The Magic Money Tree: The Case against Modern Monetary Theory



Antony P. Mueller | The Adam Smith Institute

In just a few months so-called “Modern Monetary Theory” (MMT) has surged from obscurity to prominence. Until recently, the attention given to MMT in economics has been negligible and its policy impact nil. The trigger for the launch of MMT to notoriety are selfdescribed socialists within the Democratic Party’s call for a ‘Green New Deal’ for America, including net zero-interest rates, public job guarantees, and ‘Medicare for All’. The promoters of the ‘Green New Deal’ claimed that MMT provided justification for their massive public spending plans.

This movement in the US has prompted discussion about MMT in the UK in recent months. While not explicitly based on MMT, Opposition Leader Jeremy Corby has called for a ‘People’s Quantitative Easing (PQE)’: requiring the Bank of England to create money to fund infrastructure and apprenticeships via a ‘National Investment Bank,’ with the goal to create a million new jobs. This is similar to many proposals put forward by MMT supporters. British advocacy group PositiveMoney have also put forward ideas based on similar ideas to MMT. Following in the footsteps of the ‘Green New Deal’, PositiveMoney has called for the Bank of England to “channel billions into green investment,” that is, to use the capacity of the bank to create money for explicitly ideological investment purposes. Despite the growing attention in public debate, the rejection of the MMT is very broad, from neoclassical to new Keynesians and Austrian economists. A recent survey by the The University of Chicago Booth School of Business’ IGM Forum found that no economic experts think that countries that borrow in their own currency need not worry about deficits because they can print money to finance debt. Similarly, none thought that it is possible to fund as much real government spending as you want by creating money. Nevertheless, MMT demands a serious discussion. After all, as John Maynard Keynes once rightly observed, economic ideas are powerful “both when they are right and when they are wrong.”

Magic money tree

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