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A Small Warning For Modern Monetary Theory Enthusiasts

The end result of MMT

There are things about Modern Monetary Theory that are entirely true. For example, it is indeed a veracious statement that if the government desires more money it can just print it. And thenm, given that it now has money, go and spend it.

No one has ever doubted this either. So this part of MMT isn’t exactly new. Indeed, that old and boring and stodgy and not with it orthodox economics even has a name for this, it’s the monetisation of fiscal policy.

The thing being, the point noted by those boring stuffy old prefessors that a modern university shouldn’t even allow on campus – you know, that insistence upon facts being such a signal of a fascist regime – that there are costs to this path of action as well as benefits.

The major one here being that if we’ve more pieces of money floating around then each piece of it is worth less. This isn’t a huge depature from basic economic conceptns, we all do take the issue of supply and demand to be, at root, correct. More means less and not just about the number of students on campus.

So, that standard theory says that if we go off and print lots more money to spend with gay abandon then we’re going to get inflation. Sure, there are times when we won’t – say, these past few years when QE hasn’t as a result of the velocity of circulation of money falling. Or when the economy has spare capacity so production, as a result of the stimulus, rises to meet that new money supply. That second being something that we can derive from non-MMT economics like standard Keynesiansim of course. Stimulus only works until it doesn’t.

Suer and fine – then there’s the application of MMT in the real world. There was that Zimbabwe experience where they just kept printing and printing until the hard currency value of the last run of $100 trillion dollar bills wasn’t high enough to buy the ink for the next run of notes.

Our other recent years experience of MMT is Venezuela. The government followed insane economic polcies and tried to fund the gaps by simply printing more money to spend. This is that monetisation of fiscal policy, this is MMT.

The result?

The currency, the bolivar, crashed to a new low (a trillionth of its 2009 value).

No one has ever doubted that governments can just print money to spend. The only claim has been that there are costs with their doing so.

Of course, the MMT answer to this is that governments should stop printing money at some point. Well, yes, OPK, but they don;t do they?

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Mr Yan
Mr Yan
4 years ago

Be different this time around…

Boganboy
Boganboy
4 years ago
Reply to  Mr Yan

I understand the Zimbos are giving it another go. No doubt they agree with you.

TD
TD
4 years ago

So, what can you buy with a hundred trillion dollars in Zimbabwe?

john77
john77
4 years ago

Basically it is a way for that government to default on its debts by making previously issued debts worthless.
The result is to wipe out its creditability and making newly-issued debt instruments worthless.
Which means that issuing more money ceases to be a means of carrying out economic policy.
Which means that MMT self-destructs.
Wlson was not QUITE that bad nevertheless the Thatcher government inherited gilt-edged stock issued with a 15% coupon (and some with a 13% coupon) that cost a nasty %age of GDP to service, damaging the economy as a result.

Michael van der Riet
Michael van der Riet
4 years ago

Inflation is by definition the excessive increase of the money supply. The effects of inflation are often conflated with the deed itself.

Michael van der Riet
Michael van der Riet
4 years ago

Is a depature more like a scalping or a beheading?

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