1. Introduction

The main purpose of this paper is to clarify both the rationale for, and policy objectives underpinning, a range of interventions recently advocated by Modern Monetary Theorists (MMTs), within the context of the UN’s Agenda 30 strategic policy goals. Specifically, it will address the Job Guarantee (JG) as an anti-inflationary instrument and the Green New Deal (GND) as a means for redirection of resources and capital investment.

However, I intend to achieve this clarification within an academic context where it has become fashionable to question MMT for its on-going adherence to supposedly inadequate or erroneous theoretical principles. Much like much like Marc Antony in Shakespeare’s Julius Caesar, who guilefully claimed that he came “to bury Caesar not to praise him”, for although Brutus (along with Georg Friedrich Knapp and Abba Lerner) was purportedly an honourable man, MMT is faulted on a fundamental level for its less than honourable fidelity to the principles of (i) neo-Chartalism; and, (ii) Functional Finance.

The first theoretical allegiance is criticised on the basis of a broader Post Keynesian or Marxist interpretation of “money with no intrinsic value”, which questions the notion that stability in the value of money, when it functions as both a unit of account and a store of value, can be guaranteed solely by the legislated requirement that it be used for the payment of outstanding tax obligations (Lapavitsas & Aguila, 2020, is representative on this strand of critique). The second allegiance is questioned by so-called Structuralists, on the basis that current account deficits and cumulative net foreign indebtedness do matter, especially for emerging economies, which suffer from being situated low in the global currency hierarchy, plagued by a narrow, commodity-based admixture of exports, while subject to a rapidly destabilising pass-through of exchange rate fluctuations onto tradeable goods prices (for examples of this Structuralist critique, see Prates, 2020; Vernengo & Caldentey, 2019, for critiques, and Carnevali et al., 2020 for a discussion of strategic pass-through as a generalization of the Marshall-Lerner conditions).

With the intention of clearing the way for a more focused discussion of macroeconomic policy options, I wanted to briefly respond to the above-mentioned criticism of MMT’s theoretical foundations. To begin with, I wanted to highlight the fact that, in the 1980s, the Australian tradition of MMT developed within an environment where many mainstream and more left-wing economists adopted what were effectively Structuralist arguments to argue that a return to policies of full employment that were temporarily abandoned in the last year of the Whitlam Labour Government, was prevented by a “Balance-of-Payments Constraint”. When Hawke-Keating Labor Government was returned to power in the early 80s, Treasurer Paul Keating, largely mirrored then ex-Prime-Minister John Howard’s obsession with the rising level of foreign debt.

In Australia, back in the 80s, a series of inter-linked Structuralist arguments legitimised a sustained assault on the wages and conditions of Australian workers, and ultimately, the level of trade union influence. However, the biggest impact on the industrial working class could be sheeted home to rising labour underutilisation (a combination of rising unemployment and ‘precariousness’). With the clear intention of reducing the “real wage overhang,” workers were encouraged to trade-off increases in the ‘social wage’ for cuts to real wages as a means of restoring the international competitiveness of Australian goods and services.

In grappling with these problems, progressive economists often (incorrectly) applied Kaldor-Thirlwall multiplier models of trade to the case of floating rather than fixed exchange rates (McCombie & Thirlwall, 1994)[1]. On this view, income elasticities of demand dominate in their effects over exchange-rate related price-elasticities. A country like Australia is seen to have a high income-elasticity of demand for imports whereas the rest of the world has relatively low income-elasticities of demand for Australian exports. Accordingly, if Australia were to grow too rapidly compared with rates of growth exhibited by our major trading partners, the current account deficit would widen dramatically. “Stop-Go” policies would be the inevitable result.

Within the Commonwealth Government bureaucracy, it was commonplace for economists to refer to the “twin deficits” hypothesis, which viewed total public sector debt as the main driver of deficits on the current account. Similar views were actively promoted by supposedly ‘left wing’ economists in the National Institute of Economic and Industry Research, officials at the OECD, and members of Secretariat of the tripartite Australian Economic Planning and Advisory Commission. At around the same time, there was much-heated debate about “Dutch Disease” (i.e., the “crowding out” of other industries when the resource-sector expanded) and the “J-curve” effect in Australia (which arises when an exchange-rate depreciation initially worsens the trade deficit before contributing to a gradual increase in net exports).

Both Marxist and Post Keynesian critics of MMT have emphasised the importance of the global currency hierarchy, the determinants of effective sovereignty, and the influence of conventions and confidence in the whole monetary system as having some bearing on the value of money. And Chartalist views have been questioned on the dubious basis that spot/forward contracts were developed before effective principles of taxation were formalised. It has been claimed that many developing economies simply “will not find foreign demand for their currencies”.

Kaltenbrunner (2012) has attempted to achieve an integration of what she calls the ‘horizontalist’ or structuralist position and ‘verticalist’ interpretations of monetary policy in open economies (the work of Lavoie, 2000, 2002-03 can be seen as illustrative of the ‘verticalist’ position, especially in his interpretation of the covered interest parity condition).  To this end, she has identified three structural factors that determine the ability of a country to meet outstanding external obligations (and thus, the liquidity premium on its currency); namely: (i) a country’s total stock of net (short-term) external obligations (expressed as a proportion of GDP); (ii) the proportion of its liabilities denominated in foreign currency and the possible existence of other liabilities to foreign investors; (iii) a country’s ability to meet its outstanding liabilities through “forcing a cash flow in its favour” either through the income generation process (including income from previous rounds of lending) and/or dealing and trading in capital assets and financial instruments; and finally, if current cash flows are insufficient to meet outstanding obligations, (iv) the ability to “make positions” (i.e. to refinance existing debt and/or to liquidate assets).

The question for policy makers is whether a country exposed to external pressures in each of these three ways, can put together a cluster of policy interventions, including capital controls, to counter any likely shocks (while recognzing the fact that floating exchange rates ensure greater levels of autonomy in the pursuit of effective fiscal policy). This is where consideration must be given to a range of policy instruments that help to develop and diversify the economic and trading base.

Personally, I see a strong resonance between Marxist views on the credit system, when it fails to work as a means of payment, and Minsky’s notions of financial instability, which have long been accepted by MMT advocates. By the same token, I see little difference between Marx’s conception of money with no intrinsic value and Chartalist efforts to explain how a stable value for the national currency can be established.

In the next section of the paper, I will examine the Job Guarantee (JG). This will be followed by an interpretation of the Green New Deal (GND) as a policy for controlling inflationary pressures in the long run, while achieving dramatic changes in the resource base.  Australian MMT researchers would insist that a raft of supplementary policies (apart from, but including capital controls) can also be adopted as supplements in the pursuit of full employment, including tax policy, industry policy and a strategic commitment to industrial development on the basis of competencies.