MMT bad faith.

MMT advocates don’t seem to appreciate the risks in giving politicians responsibility for managing inflation, and they engage in the same sort of supply-side voodoo as tax cut-obsessed Republicans.

It seems to me more and more that advocates of MMT (or Modern Monetary Theory) may not be debating in good faith.

To be sure, this doesn’t apply to all – in fact, the reason I learnt about MMT at all was because I stumbled upon a conversation on the topic on Twitter, and several individuals were kind enough to engage with me very much in good faith.

But there does appear to be a segment of this movement that is not interested in whether MMT can be implemented feasibly, which leads me to believe that they’re just looking for an excuse to drastically increase spending on their chosen pet projects, without caring how it is accommodated (note I didn’t say ‘afforded’ or ‘paid for’ given the fact that MMT states the limits of government spending aren’t what the government can afford, but what the economy’s real productive capacity can accommodate).

The first reason for my accusation is that very few MMT advocates seem to highlight the potential disaster of trusting politicians with responsibility over inflation, rather than a semi-independent central bank. MMT does indeed point out that fiscal policy (taxes) is the intended tool to control inflation (even if not to ‘pay for’ government spending) but very few worry that whenever politicians have been given that power, they’re not good at wielding it. Tax policy is simply too slow to react to inflationary pressures (or lack thereof). Sometimes politicians are simply too afraid of the voter reaction if they change taxes one way or the other.

I’ve suggested some sort of independent fiscal authority with control over the choice and implementation of infrastructure projects, and maybe a direct link to the printing press (if not indirectly through simply a share of the government budget). This would leave the determination of any output gap and the proper cost-benefit analysis of infrastructure projects out of the hands of politically-motivated individuals. But it’s not an idea I see discussed frequently.

So this is my first concern with many MMT-advocates – they don’t seem to appreciate the entire purpose of outsourcing monetary policy to the experts of an independent central bank in the first place.

My second concern, in the case of the ‘Green New Deal’ debate in the US, is the suggestion (explicitly not implicitly) that the additional spending on environmental protection will create entire new industries and economic activity, thereby absorbing all the extra spending without it translating into inflation.

Again, this is a risky proposition to trust politicians to ‘pick winners’. Governments have attempted this kind of industrial policy all over the world with very mixed success. Sure, South Korea’s auto manufacturing industry did well with government support, as did the US’s manufacturing industry in the 19th century. But there are just as many examples (if not more) of abject failure (see South America – and I’m not even talking about Venezuela’s fiasco, I’m talking about countries like Argentina throughout the 20th century).

This is the kind of supply-side voodoo Republicans employed to pass their tax cuts – that they’d generate enough economic activity to pay for themselves. They didn’t. They were just used mainly for executive bonuses and stock buybacks. They haven’t even generated much new real investment.

To be sure, there *are* lots of good projects the US could undertake – even just repairing their crumbling infrastructure – that could literally ‘pay for themselves’ through increased economic activity. But if MMT is to be the new status quo, we need a way to ensure that once the ‘low hanging fruit’ productive projects are exhausted, politicians don’t keep printing money to finance lesser projects that do, in fact, just result in inflation.

So this is my second concern – how easy it would be for a government to pick the wrong industries resulting in all that additional money translating not into new economic activity, but plain old inflation.

MMT is philosophically interesting and is indeed a clever way of looking at how the world works. And it arguably arose (or at least came to greater prominence) as a legitimate antidote to the ill-advised government austerity movements that followed the GFC. But unless its advocates talk more about how it is to be implemented, accusations of bad faith – along with comparisons to countries like Venezuela – will continue.