The Problems with Modern Monetary Theory

MMT proponents say debts and deficits don't matter; economists say otherwise.

What is Modern Monetary Theory (MMT)? MMT essentially argues that deficits and debt don’t matter. The economic principle behind the theory is that countries with their own currency do not need to worry about running deficits or debt because they can always print more money to pay their financial obligations.

“MMT starts with a really simple observation and that is that the U.S. dollar is a simple public monopoly. [The U.S.] can never run out of money. It cannot face a solvency problem … in order to spend, the government doesn’t have to do what a household or a private business has to do: find the money. The government can simply spend the money.” [1]

MMT is a convenient theory for proponents of the Green New Deal, projected to cost the federal government up to $93 trillion over 10 years, and one-size-fits-all government-run health care, projected to cost the federal government up to $32.6 trillion over 10 years, because it simply maintains that the government doesn’t need to budget for them since we can always print more money.

Is MMT a sound economic theory? Here’s what economists say:

“But for neither the right nor the left is there any such thing as a free lunch. It’s the responsibility of  serious economists, whatever their political party, to make this clear.” – Larry Summers, former Treasury Secretary [2]

“Now, arguing with the MMTers generally feels like playing Calvinball, with the rules constantly changing: every time you think you’ve pinned them down on some proposition, they insist that you haven’t grasped their meaning.” – Paul Krugman, Ph.D. [3]

“I don’t think MMT as an economic theory makes any sense.” – Jason Furman, former Chairman, Council of Economic Advisers [4]

“The left should resist the siren song of ‘modern monetary theory'” – title of Heather Boushey, Ph.D., article published in the Washington Post [5]

In May of this year, House Budget Committee Republicans sent a letter to Chairman John Yarmuth (D-KY) requesting a hearing on MMT. Tomorrow, the House Budget Committee is holding a hearing titled “Reexamining the Costs of Debt,” and MMT is expected to be a central theme.

[1] https://www.cnbc.com/2019/03/01/bernie-sanders-economic-advisor-stephanie-kelton-on-mmt-and-2020-race.html
[2] https://www.washingtonpost.com/opinions/the-lefts-embrace-of-modern-monetary-theory-is-a-recipe-for-disaster/2019/03/04/6ad88eec-3ea4-11e9-9361-301ffb5bd5e6_story.html
[3] https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wonkish.html
[4] https://twitter.com/jasonfurman/status/1083394281547722752?lang=en
[5] https://www.washingtonpost.com/outlook/the-left-should-resist-the-siren-song-of-modern-monetary-theory/2019/04/19/37e92190-5b9b-11e9-b8e3-b03311fbbbfe_story.html

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