Modern Monetary Theory, MMT, and The Full Employment Theory
Posted by politicalpartypooper on May 10, 2010
Modern Monetary Theory (MMT). Chartalism.
The theory is based on the idea that it is governments that create money instead of people’s goods, skills, and services.
In such a system, fiat money is created by government spending and then taxation is employed to reclaim the money and control the total amount of fiat money in existence. The reclamation of most of this money (via taxation) is essential to maintaining its value in exchange.
Modern chartalism theory states that under a fiat money system, money is created by government deficit spending. Because money is not tied to or backed by a commodity, money can only be created when the government spends money. Government may, or may not, ask for that money back in taxes. The demand to hold and acquire money is driven by taxes levied by the state, taxes that can only be paid in the state issued fiat currency. from wikipedia
The latest craze in MMT is called the full employment theory. Stated simplistically, in times of economic distress, governments create jobs through deficit spending and hire the excess workers to keep them employed, rather than paying out unemployment benefits, and keep those government employees for as long as they are required. While I agree in theory with getting work for unemployment benefits, I do not agree with this theory as a permanent part of monetary policy.
If you follow the theory to its conclusion, what you end up with is a permanent Great Depression Era economy. While that system is fine for emergencies, it had no effects whatsoever on lifting the US out of the depression. We had to wait for a World War to become the arms supplier to the world in order to renew our stagnant economy.
A guarantee of a job sounds nice, but not at the cost of opportunity for the average citizen. No one in America was getting rich working for the Feds in the 30’s. No one was earning enough to improve their personal circumstances. They were merely surviving. This is emergency monetary policy only.
MMT fails because it cannot allow volatility and the opportunity that goes with it. If you want to create a permanent system of minimum wage citizens who are reliant on government for a cost of living wage increase every year, you also want to create a system that removes opportunity from the hands of the average citizen and places it in the hands of a few government “experts”, a recipe for disaster as certain as the failed economic policies of the old USSR.
MMT is not the answer. Besides the obvious fact that sooner or later the end result is always going to be that a government employs everyone (or nearly so), the other shortcoming I see is that deficit spending to achieve full employment is not workable or sustainable without an entirely socialist system of economics. Any attempt to introduce this sort of system in the US would result in rebellion.
The foundational thrust of MMT, though not spoken aloud, is of a system that purchases away the volatility of the free market. But it is that volatility which creates vast opportunities for even the average citizen, so long as regulation of those markets does not promote the perpetuation of an unfair advantage for its larger players. In simpler terms, proponents of MMT want to level the playing field while removing the risk that a free market economy can, at times, be forced to face. But what they refuse to face themselves is that by leveling the playing field to the extents that they propose, you also greatly reduce the opportunities that an average citizen has to improve his own circumstances.
It’s the ages – old argument; who can better provide for the individual, government or the individual? If you like a system which creates and perpetuates a wage-controlled, and thus price controlled economy, but that does not offer the average citizen opportunity for personal wealth, then you like MMT. It’s not a communistic system, but it is a system that heavily relies on a few government experts rather than on the hopes, dreams, visions, and hard work of the average citizen. It is those dreams and visions which shape our world today, and our economy. While I am also an opponent of our current plutocracy, going the almost complete opposite direction into MMT is a vital mistake that we cannot afford to make for even a little while. I want everyone who wants a job to be able to get one at a decent living wage. I’m just not for the government making it happen.