This Time It's For Real

A little over a year ago, I wrote a column about Modern Monetary Theory. Don't look now, but it's no longer a theory, it's reality. Depending on how it eventually turns out, we'll find out if the economic cure to the coronavirus was worse than the disease.

In simple terms, MMT adherents believe that countries that issue and back their currencies, like the U.S., can print as much money as they need and still stay solvent. (Compare the eurozone, where the European Central Bank issues the currency, not the individual member countries). And without creating runaway inflation.

You can try this at home, too, you know, although it doesn't work nearly as well for individuals as it does for governments. Pay off one of your credit card balances with a balance transfer from another bank, then keep repeating the process. This will work for a while until the merry-go-round eventually stops when the banks stop lending you money, and you'll have to either pay everything you owe or wind up in bankruptcy court.

Of course, it's different for the government, which is one of MMT's main arguments, since it can just print more money when it runs out, which means the merry-go-round keeps going, even if investors stop buying Treasury bonds. If that happens, which it never has, the Federal Reserve, a separate but "independent" arm of the government, will pick up the slack.

Neat, huh? Continue reading "This Time It's For Real"

How I Learned To Stop Worrying And Love The Deficit

John Maynard Keynes is generally given credit for the economic axiom, “We owe it to ourselves.” That idea has caught fire with the left in our country, who are now trumpeting a world where government deficits and debt – at least at the federal level – simply don’t matter, because, well, see Lord Keynes.

This idea even seems to have gotten sympathy – or at least, seems to be taken more seriously than you would have thought – by formerly level-headed financial publications such as the Wall Street Journal and Bloomberg BusinessWeek. Both of them have published lengthy stories recently which have come to the same conclusion, namely that, yeah, this could actually work.

Last week, the Journal’s story was headlined “Worry About Debt? Not So Fast, Some Economists Say,” supported by the subhead, “U.S. deficits may not matter so much after all—and it might not hurt to expand them for the right reasons.” A couple of weeks before that Businessweek’s cover story featured the grande dame of the so-called progressive wing of the Democrat Party, Congresswoman Alexandria Ocasio-Cortez. Continue reading "How I Learned To Stop Worrying And Love The Deficit"