My response to a German critic of MMT – Part 3

This is the third (and final) part of my response to an article published by the German-language service Makroskop (March 20, 2018) – Modern Monetary Theory: Einwände eines wohlwollenden Zweiflers (Modern Monetary Theory – Questions from a Friendly Critic) – and written by Martin Höpner, who is a political scientist associated with the Max-Planck-Institut für Gesellschaftsforschung (Max Planck Institute for Social Research – MPIfG) in Cologne. Today, we will discuss inflation and round up the evaluation of his input to the debate. The overriding conclusion is this. As a researcher, I am instinctively driven to dig deep before I make public comment. It is easy to think you have an idea that is novel and then venture forth with it. One usually finds, fairly quickly, once you start digging into the literature, that the idea is anything but novel. Modern Monetary Theory (MMT) has been around for around 25 years now (give or take) but has really only gained traction in this era of social media (blogs, tweets, YouTube, etc). Many of the issues raised in the Makroskop article have been covered extensively over the last 25 years. Many academic and non-academic articles have been written by us on these issues. Thus, if my response here is not sufficient, then I urge readers to consult the massive literature we have built up for further clarification.

The previous part in this series:

1. My response to a German critic of MMT – Part 1 (March 26, 2018).

2. My response to a German critic of MMT – Part 2 (March 29, 2018).

To ensure these blog posts do not become too long, I decided not to quote his original German.

So, when I quote Martin Höpner using quotation marks “”, I am providing my translation, and, given my German to English is not perfect, nuanced errors in translation and interpretation (usage) are possible.

I have in the last two days, though, had my translation checked with a fluent German speaker and writer to minimise possible errors.

Now to detail.

If we all knew MMT then the economy would collapse

Martin Höpner’s final ‘concern’ follows from him recognising what he terms “the biggest fascination generated by MMT”, being the fact that tax revenue is not required to fund public expenditure.

Public expenditure is “not limited by income” and the “state does not need taxes for financing purposes.”

He also notes that MMT emphasises that “taxes fulfill important purposes” and he lists some of these ‘purposes’:

1. They ensure that the non-government sector accepts the issued currency.

2. They punish unwanted behaviour – for example, tobacco excises.

3. They can redistribute income.

Note that in listing these functions he leaves out one of the most important in terms of macroeconomic stability – to create non-inflationary real resource space for government spending – by depriving the non-government sector of purchasing power.

Why didn’t he mention that function, especially as he proceeds to talk about inflation? Keep asking yourself that question as you read on.

He thinks that the “consequences” of understanding that a sovereign government is never revenue constrained because it is the monopoly issuer of the currency to be “outrageous” because that understanding would open up new possibilities currently considered to be taboo.

For example, he says there nothing to stop the central bank just buying government bonds directly.

As if that is a new occurrence?

There is no real difference, by the way, between central banks buying the debt in the primary issue or in secondary markets (once it is issued). QE has seen central banks buy enormous quantities of debt in the latter way. There has been no collapse.

The outrage continues – he claims that the:

The state could … go on an unlimited shopping spree with the central bank’s credit card without … raising taxes at all (at least for funding purposes).

Note the language. We must always be careful in the choice of language we use. This is particularly the case in inter-disciplinary work – given that Martin Höpner is a political scientist rather than an economist.

Sometimes, we might unwittingly use language from another discipline when commenting outside of our own discipline that reinforces concepts etc that we would not want to reinforce.

Recognising that the state is not financially constrained does not mean it can go on an “unlimited shopping spree”.

Such a government can only purchase whatever is for sale in its currency, including all idle labour.

Yes, it can compete with the non-government sector for resources it is currently using (through purchases) but unless it deprives the non-government sector of the capacity to continue using these resources (through taxes) then it would just cause inflation.

No sensible government would do that and there is nothing in MMT to suggest we have ever advocated such stupidity.

Note also the use of the term “central bank’s credit card”, which immediately invokes the ‘household budget’ metaphor, which is standard neoliberal thinking.

Please read my blog post – Government budgets bear no relation to household budgets – for more discussion on this point.

A ‘credit card’ allows a financially-constrained entity (like a household) to spend in advance of income and then pay back the credit extended.

A currency-issuing government (including its central bank) does not have a ‘credit card’.

First, it is very damaging in relation to the edification of the public to consider the fiscal outcome of a currency-issuing government to be equivalent at any level to the currency-using household budget. While the accounting analogy holds ($s in and out) that serves only to confuse.

For example, revenue to a household gives it increased purchasing power. Revenue to a currency-issuing government provides it with no increase in its capacity to spend. That is a fundamental difference.

Similarly, the meaning of a surplus is vastly different in the two cases. A surplus for a household means it is saving. Saving for a currency user is an act of foregoing consumption now to enhance future consumption and is driven by what economists call time preference and yields on saved funds.

There is no such meaning that can be given to a public surplus. The government does not need to stockpile financial assets in its own currency in order to spend tomorrow. The capacity to spend in its own currency is not dependent or contingent on its current or past fiscal position. It is only dependent on there being goods and services available for sale in the currency it issues.

Thus, one has to wonder why Martin Höpner confuses himself (and the readers) in a matter of two or three paragraphs.

In the first instance, he correctly observes that a currency-issuing government is not financially constrained. Then, virtually within a few following sentences, he invokes terminology that implies the opposite.

Language is very important in advancing or blurring understanding. Neoliberal framing has deliberately invoked language and the use of metaphors to hide the fact that a currency-issuing government is not financially constrained.

Martin Höpner’s use of this language, presumably unwittingly, does not help advance a progressive message.

Please also see my blog posts on the importance of language and framing:

1. How to discuss Modern Monetary Theory (November 5, 2013).

2. Framing Modern Monetary Theory (December 5, 2013).

The published paper that arose from this work – Framing Modern Monetary Theory – appeared in the Journal of Post Keynesian Economics (Vol. 40, No.2, 2017).

For the original working paper, go to Framing Modern Monetary Theory.

Martin Höpner’s problem with the notion that a government is not financially constrained is that, in his words, MMT proponents have not sufficiently accounted for the “real constraints” facing government spending and thus we come up with “overly optimistic conclusions”.


He asks us to “think through what would happen, if the budget constraint myth was removed”.

His conclusion:

Inevitably, uncontrollable inflation would have to break out. Without budgetary limitations there would be no limits holding back public spending. The private sector would have to follow. This would undoubtedly generate both significant inflation and problems in stabilizing the external value of the currency. Readers will spontaneously come up with many other ways in which inflation would occur as soon as the myth of budgetary restrictions is eliminated.

On such an important point, in a nation that suffers a deep pathological ‘inflation angst’ that is obsessive, Martin Höpner leaves this assertion without any causal logic being advanced.

His notion is that if the public is finally educated to the level that it understands that the government is not financially constrained then all hell will break loose.

Governments will go wild spending unlimited amounts of currency. The private sector will get in on the act – how exactly?

The currency will collapse and inflation will spontaneously erupt from the cracks in the ground! Sorry, I just had to write that last bit.

The point is that all spending carries an inflation risk.

But pretending that the government will run out of money if it builds a new hospital or school or maintains the public highway and transport systems, or introduces a Job Guarantee does not reduce that risk.

What view of democracy in advanced nations does Martin Höpner have that we would allow our governments to go wild once we knew they were not financially constrained?

And how exactly would that knowledge lead to a private sector spending spree? All private agents are financially constrained. Knowing that the currency-issuing government is not doesn’t alter that one bit.

A stronger economy based on a fiscal policy that aims to create full employment will provide better conditions for the private sector that is true.

But that same fiscal policy capacity has all the policy capacity it needs to discipline an emerging inflationary spiral emanating from the non-government sector.

Martin Höpner wants us to continue to have some “necessary myths” to ensure there are “real restrictions on public spending opportunities”.

He uses an example from political science based on the idea that there is a separation of powers between the executive and legislative arms of government.

He claims that separation in fact does not exist – it is a ‘myth’ and that the real power lies within government rather than opposition – but that we keep the ‘myth’ up “to keep things going”.

I found that a very curious argument to make in this context. But, overall, the analogy fails because it is flawed in its initial premise.

For example, in a Westminster system, the executive comprises the Ministers who are also key players in the legislature and dominate the legislative program.

No-one is under the impression that the dominant force in the legislature is not the executive, which is the government.

In the US-style presidential system, the President (as leader of the executive) is less dominant and everyone understands why and how.

There is no obfuscation going on when we discuss where the formal power lies in our political system of the type that neoliberals use when they frame and discuss how the monetary system operates.

In the context of MMT, though, Martin Höpner thinks it is useful to maintain the myth that “taxes finance public spending” in order to maintain the discipline on our elected representatives.

I find that a very despairing view of modern life.

It amounts to saying that we have to maintain a society that operates in a state of ignorance, living a deliberate fiction, just because our democracies are too weak to maintain orderly government and responsible policies.

Meanwhile, this state of ignorance permits governments to impose damaging austerity, which leaves millions jobless, millions underemployed, rising poverty rates and starvation in many countries, the rise of Wall Street and its counterparts all around the world, and inequality levels that will undermine social stability.

That is the consequence of Martin Höpner’s ‘necessary myths’.

Education is a liberating force and improves the accountability of our polity and forces them to conduct themselves more transparently no matter how venal their instincts might be.

Moreover, Martin Höpner then uses this argument to outline his “most general doubts about MMT”.

After advocating that we maintain a sort of primeval ignorance within society, he has the temerity to claim that:

I find the body of theory as premodern, as lagging behind the state of knowledge about money as a social phenomenon. MMT is able to perform magical operations that work on paper, based on a highly mechanistic understanding of money. The theory, on the other hand, is little concerned with the limits of the real operability of operations, which result from the fact that money users are not parts of a machine, but real people equipped with sociological and psychological characteristics.

Here we get into the classic neoliberal argument of “trust”.

The argument is that if the government goes wild with money, then people will lose their:

… fundamental trust … [in the] … value of the money. There would be an explosion of uncertainty about the future. Such a loss would reduce the willingness to invest to zero, trigger fears about the safety of savings and a flee into property – in short, it would mean the economy would collapse.

So, a fully employed economy, with growth in real incomes and real wages, high productivity, excellent public services, growing capacity to engage with renewable energy and arrest climate change, high quality schooling and health care, better public transport systems will disturb our psychological state such that we will reject all those things and do what?

What might we do?

Stop purchasing goods and services? If not, then with growing population and growing real incomes why would firms stop investing?

If some firms became scared in this environment others would just take the market share, thanks very much.

Would there be a boom in suitcases because people thought they would have to carry around lots of notes just to buy a cup of tea? (We are well past the Weimar days Martin!).

Sure enough, and I repeat this point regularly, MMT is not a theory of everything.

It does not intend to provide a deep study of human psychology. That is what psychologists do.

But when you think about the rational, maximising ideas of human behaviour, advanced by the mainstream economists (homo economicus), which psychologists indicate isn’t remotely like the way we behave, MMT policies reflect well on what psychologists actually do tell us about human behaviour.

We like security (full employment and good pay).

We do not like disadvantage and inequality (equity policies).

We appreciate access to high quality public services (public infrastructure).

And more.

So it is a fanciful idea that an understanding of MMT will lead to economic collapse and that the currency-user has to be kept in ignorance about the true policy space that the currency-issuing government has.

It is damn right primeval (premodern).


There it ends.

Despairingly, high powered research institutions still pump out stuff that resorts to these most primitive arguments.

The upshot is that Martin Höpner thinks that MMT provides a correct understanding of the way in which the fiat monetary system operates and the capacities of the government as the issuer of the currency but that it would be dangerous for any political party to espouse that correct understanding because people would go wild and lose trust in the money and Armageddon would follow.

According to him, it is better, for now, to keep society in a state of deliberately induced ignorance in order to preserve the way things are.

As if the way things is a worthy benchmark anyway (millions unemployed etc).

Reclaiming the State – Big Discount

Pluto Books has gone mad this Easter.

All their stock is being offered at a 50 per cent discount, which is better than the author’s discount I can get normally.

That means you can purchase our new book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World – online, for half price (and the Paperback version comes with a free e-Book).

The offer ends on April 9, 2018.

That is enough for today!

(c) Copyright 2018 William Mitchell. All Rights Reserved.

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    43 Responses to My response to a German critic of MMT – Part 3

    1. Ravi Kottha says:

      “To ensure these blog posts do not become too long, I decided not to quote his original German.
      So, when I quote Martin Höpner using quotation marks “”, I am providing my translation, and, given my German to English is not perfect, nuanced errors in translation and interpretation (usage) are possible.
      I have in the last two days, though, had my translation checked with a fluent German speaker and writer to minimise possible errors.”

      The above lines are repeated twice in the post.

    2. Jerry Brown says:

      It seems to me that there really is a fear that if people knew the truth that the government does not have the same financial constraint that everyone else does then terrible things would happen. The masses would demand that the government go on some spending spree and hyper-inflation would ensue. So they reject the truth of the matter out of this fear that the population, if it knew the truth, would behave irresponsibly.

      I think a lot more people than you would think actually understand that the government can never run out of money. But they figure the rest of us can’t handle the truth and that it is not so different than the standard economic story describes when the economy is at full employment anyways. So its better to pretend the standard econ is correct. Because at real full employment, there really isn’t much of a difference between what a Paul Krugman would say is possible and what MMT would say is possible.

    3. Patricia says:

      Do let us know if Martin Höpner comments on your three part response. He should and grovel at the same time!

    4. Jerry Brown says:

      There is at least one substantial difference between what mainstream econ says at full employment and what MMT says. Mainstream thinks that government issuing bonds the way it does to match deficit spending reduces the inflation risk of spending. MMT says it doesn’t. That is different. Maybe MMT is actually more ‘strict’ at full employment than standard econ?

    5. Jerry Brown says:

      “I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked, [it] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [and then] in every short period of time. If Prime Minister Gladstone came back to life he would say “oh, oh what you have done” and James Buchanan argues in those terms. I have to say that I see merit in that view.”

      This is famous economist Paul Samuelson explaining why it is necessary and good to keep people uninformed about the options that are available to a currency issuing government.
      From Lars Syll.

    6. Alan Longbon says:

      Yes, people like Martin do a lot of damage.

      I have long thought that the political party that gets into power and runs the economy along MMT lines, and did all the key things like free education, healthcare, class A infrastructure, JG, taxing externalities and not effort, etc, would stay in power for good and be very popular.

    7. bill says:

      Dear Ravi Kottha (at 2018/04/03 at 1:59 pm)

      Thanks. Appreciated.

      best wishes

    8. Heinrich Röder says:

      Sorry for my bad english. I am writing from germany. I also read the article from Martin Höpner. And I am also surprised that a scientist like Martin Höpner asks whether the believe in financial constraints of a state is a necessary myth. I think it is similiar to a conservative thinking that we need god and that there would be no morale in the world if there is no believe in god. But we all know there is morale without god. I have a lot of discussions in germany with people regarding economic issues. My impression is that many people (not only conservatives) see the alternative: chaos (inflation) or good old institution “Bundesbank”. Without such an institution like Bundesbank politicians – if they know that there are no fiscal constraints for a state – would spend a lot of money with the goal that their voters reelect them. That means these people don’t belief that politicians are able for a reasonable politic. It is a pessimistic view to politicians. You can have a more optimistic view to them. But the relevant point is another one. We never know which politicians we will have in the future – sometimes we have good ones sometimes we have dangerous idiots – but what we need are institutions in which the knowledge of MMT is incorporated – the knowledge that there is no financial constraint for a state but there is a constraint from the productive basis for the private and public spending. These institutions save us for the arbitrariness of politicians and the risk of hyperinflation. To think about these institutions and to fight for these institutions is an important task. I think that this step has to follow when we have seen that MMT gave us the right understanding of fiat money. MMT gives us a back democracy without any fear of the power of the financial market forces. Now we have to think about the institutions which fit to MMT.
      Ironically Martin Höpner wrote in his last paragraph of his article something similar. That doesn’t fit to his idea of necessary myth. But we should mention it and in this point Martin Höpner is right.

    9. larry says:

      Jerry, there is no good psychological evidence that people act in the ways that Hoepner and Samuelson have claimed. And Samuelson got into mathematizing macroecon early in order to avoid being considered political. It fit with an idea prevailing then that economics could and should be like physics. Some sociologists, like Lundberg in the late thirties, thought the same about their subject. Economics, however, is not like physics, that is, like the natural sciences.There is a reason that the social sciences are distinguished from their natural science brethren. Neither set of disciplines should ape the other.

    10. Neil Wilson says:

      What I find interesting is that they get stuck on spending. They have clearly wasted so much time on that side of the fence that they forget that spending is secondary. There is no spending unless you decide to buy something first.

      And when you run out of things to buy at a price worth paying, the spending stops. Automatically.

      Which then leads onto the political position. Those entrusted with purchasing for the public good must bet maximum value for the public. There is a standard mantra within the buying departments of every reasonable sized corporation across the planet – “always remember you are spending the shareholders’ money”. If that works for largish corporations, why can’t it work in the largest organisations that purchase for the public?

      Maggie Thatcher promoted her ideology via the marketing and advertising industry – venerating them as the saviours of tomorrow. Within MMT we should be pitching to buyers organisation and explaining why they are the vanguard against inflation – particularly when procuring international supplies.

      If you stuff the public purchasing departments with the stereotypical Scots and Yorkshiremen I can guarantee there would be no inflation. We drive a hard bargain.

    11. larry says:

      Addendum: even in fields like genetics or related fields, especially where it overlaps with psychology such as areas like IQ, you can get rubbish. I would not deny that. To see what I mean, have a look at Stephen Gould’s The Mismeasure of Man, 2nd ed. For summaries of exciting and good work in social psychology, I would recommend Roger’s Brown’s Social Psychology, 1st and 2nd editions. I would not, however, generally recommend Brown’s own work. None of this takes away from the fact that the psychology that is deployed even by behavioral economists is often simplistic, even wrong-headed.

    12. MarkH says:

      >Framing Modern Monetary Theory

      MMT needs to be packaged for public consumption. If you’re sick of explaining the same basic concepts over and over again that’s because nobody has time to read twenty years of long-form blog posts. Louisa Connors, the co-author on your Framing paper, should be in charge of creating an a short infographic-laden presentation, and *that* should be prominently displayed on the sidebar here.

    13. larry says:

      MarkH, if you want to see a diagrammatic visualization of features of MMT, have a look at J D Alt’s The Millennials’ Money, which is an updated version of his Diagrams and Dollars. It is not quite what is usually considered to be an infographic, but it is visual.

    14. Willy says:

      I don’t think Dr. Mitchell would ever get “sick” of explaining. As Warren Mosler says “I think he writes in his sleep”. The point is more about the dishonest naivete of the counter points brought by ‘honest’ researchers with supposed expertise in their field. Those who know better should do better, that would help the “public”.

    15. Gogs says:

      Martin Hopner is afraid of the consequences of unfettered MMT – and like ordinary people, he is probably shy of accepting that much of historic economic ethos is based on flawed fundamentals.

      He, like many in society, is prepared to believe that the MMT prognosis and prescription is correct, but less than convinced when it is challenged to implementation.

      Modern economic activity changes rapidly and unexpectedly. Humanity reacts both defensively and aggressively; disruptive capitalistic activity allows competition to stimulate commercial success and private distress at the same time.

      MMT may have a principled approach to societal changes engendered by these upheavals. It nevertheless represents a solution that is still to some extent metaphysical in terms of long-term success. Economic advancement is still a game that favours the brave and the exploitive – at the cost of our weaker brethren.

      It is a game that involves boldness, failure and varying degrees of fairness. MMT must convince that it has the power to control those forces between the constantly bulging walls of human endeavour.

      It involves political bias that Bill constantly champions. Can that political leaning be relied upon to administer MMT principals in a constantly shifting scenario containing powerful forces (capitalist and social) that go far beyond practical economics.

    16. Paulo Marques says:

      I see not much has changed about letting the people have power since the rise of Prussia and Bismark. His academic counter-argument is the modern equivalent of “Here be dragons”, which is pathetic for a scholar in a field that wants to be taken seriously. And, of course, since he’s an expert in a very serious field, why can’t he opine on such a lesser subject as is psychology, despite it contradicting his own view of his own field (so, are people rational with regards to the economy or not?). Of course, by this point, the lesser fields of political theory and philosophy have already been settled in the name of lies uber alles.

    17. Paulo Marques says:


      MMT is descriptive, and, as a layman, it damn well describes reality much better than anything else I’ve seen. If the Martins of this world realize it (as he said he did), then they surely realize that doing what they do causes frightening amounts of hardship on almost everyone, and yet does nothing about it. He should realize the EMU should not exist with the amount of hardship it brings, and yet does nothing about it.
      Enforcing hardship through ignorance is certainly quite a German thing to do, but the brazenness of their hubris never seizes to amaze.

    18. Simon Cohen says:

      ‘There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency’ (Samuelson)

      But we know that capitalism in its neo-liberal, anarcho-capitalist form does just this; creates outcomes that are highly inefficient to put it mildly. It seems that as long as vested interests in a particular social. order are kept intact, the inefficiency becomes invisible. So the ‘externalities’ (internalities!) are externalised: poor health outcomes, environmental despoilation, impoverished education, childhood poverty.

    19. Francisco J Flores says:

      It would help in MMT messaging if it was made clear that any Job Grty or other program legislation is accompanied by an inflation target whereby the Executive Branch is required to maintain inflation at a rates of say under a 4% ceiling, and empowered to raise taxes across the board in modest temporary increments, if the rate exceeds the ceiling until the rate is within the target. Taxes would include: income, sales/VAT, and possibly an asset tax. That would cool things off – PRONTO!

    20. larry says:

      Gogs, while Bill certainly has a political bias, MMT does not. And there is nothing metaphysical about the theory.

      There is another distinction that can be made here. And this is between a normative theory and a descriptive one. Game theory is a normative theory. It stipulates how a player should play a ‘game’ if they want to win. It does not specify how people actually play. A descriptive theory, on the other hand, empirically describes how a system actually works. For instance, it says what happens when austerity is implemented, and history shows what happens when the opposite of austerity is implemented, as it was under FDR, though he could have done more.

    21. paulmeli says:

      “If we all knew MMT then the economy would collapse”

      Except the economy is operating according to MMT principles, a recording of events as they occur. By definition, every economic event (transaction) is an MMT event the way I see it.


      Apparently understanding reality will cause the economy to collapse. A leap indeed.

    22. Kathy Heyne says:

      Well, I’m disappointed Hopner believes the public must never know the government is not financially constrained, but I’m not surprised. He thinks the public would send the government on a unlimited spending spree. He doesn’t say it, but he clearly thinks the public’s desire for things wouldn’t stop with public housing, health, education, infrastructure or employment. They’d want more and more – because everyone knows the common people are lazy, selfish, greedy and stupid- and governments would give it to them to get themselves elected/stay elected. Inflation would erupt from cracks in the ground as result. It would be outrageous. Dangerous. Prudent governance would go out the window.

      Seriously, I think that’s what’s at the heart of Hopner’s concern, because I hear/read about the lazy, selfish, greedy, stupid electorate all the time, and the more educated the speaker/writer, the nastier the criticism. I actually spent this afternoon hearing it from a young man who’s currently doing a PhD at Melbourne Uni looking at ways to take the pressure off local government. In his eyes, the only thing wrong with Australian democracy is the Australian people. Our democracy itself is one of the best in the world, he told me, several times. I didn’t bring up MMT with him- didn’t seem to be any point.

    23. Jerry Brown says:

      “It is easy to think you have an idea that is novel and then venture forth with it…When I make presentations to a new audience I am regularly asked the same questions, over and over…But I expect researchers…. to first of all do their research before they make public comment. Many of the issues raised in the Makroskop article have been ‘done to death’ over the last 25 years. Many academic and non-academic articles have been written by us on these issues…raising them [these issues] as if we have never thought about them or discussed them in rather minute detail is not a very ‘friendly’ strategy.”-Bill Mitchell

      I have never been a teacher, but I can imagine that it might get frustrating teaching the same course, say intro to macro-economics, year after year answering the same questions from each new year of students, all of whom might think they are being original coming up with new critiques or ideas when you have heard them all before. But I imagine it is worse when they just are not interested and pay no attention beyond what is needed to pass the tests.

      So you have probably dealt with every critical idea Martin has brought up in his article several times in the past, in your blogs and in comment replies, and in publications. And you get a little frustrated that you have to do this over and over. But you might at the same time consider that this is an honor of sorts- I know I would be pretty honored if someone thought I was one of the founders of an exciting school of economic thought that was worth writing about and criticizing. Especially if the best criticism they can come up with is that you are right but we can’t let people know about it!

      So I think you might just have to put up with being that intro to ‘new’ macro teacher. But you are not just dealing with first year college students once a year- you have to put up with people who have PhDs already and are pretty set in their ways.

      Man I wish this stuff was around 30 years ago when I was taking intro to macro! Don’t let yourself get burnt out.

    24. SANDRA CRAWFORD says:

      That also answered my question! Interesting piece.

    25. Brendanm says:

      Well they might be concerned about a wide spread working knowledge of the credit system.

      Look at the uses that the select few have made of their working knowledge.

      There is also the loss of status as people look to the true source of the credit spring, rather than to their self selected priesthood of money.

    26. Ed Zimmer says:

      “Economics, however, is not like physics” – larry

      This is a point that’s been bothering me that maybe others here can help clarify. I’m uncomfortable with conclusions drawn from economic modeling, even from a base of C + I + G + X = C + S + T + M, which I suspect most here see as a logical tautology. In scientific modeling, we start with variables that have precise definitions and relationships (F=M*A, I=E/R, ..) that can accurately and consistently be measured and verified – and we can still be misled by some unseen assumptions made along the way. But starting from variables that lack precise definitions, that carry different nuances to different individuals, that can’t be accurately and consistently measured and verified, seem certain to result in faulty conclusions.

      In the MMT case, I’d feel much more comfortable if the MMT modeling started with GDP/GDI National Accounts – there I could at least see agreed definitions & explore the measurement methodologies to get a “feel” for the strengths & weaknesses of the measurements. Maybe this already exists – a simple matter of substitution that’s obvious to those trained in economics. If that’s the case, please educate me so I can take another step in understanding.

    27. Jeff says:

      Burn the witch ! Heresy !
      We have to maintain the belief that the Earth is the centre of the universe or else…. well we know what happened in the end. The church lost its power (eventually).
      That is the core of his argument, heretical thought must not propagate lest the proles see where the power truly lies.
      His argument isn’t about chaos or economic turmoil, it’s about power.

    28. Henry Rech says:


      “Can that political leaning be relied upon to administer MMT principals in a constantly shifting scenario containing powerful forces (capitalist and social) that go far beyond practical economics.”

      Very well put.

    29. PhilipR says:

      So at the end of the day, the “German critic” ends up putting his fingers in his ears and sings “la, la, la, la .. I’m not listening!” because he has a pathological fear of inflation?

      Did anyone imagine it would work out any other way?

    30. cs says:

      So is the next step outlining a series of mechanisms by which inflation could be controlled and full employment achieved using government spending/taxation and the job guarantee? The nitty gritty?

      We currently supposedly use the official cash rate to “stablise things” and clearly it’s not working.

      What data would be used? How would inflationary spirals be prevented? A kind of sci-fi exposition of how a government could decide on appropriate deficits in a future utopia?

      Perhaps Bill has already written this.

    31. PhilipO says:

      What in MMT literature did you find to draw the conclusion that inflation targeting would help its messaging?

    32. Adien Treleaven says:

      RE: cs

      The Job Guarantee (JG) provides price stability by acting as a counter-cyclical automatic stabiliser, meaning that spending on the JG increases (decreases) automatically when private sector spending decreases (increases). So in terms of demand-pull inflation generated by excess demand for goods and services, JG spending will decrease when there is (for example) a boom in private sector spending leading to many higher jobs. As people shift to and from the JG into the private sector, spending on the JG will fluctuate with changes in the state of the business cycle, whether the economy is expanding or contracting. Already social welfare and progressive tax systems function as counter-cyclical automatic stabilisers, the former being counter-cyclical (increasing/decreasing when unemployment/employment rises) and the latter being pro-cyclical (rising/falling when incomes rise/fall).

      Regarding inflationary spirals driven by a distributional conflict between capital and labour over their nominal claims over real resources, the JG also helps to solve such examples of cost-push inflation. Because the wage on the JG is ‘fixed,’ and because labour is a cost across the entire economy, the JG can help relieve supply shocks that create rising costs and, in turn, rising prices. Think of OPEC and the oil price shock in the 70s. That inflation could have been prevented if governments had sufficient buffer stocks of oil that could be released into the economy to put downward pressure on oil prices. The JG performs a similar function by purchasing labour for which there is no market value. It is true that there are other examples of supply shocks that the JG would not solve per se, but it is important to keep in mind that inflation is a continuous rise in the price level. An oil price shock is not in and of itself inflationary, nor is exchange rate depreciation. They can lead to inflation, but they are the cause per se. If oil prices rose and businesses increased prices but workers did not bid up wages (as would happen in a conflict-driven inflation) then there would be a temporary redistribution of living standards from workers to business owners. The solution to conflict inflation is either a real hit to living standards or an increase in the size of the economic pie that the respective social classes are fighting over.

      Kind regards

    33. Robert says:

      I suggest the fundamental flaw underlying Höpner’s argument is betrayed by the name given to (or assumed by) the so-called “academic discipline” of which he professes to be a practitioner:- namely “Political Science”. Compounding two total opposites, “politics” and science”, into a single term has got to be the mother of all oxymorons, causing the resulting expression to be devoid of any meaning. In reality, it’s nothing more nor less than political journalism.

      It certainly can’t justifiably be dignified with the description “research”, as though it were being carried-out in a spirit of disinterested (“scientific”) inquiry. Rather, it seems pretty evident that Höpner’s conclusion had been formulated before the paper was written and then the argument tailored to support it, not vice versa.

      A serious debate simply can’t be conducted on such polemical terms and I can’t help wondering whether it was worth Bill’s time to bother with Höpner’s “case” at all – lacking as it is in any scholarly rigour. That the institute to which he belongs gives its imprimatur to such stuff merely allows us to discern its true character. It seems to me not unlike Sveriges Riksbank tendentiously linking its prize in “Economic Science” with the name of Alfred Nobel in a pathetic attempt to bathe it in the same scholarly aura as the original *real* Nobel Prize justifiably enjoys in regard to the physical sciences. (For “Alfred Nobel” read “Max Planck”).

    34. Yok says:

      Professor, you’re a man after my own heart.

    35. Francisco J Flores says:


      RE: “Francisco,
      What in MMT literature did you find to draw the conclusion that inflation targeting would help its messaging?”
      • Not much. That’s my point. There is not enough response to the fear that inflation would become a problem if a Job Gty and direct Treasury funding by Central Bank was put in place. So including an inflation target and an automatic mechanism (equitable tax increases) to be implemented in the event inflation started to perk up would foreclose this pushback.

    36. PhilipO says:

      “Not much”….. I think that answers my question.
      Let me know when you find out what MMT thinks about inflation targeting. Start with doing a search on this site.

    37. Francisco J Flores says:

      PhilipO Shoot: Professor is critiquing the policy of managing the inflation rate through monetary policy. I agree its a bad idea. Monetary policy is highly ineffective in modulating economic activity. It’s like pushing on a string. My proposal involves keeping unemployment at ZERO and managing inflation through FISCAL Policy. Big diff Dude. See the blurb: at my web site

    38. Paulo Marques says:


      You can start were I searched (as a layman, mind) and go from there.

    39. Francisco J Flores says:

      Paulo Marques: [Bill edited out unnecessary link]

      What’s you point? Bullet point it for us. (If I’m going to shoot fish in a barrel, I’d rather they had your face on them.)

    40. Paulo Marques says:


      The Professor is giving us his work for free, but it’s not an organized process of thought or a linear course. Regardless of the reasons, of which complexity is also one, a detailed analysis is only present in proper books.
      I found the topic of Japan, and the links therein, to helpful in understanding (and validating) the MMT view on inflation. If they’re not helpful to you, I apologize, you must find a better summary for yourself or from someone else – this is not my area and I haven’t grabbed one of those books yet.

    41. Marco Saba says:

      Very good post exposing ongoing propaganda at Max Prank Institute !

    42. hanns says:

      Rather schoolmasterly and not kind at all, unlike the text of Martin Höpner who just verbalized politely some questions to a theory that has to be called marginal, more so in Germany where it is completely unknown. you don’t really have to have read every article on the subject published during the last 25 years to carry on a debate between scholars from different disciplines in a non-scientific internet-journal. Moreover, readers will learn more from a debate than from “erudite” or esoterical discussions between convinced followers of the same theory.
      I wonder if you do a good service to the propagation of MMT to a german speaking audience.

    43. Jeffrey Lucas says:

      I thought that one of the “problems” with MMT that prevents academics such as Paul Krugman from fully accepting it is that there is no mathematical modelling that has been done to demonstrate the relations between economic variables that its proponents claim to exist. By which I suppose they mean , for example, how much government expenditure is neccessary to result in x as the unemployment rate. Such modelling will enable politicians to change the variables with precision. As this seems a valid criticism I am surprised that Hopner doesnt mention it, though judging by the quality of his article perhaps I shouldnt be. Is there a difficulty with doing such modelling from a MMT standpoint in order to answer this criticism?

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