Andrew Leigh on Modern Monetary Theory

LEIGH: “So I’ve spent a reasonable amount of time doing economics. I’ve spent a reasonable amount of time understanding Modern Monetary Theory and I can’t. Not so bad when I saw Paul Krugman theorised the same points. It essentially seems to suggest that governments can have a gap between what it raises and what it spends and in order to get rid of that debt there is some way of doing it which doesn’t generate inflation. I’ve never seen that happen in practice and I don’t understand how the theory of it operates. So until I can understand how it is able to get around what I see of as the fundamental laws of math I’ll remain a skeptic of modern monetary theory.”

Andrew Leigh is an incredibly nice guy and I used to follow his blog before he entered parliament.  He had many very useful statistics on that blog which I believe you can find at PreviousLeigh (see a sense of humour too).

Unfortunately as a practising economist he has zero understanding of Modern Monetary Theory (MMT). In the short transcript above he calls a deficit a debt and confuses a stock (debt) with a flow (deficit). I am not sure what he is trying to say there beyond the standard economic consensus that you can only spend what you raise in taxes and cover the difference with bonds (debt).

I turn to our earlier post from Warren Mosler on 20 Simple Points to Understanding MMT in an attempt to educate Andrew Leigh.  After all you’re not living if you are not learning.  I think Andrew can appreciate that and I certainleigh believe that an MMT frame can help us design policy to reduce inequality.

The other quick resource I will also direct Andrew’s attention to is the MMT White Paper, also by Warren Mosler.

If these pique his curiosity I hope he will take a look at this textbook: Macroeconomics by William Mitchell, L. Randall Wray and Martin Watts.

Andrew, have an MMT day!