The Age of Fiscal Abundance
Modern Monetary Theory has triggered a heated debate. Prominent economists have criticized it in strong terms—my favorite is this piece by Franklin Templeton’s Sonal Desai, who also notes how MMT proponents misrepresent the US’s power as reserve-currency country. Allianz’s El-Erian takes a more sympathetic view in this Bloomberg column.
Here I want to make only one simple point.
MMT proponents argue the government has no budget constraint (as in this CNBC video by Stephanie Kelton, prominent MMT advocate and an advisor to Bernie Sanders’ 2016 Presidential campaign). This has one simple logical implication:
If the government has no budget constraint, then nobody has a budget constraint.
The government, according to MMT, can never run out of money, because it can always print more. If that is true, the government can give everyone in the country an infinite amount of money.
The age of abundance was always here; we just never realized it. Now we discover it not thanks to technology, but thanks to economics. Move over, Peter Diamandis.
So let’s do it!
Now, if MMT proponents take a half step back and say well…up to a point…if the government really spends too much it might eventually stoke high inflation…
…then MMT is no different from standard economic theory. Then we are just arguing on how much fiscal stimulus is consistent with financial stability. And that’s not exciting.
But it has to be one or the other.
I’ll take the abundance interpretation—see you all at the shopping mall.