MMT’s True Colors Appear

Modern Monetary Theory, aka MMT, has hit the mainstream and some Liberal politicians like AOC are giving it full-throated endorsements. I need to stop playing Mr. Politically Correct with this idea – it is dangerous and we need to start saying that outright.

Now, I’ve been generally fair over the years. I was very critical of Conservative Austrian style economics for years when they were pushing the narratives about how QE would bankrupt us and cause hyperinflation. If anything, I’ve probably leaned closer to the Left than anywhere else over the last 10 years because I called for $2 trillion deficits coming out of the crisis. So, I don’t think I can be fairly accused of political bias here since I am criticizing a left-wing school of economics 10 years into a recovery when they’re calling for a massive expansion of government.

Now, as a risk manager I tend to always be on the lookout for tail risks so there’s a chance that I am overreacting here, but not without merit. After all, MMT has shown its cards in recent months and they look a helluva lot like 2-7 offsuit.

First, there was their endorsement of the Green New Deal, the rollout of which, we can charitably describe as a dumpster fire. Remember, this plan has been estimated to cost anywhere from $6-90 trillion. It is, by any measure, a massive increase in the size of the US government.

As this policy was debated the discussion turned to how MMT would control inflation if all this government spending happened to cause it. MMT didn’t have a very coherent answer because they don’t have a very coherent theory of inflation. MMT rightly says that the US government is constrained by inflation and not by how much money it has, but they don’t really know what that inflation limit is. In this sense, they’re like the person who knows that they’ll be bankrupt when their bank account hits $0, but they can’t count so they’ll never know when they’re bankrupt.

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