Ann had never heard of M. The session wound down. Kelton often hears the same concerns about M. How soon will we become Zimbabwe, which printed so many Zimbabwean dollars that inflation peaked, in , at an annual rate of ninety sextillion per cent? Never, according to Kelton; under M. When it was over, I caught up with her. I asked Ann whether she found Kelton convincing. Kelton believes that, though M. The first person to begin assembling the pieces was a hedge-fund executive named Warren Mosler.
A polymath with an iconoclastic streak, Mosler shopped around his ideas about money creation and the deficit in the early nineties, looking for allies and finding none. Working some connections, he eventually, in , scored a meeting with Donald Rumsfeld , who was then working as an executive in the private sector.
Rumsfeld said he could spare an hour at the Racquet Club of Chicago, in the steam room. Both men wore towels. When they emerged from the muggy haze, Mosler had won an ally. Rumsfeld agreed to set up Mosler with a few economist friends.
Most helpful was Art Laffer, the architect of supply-side economics, whose lifework, arguing for reducing taxes on the rich, recently earned him the Presidential Medal of Freedom from Donald Trump.
Laffer had popularized the contentious notion that reducing taxes can actually increase tax revenues. Mosler, by contrast, wanted to prove that tax revenues were irrelevant to government spending. But Laffer helped Mosler workshop his ideas and directed him to a group of post-Keynesian economists who ran a boisterous Listserv—a Reddit for the dial-up age.
Mosler logged on and found the economists who became M. Today, Mosler lives in St. Croix, a U. Kelton first encountered M. Kelton applied for a fellowship at the Levy Institute, where many of the early M.
There, in , she authored one of M. Kelton went on to get her Ph. In , she became the chair of its economics department. Soon, she became the preferred interlocutor of hedge-fund managers and politicians who had questions about M. She held meetings with members of Congress. While at U. Since , Kelton has been a professor at Stony Brook, and she has a visiting appointment at the New School. Good Subscriber Account active since Shortcuts.
Account icon An icon in the shape of a person's head and shoulders. It often indicates a user profile. Log out. Investment Assets. Investment Accounts. Investing Strategies. More Button Icon Circle with three vertical dots. It indicates a way to see more nav menu items inside the site menu by triggering the side menu to open and close. Melanie Lockert. Table of Contents. Melanie Lockert is the founder of the blog and author of the book, " Dear Debt.
She is also the co-founder of the Lola Retreat , which helps bold women face their fears, own their dreams and figure out a plan to be in control of their finances. Additional comments.
Email optional. To learn more or opt-out, read our Cookie Policy. Modern Monetary Theory is having a moment. For that, we can thank Rep. With AOC on board, a wave of denunciations from mainstream economists and others followed. Or, more accurately, they attacked what they thought the theory to be. The rise of MMT could allow Democrats to embrace the de facto fiscal policy of Republican presidents, who tend to explode the deficit to finance pet initiatives like tax cuts and defense spending , leaving Democrats to clean up afterward.
That would be a big deal. Getting comfortable with new deficit-financed programs would help Democrats overcome the single biggest impediment to their agenda: raising taxes to fund their programs. MMT could offer a way to justify passing big priorities like single-payer health care or free college without resorting to major middle-class tax hikes.
And if the idea behind MMT is wrong, that shift could be a false promise, one that offers short-term political benefits at the expense of hard to foresee economic costs.
And I do mean wonky — this is a pretty technical article that gets into the nitty-gritty of why MMT is different from mainstream economics. In the standard story , the government levies taxes and then uses them to pay for what it can. To pay for the rest of its expenses, it then borrows money by issuing bonds that investors can buy up. But such borrowing has a big downside.
Budget deficits increase demand for loans, because the government needs loans on top of all the loans that private individuals and businesses are demanding. And just as a surge in demand for, say, tickets to a newly cool band should increase the going price of those tickets at least on StubHub , a surge in demand for loans makes loans more expensive: The average interest charged goes up.
For the government, this is an additional expense it has to incur. But the higher interest rate applies to private companies and individuals too. MMTers think this is all, essentially, confused. Because MMT is a school of thought with many distinct thinkers, I will be using a recent textbook by MMT-supportive economists Mitchell, Wray, and Martin Watts as my main source when describing the school as a whole. It would be like a bowling alley running out of points to give players.
Instead, the government creates money whenever it spends. So why, then, does the government tax, under the MMT view? Two big reasons: One, taxation gets people in the country to use the government-issued currency. Because they have to pay income taxes in dollars, Americans have a reason to earn dollars, spend dollars, and otherwise use dollars as opposed to, say, bitcoins or euros.
Second, taxes are one tool governments can use to control inflation. They take money out of the economy, which keeps people from bidding up prices.
But countries moved away from this system in the early part of the 20th century, and central banks nowadays can issue as much money as they like. This observation is the root of modern monetary theory MMT , which has attracted new attention during the pandemic, as governments around the world increase spending and public debts become all the more burdensome.
MMT proponents argue that governments can spend as necessary on all desirable causes — reducing unemployment, green energy, better healthcare and education — without worrying about paying for it with higher taxes or increased borrowing.
Instead, they can pay using new money from their central bank. The only limit, according to this view, is if inflation starts to rise, in which case the solution is to increase taxes. The ideas behind MMT were mainly developed in the s, notably by Warren Mosler, an American investment fund manager, who is also credited with doing much to popularise it.
However, there are many threads that can be traced further back, for instance to an early 20th-century group called the chartalists , who were interested in explaining why currencies had value. Another academic, Stephanie Kelton , has gained the ear of politicians such as Bernie Sanders and, more recently, Democrat US presidential candidate Joe Biden, providing theoretical justification for expanding government spending. For instance, supporters advocate job guarantees , where the state creates jobs for unemployed people.
0コメント