The Three Stages of Modern Monetary Theory
The Three Stages of Modern Monetary Theory by MN Gordon for Economic Prism
Stage One: Yielding to Dreamers
Some ideas are so bad they’re best ignored. Like resentments – or stray cats – if you don’t feed them, they’ll go away. Before long, they’re forgotten altogether.
That has been our approach to Modern Monetary Theory (MMT). The idea’s so obviously foolish, reckless, and outright suicidal. Why feed this dorkus maximus of economic thought?
Alas, there are times when promises of social utopia prove too intoxicating to pass up. It doesn’t matter if the promises are absolute fantasy. When hopes are diminished beyond redemption, any old falsehood will warm the hearts and soften the minds of otherwise intelligent people to ideas of pure madness.
After a decade of increasing wealth inequality, the masses have reached a moment of certain hopelessness. Maybe the $1.6 trillion student loan crisis has something to do with the despair. Maybe the 102 million Americans who do not currently have jobs are contributing to the angst.
Currently, people are after an ounce of hope they can latch on to. Promises of the more abundant life have the greater populace yielding to dreamers, schemers, theorists, reformers, and scoundrels of all stripes. A means to an easier softer way is in high demand.
Hence, fresh pitchers of Kool-Aid – like MMT – are being served up to meet this unquenchable thirst. The usual cast of characters, including Alexandria Ocasio-Cortez and Bernie Sanders, are promoting MMT as a solution to all the downtrodden’s problems. Ray Dalio, hedge fund manager extraordinaire, recently said MMT is “inevitable.”
Today we offer an explicit warning: Don’t drink the MMT Kool-Aid when the cup’s passed your way. Here’s why…
Stage Two: Buyer’s Remorse
MMT, as you may have heard, offers booms without busts, money without limits, and a one way ticket to pleasure island. The nuts and bolts of the theory state that a government that creates its own money, like the USA, cannot default on its dollar based debts. Therefore, the USA can print all the money it needs to amplify the economy – debts and deficits be damned.
Should such overt dollar debasement lead to price inflation, MMT has just the solution. Raise taxes and issue bonds to remove the excess money from circulation. Taxes, you see, are not for funding government spending. Rather, they’re for throttling back the money supply to attain the magical balance of growth and inflation.
MMT, no doubt, is a system for big government statists. They can hatch boondoggles first, and leave taxation for later. The whole theory, or lack thereof, is absurd. Yet a growing base of supporters find it appealing.