MMT is changing Economics thinking from linear equations to “four-body-problems”
842 word summary of Stephanie Kelton
To paraphrase several Modern Monetary Theory thinkers I follow, mainstream economics is evolving. To understand HOW it’s evolving, we have to go back to old economic math and show how new economic math is many times more accurate.
Old Economic Math
Old Economic Math treats all economics based on family-household finances:
- You can only spend as much as you take in, in inocme,
- You can’t spend more than your income,
- If you owe money, you have to work to pay it back,
- Budgets not only matter, they are crucial and carry weight.
Notice in the above, these are all linear equations:
- Income = how much you can spend,
- Monthly bills = how much you have to pay immediately
- Debt = how much you have to pay out over a longer term.
The problem with Old Economic Math
The problem with Old Economic Math is it does not apply to nation-states with sovereign currency.
1) If a country measures its income and outlays in money it prints itself, then this state is the same as the Post Office and the stamps it sells. The PO prints its own stamps. It can’t run out of stamps. When the PO needs more stamps, it simply makes more stamps.
2) The analogy of family-household finance never did and never will apply to sovereign nation states who print their own money.
- A family cannot legally print its own dollars.
- A family suffers consequences if they do not pay their taxes and monthly bills.
A sovereign nation state has neither of these consequences.
Rishi Sunak and 2024 Tory Party in England, I’m looking at you. Stop lying to the UK public.
How sovereign states manage healthy economies
When sovereign nation states produce economic peace and prosperity for their citizens, this is what they are doing:
- They juggle how much to spend on projects against the dangers of inflation,
- They juggle who and how much to tax against the dangers of recession and depression,
- They juggle starting new “shovel-ready” infrastructure projects against existing unemployment,
- They juggle tariffs and incentives to build new productive factories against a desired level of national GNP,
- They juggle interest rates against unemployment, housing shortages and incentives to build new factories.
Please notice NONE of the above are simple linear equations. They are all juggling problems.
Sovereign state economic math as juggling
Juggling takes more attention and practice than simple linear equations. We learn linear math equations in elementary school. To be good at economics at the national level requires being good at juggling. If I change how I juggle this one ball, how does it affect all the other balls I am juggling?
Rishi Sunak and his untrustworthy Tory friends are proclaiming they are stuck at elementary school math; and, have yet to graduate to the kind of thinking which can manage a national state economy.
Sovereign state economic math as a “four-body problem”
In this analogy which four balls have to be kept circulating to maintain a healthy economy? They are:
- Government spending (money creation),
- Taxation (money canceling, reducing purchasing power),
- Employment-unemployment, and
- Building new factories to replace old factories no longer adequately productive.
The above is meant to support and clarify what Stephanie and other MMT people emphasize.
Old, simple two-body problem thinking (tax vs. spend) has to die. More complex four-body problem thinking (balancing employment, inflation, productive capacity) has to be taught and practiced.
Q: Is there any other appropriate metaphor for MMT?
A: Yes, the juggling of four balls in the air can be analogized to a hologram. In a hologram, a change in any one node, affects every other node. This is how the human immune system and metabolism works.
Q: Was there ever any benefit to analogizing sovereign nation state economy to household spending?
A: Yes. In the USA, before a college education was the norm for the vast majority of citizens, between the 1800s and 1930s, analogizing nation state economy to household budgets made more sense. Why? There was no other analogy! Juggling a four-body-problem would have been incomprehensible to citizens with rarely more than a sixth-grade education.
I hope the above encourages MMT to STOP trying to explain MMT as a linear-logical thing. MMT does not exist on a two- dimensional plane. It only comes alive and workable conceived in a three-dimensional plane. All economists and politicians resistant to MMT, or confused by it, are missing this shift from grade school household economy math (add, subtract), to more intuitive-holistic-ecological problem solving. Changing the weight of any one ball immediately affects how the other three other balls must be handled.
If you see a way to expand on my article, go for it. May be possible to use it as part of a booklet you can monetize. Or we can collaborate if useful. My article not copyrighted. No restrictions.
We also need a new title. MMT is no longer a theory. The MMT name is holding the movement back.
References
https://theconversation.com/explainer-what-is-modern-monetary-theory-72095
