My thought when I saw the title of this economics piece:

MMT Is Dead. It Must Now Be Buried for Good

MMT stands for Modern Monetary Theory and you’ve likely seen it pushed by Lefties in the last decade, including some commentators here.

It was never as smart as its proponents claimed, being merely an extension of Keynesian economics, except that with MMT the government simply blew created credit into an economy and then used increased tax rates to suck it back out when the economy grew too hot (meaning inflation) – as opposed to the rather mundane world of Keynes where the State simply runs budget deficits and piles up debt during a recession and then runs budget surpluses during economic expansion and uses those to pay down the debt.

New Zealand actually did this from the early 1990’s until recently under a succession of National and Labour governments, which is quite admirable, but most governments around the world – especially the USA – have abandoned that approach in the last two decades and run endless deficits and piled up debt even during good economic times.

Central banks aided this by crushing interest rates to zero and then keeping them there for years after a recession had passed. This so-called Quantitative Easing (QE) was basically MMT, but without the rise in taxation to control the money supply. Given how reluctant even Left-wing governments are to raise taxes that was always going to be the case; one of MMT’s fatal flaws:

Like water, though, money eventually finds its way and breaks the dam. With stocks and crypto and real estate headed to the moon, it was only a matter of time before all that money found its way to consumer goods. Inflation, as we commonly understand it, had arrived. It was mathematically pre-ordained, and yet still somehow unexpected.

I feel the need to add “DUH” to this statement. But to be fair to MMT, the old Keynesian theory had a fatal flaw also:

In his basic economic textbooks, Professor Paul Krugman preaches Keynesianism. He teaches students about a government spending multiplier. In his fairy tale, the government spends a dollar and the economy grows by more than a dollar. The student’s first question should be: Where does that dollar of spending come from? The student’s next question should be: If this mystical multiplier were in fact real, then why not spend and spend and spend?

That magical multiplier had already begun to fail in the wake of the GFC in 2008. It could be argued that in pre-1970’s Western economies it could be seen. But in the wake of the GFC, no matter how much money was tipped into the US economy by the State, there was no sight of a multiplying factor.

In fact it seemed that all the money was just soaked up. Obama was constantly disappointed by the economic growth and job numbers in the wake of his 2009 stimulus bill (The American Recovery and Reinvestment Act): he truly believed it would work. Naturally Paul Krugman claimed it failed because at $787 billion it wasn’t big enough: he wanted $2-3 trillion. Given that it’s 13 years later he probably wants $4-5 trillion now.

And that’s why MMT and Keynes are not dead and buried. Because governments are addicted to spending ever more money – especially Left-wing governments, but as we see with the British Conservative government and the GOP in America, the Right are little better – and whatever economic theory supports that desire will continue to live.