What are some **good-faith** criticisms of Modern Money Theory (MMT)?

For hundreds of bad-faith criticisms of Modern Money Theory (MMT), google “MMT.” These pieces do not reference MMT core works (or any works at all), almost always start with a false premise, and are often snide and filled with ad-hominems. This post contains a few prominent examples of bad-faith criticisms, followed by a rare set of ones written in obvious good-faith – with responses from MMTers where available. With thanks to Christian Reilly of MMT Podcast for the inspiration, and for the Harvey, Harrison, and Muir entries.


These resources were created by Activist #MMT, the podcast (Twitter, Facebook, web, please consider becoming a monthly patron). This post was last updated September 29, 2020.

Disclaimer: I am a layperson who has studied MMT since February of 2018. I’m not an economist or academic and I don’t speak for MMT. The information in this post is my best understanding (especially based on my reading of Wray’s paper and my conversation with Wray about it) but I don’t assert it to be perfectly accurate. In order to ensure accuracy, you should rely on the expert sources linked throughout. If you have feedback to improve this post, please get in touch.

Examples of bad-faith criticisms

Link to tweet, link to article. (Note that Scott Fullwiler is a good person to follow on Twitter for regular debunkings of bad-faith MMT critiques.)

Here is a particularly prominent example of a bad faith criticism, written in February 2019 by self-described “sound finance socialist” Doug Henwood. Here are three responses to Henwood’s piece by prominent MMTers:

  1. Pavlina Tcherneva: “Henwood is tethered to the wealthy by an imaginary umbilical cord. Time to cut the cord. MMT has a profound emancipatory power.”
  2. Co-authored by Scott Ferguson, Nathan Tankus, Rohan Grey, and Raul Carrillo: “For Henwood, the left’s role is merely to argue extra hard for corporations and the wealthy to pay their ‘fair share’ of taxes.”
  3. L. Randall Wray: “Henwood’s posted a critique that amounts to little more than a character assassination. It is what I’d expect of him in his reincarnation as a Neoliberal critic of progressive thought.”

Another questionable criticism of MMT is by mainstream textbook author Greg Mankiw, A Skeptic’s Guide To MMT (2019).

Response by Brian Romanchuk, A Skeptics Guide To Mankiw’s Skeptic’s Guide To MMT]:

The most natural way to approach a body of new theory is to pick up a textbook. It is exactly my mode of operation. The only issue here is that Macroeconomics is an undergraduate textbook…. Correspondingly, I think the implied claim in the title ‘Guide To Modern Monetary Theory’ needs to be viewed to be closer to ‘A Discussion of the MMT Macroeconomics Textbook.’ Since the textbook is an academic work that needs to stand up to scrutiny, this narrowing of focus is legitimate…. I would paraphrase Mankiw’s criticism of MMT as follows: if we assume that neoclassical theory is correct, MMT is either incorrect (where it contradicts neoclassical theory) or trivial.”

Original MMT developer, Australian economist Bill Mitchell. A response to Greg Mankiw – Part 1: “It says very little about MMT. It demonstrates how hard it is for someone deeply locked into a dominant but failing paradigm to think outside the ‘box’ for a while and try to understand that the ideas of a new and emerging paradigm cannot be meaningfully reduced back into the conceptual framework of the failing paradigm that the contender is seeking to usurp.”

Good-faith critiques of MMT

Good-faith critique of MMT by New Zealand economist Steve Keen

From Keen’s May 2018 post, MMT’s ignorance of economic thought:

I do not deny the proposition that “Giving some real thing away is a cost. Getting some real thing is a benefit”: that’s obvious in a materialist world. What I do deny is that this proposition has any relevance to either macroeconomics or trade theory. And I am not the first one to deny this: that honour goes to Karl Marx.

This raises one of my major issues with MMT: advocates know their own economic logic very well, but they seem to have little knowledge of compatible precursors to their views (or even compatible contemporaries, like complexity theory). Consequently, whether they realise it or not, they often end up making arguments that would be right at home in a conventional Neoclassical textbook. These arguments are just as wrong in MMT hands as they are in Neoclassical ones.

The origin of this debate is this May 2018 livestream hosted by Steve Grumbine on Real Progressives, with Keen and MMT founder Warren Mosler. (I believe I watched this live, only three months after discovering MMT myself. I had no idea what I was hearing, but I knew I was listening two greats duking it out.)

This was soon followed by two posts by Bill Mitchell, titled “Trade and external finance mysteries” (parts one and two). To which Keen responded with some preliminary questions. Four days later, Keen wrote a fuller treatment, as quoted above.

Good-faith critique of MMT by British chartered accountant Richard Murphy

Page 138 in this October 2019 edition of the journal real-world economics review, written by UK accountant, Richard Murphy (no relation to Bob) and titled “Tax and modern monetary theory.”

Here is the response to Murphy’s paper by original MMT developer, L. Randall Wray:

Some months ago Richard Murphy had written to me arguing that MMT has not gone sufficiently in depth on the issue of taxes. I thought that was a strange accusation—since most critics argue we talk too much about taxes (as in driving the currency and fighting inflation). Further, I had added a chapter to the second edition of my Modern Money Primer to discuss taxes in more detail—good taxes and bad taxes. But what Murphy meant was taxes at the micro level. I responded that I accept the Musgrave & Musgrave approach (which I had studied—and taught; it is THE source on public finance). He responded that that is not sufficient. I remained puzzled.

But his piece in rwer, “Tax and modern monetary theory”, clarifies his point. And, I must add, in a reasonably respectful manner. Again, this is something we rarely see from critics—who call us fascists and communists (without I suppose recognizing that there’s an ocean of difference between the two—but, then again, the critics aren’t scientists). Richard argues that “cash paid in tax is a residual figure arising from a plethora of decisions on tax bases, reliefs and allowances, as well as tax gaps that result from non-compliant taxpayer behavior”. Recognizing MMT’s argument (based on Ruml) that taxes are not really for revenue purposes, he argues for seeing “use of tax [instead] as a critical instrument in economic and social policy management”. I agree.

My own contribution to the rwer issue actually addresses his first point, that taxes are a residual—what I call (following Keynesian theory) a leakage. They cannot “pay for” anything since the spending must come first. I argue that it is truly amazing that our Post Keynesian critics adopt the leakages and injections approach, recognizing that saving (a leakage) cannot finance investment (an injection) because injections logically come before leakages, but then drop it when they discuss government spending and taxes. The same logic MUST be true of government spending (injection) and taxes (leakage). But they all get “dazed and confused” when it comes to government. They simply abandon any understanding of basic macro theory and jump on the “taxes pay for government spending” bandwagon. Truly bizarre and rather embarrassing too.

In many places I have also discussed the use of taxes for behavioral management (sin taxes, and the like). But Murphy’s article goes deeper than I have in the past. I recommend reading it, and I’m going to incorporate some of his arguments in my future work. I want to be clear—I’m not embracing everything in his article and I’m not convinced that his insights lead to an entirely different (and implicitly presumed to be better?) paradigm, modern taxation theory (MTT). But I’m glad he tried to make a positive contribution.

Good-faith critique of MMT from the Austrian point of view

Austrian economist Bob Murphy, of the Mises Institute, wrote a review of Stephane Kelton’s book, The Deficit Myth. Below is my layperson take on Bob’s review, originally from this thread. I read this after listening to this MMT Podcast interview with TCU economics professor John Harvey, on his book Contending Perspectives (parts one and two). The book is all about comparing and respecting the different major schools of economic thought. (A new version of John’s book is being released August, 2020.)

(It should also be noted that Bob regularly talks to and debates with prominent MMTers such Warren Mosler in 2013 and 2019, and Rohan Grey in July 2020)

This is an excellent article by Bob Murphy, giving the Austrian view of MMT. A very strong critique that (unlike so many others) quotes the core literature and doesn’t resort to strawmen or ad hominem.

(I read it again. Some thoughts.) Aside from strong statements of “MMT and Kelton is really wrong” I don’t find it in any way insulting, and he’s obviously attempting to refute MMT’s own words, as opposed to the strawmen of so many other so-called critiques.

A quote: “Does the reader see how cumbersome the MMT framework is?”

To me, the system is what’s cumbersome, and intentionally so. That MMT’s description is complicated is a reflection of reality, not MMT.

Another quote: “Forget the accounting and look at the big picture: even if the central bank creates a new $10 million and simply hands it to Jim Smith for free, it hasn’t made the community $10 million richer.”

This concept is stated a few times.

MMT doesn’t say “issue currency for its own sake.” As I understand it, MMT (or at least, the preferences of most MMTers) is about the issuer, in its current form, using its power to stop mass suffering (especially via its job guarantee), not “make people richer.”

Finally here’s the one interesting point I think the article makes, although perhaps I’m misunderstanding something.

“Eliminating the national debt” in reality means paying off all bonds. This can be done in the good way or the bad way.

The latter method sucks wealth from the entire non-government sector (as done in 1835 and in the Clinton surpluses), taxing *everyone* in order to pay off the treasuries. The former, as discussed by Kelton and Lonergan in the thread, is just switching digits in a computer.

So only through the “bad” method can all money in the economy be disappeared. I think the confusion comes from conflating the more layperson definition of the national debt (all money spent into the economy and not taxed back, since the country began) with the technical one (all outstanding bonds). I spent well over a year only understanding the layperson definition.

So, in conclusion, it’s a good, and good faith critique. Didn’t convince me in the least :), but I think it’s good to see MMT through a completely different lens.

MMT is the most convincing theory of macroeconomics there is. This review doesn’t change that at all.

Good-faith critique of MMT through a strongly-mainstream lens, by Danish economist Jeppe Druedahl.

From Asker in this Facebook post:

Dirk Ehnts and I have released a new working paper responding to MMT criticism by a Danish economist. He had written a note actually engaging with MMT literature, so we thought it deserved a proper response. Perhaps you will take interest in our paper 🙂

The critique is a March 2019 paper by Danish economist Jeppe Druedahl, of the University of Copenhagen, called A Kinder Egg on MMT (26 pages). It starts off with a section of equations and assumes loanable funds, crowding out, supply-driven demand, and that the issuer is actually not an issuer (among other things) to be axiomatic (that is, unquestionably true). Viewing MMT through this lens obviously gives the appearance that MMT is fundamentally flawed. In my (decidedly-layperson) interpretation, Druedahl is a good-faith deficit dove who wishes to spend for public purpose, as best as is possible through the suffocating (and false) financial constraints inherently imposed onto the central government.

The response is a September 2020 paper by German economist Dirk Ehnts and PhD. student Asker Voldsgaard. It’s called A Paradigm Lost, a Paradigm Regained – A Reply to Druedahl on Modern Monetary Theory (35 pages). The paper discusses why Druedahl’s concerns are largely based on assumptions that do not hold on the real world. (Noting that some of Druedahl’s conclusions are contradictory even within the mainstream lens.) What is required is not better models and maths, but a paradigm shift in economic thinking, effectively turning mainstream understanding on its head. From the paper:

Druedahl (p. 16) advises proponents of MMT to change the mainstream view by at “[t]he minimum [formulate] a long-run forecast of [nine macroeconomic] aggregate variables”, but we believe that this is not how science works. MMT is a scientific paradigm that can only replace the New Keynesian paradigm, not change it using its own methodology. Rather than a sudden shift based on a crucial experiment or a scientific revolution, “what normally happens is that progressive research programmes replace degenerating ones” (Lakatos, 1978, p. 6).

After summarizing MMT and how it rejects several critical mainstream assumptions, Ehnts and Voldsgaard go especially in depth on the false theory of crowding out. (Related post: Government deficits *augment* private spending. (There’s no such thing as “crowding out.”).)


Top image: From Clker-Free-Vector-Images on Pixabay (license)