As Inflation Explodes, “Modern Monetary Theory” Faces Reckoning

AMAC Exclusive – By Andrew Abbott

When Democrats passed trillions in new spending last year right on the heels of trillions in spending in 2020 to help alleviate the economic fallout from COVID-19 shutdowns, fiscal conservatives and rational economists warned that out-of-control inflation and economic ruin were sure to follow. Yet now that those warnings have proven prescient, President Joe Biden and his allies in Congress are still pushing ahead with plans for more massive government expenditures. While this course of action may seem to many Americans to be detached from reality, it is just the latest example of the so-called “Modern Monetary Theory” (MMT) in action.

The basic idea behind MMT is that because a country controls the money supply, it can simply print more money to pay off any debts. Therefore, the theory argues, governments can borrow and spend money indefinitely without consequence, even without raising additional revenue to finance the debt. Instead of the prevailing wisdom that deficits are bad, MMT says deficits are good. Moreover, since the government doesn’t need to raise revenue, the federal interest rate should always be 0%.

While most trained economists remain highly skeptical of MMT, arguing that spiraling inflation and deficits will wreak havoc on the economy, the theory has perhaps quite predictably become a favorite of progressives aiming to spend trillions of dollars on their plans to “remake America.” Far-left Democrats like New York Congresswoman Alexandria Ocasio-Cortez and Massachusetts Senator Elizabeth Warren have emerged as particularly ardent evangelists of the theory, using it as a catch-all explanation anytime questions arise about how they plan to pay for all their proposed social programs.

When Joe Biden took office and unveiled his $6.6 trillion “Build Back Better” plan, MMT proponents applauded him. Dr. Stephanie Kelton, one of the leading MMT theorists, explicitly stated that Biden “has adopted” MMT. “He’s owning this,” Kelton said at the time, predicting that any resulting inflation from Democrat spending policies would be “transitory” – a line that the White House repeated for months as inflation statistics began to creep upward.

Yet even now that the White House and Dr. Kelton have finally admitted that inflation is not transitory, they still refuse to back down from dubious claims that more government spending will solve the crisis. Kelton has argued that, rather than draw back spending, the government should simply raise taxes to “remove spending power from the rest of us.” President Biden, meanwhile, has continued to claim that his policies have had no bearing on the escalating inflation– something even fact-checkers have said is false.

This pattern of shirking blame when the inevitable disastrous results of their policies come to pass has become all-too-familiar for Democrats as the party has lurched leftward in recent years.

As police departments struggle to retain officers and crime spikes in American communities, for example, Democrats refuse to admit that their support for the “Defund the Police” movement has anything to do with it. Some elected Democrats have even continued to defend attacks on law enforcement. Democrats have also continued to insist that their war on American energy has nothing to do with record-high gas prices and that their support for open borders is unrelated to the ongoing spike in illegal border crossings.

On one issue after another, progressives would have Americans believe that the crises which have arisen in the last two years are completely divorced from government policy – despite the fact that progressives also claim that government policy can solve any crisis. According to their twisted logic, the answer to the negative consequences of too much government spending is even more government spending.

Modern Monetary Theory provides a pretense of legitimacy to justify such an approach to fiscal policy. But the true purpose, as is seemingly always the case with progressive policies, is to increase the power of the federal government over the lives of ordinary Americans. If the government is granted free reign to spend without limit, inflation will destroy the purchasing power of middle- and working-class families, who will then become more reliant on government assistance. The government will then simply print more money to provide that assistance, locking in a vicious cycle of inflationary pressure that results in a socialist state. For some proponents of MMT, that may be not a flaw in the theory, but the whole point.

Of course, Democrats have stayed far away from discussing this reality, hoping that vague promises of “historic investment” in “human infrastructure” will distract from the truth. But with inflation hitting families hard and threatening the American Dream for so many, support for Modern Monetary Theory could become a major liability for any elected officials associated with it heading into November. That’s bad news for many already embattled Democrats, and one more blow to the party’s brand in the eyes of voters.

Andrew Abbott is the pen name of a writer and public affairs consultant with over a decade of experience in DC at the intersection of politics and culture.