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Have you wondered what happened to Modern Monetary Theory (MMT)?
Well, one of its famous advocates, the economics professor Stephanie Kelton, is currently touring Australia with a new documentary on the topic.
It's already been shown in a number of major cities, and this week it's playing in Canberra and Sydney.
It will be interesting to see how those audiences respond.
What to do with unfamiliar ideas?
When writing about economic ideas, there are so many to choose from.
Not all ideas are equally worthy, of course.
But if you live long enough, and you bother to read economic history, you'll know that economic ideas can be fashionable in one era but unfashionable in the next, and orthodoxies enjoy power for a time before they're muscled aside by a new orthodoxy, and new dogmas.
You'd know good ideas can come from lots of places, and no single "school of thought" has the answer to every economic problem.
So it can be wise to stay humble and open-minded to different perspectives.
And it can be especially important to stay humble in a period of history like the one we're living through now, which is characterised by extreme technological, environmental and political convulsion and uncertainty.
The video below explains what I'm saying.
It's a fantastic animation of a lecture given by the great South Korean economics professor Ha-Joon Chang, who talks about economics similarly.
I guarantee it will keep your attention.
Which brings us to MMT.
In 2020 and 2021, during the COVID lockdowns and recession, you may have read some stories about MMT.
I wrote some of them myself.
You may have also read pieces from economists who ripped into MMT, who said it had nothing to teach us, it says nothing new, and it's dangerous nonsense.
What to make of it all?
Well, MMT is clearly a school of thought with its own literature and history. In that video above, Ha-Joon Chang would categorise it as a sub-school of a larger body of thought.
And one way to think about it, if you're unfamiliar with it, is to hold two distinct components in your mind.
First, you have the MMT description of how the monetary system works.
It focuses on how federal governments, central banks and treasuries, in certain countries with specific institutional arrangements (such as Australia), pump money into their economies and drain money out of them, and how their actions interact with state governments and private banks.
Second, you then have policy proposals from MMT economists such as their "job guarantee" idea.
So, you're dealing with two separate questions.
One question is about reality (Is the MMT description of the monetary system correct?), and the other question is about the policy proposals MMT economists make (Do you think their job guarantee idea is good or bad?).
And obviously, you can want to know if their description of the monetary system is correct without caring one bit about their policy proposals.
So let's consider that first question quickly.
A 'bond guru' weighs in
Is the MMT description of the monetary system correct?
To answer that, you might ask an economist who's had little personal experience of how the system works from the inside (but who has strong opinions about it nonetheless), or you might ask someone who's had decades of experience working inside the system, in the nuts and bolts of it.
If you'd choose the latter, you may find this article fascinating.
It was published by the Australian Financial Review (AFR) in late 2022, and it was written by Tim Hext, the head of government bond strategies at Pendal Group.
Mr Hext spent a decade working at NSW Treasury Corporation (the central borrowing authority of the state of New South Wales) as general manager of funding and balance sheet from 2007 to 2017.
Before that, he was senior portfolio manager at Westpac Treasury, head of bond trading at Commonwealth Bank, a senior associate director at Deutsche Bank in Sydney and London, and a bond trader at DBSM (in the late 1980s).
The AFR calls him a "bond guru" and "one of the market's top bond managers".
Here's what Mr Hext wrote in that article about our management of the COVID crisis.
"The pandemic forced the rewriting of conventional economics to fit the real world," he said.
"For central banks this was the world best described by Modern Monetary Theory — the great economic buzzword of the COVID-19 era, which told us not to worry about printing money.
"The main idea behind MMT is a central bank like the RBA can create as much of its own currency as it wants. This means the federal government's budget is merely an accounting entry. The government can spend more than it drains via taxes, without needing to borrow from the financial sector.
"There are two ways it can do this.
"The simplest and cheapest is for the RBA to give money to the federal government. After all, it can create whatever it wants. This is a step too far for some, including the RBA governor.
"So during the pandemic, the RBA instead engaged in quantitative easing – buying bonds via the market that the government was issuing to finance its deficit.
"How did the RBA pay for it? They created the money.
"Middlemen are required. This keeps banks happy, since they bought and sold between two government bodies – the RBA and the government's issuer of debt, the Australian Office of Financial Management.
"The RBA argued they bought bonds, including state government bonds, to drive down term rates to stimulate the whole economy, not to finance the government. If that's the case it's a happy coincidence, because the amount the RBA bought in 2020 and 2021 largely matched the government's deficits.
"This also represented good policy, in 2020 at least, given significant excess capacity in the economy."
Interesting, hey?
Mr Hext goes on to say that the only constraint on federal government spending, as he sees it, is not how much it can borrow or at what rate, but rather whether there is enough capacity in the economy to absorb that spending.
"If there isn't enough capacity then inflation will follow," he said.
"This is a fact that MMT correctly describes. Any government that spends too much in a resource-constrained economy will find this out. It is not a failure or debunking of MMT. It is just poor policy."
Mr Hext had nothing to say about whether or not he agreed with MMT's policy proposals.
He just said that, based on his experience of how government budgets are financed in the modern era, in a country like Australia, this is how the government-central bank-treasury nexus operates.
And, on the issue of budget debt and deficits, he said "misguided comments" about "leaving the debt to our children" or "living beyond our means" stemmed from people viewing the government like a household or business, "which clearly it is not".
"If the value of the money it creates collapses through irresponsible policy driving up inflation, that's a separate issue," he said.
Again, it's a really interesting perspective, coming from someone like Mr Hext.
Finding the Money
Which brings us to the new MMT documentary, Finding the Money.
The documentary is like similar films on economic topics such as The Big Short, Margin Call, Too Big to Fail, Enron, and The Corporation.
It spends a lot of time explaining the nature of money in the modern world, and how to think about "debt" and "deficits" using the sectoral balance approach.
That's the analytical approach that sits behind the graphs you see many times in the film.
Once it's done that, which takes about an hour, it moves into the area of policy proposals.
I'm not sure how many people the documentary will win over to the MMT worldview.
But one issue I think it prosecutes well is its criticism of the Obama administration's pivot to austerity after the global financial crisis, which was so damaging for American households.
That leads to an interesting discussion with Jason Furman, the Harvard economist and former economic advisor to Mr Obama, who says the MMT way of looking at things invariably leads us back to the same trade-offs mainstream economists struggle with.
As in, how do we know if an economy is producing close to capacity and is therefore at risk of suffering serious inflation if there's excessive government spending?
It would have been great to see the film dedicating far more time to that question.
Another thing the film does well is explaining why some arguments politicians use to convince people that federal governments can't spend more freely in some situations — such as "we've run out of money" and "the government's broke" — are simply not true.
Part of MMT's ambition, as I understand it, is to make it impossible for those types of arguments to be used anymore.
It obviously wants politicians to be forced to explain to voters why they don't want to dedicate more resources to helping people get the things they want, rather than being able to hide behind myths about supposed federal budget constraints.
At any rate, the film's playing in Canberra this week, and I'll be going.
It will be interesting to see Professor Kelton answering questions in the Q&A afterwards.
She's participating in the fine tradition of foreign economists travelling to Australia to promote their ideas in a new country, like Henry George's lecture tour of 1890, and Milton Friedman's and Friedrich Hayek's trips to Australia in the 1970s, which our newspapers have always covered.
A theoretical home for the theory?
But let's wrap things up with a quick addendum.
I've read lots of articles in recent years from non-MMT economists that say MMT adds nothing new to economic theory.
Is that true?
Because according to economics professor Marc Lavoie, author of an award-winning textbook on post-Keynesian economics, MMT has made a contribution to post-Keynesian theory.
Professor Lavoie has taken several critical looks at MMT (such as in this 2013 article, and this 2019 article).
He's formed the view that MMT's monetary analysis is "essentially correct" and says it's made "a welcome addition to post-Keynesian monetary economics" by forcing post-Keynesians to dwell on the details of the clearing and settlement system, and to take into consideration the role of government in the payment system.
He also thinks MMT's framework has been "validated by its analysis of the main flaws of the eurozone set-up, long before these flaws became apparent with the eurozone’s economic-crisis advent in 2010".
Lavoie is not a slavish fan of the MMT school.
He's repeatedly argued that MMT advocates do themselves no favours by telling particular stories about the economy that people find counter-intuitive.
He's listed a long number of problems he has with some of their arguments, which are definitely worth reading.
But he believes they have still pushed things forward, in their way.
Although, having said that, there'd be plenty of mainstream economists who couldn't give two hoots about what's happening in the world of post-Keynesian economics, because they'd argue it has little to say that's worth listening to.