Modern Monetary Theorists: Government can spend all it wants.
“I’m not sure any White House economists would describe themselves as MMT adherents, but the policies they are pursuing sure do look a lot like MMT or MMT-lite,” said Tyler Goodspeed, a Stanford University economist and former chairman of the White House Council of Economic Advisers.
The core principle of Modern Monetary Theory is that a government that controls its money, and thus has what is known as a “sovereign currency,” will never default because it can print as much money as necessary to cover its debt. Should the money supply trigger inflationary pressure, the government can mop up the excess dollars through higher taxation.
What a great idea! As inflation drives prices higher, government taxation leaves us with less money to pay them.
It's not as if this is a new concept. Theorists simply dress up the old idea of taxation through inflation and call it "Modern Monetary Theory." Inflation strikes when productivity gains and growth in the economy fail to match the growth of the supply of money. It's is not an instantaneous phenomenon. When the government goes on its MMT financed spending binges inflation won't suddenly show up in the next week or two. It can take years for economic players to react to and absorb the excess money out there by raising prices. At the moment investors seem to have all the new money, which is reflected in the phenomenal stock market performance over the course of the pandemic.
But the same people who advocate MMT, like AOC and Bernie Sanders, are also advocates of a controlled economy, and with them, productivity gains and economic growth take a back seat to economic redistribution. If their wishes come true, we can expect they will counter resulting lag in growth and productivity with Keynesian demand bursts administered through ever larger doses of new money and new spending. Hyper-inflation then becomes a real threat.
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