Connect with us


Rep. Ocasio-Cortez backed Modern Monetary Theory, no economists agree



Modern Monetary Theory (MMT) is having a moment.

The once-fringe idea has been vaulted into the national conversation as progressive economists and some politicians seize hold of the economic theory. Even Federal Reserve Chairman Jerome Powell has weighed in on MMT.

However, according to a new survey, MMT may be getting attention, but it is not getting much support among some of the country’s top economists.

Put (very) simply, MMT posits that a country that controls its own currency can continue to pay down its debt as long as its is denominated in that currency. So since the US prints dollars and issues debt in dollars, it can pay down its debts and does not need to rely on taxes to fund debt issuance.

Instead, the theory argues, a country in the aforementioned situation is limited by the availability of real assets. So, while we can’t just ignore the national debt, unlike a household budget, the debt number — such as the US’s record $22 trillion debt load— doesn’t matter until inflation and economic effects show up.

Explained to Marketplace by economist Stephanie Kelton, a MMT proponent, Congress would use fiscal policy to control how much money goes into the economy. To borrow Marketplace’s metaphor, Congress would be a sink faucet, money would be the water, the stoppered sink bowl would be the economy, and to deal with inflation (an overflow out of the bowl) you can lessen the flow of water into the bowl, also taxes would act as the stopper letting money out of the economy sink bowl.

The idea has gained a following among progressive economists and some politicians. Rep. Alexandria Ocasio-Cortez told Business Insider in January that MMT should be “a larger part of our conversation.”

Read more: Alexandria Ocasio-Cortez says the theory that deficit spending is good for the economy should ‘absolutely’ be part of the conversation»

But the idea has also faced intense pushback from economists and pundits across the political spectrum and a new survey showed that no mainstream economist is ready to sign on to the idea just yet.

In the latest survey of 42 of America’s top economists by the Chicago Booth School of Business, not a single respondent agreed with the basic tenants of MMT:

  • 36% of economists disagreed and 52% strongly disagreed with the statement, “Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt.” (2% had no opinion.)
  • 26% of economists disagreed and 57% of economists strongly disagreed with the statement, “Countries that borrow in their own currency can finance as much real government spending as they want by creating money.” (7% had no opinion.)

A number of the responding economists said that continued debt issuance would lead to persistent inflation problems and were concerned about the long-term sustainability of MMT.

Continue Reading
Advertisement Find your dream job