Rep. Alexandria Ocasio-Cortez (D-N.Y.), Sen. Bernie Sanders (I-Vt.), and other democratic socialists have embraced a new-old monetary theory: Modern Monetary Theory, or MMT for short. It is “new-old” in that the label is new, but versions of this theory have been around at least since the French Revolution when the disastrous fiat currency known as “assignats” impoverished the French people.
Stripped of all its elaborate academic window-dressing, MMT boils down to this: Government spending boosts prosperity; governments need not worry about running fiscal deficits, but should simply have the monetary authorities print however much money the government wants to spend. Presto! Magic money produces magical growth, and unlimited government spending produces unprecedented wealth. According to its proponents, MMT is the key to fiscal and economic nirvana.
You could just as well call MMT “mystical monetary theory.” Its advocates never explain how creating money out of nothing manages to conjure up buildings, food, energy, and other forms of real wealth out of nothing. This is just a new iteration of old Keynesian mysticism. It repeats John Maynard Keynes’ fantastical claim in Paper of the British Experts, published April 8, 1943, that economists had learned the “miracle ... of turning a stone into bread” through the mystical rite of artificially boosting demand.
My own preferred rendering of the MMT acronym is Monopoly Money Tyranny. Let’s parse “Monopoly money” before explaining the “tyranny” part. “Monopoly” has a dual meaning in this context. First, as the advocates of MMT acknowledge, government has a monopoly on money creation. They believe this monopoly is benign and that the government needs to make greater use of that monopoly by printing more money. Second, like the money used in the Monopoly board game, our fiat currency doesn’t represent any real wealth (like gold or silver); the difference is that our fiat dollars are accepted as money because they have the force of legal tender laws behind them.
MMT is seen by its advocates as a way to bypass congressional gridlock. The federal government’s debt has been trending upward for more than 50 years regardless of whether Republicans or Democrats are in power. The problem is systemic, not partisan. Because politicians gain votes by spending money on special interests and lose votes when they raise taxes, the political incentives induce deficit spending.
Stealth Socialism
We all know that the more money one has, the more real economic goods one can obtain. That is why the advocates of the Green New Deal favor MMT. They know that the costs of the Green New Deal would be multiples of what could be raised through taxation. Under MMT, that dollar shortage would vanish.Congress would have at its disposal however many newly created fiat dollars it would need to purchase however much labor, materials, equipment, etc. needed to fund the wide array of projects envisioned in the Green New Deal. Using MMT, whatever the government wants, the government gets.
More precisely, MMT would enable the government to take whatever it wants from the private sector—not by explicit confiscation, but simply by giving the government unlimited purchasing power with which to outbid private interests. It would be a rigged game: Government’s preferences for how economic resources should be deployed would always prevail because of government’s superior financial power.
MMT would enable the government to obliterate the private sector. With its exclusive access to the bottomless well of fiat money, the government would be able to drain evermore resources from the private sector into government projects until all major industries were brought under government control. In effect, then, MMT is a stealth approach to socialism.
But wouldn’t MMT trigger an inflationary price spiral long before the government completed its absorption of the private economy? Yes, as economists from various schools of thought have known for generations, more monetary units chasing the same amount of goods drives prices higher. However, the proponents of MMT claim that they can avert the problem of rising prices. All that is needed, they say, it to drain purchasing power from the private sector by raising taxes.
Here you can see that MMT inflicts a double whammy on the private sector. Not only does MMT confer an unfair advantage on the public sector by printing more money and increasing the government’s purchasing power, if pesky private interests dare continue bidding for resources, MMT calls for government to decrease the private sector’s purchasing power by siphoning more private wealth into the public treasury through higher taxes.
How would you characterize a government that has the power to take possession of whatever it wants, using the twin tactics of money printing and higher taxes to systematically appropriate as much of citizens’ wealth as it wants? I’ve already characterized MMT as socialistic, but there is an older term that applies. Historically, when a government wields oppressive power over its citizens, it is called tyranny.
As economic theory, MMT is quackery. As a political tool, Monopoly Money Tyranny poses an existential threat to freedom and prosperity.
