The Institutional, Empirical and Policy Limits of 'Modern Money Theory'

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Abstract

Modern Money Theory (MMT) economists acknowledge a number of empirical and institutional limitations on the applicability of MMT to macroeconomic policy, but they have not attempted to explore these empirically nor have they adequately addressed their implications for MMT’s main macroeconomic policy proposals. This paper identifies some of these important limitations, including those stemming from modern international financial markets, and argues that they are much more binding on the policy applicability of MMT than many of MMT’s advocates appear to recognize. To address these limitations, MMT analysts would have to enter the messy institutional, policy and empirical realms that undermine their simplistic policy conclusions that might be appealing to some policy-oriented followers of MMT. My conclusion is that, in light of these limitations, MMT’s major macroeconomic policy suggestions are of little practical relevance today for progressive politicians and activists, much less to macroeconomic policy formulation in general.