“We can pay for it with deficit spending.”
Progressives have lately been abuzz about an economic theory that can be used to justify a nearly indefinite expansion of government.
Rep. Alexandria Ocasio-Cortez, for one, said last month that Modern Monetary Theory, as it is known, “absolutely” needs to be “a larger part of our conversation.”
However, 42 leading U.S. economists were recently asked to weigh in on MMT, and their response was unanimous rejection. The survey of their opinions was published last week by the Initiative on Global Markets, a research center at the University of Chicago Booth School of Business.
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According to MMT, a government that controls its currency can essentially rack up spending and debt in that currency, and then simply print money to pay it back. Congress can raise taxes as needed to reduce inflation.
IGM asked the economists whether they think the theory holds when it comes to either spending or debt.
Zero of them agreed that it does, or were even uncertain. A few had no opinion. But the rest of the experts disagreed – the large majority of them strongly. Some expressed concern about the long-term sustainability of MMT, warning that continued debt issuance would lead to persistent inflation problems.
“This kind of behavior can quickly lead to inflation or even hyperinflation once the economy is close to full capacity,” said Harvard University economist Oliver Hart.
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The findings were a reaffirmation of longstanding conventional wisdom – not to mention conservative skepticism – which has relegated MMT to the fringes of economics. But with socialism making a comeback on the American left, it is not hard to see why progressives would want to believe in the theory: It could justify an unprecedented expansion of the U.S. government.
Freshman Democrat Ocasio-Cortez of New York, a self-described democratic socialist, has rallied her party around the Green New Deal, whose price tag has been estimated at $94.4 trillion. The plan promises free college, Medicare for All, a federal jobs guarantee, and massive infrastructure investment. When she has deigned to explain how she would pay for it, her answers have included increasing the country’s $22 trillion debt burden.
“We can do it by saving money on military spending,” she told Business Insider last month. “We can pay for it by raising taxes on the very rich. We can pay for it with a transaction tax. We can pay for it with deficit spending.”
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