Tag Archives: RBA Governor

Welcome to the Year of Modern Monetary Theory


The year 2020 is gone.  In Australia, on average more than one article in finance, media or on popular blogs about MMT appeared every day of the year.

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We had Alan Kohler (financial journalist), James Culham (Institutional Portfolio Management, ANZ) and  Emma Alberici (ex-ABC economics correspondent) come to somewhat of an understanding with MMT.  John Quiggin (economist) review the Modern Money textbook, Nick Gruen (economist) outline it correctly on a podcast.  RBA Governors past and present (see Gallery above) comment on Modern Monetary Theory – even appearing in the senate select standing committee of economics.  It has had many runs in both the Australian Financial Review, The Australian and other media outlets.

Here’s hoping the trend continues. 🍷


Former RBA Governor says MMT is correct!!

Sometime back Joseph Noel Walker, host of the Jolly Swagman Podcast did an interview with the former RBA Governor Ian MacFarlane.  I asked Joseph if I could host just the MMT section here but he preferred a link to the full the podcast on his site.

I take it that he has a fear that the podcast will be taken out of context and I understand that fear.  This is definitely not the intent, much of the podcast does not revolve around MMT and do not wish to inflict things that are outside the foundational scope of this site on its audience.

The piece on MMT goes for a little over 29 minutes and begins around the 42 minute mark of the approximately 102 minute podcast.

You can click on the link below to go there.

One of the things Macfarlane says is that it is only peripherally about monetary policy but that is part of the point of modern monetary theory, that is not about monetary or fiscal policy but the monetary system.

Macfarlane walks us through the process of the monetary system in an identical way to MMT, from the Treasury to the Central Bank to the Bank to the Bank Customer, maybe with slightly different nomenclature.

The primary difference Ian Macfarlane has with MMT is a normative preference (and remains consistent with MMT) is that he prefers the current method of setting the interest rate by selling securities to the primary dealers (banks) first.

Current RBA Governor Phil Lowe (PDF) has said a very similar thing:

“I am confident that the Australian government will be able to raise money in the capital markets, at very low interest rates, to finance whatever level of spending is required. It’s true that, when they have to repay those bonds to us, they’ll have to raise money in the market. They’ll be able to do that. There’s very strong demand for these securities. The best way of doing this is the government entering the market, paying these low interest rates and deciding how much money it wants to spend.”

From an accounting perspective as  Marc Lavoie’s Friendly Critical Look at MMT (PDF) points out this exchange comes out as identical whether the central bank buys securities directly or through the markets.  So nothing of substance actually happens in this exchange.

MMT shows the Interest Rate is a policy variable and in other discussions there is more than one way to set the interest rate.

There has been a lot of fightback over MMT from various members of the current economic hegemony but as is increasingly clear, the MMT framework – which is primarily a description of macroeconomic operations – is correct.

Progressives should not be apprehensive about MMT. Here’s Why!

Often we hear about how Modern Monetary Theory is neither modern nor monetary – I think this is a simplistic view.

We heard it from RBA Governor Phillip Lowe and similar from the former RBA Governor Ian MacFarlane.  MacFarlane certainly has a better grasp of MMT than Phillip Lowe.

I said the following on John Quiggin’s review of the Mitchell, Wray, Watts textbook:

MMT uses the word ‘Modern’ in a polysemic way.  ‘Modern’ is intended as Keynes used the word in A Treatise on Money and since the closing of the gold standard window in 1971.

It is monetary as in it is about how money instruments (currency) shifts real resources (not to be confused with monetary policy) and it is a theory in the scientific use of the word – an evidence-based framework.

Economists often seem unable to break free of jargon or the specialised definitions of their profession. The average person is likely to hear the everyday meaning of words like “government debt”, rather than the economic definition, which in this case would be “net money supply”. We need economists to communicate more directly if they are to enhance our education of economic topics that are constantly misrepresented in the media. For example, people probably think of all the following as “monetary stuff”: my bank deposit; the government securities in my superannuation portfolio (bonds); the (“fiscal”) spending by the government of the day. Yet economists would want to point out important distinctions between these phenomenon. We need simple, clear language to understand these distinctions.

Currently, the Modern Money view is being challenged by other progressives as noted here and parried and riposted here.

It has also been targeted as having an “anti-tax” agenda by some progressives.  Sure they add a minor nuance to it as “movement MMT” but once again I think this is a misunderstanding which once again I hope I have clarified above.

To repeat what I have said previously. Governments can increase spending as much as they like with no need for an offsetting increase in tax revenue or non-fiscal offsets if there is little to no risk of politically unacceptable inflation. This is what these people mean and is perfectly compatible with ‘academic’ MMT and is neither anti-tax nor about weakening workers power, it is about courage, compassion, connection, hope, optimism and empowerment of workers – those currently working and those that are involuntarily not working that desire to do so.

It is a little US-centric but you can see it demonstrated quite successfully by Stephanie Kelton here:

From about the 26th minute

We only need to be better than today’s unemployment policy choice.

There are also many that seem obsessed with taxation revenue instead of building capacity.

“…so it’s usual to speak of public expenditure being paid for by taxes (or, better, tax revenues)…”

To say this is completely misleading to all except but perhaps well-heeled economists. Even as Quiggin wrote and intended to mean “…Taxes are the primary instrument by which resources are transferred from private to public expenditure…” or any other economist that uses a similar phrase.

Saying it is paid by tax revenues gives the wrong impression.

Reframing from money’s ‘how will you pay for it?’ to ‘how will you resource it?’ makes it much clearer and shows money itself is no object [also the title of a Stephanie Kelton presentation].

This itself exposes it is not about an increase in tax revenues but about access to resources and thus resource constraints (inflation) which is detailed informatively by Scott Fullwiler, Nathan Tankus and Rohan Grey at the Financial Times.

Again to repeat myself. MMT’s foundational point is taxes drive the currency. The point about not increasing taxes or tax rates from proponents is that it may not be required to raise them to use particular resources, especially if they are currently idle.

We constantly get comments about revenue/tax revenue as well but revenue raised is  like a budget outcome is determined within the economic system.  We use the fancy word ‘endogenous’ for that.   As Beardsley Ruml wrote many years ago Taxes for Revenue are Obsolete and Tax Policies for Prosperity and he makes a very persuasive case.

Revenue raising evokes false frames for ways thinking about the Australian economy.