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MMT: Believe in the “Incredible Power” of the State

Jordan Klepper: You need to-- you know what you need to do? You need to take some-- some THC or some DMT and let the MMT just wash over you. Let the paradigm shift come to you, Ronny Chieng.

Ronny Chieng : Yeah, I think I’m in it right now.

Klepper: I think you’re in it.

Stephanie Kelton appeared on The Daily Show to promote her documentary, “Finding the Money,” which is set to be released on May 3. The documentary promises to take viewers on a “journey through Modern Money Theory or ‘MMT’, to unveil a deeper story about money, injecting new hope and empowering democracies around the world to tackle the biggest challenges of the 21st century: from climate change to inequality.”

Two comedians, Jordan Klepper and Ronny Chieng, interviewed Kelton about money and government finance, but the most comedic lines were unwittingly delivered by Kelton. Klepper began by asking Kelton to define MMT and Kelton responded by positioning MMT as economics with “better branding.”

Kelton: “In the dismal science, it’s all about scarcity and we can never have the things we want because there’s always this really intrusive problem, which is, how are you going to pay for it? Where is the money going to come from? And the problem is, that we treat money like just any other scarce good or service in the economy. And what MMT is doing, is saying, hold on a second. We’re not on a gold standard anymore. We have this thing called a fiat currency.”

In the MMT framework, scarcity takes a back seat to the government’s ability to spend and print. We can and should spend whatever it takes to achieve big goals regarding climate change, infrastructure, inequality, and other items on the Progressive agenda. We should never ask about affordability or the burden of debt because the government has a money printer. The only potential constraint is price inflation, but we don’t need to worry too much about that because governments have run large and persistent deficits in the past without excessive price inflation. If inflation becomes a problem, we can increase taxes and manipulate interest rates to solve it.

There are problems every step of the way, beginning with the contempt for the universal and inescapable fact of scarcity. Economics only exists because of scarcity, which means that any attempt to downplay it involves a complete rejection of economics. While acknowledging scarcity leads to dismal-sounding tut-tuts from economists, pretending that scarcity is a non-issue is childish and will only lead to dismal outcomes.

Yet, according to Kelton, MMT advocates are the adults in the room:

And so MMT is an economic framework that tries to have an honest conversation, that talks to people like grown-ups, […] we can have an adult conversation about how the government can actually operate its budget when it doesn’t face the same kinds of constraints that a household or a business faces.

Economists’ emphasis on scarcity, according to Kelton, is inappropriately applied to money, which should not be treated like “any other scarce good or service in the economy.” One of Ludwig von Mises’s greatest contributions to economics, however, was the way he integrated monetary and value theory by stripping away the mystique surrounding money and treating it like any other good with subjective value to individuals who hold or exchange it. It’s one of those insights that seems so obvious in hindsight but vexed economic thinkers for a long time before Mises.

But it’s not obvious to MMTers. For them, money is not something that “emerges step by step from an evolutionary market process driven by the actions of individuals consciously striving to obtain the maximum benefit from their cooperation in exchange and the division of labor.” Instead, it is progressives’ plaything. It’s a creature of the State and provides the State with a virtually unconstrained ability to command resources according to its will:

Kelton: “The government can increase its deficit to do things like feed hungry kids, tackle the climate crisis, fix crumbling infrastructure. All of those things are ways to use a government deficit that might have desirable results for people and for the economy.”

“Might have desirable results” is doing a lot of work in the preceding quote. Kelton is suggesting that the government, which is immune to profit and loss, can allocate resources better than the economizing market process in which entrepreneurs are subject to consumer demands. In the market economy, every decision by entrepreneurs is guided by their anticipations of consumer demand and consumers have the final say in the matter.

For the State, every decision is a rejection of what consumers desire. Every cent of government spending pulls resources away from what consumers would dictate. Every cent of government taxation removes consumers’ ability to decide what to buy and how much to save. Every cent of government inflation initiates Cantillon effects which redirect real resources toward the first spenders of new money. Every cent of government borrowing displaces credit that would be extended to value-creative uses in the market economy and represents future taxation or inflation.

But to see these consequences requires a healthy appreciation for scarcity. And MMTers don’t have time for scarcity talk. We just need to believebelieve in the “incredible power” of the State.

Chieng: “I mean, is belief enough? Do I just have to pray to MMT and then – what – what has to happen next?

Kelton: What has to happen next, is that the people that we elect to represent us have to go in there and take decisions using the incredible power that they have, called the power of the purse…

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