Michael R. Strain | Bloomberg Opinion
The core assertion of Modern Monetary Theory -- that a government that prints its own money can always pay its bills -- is correct. Yet advocates of MMT fail to fully grapple with the inflationary risks that would come with treating government debt as wholly unimportant. With the central bank dedicated to financing the government, the task of managing inflation would become a fiscal matter, creating economic, political, and distributional problems far greater than those MMT seeks to solve. These issues are further discussed in this week's "Political Economy Podcast" with AEI scholars James Pethokoukis and Stan Veuger.
What is Modern Monetary Theory?
James Pethokoukis and Stan Veuger | "Political Economy Podcast"
On his latest podcast, James Pethokoukis talks Modern Monetary Theory with Stan Veuger. The two discuss why MMT has suddenly become so popular, the theory’s intellectual origins, whether it has anything new to say about economics, and the political and economic risks of using the theory as a basis for monetary — and, consequently, fiscal — policy.
Why Modern Monetary Theory is an unserious idea for an unserious time
James Pethokoukis | The Week
Is Modern Monetary Theory a fiscal cheat code for funding major expansion and creation of federal spending programs? The core observation -- that the government can always print money to pay its debt -- is true. But in practice MMT represents a mirror version of the Laffer Curve obsession seen among some on the right. Ultimately, policy decisions involve choices and trade-offs — and those presented under MMT are not appealing.
Debt denial is a threat to America
Desmond Lachman | The Wall Street Journal
Contrary to the claims of Modern Monetary Theory's advocates, deficits do matter. There is no guarantee that the US government will be able to borrow at low rates indefinitely, and with the deficit currently exceeding 5 percent of gross domestic product (GDP) and the debt exceeding 100 percent of GDP, the debt-to-GDP ratio is set to increase indefinitely. Increased deficits will lead investors to demand higher yields on government bonds, especially if they see higher risk of inflation or default. Taking these facts into account, MMT is a recipe for fiscal ruin.
Modern Monetary Theory and policy
Stan Veuger | AEI Economic Perspectives
Proponents of so-called Modern Monetary Theory emphasize that governments can always avoid defaulting on existing obligations denominated in a currency they themselves create. In many instances, they extrapolate from this correct observation to sweeping claims about the proper size of government and the role of monetary and fiscal policy. To the extent that these claims go beyond those of mainstream monetary doves, policymakers would be unwise to rely on them.
Stan Veuger | AEIdeas
James Pethokoukis | AEIdeas
Desmond Lachman | AEIdeas
Hopefully Modern Monetary Theory is but another passing fad with little policy relevance. If not, we should fear for our children who will have to pick up the pieces of yet another misguided economic policy experiment.