I’ve been a student of economics my whole adult life. Not academic guns-and-butter type of economics, but I follow “popular” economics much in the way other guys might follow sports, and yes, I do still have a few friends.
My interest is based in a desire to understand the often time bizarre behavior of governments and markets when it comes to money and finances.
Try as I might, however, I simply cannot reach on understanding of how our nation and federal government could continue on its current course regarding federal finances and debt.
I do not perceive this as a partisan issue, as both Republicans and Democrats have governed over periods of exploding debt in the past four decades. Even the Clinton era surplus was entirely an accounting trick as the federal government has not run a true cash surplus since 1969.
Certainly our political leaders must understand that our federal debt is a threat to the prosperity of our nation. I listen to the talk radio commercials too: aren’t we headed toward hyperinflation and economic collapse? Have we not passed the tipping point?
What if the answer is no? Enter Modern Monetary Theory, or MMT, the strangest and yet perhaps most applicable way to explore current government behavior in our modern sovereign economy. And if this is more than you signed up for on a Friday morning I apologize, skip to the sports section.
MMT puts forth the concept a government that uses its own sovereign fiat currency (money not backed by anything else) has the ability to spend and borrow without constraint as long as the government has the ability to create more new money to pay for spending and service its debts.
MMT also claims inflation is not so much a function of currency becoming less valuable (the traditional definition) but is more a result of supply issues such as energy supply disruptions or droughts when it comes to food, which bid prices up.
MMT says as long as a government pays for spending in its own currency and requires its own currency for tax payments, this creates an inherent demand for the currency, which enables the government to create as much of the currency as the society may need to achieve prosperity.
If creating new money at will and spending without restraint sound a bit insane to you, I have to say I agree. At the same time however, a theory like this does explain a few things.
From time to time we will explore this theory further in this column, because like it or not we may already be caught in a living laboratory for these ideas.