Prof. Antony Davies: Modern Monetary Theory is Wrong - Here's why

The United States government is, yet again, facing a budget crisis. Government funding is set to expire on December 3, 2021 and Congress has a deadline of December 15 to raise the debt ceiling. Otherwise, the U.S. will default on its debts, and a worldwide financial collapse becomes a possibility.

Modern Monetary Theory (MMT) is an economic school of thought based on John Maynard Keynes's writings which has provided theoretical legitimacy to policymaking based on deficit spending. The theory goes that because modern states control currency and have the power to levy taxes, they can print as much money as they want.

In this video, we enlist Professor Antony Davies to explain why real-world economics aren't so simple - and why, under this theory supported by politicians like Alexandria Ocasio-Cortez (AOC) and Bernie Sanders, we would end up with more hand grenades and fewer avocadoes.


Of course, MMTers, led by Professor Stephanie Kelton, a senior economic advisor to the Sanders presidential campaigns, make impassioned arguments, too. So what do you think? Watch our analysis, do some research of your own, and tell us in the comments: Is Modern Monetary Theory valid, or would it lead to financial ruin?

#ModernMonetaryTheory #MMT #budgetcrisis #debtceiling #inflation

LEARN LIBERTY:

[andersberggren]

Clarification: El Salvador hasn't "pegged" their currency to the US dollar or Bitcoin. They've declared them both legal tender (US dollar in 2001, Bitcoin in 2021), i.e. the people can buy/sell in those currencies without having to pay capital gains tax etc.

[coachcvetko]

I feel this misrepresents MMT. In my research, MMT states governments (with a fiat currency not pegged to other currencies) can increase money supply as they wish. The only concern is inflation, however it also says inflation will not occur if the country has enough resources (human, natural, and capital resources) to increase output. Quantitative theory of money says price level x output = money supply x velocity. If money supply increases 10%, you will not get a change in price level if output increases by 10%. Everyone seems to ignore all this. The left says "oh we can spend whatever we want and anti-MMTers say printing money causes inflation. Both are ignoring what the the theory actually says.

[austinbyrd]

The main claim of mmt is that "the only thing to worry about is inflation when offering cheap credit"
Which is simply not true. A misallocation of resources propping up wasteful undemanded/lesser demanded industries, over consumption from lower rates, asset bubbles building a false sense of wealth, a misallocation of resources into present-oriented ventures at the detriment of our future, a discoordinated time-capital structure creating risk of long-term projects being unable to finish as foreseen, *and* consumer price inflation are issues of monetary expansion.
They also define inflation differently. They define it as the cpi, & a terrible measure of it at that.

[VincentWeisTheThird]

This isn't a great representation of MMT. MMT does appear wrong, but not just for the reasons stated here. Kelton's own argument is that inflation is a problem, but that it can be controlled by managing demand, and therefore a role of state power should be to control aggregate demand to curtail inflation, while using increases in the money supply to fund state spending. So long as productivity increases outpaces inflation, that would work.

The problem is that it wouldn't do that. The problem is that it relies on an omniscient government who can accurately predict aggregate demand, retain confidence in the value of US assets, including issued debt and the USD, and that there are idle resources available for the state to use that the private sector isn't using. In other words, MMT is fine if you think that the natural interest rate is zero, you think there's no such thing as opportunity cost for state use of real resources, and you trust the state to effectively and consistently use inflation targets responsibly instead of budget targets.

Our government hasn't demonstrated a great efficiency in the use of our resources, or fiscal responsibility. I have no idea why any MMTer would think this is reasonable.

[cateclism]

This is the real "voodoo economics".

[ChatwithMatt]

Yeah next time I need to cover rent I'll just print it in my yeah if I do that I go to jail.

[AusFirewing]

Prices, as a whole, are simply the ratio of the number of dollars currently circulating and the amount of goods and services being sought after in the economy. Saying that inflation doesn't occur when you print money and inject it into circulation is like saying the ground doesn't get wet when it rains.

[_winston_smith_]

My biggest concern with MMT is the dynamic effects that have timescales of years or decades. Just as they say, "The market can remain irrational longer than you can remain solvent." That same concern applies to the economy 100x. As we are seeing right now, there are many complex interactions and threshold effects in a large economy that can hold back inflation. You can irresponsibly create an excessive amount of money happily for many years then suddenly lose control.

[Leftistattheparty]

Mmt just explains what happens. Anyone in the banking industry knows this.

[MrHarveyrex]

MMT is just a description on how the monetary system operates through the Treasury and federal reserve. Everytime the govt spends. It creates a deficit. Money is created out of debt through bonds and when commercial banks create loans/ reserve deposits out of thin air through prommisory note/ loan contact between the bank and the borrower. Doubt entry bookkeeping/ reserve accounting/ full and fractional reserve banking

[jerryyoung]

Gold standard era thinking in a fiat world

[TheLoveMonkey]

My understanding of monetary theory is as follows. The most important rule is that there is an ideal amount of money that should be in circulation at any given time. If there is too little money in circulation, it causes economic recessions and too much unemployment. If there is too much money in circulation, it causes inflation. When a nation is experiencing an economic recession and high unemployment, and businesses and individuals are not borrowing enough to increase the amount of money in circulation, then governments must borrow and spend that money. If there is already the ideal amount of money in circulation and the government sharply increases its borrowing and spending, then it will cause inflation, unless measures to decrease the money supply by an equal amount are simultaneously implemented. These measures could include raising taxes and/or increasing interest rates. This, of course, would result in a small shift in the labor force as labor that was previously going to private industry would now be going to the new government projects. I'm not sure if this understanding qualifies as MMT. I have to admit that I was surprised to hear Stephanie Kelton say that raising taxes to fight inflation is not part of MMT.

Given this understanding, the question should be - Is the public benefit from the projects that the government is borrowing and spending to fund greater than the benefit from the labor those people who are now working on the government projects were doing before? If you're answering this question from a self-interest perspective, how you answer will depend a lot on how wealthy you are. If the government wanted to borrow and spend to make our dilapidated roads and bridges safe, I think everyone would agree that it would be in the best interest for everyone. But if the government wanted to borrow and spend money to pay for free community college or free no frills healthcare for everyone, and compensate for the increased money in circulation by increasing taxes and/or interest rates, than the wealthy, who can afford private high-quality healthcare and to send their kids to private high-quality universities, won't benefit from those programs, but would have to pay the higher taxes and/or interest rates. So they would be against it because it is a kind of wealth redistribution program.

[derekrethman]

Would y'all be able to explore the topic of the pros and cons of a full or partial default?

[dantean]

Someone explain to me why it's not just this simple:
More dollars decreases their value because scarcity and value are more or less pegged to another somewhat directly.
No one will pay for tap water because it's freely available in unlimited supply, whereas gold fetches good money because it is not. Making the dollar more abundant lowers its value for just this same reason which is why prices go up after the Fed works its magic (i.e., it's printing press), because producers want more of a now-less-valuable dollar than they did a MORE valuable one in exchange for what they have to sell.
Why is it not as straightforward as that? Or is it?

[sbains]

Isn't MMT already in practice with quantitative easing, however the gains are going to the top 1%.

[Nuvendil]

Don't often agree with Krugman, but he was dead on when he said MMTers are just playing calvinball. Any time any elemenent of MMT is criticized, they counter that you just didn't describe it properly.

[kmeisterus]

What concerns me is this video is coming out as a response to raising the debt ceiling - where not doing so is a way to GUARANTEE the disasters it describes. Why aren't we focused on lowering the BUDGET?!? Through cost-cutting measures like negotiating prescription drug prices for Medicare/Medicaid, and reducing the defense budget by a third, and raising more revenue to cover the social programs through removing the Social Security tax ceiling? Better still, do the cost-cutting measures and amend the Constitution to replace income tax with a sales tax or, better still, a transaction tax, which weights the tax burden towards things individuals can control?

It's scary we think we should fix things by not paying our bills rather than by making sure they are covered in the first place.

[funkydiscogod]

2:17 She makes a good point. Obviously everyone is wrong except her. I guess I'm on the MMT train now.

[zxmel]

"Only government can take a valuable commodity like paper, slap some ink on it, and make it worthless."
- Ludwig von Mises

[nichtjonas]

Its no good idea that the goverment holds the monopoly over currency?
WTF