. And again, inflation was muted.”Fed chairman Jay Powell has criticized MMT, for example. But its advocates say Powell and other Fed officials hoist themselves on their own petard. That’s because they are the ones who actually proved that MMT works. They point to the fact that the Fed printed close to $4 trillion and nothing bad happened. So it should go ahead and print another $4 trillion.
This is one of the great ironies of the debate. The Fed criticizes MMT, but it was its very own money creation after 2008 that MMT advocates point to as proof that it works.
Their only quibble is that the benefit of all that money creation went to rich investors, the major banks and corporations. The rich simply got richer. MMT advocates say it will simply redirect the money towards the poor, students, everyday Americans, people who need healthcare and childcare. It would basically be QE for the people, instead of the rich.
And it will go into the real economy, where it will boost productivity and finally give us significant growth.
When I first encountered these arguments, I knew they weren’t right. Both my gut feeling and my more rigorous approach to my own theory of money told me MMT was wrong. But I must admit, their arguments were more difficult to answer than I expected. I had a tough time uncovering the logical flaws.
Their points are internally consistent, and they did have a point. After all, the Fed did create all that money and it didn’t produce a calamity. Who’s to say they couldn’t do a lot more of it?
In other words, the Keynesian argument does not hold water when you look at the facts or certainly recent economic history.
Without doing any more serious thinking about it, I probably would have lost a debate with any leading MMT proponent who’s done a lot of work on it, despite “knowing” they were wrong. I couldn’t easily refute their basic arguments.
You can never win a debate if you don’t understand your opponent’s position. Over the past several years I got dragged into endless gold versus bitcoin debates, and I always thought they were silly because gold is gold, and bitcoin is bitcoin
. Contrasting them never made sense to me, but that’s what everybody wanted to hear, so I participated in a lot of gold versus bitcoin debates.I won every debate according to the judges or the audience, but the point being I had to understand bitcoin in order to see its shortcomings. I wasn’t about to debate somebody about bitcoin and get blindsided or embarrassed because I didn’t understand their arguments. I had to become a complete expert on bitcoin to win these debates.
The same applies to MMT. If you’re going to debate somebody on MMT, you’d better know it better than they do or you’re going to lose that debate. It just so happens that I’ll be debating a leading MMT proponent on April 3, in just a few weeks. So I had to immerse myself in it to learn it inside and out.
I knew I had to go beyond the standard arguments that we can’t afford it, that it would explode the deficit, etc. I’m happy to say that I worked out an answer refuting MMT, but it wasn’t easy. It took a lot of hard thinking. Today I’m giving you a preview of what I’ll argue at the upcoming debate.
Here’s what it comes down to…
The real problem with MMT can be traced to its very definition of money. The MMT advocates say they know what money is. Money derives its value from the fact that you need it to pay your taxes. In the U.S. case, money is dollars.
But their definition of money is flawed. In other words, the whole theory is built on quicksand. And this is the point that everyone is missing, including the usual critics. No one else has raised it.
The basis of money, the definition of money, has nothing to do with paying taxes. I can think of a hundred ways to hold money and store wealth where you don’t owe any taxes. Here’s one example…
If you buy a share of stock and stick it in your portfolio for 10 years without selling it, how much do you owe in taxes? Zero. You don’t owe any taxes until you sell it. This is one of the reasons why Warren Buffet
is so rich, by the way. He pays very little taxes...
- Source, Jim Rickards via the Daily Reckoning, read more here
