Thread by @SamHLevey

** No, MMT is not "the new supply-side economics."

The message below by Professor Ricardo Reis (@R2Rsquared) is receiving a lot of attention but... it is not a good thread.

I'm an MMTer, so let me offer some corrections for the record.

https://twitter.com/R2Rsquared/status/1362386627616780289?s=20

/1

But first, if you're an economist, where can you go to find MMT literature, so that you can read before forming an opinion and back your commentary with citations? Here's a resource: deficitowls.wixsite.com/mmt4mainstream… /2

(Note that the only citation Dr. Reis provided was a *review* of a book. Obviously Twitter isn't an academic journal, but still, if Dr. Reis had a student submit a paper where the student didn't even read the material she commented on, no doubt he would give that student an F.)/3

Dr. Reis seems to think that MMT is encapsulated in the statements "central banks could 'print money' to pay for any amount of spending" and "there is no constraint on how much the government can spend." He appears to think that MMT is synonymous with a call to increase M0. /4

This is just wrong.

Being a 25-year long research program, MMT is many things, but here's one introductory summary of some of its components. It's not so complicated, though may be unfamiliar to mainstream researchers. alittleecon.wordpress.com/2014/06/03/the… /5

But what it's NOT is simply a call to 'print more money.' MMT is first and foremost an analytical lens, an alternative framework for understanding the macro-economy, that draws on heterodox foundations rather than neoclassical ones. Following from this, /6

there are a number of policy proposals that most MMTers agree on, like the Job Guarantee.

Do we say "there is no constraint on how much the government can spend"? Of course not. At a basic level, there are political constraints: the gov can only spend money if the legislature /7

approves it. Beyond this, obviously, the gov can only purchase goods that are actually for sale! This is determined by a combination of the demand for the currency, the productive capacity of the industry, and the institutional arrangements in the market. Going further, /8

even if the gov *can* purchase something, sometimes it will only be able to do so by bidding those goods away from other uses, resulting in price increases which feed through to inflation. While they technically *can* do this, rarely does anybody think that they should, which /9

is why MMTers often say things like "inflation is the constraint to government deficits," as in this video

Finally, just because the gov can buy anything that's for sale in its currency doesn't mean that it should. (Hopefully this is obvious.) /10

What about the monetary base and "printing money"? Dr. Reis highlights that "CB reserves are just another form of borrowing."

But that came from us! MMT strongly supports the "credit theory of money," which see money as IOUs (See Innes elgaronline.com/view/978184376…) and /11

integrating this with Chartalist state theory of money is an original contribution of MMT.

Meanwhile back when the mainstream was thoroughly confused about QE and IOR, MMTers were declaring loudly this very equivalence (eg neweconomicperspectives.org/2009/11/what-i… and neweconomicperspectives.org/2013/12/krugma…) /12

In other words, MMT will be the first to tell you that the types of gov liability that are out there has very little impact on inflation, compared to the total amount. In short: MMTers aren't demanding we increase M0 instead of selling bonds; we're saying it doesn't matter. /13

At least not economically. Proposals that ARE explicitly about "printing money" such as @MintTheCoin are quite clear this is for political/pedagogical reasons, NOT to increase fiscal capacity (and suggest replacing Treasury bonds with CB securities!) mintthecoin.org/faq/ /14

Dr. Reis asserts that our predictions "have been repeatedly proven wrong by theory and data" but this is also just false. In fact, the MMT track record is extremely good! See item 12 here deficitowls.wixsite.com/mmt4mainstream… /15

The problem is that Dr. Reis doesn't actually know what MMT's predictions are. If he did, he would not cite Latin America, which is actually a clear case where MMT is obviously right! Here's a thread on this exact accusation (note the date...)

https://twitter.com/stf18/status/1110647385728925697?s=20

/16

The short story here is that MMT identifies a spectrum of "monetary sovereignty," where full monetary sovereigns face no *purely financial* obstacle to fiscal full employment policy, while nations with less MS, like the examples from LA, *can* face problems from this. /17

That's enough for now so let me close with this: @R2Rsquared would be justifiably furious if we formed opinions of his work without reading it, then likened it to previous discredited work to a large internet audience. There *are* mainstream economists who have engaged MMT /18

with an open mind, supporting their commentary with readings/citations of the source material eg. @dandolfa (and note his response

https://twitter.com/dandolfa/status/1362413151803826182?s=20

). *Those* conversations are a pleasure to have. But @R2Rsquared is not doing that. Academics have a duty to do better.