Some dumb ideas never die, they just take on new illogical forms of magical thinking. Yes, I have read some of the new arguments that those who believe MMT is the next best thing to sliced bread or the internet or what ever is your milestone. I think the largest problems is the supposition that since government owns the right to coin money, or print it if you like, then there is no limit to the exercise that right can take. The government gives forth with money and the government takes it away, how great is the government. In our imaginary land which is suddenly populated with individuals with no means for exchange of goods and services except barter, which, in itself, is rather imperfect for there will be those whose barter skills are poor and those whose skills are exceptional, MMT is the great savior. The government merely needs to print fiat (not precious metal backed) money. Thus the government may need a new legislative building and decides to simply print the money to pay for this new building. Assuming a pay as you go approach, the quarry owners, the stone masons, the carpenters, the architects, and all the other people who will work on this new project will receive the newly printed fiat money in bills and coins. Those who do the actual printing and minting, those who supply the paper and refined money, those who make and supply the machinery by which bills are printed and coins minted, and those raw material providers, the metal smelters and casters, the ax men who cut down the trees to be processed either as lumber or wood chips for paper making, well, you get the idea. So magically fiat money comes into being for the payment in the exchange of goods and services. It all trickles down even to the bum on the corner asking for a handout.
Thus, all employment for fiat wages originates with the government. and if you are one of the fortunate individuals who owns enough land in timber, wheat, coal, or other resources you will be to accumulate a great number of these fiat bills. And if you are of the greater majority of those individuals who possess usable and salable skills, you will get your share. Everyone else will be dependent on the charity, family connections, or largess of the government for food, shelter, clothing, and education. So next we will see the building of private dwellings and commercial buildings. Except for one small consequence. A profit must be extracted for each point of transaction. If I own the tree that I chop down then my labor has a certain value or worth. I must be fed, housed, etc. And that tree has a certain value or worth. It took a certain amount of time to grow to that point where it was to my advantage to chop it down and sell it. You might say that I didn’t grow the tree directly, only god or nature did that. Yes, that is true, but I own the land upon which it grows and its growth rate assumes a certain investment on my part. I must see that the tree, in times of severe drought has water. I must keep the forest floor clear of brush that may present a fire danger to my investment, I must not be a passive owner. Therefore my trees have value or worth in the economy. They are assets, not liabilities.
Thus in a consumer economy there is always a surcharge to living and that is a thing we call profit but more rightly expressed as the cost of doing business in the future. We save a portion of our incomes for investing in tomorrow’s living. But MMT does not recognize such a problem. Government does not need to save for tomorrow for it merely needs to print more fiat. The government is the ultimate consumer is that respect. How so? If the government has no income, that is tax revenue, sales of land it owns, sales of other resources, then it is highly dependent on the printing of fiat money. Now if we make the assumption for the moment that our country is isolated and that there are no other countries with their own governments and trade among us all, then we have a closed system. And as we slowly grow our economy through the building of private homes and commercial real estate, every time the government wants to build or buy something it must compete with the needs of the population. Our population may be growing but that type of growth takes a long time, just as growing a tree to maturity does. If the government spends too much it disrupts the economy by inducing inflation. That is, too much fiat money chasing too little available goods and services. Inflation is a tax that is disproportional since the poor can ill afford the rise in necessities while the wealthy hardly notice that price increase. Then we may have something of a problem that the MMT did not foresee, that a government cannot print too much too fast without harmful consequences. Ah, then a tax will tax the excess fiat money out of the economy and then there will be no inflation. But is that true? The problem is that necessities are, by definition, needed, not luxuries, not alternative goods and services. If removing fiat money from the hands of the public reduces the supply of fiat money it will not increase the supply of necessities except by privation. That is, by removing the means to buy necessities only increases the supply without lowering the price per se. But once that supply becomes too large the price must fall to that point where enough is bought to match what needs to be sold. And of course the supply will face through a lowered price per unit. We now have deflation, or the reduction in the worth or value of assets. Remove the tax and the price rises until supply increases to level out those prices. That would cause a temporary inflationary spike.
Well, why not have everyone work for the government? That’s the ticket. That way we can assure that wages and prices remain constant. But then we have the problem that all centrally planned governments have never overcome. How does one set prices and supply goals? How do we know if too much milk is being produced and too little toothpaste? We have computers that might monitor production and consumption and thus determine when to milk more cows and when to slaughter them for meat. And the per capita use of toothpaste might tell us if we will need more dental services due to the lack of brushing by adults and children. And we might be able to identify those workers who are unproductive or not as productive as others. But how does one decide whether an artist as a worker in water colors is productive? What he or she may produce is one of a kind art unless prints are made. But is it good, great, or crap art?
Well, how did we get to that planned economy point? Ah, the real problem with the MMT argument is that it cannot see that fiat money is nothing more than credit. In America there are no more Silver Certificates in circulation. When gold had been confiscated from the American public by the FDR administration (yes, the government paid for the privately held gold but not at the market price, no well below it) it had to back the currency with something. Hence the idea of silver certificates. Silver was coined and was in plentiful supply. If you wanted to hold silver you could take your dollar bills that had sliver certificate printed upon it and go to any Federal Reserve Bank (there were thirteen in the country) and exchange them for silver. We no longer have silver certificates in circulation, our fiat money is backed by nothing that the promise that a dollar is worth a dollar, whatever value that happens to be. And the rest of the developed nations work on that principle. That is why the foreign exchange rates are not exactly stable, the values are variable because they are relative to one another. This is why balance or trade is important. Import too much and export too little and your fiat money loses value relative to other currencies. If you peg your currency to a stronger currency so that your currency is officially under valued you create an artificial advantage for favorable trade exchanges. Thus, countries may run account deficits through the issuance of credit by other nations. That is what buying on credit is, buying goods and services now with income from future earnings.
You see, a nation’s government, unless it owns the means of production or raw resources, has no income except taxes and fees levied and paid into the treasury. Since nations usually trade to some degree with other nations, then their economies are not closed systems. Only the world economy is a closed system. The population has a growth rate as a whole but some nations have a declining population rate. A nation like France may become self sufficient in food production if it closes its borders to all trade in food. But it cannot become energy self sufficient it is will not import natural gas and oil or refined oil goods. Thus the problems of the modern world is that there are limitations and MMT as a monetary policy will not solve them. The printing of more fiat is the printing of more credit. Only in today’s world we do not need the actually paper money, we have electronic transactions that effective replace fiat script. I can, with a credit card, buy so many of the goods and services I use every day and every year. I can even pay my government taxes with my credit card. Credit has replaced physical money. That means that when a government wants to pay for anything using debt as a source of payment, it has effectively created new money. And as long as the values of goods and services are measured in relative values of fiat currency it really does not matter how much the government spends. But those currencies buy physical goods and services, they buy intellectual ideas and services. As long as Arabs accept our dollars we will get their oil. But as we can see today, the world’s prices for goods and services has reached very high and inflated prices. The only way to be able to afford the ever rising prices of real estate is to demand higher wages. It’s a push-pull effect and how strange that those believers in MMT can’t see it. Friends, there is no free lunch. Credit cannot be expanded infinitely. Once one nation or group of individuals want the credit repaid then the whole system collapses. The world of credit is an artificial one, it is a ponzi scheme. We have reached a point in history where our various governments debt can only be rolled over and the interest serviced. The trouble comes when no one is willing to continue to roll over the debt or accept payment in your fiat currency. Will that happen? Ask Argentina how they are doing with their imports.