Will Modern Monetary Theory Save Our Economy or Blow It Up?

American politicians make a living out of appearing to disagree with the “other side.” Whether it be foreign policy, domestic programs, immigration, or military operations, Republicans and Democrats often bask in public displays of vicious partisanship and division with their friends across the aisle. But surely, there must be common ground?

As it turns out, there may just be. We have discussed at length the issue of Modern Monetary Theory (MMT) and the bi-partisan fervor to print and spend as much of the taxpayer’s money as possible. Modern Monetary Theory, as we covered in a recent white paper, is an economic theory which posits that endless amounts of money can and should be printed by government, as long as it is stimulating positive and targeted growth within the economy.

It is a topic that many have discussed, but for this piece we will examine a review of The Deficit Myth: Modern Monetary Theory and the Birthplace of the People’s Economy, by Stephanie Kelton, done by City-Journal.org.

Kelton is an economics professor at Long Island’s Stony Brook University and a former adviser to Bernie Sanders’s Senate Budget Committee. Her book, mentioned above, is an attempt to demystify Modern Monetary Theory for laymen and to propagate its use as sound economic practice.

The crux of her argument, according to City-Journal, is that the United States does not in fact need to worry about balanced budgets because the government does not in fact need to earn money, but rather, needs a system in which to anchor the dollars printed by the Fed. Dollars which are indeed printed out of thin air.

There are four core reasons why the American government taxes its citizens:

  • To maintain a monopoly currency; if Americans and American companies weren’t taxed in dollars, they wouldn’t need to earn dollars, and could, theoretically replace the dollar with other currencies.
  • To control inflation; raising taxes to take money out of the economy and lowering them to put money in.
  • To redistribute income; levying a negative income-tax rate on poorer parents, for example, or a higher tax rate on millionaires.
  • To encourage or discourage certain behaviors; via tax credits for solar panels or high tax rates on gasoline.

For Kelton, worrying about creating a balanced budget means “we run our economy like a six-foot-tall guy who wanders around perpetually hunched over in a house with eight-foot ceilings.” In other words, the sky is the limit…so long as money is spent wisely.

As pointed out by both City-Journal in this review, and by Kelton in her book, Modern Monetary Theory is not an anathema to economic hardship, but rather is a tool to be used by government to orchestrate economic activities.

Going back to our white paper, the Green New Deal is a perfect example of this mindset. Government knows how to spend your money best, and centralized planning of a “green” economy, they assure us, will result in a maximum return on investment for our future.

But what if it doesn’t?

The main concern with Modern Monetary Theory, is that if we are to throw fiscal responsibility out the window, we must then place blind faith in politicians and their cohorts in the private sector to be working with our best interests in mind, not just their special interests. And even if that utopian view of government is to be accepted, what if they are in fact wrong? What if their spending is flawed, not well planned, or forcing market conditions onto the public which will not in fact make their lives better?

And in the end, there appears to be no one in government interested in tempering this notion that we can print and spend to infinity. As noted by City-Journal, “The United States is now running its biggest budget deficits since World War II: 14.9 percent of GNP last year, and 10.3 percent this year. Total debt easily exceeds 100 percent of GDP.” This massive debt has been a bi-partisan effort, with both sides eagerly printing trillions of dollars to propagate a failing Covid economy.

It appears that Covid-19 and the government’s response will finally be the catalysts which put Modern Monetary Theory to the test. Much of the economy was artificially inflated by quantitative easing, stimulus checks, and low interests. Assets such as stocks and real estate have continued to hit record highs, despite drastically reduced economic activity in the country for much of the last year. At its core, Modern Monetary Theory is centralized planning of the economy. As the economy reopens, inflation has already begun to set in. The coming months may indeed prove if Modern Monetary Theory is the future of economics, or just another reckless, big government failure leaving taxpayers with the tab.

Grassroots Pulse covers public policy and political issues aimed at engaging highly-active policy makers, donors, and grassroots leaders at the forefront of the political process in America today.

Image Credit: Photo by Spencer Davis on Unsplash

Share this article on

Read more