Just weeks after the Biden administration declared victory over inflation, prices are rising again. January’s inflation rate was much higher than anticipated, while the Bureau of Labor Statistics quietly doubled fourth-quarter inflation estimates. Of course, regular Americans don’t need government revisions to know that prices keep rising, especially for necessities like food and gasoline.
Yet amid the chaos, left-wing academics are pushing a radical experiment to make inflation permanent. They should be firmly rejected.
Ever since governments got into the business of centrally planning economies, they’ve turned to one fallacy above all: that governments should print as much money as politicians want and just leave regular people to deal with the inflation.
Today, this fallacy is making a comeback among left-wing radicals who bill their permanent inflation “Modern Money Theory” (MMT).
The idea in MMT is that the government can take as much as it wants by simply printing money, because government dollars will magically grow the economy and any resulting inflation can be magicked away by taxing the people into oblivion.
This means the federal government can spend endless trillions on Green New Deals, mass welfare, crony capitalism or any new utopias that come bouncing down the pike. All those trillions would be on top of our current deficit running over $8.3 trillion over the past four years -- levels not seen since the World Wars.
Who pays for all those fresh dollars? Why, you do: The new dollars compete with the old dollars you’ve spent a lifetime earning, diluting them like pouring water into wine. MMT at core is an inflation tax: Your bank account, your salary, your pension all melt before your eyes, but by gum, we’ll finally put a windmill on every house to admire from our green-approved bullet trains to nowhere.
Beyond the injustice of robbing you to fund left-wing utopias, permanent inflation punishes savers and investors alike. It drives our national savings rate toward zero, chases American factories and even small business overseas, and starves America of the investment capital needed to sustain national prosperity and a bright future for our children. All while eroding the dollar’s precarious position as global reserve currency, sapping our nation’s power and dominance in the world.
Finally, like an addictive drug, once high inflation is started it needs to keep going higher. Meaning the final destination of MMT-style inflationism is to plunge our economy and our society into the kind of social strife, collapse in trust, and economic chaos that we’ve seen in inflationary regimes from Argentina to Venezuela to Zimbabwe.
Commenters have been frank. Economist John Cochrane wrote, “Skeptics have called it ‘magical monetary theory. They’re right.” AEI’s Michael Strain pronounced MMT “a joke that’s not funny… lunacy.” George Selgin has called MMT “tantalizing, but false.” Third Way’s Zach Moller noted MMT would “destroy foreign confidence in America’s finances.”
Former Treasury Secretary Larry Summers has written “this approach leads to hyperinflation.” Even Treasury Secretary Janet Yellen, no free-market radical, has called MMT-style debt monetization “a wrong-headed theory” that leads to “hyper-inflation.”
To put an end to the MMT cult, Sen. Mike Braun, R-Ind., plans to introduce a resolution that would state the duty of the Senate to reject MMT and the inflation and endless deficits it promotes. It’s an excellent start: Congress needs to make it clear that the role of the federal government is to protect and help the American people, not to use them to fund whatever utopian fantasy seized left-wing radicals this week.
Beyond rejecting MMT, we hope Congress will push further reforms to end the inflation coming from Washington. This includes limiting government spending, ending crony or outdated regulations that punish producers and job-creators, and committing to support prudent and time-tested policies over the wild experiments of radical academics.
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ABOUT THE WRITER
Peter St. Onge, Ph.D., is the Mark A. Kolokotrones Fellow in Economic Freedom at The Heritage Foundation.
