The pandemic has neither vindicated or discredited Modern Monetary Theory as a policy paradigm, since real MMT has never been tried. EricLevitz writes
Photo: Brendan Smialowski/AFP via Getty Images Over the weekend, the New York Times published a profile of Stephanie Kelton, America’s foremost proponent of Modern Monetary Theory, a.k.a. “MMT.”
Seperately, it’s unclear what it means for a school of economics to be, in the Times’s phrase, “winning.
According to MMT, in a country that can print its own currency, the true constraint on spending is never the scale of sovereign-debt obligations but only the pool of real resources. America cannot run out of dollars because it can print them. It will therefore always be able to pay its debts.
Whatever assumptions undergird orthodox economic models, popular discourse has long suggested that high deficits constrain the governments’ capacity to spend. “Objective” reporters routinely declare that America’s national debt is unsustainable and will force the nation to slash spending or cut taxes in the near future. A decade ago, this conventional wisdom wasn’t limited to news anchors.
In a sense, America’s economic response to the COVID crisis may have been too successful. At the pandemic’s onset, carmakers, semiconductor manufacturers, and other goods producers slashed production in anticipation of a long recession and tepid recovery. When the government managed to prop up consumer spending through stimulus instead, this led to mismatches between demand and supply.
But this misses the point. By insisting that the government can afford to finance any level of spending and that the real constraint on profligacy is inflation, MMTers aren’t arguing for tax-and-spend liberalism in unfamiliar verbiage. Rather, they’re calling for a much more fine-grain approach to fiscal policy and demand management.
More seriously, MMTers argue that Congress’s budgetary process should seek to offset the inflationary risks generated by new spending with a diverse array of tools aimed at addressing discrete price pressures.
In the op-ed in which they laid out their prescriptive vision for inflation management, Tankus, Grey, and Fullwiler acknowledged their project’s political headwinds. “Commenters are not wrong that some of these proposals and tools will be controversial,” they wrote. “What is ignored by this criticism is the fact that our current approach of managing inflation on the backs of a very indebted and underemployed public is also controversial.
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