The subtitle is Modern Monetary Theory and the Birth of the People’s Economy and the author is Stephanie Kelton (2020).
Kelton is an economist with the Modern Monetary Theory (MMT) cult, which has gained in popularity recently, counting Bernie Sanders and AOC amongst its supporters. Kelton uses this book to explain the key tenets of MMT and to throw the traditional ideas of deficits and government budgets out the window.
The main ideas could be summarized as follows:
-If you are a monetary sovereign – that is, you can issue your own currency and do not borrow in anyone else’s currency – then the risk of default is non-existent, because you can always print more Dollars, Yen or Loonies. Therefore, the idea that such governments are in any way like households, and need to stay within budget constraints, is an absolute fiction.
-With that first concept out of the way, the theory acknowledges that there are still constraints – namely, inflation, which could occur if government spending exceeds the capacity of actual productive goods and resources in the economy. More specifically, in the form of a question, will the new spending go towards slack (the unemployed) or will it pull resources from other productive ends (which would not be good)?
-In addition, because the government is not constrained in its spending, taxation is not really a means of funding, so much as the stick that gets people to work and produce, so as to ensure that they earn the currency that they need in order to pay taxes.
With that all said, the question is whether MMT is really a panacea. The basic idea that when there is slack in the economy (take the COVID pandemic and associated unemployment, as an example), there is plenty of room for government spending, without any crowding out or inflation, makes some deal of sense at first glance. However, when you think a bit longer, you realize that, at its core, MMT is relying on the government to spend well and avoid boondoggles, and I am entirely skeptical of such a reality. Malinvestment is a reality, especially with fiat currency, and it is why we have boom and bust cycles perpetually.
And that leads to the more global problem with MMT that is not dealt with in the book. If being a monetary sovereign is so wonderful, why is it that any country would choose otherwise? Why doesn’t every country print its own currency, never borrow in another currency, and pay for anything it wants? The reason: because financial markets do not trust every country (in fact, they don’t trust most countries) not to spend recklessly and debase the currency. Venezuela and Argentina both have their own currency, and Greece used to have the Drachma, but are forced to borrow in US dollars or Euros for exactly that reason. If the US suddenly decides that the constraints are gone, we start going down the path of other currency debasers who lose their sovereignty.
So, MMT seems novel and offers insights that will probably blow a few minds. But I don’t think they have proven that gravity no longer exists.
