Modern Monetary Theory is a win for the left, even if it doesn't work

Modern Money Theory (MMT) is the idea that sovereign governments like the U.S. with a fiat currency can always print money to repay debt denominated in their currency, so a government should borrow whatever amount of money is needed for its desired level of social spending and can use other policies to manage any resulting inflation when it must print money to repay its borrowings.  There is not a lot of support for MMT in mainstream economics, but the first part of this idea — the printing money part — is pretty much universally known to be true.  The second, or controlling inflation with other policies, part of the idea has a long history of not being true.

From the point of view of the left, MMT is a win-win situation.  Bernie Sanders was described as a supporter of MMT in an opinion piece in The Hill.  Business Insider quoted Ocasio-Cortez (AOC) soon after she was sworn in as saying "that Modern Monetary Theory ... 'absolutely' needed to be 'a larger part of our conversation.'"  MMT naturally underlies the debate over President Biden's Build Back Better agenda and the pressure on Joe Manchin to support additional spending.  This is also a source of support for universal basic income policies, though, inconsistently, these policies are being adopted by left-leaning cities, who do not have their own fiat currency.

For the sake of this discussion, what if some government implements MMT and is somehow able to control inflation though price controls despite their long history of failure, or some kind of income policy, or even some rationing scheme?  In this case, the left wins because more people become dependent on the state as social spending grows.  Under some MMT proposals, government becomes the employer of last resort, making even more people dependent on the government.  More people dependent on the government means a smaller private sector.  That is a win for the left.

On the other hand, what happens if MMT is adopted, but the proposed non-monetary policies to check inflation fail, as history tells us they will?  Then inflation rises, and that inflation will eventually undermine markets and the market economy, as happened famously during the German Weimar Republic; in Sri Lanka just last week; and at many, many other times in history.  This will destabilize the economy and the society, usually causing a move to a more powerful, authoritarian government.  Again, a larger and more powerful government is the goal of at least a significant part of the left, despite pre-revolution intellectuals often not faring so well post-revolution.

In summary, if MMT works as promised and inflation does not become a problem, some goals of the left are met.  If MMT fails to control inflation, as history teaches us, some of the goals of the left are met.  MMT is a win for the left either way.

James L. Swofford is a professor of economics in the Department of Economics, Finance, and Real Estate at the University of South Alabama.

Image: PublicDomainPictures via Pixabay, Pixabay License.

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