Debt? Modern Monetary Theory Says Government Can Have It All
The $ 6 trillion budget proposed by President Biden may strike many Americans like an astronomical amount, but there is a school of thought that supports this spending frenzy and more.
Modern monetary theory is a brand of economics that proponents say signals a brave new world and that critics fear could lead to fiscal calamity.
“I’m not sure a White House economist would describe himself as adherent to MMT, but the policies they pursue certainly look a lot like MMT or MMT-lite,” said Tyler Goodspeed, University economist. of Stanford and former chairman of the White Council of the House of Economic Advisers.
The basic premise of modern monetary theory is that a government that controls its money, and therefore owns what is called “sovereign currency”, will never default because it can print as much money as needed to cover it. his debt. If the money supply triggers inflationary pressures, the government can mop up the excess dollars by raising taxes.
In other words, the concept of “overspending” is archaic.
The $ 6 trillion proposal, coming just after the trillions spent on COVID-19 stimulus bills, appears to reflect MMT’s philosophy that there is no need to curb spending. The theory seems tailor-made to meet a progressive wishlist, but there are economists across the spectrum who believe the school is more rooted in politics than economics. At some point, they warn, the old rules about printing money and inflation will certainly apply.
“There is this fundamental tension between ‘this is a bold new world, the second coming of FDR or LBJ’, and the fact that they are only looking in the recent rearview mirror on inflation,” Mr. Goodspeed said. .
Consciously or not, Washington seems to have embraced the idea that government overspending is nothing to worry about.
“There seems to be a presumption that we could get anything,” said Joel Griffith, economics and taxation expert at the conservative Heritage Foundation. “Over the past year, during COVID and since, we’ve seen some of MMT’s ideas implemented on a monumental level. “
Mr Griffith pointed to the exploding federal deficit, which rose from $ 2.4 trillion in 2019 to $ 5.1 trillion in the last quarter of 2020.
Yet the 21st century has witnessed a series of bipartisan spending frenzy, and inflation has remained a hidden rather than an urgent problem.
“There is a boy who cried wolf, the negative side of it all,” said Scott Sumner, an economist at the Mercatus Center at Libertarian George Mason University who opposes MMT but is not unduly alarmed. that inflation will skyrocket. “People who cautioned against this or that might lose some credibility, and now the more dovish guys have taken over the Fed.”
Mr Sumner believes a number of factors besides MMT contributed to the spending spree that not only gripped the Biden administration but also occurred under former Presidents Barack Obama and Donald Trump and a left the country with over $ 26 trillion in debt.
“There has been a real shift in thinking about how much we should worry about deficit spending,” Sumner said. “You could certainly tell a fiscal stimulus story without MMT, and there’s this perception now that we’re comfortable with much larger deficits.”
Indeed, the nation’s debt has risen sharply under President George W. Bush as well, and Democrats and Republicans in Congress have shown no appetite for spending cuts. Mr. Bush created a new cabinet-level agency – the Department of Homeland Security – and added $ 5.85 trillion to the national debt; then Mr. Obama blew it up with $ 8.59 trillion more.
According to modern monetary theory, however, these huge spending spurts are not a problem. And the low inflation of recent decades has played into the hands of MMT supporters, economists said. The “quantitative easing” that began under the Obama administration, followed by trillions of COVID-19-themed stimulus bills in the Trump and Biden administrations, appears to lend credence to the philosophy of leaving. make MMT on the government checkbook.
Officials in the Biden administration did not respond to questions about the importance of the role MMT has played in the administration’s economic thought and to what extent President Biden attributes to theory.
But supporters of MMT have circled around Mr. Biden. One of the school’s most influential members, SUNY-Stony Brook economics professor Stephanie Kelton, was a longtime economic adviser to Democratic Socialist Senator Bernard Sanders of Vermont. Obligate.”
In this role, Ms Kelton was asked to “identify ways to transform our country,” according to her webpage.
Ms Kelton did not respond to questions from the Washington Times.
Another MMT high priest, Bard College economics professor L. Randall Wray, has confirmed that he and other MMT economists have worked closely with lawmakers in Washington.
“MMT has certainly influenced the Democratic side of the budget committee as well as others,” Wray said. “I recently made a presentation at [Congressional Budget Office] and I think Stephanie Kelton has done that too, or is about to do one – by invitation, so they’re at least interested.
Mr Wray insisted it made sense for lawmakers to adopt MMT because its tenants are not hypothetical.
“MMT is not primarily a theory; it’s a description of reality, ”he said. “Kind of like evolution versus creationism. We have some policy prescriptions, but most of our work simply describes how sovereign government spends. The “creationists” – the deficit hawks and doves – describe a world that does not exist. “
Ms Kelton made MMT a viable concept for Washington, writing “Biden could get bigger and not ‘pay for it’ the old fashioned way,” and other items. Her ideas of unlimited federal spending that can be modulated into Raising taxes if needed have also been passed by progressive members of Congress like Rep. Alexandria Ocasio-Cortez, a Democrat from New York who thinks MMT is the ticket to a so-called Green New Deal and other huge projects.
MMT has been hiding among academic economists for some 40 years, with US economist Warren Mosler widely regarded as his father in 1992. Yet most economists from all walks of life remain skeptical.
While MMT features in some textbooks, it remains a marginal notion that some researchers find intellectually awkward. Even Nobel Prize-winning economist Paul Krugman, a proponent of increased spending, called MMT “Calvinball,” a reference to the famous comic book in which the characters sometimes played a game where they made up beneficial rules. As things progress.
A relatively new Ivory Tower theory with shifting principles shouldn’t leave Americans comfortable with ever-growing debt, even though it has proven appealing to both sides of the aisle in Washington, according to many economists.
“There must be a very stern warning sent to Republicans and Democrats that if you are going to dramatically increase the size of government by printing money to buy or spend public debt, you are simply going to run the risk of higher inflation, ”Griffith said. “This is nothing new, they just gave it a new name and there is no doubt that these theories have found their way into this administration.”