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As Inflation Explodes, “Modern Monetary Theory” Faces Reckoning

AMAC Exclusive – By Andrew Abbott

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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.           

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8 months ago

They say you can judge an idea by the speaker. Of course Communist/Marxist ideas will come out of the mouths of AOC and Elizabeth Warren. What else would you expect? Reaganomics? AOC wants free stuff for everyone but the taxpayer. I’m sure she doesn’t believe in lending money for interest or paying for anything .

Neal Christensen
8 months ago

Liars lie…it’s as simple as that.

8 months ago

Our politicians are just rhetoricians so to speak. Spend money and vote for garbage because it brings power to the chambers and the individual who rolls over so they look better for reelection. MMT is another leg of Socialism/Communism. Just print more money to pay the bills How did that work for the Weimar Republic? I guess it would be OK to set up my own printing machine if MMT is so easy.
Maybe sell special wheelbarrows to carry our cash around?

8 months ago

Another plan to destroy America faster so they can “save us” by getting America into the one-world government. We cannot trust one word from our Godless globalist government.

Bob L.
8 months ago

Fiat money, money that has no gold or silver backing is the biggest money problem. Without money supply being limited by having the value of money set by a set amount of gold and silver ( $1 dollar per ounce of silver or $32 dollars per ounce of gold) as it was at the time FDR recalled all circulating gold in 1933, the federal government would also be greatly limited in how much they can borrow and spend. Inflation would be controlled by supply and demand on goods, not by massive injections of money into circulation as is the norm now when politicians want to spend without restraint. We are headed for something this country has never experienced before – hyperinflation, a condition in which the prices on grocery shelves are useless and the amount rung up at checkout would be several times higher than when you walked into the store.

8 months ago
Reply to  Bob L.

The Crypto currency such as Bitcoin seem to be a bigger risk than anything out there. The value of this has bounced up/down big time in the last 2-years. And the huge amount of electric power to make these coins is astronomical.

8 months ago
Reply to  Bob L.

There a major problem with this approach — your economy can only grow as fast as your country’s gold supply. If you don’t have sufficient gold mines they you have to export something else *just* to acquire the gold needed to expand your economy.

With gold based currencies depressions can be cause by faltering gold supplies and inflation can be caused by gold booms. What do you do about the escalating cost to extract gold? Once gold costs more than $32 to extract, people will stop doing so and your economy crashes. Really bad idea. Gold is a limited resource and we are at the point it has gotten relatively expensive to extract (modern mines have to process from 1 ton to 60+ tons of “ore” to extract 1 ounce of gold).

I don’t like fiat currencies either — or at least ones where the gov’t gets to decide to devalue it at their own pleasure. We need a system where the growth of the money supply is *explicitly* tied to the growth of the economy. You can only print as much new money as is needed to fuel *real* economic growth. Unfortunately, the growth of gold supplies is *independent* of the performance of the economy — that’s why gold is a bad choice for that.

As much as anything else, reliance on gold for the currency was why Europe spent so long in the “dark” ages. During the Roman era, Rome shipped tons and tons of gold to Asia along the spice and silk roads — that gold never came back and left Europe depleted of gold for centuries. The Renaissance happened when and where it did because all of a sudden a fresh supply of gold became available coming out of Africa and landing in northern Italy. Remember that a currency “backed by gold” is only such if someone else can demand gold in exchange for the currency (otherwise it is by definition fiat). That’s why Nixon took us off of the gold standard, other countries were demanding gold and our reserves were being depleted — we were starting down the road Europe had traveled more than a millennia before. The reason for the particular timing of that event was that America was changing from being a net exporter to a net importer — net importers see their gold reserves disappear as others wind up holding too many dollars and would rather have the gold.

Money is a very complex subject, way more so than most people realize. Simplistic answers like “gold standard” just don’t work in the long run.

8 months ago

modern monetary theory is the mother of communism.

8 months ago

What if, what if all of us in our personal finances, did what the government does…..just keep going deeper into debt to cover debt to cover debt, etc, etc.? Can you imagine……maxing out your credit care, getting another and maxing it out, getting another and maxing it out…while spending all your cash on trinkets, do-dads and pleasures……..and thinking it all just and proper? Are we that stupid?

8 months ago
Reply to  D.P.

Obviously, a great many of our legally voting citizens are, considering the state of the government!

8 months ago
Reply to  D.P.

get washington’s attention by not paying your taxes.

Myrna Wade
8 months ago

Modern monetary theory never even looked respectable. We should question the analytical capability of leaders who believe it and have the power to use it. It is a farce.

Pete from St Pete
8 months ago

MMT is not really a theory on how the world’s economy really works. It was really devised to justify spending all our leaders want without regard to the facts of the situation. AOC, Elizabeth Warren, Bernie Sanders and other progressives love it because it enables them to justify looting the public purse to spend our tax dollars on any of their cockamamie ideas regardless of whether they make sense or not. It should be disregarded out of hand by all sensible people.

8 months ago

However, the people you named in your comment are the opposite of sensible. They are Godless, lying globalists who hate America and what we stand for.

8 months ago

Geez, can I borrow “unlimited” amounts of cash and never pay it back? . . . If I can’t, what reasoning of the Government doing it is any different? . . . Duh!

8 months ago

MMT only faces a day of reckoning, if the Republicans that may re-take both chambers of Congress after the midterms don’t follow the same policy. Yes, the Democrats have been the disaster most of us knew they would be when it comes to runaway spending as the answer to everything, but a number of those spending bills were supported by 18 or 19 RINOs that permitted those spending bills to pass. What is needed is new GOP leadership in both chambers of Congress that will enforce sound fiscal policies that will stop the continual devaluation of the dollar and thus stop feeding inflation.

8 months ago
Reply to  PaulE

So true, and it will certainly continue if we foolishly keep reelecting the same RINOs over and over again.

Joe M
8 months ago

If it’s Democrat…it’s DUMB !!

james michalicek
8 months ago
Reply to  Joe M

It’s the ECONOMY, stupid!

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