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Modern Monetary Theory

September 27, 2018

 

I popped on this episode of Planet Money for my daily walk:

https://www.npr.org/sections/money/2018/09/26/651948323/episode-866-modern-monetary-theory

 

And I immediately asked, how haven't I already heard about this Modern Monetary Theory!???

 

Basically, this is a way of looking at a sovereign governments who create their own money - If they create their own money, they can't go bankrupt, right?

Which means that they can buy everything society needs… without charging taxes and POOF! - Utopia.

 

Or not.

 

A few things to take into consideration:

 

- Natural Resources: If the country produces absolutely everything it needs (none really do at this point) then it can pay itself all it wants. But if it's paying other countries for resources, there is a balance in a 'world economy' to consider.

 

- HyperInflation: Zimbabwe, Venezuela, Argentina, etc… These are situations where prices went up so fast that food was to expensive for the vast majority to purchase. MMT relates to this because government spending can have a direct influence on prices but isn't the only factor. If the government spent money on cultivating businesses that (gainfully) employ people, it would have a different effect then if the government spent on building apartment buildings or manufacturing weapons for example.

 

- Paper vs keyboards: money is, now, a product of typing into a computer as opposed to opening a vault and counting 20s. So, a system of triggers is that much more necessary (such as automatic taxing and documentation).

 

Taxes: Even within the Modern Monetary Theory, taxation should be necessary to pay back the money spent by the government because this, theoretically, puts the power into the peoples' hands, instead of the government. The people pay for what they want and the government is just a facilitator.

 

All of the factors listed above represent a new way of thinking about our economy. Although MMT may not be the path to utopia, it's taking our thinking to another level. Solutions for inflations become much more clear when we searching from the perspective of how the government spends instead of how the government can charge.

 

Movements like these will hopefully present more creative ideas to prevent inflation and sustain a healthy society. 

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