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Modern Monetary Quackery (MMQ)
What you get when you expect something for nothing...
Bill Bonner, reckoning today from Normandy, France...
Politicians need to reject the urge to ask “How are we going to pay for it?” … We must give up our obsession with trying to “pay for” everything with new revenue or spending cuts… . Once we understand that money is a legal and social tool, no longer beholden to the false scarcity of the gold standard, we can focus on what matters most: the best use of natural and human resources to meet current social needs and to sustainably increase our productive capacity to improve living standards for future generations…
~ “Three prominent MMT adherents,” Kelton, Bernal, and Carlock
What a delight it must be to wake up each morning with no memory. No past. Nothing to regret. Nothing to hide. No hangover. No ‘baby daddy’ worries.
Economists are usually a little cynical…a tad suspicious…even skeptical. They know there’s always a price…and that for every entry on the credit side of the ledger, there’s a debit too.
So, it must be a treat to meet Stephanie Kelton (one of the economists noted above.) The woman seems to have been born yesterday.
She probably doesn’t realize it, but there’s nothing very ‘modern’ about Modern Monetary Theory. To call it ‘monetary’ is a bit of a stretch too, since it is really a notion of how to use fiscal policy. As for theory…don’t make us laugh.
No Free Lunch
Thinking you can get something for nothing is not exactly new. Nor is the idea that the state (the government) can create real ‘money’ by cutting down trees and printing up pieces of paper with dead presidents on them.
Nor is the idea that the feds can use this ‘money’ to ‘Build Back Better’…by ‘investing’ it in worthy projects.
These are not new ideas. They are simply old crackpot delusions. Someone should tell her.
The Argentine government has been practicing a kind of MMT fiscal policy for decades. It prints money, lots of it. It uses the money – as all politicians claim – on ‘what matters most.’
But boo hoo…by the end of the year, about half the value of every new peso it prints will disappear. Another couple of years and it will be all gone. What kind of money is that? Can you really use it to make investments that will pay off for future generations? Apparently not. There used to be an expression: ‘as rich as an Argentine.’ No one has heard that for years.
And just look at America’s big public ‘investments’ of the last half century.
Campaigns against drugs, poverty, terrorists…money printing extravaganzas that left people poorer than they were before. The feds were ready to “invest” someone else’s money – in safer streets…in stronger GDP growth…in healthier citizens…in better schools and smarter kids…in fighting racism…in promoting equality…
…but are the streets safer? Are the schools better? Are the kids smarter? Are we healthier? Happier?
Fatter, Sadder, Less Productive
The whole idea of investing is to give up something – current consumption – in order to get a payoff later. A profit. An advantage.
You should be richer after making the investment, not poorer. Between 1999 and 2023, the US feds made net ‘investments’ (beyond current income from taxation) of $27 trillion. That’s how much federal debt increased during that period.
If those investments had been remotely profitable, they’d be paying a dividend. Where is it? Instead, we’re adding to US debt at the rate of $5 billion per day over the next 10 years.
The latest ‘investment’ scam comes to us from the Biden bunch – the Inflation Reduction Act. With a straight face, The Economist reports:
Big investments have begun. Most of the money spent under the IRA goes towards combating climate change. The earliest data show that companies that make clean-energy kit (like wind turbines and solar panels) are ramping up production. The American Clean Power Association, a trade group, says that 83 manufacturing plants have been announced since the bill’s passage. More than 50 will produce solar-power equipment. The rest will make wind-turbine parts or batteries. Together the projects represent $270bn of investment—equal to the previous seven years of clean-energy investment combined, according to the trade group. Firms have also announced $53bn of investment in factories making electric vehicles (EVs) and components they use, like batteries and chargers, according to a tracker run by Jay Turner of Wellesley College.
Many clean-energy projects will go to red states, be it to wind farms in the plains or hydrogen hubs in Texas or Utah (consortia in both states are bidding for the latter). Mr Turner’s tracker finds that $47.5bn of EV investments are heading to Republican districts, compared with $6.7bn destined for Democratic ones.
That means—at least with Mr Biden in the White House—that the IRA is probably safe from serious Republican opposition.
Yes, the Republicans are in on it too. Another bi-partisan fraud. A classic rip-off. The benefits go to the few; the costs are borne by the many.
MMT suggests that 1) there is an infinite amount of capital (so you don’t have to give up anything to make an investment) and, 2) the feds can do a better job of investing it than its rightful owners.
Are the investment geniuses behind the scenes at the Biden administration such better investors? Do they see opportunities that the sharp eyes on Wall Street have missed?
Only someone who was born yesterday could think so.
But the deeper naïveté…bordering on insanity…is MMT’s view of money itself. Kelton et al imagine that ‘money’ is no longer scarce. In theory, the feds can print as much as they want. But in practice, the more they print, the less their money is worth.
Real money represents real resources – time, energy, skills, brainpower. These real resources are always scarce. If they weren’t scarce there would be no reason to invest to get more of them…and no reason for MMT’s magical thinking.
We all want to believe that if we close our eyes tightly enough…and wish hard enough…our dreams can come true. More reliably, we ‘invest’ to bring forth more good things because the good things we have aren’t good enough for us. If we really had an infinite amount of money, we wouldn’t have to wish…or invest. We could buy an infinite amount of goods and services…and there would be no need for Ms. Kelton’s advice on how to get more.
Joel’s Note: Alas, despite Ms. Kelton & Co.’s wishful thinking, there is no deus ex machina in this modern monetary movie… no escaping the harsh reality imposed by the foundational laws of economics… and certainly, without a doubt, no free lunch.
Satisfying infinite needs with finite resources (including money itself)… that is the task of economics. Were resources infinite – that is, if they took no time or effort to procure, and if doing so did in no way deplete their boundless reserves – then there would be no need for such quaint anachronisms as, say, “private property.”
In such a fantasyland…
Who would go to the trouble of robbing Peter to pay Paul… when one could simply wish money into existence?
Why smash and grab at the local CVS… when you could simply pay for whatever you wanted with newly printed bills?
Why bother with budgets – household, local, state, federal – if money was not a store of value…but something to be conjured, ex nihilo, for ever and ever, amen?
But wait, we hear you say. What about… inflation? Wasn’t that supposed to be a kind of check on irrational exuberance at the printing press level?
“Remember the MMTers said the only real constraint on spending money into existence was inflation,” recalled Dan Denning in an email to the BPR team this very morning. “And if inflation got out of hand, the government could always tax it out of existence… or reduce spending. You would have thought the last three years were a giant rebuke to the MMT crowd, with inflation at 40-year highs.”
As most non-central bankers and non-econ. professors comprehend, the more currency you ink, the less each and every preceding currency unit is worth. Just ask the Argentines, Zimbabweans, Venezuelans, etc. If constrain-free printing were a path to riches, these nations’ streets would be paved with gold.
And yet… the situation in Argentina is so bad, voters there are even considering electing for president a (wait for it)… libertarian!
Moreover, as Dan explains, the MMT problem is not simply one of innumeracy… it’s also bound up in basic illiteracy, too...
“Capital is not credit and credit is not currency,” he observed. “A government can issue as much currency as it likes. It can't print capital.”
The idea is simple enough even artificial intelligence can grasp it. Dan had Google’s AI produce this neat little table. Feel free to share it with any MMTers lurking in your midst.