- Modern Monetary Theory is becoming a larger part of the economic conversation.
- The theory posits that government deficits are less concerning if a country controls its own currency and issues debt in that currency.
- MMT says the amount a government can spend is limited by real assets and the debt’s effect on the broader economy.
- MMT has received a huge amount of pushback.
- In a new survey, not a single mainstream economist agreed with the basic aspects of MMT.
Modern Monetary Theory is having a moment.
The once fringe idea, known as MMT, has been vaulted into the national conversation as progressive economists and some politicians seize hold of the economic theory. Even Federal Reserve Chairman Jerome Powell has weighed in on MMT.
But a new survey has found that while the theory may be getting attention, it does not have much support among some of the top US economists.
Put (very) simply, MMT posits that a country that controls its own currency can continue to pay down its debt as long as it is denominated in that currency. So because the US prints dollars and issues debt in dollars, it can pay down its debts and does not need to rely on taxes to fund debt issuance.
Instead, the theory says, a country in the aforementioned situation is limited by the availability of real assets. So while we can’t just ignore the national debt, unlike a household budget the debt number – such as the US’s record $US22 trillion debt load – doesn’t matter until inflation and economic effects show up.
Explained to Marketplace by the economist Stephanie Kelton, an MMT proponent, Congress would use fiscal policy to control how much money goes into the economy. To borrow Marketplace’s metaphor, Congress would be a sink faucet, money would be the water, and the stoppered sink bowl would be the economy. To deal with inflation (an overflow out of the bowl) you can lessen the flow of water into the bowl. Taxes would also act as the stopper letting money out of the economy sink bowl.
The idea has gained a following among progressive economists and some politicians. Rep. Alexandria Ocasio-Cortez of New York told Business Insider in January that MMT should be “a larger part of our conversation.”
But the idea has also faced intense pushback from economists and pundits across the political spectrum, and none of the mainstream economists interviewed in a new survey were ready to sign on to the idea just yet.
In the latest survey of 42 of America’s top economists by the University of Chicago Booth School of Business, not a single respondent agreed with the basic aspects of MMT:
- Thirty-six per cent of economists disagreed, and 52% strongly disagreed with the statement “Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt.” (Two per cent had no opinion.)
- Twenty-six per cent of economists disagreed, and 57% of economists strongly disagreed with the statement “Countries that borrow in their own currency can finance as much real government spending as they want by creating money.” (Seven per cent had no opinion.)
Some of the responding economists said continued debt issuance would lead to persistent inflation problems and expressed concern about the long-term sustainability of MMT.