Modern Monetary Theory Isn’t Modern
When it comes to economic panaceas, there isn’t much new under the sun. MMT, shorthand for Modern Monetary Theory, is the elixir du jour, but it is actually an old potion with a slick new label.
The New York Times has noted,
[Stephanie Kelton] … is the most familiar public face of Modern Monetary Theory, which posits that if a government controls its own currency and needs money — to make sure its citizens have food and places to live when, say, a global pandemic pushes many out of work — it can just print it, as long as its economy has the ability to churn out the needed goods and services.There are other definitions of MMT including the following from Investopedia:
The central idea of MMT is that governments with a fiat currency system under their control can and should print (or create with a few keystrokes in today’s digital age) as much money as they need to spend because they cannot go broke or be insolvent unless a political decision to do so is taken.
One major assumption is that the monetary authorities can keep price inflation under control:
Under MMT, the risk of inflation is considered minimal as governments that fully control their fiat currencies are believed to be able to control price levels, provided they can meet consumer demand.
Now, with the annual change in the Consumer Price Index at 40-year highs, this assumption has tripped on a landmine. To the proponents of MMT, however, this is a minor flesh wound. Kelton, for one, is undaunted, even though she’s skeptical of the current monetary remedy:
[F]ar too many people remain convinced that conventional monetary [theory] is the best weapon against inflation. Perhaps we’ll get lucky and inflation will trend steadily down before the proactive efforts to rein it in tip the economy into recession. But, as I’ve written before, I wouldn’t bet on it. I think we need a different approach.Kelton has a plan, however, which she shared on The Lens:
We… need to make (long-overdue) investments in renewable energy to diversify our energy portfolio—but this time not into other forms of fossil fuel—with the ultimate goal of weening ourselves entirely off of carbon-intensive sources of energy for the sake of civilization. Amping up supply in the near term and remaining wedded to oil going forward will only leave us vulnerable to future oil price shocks, not to mention the devastating impacts of climate change. Action on climate is action on inflation.
While in tune with progressive talking points, such thinking is pure fantasy, as Alex Epstein, author of Fossil Future, explains:
By our standards, the world is extremely poor, including energy poor… [T]here are six billion people in the world who by our standards use a totally inadequate amount of energy, less electricity than one of our refrigerators uses. We live in a world that is energy deprived, and then you learn that fossil fuels provide 80 percent
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