MMT job guarantees oversimplify and lock-in capitalism and class tensions.

The above arguments focus on the analytic weaknesses of the three legs of the MMT triad. However, behind the scene lies a further deeper critique concerning MMT’s macroeconomic conception of capitalism. That critique is illustrated in Figure 3 which describes competing non-mainstream (heterodox) conceptions of capitalism. Those conceptions are divided into Keynesian and Marxist.

Keynesians believe capitalism’s tendency to exploitation and instability can be contained and managed by appropriately designed economic institutions and policies (Palley, 2010b). In contrast, Marxists (Foster and McChesney, 2010) believe capitalism is subject to systemic contradictions that can only be resolved by changing the system.

Figure 3. Competing macroeconomic conceptions of capitalism.

Non-mainstream macroeconomic

conceptions of capitalism

Keynesian Marxist

MMT Structural Keynesianism

Within the Keynesian group, Figure 3 distinguishes between MMT and structural Keynesianism. MMT is firmly Keynesian in conception, and it holds that stable non-inflationary full employment can be achieved and sustained on the basis of money financed deficit spending alone. Money financed deficit spending can pump up aggregate demand to deliver full employment, at which time the deficit can be closed to head-off inflation. All that can be accomplished without induced financial market instability or exchange rate instability.

Noticeably absent in the MMT discourse are the issues of income distribution and class conflict. Consequently, from an MMT perspective there is no economic need to address income distribution, and nor does class conflict pose a problem for government’s ability to do as it wishes regarding spending and taxes.

Marxist economists (see Henwood, 2019) have focused on MMT’s blithe dismissal of the problematic of taxes. As noted above, if the economy reaches full employment (however defined), taxes become necessary to restrain AD and prevent inflation. Consequently, the reality is government programs ultimately have to be paid for via taxes, and MMT’s arguments are just an evasion of that reality. That makes MMT a new political strategy for finessing the politics of austerity rather than a new economic theory.

If taxes are ultimately necessary to finance government programs, delivering those taxes requires the appropriate politics be in place. Those politics inevitably involve class conflict. Viewed in that light, Marxists argue MMT is deficient on two counts. First, it fails to admit the ultimate necessity of taxes. Second, it fails to recognize that tax outcomes are ultimately shaped by class conflict and depend on power relations, which in turn are substantially determined by the economic fundamentals of capitalist economies.

Marxists, along with structural Keynesians (see Aspromorgous, 2000; Palley 2001, 2018c; Sawyer, 2003; Seccarecia, 2004), are also wary of MMT’s employer of last resort job program for a range of reasons. For instance, an overly generous JGP wage package would have non-neutral impacts on private sector employment and output. More importantly, as noted earlier, a JGP that delivers quasi-full employment will likely exacerbate income distribution conflict inflation, a problem identified long ago by Kalecki (1943) as part of his analysis of capitalist economies.

Returning to Figure 3, the structural Keynesian perspective adds arguments regarding economic constraints on fiscal policy. In particular, financial markets discipline governments and deter them from undertaking policies that markets disapprove of. That deterrence operates via the threats of asset market sell-offs, higher private sector interest rates, and credit contraction. Corporations also discipline governments with threats of investment cutbacks and relocation of capital. The disciplinary power of financial markets and corporations is most clearly seen via international comparison of countries. The US, with its exorbitant privilege, is the least subject to discipline. However, the discipline is omnipresent. Furthermore, the era of neoliberal financialization has entrenched and deepened those disciplines on policy via a process of lock-in of neoliberal economic arrangements (Palley, 2017/18).

A second concern of structural Keynesianism is income distribution, which has two major impacts. First, it impacts the AD generation process and the level of AD, and a deleterious income distribution can produce demand shortage and stagnation. Second, income distribution impacts the political system, which in turn impacts economic policy (both stabilization policy and policies affecting the structure of the economy).

From a structural Keynesian perspective, sustaining stable full employment requires attention to the structure of the economy, particularly income distribution and appropriate regulation of financial markets. Money financed deficit spending is an important policy instrument. However, absent the right structure, attempts to drive the economy to full employment with large money financed deficit spending will be undone over time. Moreover, in some economies such spending may not even be initially feasible because government is financially constrained.

The above differences in analytical perspective are evident in competing interpretations of the financial crisis of 2008. MMT proponents (e.g. Wray, 2009) interpreted the crisis through a purely financial lens, arguing it was explained via Minsky’s financial instability hypothesis and the emergence of “money manager capitalism”. In contrast, structural Keynesians (e.g. Palley, 2010b) argued there was also an important real economy dimension to the crisis, whereby wage stagnation and rising income inequality combined with financial sector developments to generate a path that led to the crisis. Wage 29 stagnation and rising inequality undermined the AD generation process. That was covered over by borrowing and asset price inflation which created AD that temporarily compensated for the structural AD shortage. However, that process of increasing debt and asset price inflation eventually exhausted itself, triggering the financial crisis of 2008.

The big implication of the structural Keynesian perspective is failure to attend to the structure of the economy means crises and unemployment will reemerge in due course despite money financed deficits. Furthermore, those deficits can be part of the reemergence story. That reasoning is a core part of the structural Keynesian critique of the policy response to the crisis of 2008. Money financed deficits have helped reflate asset prices and economic activity, but they have not resolved the underlying structural problems. There is a systemic problem that needs redress. Failure to remedy that systemic problem means it will reassert itself and, when it does, the accumulated financial legacy of past budget deficits can potentially have adverse effects. Such considerations are absent in MMT.

6. Conclusion: MMT as political polemic

The above criticisms reflect MMT’s over-simplification of the macro economy and exaggeration of policy capabilities. All macroeconomic models are highly simplified representations of reality. MMT implicitly takes the Keynesian macro model and further assumes away the real world challenges of the economy and policymaking. The resulting over-simplified static model makes it look as if government is financially unconstrained and full employment without inflation is an easy reach for policy.