MMT: Emmanuel Maggiori on the Theory's Fatal Flaws

Here we learn the flaws of Modern Monetary Theory. This is, IMO, a radical version of the Keynesian economics that we already have.

Modern Monetary Theory isn't modern at all and has been around a long time. It simply does not work. Here we will see why:

Interview with Emanuel Majori

On his book If You Can Just Print Money, Why Do I Pay Taxes? — Modern Monetary Theory Distilled and Debunked in Plain English

Hosted by Dr. Bob Murphy on the Human Action Podcast

Bob Murphy: Emanuel, welcome to the Human Action Podcast.

Emanuel Majori: Thank you for having me.

Bob Murphy: Folks, the reason we have Emanuel here is that he has a new book titled If You Can Just Print Money, Why Do I Pay Taxes? with the subtitle Modern Monetary Theory Distilled and Debunked in Plain English, published by W.Y.

I had seen Emanuel give an interview talking about the book. We’re going to get into the substance where he goes through how MMT, when Stephanie Kelton and others describe what happens right now when the U.S. government buys a fighter jet, is simply wrong. It’s not that you disagree ideologically — it’s that what they say happens is not true, and that matters. They put a lot of weight on the claim that “we’re just telling you how the world works.”

I’ve debated Warren Mosler and have been going at loggerheads from an Austrian perspective against the MMTers for a while. That always stunned me — their trump card is always “this isn’t ideological; we’re just saying how the world works” — and yet when it comes to something as basic as walking through government purchases, it’s wrong.

Given the title of your book, I saw some MMTers treat it as if that was your mic-drop: “If we can just print money, then why do we pay taxes, idiots?” I want to assure people that your treatment is extremely fair. You cite them, you don’t set up straw men. This is not some bomb-throwing polemic or low-IQ criticism of MMT. Do you want to respond to those general points before we dig into the meat?

Emanuel Majori: Yes. First, I wanted to write a book that was well-researched and fair to MMT, because I did not approach it trying to debunk it. I actually wanted to learn MMT. I only discovered that it didn’t make much sense as I learned it.

My book even gives MMT the benefit of the doubt. I tried to be generous at the beginning — let’s imagine a world in which things work the way MMT says, and let’s walk through the arguments. The criticisms I describe are usually not just me; they come from academics who have gone through MMT and criticized it. Many of those critics are themselves big-government people. They want bigger government, like the MMTers, but they don’t think this theory is a good foundation for that.

I researched thoroughly. I read the whole MMT textbook Macroeconomics. I read their papers defending MMT from criticism, then the responses to those defenses, and the back-and-forth. I printed it all, went through it with a highlighter, and wanted to write a well-informed critique. You can think of it as an antidote to Stephanie Kelton’s book in a way.

The book has been accused of straw-man arguments, but those people have not read it. The moment it was published — about three weeks ago — something astonishing happened. I was attacked by the MMT mob. I’ve been called names; someone said I was a friend of Jeffrey Epstein’s; I’ve been called a dumbass. People are trying to boycott the book, leaving one-star reviews on Amazon that just copy-paste a tweet written by somebody else.

But I do justice to MMT. I explain it by quoting the people who developed it. When I criticize it, I also quote their responses so you can see the ping-pong. Ultimately the book ends up critical of MMT because MMT is not good — that’s not merely my opinion. I also wanted to write a fun book to read. Stephanie Kelton’s book is quite a lot of fun, and I wanted to include anecdotes and make it palatable, because otherwise economics is very dull. You can’t respond to her book by just saying “this is all BS — ignore it,” because that fuels the conspiratorial sentiment that MMTers have: that they’ve found some holy grail of prosperity that people refuse to see for ideological reasons. I wanted to acknowledge MMT properly.

Bob Murphy: Just a few things before we start going through the substance. It’s not the case that every interventionist economist likes MMT as Keynesianism on steroids. Paul Krugman had a public clash with Stephanie Kelton and walked away from it. He was arguing from a New Keynesian framework, making standard points — the central bank can buy bonds and “control” interest rates, but then inflation becomes a free variable. Kelton kept responding on one particular thing and ignoring what she had said earlier. Krugman said she was playing “Calvinball” — from the Calvin and Hobbes comic, where the kid keeps changing the rules so he always wins. I actually sympathized with him.

I’ve noticed this: they have a playbook with answers to everything, but when you prove them wrong they come back with something that is technically true — even obvious — but they’ve often changed a definition, so it’s a different conversation. They jump from “this is how things are” to, once proven wrong, “this is how things could be.” It’s very difficult to have a constructive conversation.

Emanuel Majori: Exactly. They don’t know how to reason properly in that sense. It’s almost impossible to have a constructive conversation with them.

Bob Murphy: Even though you’re trying to make the book accessible and fun, this is not a lowbrow breezy read. You mention Kelton, Bill Mitchell, and Randall Wray as the leading scholarly figures, and you even get into people like Eric Tymoigne and others that the standard person wouldn’t know. Your book is a lot more thorough than I expected, and it’s very fair. You don’t just speculate about what an MMTer might say — you quote what they say and then quote the counter-response.

Someone might ask: if this is such a goofy theory, and even people like Paul Krugman don’t take them seriously, why spend so much time on it? In your introduction you mention at least three major events that propelled interest in MMT: economists failed to predict the 2008 financial crisis; central banks responded with unprecedented unconventional policies including QE; and the response to the COVID-19 pandemic reminded a lot of people of MMT. In your own words, why write the book?

Emanuel Majori: It’s a very seductive theory, and public opinion matters. MMTers have done a very good job of convincing people. I’ve noticed a change in the language people use. On LinkedIn, someone in my professional network who doesn’t work in economics commented on the DOGE program in a pure MMT way: if you believe the government can run out of money, you’re a sadist — you like suffering. They often use the word “self-imposed,” which sounds a lot like self-flagellation. They’ve explicitly said politicians know MMT policies could be used but don’t want to admit it because they’re mean and don’t want to help people.

I live in the UK, and here Zach Polanski, leader of the Green Party, has been learning MMT and answering questions from an MMT lens. The ideas are seeping into public opinion, and that is potentially dangerous.

I grew up in Argentina, where we have experience with MMT-like policies. MMTers will say it has nothing to do with MMT, but the rhetoric they use has been used a lot in South America. It sounded familiar. The idea that there is enormous idleness in the economy — so many resources lying around that we can just mobilize them with money creation, like a free lunch — I’ve heard that before. I found quotes from the 1970s in Chile where ministers, before a big bout of inflation, were saying the economy was running at 30% below capacity, so money creation would just reactivate it. A presidential candidate in Argentina a few years ago said something very similar: the machines and factories are off; we need to reignite the country. Then came a disastrous bout of inflation.

More recently, a newer generation of MMTers — Eric Tymoigne and Yeva Nersisyan — are promoting price controls and currency exchange controls. I’ve seen that in Argentina. The shelves were empty; we didn’t get cheaper products. The government used the controlled prices to calculate the CPI, but nobody could actually buy those products. When I left Argentina in 2014 there were capital controls. You couldn’t freely buy foreign currency. There was a gigantic black market — the “blue” market — with people on the street yelling “cambio, cambio.” You go into an alley and buy U.S. dollars, which is how people save.

That perpetual inflation hurt the country badly. People who defended the money-printing regime always used those sound bites — “greed inflation,” “we just need price controls because of greedy supermarkets.” It doesn’t end well. I moved to the UK where institutions are solid, and I don’t want those institutions to erode in advanced economies. I’ve seen the process; it pushed me and a lot of people I know out as economic migrants.

Bob Murphy: I agree. That’s why I went after it too. It wasn’t just like standard Keynesianism. Stephanie Kelton has a great anecdote early in her book: she’s in a room of serious people and asks, “If you could press a button and magically get rid of all the government bonds, would you do that?” Most people raise their hands. Then she asks, “If you could press a button and get rid of all the assets in pension funds that are treasury securities, would you do it?” No one raises a hand. She says, “But those are the same thing.” That’s a true statement, and for people who never thought of it that way it seems powerful. A lot of their accounting statements — “the government’s red ink is the private sector’s black ink” — are technically true but extremely misleading when deployed in policy discussion. That’s why this is a different animal and why I’ve spent so much time on it.

Emanuel Majori: It’s very sly. They say something that is technically true but economically untrue — which is possible in economics. The idea that you can wipe out the debt by creating money and replacing outstanding government bonds with newly created money is technically possible. Everybody knows that. MMT essentially boils down to the idea that if the government can create money, it cannot run out of money — a truism. Every economist knows the problem is not whether it’s technically possible; they just think it’s a bad idea for a number of reasons, and there’s nothing to be gained economically from it.

They use those truisms. One is the sectoral balances: when one sector is in deficit the other is in surplus. That’s a truism. They try to imply that if the government runs a deficit then the non-government has a surplus, and that this is good for someone — “every deficit is good for somebody else.” Some MMTers have been even less subtle and said the public becomes wealthier. That is categorically untrue from an economic point of view.

Look at Argentina. The government ran very high deficits by printing money and made the public financially richer. An average Argentine might have a million pesos in savings — they’ve all become millionaires on paper. But that doesn’t mean they’re rich, because you’re ignoring the value of money. It’s paper wealth, not real wealth. Stephanie Kelton always uses the qualifier “financial” — people become “financially better off.” She never explains what that means. The reader gets the impression that a government deficit makes other people richer. Technically true in nominal terms; economically false in real terms. That’s dangerous.

Bob Murphy: Let’s jump to the title of your book. Why do we pay taxes? I’ve even seen this MMT framework spill over into critics of big government in a cynical way: “Since we left the gold standard they can pay for whatever they want; the reason they tax us is just to keep us down.” The notion that with a printing press the sky is the limit has bled all over the place. So, head-on: in MMT land, given that the government can’t run out of money, why bother taxing people?

Emanuel Majori: If we give MMT the benefit of the doubt and accept their framework, taxes still serve several purposes in their own theory. They create demand for the currency — people need the government’s money to pay the tax, so they accept it. Taxes also help control inflation by removing money from circulation. And they can be used for social or distributional goals.

But the deeper point is that the slogan “taxes don’t fund spending” is highly misleading once you look at how the system actually operates. The U.S. Treasury cannot simply spend without having a positive balance in its account at the Fed. It is illegal for the Treasury to run an overdraft on the Treasury General Account. When the government spends, money moves from the Treasury’s account to the recipient’s account. That is a transfer, not pure money creation in the way Kelton describes it.

Bob Murphy: Let’s dig into that specific claim, because it’s central. Kelton has been saying since at least 1998, and still in her 2020 book, that every time the federal government spends it creates new money — it tells the central bank to create new money to pay for that. She states it as a fact. People believe it because she’s an economist writing authoritatively. A lot of people have told me, “But this is how it works — why would Stephanie Kelton say that otherwise?”

Emanuel Majori: What she wrote is categorically wrong, and she’s been told it’s wrong. She keeps saying the same thing. When the Treasury spends, new money appears in the recipient’s bank account, yes — but she forgets to say that the Treasury needs a sufficient balance in its own account, and that balance goes down by the amount of the payment. It’s the same as if I send you money from my HSBC account to your Bank of America account: I instruct my bank to credit your account, but I need to have the money and it is debited from mine. Any money transfer can be described as “creation” in one place and “destruction” in another.

In the U.S. it is illegal for the Treasury to have an overdraft. It must replenish its account with enough money to cover its spending. What MMTers have done for decades is look only at the credit side and ignore the debit. I think they were originally misled by how statisticians calculate money aggregates — M1, M2, and so on. Those aggregates only count private-sector bank accounts. Government accounts are excluded. So when money moves from the public sector to the private sector, measured M1 goes up even though the total amount of money in existence has not changed.

Critics pointed this out clearly. The MMT response was a series of new arguments claiming that even though the government must have a funded account, it somehow doesn’t matter — temporary loans from the central bank to bond dealers, the trillion-dollar coin, “the Fed would never let a government check bounce,” and so on. None of those arguments change the fact that under current law and procedure the Treasury does not simply create money every time it spends. Money moves from account to account.

Steve Keen, in The New Economics, says the government does not need taxes or bonds to fund itself. Later he acknowledges that yes, the government does have a bank account that needs to be replenished, but then points to the Bank of England allowing an overdraft during COVID as if that proves the original claim. It’s the same pattern: proven wrong on the description of current reality, then shift to “but it doesn’t matter” or “the rules could change.”

Bob Murphy: Exactly. The Treasury is not allowed to spend one dime more than it already has in the account. I sometimes joke that I’m more of a monetary sovereign than the Treasury, because my bank will cover a small overdraft; the U.S. government literally cannot. MMTers respond, “Those rules are self-imposed.” Yes — everybody knows they’re self-imposed. Congress could change them tomorrow. That does not mean the current system already works the way they describe.

I think their political goal is to pretend things are easier than they are — that we’re already halfway to full MMT, so we can start budgeting the MMT way with no friction. Randall Wray or Bill Mitchell has said that if the U.S. hits the debt ceiling it can continue to spend the way it does now, by just creating new money. That is categorically wrong and dangerous.

Emanuel Majori: Yes. They want to say the procedures don’t need to change. That’s why they insist so hard on this part of the theory.

Bob Murphy: There’s also a serious empirical problem for MMT. They say the economy has been running well below capacity for decades, and they have a theory of inflation that says inflation can’t really happen unless you try to spend beyond that capacity. Yet we have had positive 2–3% inflation for decades after the big inflation of the 1970s–80s. How is that possible under their own framework?

Emanuel Majori: It’s a big problem for them. Randall Wray has pages dedicated to it. One answer is that there hasn’t really been inflation — it’s just an error in calculating the CPI because of quality improvements. Another is Baumol’s cost disease (services become relatively more expensive). But relative-price shifts don’t explain a persistent rise in the overall price level. If the economy is so underutilized, why has there been steady positive inflation? At the end of the day they do want more spending. If we already have positive inflation, doesn’t that imply, on their own terms, that we are closer to capacity than they claim?

Bob Murphy: Last question. Can you speak to the job guarantee? A lot of the leading MMTers propose it. The pitch is attractive: the government has a printing press, it can’t run out of dollars, so it can offer a standing job at a living wage (minimum wage plus benefits) to anyone who wants one. They argue it would maintain the productive capacity of the workforce during downturns so skills don’t atrophy.

Emanuel Majori: There are several angles of critique.

First, inflation. If you give everyone a job that pays minimum wage plus benefits, it competes with the private sector. Private employers may have to raise wages to pull people out of the program, which can feed a wage-price spiral. MMT denies this, but the risk has not been adequately addressed.

Second, the claim that people become more productive and more employable. Employers are supposedly more willing to hire someone who has been in the job-guarantee program than someone who has been unemployed. But what kind of work does the program actually offer? Reading books to the elderly in care homes is one example they give. It’s not particularly challenging. Who is going to believe that holding the cushiest job in America signals high productivity?

Third, practical implementation. The program is supposed to be a flexible buffer that expands and contracts with private-sector unemployment. You therefore cannot give people serious work that requires long-term commitment or specialized skills. Critics (many of them on the left who actually want bigger government) point out that only unimportant work can be assigned.

I was surprised when MMTers cited a program in Argentina after the 2001 crisis as an example of success. I was alive then and did not remember it as a success or as a genuine job guarantee. It was restricted (only one person per certain types of household), paid very little (you couldn’t live on it), and a huge number of people never actually did any work — they were just paid not to work. It was eventually replaced by a pure subsidy without a work requirement because that was easier. It was nothing like the ambitious program MMTers propose, yet they present it as supporting evidence.

Bob Murphy: Exactly. If it becomes well known that the federal job guarantee is light work (or often no real work) and you still get paid, then “I spent three years on the federal job guarantee after the crisis” is not a strong signal to a private employer. It may not even solve the very problem they claim it solves.

We’ve reached the end of our time. My guest has been Emanuel Majori. The book is If You Can Just Print Money, Why Do I Pay Taxes? It’s well-researched, fair, and useful for both scholars and lay readers. Emanuel, thanks for writing it and for taking the time to talk.

Emanuel Majori: Thank you for having me. And please leave an honest review — the MMTers are leaving one-star reviews without reading the book.

Bob Murphy: Thanks everybody for tuning in. Check back next week for a new episode of the Human Action Podcast. In the meantime, more content like this is available at mises.org.