Steven Grumbine interviews Professor Bill Mitchell about the “Theory” in Modern Monetary Theory, once again demonstrating that the two of them can make even complicated economic concepts accessible to the layperson. In this video, they take on several of the predominant criticisms of MMT.
Mitchell, who eschews titles, describes the rigorous research and analysis that goes into turning conjecture, or hypothesis, into a theory. He goes on to discuss sectoral balances, a central concept of MMT. On the one hand, it’s a simple accounting statement, but the underlying theory explains how each element is dynamic and drives changes throughout the economy. Understanding sectoral balances provide valuable insights and can have a profound effect on policy prescriptions.
They go on to talk about microfoundations, and Mitchell treats us to a brief history of macroeconomics from Keynes through Milton Friedman and today’s “new Keynesians,’ whose theories are so senseless that they were all blindsided by the global financial crisis.
Finally comes the question we all ask: why do the academics and professional economists cling to failed theories in the face of all evidence to the contrary. Mitchell finds an explanation in the study of social psychology and “groupthink.’