MMT is Total Trash and I'm Tired of Pretending it's not
Ugly, stupid, deeply concerning. I am experiencing trigger.
Modern Monetary Theory (MMT) has been gaining prominence in recent years, with proponents arguing that it offers a new approach to fiscal and monetary policy. As someone who has engaged in numerous debates that at least have the theory as an undertone, I find the concept fundamentally flawed.
MMT is based on the idea that a country with its own currency can't run out of money. It suggests that such a country doesn't have to worry about accumulating too much debt because it can always print more money to pay off its debts. This is akin to a company owner who, instead of worrying about their mounting debts, decides to issue more shares to raise funds, knowing full well it’s diluting the value of all the existing shares, with no intention even to allocate the funding in a way that could even be construed as potentially profitable.
If you're a shareholder in a company, would you be comfortable with the company issuing more shares, diluting the value of your investment, with no regulations whatsoever that force them to do so only in the interest of you, the current owner? Because that’s happened before; it’s called the Mississippi Company, it’s called Railway Mania. Have you heard of the Match King, Ivar Kreuger? This isn’t rocket science, it’s fraud. The same principle applies to MMT. As a citizen, your wealth is tied to the value of the dollar. If the government prints more money, it could lead to inflation, which would erode the value of your savings.
There are historical precedents that show the dangers of such an approach, not just for companies, for countries. Several Latin American countries have tried to finance large increases in public expenditures through money creation, and all of them ended badly. Here’s how that went in Venezuela, how it went in Argentina - why stick in just South America, how about Zimbabwe? How about the direct precursor to Nazi Germany?
MMT fully neglects the importance of other factors in economic dynamics, such as incentives and expectations, competition on goods and services markets, and the role of skills as important determinants of income.
All that said, reasonably, after my recent piece on sovereign wealth funds, a fan raised an interesting point, that I’m proposing we delay government access to a form of government revenue for a period of at the very least 10 years, perhaps even longer. What if we need to access that revenue now, not in the future? This is a valid concern. However, the solution is not to print more money, but to take on debt in a responsible manner. Debt isn’t in and of itself a problem, it’s whether or not our collateral both exists and is generating outsized financial benefit compared to whatever interest is being paid, whether literally, or in terms of inflation.
We can take on debt against the ownership stakes in companies that pay their taxes by providing a public ownership stake, we can take on debt against public infrastructural improvements that, based on the Henry George Theorem, will provide us with a positive ROI by the point the debts must be repaid. Lots of people and institutions take on debt, for lots of reasons - education - we can certainly take on debt to pay for childcare for example, housing security, transit - but what you can’t do is take on debt and then use that money to go out for a steak dinner and expect to be fine and dandy about it when China comes to collect at the end of the year and you’re unemployed, and you’re trillions of dollars in debt, and your metaphor is falling apart!
Get with it people. You can be a progressive without being financially illiterate, and I encourage you to do so.