MMT is a re-imagining of fiat money as public equity:

What does this mean? A company can issue as much shares as it likes, and those shares can never make it go insolvent. The worst effect is that the shares get devalued. When a company issues new shares, they either do so by buying things, (ie selling shares to raise “capital” ie buy fiat money) or compensating employees.

Furthermore companies can issue as much debt, of their own shares as they like. Again, to redeem that debt, they simply issue the actual shares. This is not too far off reality, as companies will often compensate employees with stock options.

Any share issuance is not automatically deflationary or inflationary.

Note that this re-imagining has nothing to do with your political affiliation, empirical claims, or policy preferences. It’s just a perspective on what money means. This means MMT cannot be “debunked”, or “falsified”. At most, it can be shown to be a poor way to view fiat money. MMT does not insist this idea applies to all currencies. Indeed it all depends on the somewhat vague principle of “monetary sovereignty” which is an incredibly complex topic.

The result of this perspective, is that MMTers will tend to look at governance and policy issues, rather than traditional economic metrics, when trying to solve problems. It tends to view most economic issues as “artificial”, in that they aren’t a spontaneous result of the behavior of markets, but rather just policy choices that can be fixed directly, by adjusting relevant policies.

This does not mean this process is politically or logistically easy, it just means you need to evaluate the political structure, in a way that goes beyond mere empirical cause/effect.

What MMT IS NOT:

  • A theory of the price level.
  • A theory of fiscal or monetary policy.
  • A theory about unemployment or taxation.

MMTers discuss all these topics. Because once you understand that money works like shares, there are a wide variety insights that you can offer on those subjects. But this is not really the idea of MMT. The fundamental idea is simply that money is a public unit of account that works however we want it to work. We can make everyone millionaires or debtors, legally speaking, simply by legislating that.

The effect of these choices, is how well people adhere to, or adopt, the accounting framework. These effects are likely not continuous or consistent. This is because it is a function of global attitudes about historical circumstances. That is a very hard thing to pin down, and does not really lend itself to empirical analysis, except for very short term repeatable patterns. So major historical events should be analyzed historically, and empirics can play a supplemental, although secondary role.

Empirics are Overrated

The best way to apply math to historical analysis, is not with regressions or causality, but simply sincere attempts to contextual the events of history with numerical accuracy. You should want to examine how many people died in the battle of midway, for example, not because you can link it to the rate of inflation, but rather because that allows you to add quantitative accuracy to the narratives you are constructing. Adding quantitative accuracy to narratives allows you to critique prevailing ideas, but it should not be considered a repeatable or scientific process.

If you want to catalog the causes of WWI, as this article attempts to do, you aren’t going to try to link statistical variables from the outset:

The article describes 5 things:

  • Mutual Defense Alliances
  • Imperialism
  • Militarism
  • Nationalism
  • Assassination of Archduke Franz Ferdinand

To try to catalog historical events of inflation or unemployment, we should similarly start from a historical perspective, and bring in all the relevant historical circumstances. Only then do we add quantitative descriptions, perhaps such as the populations or GDPs of the countries which were allied to each other. Statistical regressions, if they are to be used all, should come very last.

This not to say that statistical regressions have no place, it’s just an incredibly limited tool. Chess players and computer programmers would not get very good at their craft, if they relied primarily on statistics, because it is expensive and does not offer much insight on complex relationships on its own. Similarly, statistics should not be the first go to tool of social science and economics.

A robust statistical regression that has been demonstrated in a wide variety of context across history can be very useful, the only problem is, these almost never happen in the real world. Most studies are happy with a p-value of 0.05 or 0.01. Furthermore, it doesn’t matter how high the p-value is, if some underlying condition changes. So it should only be considered a high situational short term tool, that is best applied for suggesting ideas of where to look for problems, and not for defining immutable theorems about human nature or social or market systems.

Thanks for coming

Before anyone wants to argue about something I post from this account, this is required reading. I do not claim to speak for all of the MMT discussion, this is just my own perspective. But once you understand my viewpoint of these two ideas:

  1. MMT re-imagines fiat money as public equity.
  2. Empirics is a tool of secondary importance for analyzing economics and social systems in the context of history.

After that we can maybe have a productive discussion. But until then,

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