Modern Monetary Theory (MMT) Explained in One Minute

Yes, it's time for one of the most requested videos in the "history" of the channel: the Modern Monetary Theory (aka MMT) one. MMT is also, as you might have guessed, one of the most controversial topics in economics at the moment of writing.

Simply put, all of the ingredients are there for videos about Modern Monetary Theory to generate a fair bit of buzz. On the one hand because, due to the post-pandemic context we find ourselves in, there is undeniable demand for economic "medicine" that promises to fix everything and MMT definitely qualifies.

At the same time, however, many economists doubt that Modern Monetary Theory can deliver on those promises. To put it differently, quite a few economic thinkers consider MMT nothing more than populism articulated by intellectuals rather than politicians.

As you will find out by watching the video, Modern Monetary Theory promotes a far more aggressive approach to currency creation than even Neo-Keynesianism and from many perspectives, can be considered the exact opposite of Austrian Economics. Needless to say, for these reasons and many others, debates surrounding these topics are far too frequently anything but civil.

[OneMinuteEconomics]

GiganticWebsites.com is a project through which I make it possible for people to build truly gigantic websites (thousands of articles each!) at ridiculously low prices. If you have a great domain you want to turn into an amazing website or an existing site you'd like to upgrade/scale, visit our website or check out the One Minute Economics presentation video below:


Please note that this comment is not an ad for a third-party service provider. GiganticWebsites.com is my baby 100% and I will personally be involved in each and every project so as to ensure the website turns out great :)

[OneMinuteEconomics]

If you liked this video, I think you'll love The Age of Anomaly, my Wall Street Journal and USA Today best-selling book about preparing for financial calamities (whatever they may involve). You can buy it over at:

[digaddog]

Judging from your comments on the video, and the video itself, I'm not entirely sure if you know what MMT really is.

MMT is not a set of policies to achieve, it's an observation of how the world is actually run, as they see it. Now maybe you think that they need a new pair of glasses. This is a valid stance to attack from, and the argument I find most compelling against MMT come from.

You, on the other hand, don't appear to be doing that. You don't contest that MMT describes the world wrong, while also believing that MMT implies certain solutions, you also don't seem to have faith in MMT, which is a clear contradiction. If A implies B, and A is uncontested, then B must be true.

I also dislike the notion that MMT is too good to be true. Not as a conclusion, but as an argument. If MMT is the right pair of glasses, and these pairs of glasses show you how to cure cancer, then you shouldn't have a problem with curing cancer unless you already have reason to believe that the glasses are wrong. Imagine if the old doctors argued that washing their hands could reduce deaths by the hundreds according to the theory on germs, and because of that the theory itself must be distrusted because its "too good to be true"

[alexmathai]

Not a very good video for its purported purpose - explaining MMT. You can't explain something solely by raising questions. From what I understand, MMT has answers for those questions. That's what I came here looking for, but you didn't provide any. I understand this is 1 minute economics, but still...

[ivanbrown]

MMT actually tells the way the Fiat Money works. Policy decisions that follow are not MMT.

[Ncbchusuauanansnsn]

I'll try to add some additional perspectives to the complex topic of MMT:

1.) The Federal Reserve becomes redundant with the US Treasury when rates hit 0%. Think about it; a $100 bond which pays no interest is basically a $100 bill. Rates are not exactly at zero, they're at .25%, but when inflation is factored in real interest rates are negative. If inflation is going to be tackled by tax policy versus monetary policy (interest rates) in the future, then keeping the Fed around starts to seem less likely.

2.) The Fed's main mechanism for stimulating the economy is to lower interest rates (i.e. the price of money) which causes asset prices to rise. This economic stimulation disproportionately goes to asset owners, who are often not the ones in need of economic stimulus. Over time, dropping rates to raise asset prices in an economic downturn (called "reflation") drives the wealth gap higher and higher, which eventually reaches a threshold where social unrest becomes more likely. Several democracies in Europe voluntarily gave up being democracies and moved to autocratic regimes in the 1930s; under the right circumstances radical ideas are welcomed, not rejected. This reminds me: I've heard the period that we're in compared to the 1930s in more ways than one, now would be a good time to refresh yourself on the 1930-45 period so that you understand the need to modify monetary systems. Incremental monetary changes today will pay dividends (no pun intended) in the form of a more peaceful and prosperous future.

3.) Bernie Sanders is now the head of the Senate Budget Committee and is a strong supporter of MMT. Janet Yellen is the former Fed chair and is now the US Treasury Secretary. Why would someone with so much monetary policy expertise now be put in chart of fiscal policy? The answer is obvious: The Treasury will be taking over the lead role on money supply from here on out (MMT).

4.) The Fed has largely not been able to achieve its target of 2%+ inflation despite record low interest rates, low unemployment and wage growth (pre-COVID). If the US can't achieve a modest level of inflation, the debt load will eventually lead to larger systemic issues. Inflation is a better alternative to default.

5.) As stakeholder capitalism becomes more mainstream, expect the government to get more involved in the economy (much more than it is now). Having the money printer in the Treasury department (which is basically what MMT does) allows for the government to have the ultimate incentive tool (money) for rewarding businesses that are serving the public's (government's) interests.

Final note: New rules create new opportunities. As the "social contract" evolves, monetary incentives will be there for anyone who is cognizant of, and wishes to contribute to, the changing structure of how things operate. I am personally very optimistic about what the future holds; don't let the growing pains of a transition period overwhelm you with pessimism. The future is bright!

[ljunderground]

Just because it’s working short term doesn’t mean it will long term. No such thing as a free lunch.

[tar]

"Floor it?"
"What? No! Powell, don't do that!"
"Okay! Floor it!"

[alanhehe]

That was a very poor explanation. You didn't even cover taxes thru the MMT lens (Federal taxes don't fund Federal spending) and the only thing theoretical about MMT are its possible applications, like the Federal Jobs Guarantee, which should be separated from the non theoretical explanation MMT provides of how a fiat currency functions within a nation with monetary sovereignty.

[sandysanders]

MMT is not a theory. It explains how the monetary system works. Congress has the ability to issue currency per the Constitution which is implemented by the Fed/Treasury. Inflation is a concern but it depends upon the productivity capacity of the economy. For example, we need more workers in medicine. The costs is rising. If the government funded schools that could train more doctors, nurses, medical staff, costs should go down.
Areas of the economy need to be funded to make the economy more productive, increasing GDP. Funding childcare, education gives people skills & frees up parents to be in the work force.
What happened with FDR, through the 1960s? Keynesian economics not neoliberalism. Workers prospered and wealth gap was not enormous.
Read Dr. Kelton’s book “The Deficit Myth” for a better understanding.

[Basta]

This video is not a true explanation of the theory but an opinionated piece, clearly showing a lack of deep understanding.

MMT says that currency creation is the monopoly of governments, thus, they can never run out so long as they are in charge of their own currency. They can never go bankrupt in the currency that they control. Japan and U.S. will never go bankrupt. Country's that borrow in currency they don't control can go bankrupt like Greece and Argentina.

On a macro level, printing money doesn't lead to inflation if the country is operating less than its productive capacity. For example, if many people are unemployed, stores and restaurants are empty, factories machines are off, farms are sitting fallow. The government can print money and spend it injecting money into the economy, and increasing economic activity without increasing prices up until productive capacity is reached. Ideally, government spends on things that increase productive capacity - education and job training, R&D, infrastructure, etc.

On a sector by sector level, there could be inflation if government spending is bidding for resources in an already hot market while other sectors are cold.

The constraint of MMT is inflation. When a country's economy is at its productive capacity - full employment, factories running all hours, shops and restaurants full, then pumping more money into the economy will lead to inflation because the extra money injected will cause bidding on scarce goods and services.

To combat inflation, governments need to lower the money supply - selling bonds, raising taxes, reducing spending.

Hyperinflation happens when there is too much money relative to productive capacity. In Germany, Zimbabwe, Venezuela, the productive capacity went down relative to money supply. Germany because of war reparation, Zimbabwe by chasing out white farmers, Venezuela when price of oil went below extraction costs.

The value of the currency is all about the country's productive capacity matching with the money supply.

[mesever]

This seem pertty off base from what I've read. MMT points out flaws in how most schools of enconmice believe in how money get's it's value. How money get's it's value is key pillar in how money works. So if money doesn't get it's value they way most school of schools of enconmice says it dose then a lot of the models just fall apart.. most economic will admit they they don't have working models and that economic is a soft science but they don't want to chang ethier their idea on any thing.

[sshine]

"idiocracy was a documentary" --anonymous

[SteveSmith-hocy]

MMT is not coming, it's here. We're all on board this runaway train. This hockey stick graph of printing money, and free-for-all spending cannot be overcome through raising taxes (which would have a negative effect anyway). Expect an inverse hockey stick graph for the value of the dollar, and skyrocketing hyperinflation... it'll be a joy-ride until the runaway train finally crashes, along with all our, and our children's, dreams... Sometime in the, not so distant, future.

[johnrobie]

Sounds like Keynesian 2.0; propped up by faith in the US dollar being the global reserve. Not too smart, IMO...

[diehardAMD]

Tell 1935 Germany that MMT is just a theory.

[autumnb]

As others have said: MMT accurately describes the way the modern monetary system operates. What’s been taught in university economics degrees has been inaccurate or negligent due to omissions. That’s deeply concerning. You should lead with that.

[TheBillyMoon]

This video doesn’t even attempt to explain modern monetary theory it just makes a few points for it. 🤷‍♂️

[autumnb]

You don’t understand MMT. Why didn’t you point out the job guarantee as the primary way of controlling inflation instead of saying it was taxation etc?

[osmbsmy.]

if taxation reduces excess liquidity, why doesn't deficit spending increase it?
If any action can claim, by reducing excess liquidity, to somehow stifle inflation, velocity in the opposite direction encourages it.
There are outright logical incongruencies that pop up when anyone asks, "Given MMT, why not reduce taxes 10%?"