Yellen’s “Go Big” MMT Plan May Disappoint

Yellen’s “Go Big” MMT plan was fulfilled this week as the Government passed the mammoth $1.9 trillion “American Rescue Plan Act of 2021.” While she recently stated that “Right now, with interest rates at historic lows, the smartest thing we can do is act big,” there is mounting evidence such actions may disappoint.

If you haven’t heard about Modern Monetary Theory, or “MMT” for short, by now, you will soon. MMT is gaining traction by economists and politicians from both sides of the aisle as the economic prescription, even panacea, to cure our economic ills. Regardless of your view, MMT will have large effects on economic growth and prosperity.

“Modern Monetary Theory is a macroeconomic theory that contends that a country that operates with a sovereign currency has a degree of freedom in their fiscal and monetary policy which means government spending is never revenue constrained, but rather only limited by inflation.” – Kevin Muir

So, there you have it.

Debts and deficits do not matter as long as the Government can print the money it needs to pay for its wants.

In other words:

Deficits are self-financing, deficits push rates down, deficits raise private savings.” – Stephanie Kelton

That is the “you can have your cake and eat it too” theory in a nutshell.


What People Need Is Employment

Janet Yellen believes that doing more of the same will have a different result next time. To wit:

“As treasury secretary, I have to worry about all of the risks to the economy, and the most important risk is that we leave workers and communities scarred by the pandemic and the economic toll that it’s taken, that we don’t do enough to address the pandemic.

I’ve spent many years studying inflation and worrying about inflation, and I can tell you, we have the tools to deal with that risk if it materializes. But we face a huge economic challenge here and tremendous suffering in the country. We’ve got to address that. That’s the biggest risk.”

While more stimulus checks will undoubtedly help those still mired in unemployment since the pandemic began, such doesn’t fix their problem. What they need is employment, and as we noted previously, the stimulus is not the answer.

“To increase employment, which is the single most considerable cost to any business, you need two things:

  1. Confidence the economy is going to continue to grow in the future, which leads to;
  2. Increased production of goods or services to meet growing demand.

Currently, there is little expectation for a strongly recovering economy. Such is the requirement for increasing employment and expanding capital expenditures.”

Yellen's "Go Big" MMT Plan, #MacroView: Yellen’s “Go Big” MMT Plan May Disappoint

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Bruce Wilds 4 weeks ago Contributor's comment

This 1.9 trillion dollar package will do little to solve America's problems. The term helicopter money refers to unconventional methods used to get money into the hands of people that will rapidly put it to use. While helicopter money may accomplish a certain goal such as supporting a market, it is poorly targeted and seldom addresses the root problems in a financial system or economy. The article below argues it is a poor way to move an economy forward.