Resource Constrained Macro Economics

I have been an amateur Modern Monetary Theory (MMT) advocate since 2010. Since then, I have made personal connections to other MMT advocates, some are economists in the field, a few that have had testified to Congress on MMT and other matters, written books, worked with individuals in Congress, and have made television appearances and other media including films.

At present, there are three roadblocks that prevent this theory from breaking through to the public. The title of this essay, “Resource Constrained Macroeconomics” instead of “Modern Monetary Theory,” reveals the first. The problem is that in conversation the word “theory” is used to describe a guess based on observation. Technically, we define “theory” as a proven and measured guess. Evolution, gravity, and relativity are examples of proven theories. Since the person who named the theory early in its history called it Modern Monetary Theory, we are stuck with it. I use the resource constraint term because it is a concept that is easy to understand, and it lays an important concept down.

The second roadblock is that whenever I ask to provide a presentation, the hosts always want an explanation of what MMT is. I always get the impression that they expect it to be some taxation policy idea, based on some flavor of capitalism or socialism, or a scheme to empower central banks or eliminate them. Truth is, MMT can be anything they choose. They are the people in charge of the economy.

The third and most potent roadblock is that establishment economists (right, left, capitalist, communist, etc.) circle the wagons. We have models and centuries of experience. And you MMT guys have no clue. They insist that all your ideas have been tried unsuccessfully. Ask yourself this question: if they already know everything, then why do they advocate ideas like raising the price of money and the price of products as a cure for inflation? 

A capital investor initially noted MMT in the US. In his line of work, he noticed that since President Nixon took the US off the gold standard, the operations of the Federal Reserve and the US Treasury were different. He realized the difference, and a NY Federal Reserve Bank director previously noted this. During WW2, the US was off the gold standard at the behest of John Maynard Keynes. It was not MMT, but ending the gold standard allowed for the fiscal capacity to fund WW2.

In New Zealand, an economist, Bill Mitchell, concurrent with the capital investor mentioned earlier, Warren Mosler, also noticed the same phenomenon. These and several other economists gathered together and studied how economies operate. They looked at other fields and created a holistic vision. A critical observation was that a singular commodity such as gold is not the true constraint; instead, available resources are.

MMT was born.

Within a few years, there were many economists and people from other fields putting together a coherent set of variables and how they may affect outcomes. A key variable was the human input of choice. MMT does not prescribe policy, but it reveals the constraints. There is one universal policy that is prescribed by MMT. In the US, the proposed policy is called a Federal Job Guarantee. There are many variations of this policy, but all assure that any individual who wants a job can have a job, at a living wage, with full benefits. That job would be in the community the person lives in—explaining the features of the FJG is also part of an MMT presentation. 

MMT is not a policy to be implemented; it is a set of operations regarding spending and taxation. It is happening today, and as we have learned, it has been happening since money and debt came about. MMT is a lens through which we can discover a path to provide for the general welfare. MMT describes all economies. It is not just in America.