The segment was hosted by the new 2020 regular of The Weekly, Luke McGregor, under the banner Lukenomics. The 37 year-old Tasmanian comedian reportedly has “a Bachelor of Economics, with a major in public policy”, “used to be a business analyst” and purportedly “has finally found a use for his Economics degree”.
The MMT piece runs for almost 5 minutes, starting with a short introduction by Pickering about how, “the government has been spending a lot lately” on welfare and warfare. He then throws it to McGregor after asking, “Can the Australian government run out of money?” McGregor’s short answer was, “no, they can’t”.
His longer answer was as follows:
1. “Government is not like a household. A household has a certain amount of money and, if they want to spend more than that, they have to borrow it.” “Government, however, can spend currency into existence [or more specifically] can spend an unlimited amount of Australian dollars into existence.”
2. “What do I mean by spend into existence? I’m now going to talk to you about the very sexy sounding Modern Monetary Theory.”
3. “MMT follows that a government that issues its own currency, like Australia with the Aussie dollar, US, Japan, these governments won’t run out of money the way a household can.”
4. “It’s not so much that the government doesn’t have to pay for stuff. It’s more that the government doesn’t needour taxes to pay for stuff.”
5. “The RBA will never bounce a government cheque, because as MMT states, the government can create currency. It’s just changing numbers on a screen.”
6. So if the government can create currency, is there a limit on how many Aussie dollars the government can spend? According to MMT, no. There are consequences, but no limits. You want fully funded health care? You got it!”
7. “What’s the catch? Inflation! If the government spends so much that it overheats the economy, we risk increasingly higher prices. What’s important to remember though, is that government spending doesn’t cause inflation directly.”
8. Now, let’s say JobKeeper was suddenly raised to a billion dollars a week each, and this led to people spending faster than the economy could churn out stuff they wanted to buy, then we could see prices increase. But only if the economy couldn’t churn out stuff fast enough.
9. “So if the government can create currency to pay for things, why do we need taxes? Well, according to MMT, taxes serve several purposes. One, taxes create a demand for the government’s currency, in our case the Aussie dollar. Two, taxes are a way to change behaviour, like a tax on cigarettes. Three, taxes can decrease spending to help control inflation.”
10. “So taxes take Aussie dollars out of the economy, and government spending puts Aussie dollars back in. So deficits boost economic activity, and a surplus slows it down. Neither one of them is good or bad. That’s just the impact they have.”
11. “MMT has its critics, but it doesn’t have feelings so it’ll be fine.”
12. “What’s exciting about MMT is that it highlights the underutilised powers that government has, through the use of its currency, to maximise the quality of life of its citizens.”
Australian economics professor Bill Mitchell, of the Centre of Full Employment and Equity (CofFEE) at the University of Newcastle, is one of the world’s leading experts in, and advocates for, MMT. On the next day of July 23rd, Professor Mitchell had a blog entry entitled Lukenomics casts its expert eye over Modern Monetary Theory (MMT) in which he stated:
“A few weeks ago, I was sent a script for [this] segment and asked to give input. The first iteration was already terrific and after a few more iterations, it was in great shape – representing [MMT] faithfully and pointedly.”
The crucial exception to McGregor representing MMT faithfully is the way he brushes aside in one throwaway line, “MMT has its critics and it’ll be fine.”
Well, actually, Luke and Bill, MMT has many critics. Not just on the right or centre, but on the left too. And, actually, Luke and Bill, it is not fine for MMT.
The Real Problems with MMT
One of the best and brightest critics of MMT is Dr Bob Murphy. He is with the Mises Institute, the world’s number one home for the Austrian school of economics. He provided the following critique in two pieces, one entitled The Upside-Down World of MMT (ie points 1 to 4 below) and the other, in an even deeper dive, of A Review of Stephanie Kelton’s The Deficit Myth (points 5 onwards below). The latter is especially important because, as the president of Mises, Jeff Deist, wrote, this book by former Bernie Sanders advisor Professor Kelton, with the subtitle of Birth of the People’s Economy, is MMT’s “new bible”. Dr Murphy counters the MMTers as follows:
1. “MMT is not the same thing as neo-Keynesian economics, as expounded by the likes of Paul Krugman. In fact, Krugman has actively criticized the MMTers himself.” In fact, “MMT is linked to the older doctrine of chartalism” ie that money derives from government fiat not from the market’s solution to barter.
2. “The national accounts concept underpins the basic income-expenditure model at the heart of” MMT, where “C + S + T = C + I + G + (X – M)”. These “accounting tautologies” get reduced to “G – T = S – I” or in other words “Government Budget Deficit = Net Private Saving”.
[C = consumption. S = saving. T = taxation. I = investment. G = government. X = exports. M = imports.]
3. But “I can use [G – T = S – I] to underscore the familiar ‘crowding out’ critique of government deficit spending.” Moreover “something is very fishy”. “The error crept in at step one, with the equation” by even including T and G in the first place as “market exchange” and “value”. “Of course you don’t need the Government in order to save”.
4. “Government spending programs merely return resources to the private sector that had previously been taken from it, [and] there are three methods by which this taking occurs: taxation, borrowing, and inflation. … Government borrowing can be considered merely deferred taxation, while inflation is merely hidden taxation.”
5. Thus, “the fundamental problem with [MMT]: regardless of what happens to the ‘price level’, monetary inflation transfers real resources away from the private sector and into the hands of political officials.”
6. “And it’s not merely that inflation is equivalent to taxation. Because it’s harder for the public to understand what’s happening when government money printing makes them poorer, there is a definite sense in which standard taxation is ‘honest’ whereas inflation is insidious.”
7. Plus “the printing press allows the government to get away with spending that the public would never agree to explicitly pay for through straightforward tax hikes.”
8. “MMT theorists argue that inflation isn’t a problem right now in the US and other advanced economies and so we don’t need to be shy about cranking up the printing press. But whether or not the Consumer Price Index is rising [or not], it is a simple fact that when the government prints an extra $1 million to finance spending, then prices (quoted in [their currency]) are higher than they otherwise would have been, and people holding [their currency]-denominated assets are poorer than they otherwise would have been.”
9. “[So called] idle capacity in the economy doesn’t just fall out of the sky, but is instead the result of the malinvestments made during the preceding boom. So if we…crank up the printing press in an attempt to put those unemployed resources back to work, it will simply set in motion another unsustainable boom/bust cycle.” Not to mention “government projects financed by inflation won’t merely draw on resources that are currently idle.”
10. Professor Kelton asserts that “countries with a ‘high degree of monetary sovereignty’ include the US, Japan, the UK, Australia, Canada, and many more.” Yet “the reason most governments (including state governments in the US [and Australia]) in the world aren’t ‘monetary sovereigns’ is [the worry] that they would abuse a printing press.” And “ironically, current monetary sovereigns would run the risk of forfeiting their coveted status if they actually followed [MMT].”
11. “Another central mistake in the MMT approach is its theory of the origin and value of money.” Kelton, for one, believes: “Taxpayers werenʼt funding the government; the government was funding the taxpayers.” “The only problem is that it’s demonstrably false. It is simply not true that dollars were invented when some autocratic ruler out of the blue imposed taxes on a subject population, payable only in this new unit called ‘dollar’. … All of the countries that currently enjoy monetary sovereignty have built their economic strength and goodwill” on the ‘back’ of the gold standard.
12. “The MMT story at best only explains why a currency has a nonzero value; it doesn’t explain the actual amount of its purchasing power. So the MMT claim that taxes are necessary, not to raise revenue (we have a printing press for that), but to prop up the value of the currency, is at best seriously misleading.”
13. “Amazingly, even though their system claims to explain how money works, the MMTers apparently don’t know the simple difference between money and debt. Borrowing money per se doesn’t create money. You can’t spend government bonds in the grocery store. That’s why money and debt are different things.”
Before concluding, let’s look at two of the most relevant statistics to this discussion:
- Australian money supply aggregates (MSA) in Chart 1 further below; and
- Australian consumer price index (CPI) in Chart 2 below that.
- M0 as “currency”;
- M1 as M0 plus “bank current deposits from the private non-bank sector”; and
- M3 as M1 plus “all other authorised deposit-taking institution (ADI) deposits from the private non-ADI sector, plus certificates of deposit issued by banks, less ADI deposits held with one another.”
Chart 1 clearly shows massive increases in money, including an almost doubling of M1 since 2012 and a nearly tripling of M3 since 2007. That certainly doesn’t seem to fit the MMT narrative that the federal government has been holding back. Although it only accounts for about 40% of the economy’s prices, CPI, despite all of its shortcomings, also doesn’t help the MMT case as it has gone up significantly by around 30% since 2007, as can be seen in Chart 2 (not to mention the large rise of 110% overall since the end of the US gold standard in 1971).
In conclusion, to quote the title of a recent article by Jeff Deist of the Mises Institute:
“MMT: Not Modern, Not Monetary, Not a Theory.”
What it is:
“The promise of something for nothing.”
What Lukenomics was doing was simply providing a comedic face for this ugly truth.
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Darren Brady Nelson is an Austrian school economist who has mainly worked in Australia & the USA for TV shows, newspapers, think tanks, regulators, politicians, governments & NGOs. This recently includes an Australian Senator & American President. He is the chief economist at LibertyWorks, associate scholar with the Center for Freedom and Prosperity and policy advisor to the Heartland Institute. He blogs and posts at LinkedIn where he has built up a following of 26k in the last year.