In theory, MMT sounds like a win for the people, but it always ends in consumer price hyperinflation — in Weimar, Germany a simple staples purchase took you to the bankruptcy court.
The Weimar Republic printed money and saw extreme inflation, so printing money must cause inflation, right? It couldn’t have anything to do with the Republic having to dedicate its productive capacity to paying restitution in gold and currency it couldn’t create or control, right? C’mon, you’re brighter than that. The simple answer is seldom the most correct answer.
MMT, as any qualified advocate can tell you, is not about printing money (especially since we don’t even do that anymore). It is about maximizing employment and resource utilization via properly managing the nation’s purse strings. Sadly, this pandemic is causing uninformed people to grasp at MMT as a justification to spend money at the federal level at the precise time when fiscal caution should be exercised. Throwing money at a supply chain that is creating shortages is a guaranteed way to cause inflation and encourage more hoarding. Abundant money chasing scarce goods is the definition of inflation.
We should attempt to shore up those supply chains by making sure people don’t totally lose their incomes when they were already skating on thin ice, but there are other ways of doing so than simply flooding a failing economy with cash. Money injections should be confined to those most at risk, such as the vast number of people in the invisible gig economy who have no access to normal safety net benefits, employer-based health insurance, and unemployment payments.
The alternative to MMT, defaulting on debt, is also unfavorable. As the Great Depression shows, allowing a large debt burden — especially $257 trillion of global debt — to unwind will lead to the biggest deflationary period in human history and will cause just as much pain as an inflationary collapse.
Firstly, we need to define that debt. Just calling something debt doesn’t mean it actually is an obligation of taxpayers. Sovereign nations that create their own currencies do not actually create taxpayer obligations when they spend on the public purpose in spite of definitions meant to function internally to spreadsheet sectors. When those sovereign governments spend they use debt as a tracking entity in their accounting, (every obligation is someone’s asset) but the only way to retire that debt is to remove all money from their private sectors in the form of taxes and fees.
Their red ink is the sole source of black ink in those private-sector economies. The mere presence of such a debt should inform us that those governments can never “get” money that they didn’t first create by deficit spending. It should also inform us that our government’s debt reflects money obtained by the private sector via commerce and represents its only store of value from that commerce.
By basic accounting entity, a balanced budget for the federal government represents a 100% net tax rate and the theft of all goods and labor used by that government. Such radical fiscal policy, while being the holy grail of politicians, should only be used for the purpose of redistribution of wealth, not in an ill-advised attempt to “pay for” public purpose spending. Using the economic productivity of a nation to provide revenue for the one entity that neither needs nor uses revenue is a fool's errand.
Although QE infinity, whether that’s supporting asset prices or running MMT, will improve financial conditions in the short term, any kind of money printing will prove to be an ineffective long-term solution.
QE would not exist in an MMT based economy (which ours already is given that MMT is simply a description of the functional reality of our monetary system). In fact, all Treasury debt would no longer be thought of as a funding source and would be properly recognized as a tool to control interest and provide an incentive for thrift. Since purchasing bonds requires existing money, their issuance never increases the money supply available to the government to spend and only reduce the mostly irrelevant debt.
Bonds, sans a gold reserve to defend, are just safe storage for past productivity, not a mortgage on future productivity. They are just a different form of money that has reduced liquidity and pay a small dividend. The monopoly issuer of the money can never involuntarily fail to pay any obligation denominated in its own currency, so they are guaranteed to return their face value at maturity.
The end game for global authorities, however, is not to consider the future consequences of inflating the bubble further. It’s to do whatever it takes to curb the effects of COVID-19, saving the global economy from a total collapse, and maintaining the stability of an already broken global economic system.
Very little of macroeconomics is about money. Governments would be wise to pay attention to preserving supply chains to avoid more drastic price controls instead of pumping up money supplies as a knee jerk when there is nothing to purchase with that money. We should be making sure that this pandemic doesn’t remove anyone’s ability to obtain basic necessities, but simply throwing money at the problem is not wise, or related to MMT in any way.
