While some modern monetary theory supporters (‘MMTers’) can be pretty relentless in their advocacy, the Coalition of the Sane owes them a huge debt of gratitude because without their efforts we wouldn’t have ever witnessed a Washington Post pundit writing something like this (boldface mine):
The U.S. Treasury never has to default on any of its debts. That’s because we control our own currency. If we owe debts and don’t have the tax revenue to pay them, we can always just print the money and hand it over. That may not be the best approach, and in the very worst-case scenario this leads to hyperinflation so bad that defaulting is the less-bad option. But we’re so far from that situation today that worrying about it doesn’t seem worthwhile.
I’m sure many liberal-leaning economists from the neoclassical mold will think that they already knew this. That may be, but most people (heh–think about it…) did not know this. The idea that we can not run out of money–and its correlate that we can never be limited solely by the lack of currency–is a very important one, and one that was pushed not by Neo-Keynesians but the heterodox economists.
If you’re a scientist (for example), this means that, while we might not to fund certain things for various reasons, if someone tells you that ‘we can’t afford it’, he or she is full of it. Money should never be the rate-limiting step.
Unfortunately, our punditariat is incredibly stupid and is, on the whole, refractory to this idea, but that’s par for the course.
An aside: I’m very sympathetic to MMT, but I think some of its supporters seem oblivious to the effects that different kinds of deficit reduction and spending can have (not all cuts or increases are equal in their macroeconomic effects). The balance of accounts has great utility but can’t explain everything.
mikethemadbiologist
You are, of course, correct. However, continually printing money can lead to massive inflation – far beyond what was seen in the severe stagflation from the 70s. I was pretty young back then, but I remember prices going up, up, up. I would shop with my Mom and the prices would go up from day to day. In fact, that situation was how the supply siders gained their major traction.
Having said that, there is little chance of that problem right now. Unions were strong back then and salaries were being tagged to inflation. So salaries were soaring along with prices. However, people on fixed incomes were being slaughtered. So it was a battle between the salaried vs. people on fixed or investment income. Today its the other way around. Unions are anemic and unemployment is putting a permanent damper on salaries. When salaries are low – so is core inflation. The trouble is that FIXED costs are rising faster than most of us can keep up. State and local taxes (which are regressive) gas and electric, food – all the things that are being manipulated by the investor class.
The 70s weren’t that bad. Sure, prices went up, but wages went up back then. I know that sounds like something out of fantasy fiction, but wages were actually rising in terms of goods and services one could command for a given hour of labor. Pretty weird, huh? (Of course, the takers don’t like inflation or rising wages, so they took care of that. Our current low inflation is actually harder on most workers than the inflation of the 70s was.)
Given how many in the investment business make their living lending money, it is surprising that they are so concerned about government debt. You’d think that debt implies an opportunity for growth. After all, the government has to provide for the indefinite future, and every new generation needs infrastructure, education, nurturing, medical care and so on. Since the taker class has made the case that they should not have to pay taxes for the benefits they receive, this means the government has to borrow if our children are to have a better future, just as we borrow to start new businesses, expand operations, educate and credential ourselves and so on.
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