Why the Bubble Economy Isn’t the Real Economy

2024-01-20

Proponents of modern monetary theory (MMT) are back in action after a quiet spell during the embarrassing (for them) record price inflation of 2021–23. They are here to tell us that the mountain of government spending and debt is nothing to worry about; the government’s red ink is the private sector’s black ink, they say. Private sector growth emanates from public sector deficits, and since the US government has a gigantic money printer, there’s no reason to ever fear a default or debt crisis.
Frédéric Bastiat, the great proto-Austrian French economist, provided an excellent framework for us to evaluate this claim about the consequences of government spending.
In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of