“Modern Monetary Theory” Is More Absurd Than Ever

By Andrew Shirley – December 27, 2023

As America’s national debt spirals out of control and inflation remains persistently above the Fed’s target rate of two percent, elected Democrats and liberal economists are continuing to push for record spending under the assumption that the U.S. government can print an unlimited amount of money without ever reaping disastrous consequences – a flawed economic approach known as “Modern Monetary Theory.”

From January 2021 when Biden took office to July 2023, the national debt ballooned from 27.8 trillion to 32.6 trillion – an increase of more than 17 percent in just over two years. Put another way, in just 30 months Biden managed to rack up 17 percent of the entire debt the country had accumulated over the other 244 years of its existence.

By 2026, the National Debt Clock projects a $41 trillion hole for the country. America now spends more on the interest on its debt than it does on national defense or Medicare and programs for children. Overall, the federal government spent $659 billion on interest payments in FY2023, more than $200 billion more than expected.

Meanwhile, inflation has remained persistently high, clocking in at 3.1 percent for the 12-month period ending in November – more than 50 percent higher than the Fed’s target rate. While inflation has cooled significantly from the 40-year highs seen last year, Americans are still struggling to get by as the cost of goods continues to increase.

High interest rates have also hampered economic growth and made the country’s debt situation especially precarious. According to the nonpartisan Congressional Research Service, “the new interest rate environment could accelerate the timeline for reaching a ‘tipping point’ where GDP growth is persistently and adversely affected or a default on the debt (a scenario in which the government would not be able to fully pay lenders) becomes imminent.”

But to hear many liberal economists and Democrat politicians tell it, all of these warning signs are no problem at all – because according to Modern Monetary Theory (MMT) the government can simply print more money whenever it needs.

MMT asserts that legislators should stop worrying about balanced budgets or ballooning deficits and instead emphasize price stability and full employment – a goal MMT advocates say can be achieved through a “job guarantee” program that uses the government as an employer of last resort. The sole constraint on government spending, according to MMT, is inflation, which can be controlled through taxation.

The theory’s matriarch and most prominent leader, Stephanie Kelton, was treated as a media darling during the early months of the pandemic. Her 2020 work, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy was lauded by far-left Democrats, including Rep. Alexandria-Ocasio Cortez. Kelton has spent much of the last year on an international tour touting the benefits of her theory.

While lawmakers from both parties recognized that the COVID-19 pandemic was a once-in-a-generation crisis that necessitated once-in-a-generation deficit spending, Biden and many Democrats have sought to make unrestrained government spending the new normal.

As an article in Roll Call noted earlier this year, “If Biden had returned to the 2019 pre-COVID spending levels… he could have come much closer to a balanced budget for 2022.” But instead, the government ran a $1.3 trillion deficit in FY2022 and a $1.7 trillion deficit in FY2023, even though the pandemic had subsided.

Liberals’ enthusiastic embrace of MMT is in large part a product of the astronomical costs of their far-left environmental and social agenda. As a white paper printed in Ecological Economics earlier this month asserted, “Degrowth and Modern Monetary Theory form a strategic symbiosis for addressing social and ecological crises.”

The paper went on to argue that a fiscal policy based on MMT could fund government programs indefinitely and pay for “a job guarantee, credit regulation, price controls, tax reforms, and universal public services” while also permanently eliminating all fossil fuel production and use in the United States.

In September, several new academic papers also suggested how modern monetary theory “can fund radical ecological and social policies without GDP growth.” In October, MMT apologists released a documentary titled Finding the Money, a hagiographic celebration of MMT which the filmmaker describes as, “An alternative story of money that will revolutionize our conception of what we as a society believe we can afford and can achieve.”

For Democrats, the appeal of MMT is that it provides a quasi-scientific and entirely theoretical economic framework to argue for the feasibility of programs like the “Green New Deal,” which some experts say could cost up to $93 trillion. Rather than adjusting their policy goals to fit economic reality, they insist that their fantasy about limitless money is reality.

MMT is gaining traction in the halls of Congress and already has a stranglehold over the Biden administration. Voters have a chance to check its advances at the ballot box next fall. If they don’t, Americans may soon find themselves yearning for the days when inflation was only nine percent.

Andrew Shirley is a veteran speechwriter and AMAC Newsline columnist. His commentary can be found on X at @AA_Shirley.