. To take one example, you don’t see Angela Merkel standing up to Vladimir Putin that often, partly because 40% of German gas comes from Russia. To take another example, Mexico is heavily dependent on the US for cheap corn (among other things), making it difficult for Mexico to stand up to whatever shitty trade deals we offer them. The sunny interpretation is that this interdependence compels everyone to be nice to each other. The reality is that countries with resources exploit countries without resources. The path to equality is not “interdependence,” which is never reciprocal unless it’s done by choice. The path to equality is sovereignty, allowing countries to choose which reciprocal relationships they deem mutually beneficial. MMT recognizes that financial sovereignty is a crucial and overlooked aspect of a country truly being self-governing.

How MMT prizes stuff (over money). Anyone who has ever played Settlers of Catan, or Civilization, or any other geopolitical game knows that resources are power. The strength of the player is based on the length of the roads, the number of schools, the quarries built, etc. It doesn’t require a whole lotta explanation because it’s a fundamental theme in human history. MMT makes the connection between resources and wealth very clear: our ability to utilize resources, not how much money we have, determines how much money we can spend.

Mainstream economists believe that resources determine wealth and power too, but then they place additional and unnecessary constraints to spending like making sure budgets are balanced and debt to GDP ratios are below a certain number. These financial measures have nothing to do with whether a country has additional resources to utilize or not (GDP measures what we do produce, not what we can produce), and so MMT doesn’t factor them in when it comes to determining a country’s spending power.

But other metrics do matter. A prime one is unemployment — a measure of whether we’re fully utilizing our most valuable resource, which is people. If there’s unemployment, then we’re leaving resources, and therefore our ability to generate wealth and well-being for ourselves, on the table. Most business minded folks agree that high unemployment is bad, but only MMT has the huevos to say the logical conclusion: the optimal level of government spending is when we utilize 100% of our resources, including 100% of willing workers.

And here’s how this mindset changes things:

1. It sets a clear goal of what full tilt economic progress looks like. It’s not 3% GDP growth. It’s not balancing the budget. It’s everyone being maximized to their full capacity, because that’s the limit of our ability to make and do what we want. In other words, any level of involuntary unemployment is not good. Everyone deserves to be employed, economically and morally.
2. It makes it clear that impediments to achieving the full (and sustainable) utilization of our resources can and should be overcome. The mistaken belief that the federal government’s budget should be balanced creates a perceived imperative to underfund basic services like schooling and transportation. MMT calls bullshit. There’s an economic imperative to fix that, as we’re only shooting ourselves in the foot economically by not spending money to solve those problems. “We don’t have the money” is not a reason for inaction. “We don’t have the resources” is a reason for inaction, but currently we happen to have a lot of resources we’re not using. The last time the US was chugging at full tilt was probably World War II. Today our economy is jogging at 70%* of what it could be doing right now and MMT is the only party in town saying “let’s turn this fucker UP”.

So MMT is not just about spending more money. It’s about making explicit a new set of incentives which fundamentally push nations toward a more self-governing and inclusive future. That’s fucking cool.

* More of an emotional estimate than a scientific one.

**Bonus Note: The 3rd Annual International MMT Conference is September 27–29 at Stony Brook University in Long Island. If any of this tickles you, grab your tickets here.