Modern Monetary Theory and the Green New Deal: A Match Made in Hell?
How will America pay for Alexandria Ocasio-Cortez’s Green New Deal? After all, as Peter Schiff said a few weeks ago, you can’t print wealth. But there is a growing number of people who seem to believe you actually can – at least indirectly. And they have an economic theory they claim backs them up. It’s called Modern Monetary Theory, or MMT.
Economist Robert Murphy gave a pretty good overview on MMT in an article he wrote for the Institute for Energy Research. In a nutshell, according to the theory, the US government can never technically default.
Perhaps the single biggest ‘insight’ of the MMT camp is that the United States government, as an issuer of an unbacked fiat currency and an entity that doesn’t carry significant foreign debts, can never become legally insolvent. In short, no matter how many Treasury securities outsiders hold, ultimately the Federal Reserve can simply create more dollars in order to pay them off. Under a gold standard this would not be true, but ever since 1971, the U.S. government has had no official constraints on its spending.
This is why MMTers think it so old-fashioned when the critics ask, ‘How will you pay for the Green New Deal?’—or Medicare For All, a Universal Basic Income, etc. To ask, ‘How will you pay for it?’ implies that there is a budget, where the federal government must first raise revenue and then spend it. But as the MMT gurus like Warren Mosler explain, under a fiat currency a government first spends the money in order to bring it into existence, and only then is it even possible to tax it back from the citizens.
So, really there’s no problem, right? Just fire up the printing presses. We can have it all!
Obviously, this isn’t true. There has to be some limit on the printing press. And even MMT advocates admit this. In fact, Paul Krugman is a little concerned about the growing popularity of MMT.
Murphy and Tom Woods used Krugman’s column on the subject and used it as a jumping off point for a discussion about the Green New Deal and MMT on a recent episode of Contra Krugman. Bob and Tom explain the holes in the Modern Monetary Theory scheme, and why the Green New Deal and MMT are a match made in hell.
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