This week I explore the usefulness or otherwise of MMT in the context of our current political and democratic systems.
By ‘our democratic systems’ I’m referring to what we currently have in the UK and the US. In relation to the ‘usefulness or otherwise of MMT’ I am referring to whether or not MMT has a chance to be in service to policymakers - given the current state of our ‘democratic’ institutions?
There are no arguments against the simple fact that MMT insights can easily demolish the, ‘we can’t afford it’ pronouncements put forward by government ministers, i.e. when it comes to government spending.
But what it can’t do is tell us in whose interests that government spending should serve. For that is always down to the ideological outlook of those in power and - as I argue in this post - the strength of our democracy.
George Monbiot and Peter Hutchison in their book, The Invisible Doctrine: The Secret History of Neoliberalism (2024), express the belief that one of the reasons that ‘general prosperity rose steadily’ after the Second World War was ‘the rise of social democracy’.
And a major reason that things deteriorated after Reagan and Thatcher came into power in the late 1970s was a weakening of democracy, which was both caused by, and exploited by, the rise of neoliberalism: a useful ideological framework for the corporate interests of the time.
There were of course many other things at play - including the post-war application of Keynesian policies that led to greater state spending - and the economic problems in the 70s that gave ‘an in’ to an alternative approach.
However, in this article I am concerning myself with the state of our democracies from the late 1970s onwards - and the impact that has on the ability of MMT advocates to get past the gatekeepers of the current government policy direction.
At the conclusion of this post I will put forward eight suggestions that I think are crucial changes that are needed, at a minimum, to blunt the power of those currently in control of our governments and economic policies.
By implication I believe these changes will strengthen our democracy, either by making politicians more accountable to voters or by bringing voters themselves closer to the decision making process. And they will open the doors to a new understanding of how our economies operate and in particular how government funding operates.
In other words, we will find ourselves in an environment where the ideas of MMT can be heard and, thus, can have an impact on the way our governments shape policy.
I put my trust in citizens, or as politicians tend to call them, ‘voters’. However, it’s my belief that there needs to be change in our current cultural and political landscape before voters are able to have any control over the levers of government.
Informed citizens know right from wrong and understand what is in their interests and what is not. However our current form of democracy is open to exploitation by those whose best interest is to ensure that citizens - and for that matter politicians themselves - stay ill-informed.
My assumption remains that democracy is our best form of government. But the question is: what type of democracy will get us from where we are now to where we need to be?
I say need to be, because our current direction means the end of us all as our planet heats up at an ever greater rate.
There are many different models we call democracy so, firstly, we need to be aware that that is the case and, secondly, we need to make changes to the way our current democracies work.
Only then will we have the option to choose what’s best for all, not just best for the few. And only then will those pointing out that government spending does not work as their politicians, economists and media commentators tell us it does have any leverage.
The neoliberal age and the undermining of democracy
Since the end of the 1970s, corporates and oligarchs have used their wealth and influence to undermine the forms of democracy that exists in both the US and the UK (and other countries).
The result has been to minimise the influence of voters on government policy. One reason for this is the inherent weakness of the particular model of ‘democracy’ we have chosen.
In the UK, we have a parliamentary democracy and in the US we have a federal representative republic but in both cases our elected representatives are not legally bound to honour campaign promises.
The premise of this form of democracy is that politicians decide on our behalf not at our behest: however, in this system, human frailty becomes the point of weakness.
There is little to stop politicians being influenced and/or controlled by wealthy lobbyists. They can legally promise anything during the election process - but when in office they are free to ‘do what they think is best’ - not what they have promised nor what the voter thinks is best.
As a result, powerful networks that include politicians, media moguls, corporate spokespeople and right-wing ‘research institutes’ have managed to reduce the scope of acceptable government policy options down to those that reflect an exclusively neoliberal viewpoint.
The policy choices have narrowed. What we have got is a restricted recipe of choices: privatisation; austerity; tax cuts for the rich; welfare cuts for the poor; narrowing of the educational curriculum; defunding of the arts; deregulation in all areas of life; erosion of human rights; counterproductive and hostile migration policies; weakening of trade unions; suppression of wage growth; financialisation of the economy; prioritisation of shareholder value over public good; outsourcing of public services; increased reliance on private finance in public infrastructure; erosion of local government power; centralisation of decision-making; and on and on.
I could go on for at least another page but I suspect you get the point, so I’ll stop there.
The neoliberal assumption is that the market - not government - is best. That is, the market reflects the needs of citizens via their choices and leads to an optimal way to distribute resources.
In the process, competition is assumed to unleash the entrepreneurial spirit of citizens and thus grow the economy.
It is the ‘a rising tide lifts all boats’ idea. Also called, ‘trickle down economics’. However, the evidence shows that that ‘promise’ has forever, remained a mere promise, never a reality.
From the mid 1970s until today the results have spoken for themselves: not only has growth been slower than before the rise of neoliberalism the dividends related to that growth have benefited the well-off and penalised the poor.
As a result we have greater poverty; greater inequality; and faster global warming. Government policies have led to: poisoned rivers; poorer health and welfare services, and so on.
Combine this with seemingly intractable structural inequalities (if you’re born rich you stay rich, if you’re born poor you stay poor) and we have a society that makes it difficult for voters to ‘change the agenda’ in any significant way.
Note, I am not against the use of markets: I regard them as useful tools for the distribution of goods and services. However, I do not regard them as inherently efficient or fair and, therefore, they need to be regulated to ensure they serve a public purpose.
And we must not forget that private sector markets would not exist without the currency, regulation and legal frameworks provided by government. In that context, the idea that governments should not ‘interfere in the market’ makes little sense.
If you have any questions or if you disagree with anything I write, I want to hear from you. Please add your comments in the discussion area. Contrary views are welcome.
Is MMT impotent in the face of our current political system?
You may well be convinced that the insights and knowledge that MMT provides can help improve the lot of all citizens – and play a part in tackling global warming. However, the question is not whether it’s possible in theory, but whether it’s possible in practice, to implement those lessons.
MMT’s insights give us answers to some very big questions: it is based on simple logic and description of how our monetary system works, resulting in insights that I believe anyone can easily understand:
For currency-issuing governments such as the UK and US money is not scarce.
The things that are scarce are the world’s resources.
Governance, therefore, is about managing scarce resources in a way that is both good for all citizens and does not damage the planet. It is not about managing a limited budget.
However, these ideas do not serve the interests of those who have propagated the neoliberal creed. Neoliberalism not only dominates government policy, it also dominates the teaching of the discipline of economics itself.
I suggest John T Harvey’s Contending Perspectives in Economics: A Guide to Contemporary Schools of Thought as a route to understanding the way academic advancement is built around the maintenance of the status quo. That is, neoliberal academic dominance within academia.
And, for a brief overview of that particular issue, I suggest my own article on the topic: Neoliberal Economics Kills: 3 Reasons We Must Stop Teaching Students Only One School of Economics.
It takes an awful lot of obfuscation to present MMT’s simple ideas as a conspiracy theory or a form of economic madness – but politicians, economists and the media never seem to tire of that task.
So, the question is, does it matter that we have answers to many of the big questions if the power to implement those answers sits firmly in the hands of those with no desire to do so?
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Let us ponder upon the idea of democracy
As I outlined earlier, voters currently have very little power to direct governments towards policies that benefit the majority.
As result, government, through their seeming lack of insight, continue to enact policies, like those referred to above, that are mainly designed to meet the needs of a wealthy minority.
Democracy as it is commonly understood has been undermined: voters’ needs are muted: they do not get in the way of enacting the current neoliberal agenda.
I won’t rehash the details of how this has happened instead, in the resource section of this post, I will list just some of the books where you can read the details of this hypothesis at your leisure.
Rather than list the reasons and the results of the neoliberal takeover, I will point out that there are other forms of democracy than the one we appear to be trapped within at the moment
There are other forms of democracy
The form of democracy we have in the US and the UK is only one form of democracy. Below I have listed just three examples of other ways we can organise our democratic process.
The most commonly referenced example of more direct democracy is in Switzerland where citizens can trigger referendums to challenge laws or propose new ones. They retain an ongoing, formal role in shaping policy between elections.
In Ireland they have citizens’ assemblies, which are randomly selected citizens brought together, given access to evidence and asked to deliberate on major issues with their recommendations feeding directly into political decision-making.
At city level in Porto Alegre, Brazil, there is ‘participatory budgeting’. Citizens meet, propose projects and vote on how part of the public budget is spent, giving them direct control over local priorities rather than leaving decisions solely to elected officials.
The devolved parliament in Scotland is based on a representative democracy that utilizes a form of proportional representation known as the Additional Member System (AMS). The asumptions is that is a more democratic system because it ensures the final share of seats in parliament closely reflects the actual share of the popular vote - while keeping a more direct link to local representatives.
A form of democracy that is not so easily captured by a wealthy minority to serve their own interests is what we need if we seek change for the better. By change for the better, I mean change that benefits all citizens, not just a small minority.
To have any type of democracy we need informed voters
Firstly, that means citizens must receive an education that gives them the skills to adequately review the veracity of the content they consume.
And secondly, they must have access to information that is not controlled or shaped exclusively by those with a single political viewpoint, no matter what that viewpoint is
At the moment not only do citizens get fed a biased view via their media, but the governments in both the UK and the US seek to directly control the school curriculum.
In the US, President Donald Trump is currently on a mission to remove what the media call ‘woke subjects’ from the education programme. While in the UK, for decades, the government has tried to shape education almost exclusively around the ‘needs of employers’.
In other words, both governments aim to shape their education system around ‘the needs of the market’, not the needs of citizens.
Certainly we must provide vocation education for citizens to operate in the modern world - I am not arguing against that. However, the default position must be that we provide citizens with the skills they need to realise their full potential and to have the cognitive and emotional tools to live successfully as part of a community.
Humans are by nature community animals, not the individualist, competitive caricatures that the neoliberal creed assumes to be the case.
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MMT and recommendations for making our democracy and our politicians less easily captured by those with wealth and power
When MMT economists and activists write about democracy, the standard view is that we must tax the rich at a higher rate in order to curb their political influence.
I think that’s a good idea, but I don’t think that alone will solve our problems. Even my brief discussion above shows that the problems are much deeper than the idea that we must tax the wealthy more. If we really want change we need more radical action.
By radical I mean - as a minimal intervention - changes that take us back to the default positions we had prior to the 1980s. There’s nothing in my short list below that was not normal in the years after the Second World War up until Thatcher and Reagan took power and supercharged the neoliberal agenda.
Note, that I’m aware that there’s nothing in my list that John Maynard Keynes would have regarded as radical: you can assume there is some irony in my choice of that word.
If we want change we must first strengthen our current form of democracy - or even better - choose a different form of democracy - one that moves the levers of power closer to citizens.
The assumption I am making is that this will improve our chances of implementing policies that are in the interests of the many rather than the few.
Here are eight initial suggestions for tackling our current ‘democracy deficit’:
Laws that force ‘research units’ to reveal their funders and backers. We should not outlaw the ability of the wealthy to express their opinions: but they should not be able to hide their influence behind apparently benign and politically neutral ‘charitable organisations’.
Laws that outlaw much of the lobbying that influences political decision-making.
Laws that put a lid on financial contributions that wealthy oligarchs, corporations and research institutes are allowed to donate to political parties and politicians.
The implementation of financial and other regulations designed to keep us safe from financial meltdowns, poisoned rivers, medical disasters, industrial disasters and the rest.
A progressive taxation system that taxes the rich more and the poor less. Not because we need money from the rich - we don’t - the UK and US issue their own currency, but because it blunts the ability of the rich to undermine democratic institutions.
Nationalisation of those services that are essential to the health of the overall economy. Services of national importance are best controlled by and fully-funded by central government. At a minimum that means energy, water, education and health. When governments have no control over the very things that determine the health of their economy and by implication the health of their citizens, this makes the country more vulnerable to economic disasters. Having ceded control to those whose only concern is only to make a profit the government is inviting trouble.
Actively look at ways to stop wealthy oligarchs and industrialists being able to undermine a true citizens’ democracy.
And perhaps more radically: change the type of democracy we have to one that moves power closer to the voter.
Yes, I agree this is an inadequate list of suggestions - and I agree that that it is only radical in the context of the extreme neoliberal positions that are the default today. There are many more things we can do, but we must start somewhere.
I also recommend implementation of the ten recommendations listed in the Economic Bill Of Rights For The Twentieth Century developed by Alan Minsky, Executive Director of Progressive Democrats of America (PDA), and Professor Harvey J. Kaye.
They are reprinted in Dirk Ehnts book Modern Money Theory: A Simple Guide to the Monetary System, a book I also wholeheartedly recommend.
In conclusion: If we want to take advantage of MMT insights one thing that makes that outcome more likely is a democracy that is not easily compromised
It is only when those in power can see that a knowledge of the monetary system will benefit their own ‘congregation’ that they will embrace it.
When their congregation becomes the citizens, who voted for them, rather than the wealthy individuals and organisations who fund them, the policies they support will change.
In that context MMT economists and MMT adjacent economists such as Post Keynesian economists, will have a chance to be part of the discussion.
If you are excluded from the discussion you are not in a position to influence anyone.
That’s all for now.
If you have any questions or if you disagree with anything I write, I want to hear from you. Please add your comments in the discussion area. Contrary views are welcome.
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Thanks to all of you who have helped to keep MMT101 going.
Resources
Contending Perspectives in Economics: A Guide to Contemporary Schools of Thought - by John T. Harvey
A call for a 21st Century Economic Bill of Rights - by Alan Minsky, Executive Director of Progressive Democrats of America (PDA), and Professor Harvey J. Kaye
Modern Money Theory: A Simple Guide to the Monetary System - by economist Dirk Ehnts
What Does It Mean To Be Human - by The Human Origins Initiative
Neoliberal Economics Kills: 3 Reasons We Must Stop Teaching Students Only One School of Economics - Jim Byrne
The Invisible Doctrine: The Secret History of Neoliberalism (& How It Came to Control Your Life) - George Monbiot and Peter Hutchison
Undoing the Demos: Neoliberalism’s Stealth Revolution - Wendy Brown (2015):
Democracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America - Nancy MacLean (2017)
Silent Coup: How Corporations Overthrew Democracy - Claire Provost and Matt Kennard (2023)
Links to some of my most popular newsletters
My MMT Top Ten: Modern Monetary Theory’s Best Ideas Explained
Important Figures in the Development of MMT: Abba P. Lerner ‘Functional Finance’ - Jim Byrne
Become a paid subscribers for access to additional content:
A Permanent Home for MMT101 Paid Subscriber Resources – Factsheets, book recommendations, academic papers, MMT podcasts and more.
MMT Factsheet 3: If Taxes Are Not For Spending What Are They For?
I like the observations Jim.
Your view of the rich having too much money to influence those in charge is correct.
Your view that the wealthiest must be taxed more to restrain their influence of those in charge, is commendable.
But those problems in particular show that MMTs version of ‘make more money available because they can’ goes right to the heart of the dilemma.
On the one hand providing ever increasing amounts of more money in the system sounds great! But set that against the fact that the system feeds those rich with more and more money they, by feeding ever increasing amounts into the system now means the rich get even richer!
Jim, in my view trying to educate everyone on a system that’s unnatural to them will not be easy. And to expect governments to change their powers to accommodate such matters is again a difficult position to attain.
I agree we need better thinkers in charge. And for that reason, the average Joe in the street may not be able to be any better. So it’s a quandary.
How far do we go or wait for a new education or a new democracy or a new type of better thinking leader?
It’s all very well to put the wants list out there but, really, is it credible? Is it attainable?
Yes, the world is getting hotter. But what do you think the UK can do about that? As much as we want to put all wrongs right we need a much more simple and unarguable approach to put to the voting public. Based on reason and being reasonable. As clever and interesting MMT is to the likes of us it’s not something that can be sold. On either the politicians or the public. It’s novel! It’s not acceptable. That’s my view.
Just to increase the pot of money when we need cash flow injection is still not going to solve the rich poor problem.
And taxing wealth is as difficult as it sounds simple! How do you value assets that fluctuate? And who is going to do that job. And how much will that cost? All these are to me, reasons to doubt the authors understanding of at tax system let alone our tax system.
To clarify our tax system is based on SPENDING. If there is no SPENDING then no tax is collected. If businesses don’t employ and SPEND on their employees no tax is collected.
Only the SPENDING of individuals and business triggers tax.
Income tax and Nic is triggered when a business SPENDS on their employees wages by employers. From, I might add, the SPENDING of all us, individuals and business who, pay into that business that’s SPENDING on those businesses.
Vat and duty are collected from the SPENDING of individuals and business. Again the trigger is SPENDING.
Other taxes are based on an instruction to SPEND. For example Council Tax. A pre determined value is placed on the asset and is multiplied by individuals in that home (asset).
Same with business rates. Except it’s multiplied by square feet.
But both instruct a SPEND. For tax take.
Similarly stamp duty is based on a SPEND. Even windfall taxes are based on the fact that excessive amounts of SPENDING has occurred for the exchequer to take back a slice.
When we die and our estate SPENDS the money a tax is triggered. When we SPEND and buy a car Vat tax is triggered. And vehicle excise duty is triggered from that SPENDING. Also, insurance tax is also triggered from that SPENDING.
So Jim, all tax is a result of SPENDING.
That’s why the rich get richer! Because they don’t SPEND. And so pay no tax on that unspent money. And as I say, they don’t have to SPEND money nobody does! And not SPENDING means no tax revenue.
So take that twin effect of no tax and no enforced SPENDING and put that to the people as isn’t it more convincing that, our present problems are more likely to be as a direct result of both those inadequacies of our system? Or at least it’s easier to sell??
Surely, it’s much more simple to convince politicians and public alike that it’s money that needs to be SPENT to give us all cash flow and thus give the tax revenue or government so desperately needs??
That’s my opinion Jim! Tell that theory! Keep telling that’s the way to get the economy flowing! SPENDING because Jim, unless there is SPENDING of more of the money already out there in a faster time than now then, no economy, let alone ours can or will survive. Even MMT needs SPENDING Jim. That’s the kicker really. Without more SPENDING of the vast sums already out there then, nothing will or can grow. I see no reason why the system we have now or MMT is doing or making that happen!?
We are in recession not because we need more money in the pot. We just need the money already in it to be moving in a larger amount and in a quicker time!
That’s surely a lot more simple than the MMT view. Even though, I love its viewpoint. I love that it barks at the present thinking. And is so obtuse it’s a beautiful thing! But I must bring you back to a more simple truth to sell. So much so that even the present incumbents could and should understand even with their limited abilities!