Realist, not conformist analysis of the latest financial, business and political news

A Significant Problem With Modern Monetary Theory

A Richard Murphy

We are continually told that Modern Monetary Theory changes everything. As governments can just keep printing money therefore governments will never run out of money. We can have everything!

Of course, this just ignores the fact that money is the way we keep score, not the thing – or things – itself that we want. More money doesn’t change the number of goods and services out there, it just changes the number of munnies we need to be able to get them. Inflation that is. To which the MMTers – such as L Randall Wray, The Sage of Ely and so on – tell us that that’s easy enough, we just increase taxes to cancel that extra money, inflation is gone at the barrel of a gun.

The problem with this being:

Wray and other theorists (he does at least try to think, unlike Tlaib) tell us that there’s a solution to this too. As government just makes money by printing it, if there’s inflation, then they can tax it back. This destroys the money and kills the inflation. It’s quite true too, but more thought is needed here.

For that end result, how different is it from what we’re trying to escape? We end up in a high-tax, big-government world. Sure, now the tax is supposed to kill inflation from the money government is making, but it’s still a high-tax world with lots of government. The end result being no different from that old Democrat idea of taxing the heck out of everything first, then getting government to spend the money. Or even the Republican variant: don’t tax, spend and borrow instead, which then has to be paid back through taxation.

The reason we try to escape that world being, of course, the performance of government. The latest nuance is that the Centers for Disease Control and Prevention’s coronavirus tests didn’t work, the ones the Food and Drug Administration said everyone must use were actually contaminated with the virus themselves. Or if that’s a bit detailed, just try looking at any of the housing the Department of Housing and Urban Development has built over the years. Then think what it would be like if everything was that way, done the government way.

MMT is, in reality, just another way for the statists to get to their end goal, more government. And:

And anyone with any experience of government cheese knows we won’t enjoy more government.

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jgh
jgh
11 months ago

If you print money into the economy, then tax it back into government coffers, what do you then do with it? You end up with huge reserves and no justification for taxation other than wanting to get your grasping hands on it and out of the hands of the people. Or spend it back into the economy, which just means it’s still floating around in the economy chasing the same goods. Or do they plan to actually physically print it onto bits of paper then set fire to it?

Phoenix44
Phoenix44
11 months ago
Reply to  jgh

I assume they cancel the money with the tax receipts, otherwise it would do nothing for inflation.

Jim
Jim
11 months ago
Reply to  Phoenix44

I can’t see the average voter understanding the fact that tax receipts are at record highs, indeed way more than the government is spending, but the government can’t spend any of it, or indeed print any extra, because inflation is too high. And if voters can’t see it, neither will politicians, because they are a mirror to the voting public.

Leo Savantt
Leo Savantt
11 months ago

It seems, to the economically uneducated such as myself, that many economic policies are simply developed to inculcate political goals rather than to improve the economy. In other words if you want a big state high tax dependent on government society (i.e. socialistic) you simply invent a something to further that goal, such as Modern Monetary Theory; even if the theory is in fact an unproven ideologically driven hypothesis and not a theory at all, empiricism be dammed. These economists then cease to be scientists, social or otherwise, and are simply political agitators hiding behind economics, somewhat similar to “journalists”… Read more »

Christian
Christian
11 months ago

MMT is literally the acronym for Magic Money Tree.

They’re just trolling the rest of us now aren’t they?

Phoenix44
Phoenix44
11 months ago

Let’s say we started doing it now – inflation would start immediately and so taxes would have to increase immediately. So the state spends more, we get taxed more…and this is a “new” way of doing stuff?

Esteban
Esteban
11 months ago

Two brothers bought a truck and drove out into the countryside to buy a load of watermelons for $1 apiece. Then they drove back to the city and sold them for $1 apiece. After a week of doing this, one brother said “we’re not making any money”. The response – “I told you we needed a bigger truck”.

john77
john77
11 months ago

This is just a means to hide the confiscation of savings, which for the poor and middling comprise monetary asets or assets fixed/denominated in currency, for the rich it’s usually a minority that is fixed in money terms.
Print money, generate inflation because more pieces of paper chasing same amount of goods/services produced, reduce value of savings and debts, give more money to your lazy idele and greedy pals so decent folk with children have to work harder and/or consume less while the nomenklatura with inflation-proofed salaries and pensions live high on the hog.

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