Magic Pudding Monetary Theory (MMT)

The most important element in understanding how an economy works is to begin from its resource base, its existing infrastructure, its labour force and its entrepreneurs. Then mix in the laws and regulations, along with the personal beliefs of the population about the market economy. If you get just the right combination of all of that, you will get rising prosperity.

Also needed is a system of credit creation and a mechanism for supplying a medium of exchange, but that comes last of all. You have to get the real side of the economy in place and they you can worry about ensuring that the supply of money grows more or less in sync with the number of transactions taking place.

So into this comes Modern Monetary Theory, the realm of cranks of such a spectacular level of ignorance that it is quite astonishing to see these people in action. Warren Buffett Hates It. AOC Is for It. A Beginner’s Guide to Modern Monetary Theory.

This state of confusion isn’t good because Modern Monetary Theory, once confined to blogs and a handful of colleges including the University of Missouri at Kansas City, suddenly matters. In the U.S., the left wing of the Democratic Party is citing MMT to make the case for massive federal government spending on a Green New Deal to wean the U.S. off fossil fuels and fund Medicare for All. It’s virtually certain that MMT will be dragged into the debates of the 2020 presidential race. So the time is right for a semi-deep dive into Modern Monetary Theory—what it is, where it comes from, its pros and its cons.

Are we immune from all this? You better hope so. From the AFR today: Bernie Sanders’ senior adviser has a message for Morrison.

The 2020 US presidential candidate Bernie Sanders’ senior economic adviser, Stephanie Kelton, is urging the Morrison government to ditch its surplus, spend money on climate change and prepare for central bank obsolescence.

Touring Australia as the University of Adelaide’s Geoff Harcourt Visiting Professor, Professor Kelton told The Australian Financial Review people had become less concerned about deficits and that the government should rev up spending through the use of the controversial Modern Monetary Theory.

Bernie Sanders’ economic adviser Stephanie Kelton says the Morrison government should ditch its surplus and spend money on climate change. Bloomberg

“The number that gets churned out of the budget at the end of the fiscal year, is essentially, unimportant,” Professor Kelton said, “Every deficit is good for someone.”

“There’s untapped potential in the Australian economy in the form of idle capacity, especially labour, that the government can afford to run its fiscal policy more ambitiously to make more judicious use of the available resources.

“I would argue that there’s clear evidence that you’re not doing that here in Australia.”

MMT really stands for Magic Pudding Monetary Theory. They are just thieves who will rob you by inflating faster than the rest of us can keep up with their spending. And because they are the government, they will get to spend it first.

My thanks to Spartacus for forwarding these articles.

1 thought on “Magic Pudding Monetary Theory (MMT)

  1. “They are just thieves who will rob you by inflating faster than the rest of us can keep up with their spending”
    When Reagan left the US presidency he left a deficit of 1.5 trillion dollars. Ever since then orthodox economists have shouted out about deficit spending causing inflation. Since then US deficits have increased to 21 trillion dollars, with, currently full employment and inflation at 2 percent.
    Following the GFC the Fed introduced Quantitative Easing to more cries from economists, the dollar will crash and inflation will go through the roof. QE went on for years with NO adverse consequences. Similar “debate” occurred around the consequence of negative interest rates, once again, economists got it wrong. Far from leading to rampant inflation, NOTHING adverse happened in the economy, whenever the Fed talks about raising interest rates “The Market” takes a hit.
    In Australia, Hockey used to scream about debt and deficit disaster, from opposition. As soon as they came to power, Abbott and Co set about their austerity, at the same time as they found another 600 million dollars to send the RAAF off to fight ISIS. After 6 years the current mob have doubled national debt and in their pursuit of a surplus nearly caused a recession. After all their good economic management, based on the principles of Milton Freidman, inflation runs around 2 percent, unemployment 5.1 percent with GDP growth under 3 percent.
    Not a startling result.
    The ravages of COVID-19 have now created socialists out of these noecons.
    As for your claim that deficits result in inflation. History has proven that to be wrong. Alan Greenspan, an authority on the monetary system and the economy really puts paid to that lie in the following conversation in Congress. Paul Ryan (a republican) stated that the nation couldn’t afford its social security bill and asked Alan Greenspan whether the US would be better off if social security was privatised. Greenspan replied, the government CAN CREATE AS MUCH MONEY AS IT NEEDS, AND PAY IT TO WHOEVER IT WANTS, so the payment of social security is not a problem, What is important is that the economy can meet the demand created when those social security payments are made else those payments could be inflationary.

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