A four-word phrase common on late-night television, exclaimed by announcers giddy about their offers: “Buy this kitchen knife that is so sharp it can slice and dice diamonds, and we’ll throw in a nonstick frying pan that can double as a satellite dish. BUT WAIT! THERE’S MORE! If you call immediately, we’ll include a homeopathic cure for sciatica.”
Today’s Democratic presidential candidates sound like late-night infomercials: “A Green New Deal! Medicare-for-all! Reparations for some! Free college for the young! Increased Social Security for the elderly! BUT WAIT! THERE’S MORE! At no additional cost, you get Modern Monetary Theory.”
MMT, which supposedly banishes nitpicking worries about how to pay for things, is the Democrats’ intellectual breakthrough du jour. Although the theory remains somewhat hazy (or, as Democrats say about their unempirical flights of fancy, MMT is beautifully “aspirational”), it is this:
The nation has fiat money — currency whose issuer will not convert it into something valuable (e.g., gold) but that the public accepts is a reliable store of value. A government that controls its currency need never run short of it. Therefore (non sequitur alert), the government can borrow and expand the money supply sufficiently to allow spending to proceed without reference to government revenue, as long as interest rates are, and are apt to remain, low. In the words of three MMT believers (Stephanie Kelton, economics professor and former Bernie Sanders campaign adviser; Andres Bernal, doctoral student and adviser to Rep. Alexandria Ocasio-Cortez (D-N.Y.); Greg Carlock, a climate researcher): “Anything that is technically feasible is financially affordable.”
Actually, MMT teaches that everything, feasible or not, is affordable in the sense that government can always come up with fiat money with which to pay for it. So, it is not just that happy days are here again; it is that never in the long human story of intractable scarcities have there been days as happy as those that MMT promises.
Two more sober men, both Democrats, are too intelligent and experienced to have written what they did recently — a month before last week’s announcement that the budget deficit for October through January was 77 percent larger than in those four months a year earlier. They wrote a Foreign Affairs essay deploring what they, and surely they alone, see as Washington’s dangerous “obsession” with budget deficits. Lawrence Summers, former treasury secretary and current Harvard economics professor, and Jason Furman, currently at the Harvard Kennedy School of Government and formerly (2013-2017) chair of the White House Council of Economic Advisers, argue that “the economics of deficits have changed,” for plausible reasons that we shall come to. But first:
In Washington, the behavioral (as distinct from rhetorical) “deficit hawk” is not a rara avis, it is extinct. The current president was elected after promising not to touch the major entitlements (Social Security, Medicare, Medicaid) that are drivers of the deficit. When the unsustainable trajectory of the entitlements was explained to the current president, he reportedly said, “Yeah, but I won’t be here.” With a nominal Republican president and rhetorical Republicans running all of Congress until 10 weeks ago, the deficit is approaching $1 trillion with the economy humming, and the national debt heading toward 100 percent of gross domestic product, which it last exceeded in 1946 in the immediate aftermath of a world war.
So, who is obsessed, and how does this obsession manifest itself? Try to name — as Summers and Furman do not — one Washington deficit obsessive. The political class, which is more united by class interest than it is divided by ideology, has a permanent incentive for deficit spending, which burdens future generations with a significant portion of the cost of today’s consumption of government goods and services.
Summers and Furman stop far short of MMT fantasy. Good empiricists, they say only this: Because soaring deficits have not kindled inflation and the interest rate on government borrowing has declined and government borrowing has not crowded out private borrowing, we can safely have more government debt than has previously been considered prudent. Summers and Furman’s prudence, however, might be crowded out by MMT’s intoxicating effect on their party.
For decades, governing by both parties has been a practice in search of a justifying theory. Today, MMT rationalizes the Democratic presidential candidates’ bidding for progressives’ support, making the bidding entirely uninhibited by revenue considerations. So, to the list of memorable party slogans, from “Tippecanoe and Tyler Too” to “It’s Morning Again in America,” add this: “BUT WAIT! THERE’S MORE!”