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Musing #69: Modern Monetary Theory

Heterodoxy can usher in amusement and stimulation in equal measure. In the context of economics, I have seen it pop up quite often at the mention of Modern Monetary Theory, to the extent that I have run out of fingers to count on. In the same breath, MMT (not this one) is equated with the license to print as much money as needed with it being a “creature of law”. This makes nought sense to anyone having the faintest idea of economics and neither does the zero sum game between government spending and private saving.

Even if the theory has merits, it is often over-simplified by those pushing for its acceptance in the mainstream, which in turn makes it sound quite crazy. After quite some time, I have come across a source that does a simple and good job of discussing it. In general, I would recommend subscribing to the ‘After Hours’ podcast considering the fact that I ended up binge listening to it the first time I “tuned in”.

Considering what happened in Zimbabwe, it will take a lot of effort to convince anyone that “unlimited printing of money by government” is a good idea, all things considered. At the same time, running fiscal deficits is a great idea, assuming there is a limit to it and that you are getting your money’s worth. After all, debt makes the world go round. Running a deficit with a manageable debt-to-GDP ratio makes a lot of sense provided the government is getting a positive ROI in terms of social and economic benefits. What makes less sense is turning fiscal and monetary policies on their head without understanding their due impact.

There is no denying that the economic system is a belief and a social construct but there is no turning back the clock as well. Instead, the idea is to bring in meaningful change and MMT can contribute to that in parts, though not as a complete alternative. In the meantime, Calvinball anyone?

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