A covert way to get what you want? Modern Monetary Theory (MMT)

It’s a bit strange for a person who took ECON 101 forty-five years ago to be writing about modern monetary theory, but I thought that as long as it’s a theory, it’s fair game. Not to worry, this is not a academic discussion of MMT theory. You can find that here. What I question is creating a national mindset that you don’t have to pay for the things you want.

Conventional economic wisdom says be concerned about deficits and debt, interest rates, and inflation. MMT theory says that a country with it’s own currency has no spending limits. Whatever it wants does not require higher taxes, but simply printing more money or in the case of the US, the federal reserve taping a keyboard for unlimited deposits. One leading advocate of the theory doesn’t understand why those with program proposals don’t simply tell Americans,”We’re not going to try to pay for any of this.”

I’m thinking the reason those words are not spoken is because the majority of Americans would say, “Whaaaat?” There are generations still out there who believe you have to pay for things and that nothing is truly free, I hope.

Economists point out that you can’t compare household spending and budgets with a government because government has unlimited revenue sources. Ain’t that the truth, but you can’t say many households don’t try. Actually, with all the TV ads from companies offering to wipe out credit card debt and the back taxes you owe, maybe there is no difference.

What’s not spoken about is how MMT’s unlimited tax-free spending may lead to ever growing expectations. Why not give your college student a debit card linked to your retirement account? After free programs are in place and ingrained they are typically here to stay growing liabilities and all.

Even the most enthusiastic advocates of MMT acknowledge the possibility of inflation if we reach the point where resources become scarce and we have full employment. At the same time MMT also suggests a guaranteed job for anyone who wants it. Hence full employment. But the answer is also simple. At the point inflation is a problem, just raise taxes.

We have a current analogy with Social Security. Here is a program highly valued and relied upon and in declining fiscal state, but for decades we have failed to take any unpopular action, like higher taxes, to make the program sustainable. The same holds true for Medicare.

So the question in my mind becomes how likely are Americans to jump on the free stuff band wagon while ignoring the possible future trap of high inflation and taxes or eventually cutting back on the programs? I’m thinking, using MMT to provide “free” health care, college, expanded Social Security or whatever will not lead to any of these programs being cut in the future to cope with inflation.

I’m not a gambler. I like as much certainty as possible. The longer the horizon, the more difficult that becomes. To test this theory would take many years, if not decades. Consider all the world events, political changes and economic crisis possible during that timeframe. Consider Congresses over the years disagreeing with MMT and seeking to change direction.

Perhaps more important, think of the addictive nature of the theory. We already have a society heavily motivated by instant gratification often at the expense of long-term financial security. In theory, MMT could raise that to national levels. How do we teach children to be responsible with money if the national message is there is no need to pay for the things we want?

I don’t know all that goes into economic models, but I bet there is not a factor for human nature. Generally, people will act in their best (often short-term) interest with little or no consideration for future generations or as in the case of the Social Security example, for the younger generation working today. Seems to me the lure of MMT and unlimited free stuff fits nicely with the general desire for MORE. Damn the torpedoes, full speed ahead!

6 comments

  1. I can understand why MMT looks good on paper, but as it was pointed out, it fails to factor in irrational human beings assuming that they will want to work. It also assumes that the economy is always in a state of equilibrium which it rarely remains that way. What does one little world wide panic pandemic do to that theory? Also, money’s only value is the value that people give it to trade for their labor. When people no longer believe in that value, black market and direct trading of goods begins to happen and people will totally lose faith in the currency. Also the government that prints extra money does not have to be accepted by another country at the same exchange rate putting that country at a great disadvantage when trying to purchase goods.

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  2. The term theory in MMT is incorrect, it should be termed hypothesis…
    (This is the Difference Between a Hypothesis and a Theory. … In scientific reasoning, a hypothesis is an assumption made before any research has been completed for the sake of testing. A theory on the other hand is a principle set to explain phenomena already supported by data.)
    As far as I know, there has not been any data collection to support testing on a real world scale. It’s just assumptions made by a group of fringe academic economists.
    Another far fetched idea is UBI (Universal Basic Income). At least this idea has been tested and failed in one country that I know of.

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  3. Whether work is intrinsically or extrinsically motivated, “live to work or work to live”, it is the only way in which people provide sustenance. Dollars saved are actually stored labor; nothing more. Dollars owed are promises of future labor; nothing less. The only question is who you will be laboring for; who do you owe the money to?

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  4. Why would anyone work if everything is free? And if no one is working, where will the “stuff” we desire come from? Give me everything I might want or desire gratis, and I guarantee that one of the first things on my list is to quit working (if I was still working, since I have retired).

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