Democrat elites have brought economic havoc with Modern Monetary Theory
By Bill Connor
“The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity.” —Thomas Jefferson
Prior to the Russian invasion, many Americans were shaken by the February 10 AP headline “US inflation highest in 40 years, with no letup in sight.” Americans could already feel the pain at the pump, but this was a chilling wakeup. President Biden attempted, unsuccessfully, to shift blame to Putin. The reality is that the Democratic Party and the Biden administration have again foisted an unsound academic theory on America to disastrous results. Similar to how they told America to “reimagine” policing by “defunding” police, they have done the same with economics. Against common sense and warnings from reputable economists, Democrat elites decided to experiment with economics and Americans are paying the price. Let me explain.
Though “Modern Monetary Theory” (MMT) has been percolating in academia for years, many first heard of it from the source of questionable theory, Alexandria Ocasio-Cortez (AOC). At a 2019 meeting with her constituents, AOC claimed MMT should be “a larger part of our conversation” and that a question about paying for a program was wrong to ask and “exactly what happens under a scarcity mindset.” In an October 6, 2021, article, Business Insider provided a simple definition of the concept: “Modern Monetary Theory (MMT) is an economic theory that suggests that government could simply create more money without consequence, as it’s the issuer of the currency.” Finance professor Robert R. Johnson is quoted in the article as saying, “The whole idea of MMT is that since a sovereign entity can borrow in its own currency, it can print more money when it needs to pay off all its debt.” An April 2021 economic brief from the Federal Reserve states, “The core tenet of MMT is that a government can print money indefinitely and without constraints since it is the monopoly issuer of currency. More pertinently, the government can compel households and businesses to hold currency to make tax payments.”
AOC aside, most consider Professor Stephanie Kelton as the leading advocate and the de facto face of MMT. Kelton teaches public policy and economics at Stony Brook University in New York and authored the seminal book about MMT, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy. In 2015, Kelton served as chief economist of the Democratic Party’s staff on the United States Senate Budget Committee. She was also chief economic adviser to Bernie Sanders in 2016 and 2020 and was a member of the Democrats’ 2020 “Unity Task Force” reforming the platforms of the Biden campaign and Democratic Party.
Before Kelton’s radical economic theory, the primary battle had been between tradition economists and Keynesians. Like our founding fathers, traditional economists hold that governments must always attempt to keep balanced budgets, or the nation will pay a price. In the 1930s, John Keynes broke with traditional economists in advocating substantial government spending as a “stimulus” to create individual spending and alleged job creation. His ideas became accepted among many economists, though the substantial deficits and debts involved caused many to question Keynesianism. Keynes never went to the dangerous extremes of MMT in advocating that governments could just keep printing money without considering deficits/debt. Regardless, MMT offered the Democrats something they needed in answer to “how do you pay for it” with massive spending proposals.
MMT should never have been put into practice, as the results were as predictable as “defunding” the police. Reputable economists gave ample warning. Jerome H. Powell, the Fed chair, said in 2019, “The idea that deficits don’t matter for countries that can borrow in their own currency is just wrong.” Many other economists similarly criticized the unsoundness of MMT and the danger of inflation. The Federal Reserve asserted the following in warning of MMT: “Economic history is awash with disastrous attempts to finance government spending and debt simply by printing money. These examples range from currency debasement in the Middle Ages to the hyperinflations of the 1900s (for instance, Germany in 1923, Hungary in 1946 and Zimbabwe in the 2000s) … outstanding debt has value today because it will be repaid by future net revenues. If this is no longer the case … then a debt crisis occurs.”
Ironically, Professor Kelton felt vindicated when the government started issuing the massive stimulus spending due to COVID-19, tweeting in March 2020, “It took a virus to kill the deficit myth [that MMT didn’t work.]” When the inevitable inflation took hold starting summer 2021, Kelton called inflation a temporary sign of “growing pains.” That fall, she went so far as to call inflation positive and “a good problem to solve.” The assertions of the “temporary” nature of inflation in 2021 became pervasive among Democrat and administration leaders, including Secretary of the Treasury Janet Yellen. Democrats were busy attempting to push through the most massive spending package in history with Build Back Better. Thankfully, it failed.
As with various radical academic “theories” going against common sense, Democrats have almost broken the U.S. economy with hyperinflation associated with MMT. The more money put circulation, the higher inflation will eventually climb. Proverbs 21:20 tells us, “In the house of the wise are stores of choice food and oil, but a foolish man devours all he has.” We need to jettison MMT before we have devoured our economy beyond repair, and instead return to the common sense of our founders.
Bill Connor is a 1990 Citadel graduate, 30-year Army infantry colonel (ret.) and combat veteran. He is a writer and attorney and lives in the Charleston area.