The biggest sticking point to implementing the sort of large-scale social programs championed by American progressives has always been finding the billions, or in some cases trillions, of dollars to pay for it.
The left wing of the Democratic Party has seized upon a convenient solution to this age-old conundrum: Modern Monetary Theory, or MMT for short.
In particular, MMT has drawn the interest of Democrats backing the ambitious Green New Deal.
The Green New Deal encompasses a variety of progressive policy proposals, including universal healthcare, a job for anyone who wants one, free college, and a conversion to all renewable energy within 10 years (which includes retrofitting every building in America to be carbon-neutral).
But such programs carry a very steep price tag…
The American Action Forum has estimated the Green New Deal would cost between $51.1 trillion and $93 trillion if implemented over the next 10 years. Averaging the AAF's numbers puts the best-guess estimate at about $72 trillion.
That's $7.2 trillion of fresh government spending per year – a 156% increase over the current federal budget of $4.6 trillion.
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Such a cost would seem out of reach, and yet MMT says we can do it…
How? Simple. The government can just create as much money as it needs to pay for whatever it wants.
And it's technically true. The United States, as can any sovereign nation with a central bank (in our case, the Federal Reserve) can indeed create as many dollars as it wants.
The new twist that MMT brings is the claim that a sovereign government can print virtually limitless amounts of money without consequences.
Needless to say, both history and most economists disagree…
"The suddenly simple answer to funding the Green New Deal, Medicare-for-all, free college, and two Teslas in every garage making the rounds as Modern Monetary Theory is a joke," said Money Morning Capital Wave Strategist Shah Gilani. "Spending trillions of dollars and printing it to pay for programs is both dangerous and stupid."
Even many liberal-minded economists think MMT is nutty.
Larry Summers, who served as President Bill Clinton's Treasury secretary as well as an adviser to President Barack Obama, used the word "fallacious" to describe MMT in a March 4 Washington Post op-ed piece.
"A valid idea – that traditional fiscal-policy taboos need to be rethought in an era of low real interest rates – has been stretched by fringe economists into ludicrous claims that massive spending on job guarantees can be financed by central banks without any burden on the economy," Summers wrote.
Even noted Keynesian Paul Krugman has denounced MMT. He's gotten into a public debate with the person who many consider the leading expert on MMT theory, Stony Brook University economist Stephanie Kelton.
"It becomes clear that any attempt to extract too much from seigniorage [central bank money printing] – more than a few percent of GDP, probably – leads to an infinite upward spiral in inflation," Krugman wrote in his New York Times column.
And yet the idea of MMT continues to thrive in the progressive wing of the Democratic Party. Of course, with Republicans controlling the White House and Senate, MMT has no chance of getting implemented anytime soon.
But if Democrats can gain control of both chambers of Congress as well as the White House in 2020 – and with the party captivated by brash young socialists like Ocasio-Cortez – MMT could flip quickly from a fringe idea to a "bold" new economic policy.
And while AOC can't run for president in 2020, several of the Democrats who are running are far enough to the left to at least be sympathetic to MMT. That list includes such candidates as Sen. Bernie Sanders (I-VT), Sen. Elizabeth Warren (D-MA), and New York entrepreneur Andrew Yang.
MMT proponent Kelton, who served as an adviser to Sanders' 2016 campaign, revealed to CNBC in March that she is working with at least one of the 2020 Democratic presidential candidates (she stayed mum on who).
It's not hard to see why MMT would appeal to progressive politicians, since it promises to fund at least part of their otherwise prohibitively expensive proposals.
But if they actually try it, the good times will be short-lived…
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.
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