Ep. 18 Warren Mosler Defends the Essential Insights of Modern Monetary Theory (MMT)
Bob brings on MMT superstar Warren Mosler to explain–not to debate!–his understanding of Modern Monetary Theory. After summarizing Mosler’s interesting background, the two discuss the assumptions behind MMT and its implications for economic policy.
Mentioned in the Episode and Other Links of Interest:
- Warren Mosler’s website.
- Warren’s definitive book, The Seven Deadly Innocent Frauds of Economic Policy.
- Warren’s policy proposals, in light of MMT.
- Other MMT proponents: Bill Mitchell, Stephanie Kelton, Randall Wray
- Murphy and Mosler debate Austrian vs. MMT.
- Bob’s critique of the MMT proposition that government deficits equal private “net saving.”
- The Mosler MT900 (sports car).
- The QE IV Ferry (designed by Mosler).
The sound engineer for this episode was Chris Williams. Learn more about his work at ChrisWilliamsAudio.com.
About the author, Robert
Christian and economist, Chief Economist at infineo, and Senior Fellow with the Mises Institute.
Interesting episode.
I have no idea how Mosler thinks government deficits affect real savings, though.
English isn’t my first language, but I think that’s only part of the reason I did not get it.
Maybe I’ll have to listen a second time.
It is not about understanding English, it is about understanding double entry accounting.
Every credit implies a debit, your spending is other people’s savings.
Government deficit = Private sector savings
Private sector savings less private sector investment. Which is where understanding English is important. When MMTers say government spending is required for private savings, they mean private savings in excess of private investment, but that doesn’t sound like nearly as good of a thing, so they don’t phrase it that way. RPM’s recent article “The Upside-Down world of MMT”, on mises.org goes into how the accounting equations go together.
It’s really private accumulation of financial assets – total income minus total spending. In NIPA, the closest thing to that is private saving minus private investment, but that’s only because “saving” and “investment” are defined in such a way that businesses can’t save and households can’t invest.
So, really, this issue says more about the weirdness of NIPA than about the weirdness of MMT. 🙂
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Excellent!
This was very interesting, though sadly it confirmed my suspicions. Is there really anyone who disagrees with the MMT premise “the government can’t go bankrupt in terms of currency only it can produce if it’s willing to print the difference?” That’s just trivially true. Duh. I don’t understand why MMT proponents act as if that weren’t completely obvious to everyone. That’s not a revelation.
What people do object to is their ridiculous hand-waving of the very real – and very negative – resource misallocations or real economy effects this has. It seems to me like a theory where somebody found something they thought of revolutionary, the aforementioned trivial truth, and then went on to build on that a whole host of (completely unrelated) theories about under-utilization and idle capacity. Our belief in monetary constraint didn’t hold us back in that regard before. What we call “monetary constraint” are exactly those overwhelming real effects this kind of socialization and expansion of the public sector would cause.
Edit: Trying to post this again, since it doesn’t show up for me.
Yes, I have to manually approve every comment. I may try to install something else but right now that’s how it works (to minimize spam).
I remember you Bob seriously talking about hyperinflation danger when Fed started QE. MMT said there was no danger.
Glad to hear that people are not worried about bond vigilantes and they now understand what the federal debt is. Investors are not doing a favor to government by buying bonds but government is doing a favor to investors by selling bonds. Very glad to hear that people understand that fiat currency system is a government monopoly. The first debate you had with Mosler you said Bob that you didn’t like the system. Mosler said he didn’t like It necessarily either. You had no arguments against MMT and you clearly demonstrated what a fantasy world the Austrians are living in.
If, in the aftermath of monetary inflation, one assumes a zero lower bound of inflation, no matter how calculated, sure a reading of 1% or 2% might seem like very little general price inflation. However, if we open up the possibility that without the monetary inflation prices might have dropped, say 10%, now we have the presence of substantial general price inflation. In my example 11% – 12%.
They think it’s a revelation because in this awesome Out-of-the-Matrix new PostModernist Theory they’ve created for themselves there’s an insular private set of language that describes standing Debts or spending measures as “Savings” for the private Sector. In their minds what they’re doing is shoring up the potential of the Private Sector with their “Savings” programs.
In reality all they’re really doing is deflating interest rates to artificial lows and inflating the currency as a mathematical fact of quantization. It takes a really astonishing level of ignorance to carry this theory around without a whiff to the contradictions, and the people that have bought into it are the people that have accepted this kind of New Spirit of the Age Macro-Economic idea that money should be as detached from reality as humanly possible.
They don’t seem to understand that there are consequences when you do this or that the fluctuation will only then have to re-adjust to levels prior to the markets sudden perturbation by federal monetary policy.
Underlying it are a lot of different post-Kaynesian ideas in an almost frankenstein fashion woven together with one another haphazardly throughout history.
We’ve got –
– Chartalism
– Labor theory of value (Marx)
– Demand Side Economics (standard Kaynesian)
-and an enormous and I think under-addressed issue of advocating for a dramatically larger Federal government to supplement the theory’s modern goals.
It is essentially a command economy move, on a very basic level.
Thanks for doing this interview with Warren Mosler. Getting Warren in the frame of mind where he is addressing an Austrian Economist is always good because he will say the same things he always says slightly differently. He brings out different points trying to speak to the more Libertarian thinker. MMTers can learn from this.
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_THAT_ Mosler! I have tremendous respect for him as a mechanical engineer, no matter what I think of his belief in social engineering.
The errors in his economics are obvious and typical of the “fatal conceit” of those wedded to central planning. “People have been saying things like this for thousands of years.” Yes, but they didn’t work then, either.
Could his obvious talent as a mechanical engineer blind him to the failures involved in social engineering? Maybe. I wish he’d go back to building cars, although sadly the Federal regulations would prevent anything like a light, fast, cheap car to exist anymore.
Could you be more specific about the “the errors in Mosler’s economics” ?
I won’t answer for Bob Robertson, but here’s my take on Mosler’s errors:
MMT is not actually a modern monetary theory. The only “monetary” part of that theory is what everyone had already known, and nobody in the economics profession ever rejected (hence not “modern”). The accounting nature of assets/debts is trivial, and so is the insight that the government technically can’t go bankrupt (or illiquid), as long as the Fed monetizes the debt. So why the “controversy” over MMT? Because from that, it does not follow that “the debt doesn’t matter.”
This is typically where MMT proponents come back with, “We’re not saying that!” Yet in response to another comment you, yourself, made fun of Bob (Murphy) for warning about inflation, calling him “living in a fantasy.” Let’s assume for a second that the rate of inflaiton should always be 0%, just for the sake of the argument. Otherwise, we might reasonably conclude that the Fed’s actions in response to 08 DID create tons of harmful inflation, during a period where we SHOULD have had high rates of deflation, but instead got moderate inflation. Also, let’s assume just because an event didn’t occur, it was silly to warn about its possibility. Ee don’t even need to talk about any of that. The very obvious direct consequence of increasing the net public debt is to increase the share of spending coming from the government. And with it, an accompanying resource misallocation. Hence the empirical reality of high rates of debt/GDP destroying economic growth in the long run. Mosler has a few distinct arguments for specific avenues where this wouldn’t occur. Permanently under-used labor and other reasons why we’re supposedly below capacity, that government spending could allegedly remedy. The health care system ostensibly being more efficient when collectivized, rather than private. Etc.
None of those are “monetary” arguments at all. You could achieve everything Mosler wants through some kind of unavoidable tax on money holdings instead of money creation. The only way you could claim that’s different is the old Keynesian “price rigidity” argument. Now, if you want a critique of why all those things MMTers champion (from the “Green New Deal,” over socializing health care, to a public jobs guarantee and more) are bonkers, then that’s gonna take ages. But none of them are unique to MMT, and none have anything to do, technically, with monetary theory. Yes, people might say, “we can’t afford that.” What that means, though, is “it’s gonna take away resources from the private economy and we don’t want to spend money on this.” Technically, we could “afford” to make a ditch spanning from one ocean to the other…
And, last but not least, it’s just annoying to talk with them. All those, “Public debt is just private savings! Don’t you like private savings?!” arguments are not clever. They’re banal. You could just turn that around and argue it doesn’t matter if the private sector increases its net debt forever, as that would constitute public savings. Duh. Irrelevant. Also, why are MMT proponents not arguing to get rid of all federal taxes? Are they afraid of hyperinflation?! They only seem to use their brilliant theory to advocate for spending-based public deficits. Why not revenue-based ones?
Mosler’s errors :- 1. Tax puts value into the currency – totally false since sovereign government currencies that fell to no value from being inflated were taxed. That has happened tens of time sin the last 50 years. Tax but no value !!
2. The MMT claim that the national debt does not have to be paid off. False since the national debt is continually paid off since it is composed of Treasury bonds that government sells every year. Those that were sold some time ago are now maturing and have done so on a rolling basis throughout the years on their maturity dates and they have to be paid out to those who bought them. Taxes fund that payout after they are collected from taxpayers.
3. Taxes are destroyed and not spent again by government to fund the budget.
False since the historical evidence in the Whitehouse records of the past 200 or more years shows they have formed most of the revenue for government spending over the whole period. https://www.whitehouse.gov/omb/historical-tables/ Table 1.1 – SUMMARY OF RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS ( – ): 1789 – 2024
There are plenty more but you have to do the research before I spoon feed with the answers.
Wish I could like your comment Bob!
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The Byzantine nature of the US central banking system does not change the laws of economics, it does not abolish the Socialist Calculation Problem and Cantillon Effects are still Cantillon Effects. The system does not magically make Keynesian monetary central planning viable. MMT proposals remain a massive exercise in Cantillon Effects so that the public cannot follow the trail of loot as they are continuously looted. Why do we need a Byzantine system of computer generated fiat funny money to solve unemployment when unemployment is caused by that very system?
Thank you for the interview.
Mr Mosler is correct that non-working people need easy access to that first job. Mr Mosler says that the private sector is reticent to hire these workers because it feels that these displaced workers are viewed as too risky as a result of not having a job.
So make the displaced workers less risky to the point it makes it justifiable for the private sector to take a chance on them. Remove the government barriers that make these workers too risky, financially and otherwise, and resort to an incentive if it proves necessary. The workers can then become productive from day 1, which Mr Mosler indicated is his goal in the long run. The burden and potential benefit of this program is then on the private sector where it should be.
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Haha, I also had a “wait, HE built that car?” moment. Beautiful machine.
Great job letting the guest explain his world view, Bob. I really got a great insight into what drives MMT which I hadn’t gotten before.
What’s so interesting in this debate, to me, is the failure to communicate between MMTers and “deficits hawks”.
It’s a pattern I’ve seen in other domains of life, for example diet. There’s the “CICO” (=Calories In, Calories Out) crowd. They take the question of “how do I lose fat” so literally that they are unable to see or accept any idea that does not take place on the pure, mechanistic level they’re thinking in. Duh, to lose fat, you have to lose calories. Duh, to create money, the Fed changes numbers on a computer.
With all due respect, no shit Sherlock. This is like saying all great writers compose their best books by pressing keys on a keyboard. It is not false, but completely uninteresting. It is “not even wrong”.
But what causes this confusion? Is it our (deficit hawk) fault that we do not communicate the non-literal meaning of the question “how’re you going to pay for it”?
It seems that the literal crowd is content just looking at us like we’re idiots and explaining again and again how credit cards work.
I was enlightened by this interview to realize that there is really nothing else behind MMT – it’s really just that. There’s no there there.
The shortcomings are obvious, of course: if the government doesn’t even need to care about borrowing and paying interest, all government programs become worthy of allocating (real) resources to by definition.
I think the average non-economist layman has a pretty good intuitive grasp that while this might technically work in the MMT sense, it would not be a good idea. What’s the distinction between MMT and every private person or company printing their own dollars? Why not simply allow everyone to print their own money, or allow people to take out money at the ATM without debiting their account? Is there some reason the government’s decisions here are much wiser with regard to resource allocation than those of the people who voted for them?
The problem is, of course, that we have money for a reason. Namely, allocate scarce (real) resources efficiently. Forcing the government to borrow and pay interest at least pays lip service to the idea that markets decide how these resources should be allocated. A policy like that advocated by Mosler would be a huge jump towards a centrally planned command economy. Recipe for disaster.
I am unsure if MMTers don’t even get that this is what deficit hawks mean by “how’re you going to pay for it”, or if they just don’t think centrally planned economies are a problem. Are they really just limiting their field to the trivial mechanical parts, or is this a rhetorical ploy to avoid talking about the problems with central planning?
How can we at least jump up one level beyond the mechanistic “they push a button in the computer *rolleyes*” level in those discussions, and talk about why these policies are a bad idea?
1:05:00 He says re: companies that don’t want to hire the unemployed that a company would rather hire the $10/hr McDonalds employee at $15/hr than an unemployed worker, but who fills the lower paying McDonalds job? Wouldn’t that go to the unemployed worker. Don’t we call that an entry-level job? This sounds like an upgrade for both workers. His system in that example at least seems to needlessly create govt jobs at tax payer expense and cause a worker shortage at the same time.
I had the same reaction! What is Mosler’s position on the minimum wage? It sounds like all we need to do is abolish the minimum wage and let workers start to develop skills and enter the labor market without government interference. We don’t need an Employment Transition Program. These people could be working the in the private sector doing productive meaningful work and not “make work” phony baloney jobs.
Mosler claims that you first sell tickets to a sports event, and then afterwards people redeem their tickets.
Totally wrong! First you must build a stadium with seats … the seats are what people want access to. Then second, you can sell tickets but strictly only limited to the number of physical seats that you have built. The ticket represents a claim on that particular seat for a given event, people redeem the ticket only once they have taken possession of that seat.
In a proper bookkeeping system, as you sell tickets, you also mark off the seat that you sold from (no different in principle to a simultaneous credit and debit) thus ensure you don’t sell the same seat twice.
I haven’t listened to the entire thing yet but if he actually said that that’s hilarious
Yep. That is exactly it. No seat equals no value. One seat each ticket equals expected value. Two tickets (MMTers claim of more wealth) for each seat equals unexpected chaos.
Thanks for this interview. Clearly, you have some ideological differences, but the format is quite fair to the airing of ideas and that’s very useful.
[…] other day I listened to Warren Mosler’s interview on The Bob Murphy Show – “Episode 18: Warren Mosler Defends the Essential Insights of Modern Monetary Theory (MMT)1” During the interview Mosler conceded that fiscal stimulus was best used in specific programs […]
I congratulate Bob on his self-restraint in this episode. I think an interview like this every once in a while is good, just so that we know what we’re up against. The guest actually sounded sincere, which perhaps makes the whole interview that much more scary.
This is an example of someone who has learned so much that he gets almost everything wrong in the big picture. The application of his knowledge is incorrect. He is trying to use accounting (debits and credits, as he says) to figure something out that is dealing in economics.
He cites Argentina and India as examples of where employment programs “worked”. Why not cite successful programs in Nigeria and North Korea as well? Libertarians don’t dispute that government can create jobs. The dispute is that those jobs are unproductive and do not improve our living standards. They actually serve to reduce living standards by misallocating capital.
It’s true that the government doesn’t really have the threat of bankruptcy because it can print (digitally speaking) money. This is what libertarians point out frequently. It is why state spending is more constrained than federal spending. This is why central banking (and federal control of the money supply) is so harmful. It isn’t just that central banking allows deficit spending. It is the fact that it allows increased spending than what would otherwise be tolerated under direct taxation. And virtually all government spending is a misallocation of resources. The more that government spends that isn’t directly related to protecting life and property, the more resources that are misallocated.
Government spending makes us poorer. The Fed enables the government to spend more than it otherwise would. Therefore, the Fed makes us poorer than we otherwise would be.
The guest is unable to see the big picture, yet he speaks so confidently, as if everyone else is the idiot. Meanwhile, he is espousing these views that are used to justify government theft. Our living standards are all lower because of these views.
We keep those pacifists around for a reason, no doubt.
Mosler’s understanding of accounting (as demonstrated in this interview) is quite sketchy and indeed meanders around in self-contradictory ways. If you listen at around 09:20 he shows knowledge that modern accounting is double-entry and that every debit automatically must imply a credit. Then around 11:30 Bob specifically asks whether this is a fundamental principle of all accounting with or without the gold standard, and Mosler confirms yes it always applies. So far so good.
Then around 23:30 Mosler says, “How can you dispute that you have to credit an account before you debit it?”
Wait, what? That’s not a property of double-entry accounting … any credit to one account implies a perfectly simultaneous debit to a different account. The total credits and debits in the system must at all times precisely subtract out to zero, therefore if you ever see an account with a credit balance you MUST somewhere have an account with a debit balance. This is fundamental mathematics and exactly what had Mosler said earlier. So what is Mosler talking about here?!?
Some people might have a built-in assumption that the largest debtor in the “big picture” chart of accounts will always be government (thus forcing non-government entities to be creditors in order for the system to balance) … but that’s a separate assumption (and a questionable one) which should be presented as an independent axiom, rather than quietly rolled into double-entry accounting.
Then around 41:00 on the question of “How are you going to pay for it?” we get the answer “The Treasury instructs the Fed to credit the appropriate account.” Then elaborates, “… gives instructions to change the number in the account of whoever is getting the money from a lower number to a higher number …” and Mosler goes on to provide a football analogy “… the same way if you kick a field goal and your score is 7 points and then the stadium gives you 3 points they just change the 7 into a 10.”
At this stage, the entire idea of having transactions had gone right out the window, we are simply editing account balances. Oh really? This is not even proper single entry bookkeeping. If Mosler is right about this then we should get on with auditing the Fed because this is not the way accounting is supposed to work.
If you look at the scoring system for a football game in isolation, there’s no transactions, it’s a single balance only, and mathematically the whole thing is arbitrarily unconstrained. The score can be anything and this kind of system is impossible to audit.
That said, if you believe that football has rules, and if you believe the scoring system displayed on the board comes about as a byproduct of the game and the rules, then the score is highly constrained. Any person watching a video replay of the players on that field should be able to independently reconstruct the score and if the rules of football are in operation then the answer is guaranteed to always be the same number. It becomes no longer arbitrary because of the tie to the physical events on the field. You have to physically kick that field goal BEFORE the points are awarded. Once it is tied together like that it can be audited (presuming you have some recording of the game).
You see how this is kind of slippery? Every time Mosler goes on his little jaunts, you need to get back to double-entry accounting: Where is the credit? Where is the matching debit? Show me the transaction. Preferably show the link into the physical world if there is one (usually yes there is).
@Geoff
“It’s true that the government doesn’t really have the threat of bankruptcy because it can print (digitally speaking) money. This is what libertarians point out frequently. It is why state spending is more constrained than federal spending. This is why central banking (and federal control of the money supply) is so harmful. It isn’t just that central banking allows deficit spending. It is the fact that it allows increased spending than what would otherwise be tolerated under direct taxation. And virtually all government spending is a misallocation of resources. The more that government spends that isn’t directly related to protecting life and property, the more resources that are misallocated.”
This is an incredibly important point and it should be a red flag to anybody listening to Stephanie Kelton speak, pay close attention to the adoration she has for the wartime era of economic spending.
Without any degree of restraint on the financial power of the state, the government can fund wars near endlessly with its infinite power of wealth extraction via the mechanism of currency speculation. It’s amazing to me that MMTers will scoff at the banks for receiving payoff in an economic collapse but when the speculation is done at the behest and pretense of populism suddenly it’s a great idea and the math will work out somehow.
They have a unique luddism about their approach to monetary theory, they are very apprehensive when it comes to purity of their language, but if you ask them to divulge what they mean behind the terms it immediately collapses under its own contradictions.
Great episode, very illuminating. One issue with the job guarantee program that occurred to me while listening is that Mr. Mosler said it didn’t matter how much the program paid those in it and that it could be a very small amount, well below market wages, but i doubt anyone espousing MMT in the US at this time would be willing to allow anything below $15/hr. I would have liked to hear him explain if the program would be able to persist with such constraints.
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MMT is like playing monopoly when you are also the banker and share the same pot of money. Not how the system was designed, but sure is fun if you are the banker. Plus you have the only gun in case someone tries bringing their own stash from life or something.
is that fair to say?
It strikes me that MMT is a case of of Mistaking the Map for the Terrain: It seems to be based entirely on accounting identities which, while true, misses (and maybe actively avoids) the connection to the real economy.
I was impressed that Mosler acknowledged this as much as he did and addressed resource constraints and the difference between real and notional amounts.
The MMTers who are interested in advising popular politicians and getting on magazine covers seem to me to downplay this. The politicians are more interested in perpetual money machines, not constraints, so if you want to get their ears, just spin your theory to match what they want to hear.
[…] Warren Mosler Defends the Essential Insights of Modern Monetary Theory (MMT) […]
Great interview. I really love the show (and the intro fwiw). Mosler is impressive. The car and ferry are genius. He’s obviously quite successful. In terms of the ideas of MMT, he seems sincere and I appreciate his attempts to provide useful examples. I found it an interesting discussion. However, he simply reinforced the judgment of Rothbard that MMT is not a theory and not worthy of real consideration.
i applaud Mosler for laying out accounting logic. it was a good interview for me to see something challenging the current defunct model. i also think he was implying that parts of the accounting logic will work IF applied in stages. obviously the dynamics of trying to blend logical accounting with human interference is challenging and a hybrid transition in stages may turn out to be better than what isn’t working presently.
Scott T. Fullwiler, “Modern Monetary Theory—A Primer on the Operational Realities of the Monetary System,” Wartburg College; Bard College – The Levy Economics Institute (August 30, 2010).
Note to self: Never listen to this Bob Murphy again. Worst interview I ever heard. After 25 minutes of the life story of the guest and not ONE word about MMT, I shut this off.
I was more impressed with Mosler in this interview than I have been with other MMTers.
The money aspects of MMT that he presented were not terribly controvertible. (There are some things about money that MMTers say that were not discussed here and that I think are quite controversial.)
Now MMTers have many “policy recommendations”–most of which are, at best, tangentially connected to a “monetary theory”–and these are pretty much all arguable, to one degree or another. Some were mentioned in this podcast, and I’ll say that Mosler presented them much more reasonably than other MMTers I’ve heard.