The Dangers of: Modern Monetary Theory

This is part 5 in my series “The Dangers of:” and in this piece we dive into an economic ideology called Modern Monetary Theory.

Modern Monetary Theory is a blend of ideas from multiple economic philosophies.  It draws most of its ideas from Chartism and is sometimes referred to as neo-Chartism and is correlated directly with fiat money.

In the last piece of the series we discussed fiat money or a monetary policy that uses money that is not backed by a commodity like gold or silver.  When currency is backed by a commodity it limits the amount of money that the federal government is able to print because it is limited to the amount of gold that they have.  Using fiat money means that the federal government has the ability to print as much money as they want.  Although they have the ability to print as much money as they want, they typically do rein themselves in, at least somewhat, because they know basic economics and the consequences that go with printing endless amounts of money.

This is where modern monetary theory comes in.  Modern monetary theory is the idea that the government can just print unlimited money in order to pay for their big government programs.  By doing this, they are able to stimulate the economy, the extra money they put into the economy is more money in the hands of the middle and lower class thus helping with income inequality.  There are also unicorns in this fairy tale.

Now, I know what you’re thinking, ‘anyone who has any basic understanding of economics knows that the government cannot just print endless amounts of money so this cannot be a mainstream idea, right?’  You would be wrong and this idea is making its way into modern politics.

Bernie Sanders has been a front runner in each of the last Democratic primaries for president before inevitably being the last one to drop out of the races.  Although he has not been successful in either of his presidential runs his ideas of extreme redistribution of wealth and endless government spending have engulfed Americans, especially today’s youth.

Stephanie Kelton, Bernie Sanders economic advisor, is a huge proponent of the modern monetary theory (honestly, how else are you going to pay for Bernie Sanders crazy ideas.)  We can see this in one of her tweets from April 2019.  She tweeted “The carpenter can’t run out of inches The stadium can’t run out of points The airline can’t run out of FF miles And the USA can’t run out of dollars”

Kelton

Get that… the economic advisor of one of the front runners for president of the United States said “and the USA can’t run out of dollars.”

This is one of the scariest things to see.  In case she missed econ 101, when the government just prints more and more money the actual value of money goes down, this is called inflation.  Just like every other aspect of economics supply and demand play a pivotal role in determining the value of currency, the more currency in circulation the less value the currency has.  When this is taken to the extreme we get what is called hyperinflation.

We’ve not only seen this through-out history but also in recent times.  One of the most glaring examples is Venezuela.  In the year 2018 inflation in Venezuela reached 929,000%, to put that into perspective the inflation in the US in 2018 was 2.4%.  Think about that if someone had been saving for their whole life and by 2017 they saved 100,000 bolivars (Venezuela’s currency) that would only be worth $10 in 2018.  In Venezuela a cup of coffee costs 1,000,000 bolivars because of their implementation of the modern monetary theory and this is a reality those on the far left want to bring to America.

Hyperinflation erodes the value of currency and can render it worthless. The effect on a nation’s economy is substantial. It saps tax revenues, shutters businesses, raises the unemployment rate, and drives the cost of living so high that political instability ensues.

Modern monetary theory inevitably ends with society at it’s worst.  If America follows the modern monetary theory road, then it will destroy this country and drive us to be in ruins like Venezuela.

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