MMT lacks models and is academic hogwash – do not trust any of their math because it can’t pass rigor.

The New York Times just came out with a big glowing writeup of MMT, entitled “Time for a Victory Lap*”. This article aroused the anger of just about every macroeconomist on Twitter, and with good reason — it demonstrates very little understanding of the issues at play or the state of the policy debate, and it rhetorically elevates a fringe ideology to a position of importance and centrality that it neither occupies nor deserves.

Please consult macroeconomists before writing about MMT!

The NYT article on MMT, written by Jeanna Smialek, is mostly a puff piece about Stephanie Kelton, MMT’s most well-known proponent. In glowing tones, it describes Kelton’s clothes, her office, her house, her neighborhood, her blog, her manner of speaking, her personal story, and so on, calling her “the star architect of a movement that is on something of a victory lap”. Very little is written about the background of the macroeconomic policy debate, and what does appear is highly questionable:

In economics, there’s a school of thought sometimes called “freshwater.” It’s the set of ideas that became popular at inland universities in the 1970s, when they began to embrace rational markets and limited government intervention to fight recessions. There’s also “saltwater” thinking, an updated version of Keynesianism that argues that the government occasionally needs to jump-start the economy. It has traditionally been championed in the Ivy League and other top-ranked schools on the coasts.

You might call the school of thought Ms. Kelton is popularizing, from a bay that feeds into the East River, brackish economics.

The brief description of freshwater and saltwater economics is fine, but to describe MMT as being “brackish” — i.e., some sort of fusion of freshwater and saltwater, or a middle ground between the two — is absurd. MMT doesn’t take its inspirations from either of those schools of thought — its ideas (to the extent that such exist) are rooted in things like functional finance and Post-Keynesian macroeconomics, which split off from the mainstream long before it divided into freshwater and saltwater. MMT doesn’t even use formalized mathematical models of the economy like freshwater and saltwater econ do (or like Post-Keynesian macro does), so it’s pretty impossible to compare these schools of thought. In terms of policy prescriptions, MMT is far, far more sanguine about government borrowing than either freshwater or saltwater.

The article then demonstrates that it has little notion of what separates MMT from mainstream thinking:

M.M.T. theorists argue that society should feel capable of spending to achieve its goals to the extent that there are resources available to fulfill them. Deficit spending need not be constrained to recessions, even theoretically. Want to build a road? No problem, so long as you have asphalt and construction workers. Want to feed children free lunches? Also not a problem, so long as you have the food and the cafeteria workers.

In fact, this is also a feature of all freshwater and saltwater models of the economy. Those models deal only in real variables — asphalt and construction workers and food and cafeteria workers and so on. In fact, those models’ lack of attention to financial constraints of any kind is exactly why they failed to predict the Great Recession!

These passages — and the lack of any other engagement with non-MMT theories, research, or ideas — make it clear that Smialek’s main source on all of these topics was Kelton herself. She does briefly quote Jason Furman, a Harvard economist and former CEA chair under Obama:

“M.M.T. was already pretty marginal,” said Jason Furman, a Harvard economist, noting that, in his view, most policymakers and prominent academics ignored it already. Even if policy in the pandemic effectively embraced the idea that you do not have to pay for your spending, that idea, he said, was also Keynesian.

And the M.M.T crowd, while dismissing the Fed’s role, has not come up with a clear and obviously workable idea for how to stem inflation, he argued, adding, “If you were open-minded, this would discredit it still further.”

But even though Furman notes that Kelton did a bad job of characterizing the difference between MMT and Keynesian thinking, the NYT writer doesn’t follow up on this at all; she makes no effort to clarify where MMT actually does differ from other forms of economic thought. Nor does she quote any other macroeconomists.

This is important because any attempt to engage with the actual substance of MMT quickly finds that such substance is curiously lacking. MMT proponents almost always refuse to specify exactly how they think the economy works. They offer a package of policy prescriptions, but these prescriptions can only be learned by consulting the MMT proponents themselves. There is no model here — no set of equations or definite formal statements that a layperson could use to generate their own MMT policy prescriptions without appealing directly to the gurus.

Every economist who has attempted to engage seriously with MMT literature has concluded the same. When Drumetz Françoise and Pfister Christian of the Banque de France read Kelton’s book and tried to comprehend the essence of MMT, they concluded:

Overall, it appears that MMT is based on an outdated approach to economics and that the meaning of MMT is a more that of a political manifesto than of a genuine economic theory…As Hartley (2020) notes, MMT “is not a falsifiable scientific theory: it is rather a political and moral statement by those who believe in the righteousness – and affordability – of unlimited government spending to achieve progressive ends”.

And in a working paper analyzing MMT, economist Giacomo Rondina writes:

I believe that the big merit of MMT scholars is to have opened a large crack in the “how do we pay for it” line of defense to economic policies by pushing a liberating narrative that promises a society where well-being, abundance, and social justice are finally possible for everyone. I admire and applaud their effort.

At the same time, my reading of the MMT academic literature suggests that MMT has not yet provided a fully coherent theory of the macroeconomics of government intervention that can persuade genuinely interested mainstream academic economists and policymakers. To my knowledge, there are no scholarly works that offer clear assumptions and explicit results of when the deficit of the public sector (surplus of the private sector) can be welfare improving, taking into account the behavioral response of the economic actors involved, and specifying a transparent mechanism of price determination. As a consequence, many macroeconomic practitioners “peeking under the hood” (cit.) of MMT cannot help but feel a sense of frustration in understanding how exactly the engine is supposed to work. I believe this has limited the ability to find a common ground on which constructive progress can be made.