Bill Mitchell: Demystifying Modern Monetary Theory

Summary

In this insightful discussion, Professor Bill Mitchell, a prominent figure in Modern Monetary Theory (MMT), explains the basic principles of MMT, emphasizing that a government issuing its own currency cannot go broke and should focus on reducing unemployment and advancing public welfare. He critiques the orthodox economic view of fiscal sustainability and the unnecessary issuance of government debt, advocating for a job guarantee program to utilize unemployed labor as a buffer stock, addressing unemployment and stabilizing the economy.

Takeaways

• 📚 Bill Mitchell, a professor of Economics at the University of Newcastle, is considered a leading proponent of Modern Monetary Theory (MMT) and is believed to have coined the term.
• 💡 MMT is a set of ideas based on the fundamental macroeconomic principle that spending equals income, and every dollar spent is someone's income, emphasizing the intrinsic link between spending and economic prosperity.
• 🔄 The theory criticizes the orthodox economic view that fiscal contractions can lead to economic expansions, citing historical examples like Europe and Japan where such policies led to downturns.
• 💼 MMT asserts that a government that issues its own currency and controls monetary policy can never go broke and should not be constrained by fiscal sustainability arguments prevalent in orthodox economics.
• 🌐 It distinguishes between countries within the Euro Zone, which cannot issue their own currency and thus can run out of money, and sovereign currency-issuing countries that theoretically cannot.
• 🏦 The theory dispels the myth that governments should issue debt, arguing that issuing debt to private bond markets is corporate welfare and not necessary for currency-issuing governments.
• 💡 MMT emphasizes that all spending carries an inflation risk, not just government spending, and that inflation is more likely when there is idle capacity in the economy that can be put to use.
• 🛠️ The Job Guarantee program, an idea advocated in MMT, proposes that the government can act as an employer of last resort, providing a fixed wage job to anyone willing and able to work, effectively using employment as a buffer stock.
• 🔄 The Job Guarantee would stabilize the economy by providing a steady income and preventing the loss of skills during unemployment, while also setting a minimum deficit level during downturns to stimulate employment.
• 🌐 MMT argues that the government always chooses the unemployment rate and that full employment can be achieved if the government is willing to implement policies like the Job Guarantee.
• 🌟 The interview highlights the potential of MMT to address unemployment and promote economic stability, challenging the status quo and offering alternative economic policies.

Q & A

Who is Bill Mitchell considered to be in the field of economics?

Bill Mitchell is considered to be one of the leading proponents of Modern Monetary Theory (MMT), and he is believed to have coined the name of the theory.

What is the fundamental principle of Modern Monetary Theory (MMT) according to Bill Mitchell?

The fundamental principle of MMT, as outlined by Bill Mitchell, is that a government which issues its own currency and controls monetary policy can never go broke, and spending equals income for every dollar spent is someone's income.

How does Bill Mitchell view the concept of fiscal contractions leading to economic expansion?

Bill Mitchell argues that the idea of fiscal contractions leading to economic expansion violates the basic rule of macroeconomics. He believes that spending is intrinsically linked to prosperity and employment, and thus, cutting spending will not lead to economic growth.

What does Bill Mitchell believe is a myth regarding government spending and inflation?

Bill Mitchell identifies the myth that government spending will inevitably lead to hyperinflation, similar to what happened in Zimbabwe or the Weimar Republic. He points out that such hyperinflations were due to extreme circumstances and not just excessive money printing.

Why does Bill Mitchell argue that a sovereign government should not issue debt?

According to Bill Mitchell, a sovereign government that issues its own currency does not need to issue debt because it can never run out of money. He sees government-issued debt as corporate welfare, providing a risk-free asset to the private sector.

What is the role of the Job Guarantee Program in MMT as explained by Bill Mitchell?

The Job Guarantee Program in MMT, as explained by Bill Mitchell, is a scheme where the government provides a fixed-price job to anyone willing to work at the bottom of the private sector wage structure, ensuring full employment and a stable income for all.

How does Bill Mitchell respond to the criticism that MMT ignores inflationary concerns?

Bill Mitchell acknowledges that all spending carries an inflation risk, but he argues that the constraints on a government's fiscal position are real resource constraints, not financial ones. He emphasizes that MMT is about ensuring that spending aligns with available resources and the state of the private sector.

What is the significance of the 'buffer stock' concept in MMT as discussed by Bill Mitchell?

The 'buffer stock' concept in MMT, as discussed by Bill Mitchell, refers to the idea of using employment as a buffer to stabilize the economy. The government can absorb excess labor during downturns and release it back into the private sector when demand increases.

How does Bill Mitchell view the current obsession with financial ratios like deficit to GDP?

Bill Mitchell criticizes the current obsession with financial ratios, stating that such ratios are irrelevant to a currency-issuing government. He believes that fiscal policy should focus on reducing idle capacity and advancing public purpose, rather than adhering to arbitrary financial targets.

What is Bill Mitchell's perspective on the role of government in managing unemployment?

Bill Mitchell asserts that the government always chooses the unemployment rate and that it has the power to employ people within a short period. He advocates for policies that eliminate unemployment and improve the well-being of society.

How does Bill Mitchell describe the impact of unemployment on individuals and society?

Bill Mitchell describes the impact of unemployment as a dramatic loss, not just in terms of income but also in terms of mental health, family breakdown, and other social issues. He believes that any system that reduces unemployment would be a significant improvement over the current situation.