ABC goes gaga for Modern Monetary Theory


Trust the ABC to like this idea:

The radical idea of offering every person a government-funded job is finding new supporters in Australia as proponents claim it could eliminate unemployment overnight.

US economist Stephanie Kelton, who served as Bernie Sanders’ economic adviser during the 2016 presidential campaign, is currently touring Australia to promote the concept she says isn’t too good to be true.

“There is nothing to prevent the Australian government, if it chose to do so, from funding a large-scale government job program that would offer employment to anybody who wanted work and couldn’t find it anywhere else in the Australian economy,” she said.

“Let the private sector create as many good jobs as it is willing to create, but the problem is there is always a segment of the population that doesn’t get invited to the table.

“And so this program is there as a backstop to just soak up the people who are left behind.”

The plan — commonly referred to as a “jobs guarantee” — works like this: every one of the 700,000-odd unemployed Australians would be offered a job that would be funded by the government but managed by local communities.

“We want the local communities being the ones to imagine the kind of work that is going to provide the most value,” Professor Kelton said.

“So it’s not a top-down government, bureaucratic [model] … they just provide the funding and the community decides what needs to be done.”

The idea is part of the modern monetary theory (MMT) school of thought that has been developing since the early 1990s.

What was once discussed only among economic outsiders is said to have piqued the interest of sections of the Labor Party and the Greens.

University of Adelaide economics lecturer Steven Hail is an expert in MMT and regularly speaks on the topic.

“Interest in MMT is spreading like wildfire, in Australia and elsewhere, and it is being widely discussed in branches of both the ALP and the Greens,” he said.

“I myself did a presentation to the economic policy committee of the ACT ALP in Canberra in June.”

Professor Kelton has been invited to Australia by organisation GetUp and is speaking as part of its Rethinking Our Economy roadshow.

A core belief of MMT is that countries that control their own money (like Australia) face no purely financial budget constraints because they can always print more cash.

Want more funding for schools and hospitals? Simply start the printing presses.

There is no shortage of critics of the concept, including UNSW economics professor Richard Holden, who wrote in The Conversation:

Suppose a government wants to pay for some “stuff”.

If the government prints money and doesn’t back that by issuing bonds, then there is inflation.

That inflation leads to the government needing to print more money to pay for the stuff. Which leads to more inflation.

And pretty soon that leads to wheelbarrows of cash being pushed around, hyperinflation, the destruction of all savings in the economy, and (in some notable cases) world war.

Professor Kelton doesn’t ignore the inflation issue, but said it was simply a factor that would have to be managed if the jobs guarantee concept was implemented.

“The trick really is, can you strike an appropriate balance where the government is hiring enough people to give everybody an opportunity … without creating the inflation problem,” she said.

“So that’s the challenge. It is not about running out of money, it’s not about the affordability or the cost of the program, it is about the real resource constraints and whether you can safely and responsibly create employment for everyone without causing other problems in the economy.”

I’m sure the ABC would love the RBA to fund it directly. Snowflake Nirvana!

There are three main problems. The first is that the world is not based upon MMT principles. Markets are still driven by Monetarist ideals so to go all-in on MMT would collapse the currency.


Second, it destroys the principle of meritocracy which underpins capitalism.

Third, the opportunity for corruption is beyond belief, especially in a dodgy political economy like Australia’s.

That is not so say it is all bad. It’s not. At base it is right and it is likely to get greater currency as the world struggles to deleverage its immense debt stock.


But unless you want to live in a quasi-communist, clepto-state then it would need to be very carefully managed. One idea that makes sense is that the printed dough is put into an huge research and development fund that employs folks to do all sorts of stuff out of which will come public goods. Sure it’ll mostly be wasted but at least then it’s contained and has some social utility beyond pulling free cones on the couch.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.