Abacus | Even in China, there’s no magic money tree. Modern monetary theory is an illusion
- Can governments really just print money to fund public spending? Only if you want to end up like Venezuela or the Soviet Union
What if there really is a magic money tree? What if governments can spend as much money as they want, without raising taxes or borrowing? What if they can pay for free college education for all, free health care, decent social housing, shiny new infrastructure and a universal basic income – all without worrying about deficits or debt accumulation?
To most people this sounds downright crazy – the sort of fiscal recklessness dreamt up by an extreme fringe of economic illiterates.
Nevertheless, it is an idea that is rapidly gaining adherents. Dubbed modern monetary theory, or MMT, the notion that governments can indulge in endless deficit spending with no fear of the consequences has found favour with Bernie Sanders, former contender for the US Democratic presidential nomination, and socialist heroine Representative Alexandria Ocasio-Cortez, among others.
Far from being dangerously reckless, MMT, say the idea’s advocates, simply reflects a clear understanding of how money actually works in a fiat currency system.
Their notion of free money for all is a deeply seductive one. Unfortunately, there are some big flaws in MMT – institutional, economic, and political.
