Modern Monetary Theory

Modern Monetary Theory is the latest darling of spend thrift politicians, always eager to find "intellectual" excuses for their projects.

The theory states that deficits do not matter for those issuing debt in currency that they control. The only thing that matters is price inflation which can be controlled through taxation.

The idea is that government can issue debt for all their projects virtually without limit. The debt issued becomes someone else's savings. The interest will always be paid because the currency is controlled by government. Price inflation will never become a problem due to taxation.

Government spending becomes in this way an engine for prosperity. However, what is forgotten in all of this is that the economy is not about money. It is about resources. Only when resources are well spent do we grow richer and better off. Government has a terrible record in this respect.

What is proposed is that government starts spending resources on its favorite projects through deficit spending. The bond holders become in this manner the owners of these projects. Savings that could have gone into producing other things become directed towards government infrastructure and welfare spending. Instead of owning a part of a refrigerator factory or some other wealth creating venture, the saver becomes part owner of a warship, bridge or welfare consumption.

With government laying its hand on a great deal of resources, prices will inevitably start going up. The savers, now owners of vast government projects rather than more expedient private projects, have to support themselves in an environment of increasing prices. Unhappy about the ricing prices, government bureaucrats will at this point step in. They will levy higher taxes on the people they have already impoverished.

The net result will be enormous miss-allocations of resources. People will be hit by both ricing prices and ricing taxes. The final destination will be a command economy much like the one experienced in Russia under communism.