Menu
17/11/2019
A+ A A-

The Modern Monetary Theory (MMT), a dangerous mirage

Last April I published in this column an article focusing on how money has been losing its intrinsic value during the last 40 years, turning in fact into fake money and creating the conditions that give way to huge trade deficits. I invite readers to check it before reading the analysis that follows.

This time I'll concentrate on the policies being promoted by the US and other governments following populist and "progressive" programs devised to gain voters and keep themselves in power.

Among the many errors that utopian socialism promotes (which transforms into "communism", "21st century socialism" or, more recently, into the so-called "progressive" policies proclaimed by populist leaders), we are suffering nowadays the syndrome of increasing budgetary waste. Such an irresponsible policy takes place through economic pirouettes that are bringing us closer and closer to the abyss of an overwhelming recession in the United States, which can plunge the world into chaos.

These "Progressive" politicians seek to hide the impending disaster through ingenious mechanisms that promote spending and conveniently hide its future consequences. In order to achieve their populist goals, they have developed the so-called "Modern Monetary Theory", or MMT for short. This deceptive Monetary Theory is gaining traction among high-profile US Democrats and "Progressive" politicians. Accordingly, they are looking for ways to finance humongous social and ecological programs that they hope to carry out in the future without having the tangible resources needed to do so. Considering the $22 trillion-and-growing debt –inherited from a policy of budgetary waste during the Obama administration, to the point of causing a public debt that doubled from 9 to 18 trillion dollars in eight years–, these politicians argue that the present monetary system is too rigid and constraining. Therefore, they firmly propose that something new is needed to provide more flexible and expandable financing. And, of course, their answer is MMT!

However, MMT is not a real monetary theory that as a matter of fact might be respected by knowledgeable Economists. It closely resembles political opportunism, by putting everything in the hands of "enlightened" Progressive politicians. Its promoters keep the theory sufficiently vague to avoid close scrutiny. With perfect irresponsible self-assurance, Prof. Stephanie Kelton of Stony Brook University (with two co-authors) summarize the theory’s magic formula, arguing that: “Anything that is technically feasible is financially affordable.”

These and other proponents consider that it is technically feasible for governments to spend "much more" than they tax and, thus, governments should use taxes, not as generators of revenue, but as an instrument of inflation control, with a much longer term goal of "achieving equality". After all, countries like the United States borrow in their own currency and they create more money as far as they need it!!!  Meaning that governments may follow the Federal Reserve example to issue money to self-finance any budget. Therefore, monetary policies to balance the economy such as controlling interest rates and the money supply are no longer needed. Governments may use instead increased federal spending and higher taxation for job creation and economic growth, just by printing up more money whenever it is needed.

Essentially, MMT is an argument that inflation and employment should be managed through fiscal policy —more spending and more taxation— rather than through interest rates set by a central bank, as monetarists like Milton Friedman preferred. In this way, politicians can promise all kinds of benefits and welfare to the voters without worrying about the inheritance they will leave to their children and grandchildren. As a matter of fact, MMT takes the control of economic policy out of the hands of economists and puts it into those of politicians. It replaces long-term planning with short-term spending. In the USA stage, it puts Congress rather than the Federal Rep. Alexandria Ocasio-CortezRep. Alexandria Ocasio-CortezReserve in charge of macro-economic steering. The fact that notable USA lawmakers like Alexandria Ocasio-Cortez, Bernie Sanders, Elizabeth Warren and Kamala Harris are flirting with this notion is, perhaps, a sign of a flaw in MMT thinking. Indeed, they have repeatedly challenged the idea that more government spending must be offset. Therefore, a superficial, but serious analysis, would be enough to realize how politicians will probably be rewarded on election day by the amount of MMT-funded pork that they can bring back to their districts or the State they represent.

Meanwhile, none of those populist and progressive politicians take the trouble to answer the real question: who is going to pay down the huge national debt that they had been accumulating so irresponsibly for many years and they continue promoting in the US Congress and other world parliaments at the time of passing their national budgets?

First recipients and beneficiaries of this fake economic theory will be the ones to benefit, but it will be seriously detrimental to future debtors facing our present expending. In other words, this is just a pyramidal governmental fraud.