Economics

Modern Monetary Theory Is Supply Side Economics—but for the Left

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Most people like new stuff more than they like paying for it. Poll a few thousand Americans about whether they'd enjoy having a BMW, and most would probably say yes. Ask how they'd feel if told it would cost them $40,000, and the prospect of a new 3 Series would likely become markedly less popular.

This facet of human nature explains an iron law of American politics: People like government benefits; they just don't like paying for them. Ask people whether they like Medicare for All, as the Kaiser Family Foundation did in January, and you'll find a clear majority—56 percent—giving it the thumbs up. Tell them it would require higher taxes, and support plummets to 37 percent. Everyone wants a BMW; few people want to pay for one.

Granted, single-payer health care is more like a Yugo than a BMW, but the same principle applies. That's why enterprising lefty politicians are touting an economic theory some say could allow the federal government to fund programs like Medicare for All, enormous new infrastructure, and ambitious environmental legislation of massive scope and untold cost—perhaps without paying for it at all.

Proponents of Modern Monetary Theory (MMT) argue that the government can afford to purchase anything, because it can create unlimited amounts of its own currency. In this model, bond markets and deficits aren't meaningful checks on government spending. The only real constraint is inflation, which can occur when the economy is at full employment, and which should be addressed via tax hikes and spending reductions.

Essentially, MMT is an argument that inflation and employment should be managed through fiscal policy—spending and taxation—rather than through interest rates set by a central bank, as monetarists like Milton Friedman preferred. It puts Congress rather than the Federal Reserve in charge of macro-economic steering.

In its more nuanced form, there is something to MMT: Strictly speaking, the government always can print more money, though whether it should is another question. And most economists would agree that government spending and taxation do affect inflation.

Some MMT adherents in Congress and online political debates, however, have taken this complex idea to mean something rather more simplistic: Deficits don't matter. Not right now, anyway, and maybe not ever.

That's part of what drove a brief squabble in January over whether the new Democratic majority in the House would adopt pay-as-you-go rules, which require offsets—either spending cuts or tax hikes—to new government expenditures, in order to curb the deficit. Speaker Nancy Pelosi (D–Calif.) favored the rule, but a handful of left-leaning up-and-comers including Rep. Alexandria Ocasio-Cortez (D–N.Y.) argued that the requirement would hinder Democratic efforts to pass big-ticket legislation such as single-payer health care. The underlying question—do deficits matter?—will be a part of liberal policy conversations heading into 2020, as Democratic contenders decide whether to back proposals that would radically increase outlays. Leading candidates, including Sen. Elizabeth Warren (D–Mass.) and Sen. Kamala Harris (D–Calif.), have already challenged the idea that new government spending must be offset.

That notable lawmakers like Ocasio-Cortez and Warren are flirting with this notion is, perhaps, a sign of a flaw in MMT thinking: It relies on Congress to raise taxes and cut spending in order to combat inflationary spirals, should they occur—yet congressional adherents are mostly drawn to the allure of being able to spend more without commensurate spending cuts or tax hikes.

It's an economic theory deployed selectively for political convenience—and also, perhaps, out of envy. For roughly 40 years, Republicans have embraced an overly simplified version of "supply-side economics," which posits that tax cuts spur economic growth, which in turn generates additional tax revenue. That means tax cuts can "pay for themselves" by leading to more total money paid in taxes, thanks to the growing economy, than what was lost from the rate cuts. In theory that can happen, but only rarely, when tax rates are very high to begin with. Yet many Republicans legislate as if tax cuts always pay for themselves, thus sparing them the political consequences of offsetting lost revenue by trimming spending.

Like the simplified version of MMT, it's a way of enacting popular policy preferences while pretending there's no downside. Not only can legislators give the people what they want—they can promise it will be free, and let some future sap deal with the bill when it comes due.

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43 responses to “Modern Monetary Theory Is Supply Side Economics—but for the Left

  1. MMT: Magical Money Tree.

  2. MMT: Millennial Magical Thinking

    1. wasn’t it the baby boomers who inherited the most prosperous economy in world history and handed it off to us millennials after inflating away the value of the dollar, spending the social security surplus, starting retrded wars, destroying large parts of the environment, and racking up a shit ton of debt?

      1. Rinald Reagan was not a boomer.

  3. As I understand Keynesian economics, stimulus spending to correct recessions is supposed to be timely, targeted, and temporary. They never have been. The new monetary theory won’t be either.

    When I first heard about it, it seemed to me like just another name for Keynesian stimuli, with a different rationale (government spending controls inflation, not government interest rates), and the proponents having no interesting or even awareness of the bit about the unemployment rate.

    In a game, it would be fun to let them try and see them fail, over and over and over.

    1. stimulus spending to correct recessions is supposed to be timely, targeted, and temporary

      ^ This. And when the economy isn’t in recession, you’re supposed to be paying down the debt you ran up with the stimulus rather than trying to find new things to spend all your new cash on.

      In a game, it would be fun to let them try and see them fail, over and over and over.

      Mexico, Zimbabwe, Venezuela, etc.

      It’s almost like when the inevitable inflation hits, Congress may decide that rather than tell people struggling to pay their bills and meet their basic needs that they need to suck it up, pay higher taxes and do without the level of government spending they’ve become accustomed to, they’ll just double-down on the money-printing and blame the inflation on Capitalism.

  4. Oregon ProgTards adjust their market.
    ————–

    Oregon Senate OKs Freeze on Cannabis Cultivation

    The Oregon Senate moved forward with a plan to limit the state’s supply of legal adult-use marijuana. Lawmakers voted 18-10 Monday to freeze cannabis production at current levels for the next two years. The state will not issue new production licenses to marijuana growers, but current growers will be able to renew their licenses.

    Democrat Sen. Michael Dembrow from Portland said the state produces so much marijuana that Oregon has enough of the drug to last it for the next 6.5 years. That surplus has caused prices to plummet.

    https://www.leafly.com/news/politics/oregon-senate-oks-freeze-on-cannabis-cultivation?utm_source=SailThru&utm_medium=email&utm_campaign=buy_pickup&utm_term=global&utm_content=deals?sailthru_vars%5Buser_click_strains%20%5D=1

    1. The fee market. Strange how it never seems to actually replace free markets.

      1. The fee market.

        Good one = a ab abc abcd abcde abcdef ahf !!!

    2. I hope they have a Five Year Plan for marijuana growth.

    3. Wasn’t part of the rationale for legalization that it would lower prices? Part of the stated rationale, anyway?

    4. progtard? do they teach that in GED courses now? Using that word screams “i have no higher education.”

  5. Proponents of Modern Monetary Theory (MMT) argue that the government can afford to purchase anything, because it can create unlimited amounts of its own currency.

    Currency is just a proxy for peoples time. The government cannot create unlimited amounts of peoples time.

  6. Just like in 2008, debt doesn’t matter, until it does.

    Eventually, it does.

    1. Eventually, it does.

      But the beauty thing is that by the time that happens, we’ll be dead. Or wishing we were dead.

      1. Or wishing we were dead.

        No, we probably will be.

        This is one of the annoying things about the advocates of this idea presenting themselves as some sort of radical leftists. The reason the US in particular can get away with this sort of thing is the Bretton-Woods treaty that pegged everybody’s currency to the value of the dollar so that if the dollar devalues, so does everyone else’s currency.

        This means that the negative effects will largely not be felt here, at least not at first – they’re transferred to developing economies. Which is exactly Lenin’s critique of Western “Socialism” – that it buys off the Western proletariat with free ponies bought off of the labor of exploited third world economies. The American “Radical Left” has now made this way of doing things central to its platform.

        Fuck the people in developing economies, I guess?

        1. the bretton woods system died when nixon closed the gold window in the 70s. we live in friedman’s world of free floating currencies and have for a while. Many countries still use the dollar as a reserve currency, but not because of bretton woods.

      2. On debt: Trump responded to a presentation of charts and graphics by saying, “Yeah, but I won’t be here,”

  7. which posits that tax cuts spur economic growth, which in turn generates additional tax revenue.

    They can an do, within a certain point on a curve. But Republicans, like Democrats use the theories for political convenience.

  8. MMT has no coherent theory of inflation – and it’s even more certain that neither Alexandria Ocasio-Cortez or Elizabeth Warren could bullshit their way to trying to explain MMT’s “theory” of inflation.

  9. “Proponents of Modern Monetary Theory (MMT) argue that the government can afford to purchase anything, because it can create unlimited amounts of its own currency.”

    Two Words: Weimar Republic.

    It’s not like this is a new & untested idea, it’s been tried before, and every single time it has ended in absolute catastrophe and usually, the fall of the government that tried it.

    1. Weimar may not be the best example, but harmful inflation is indeed the risk that the MMT crowd has yet to explain just how it will be avoided. (Weimar had some other key things going on besides “money printing”. They were war torn, they experienced regime change, had foreign denominated debt and experienced a productive collapse that then resulted in a collapse in the tax system and hyperinflation. In each case of hyperinflations since 1900, there has been some other severe, exogenous event(s) – such as losing a war, foreign denominated debt, and/or regime change.)

      1. Weimar may not be the best example, but harmful inflation is indeed the risk that the MMT crowd has yet to explain just how it will be avoided.

        One of our commenters said that MMT advocates believe that massive progressive tax rates will keep inflation from becoming a serious problem. That’s why AOC and Ihlan Omar have been pimping a return to 70-90 percent marginal rates.

        Omar’s an African who obviously forgot how well that worked out on her own continent, so it’s not that the theory should be taken seriously, but that there are people in positions of actual power who do that are the real threat.

        1. Omar’s an African who obviously forgot how well that worked out on her own continent

          That was the fault of the Isaaq.

    2. To be fair, we need a Weimar if the modern left’s fantasy of a country oppressed by neoNazi alt-right religious fundamentalists are to come to fruition.

  10. the government can afford to purchase anything, because it can create unlimited amounts of its own currency.

    But our government doesn’t create our currency. That’s done by a private central bank practicing fractional reserve lending. That means the government owes interest on every dollar they create. It can pay the interest only by creating more dollars—on which it will owe more interest. So, deficit spending is a double whammy—not only is it inflationary, but it’s also a massive Ponzi scheme transferring wealth to the bankers.

    1. “Fractional Reserve lending” is an outdated myth. The private sector, through banks, creates much of the new money in our system. Loans create deposits. When the Fed creates money – which is can and does – electronically, most of that money is stuck in bank reserve accounts. Banks never lend reserves to non-bank businesses or individuals – they only lend reserves to other banks. Think of the reserve system as a closed system for the banking sector. When it comes to lending to you or me or our businesses, banks are capital constrained – not reserve constrained. They can – and do lend first, and if needed, go get (borrow) reserves later.

      1. No, MMT is updated chartalism. FRB creates loanable deposits that expand the money supply. Central banks supercharge that system and coordinate it across the economy…

        1. In the spirit of keeping our minds open, this might cause you to reconsider your understanding of FRB: https://www.pragcap.com/the-basics-of-banking/

      2. the fed can and does buy assets from institutional lenders in order to create excess reserves above the required reserve ratio, which the fed also sets. If the reserves were forever stuck in a closed system, how would open market operations effect interest rates?

        Not sure why you’re saying fractional reserve is a myth, but then say private banks create much of the new money in our system. How do they do that? through fractional reserve lending.

  11. MMT is code for communism. The harm inflicted by deficits and large national debt are behind-the-scenes stealth transfers of wealth from all Americans to the government.

    1. It is the same shit the GOP does with huge deficits. Except it hasn’t happened yet.

      1. Sorry, our current huge deficits (by the way, it’s not single year deficits that are the problem, the long term national debt is the problem) are not the exclusive domain of the GOP.

        If the Democrats could magically double federal revenues through tax increases, the history of federal spending under both parties indicates that they would try to triple spending.

        In modern times (post WWII), the federal government has only demonstrated even the tiniest bit of fiscal restraint under divided governments (Either Congress under one party and the White House controlled by the other party, or the House controlled by one party and the Senate Controlled by the other.)

        Clinton surpluses? The GOP controlled congress at the time, and forced him into fiscal restraint while letting him take the credit.

        No, when(if) both of the major parties have demonstrated discipline and restraint on the spending side under unified government, then we can talk about using temporary tax increases to address deficits and the national debt.

        1. i believe the best historical combinations post WWII for restraint have been republican presidents with democratic congresses. the worst have been republican presidents with republican congresses, followed by dem and dem.

  12. Suderman furthers the Leftist lie that tax cuts must be “paid for”, as if government owns your income. The only thing that must ever be paid for is SPENDING. Not a nickel of government debt was caused by taxing too little….

    1. Moot issue since neither party cares about high federal spending.

  13. I looked over a description of MMT and felt it’s core error was that it confused “wealth” with “money”. I await further analysis from someone 1)who actually knows what they’re talking about, and 2)whom I trust. I am not holding my breath, but, in the meantime, if someone with the intellectual chops of AOC is for it,…

  14. “Granted, single-payer health care is more like a Yugo than a BMW, but the same principle applies.”

    Well, sorta. It’s crappy like a Yugo, but spendy like a new 911; the worst of both deals.

    1. except it appears to be working for less money with largely the same health outcomes in Canada. when it comes to health care, it’s important to understand that the current system, and the system pre obama care was very, very far from a free market system. the AMA is a racket, third party payer subsidies have destroyed pricing communication between producer and consumer, can’t pedal insurance across state lines, etc.

      I would argue that a free market health care system would be best, but that’s not an option, was never an option in recent times, and will never be an option in the near future. Our choice is between our clusterfck of markets with socialistic regulations, or just straight up socialism. Sometimes the inbetween solution is worse than just straight socialism. This is one of those cases. We pay sht ton of money for no better health care outcomes on average than our european and canadian friends, who generally pay way less. And remember, free market health care is a solution that literally no one in congress or the mainstream is suggesting. Your choice is between fascism (in the strict economic sense) and more traditional socialism. figuring out which one is less worse is rational, even for libertarians.

      1. Did copy VOX for those talking points?
        They show up regularly, pretty much in the same format, so I assume they are available as a package at one lefty site or the other.
        Hint: We may not get there, but working towards a free-er market is preferable to buying the bullshit you posted.

  15. Let me know where I can get a reasonably optioned BMW 3 series for $40,000.00 and I’ll run right down.

  16. Suderman, Ray Dalio has, as of last night, concluded that we will have MMT whether we like it or not. The end is near!

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