If Modern Monetary Theory (MMT) were a quarterback down on the ground, someone would call a penalty for piling on. Ever since MMT started to get traction among the front-runners in the Democratic 2020 presidential race, mainstream economists and wealth managers have been lining up to call it “garbage” and explain why it won’t work.
MMT says there is practically no limit on how much money the Treasury can borrow or the Fed can print. By combining forces, the Treasury can borrow enough money to finance the Democratic wish list of Medicare for all, free tuition, free child care and the Green New Deal. If markets balk at so much Treasury borrowing, the Fed can step in and just monetize the debt by printing money and stashing the Treasury notes away on its balance sheet.
The elites have attacked this theory by saying that higher Treasury borrowing will lead to higher interest rates and Fed monetization will lead to inflation. Those voicing this criticism of MMT include Jay Powell, Larry Summers, Larry Fink, Jeff Gundlach, Jamie Dimon and Ray Dalio. Now, according to this article, you can add famed Harvard economist Ken Rogoff to the list. Rogoff (and the other MMT critics) make the point that MMT risks higher inflation and possible lost confidence in the dollar by overseas investors.
The problem with the critics is that Ben Bernanke inadvertently made the case for MMT from 2008–2014. He printed over $3.5 trillion to bail out the banks (and preserve Jamie Dimon’s bonus) and nothing happened. There was no inflation, interest rates remained low and foreign investors continued to have a huge appetite for more Treasury debt. All that the MMT crowd are asking is if you can print $3.5 trillion to protect Jamie Dimon, how about printing another $3.5 trillion to help everyday Americans with health care and tuition?
In fact, there are legitimate criticisms of MMT, but the monetary elite are unable to articulate them. They seem like hypocrites because they supported money printing when it helped banks but won’t support it when it helps everyday Americans.
This debate will become more pointed as the 2020 presidential campaign continues. If elites want to stop the MMT train, they’ll have to bring up their game and start pointing to the real reasons MMT does not work. I’ll be explaining these reasons in debates and on TV appearances in the days to come.
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