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TEMA: The Modern Monetary Theory (MMT) mirage

The Modern Monetary Theory (MMT) mirage 08 May 2019 23:34 #10977

Last month I published in the "Economy/Society" section of this electronic magazine an article focusing on how money has been losing its intrinsic value during the last 40 years, turning in fact into fake money and creating the conditions that give way to huge trade deficits. I invite readers to check it before reading the analysis that follows.

This time I'll concentrate on the policies being promoted by the US and other governments following "populist" and "progressive" programs devised to gain voters and keep themselves in power.

Among the many errors that utopian socialism promotes (which transforms into "communism", "21st century socialism" or, more recently, into the so called "progressive" policies proclaimed by populist leaders), we are suffering nowadays the syndrome of increasing budgetary waste through economic pirouettes that are bringing us closer and closer to the abyss of an overwhelming recession in the United States, which can plunge the world into chaos.

These "Progressive" politicians seek to hide the impending disaster through ingenious mechanisms that promote spending and conveniently hide its future consequences. In order to achieve their populist goals, they have developed what they call "Modern Monetary Theory" or MMT for short. This deceptive Monetary Theory is gaining traction among high-profile US Democrats and "Progressive" politicians that are looking for ways to finance humongous social and ecological programs that they hope to carry out in the future without having the tangible resources needed to do so. Considering the $22 trillion-and-growing debt –inherited from a policy of budgetary waste during the Obama administration, to the point of causing a public debt that doubled from 9 to 18 trillion dollars–, these politicians argue that the present monetary system is too rigid and constraining. Therefore, they firmly propose that something new is needed to provide more flexible and expandable financing. And, of course, their answer is MMT!

However, MMT is not a real monetary theory that as a matter of fact might be respected by knowledgeable Economists. It closely resembles political opportunism, by putting everything in the hands of "enlightened" Progressive politicians. Its promoters keep the theory sufficiently vague to avoid close scrutiny. With perfect irresponsible self-assurance Prof. Stephanie Kelton of Stony Brook University (with two co-authors) summarize the theory’s magic formula, arguing that “Anything that is technically feasible is financially affordable.”

These and other proponents consider that it is technically feasible for governments to spend "much more" than they tax and, thus, governments should use taxes, not as generators of revenue, but as an instrument of inflation control, with a much longer term goal of "achieving equality". After all, countries like the United States borrow in their own currency and they create more money as far as they need it!!! Meaning that governments may follow the Federal Reserve example to issue money to self-finance any budget. Therefore, monetary policies to balance the economy such as controlling interest rates and the money supply are no longer needed if governments use instead increased federal spending and higher taxation for job creation and economic growth, just by printing up more money whenever it is needed.

In this way, politicians can promise all kinds of benefits and welfare to the voters without worrying about the inheritance they will leave to their children and grandchildren. As a matter of fact, MMT takes the control of economic policy out of the hands of economists and puts it into those of politicians. It replaces long-term planning with short-term spending. Therefore, a superficial, but serious analysis, would be enough so that we realize how politicians will probably be rewarded by the amount of MMT-funded pork that they can bring back to their districts.

Meanwhile, none of those populist and progressive politicians take the trouble to answer the real question of who is going to pay down the huge national debt that they had been so irresponsibly accumulating for many years and they continue promoting in Congress at the time of passing the national budget.
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