One of the economic theory’s latest trends is masked by a decidedly un-trendy name. Modern Monetary Theory (MMT) has hit the big time, garnering attention from 2020 presidential candidates and House Democrats. Its proponents include one-time Bernie Sanders advisor Stephanie Kelton, along with Australia’s own Bill Mitchell, from the University of Newcastle.
MMT states that the government’s priority should be to target full employment, and until this point is reached, there is no need to worry about inflation. This part, at least, is largely synonymous with broader Keynesian thought on deficit spending. While both groups often come under heavy criticism from fiscal conservatives, the fact is running deficits has practically become a global norm. No government is truly averse to issuing debt, and with good reason – debt, in manageable amounts, is a good thing.
However, while Keynesians largely focus on maintaining full employment through a cautious combination of fiscal and monetary policy, MMTers see little-to-no use in monetary policy, and are far less concerned by the negative consequences of deficit spending. This apparent indifference to unconstrained debt accumulation has produced some unlikely unity in critics, with Fed Chair Jerome Powell, Japanese Finance Minister Taro Aso, and ubiquitous Keynesian Paul Krugman all voicing their disapproval.  
MMT highlights that governments can always service debt through currency creation, and therefore the only adverse consequence of debt is inflation. But if we’re below full employment, the unused labour and capital will prevent debt-fueled inflation. Therefore, government’s priority should be to spend whatever is necessary to create full employment, no matter the numbers of bills that must be printed, or bonds that must be issued, to do so.
One policy tool proposed by MMTers to target this is the large-scale hire of unemployed workers by the government – a Job Guarantee. Workers hired by the program will perform this government-mandated work before transferring to the private sector once labour demand has been stimulated, i.e. once wages have increased beyond those paid by the program. So in a nutshell, a Job Guarantee would literally guarantee a government job, at a certain mandated wage, to everyone who wants one.
In one sense, this isn’t a new idea; government works have been used to alleviate recessions before, such as FDR’s ‘New Deal’ in response to the Great Depression. It’s no coincidence that MMT is linked to the ‘Green New Deal’ currently being floated by progressive Democrats. But MMT is different from FDR’s work programs; it proposes a permanent “buffer-stock” of employment that would, in theory, be self-regulating. During periods of high unemployment, more people enter the program, and as the economy recovers, they transition to the private sector, reducing the financial burden of the scheme precisely as inflation is set to come into play.
So what would happen if we implemented it? Firstly, the program would likely reduce the number of people on welfare at any given time, by removing the hassle of a job search and guaranteeing a reasonable wage for a day’s work. While there is no guarantee that the jobs will be particularly efficient, they will give participants skills that they can take into new roles once they transition from the program. A Job Guarantee outperforms welfare in the sense that it does have some potential of promoting some degree of productivity, and in this sense, it may be comparatively efficient.
Yet in spite of all this talk, yours truly has some serious concerns about the feasibility of a Job Guarantee. Considering how much MMT derives from Keynesian thought, I am surprised by the willful ignorance to the concept of stickiness shown by many of its proponents. While sticky wages, per Keynesian theory, are likely a large cause of unemployment in the first place, I see a similar problem arising from a Job Guarantee – the choice of people to remain in unproductive government work. Sticky jobs.
Will participants really be willing to chop-and-change between employment in public and private sectors, based purely on the economic cycle? Will they really leave their cosy, reliable government job at the precise moment private sector work at a marginally higher wage becomes available? If you don’t think so, you implicitly acknowledge the potential for workers who would’ve eventually re-joined the workforce independently to remain in inefficient, government mandated jobs. Jobs originally designed to act as transitionary work.
Which brings me to my next criticism. There are only so many roles that can be performed in such a ‘transitionary’ context. Many potential jobs require skilled workers, or are otherwise unsuited to a program which guarantees a job to whoever turns up. Such a program would demand no skills or training, and would face both high turnover in a strengthening economy, and huge influxes during recessions. And if the government can’t find enough suitable tasks for participants to perform when demanded, we’ll be paying a whole lot of people to dig holes in the ground and fill them in again.
My final criticism has to do with the nature of work itself. Hiring people to do mandated jobs that are not in demand ignores the fact that many of us want to derive true meaning from our employment. Would you want to go and work every day in a job that you know benefits nobody, and only exists so that you can be considered ‘employed’? Unless you’re truly unfazed by such a prospect, I’d argue you’d be better served taking a longer time to find a job that means something to both you and to the rest of society.
welfare system exists such that those looking for employment can find support
while they search. While a Job Guarantee appears to be a fresh new approach to
combat the realities of stagnating employment prospects, legislating the
unemployed into unproductive work is not a sensible solution. There are a
number of other bright new theories that also deal with this issue, such as the
Universal Basic Income or a reduction in the standard working week. The Job Guarantee,
while novel, clearly needs a bit more thinking through from its proponents.
 Hail, S. (2012). What is Modern Monetary Theory. The Conversation. Retrieved from https://theconversation.com/
 Smith, N. (2019). Don’t Be So Sure Hyperinflation Can’t Hit the U.S. Bloomberg Opinion. Retrieved from https://www.bloomberg.com/
 Krugman, P. (2019). Running on MMT (Wonkish). The New York Times. Retrieved from https://www.nytimes.com/
 Jones, T. (2019). Modern Monetary Theory: Everyone’s Talking About MMT, But What Is It, And Will It Work? Investor’s Business Daily. Retrieved from https://www.investors.com/
 Kihara, L., Kaneko, K. (2019). Japan policymakers shun ‘Modern Monetary Theory’ as dangerous. Reuters. Retrieved from https://www.reuters.com/
 Kelton, S. (2019). How to Tell When Deficit Spending Crosses a Line. Bloomberg Opinion. Retrieved from https://www.bloomberg.com/