September 19, 2019

Our Ancient Monetary Theory

“With the presidential campaign under way, expect to hear a lot more about a shiny new toy of progressive economic thinking, “modern monetary theory.” It seems to be the only intellectual contortion that might allow candidates to promise virtually unlimited government spending without any deleterious effects on America’s currency, standard of living or liberty.

MMT rests on four basic assumptions:

• Because the government has monopoly power over its currency, it doesn’t face the same constraints that households and businesses do.

• Thus the traditional belief that governments must tax and borrow before deciding how much to spend is flawed. Governments can and should spend first to guarantee full employment. They can then decide how much they should tax or borrow, if at all. The central bank can simply enter money into accounts to make up any difference.

• In this sense a government deficit is the equivalent of a private-sector surplus. Greater government spending produces greater personal prosperity.

• Taxes, not interest rates, are the means by which the government would, if necessary, control inflation.

At its core, MMT seems to rely on the concept that peace and prosperity are the natural order of things. One could be forgiven for believing that it is a short leap between current U.S. fiscal policy and full-blown MMT. Few leading politicians, Republican or Democratic, care much about budget deficits. With little evidence of inflation resulting from extraordinary monetary accommodation of the world’s central banks over the past 10 years, why would they?”

Read more

JJ Editor's Picks

"Blackface. I’ve been writing about, and researching – and opposing – racism for more than thirty years. And make no mistake: blackface isn’t funny. It’s racist. Ask Megyn Kelly. A year ago, the former Fox News star was filming a segment about..."

"Sen. Elizabeth Warren’s “selfie line” may be a “political phenomenon,” according to CNN, but it’s also a misnomer, twice over: The photos that supporters end up with aren’t technically selfies—campaign aides snap them—and no one waits in a line..."

"In the archives of the Wildlife Conservation Society in New York, there is an old postcard from the city aquarium of a large sea turtle with four boys straddling its back. The turtle lies flattened upon a pathway in front of a fence. At the feet..."

"As we celebrated my granddaughter’s third birthday this summer, I made the following rough calculation: I’d trekked from my home in New Jersey to her Brooklyn apartment roughly 150 times to provide once-a-week day care, plus other times as needed."

"That seems to be the emerging bipartisan consensus. “On the evidence we have, the meritocratic ideal ends up being just as undemocratic as the old emphasis on inheritance and tradition,” writes New York Times columnist Ross Douthat. “Our..."

"It was the 2019 Pet Sematary that finally broke me. Was this really necessary? I seethed in a theater earlier this year, at a loss for why anyone would green light a self-serious update to a 30-year-old so-bad-it's-good movie. "Update," even, was.."

"Tuesday was election day in Israel. But no winner has yet been declared. As of this writing, it appears that the parties committed to supporting Benjamin Netanyahu for prime minister will not win a majority in Knesset. At the same time, the..."

"The last time Netflix asked me “Are you still watching?” I had to think really hard about it. Was I still watching? Or at least enough to make my $16-a-month payment worth it? The subscription economy can be a wonderful thing. We don’t have to..."