Modern Monetary Theory

As if we needed another reason to question our education system, along comes the newest group of politicians to wow us with their economic ignorance.  After causing economic chaos in France, Britain and much of Latin America our earnest and aggressive freshman congress persons are once again dusting off the ‘something for nothing’ teachings of Modern Monetary Theory (MMT).   MMT advises that a sovereign nation that issues debt in its own currency cannot become insolvent because they can simply print money to pay those debts.    Accordingly, if insolvency is off the table it follows that governments should simply run deficits without regard to future payback.  What about inflation you ask?  There is an answer for that as well.  In the event of heightened inflation (due to excessive printing of money) the government (think Congress) can simply increase taxes sufficiently to move the budget into a surplus. Just as a point of emphasis here, Congress would now be responsible for raising our taxes, thereby inflicting pain on voters, to safeguard the economy.   I honestly don’t see any problems here!

My reaction initially was to remark that I was unlikely to take economic advice from politicians who got their first checking account last month   Yet, I was struck by the notion that the U.S. has practiced the short form of MMT for the last 50 years.  As Stan Veuger makes clear in the article, “this (MMT) is not … that different from current policies that deliver benefits today and costs tomorrow.”  What is different, however, is that we still have a vague belief that these policies are dangerous and perhaps morally objectionable.  Conversely, Modern Monetary Theory celebrates what we know to be bad behavior

 I am regularly asked about my views on our current national debt and deficits.  My response is always the same, ‘It really doesn’t matter until the day it does.’ 

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