What’s old is new again. Like those teenagers who comb through their grandparents’ treasure trove of Motown vinyl records and declare themselves to be aficionados of the genre after listening to “It’s the Same Old Song” just once, so too are young leftists embracing Modern Monetary Theory, or MMT. And, as in that Four Tops greatest hit, MMT is the same old song, but with a different meaning.
What is MMT?
The axis of economic progressive leftism – Rep. Alexandria Ocasio-Cortez (D-NY), Paul Krugman, and Stephanie Kelton – is promoting ambitious big government pet projects, from the Green New Deal to Medicare for All. Despite initial applause upon hearing the word “free,” there is some consternation among the electorate when it is revealed that these proposals would require direct aggressive theft from their pockets.
Keynesian disciples have devised another method of thievery to mask their iniquitous intentions: money-printing – but with a catch.
Now, this isn’t a new concept. The printing press has been a permanent fixture inside the Eccles Building for decades to fuel bubbles and drive the boom-bust cycle. It was the primary instrument for the Federal Reserve following the Great Recession, creating trillions in new dollars out of thin air to artificially suppress interest rates and spur investment. The difference with MMT is that instead of newly produced money injected into credit markets, it will be sent directly to the Treasury. Considering how politicians channel the Santa Claus spirit for 12 months of the year, this is a dangerous development because the government would have immediate access to fresh cash that would be wasted on welfare, warfare, and everything in between.
According to these snake oil salesmen, if the government issues its own currency, then it no longer needs to worry about fiscal prudence (as if it does now). It is Democratic and Republican politicians controlling how many dollars are traveling through the economy, not the Federal Open Market Committee (FOMC). Kelton, an economic advisor to the 2016 Senator Bernie Sanders (I-VT) presidential campaign, said in an interview with Marketplace that officials no longer need to lose sleep at night over balancing the budget:
“If you control your own currency and you have bills that are coming due, it means you can always afford to pay the bills on time. You can never go broke, you can never be forced into bankruptcy. You’re nothing like a household.”
In other words, perpetual prosperity if Capitol Hill installs its own printing press. Perhaps this is what Rep. Ocasio-Cortez meant when she told Jorge Ramos before the midterm election, “You just pay for it!”
What Can Go Wrong?
John Maynard Keynes famously said, when defending expansionary monetary policy, “In the long run, we are all dead.” This is MMT in a nutshell. Today, thanks to the flick of a switch, the public gets to imbibe the champagne flowing from the heavens without having to pay for it. Everyone is entitled to something for nothing because policymakers have deemed it so. Tomorrow, when the bills come home, whether it’s inflation or excessive taxation, it will not matter because we will have perished.
Unlike the Fed’s accommodative and unconventional monetary tools a decade ago, MMT will not lead to an instantaneous economic boom, because it will be in the hands of politicians. Instead of easy money on Wall Street to purchase stocks, cheap cash will flood Main Street to waste on infrastructure spending and government-guaranteed jobs. Like every other type of tax – yes, inflation is a tax – MMT will misallocate resources from productive assets and enhance the population’s time preferences (cut saving, reduce capital accumulation, and boost consumption).
…Washington will continue to issue money to run annual deficits and spend more.
Society would initially deem MMT a success because if its objectives are genuine, then everyone will have a job with a steady paycheck. However, the unintended consequences are declining living standards, a shrinking private sector, and inevitable tax hikes in an attempt to stop the inflationary bleeding – this will not work because Washington will continue to issue money to run annual deficits and spend more. Ostensibly, Krugman’s proclamation of “deficits don’t matter” is the motto in the world of MMT. This will only increase the national debt, exacerbate the trillions in unfunded liabilities and expenditures problem, and diminish the greenback’s already dissipating influence.
More Central Planning
Young Democrats are gradually coming to sympathize with MMT, but they only perceive it from the perspective of holding power. What would happen if Republicans garner the keys to this state-run printing press in the future? It’s akin to the argument made against enhancing executive power; Democrats may have endorsed it under former President Barack Obama, but they may now have buyer’s remorse under President Donald Trump. Ditto for the GOP.
MMT is nothing new. It’s just another big government prescription from statists who believe you can manipulate economies and control the people through central planning in the name of justice, equality, and prosperity.
Conservatives and libertarians often joke that the left thinks the White House and Congress have some magical money tree to eternally cover the cost of their something-for-nothing schemes. Well, this quip is becoming a reality because the anointed took the sarcasm seriously. The next time a Democrat wants to spend $40 trillion on a progressive cause du jour, they don’t need to beg a Fed Chairman. They’ll just head down to the dungeons of Capitol Hill, insert a dollar amount, and witness the ink apply to green paper. Checkmate, fiscal conservatives!