MMT argues that governments can spend as much as they want — since they can always create more money to pay off debts in their own currency. They simply print it.
That is far from what MMT states and if you find anyone stating such it is certainly not anyone with a clear concept of its claims. The core of MMT actually has no prescriptions, being just an accurate description of our currency and the process of creating it via spending and destroying it via taxation. No theory that begins in misrepresentations and heavily weighted in political ideology can serve to accurately describe or predict anything.
MMT economists are the first to recognize that spending beyond the capacity to produce goods and services is inflationary. They simply state that inflation is not a product of a quantity of money disconnected from productivity. As long as reserve capacity (supply) exists production will increase up to maximum to capture demand before raising prices in a competitive capitalist environment. This, of course, can be subverted by monopolies and patents, but those would have a similar influence in any system.
Traditionally, economists have a very different view of money creation or “money printing”. They view it as being inherently bad for the economy.
Firstly, all spending at the federal level is via “money printing”, or appropriations if one isn’t inclined to dramatics to induce knee jerk reactions. Neither taxation or borrowing can serve to “fund” spending because until the government spends there is no excess of reserves to pay taxes or loan back. It is far more accurate to state that spending “funds” both taxation and bond issues.
A government that creates its own currency by fiat has no need for revenue and only uses taxes to 1) drive demand for the currency, 2) prevent inflation that makes it more expensive to provision itself, and 3) accomplish economic and social/political goals by preventing wealth concentration. Bond issues have no utility beyond providing leverage to the central bank in setting interest rates and providing a floor for investments. Neither is worth the potential political fear fodder of a large number (all net currency in circulation) labeled “debt” in the hands of ignorant or dishonest politicians.
MMT proponents argue that by insisting on balanced budgets, we’re handicapping ourselves with an underperforming economy, increased unemployment, and lost opportunities.
Not only that, but a balanced budget that is sustained for any time guarantees economic booms and busts dependent upon leveraged private credit and the variations of the business cycle. It is literally impossible to maintain such balance and still provide any automatic stabilizers that protect the supply chains from total collapse. Only the dollars that Congress creates via deficit spending can net retire private sector debt, or be net saved. Bank debt created reserves are always in balance with the debt that created them and only exists to allow interbank transfers of loan proceeds.
To banks, those reserves are liabilities that are balanced with loan principal/contract in aggregate. If GDP growth is sufficient to “roll over” existing debt into new the need for government created money can be obscured. However, at the first hiccup in an overleveraged market and insufficient government money in circulation to get over the low in the business cycle defaults quickly add up until it all collapses.
We now have a deficit of 22 trillion. And we’re currently adding a trillion a year. MMT says no problem. We can just print more money.
I’m sure you meant debt, not deficit, so I won’t nitpick that one. In any case, the money that is created by Congress doesn’t simply disappear into the ether it was created from. It goes into the private sector where it becomes our net assets. Distribution is huge in determining the proper amount of money in the economy, but if $22 Trillion were too much we would certainly have a much more robust economy than we have now. We can have that conversation, but we can only have it honestly by understanding the true nature of the numbers we are clutching our collective pearls over.
100% employment should always be the target for a government that claims to be “for the people” and anything below that is clear evidence that stimulus is needed. Congress is Constitutionally mandated to “coin currency for the common welfare”, and this becomes especially true when one discovers that “any” misery in this economy that can be mitigated with spending displays the poor allocation of resources, which is entirely a political decision, not economics.
Of course, the upper limit of such spending is the point where created demand overwhelms the ability to produce goods and services. We can continually bounce between those limits with highly politicized fiscal policy, or we can establish labor as the anchor of the economy and allow automatic stabilization of employment with a job guarantee. Such a guarantee would also set the floor for private sector employment in wages and benefits. As the business cycle picks up employers only have to overbid the guarantee to procure workers with their social and job skills intact. In downturns the local management of the program can utilize the labor in just about any fashion they deem beneficial to their communities and many present volunteer positions could be monetized as well.
Is MMT, and Wall Street’s fascination with unprofitable companies, any different?
I’ve seen a lot of strawmen set up and demolished since AOC first introduced MMT to the masses, but this is one of the stranger ones. I’m not even sure how to respond to a blatant attempt to connect two totally unrelated subjects. Is it possible to agree with the inadvisability of funding losing companies but not agreeing to any similarity between that and MMT?
