The Monetary Theory (MMT) that has nothing Modern about it

I’ve been writing it since 2010. I’ve released several books and hundreds of articles meticulously defending the position. Sovereign States – that being those who issue their own currency independently of any indexation – should learn to love, or at the very least live with, their public deficits. Because a nation that controls its currency is able to restore growth and support employment thanks to the lever of public spending, without running the risk of payment default. The only limit to the spending and generosity of a State is inflation, even if it has been observed for years that the secular stagnation stifling modern economies has scared off the spectre that once haunted the central bankers.

Japan – that has been on a spending spree for over twenty years –, whose public debt (the world’s largest) exceeds double its GDP, is still wondering, not how to fight against an inflation rate that it is pinning its hopes on, but how to stymie its deflationary spiral! Japan is therefore the living example showing that in 2019 the distinction between monetary policy (applied by central banks) and budgetary policy (by governments) has become extraordinarily hazy. In reality, many Western governments have relied on the central banks and have shirked their responsibilities by waiting for monetary policy to work miracles. 

The crisis that began in 2007, the ageing Western populations (including Japan), and the aberrant inequalities that we see in certain countries must therefore incite our political and economic leaders to combine the two sets of actions before negative rates – and before a new paradigm that they will fatally establish – are imposed on us here. May the ECB and the Fed buy more and more bonds issued by the States that they control. May they even buy them from the private sector. Because our governments have a moral obligation to restore growth and employment once and for all. 

The dilemma: accounting rigour versus budgetary and fiscal support from the State indeed resonates beyond Japan since zero, even negative, rates in certain countries are now reaching their limits as they are not powerful enough to kickstart an economy, raise wages, improve investment, and reduce inequalities. The dreary souls are not even daring mention the inflationary risks, in the belief that this would provoke concern and exasperation over the immense number of citizens who are not versed in economics. With such low rates as we are seeing today, public spending – as important as it has been – doesn’t create inflation. Put another way, if inflation is effectively the only limitation to massive public spending, it is nevertheless vital to challenge all the long-held beliefs – the prejudices, rather – that are relentlessly sapping away all hopes of recovery. 

Our system needs a thorough reformulation, as we must have a collective rethink of public spending policy, the role of taxation, and the finality of money. In this light, the Japanese example must be our modus operandi, our toolbox, that all States should take inspiration from States that – like Japan – enjoy absolute control over their currency. Because no nation – in times of crisis – has any need to increase taxes or reduce public spending in an environment of endemic stagnation such as Europe has been experiencing for more than ten years. Relief from precariousness and re-establishing employment would be worth running a deficit for, no? 

As for the Modern Monetary Theory, if it is warranted to give a name to a set of actions advocated for over a decade by a few rare economists, as heterodox as they are courageous (such as yours truly), its substance dates back to Keynes who, during the time of the Great Depression, suggested to the States to halt the crisis and to oil up the cogs by giving jobs to the unemployed to dig holes and fill them with banknotes… Let us never forget that the Great Depression was defeated thanks only to the American war machine that put everyone to work when the country joined the Second World War.