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The Critics of Modern Money Theory (MMT) are Right

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  • Thomas I. Palley

Abstract

Eric Tymoigne and Randall Wray's (2014) defense of MMT leaves the MMT emperor even more naked than before (excuse the Yogi Berra-ism). The criticism of MMT is not that it has produced nothing new. The criticism is that MMT is a mix of old and new, the old is correct and well understood, while the new is substantially wrong. Among many failings, T&W fail to provide an explanation of how MMT generates full employment with price stability; lack a credible theory of inflation; and fail to justify the claim that the natural rate of interest is zero. MMT currently has appeal because it is a policy polemic for depressed times. That makes for good politics but, unfortunately, MMT's policy claims are based on unsubstantiated economics.

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  • Thomas I. Palley, 2015. "The Critics of Modern Money Theory (MMT) are Right," Review of Political Economy, Taylor & Francis Journals, vol. 27(1), pages 45-61, January.
    • Handle: RePEc:taf:revpoe:v:27:y:2015:i:1:p:45-61
    DOI: 10.1080/09538259.2014.957473
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    Cited by:

    1. Brett Fiebiger, 2016. "Fiscal Policy, Monetary Policy and the Mechanics of Modern Clearing and Settlement Systems," Review of Political Economy, Taylor & Francis Journals, vol. 28(4), pages 590-608, October.
    2. John Murphy, 2021. "Economics-2020. What Happens When Everything Shuts Down Except the “Money Printing Pressesâ€," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 1, pages 91-112, March.
    3. Landwehr, Jannik J., 2020. "The case for a job guarantee policy in Germany: A political-economic analysis of the potential benefits and obstacles," IPE Working Papers 150/2020, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    4. Guillaume l'Oeillet, 2022. "Modern Monetary Theory: wrong ideas, real limits and blind spots. An overview of the critics [La Théorie Monétaire Moderne : idées fausses, vraies limites et angles morts. Un tour d’horizon des cri," Post-Print hal-03854814, HAL.
    5. Aloys L. Prinz & Hanno Beck, 2021. "Modern Monetary Theory: A Solid Theoretical Foundation of Economic Policy?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 49(2), pages 173-186, June.
    6. Eckhard Hein, 2018. "Autonomous government expenditure growth, deficits, debt, and distribution in a neo-Kaleckian growth model," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 41(2), pages 316-338, April.
    7. Karlo Kauko, 2018. "Did taxes, decrees or credibility drive money? Early nineteenth century Finland from a chartalist perspective," Scandinavian Economic History Review, Taylor & Francis Journals, vol. 66(1), pages 73-90, January.
    8. Phil Armstrong, 2020. "Can Heterodox Economics Make a Difference?," Books, Edward Elgar Publishing, number 19964.
    9. C. Sardoni, 2016. "A note on the sustainability of full employment in the presence of budget deficits," Review of Political Economy, Taylor & Francis Journals, vol. 28(1), pages 79-89, January.

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    More about this item

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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