Why MMT (Ultimately) Doesn’t Matter

Last year, internet searches for Modern Monetary Theory (MMT) numbered approximately 100 per month; in the years and decades before that, the weekly total searches numbered mostly in single digits. Yet in the first few weeks of this year, searches have topped 100 per day and seem to be on an uptrend. People who’ve never heard the term “chartalism” are speaking — and acting — as if a new and groundbreaking discovery has been made; “a new kind of science” in the realm of economics, situated neatly upon the doorsill of a new decade. It’s perplexing to see a theory which holds that governments can’t really go broke because they can always create more currency capture imaginations, if still largely on the periphery of discourse.

For years, Austrian School perspectives have been taken to task for failing to “predict” (which, in fact, they have and continue to). Yet MMT not only doesn’t predict anything; it fails to explain the state of nature better than existing, prevailing models. Social science, like its physical counterpart, advances by virtue of two key determinants: phenomenological explanations which are demonstrably superior to existing ones, and funerals. Even neoclassical economists, regularly critical of Austrian, monetarist and other views, hold that — as has been demonstrated in every era, within every culture, and upon every continent — bad monetary and/or fiscal policies ultimately result in economic breakdown and destitution.

Whether the rapid decline and ultimate disappearance of the individual propensity to hold a fiat currency are purely monetary, entirely psychological, or a combination of the two, the circumstances leading to it reappears consistently throughout history. Every one of the scores of known cases of hyperinflation dating back over 700 years bears witness to a reckless, breakneck campaign of money creation preceding it.

Blaming psychology for hyperinflationary episodes also, and far more ominously, hints at the same conclusion which virtually all collectivist governments come to after their starry-eyed schemes initially fail: that human nature, not the hubris that attends attempts to overthrow the fundamentals of supply and demand, is at fault. And thus that human beings, and not policy, need forceful readjustment.

Holding that inflation — of either the ‘vanilla’ or hyper- varieties — is overwhelmingly the product of wars or exogenous events is also wholly misleading. It is always and only the political reaction to exogenous events which determines economic outcomes.

Such an approach also bypasses the issue of the garden variety of inflationary outbreak. To be sure, while it would surely not be as ruinous nor as fast-acting as classic hyperinflation, a rise in inflation to a “mere” 8%, 15%, or 20% per annum would have a sizably adverse impact upon individuals living on fixed incomes, financial markets, and general economic calculation: the functioning of firms, markets for goods and services, and the financial choices of families, communities, and organizations.

Furthermore, MMT is invariably (and almost exclusively) invoked proximate to incomprehensibly expensive government program proposals: a so-called Jobs Guarantee (estimated cost approaching, and likely exceeding, $1T per year), “Medicare for All” (estimated cost: $32T over ten years), and a “Green New Deal” (estimated costs ranging from $7T to $13T to $49T to implement).

(Also: considering that MMT contemplates a “closed loop” whereby money is created and later taxed away, it is likely that any practical implementation will necessarily subsume cashless economy diktats.)

Add to all of this the bunker mentality of many MMT proponents, who frequently refuse to discuss the assumptions upon which MMT operates by dismissing those who question them as disingenuous – and there is more than enough reason to suspect that MMT is not new, far from scientific, and explains nothing. It is at best a scientistic vehicle that exists only to provide an academic imprimatur for unlimited government spending.

Yet I’m not worried about MMT.

Actually, I am — a little. History demonstrates that betting against the willingness of people — Americans, specifically, who have the greatest record of fawning over political and economic views which defenestrate the very basis of the prosperity which gives both the leisure time and technological reach to permit intellectual flights of fancy — to embrace that which flies in the face of demonstrable evidence, is a sucker's bet.

One of the major dangers of powerful states — indeed, states in general — is that with a single vote or the stroke of a pen a lot of damage can be done. But any pain will only be temporary.

It comes down to one word: Bitcoin. Actually, I should be more specific: crypto.

At this very moment, there are hundreds of independent teams of developers in dorm rooms, garages, basements, apartments, rented offices, and other such locations working on both subtle tweaks to existing cryptocurrency issues and wholly new coins and assets: thousands, maybe tens of thousands of individuals, all over the world, silently but inexorably expanding the bounds within which individuals can extricate and divorce their personal lives from the inimical policy implementations of expanding states.

At ten years old, the list of places where Bitcoin — and crypto more generally — has been the single bulwark between people and utter ruin grows annually. As long ago as 2013, Bitcoin (then less than $100) surged as individuals banked in Cyprus used it to escape the bank levy — a ploy in which politicians explicitly sought to seize private deposits in order to paper over their policy errors and banks’ losses owing to them.

All across Africa, South America, and Asia — and regardless of Bitcoin's exchange rate at the time — the unbanked have, owing to the ubiquity of mobile and cell phone ownership, been able to engage in saving, consuming, remittances and entrepreneurialism despite previously insurmountable sanctions, financial surveillance, and fees associated with transfers, banking, etc.

In Zimbabwe, Venezuela, Turkey, and anywhere else that economic hardships have surfaced — over time, or overnight — Bitcoin and crypto more generally have given individuals the opportunity to safeguard their economic liberty and in some cases their very lives. In places where economic life is viable but burdensome, cryptocurrency access provides an outlet.

Time may prove this incorrect, but at present MMT seems to be little more than a pernicious, academically-garbed attempt to overcome the unwelcome (and repeatedly evinced) fact that governments are as tied to economic limits as firms and individuals are. But a more fundamental truth precedes this: if implemented, and whether at that time Bitcoin, another crypto issue, or another, yet-undiscovered innovation has surfaced, liberty will always find a way to triumph — even when the utopian plans of authoritarian regimes are briefly in control.

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Peter C. Earle

Peter C. Earle is an economist and writer who joined AIER in 2018 and prior to that spent over 20 years as a trader and analyst in global financial markets on Wall Street. His research focuses on financial markets, monetary issues, and economic history. He has been quoted in the Wall Street Journal, Reuters, NPR, and in numerous other publications. Pete holds an MA in Applied Economics from American University, an MBA (Finance), and a BS in Engineering from the United States Military Academy at West Point. Follow him on Twitter.