Modern Monetary Theory Is Just Plain Stupid
The suddenly simple answer to funding the Green New Deal, Medicare-for-all, free college, and two Teslas in every garage, making the rounds as Modern Monetary Theory (MMT), is a joke.
Only no one should be laughing.
MMT is not only dangerous for reasons that no one’s bothering to bring up, but also it’s just plain stupid.
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As stupid as MMT is, I’m going to tell you something else just as stupid before I go on.
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Now, let’s dive into MMT – and why it’s so dangerous.
What is Modern Monetary Theory?
It’s more of a proposition than a theory.
It’s a proposal to pay for government programs by printing money – though that’s not how it starts out.
The initial expectation is that governments pay for the things they hand out by issuing debt, which bond investors buy in the form of U.S. Treasury bills, notes, and bonds.
Bond investors are expected to keep buying Treasuries as long as interest rates are low and as long as there’s no inflation.
In the rarified ether of this, all boats rise with a rising tide of money theory, deficits don’t matter either if there’s no inflation.
If inflation rears its ugly head, theorists say, it can be killed by taxing people – so, not to worry.
The real backdrop of the theory supposes a country that issues its own currency can keep printing that currency to pay for whatever bigger governments promise their citizen and non-citizens.
Printing money, the currency the U.S. owns and controls (theorists suppose), to keep paying for trillions of dollars of free stuff if and when bond investors stop buying bonds and rates start to rise on their own – maybe because bond investors are selling bonds, driving rates higher because they see signs of inflation, or they’re selling bonds because the value of the U.S. dollar on international markets is falling (because so many dollars are being printed) – is the crux of the airy-fairy theory.
Governments can pay for free stuff, without taxing people, by printing money.
“Wouldn’t It Be Nice” is the first track on side one of the Beach Boys seminal 1966 album Pet Sounds. The lyrics in the bridge after the second chorus are:
Maybe if we think and wish and hope and pray it might come true,
Baby, then there wouldn’t be a single thing we couldn’t do
That about sums up MMT.
A Worse Master
According to George Selgin, director of the Cato Institute’s Center for Monetary and Financial Alternatives, “The theory does… lend itself to use, if not to abuse, by big spending proponents, they like to harp on its observation that governments’ right to create money gives them practically unlimited spending capacity. That claim is true, if not banal. But it’s also misleading: Governments may be able to spend without limit; but outside of recessions they can’t do so to any great extent without having to make their citizens ultimately foot the bill, either by paying higher taxes or by having to endure inflation. When politicians promise something for nothing, people should be wary, there’s nothing to MMT that should make them any less so.”
What makes MMT proponents dangerous in my mind is their complete lack of address, maybe because of their complete lack of understanding or their complete ignorance, when supposing the U.S. owns its currency or controls its monetary policy and can just order dollar printing presses to be turned on and left on.
The Federal Reserve System owns America’s money. Look at any bill in your purse or wallet; it says “FEDERAL RESERVE NOTE” right up top.
Yes, the U.S. Treasury prints the Fed’s money and the Secretary of the Treasury signs it, but that’s a ruse. It’s still the Fed’s game; the Treasury only legitimizes it by playing its part as printer and minter. Government officials legitimize Federal Reserve Notes as legal tender because that’s the bargain they struck with the Fed when they legislated it into existence in 1913.
If you read my columns regularly, you know this.
You also know that bargain was about the Fed controlling money and credit as a private institution in return for printing enough money to finance federal deficits.
With a wink and a nod, the Fed’s been practicing MMT for a very long time.
Only, it’s their game and their tables we’re playing on. The government can’t just command the Fed to print money any more than they can command them to raise or lower interest rates.
As much as I’d like the Fed to be legislated into the dustbin, if the government wants to, it can kill the Federal Reserve System, take over the money supply, and print to its heart’s content.
That wouldn’t be good.
The Congressional Budget Office already predicts $1 trillion annual federal deficits during the next decade and total U.S. national debt already exceeds $22 trillion.
Federal deficits and debts either matter or they don’t. Inflation either matters or it doesn’t.
Venezuela, Zimbabwe, and Argentina are examples of central banks running printing presses to please politicians, which ended in hyperinflation and economic collapse.
Spending trillions of dollars more and printing it to pay for programs is both dangerous and stupid.
That’s why MMT matters… only if you’re stupid.