Market Thinking

making sense of the narrative

MMT. None of the above

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In a break from talking about markets, or Covid, we thought it worth highlighting this discussion on Modern Monetary Theory, otherwise known as MMT and linking to this article at the Mises Institute, where the author points out (rather pithily we thought) that Modern Monetary Theory is neither Modern, nor Monetary, nor a Theory.

It is worth reading the whole thing, but the essence is that MMT – sometimes archly known as the Magic Money Tree – is a dangerously appealing ‘theory’ currently being embraced by governments (and wannabe governments) in the wake of Covid. As the author notes, Kings have always wanted seignorage over currency – usually to their benefit, not the people’s, so this is hardly modern. Nor is it monetary, since the idea is that this level of money printing will not be inflationary as demand can be controlled through taxation. As such it is a fiscal, not a monetary phenomenon. Thirdly, it is not a theory it is an accounting trick, where the more government spends, the ‘richer’ we are.

As the author notes, in many ways we are already ‘there’ with MMT in the wake of Covid. The solutions being proposed are almost all interventionist and top down – few are proposing lower taxes and smaller government, it is all about Green New deals and promoting national champions. In short, everywhere in the west appears to be embracing socialism and central planning. The danger as we see it is less about inflation and more about the ability of central planners to allocate resources efficiently.

The reality is, however, as the author points out, that the impulse to create something from nothing rests deep in the human psyche. The next six months will increasingly become focussed on the US Presidential Election and the likelihood is that MMT will become embedded in both sides of the debate, even though few people have really thought it through. This is as good a place as any to start.

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