Before I address some of the criticisms, I want to stress that MMT is far more descriptive than it is prescriptive. Although it is used to justify programs like a Federal Jobs Guarantee, MMT itself is a politically neutral idea. MMT is a description of how monetary systems work, while policy like the Federal Jobs Guarantee is a prescription of what to do with these revelations. Many critiques are aimed at these prescriptive implications, arguing why MMT may not be applicable to policy, even if many pieces of its underlying theory are accurate.
N. Gregory Mankiw, a macroeconomist at Harvard, has written a working paper for the National Bureau of Economic Research called “A Skeptic’s Guide to Modern Monetary Theory”.One of the most striking criticisms he raises is that he worries MMT could have us fall into a feedback loop that would devastate our financial systems. According to MMT, this should not happen with proper fiscal policy, but he leads this into another large critique which perhaps should be taken seriously. The federal government as an apparatus is not the fastest thing in the world, and the economy moves pretty quickly by comparison. He concludes his paper by stating that while theoretically the government could act as an ultimate resource manager, in reality, this is probably too complex with all the bureaucratic layers involved. In other words, Mankiw does not seem to disdain the concept but sees it as ultimately impractical—one of those ideas that sounds good on paper but is too difficult to implement properly. This is where his concern about information seems more legitimate; if the government is over its inflation target and cannot act fast enough to reduce spending or raise taxes, the US dollar may become unstable.
Gerald Epstein wrote an entire book critical of MMT. His critiques were not so much based in theory but more based on presentation and practical implementation. Epstein thinks that most MMT advocates encourage higher spending and deficits without specifying on what that money should be spent. This is a rather nebulous claim, so I do not think this one should be regarded too seriously. However, he does raise some legitimate points. Epstein believes that MMT is a privilege afforded to richer, more powerful countries and inherently barred from poor or developing nations. He says that rich countries whose currency is accepted internationally can run up large deficits without fear of consequence, but this is not something most of the world can claim. He also argues against creating low interest rates, as it can cause the financial sector to behave recklessly and stir up crises. In other words, if the interest rate is kept low, Wall Street may engage in more high-risk transactions that jeopardize the economy, just as they did in 2008. This is somewhat true, but MMT and regulating the financial sector are not contradictory issues. Indeed, tight regulatory mechanisms, low interest rates, and engaging in MMT are all possible simultaneously. But we should take heed of his warning and realize that the country perhaps should not engage in MMT before tightening laws on the financial sector. The final main critique Epstein makes of MMT is that while he thinks it could work in the United States, the window to use it is likely shrinking. The US dollar is a powerful currency, and because of its wide acceptance, the US can borrow cheaply when a crisis comes and still keep interest rates low. Yet this may not last forever. Epstein believes we are trending towards a multi-currency system, and when that happens, MMT will become less and less viable.