The three policies recommended by MMT: floating exchange rate, job guarantee, and ZIRP

Modern Money Theory, or MMT, is an accurate description of how modern* economies actually work. As all theories do, MMT also has some recommended policies, or prescriptions, that are strongly implied given its knowledge**. There are three (and only three): a flexible exchange rate, a federally-funded jobs guarantee, and permanently low, near-zero interest-rate targeting (ZIRP). This is confirmed by a July 2020 paper authored by original MMT developer L. Randall Wray, as excerpted below.

(*where “modern” means the past ~5,000 years
**and on the assumption that you prefer a civilized society over one in which rampant inequality threatens the very existence of our remaining a globally-organized species.)

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This post was last updated September 1, 2020.

Disclaimer: I have studied MMT since February of 2018. I’m not an economist or academic and I don’t speak for the MMT project. The information in this post is my best understanding but I don’t assert it to be perfectly accurate. In order to ensure accuracy, you should rely on the expert sources linked throughout. If you have feedback to improve this post, please get in touch.

Here is page 31 in the July, 2020 paper “The “Kansas City” Approach to Modern Money Theory” by MMT original developer, L. Randall Wray (emphasis added):


Much of MMT is descriptive, explaining how sovereign currency “works,” as well identifying the policy space open to a sovereign currency issuer. The descriptive part can be used by either progressives or conservatives to formulate policy. MMT’s developers are largely progressive but have sought to explain how the monetary system in place works with a view to exposing fallacies held by both the right and the left. For the most part, the descriptive part of MMT can be separated from the policies advocated by MMT’s proponents. However, we see three policies as following directly from MMT: the job guarantee, flexible exchange rates, and interest rate targeting.

Some critics claim that the job guarantee is not essential to MMT. They see it as, at best, an optional policy that some progressive proponents of MMT have unnecessarily added. This is false. All of MMT’s developers (including Warren Mosler, as well as the Newcastle approach of Bill Mitchell) have included the job guarantee from the beginning as one of the fundamental policies. MMT sees the job guarantee as the most important policy to regulate the value of a sovereign currency.

‪The MMT-designed federal jobs guarantee and MMT are inseparable. It’s not an optional add on, it is central. MMT does not exist without its job guarantee, and the job guarantee does not exist without MMT.

Regarding interest rate targeting (ZIRP), see this post: The MMT view of ZIRP (permanent [near-]zero interest rate policy). Also, note that Warren Mosler considers ZIRP to be “a point of logic,” as opposed to a policy recommendation.

Top image from qimono on Pixabay (license)