Modern Monetary Theory posits that the way that we think about the economy is largely incorrect, that money is merely a legal and social tool—a fiat-token that can be wielded (along with taxation) in order to rearrange and utilize scarce resources in an economy to their full potential. According to MMT, the question is not how we are going to “pay for” whatever projects—since monetarily sovereign governments can always print the money—but the real questions involve “real resource constraints” and how much monetary inflation can be utilized before price inflation gets too high (after which governments would tax money out of the system).
MMT has made a few good observations—the main issue is not the nominal dollar amount of money printed or deficit spending, but the effects that such policies cause. For Austrians, the issues are the impact of such policies on scarce goods, the price changes that pervade the structure of production as a result, and later price inflation. Further, MMT proponents often rightly call out the hypocrisy of political elites and others who disagree with MMT. MMT is often portrayed as crazy and so-called “fiscal conservatives” ask things like, “How are we going to pay for that?”
MMT rightly points out the hypocrisy of these phony “fiscal conservatives” and others who ridicule MMT only to then use MMT’s preferred methods to accomplish their goals—monetary inflation and credit expansion via the central bank, deficit spending, and taxation. MMT methods conveniently seem to “work” just fine when “fiscal conservatives” want them to, but not when MMTers propose using such methods for different policy goals. In 2019, Alexandra Ocasio-Cortez was quoted in an article in Forbes, titled, “The Green New Deal: How We Will Pay For It Isn’t ‘A Thing’—And Inflation Isn’t Either,”
Why is it,...that these questions arise only in connection with useful ideas, not wasteful ideas? Where were the “pay-fors” for Bush’s $5 trillion wars and tax cuts, or for last year’s $2 trillion tax giveaway to billionaires? Why wasn’t financing those massive throwaways as scary as financing the rescue of our planet and middle class now seems to be to these naysayers?
The short answer to “how we will pay for” the Green New Deal is easy. We’ll pay for it just as we pay for all else: Congress will authorize necessary spending, and Treasury will spend. This is how we do it – always has been, always will be. The money that’s spent, for its part, is never “raised” first. To the contrary, federal spending is what brings that money into existence. (emphasis added)
There is a significant element of truth in this criticism—and a good deal of hypocrisy. The truth is that believers in the euphemistic “monetary policy” actually do, to some extent, believe in MMT because they use its methods all the time (just not to the same extent). Yet, instead of rebuffing this outright rejection of the demonstrated preferences of millions of people brought about by “monetary policy,” deficit spending, and taxation, MMT proponents want to do the same thing for different goals. The last thing on their minds is to honor the demonstrated subjective preferences of millions of people expressed in their voluntary actions and social interactions.
The fatal conceit of MMT is in the pretense of knowledge and the assumption of the qualitative superiority of their would-be ends over those chosen by private individuals and non-MMT political elites. The problem remains as to how a system applying MMT—or “monetary policy” in general—would identify and rank social needs with consistency and non-arbitrarily. These decisions are almost certain to be made politically.
The irony is this: MMT proponents tend to balk at many politically-made decisions that were paid for through inflation and government debt (e.g., “wasteful”), yet they simply prefer other decisions (e.g., “useful”) using the same means. MMT does not reject the concept that political elites will decide for the rest of us, only which ends are chosen. This is a case of, “Do as I say, not as you do.”
These problems were dealt with before, indeed, they arise whenever any theory assumes the ability and superiority of coercive bureaucratic planning over the spontaneous order brought about by the subjective evaluations, actions, and exchanges of many free people on a free market. F.A. Hayek wrote,
It is the essence of the economic problem that the making of an economic plan involves the choice between conflicting or competing ends—different needs of different people. But which ends do so conflict, which will have to be sacrificed if we want to achieve certain others, in short, which are the alternatives between which we must choose, can only be known to those who know all the facts; and only they, the experts, are in a position to decide which of the different ends are to be given preference. It is inevitable that they should impose their scale of preferences on the community for which they plan. (emphasis added)
Hayek dealt not only with the vastness of real-time data available in the minds of many individuals at a given time and the practical inability of central planners to collect and utilize it, but also with the subjective, qualitative nature of such knowledge. For example, if A prefers an apple to 10 oranges, B preferes 10 oranges to one apple, and they make an exchange, C—a central planner with his own subjective preferences, likely distant, and “behind the times” even if he had knowledge of this data point—is in no position to normatively judge the value preferences of A or B with a standard other than his own subjective preferences.
Whether MMT or some other monetary theory-policy, both involve rejecting the subjective valuations of individual people only to replace them with the subjective valuations of political elites. As a supposed alternative, they urge the consumption preferences of political elites over private consumers in the name of serving the public. Proponents of MMT know full well that political elites use inflation and deficit spending to achieve ends which do not ultimately benefit the public, yet they assume that the same process can be used by others to achieve qualitatively different results.
While it is fair for MMT to question the consistency and sincerity with which government actors utilize inflation, debt, and taxation to expend resources on certain projects only to reject such methods when it comes to other projects, it is arbitrary to suggest that the resources ought to have been directed to their “useful ideas.” Both reject and/or distort the real decisions made in the actions of individuals. This amounts to politicians quibbling over the qualitative superiority of their subjective valuations at the expense of the subjective valuations of the citizens. Which political elites’ value preferences ought to override the valuations of the people? Economic decisions are being made politically and—rather than questioning the nature of that entire system—MMT just argues for different decisions and/or different politicians.
Politicians are failing their citizens through rejecting their voluntary demonstrated preferences, distorting the price and production structure, destabilizing the economy, inflating the money supply and arrogating purchasing power to themselves and their cronies at the expense of the public. This is unhypocritical criticism. MMT advocates, on the other hand, cannot avoid hypocrisy in their critiques because they operate on the unjustified assumption that they not only wield the knowledge to centrally plan and manage an economy, but the hubris that their rejection of the value preferences of private individuals will be qualitatively superior.
Apparently, the self-confident hubris of MMT knows no bounds. MMT proponents allegedly have the knowledge and ability to “run the economy,” know how to run it much better because they not only know all the relevant data, but possess better qualitative knowledge than the current political class and decision-making individuals themselves. MMT proponents Tymogine and Wray, write,
The government should be directly involved—continuously—over the cycle, by putting in place structural macroeconomic programs that directly manage the labor force, pricing mechanisms, and investment projects, and constantly monitoring financial developments. Because those programs would be permanent and structural, rather than discretionary and specific to one Administration, they would be isolated from the political cycle and political deliberations….
MMT goes beyond full employment policy as it also promotes capital controls for open economies, credit controls, and socialization of investment. Wage rates and interest rate management are also important.
Assuring us that these policies would be “isolated from the political cycle and political deliberations” because the programs would be “permanent and structural,” MMTers would have us believe they know the “right amounts” of new money and credit to be inflated into the economy and used on deficit spending. This can be done until “full employment” and full utilization of “idle resources” are used to full capacity. They know when to stop inflating and enact taxation to mitigate price inflation (never mind time, human reactions to inflation and taxation, and setting up a boom-bust cycle, etc.). They know which projects to choose. They know better than individuals why “idle resources” are idle and why labor is utilized to “full employment.” They know what the right prices ought to be, even given the changing conditions of supply and subjective demand. They also know the “right amount” of capital investment, investments, and credit controls. We are expected to believe that we would all be better off if these individuals were in charge and if we would just do as they say, not as we do.