Err neg---all their models are oversimplified

The paper showed MMT oversimplifies the macro economy and exaggerates policy capabilities. All macroeconomic models are highly simplified representations of reality. MMT takes the standard Keynesian macro model and further assumes away the real world challenges of the economy and policymaking. The resulting oversimplified static model makes it look as if sovereign government is financially unconstrained and full employment without inflation is an easy reach for policy. Once those oversimplifications are walked back, MMT’s claim dissolves and MMT reduces back to a version of Old Keynesianism.

Despite MMT’s analytical economic deficiencies, it has made huge advances as popular political polemic. Its success is due to two factors. First, MMT has a simple and clear narrative. Second, events have exposed the neoliberal lie regarding the ineffectiveness of and lack of financial space for fiscal policy, creating an opening in public discourse which MMT has seized.

As regards narrative, MMT’s printing press economics has provided a simple counter to neoliberalism’s claim that government has no financial space because it is akin to a private household. MMT’s identification of the financial space provided by the power to create money exposes the falsity of the household analogy.35

Unfortunately, MMT exaggerates and stretches things. That should be no surprise: sometimes a little nonsense is needed to beat nonsense. Political success requires message simplification, and simplification involves cutting details. Thus, the ability to create money is transformed into the notion of government being financially unconstrained and not needing taxes or bonds to finance spending.

MMT’s political polemic works best in the US, where government is in a special position owing to strong current economic conditions, the current low inflation climate, and the unique position of the dollar as global reserve currency which diminishes problems associated with trade deficits and exchange rates. However, the polemic is largely unpersuasive to economists in Latin America and emerging market economies. Those economies do not have the characteristics of the US, and their governments are visibly policy-constrained by financial markets and foreign exchange concerns.

The success of MMT’s polemic poses difficulties for progressive economists. On the one hand, the polemic is useful for advancing progressive economic policy so that undermining it would be a step back politically. On the other hand, MMT’s economics is oversimplified and exaggerated. That creates a dilemma that often afflicts the middle ground, which gets squeezed by simplistic extremes that have persuasive traction in political discourse.