Modern Monetary Theory or: How I Learned to Stop Worrying and Love the National Debt
January 18, 2019·20 comments·In Brief
A theory that justifies unlimited government spending is moving from the margins to the mainstream at remarkable speed. Both political extremes have begun embracing it because it solves an immediate political problem: you can pay for anything without raising taxes. But the historical precedent for this logic leads not to prosperity, but to famines.
- The appeal crosses every political line. Trump's Wall Street wants endless deficit spending to keep markets inflated. Democratic candidates want it to fund healthcare, education, and basic income. When a theory benefits everyone in power, adoption accelerates.
- The mechanism is neither new nor modern. Sovereigns have justified unlimited borrowing for centuries. Edward III defaulted on Italian banks and faced no real consequences. The argument that "a sovereign's gotta do what a sovereign's gotta do" predates modern currency by 600 years.
- The narrative is spreading faster than the argument itself. Media coverage jumped from fringe to mainstream in a single year. But speed of adoption doesn't indicate soundness. It indicates that the theory solves a political problem right now.
- Historical parallels suggest the pattern ends badly. Lysenko's genetics theory in Soviet agriculture looked good on paper until the famines started. Theories that everyone in power wants to believe are usually hiding something worse underneath.
- The crowding-out effect and currency debasement have real consequences. Unlimited sovereign debt spending doesn't just redistribute wealth. It systematically destroys the middle class through the monetization of debt and the hollowing out of real economic growth.
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