In New Zealand we produce enough food to feed about 40 million people. Our population is about 5.5m. We have seen foodbanks unable to keep up with demand for free food parcels as people struggle to afford increased food prices on top of rising rents and electricity.
One of our largest export categories is dairy, which is primarily controlled by one company, Fonterra, which is a farmer-owned co-op. Because the export price of butter is very high at the moment, the local retail price of butter has risen by 67% in the past year, to around $20 per kg. Although I am a keen baker and can afford the prices, I have been reducing my purchasing because it seems a ridiculous price for a basic staple.
How can MMT help to ensure that people living in countries with high export prices also can afford to feed their families?
Good question AnaC. This article it points out that exports are not a drag on growth (as the orthodox economist say they are) and tells us that that government finances for countries like New Zealand are not limited. It will be resources that are limited: how limited they are may well be related to the price increases.
I don't know the cause of high butter and dairy prices: I can only speculate. Perhaps there is a domestic shortage? Or is this just price gouging? Or are you saying that the high prices are connected to the fact that they are exporting milk and butter?
If peopel are using food banks the clearly the government is no doing a good job: there is no need for people to be in that level of poverty when the government has the finances to improve everyone's circumstances. I don't know New Zealand - is the government running unecessary austerity policies?
Domestic dairy prices are set according to the international dairy price - in some cases we pay more for our butter here than it is sold for overseas. This is a policy decision by Fonterra. One commercial bakery has resorted to buying in butter from Australia because it is cheaper than local supply. To be clear, there is no shortage of butter in NZ, but we are forced to pay the global price even though local consumption is a fraction of the total butter produced by Fonterra.
High cost of food is exacerbated by lack of competition in retail, with only two major supermarket companies controlling grocery sales, and price matching each other (one will put prices up and the other follows).
The Government chose to give tax cuts to the wealthy and landlords, and paid for this by cutting public services (health, education, public transport, etc). They also cancelled bipartisan pay equity legislation to "save the budget" about $12b, which will cost future increases for at least 180,000 workers (mainly women) working in low paid jobs such as nursing, education, aged care, etc. This was done without consultation and legislation passed under urgency without scrutiny.
The government should bring in legislation to stop this kind of abuse. MMT points out that this 'save the budget' stuff is political and nothing to do with the idea that the govenment can't afford to do what it needs to do. A government that issues its own currency can purchase anything that is for sale in that currency. And that includes nurses, teachers, bus drivers, hospitals, shools and buses - and the rest...
The government is run by a party that gained only 8% of the vote, because the major coalition partner either wants the same things, or is too weak to prevent it.
That (minority rule) is the root problem in question, not the dairy price. We have a corrupt unfit electoral system. First Past the Post was (bitter irony) probably superior — but I do not like FPP either, I'd prefer a cumulative vote system, and no partisan political parties at all, they are an anachronism from a bygone age when citizens could not easily discover their candidates policy preferences.
I fear the solution people do not want to hear is civil disobedience to an undemocratic government. It is a long road to travel. Sorry to say. But we can begin with better educating our children in principles of civics along with MMT awareness.
You are right. I'm a long-term advocate of life-long eduction paid for by the state. And closing down private schools: which in the UK are the root of maintaining privilege and inequality.
I think another problem in New Zealand, as in many other countries, is that artificial constraints have been placed on government spending, baking neoclassical economic assumptions into legislation. New Zealand’s Public Finance Act is a case in point. Most people do not understand that these are political choices rather than necessities.
MMT does not help nor not help, it is the description of the monetary system. But the *understanding* of MMT helps enormously. With that understanding political decision makers can always choose to do the right thing to eliminate all dire poverty overnight, up to our nation's real resource limits.
We already have an NZ MMT system. So you see right there MMT _per se_ is not helping. It is the human being's willingness to learn and use the capacity of the government that does the heavy lifting.
In the case of dairy prices, if we do not have substitutes available, the government can do numerous things to reduce the domestic dairy product price. It is not determined by the export price. Subsidies for consumers, ration systems, or taxes & fines on monopolies like Fonterra, and many other policy options exist once a politician understands MMT.
Intervening in the market with such policy is not necessarily an inefficiency, the rise of the Fonterra monopoly is already the market distortion, and government policy can go a long way to flattening the market so it becomes fair, and people can afford basic essentials without needing a bank credit card.
The high export price is only painful to you (and me) because we are run by neoliberals who do not understand that not all things should be for sale, and not all commodities should be subject to laissez-faire policy.
Also, where is there a "country without monetary sovereignty"? I do not know of any.
The decision of nation-X to employ a foreign currency is exercise of X-sovereignty, of the completely stupid type. It can be reversed overnight by policy to switch to a domestic tax credit. Where did the "absence of sovereignty" disappear to? Nowhere, it was all psychological.
I respectfully disagree, and this is not just to be pedantic, I think Fadhel does us a disservice, but allow me to try to explain why later, I am busy today.
What his framing promotes is an ultra-nationalism framing, which I am sure he does not intend to promote. The concept of "sovereign" is a highly regressive notion (imho). I do not use it if I can avoid it. I want Scotland to be independent of England politicians for sure. But all you need is legislative freedom. You do not need to be making your own milk & bread. MMT is precisely why I am right, and Fadhel is silly. ;-)
You don't need to make your own milk or bread but you need control over your own policies. If importing bread and milk gives control of your policies to another country, that's a problem. The world sovereignty - isn't a word exclusively attached to countries or nations - it's a general word that means control, authority, or autonomy. It's not related to the negative meanings associated with nationalism - unless it is being used for that purpose in a particular context. For example, personal sovereignty is the idea that an individual has control over their own body and choices.
I dispute the idea that Fadhel's framing promotes an 'ultra-nationalism framing'. He is writing about countries that are still fighting against the control their past colonies still have over their economies. Other countries that are still exploiting them and their resources. These countries have not escaped control by their past colonisers.
**Payments Growth Constraint’ – and Why It Doesn’t Apply to Monetary Sovereign Governments**
---
### Introduction
Byrne’s article offers a clear and accessible introduction to a central Modern Monetary Theory (MMT) critique of conventional international trade economics: that the **Balance-of-Payments Growth Constraint (BPGC)** does *not* apply to countries that issue their own currency and allow it to float. The core message is straightforward: **monetary sovereignty changes the rules.** Countries like the U.S., U.K., and Australia don’t need to earn foreign currency before they can spend or grow. They face **real resource limits**, not financial ones.
The article walks readers through both the conventional BPGC logic and the MMT rebuttal. The goal is educational, and in that respect, the report succeeds. However, while the theoretical framework is sound in principle, the treatment glosses over practical, political, and ecological realities. This critique aims to surface those missing dimensions.
---
### 💡 What the Article Gets Right
#### 1. **Monetary Sovereignty Really Does Change the Game**
Byrne’s article accurately states that the traditional BPGC model assumes countries must *earn* foreign currency to import, or else risk insolvency. This is true under fixed exchange rate regimes or currency pegs. But for countries with floating exchange rates and sovereign currencies, that financial constraint is fundamentally different.
#### 2. **Trade Deficits Are Not Inherently Dangerous**
The report highlights that countries like Australia and the U.S. have maintained trade deficits for decades without suffering currency collapse or hyperinflation. This challenges conventional narratives that associate trade imbalances with imminent financial crisis.
#### 3. **Imports as a Real Benefit**
MMT’s provocative framing—that **imports are real gains** and **exports are real costs**—is clearly explained. This flips mainstream assumptions and focuses attention on the material standard of living rather than nominal balances.
#### 4. **Real Resource Constraints Matter More Than Financial Ones**
The article effectively emphasizes that **productive capacity**, not foreign exchange balances, is the true limit on economic growth for monetary sovereigns. The key challenge is mobilizing idle labor and real resources—not balancing external accounts.
---
### 🧩 What’s Missing or Oversimplified
#### 1. **Sovereignty ≠ Immunity**
Floating exchange rates offer flexibility, not invincibility. The article implies that currency depreciation is mostly benign. However:
* **Import prices still rise**, especially for energy and food.
* **Depreciation can worsen inequality**, as lower-income groups spend a larger share of their income on essentials.
* **Currency speculation** and capital flight can destabilize even floating currencies.
Although inflation and the 2022 UK mini-budget crisis are mentioned, the analysis underplays how market confidence can erode even sovereign fiscal space.
#### 2. **Distributional Effects of Trade Deficits Are Ignored**
While MMT argues that trade deficits improve overall consumption, the **distribution of benefits and harms** is not addressed. Industrial decline, offshoring, and regional disinvestment can harm specific sectors or communities—even as urban consumers enjoy cheaper goods.
#### 3. **The Politics of Sovereignty Are Real Constraints**
Even if a country is not financially constrained, it may act as if it is. The article overlooks how:
* **Ideology**, such as deficit aversion or inflation fear, limits spending.
* **Institutions**, like independent central banks or trade treaties, restrict policy options.
* **Global pressures**, including credit ratings and foreign investor sentiment, shape policy behavior.
Monetary sovereignty on paper doesn’t guarantee courageous or effective policy in practice.
#### 4. **Strategic and Ecological Dependencies Are Unaddressed**
The article treats imports as net gains but omits discussion of:
* **Strategic vulnerabilities**, such as dependence on foreign energy, semiconductors, or pharmaceuticals.
* **Ecological impacts**, where offshoring production might lower domestic emissions but worsen global ones.
* **Crisis resilience**, where overly globalized supply chains can fail under pressure.
The risks of trade dependence in a multipolar, unstable world deserve more attention.
#### 5. **Inflation Management Is More Complex Than Framed**
While the article rightly identifies supply-side bottlenecks as key drivers of inflation, managing these issues is not always quick or easy:
* **Expectations, wages, and feedback loops** matter, especially in politically sensitive sectors.
* **Public investment takes time** and may face implementation bottlenecks.
* **Exchange rate depreciation** can have rapid, disruptive effects on inflation and public confidence.
The claim that inflation can be easily addressed with targeted fiscal policy deserves deeper exploration.
---
### 🔚 Conclusion: A Valuable Correction, But Not the Full Story
Byrne’s article is an excellent primer on the MMT perspective and a strong rebuttal to outdated fears about trade deficits and sovereign insolvency. It provides a clear alternative to conventional macroeconomic narratives and makes the case that **real resources**, not foreign exchange, constrain growth for countries with monetary sovereignty.
But by leaning too heavily on theory, the analysis underplays the importance of **power, politics, and practical limits**. Sovereignty is not just a technical condition—it’s a contested terrain shaped by institutions, interests, and ideology. Floating exchange rates reduce constraints, but they do not remove them.
A comprehensive view of economic sovereignty must consider who gains, who loses, and what shocks can still undermine even the best-designed fiscal frameworks.
---
### 📌 Key Takeaways
* **Monetary sovereignty reduces external constraints, but does not eliminate risk.**
* **Trade deficits benefit some groups while harming others—distribution matters.**
* **Political and institutional constraints limit the practical use of sovereign policy space.**
* **Strategic and ecological dependencies make import reliance more fragile than it seems.**
* **Inflation is more than supply bottlenecks—it’s shaped by expectations, power, and global shocks.**
---
**Source**:
*Byrne’s article, “International Trade: Understanding the Logic of the ‘Balance-of-Payments Growth Constraint’ – and Why It Doesn’t Apply to Monetary Sovereign Governments,”*
In New Zealand we produce enough food to feed about 40 million people. Our population is about 5.5m. We have seen foodbanks unable to keep up with demand for free food parcels as people struggle to afford increased food prices on top of rising rents and electricity.
One of our largest export categories is dairy, which is primarily controlled by one company, Fonterra, which is a farmer-owned co-op. Because the export price of butter is very high at the moment, the local retail price of butter has risen by 67% in the past year, to around $20 per kg. Although I am a keen baker and can afford the prices, I have been reducing my purchasing because it seems a ridiculous price for a basic staple.
How can MMT help to ensure that people living in countries with high export prices also can afford to feed their families?
Good question AnaC. This article it points out that exports are not a drag on growth (as the orthodox economist say they are) and tells us that that government finances for countries like New Zealand are not limited. It will be resources that are limited: how limited they are may well be related to the price increases.
I don't know the cause of high butter and dairy prices: I can only speculate. Perhaps there is a domestic shortage? Or is this just price gouging? Or are you saying that the high prices are connected to the fact that they are exporting milk and butter?
If peopel are using food banks the clearly the government is no doing a good job: there is no need for people to be in that level of poverty when the government has the finances to improve everyone's circumstances. I don't know New Zealand - is the government running unecessary austerity policies?
Domestic dairy prices are set according to the international dairy price - in some cases we pay more for our butter here than it is sold for overseas. This is a policy decision by Fonterra. One commercial bakery has resorted to buying in butter from Australia because it is cheaper than local supply. To be clear, there is no shortage of butter in NZ, but we are forced to pay the global price even though local consumption is a fraction of the total butter produced by Fonterra.
High cost of food is exacerbated by lack of competition in retail, with only two major supermarket companies controlling grocery sales, and price matching each other (one will put prices up and the other follows).
The Government chose to give tax cuts to the wealthy and landlords, and paid for this by cutting public services (health, education, public transport, etc). They also cancelled bipartisan pay equity legislation to "save the budget" about $12b, which will cost future increases for at least 180,000 workers (mainly women) working in low paid jobs such as nursing, education, aged care, etc. This was done without consultation and legislation passed under urgency without scrutiny.
The government should bring in legislation to stop this kind of abuse. MMT points out that this 'save the budget' stuff is political and nothing to do with the idea that the govenment can't afford to do what it needs to do. A government that issues its own currency can purchase anything that is for sale in that currency. And that includes nurses, teachers, bus drivers, hospitals, shools and buses - and the rest...
The government is run by a party that gained only 8% of the vote, because the major coalition partner either wants the same things, or is too weak to prevent it.
That (minority rule) is the root problem in question, not the dairy price. We have a corrupt unfit electoral system. First Past the Post was (bitter irony) probably superior — but I do not like FPP either, I'd prefer a cumulative vote system, and no partisan political parties at all, they are an anachronism from a bygone age when citizens could not easily discover their candidates policy preferences.
I fear the solution people do not want to hear is civil disobedience to an undemocratic government. It is a long road to travel. Sorry to say. But we can begin with better educating our children in principles of civics along with MMT awareness.
You are right. I'm a long-term advocate of life-long eduction paid for by the state. And closing down private schools: which in the UK are the root of maintaining privilege and inequality.
I think another problem in New Zealand, as in many other countries, is that artificial constraints have been placed on government spending, baking neoclassical economic assumptions into legislation. New Zealand’s Public Finance Act is a case in point. Most people do not understand that these are political choices rather than necessities.
MMT does not help nor not help, it is the description of the monetary system. But the *understanding* of MMT helps enormously. With that understanding political decision makers can always choose to do the right thing to eliminate all dire poverty overnight, up to our nation's real resource limits.
We already have an NZ MMT system. So you see right there MMT _per se_ is not helping. It is the human being's willingness to learn and use the capacity of the government that does the heavy lifting.
In the case of dairy prices, if we do not have substitutes available, the government can do numerous things to reduce the domestic dairy product price. It is not determined by the export price. Subsidies for consumers, ration systems, or taxes & fines on monopolies like Fonterra, and many other policy options exist once a politician understands MMT.
Intervening in the market with such policy is not necessarily an inefficiency, the rise of the Fonterra monopoly is already the market distortion, and government policy can go a long way to flattening the market so it becomes fair, and people can afford basic essentials without needing a bank credit card.
The high export price is only painful to you (and me) because we are run by neoliberals who do not understand that not all things should be for sale, and not all commodities should be subject to laissez-faire policy.
Also, where is there a "country without monetary sovereignty"? I do not know of any.
The decision of nation-X to employ a foreign currency is exercise of X-sovereignty, of the completely stupid type. It can be reversed overnight by policy to switch to a domestic tax credit. Where did the "absence of sovereignty" disappear to? Nowhere, it was all psychological.
Hi Bijou, check out my article, Bare-Bones Guide to Monetary Sovereignty – Some Countries Have It, Others Have Very Little or None:
https://mmt101.substack.com/p/your-bare-bones-guide-to-monetary?r=3r8qcn
Here is my full comment: (in two parts)
https://bijou.substack.com/p/king-tong-say-our-people-goto-factory?r=3hsqj
https://bijou.substack.com/p/battle-royales-round-ii?r=3hsqj
Hope it helps!
:)
I respectfully disagree, and this is not just to be pedantic, I think Fadhel does us a disservice, but allow me to try to explain why later, I am busy today.
What his framing promotes is an ultra-nationalism framing, which I am sure he does not intend to promote. The concept of "sovereign" is a highly regressive notion (imho). I do not use it if I can avoid it. I want Scotland to be independent of England politicians for sure. But all you need is legislative freedom. You do not need to be making your own milk & bread. MMT is precisely why I am right, and Fadhel is silly. ;-)
You don't need to make your own milk or bread but you need control over your own policies. If importing bread and milk gives control of your policies to another country, that's a problem. The world sovereignty - isn't a word exclusively attached to countries or nations - it's a general word that means control, authority, or autonomy. It's not related to the negative meanings associated with nationalism - unless it is being used for that purpose in a particular context. For example, personal sovereignty is the idea that an individual has control over their own body and choices.
I dispute the idea that Fadhel's framing promotes an 'ultra-nationalism framing'. He is writing about countries that are still fighting against the control their past colonies still have over their economies. Other countries that are still exploiting them and their resources. These countries have not escaped control by their past colonisers.
---
## Why Monetary Sovereignty Doesn’t Solve Everything
**Floating currencies give countries more room to grow—but not a free pass on trade deficits.**
---
[https://substack.com/home/post/p-167092884](https://substack.com/home/post/p-167092884)
**Jim Byrne Article**
**Payments Growth Constraint’ – and Why It Doesn’t Apply to Monetary Sovereign Governments**
---
### Introduction
Byrne’s article offers a clear and accessible introduction to a central Modern Monetary Theory (MMT) critique of conventional international trade economics: that the **Balance-of-Payments Growth Constraint (BPGC)** does *not* apply to countries that issue their own currency and allow it to float. The core message is straightforward: **monetary sovereignty changes the rules.** Countries like the U.S., U.K., and Australia don’t need to earn foreign currency before they can spend or grow. They face **real resource limits**, not financial ones.
The article walks readers through both the conventional BPGC logic and the MMT rebuttal. The goal is educational, and in that respect, the report succeeds. However, while the theoretical framework is sound in principle, the treatment glosses over practical, political, and ecological realities. This critique aims to surface those missing dimensions.
---
### 💡 What the Article Gets Right
#### 1. **Monetary Sovereignty Really Does Change the Game**
Byrne’s article accurately states that the traditional BPGC model assumes countries must *earn* foreign currency to import, or else risk insolvency. This is true under fixed exchange rate regimes or currency pegs. But for countries with floating exchange rates and sovereign currencies, that financial constraint is fundamentally different.
#### 2. **Trade Deficits Are Not Inherently Dangerous**
The report highlights that countries like Australia and the U.S. have maintained trade deficits for decades without suffering currency collapse or hyperinflation. This challenges conventional narratives that associate trade imbalances with imminent financial crisis.
#### 3. **Imports as a Real Benefit**
MMT’s provocative framing—that **imports are real gains** and **exports are real costs**—is clearly explained. This flips mainstream assumptions and focuses attention on the material standard of living rather than nominal balances.
#### 4. **Real Resource Constraints Matter More Than Financial Ones**
The article effectively emphasizes that **productive capacity**, not foreign exchange balances, is the true limit on economic growth for monetary sovereigns. The key challenge is mobilizing idle labor and real resources—not balancing external accounts.
---
### 🧩 What’s Missing or Oversimplified
#### 1. **Sovereignty ≠ Immunity**
Floating exchange rates offer flexibility, not invincibility. The article implies that currency depreciation is mostly benign. However:
* **Import prices still rise**, especially for energy and food.
* **Depreciation can worsen inequality**, as lower-income groups spend a larger share of their income on essentials.
* **Currency speculation** and capital flight can destabilize even floating currencies.
Although inflation and the 2022 UK mini-budget crisis are mentioned, the analysis underplays how market confidence can erode even sovereign fiscal space.
#### 2. **Distributional Effects of Trade Deficits Are Ignored**
While MMT argues that trade deficits improve overall consumption, the **distribution of benefits and harms** is not addressed. Industrial decline, offshoring, and regional disinvestment can harm specific sectors or communities—even as urban consumers enjoy cheaper goods.
#### 3. **The Politics of Sovereignty Are Real Constraints**
Even if a country is not financially constrained, it may act as if it is. The article overlooks how:
* **Ideology**, such as deficit aversion or inflation fear, limits spending.
* **Institutions**, like independent central banks or trade treaties, restrict policy options.
* **Global pressures**, including credit ratings and foreign investor sentiment, shape policy behavior.
Monetary sovereignty on paper doesn’t guarantee courageous or effective policy in practice.
#### 4. **Strategic and Ecological Dependencies Are Unaddressed**
The article treats imports as net gains but omits discussion of:
* **Strategic vulnerabilities**, such as dependence on foreign energy, semiconductors, or pharmaceuticals.
* **Ecological impacts**, where offshoring production might lower domestic emissions but worsen global ones.
* **Crisis resilience**, where overly globalized supply chains can fail under pressure.
The risks of trade dependence in a multipolar, unstable world deserve more attention.
#### 5. **Inflation Management Is More Complex Than Framed**
While the article rightly identifies supply-side bottlenecks as key drivers of inflation, managing these issues is not always quick or easy:
* **Expectations, wages, and feedback loops** matter, especially in politically sensitive sectors.
* **Public investment takes time** and may face implementation bottlenecks.
* **Exchange rate depreciation** can have rapid, disruptive effects on inflation and public confidence.
The claim that inflation can be easily addressed with targeted fiscal policy deserves deeper exploration.
---
### 🔚 Conclusion: A Valuable Correction, But Not the Full Story
Byrne’s article is an excellent primer on the MMT perspective and a strong rebuttal to outdated fears about trade deficits and sovereign insolvency. It provides a clear alternative to conventional macroeconomic narratives and makes the case that **real resources**, not foreign exchange, constrain growth for countries with monetary sovereignty.
But by leaning too heavily on theory, the analysis underplays the importance of **power, politics, and practical limits**. Sovereignty is not just a technical condition—it’s a contested terrain shaped by institutions, interests, and ideology. Floating exchange rates reduce constraints, but they do not remove them.
A comprehensive view of economic sovereignty must consider who gains, who loses, and what shocks can still undermine even the best-designed fiscal frameworks.
---
### 📌 Key Takeaways
* **Monetary sovereignty reduces external constraints, but does not eliminate risk.**
* **Trade deficits benefit some groups while harming others—distribution matters.**
* **Political and institutional constraints limit the practical use of sovereign policy space.**
* **Strategic and ecological dependencies make import reliance more fragile than it seems.**
* **Inflation is more than supply bottlenecks—it’s shaped by expectations, power, and global shocks.**
---
**Source**:
*Byrne’s article, “International Trade: Understanding the Logic of the ‘Balance-of-Payments Growth Constraint’ – and Why It Doesn’t Apply to Monetary Sovereign Governments,”*
Published at [MMT101.ORG](https://mmt101.org)
---
Let me know if you'd like a version adapted for email subscribers or condensed into bullet-point slides.