Modern Monetary Fantasies 2


The Myth of Big Government Deficits – A TED Talk

This is quite the tale. I’m sure Ms. Kelton studied her economics but here with MMT she takes a few basic truths and spins an elaborate fantasy. Essentially her argument is that debt is no obstacle to economic policy and economic outcomes. You want a Ferrari? No problem, the Fed can write a check and it’s yours, no taxes, no worries. Advocates will hate this simplification but that’s essentially what Ms. Kelton is selling. (You can substitute free healthcare, free college, whatever you want, but I’d go with the Ferrari 365GT.)

MMT is utopian economics. Yes, in theory it can make sense, just don’t go too far down that rabbit hole. Govt debt is not like private debt because it never has to be paid back, only serviced and rolled over. So the debt in $ terms doesn’t matter, but the productivity of that debt matters a lot (the debt to GDP ratio is a good indicator – it looks worse every day).

She lauds the pandemic stimulus because that essentially was an MMT experiment. Look, no recession! But recessions are measured in monetary terms (not value), and if the Fed keeps pumping out money, voila! No recession. But value creation matters and in value terms, we are suffering an extreme recession and stagflation. How many small businesses have closed in the past 2 years? How much price inflation are we experiencing? 5-9%? Have you tried to buy a house lately? 20% price increases. Tried to get a plumber or electrician?

Yes, when the government spends $28 trillion, that money goes somewhere in the private sector. And yes, we’ve seen it skimmed off by the banking industry, the asset-rich who have merely leveraged 3% debt, and the securities markets that have bubbled up even as production has declined. This is what is driving inequality to new heights as the global elites suck up this cheap credit courtesy of the central banks. Check out the number of mega yachts plying the oceans.

Yes, we’ve seen the fantasy of MMT in action and that’s why we’re having a political revolution. Kelton and the handful of economists selling MMT are assuming a utopian political world where everybody always does the right thing. Ultimately, intellectual dishonesty like this is extremely damaging.

Read her book, there’s nothing there that will address these false assumptions. Credit and debt are tools that the market uses to restrain profligacy. Without those restraints, the party will eventually implode.

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