MacroView: MMT—When Theories Collide with Reality

The comments below are an edited and abridged synopsis of an article by Lance Roberts

When theories collide with reality, the tenants of the theory are quickly discarded.

MacroView: MMT—When Theories Collide with Reality | BullionBuzz | Nick's Top Six
Painted hand shows concept hologram Validation on his hand. Drawn man in business suit with future technology screen and modern cosmic background. Theory vs reality concept.

There is no doubt that since 2020 both Republicans and Democrats alike have shunned fiscal responsibility for the short-term gratification of MMT.

From the $2.2 trillion CARES Act to the $900 billion HERO Act, to President Biden’s $1.9 trillion American Rescue Plan, the US government has plunged into MMT with both feet.

MMT is a macroeconomic school of thought or paradigm that explains how a sovereign country that controls its currency behaves. While a government can indeed print money to meet all obligations, it does not mean there are no consequences. A chart (included) tells you all you need to know.

Up for discussion: Always one part of the theory; the ‘inconvenient’ part; the shiny new toy—MMT; misdiagnosing the illness; and the Ricardian equivalence.

“The allure of MMT is strong amid the current economic upheavals. Such is particularly the case since it makes possible every progressive program from unlimited public works, federal jobs, uneconomic green energy schemes, Medicare for all, free college, free housing and a host of others. However, as the Mises Institutes correctly notes:

“The promise of something for nothing will never lose its luster. So MMT should be viewed as a form of political propaganda rather than any real economic or public policy. And like all propaganda, we must fight it with appeals to reality. MMT, where deficits don’t matter, is an unreal place.”

“We will likely continue to pay the price of misguided economic policies that only work in the mathematical formulas generated in Ivory Towers. Still, in the real world, these theories, while well intentioned, always yield a negative result on those it was supposed to help.”

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