You may have heard of Modern Monetary Theory, an approach to economics that is increasingly popular on the left, and which is sometimes mischaracterized (by advocates and especially detractors) as holding that budget deficits are either unimportant or inherently good for the economy.
This week, freshman representative Alexandria Ocasio-Cortez told Business Insider that MMT needs to be “a larger part of our conversation.” You will often hear MMT cited in response to questions about how significant expansions of federal government spending, such as single-payer health care, would be financed. The idea is that MMT renders those financing questions much less important, because it counsels worrying less about the deficit.
. . . But there is a reason to believe an MMT approach would not lead to better management of the economy in the long run: The fact that it calls for raising taxes to control inflation when the economy is strong. It is hard enough to sell voters on the idea of raising taxes in order to provide them valuable services. Now we are supposed to tell voters that taxes aren’t for financing the government, but we need to raise them anyway so we don’t overshoot an inflation target?
“The strong argument against MMT is precisely the one you made, that tax increases will be potentially difficult to carry out,” Mason told me when I asked him about this issue. “The contractionary piece of that might not be followed in practice because it would be very unpopular.”View Article