What is Modern Monetary Theory?

Can the government just print endless money with no consequences? Well… Maybe.

The idea that money has to be backed in physical goods like gold or silver is a fading idealogy and our modern system of fiat currency ties the value of money to consumer confidence in the government that backs it.

Even with that said, printing endless money sounds like a bad thing, no? Well, possibly. It could lead to massive economic collapse and the devaluing of everyone's money. However, some economists think that if done right, governments can just keep printing money with few repercussions. That theory is known as Modern Monetary Theory, or MMT.

Media:

Strange Stuff

Vishnu

[davepubliday]

MMT isn’t a thing to “switch to”. It is an alternate description of the system we already have.

[darkcloudsilverglint]

MMT sounds like Keynesian economics in steroids...🤔

[hansfrankfurter]

I reached this conclusion like 10 years ago without ever hearing anything about MMT. It's so obvious, money is just a representative of how much value we have in the economy (resources+labor), you can print as much of it as you want as long as you have a counter balancing mechanisms to make sure you don't print too much and get inflation.

[demoncloud]

Get tangible assets and means of production at personal level to survive falling economy. Forget about gold or bitcoin.

Here are some examples :
1. Solar Power plant
2. Rain water collection system
3. Private farm that can grow food for your family
4. Ethanol plant for fuel
5. Tools, Machines and Spare parts + Workshop
6. Personal Library full of books on technical knowledge books (if the internet fails)

[JustArtsCreations]

"When done right" are keywords we've yet to see.

[aaronjensen]

MMT does not seem to recognize the nature of the US government and economy. Inflation looming? Just raise taxes and interest rates... no guarantee a tax hike will get through Congress, and if it does a tax rate hike does not guarantee a tax revenue increase. And what of the effect of interest rates on economic activity?
MMT as a basis for excessive money printing to solve problems is a fragile, complex system that assumes a predictable future and an authoritarian level of control over the economy.

[SauceApple]

MMT appears to be pretty inconsequential, if it is simply "the government doesn't need tax dollars, it can spend whatever it wants, but it needs to balance things out using tax". It is a different way of looking at things, but the end conclusion is the same. That is, tax needs to be raised to "fund government expenditure", which just means to "subtract dollars from the private sector so the government can throw its weight around, lest inflation occurs". Deficit spending can be done, just knowing it will cause inflation, but we do that anyway, that's standard Keynesian policy. An MMT-believing government won't operate much different from the current paradigm, because it still needs to keep expenditures roughly in line with tax if it wants to avoid inflation.

[grkfrak]

“Explain to me how an increase in paper pieces can possibly make a society richer”

-Hans Hermann Hoppe

[codylee]

Isn’t our govt already behaving as if MMT is true?

[thadtheman]

I think that if you try this in a country and it fails that country will be really really screwed. Also if it fails those that are pushing it will still be llving the high life.

[MirzaAhmed]

So taxes will be used to control inflation created by printing money? What's the point then? Why not just not print money and cut taxes?

[Bon-Gi]

Interest rates don’t reduce inflation. The money supply does.

[ultimatejager]

MMT is like when you keep losing at Monopoly and insist on changing the rules of the game so that you can borrow unlimited money in order to win.
Why should you ruin a solid game instead of accepting you just have to learn how to become a good player?

[codebro]

We will always use the economic system that benefits the government, NOT the consumer(that’s us). MMT is by far the best system for the benefit of the government. Can’t wait for this to be abused and the people’s standard of living plummets👍

[henrymedelius]

We pay 13% of the govt budget to interest on natl debt, just interest, not even principal. The same amount we spend on military, we spend on just the interest payments on our debt. But “we shouldn’t treat the national budget like a household budget” yeah okay.

[jackkennedy]

I wish the PhD’s would quit trying to dump unproven ideas on a whole group of people. As my mentor, VP of OEM sales at Microsoft, once said “I listen to my MBA’s then typically do the opposite and am usually right.” I’ve witnessed this effect multiple times as companies roll out new approaches which typically don’t work. As a result I’ve never grown impressed with my degrees and question people that teach, in Ivy towers with no practical experience. Old saying “Those that can do. Those that can’t teach.”

[davepubliday]

MMT is not unlimited money printing. It still dictates limits on how much can be printed. Those limits are simply much higher than traditional economics would dictate. As I understand it, MMT spending limits are based on not triggering inflation, whereas traditional economics focus on balancing against taxation.

[geerussell]

Coming from the perspective of long-time familiarity with MMT and having seen many such introductory resources, I would rate this video as very good. It effectively does the work of getting someone from "What the heck even is MMT?" to a context where they could engage in an informed conversation about it. A lot of information is presented concisely and clearly with engaging visuals to underscore it. That's a big lift.

Of course it's not perfect--which is fine I wouldn't let the perfect be the enemy of the very good--and there are two specific items I'll highlight as jumping off points for further elaboration.

First at 0:16 and reiterated again at 7:36 the value of fiat currency is presented as depending on consumer sentiment in the government that creates it. From an MMT perspective this idea is true but incomplete in a way that leaves the value of fiat currency as rather mysterious and intangible. MMT describes the situation as one where a government, having sovereign authority over some territory and residents, uses that authority to tie its currency to the real economic output of the residents and territory. The value of fiat is real because the economic output it's attached to is real and the legitimacy of the government is recognized.

The US dollar has value because the US economy produces a lot of real goods and services and the US government is recognized as a legitimate and stable authority establishing its currency as a claim on that output.

So while fiat is a social construct we made up, it operates with the same real effects as government itself, laws, contracts, or national borders. All of which depend on sentiment to vest them with legitimacy while resting on a foundation of tangible residents/territory/goods and services. A collapse in the value of the currency wouldn't just be a shift in sentiment like lightning from a clear blue sky, it would be a consequence brought about by some collapse in the issuing government or the underlying real economy.

This is also related to the question of "why taxes?" In addition to being one tool in the toolbox for mitigating inflation taxes are also a tool for binding a government's currency to the output of real goods and services. With tax obligations that can only be satisfied in US dollars, US residents have incentive to offer their goods and services for sale in US dollars. This effect crowds in the US dollar vs alternative currencies and establishes the US economy as a basis for value of the US dollar.

[happyislandman]

In Canada our PM embraced MMT and now inflation is destroying seniors fixed income power and inflating assets like housing out of the reach of young workers. How is MMT different than Roman coin clipping?

[jessicas]

But when the government has to collect taxes to keep inflation low, it cannot spend this money like today. The tax money will have to be taken out of the economy to prevent inflation. And the newly printed money cannot exceed the amount of money that can be taken out of the system by taxation. So the government cannot spend more than today.