Postmodern Monetary Theory

Supporters of the Green New Deal and related forms of profligate social spending have almost uniformly adopted a stance of dismissiveness when pressed about the multi-trillion-dollar price tags of their proposals. Unable to offer a convincing answer rooted in the traditional public-finance concerns of tax revenue and budgeting, they have instead embraced a concept known as Modern Monetary Theory (MMT) as a sort of hand-waving exercise to make the price tag go away.

The basic concept of MMT holds that government can advantageously use its position as the sole issuer of legal tender to expand public expenditure far beyond what its revenue stream would support. By essentially exploiting a monopolist position over currency creation, the MMTers hold, government can maintain what my colleague Pete Earle describes as a “closed loop” of credit issuance for government spending. In this way, money can be created by the state to pay for almost anything the MMTers desire because all debts are payable in the same U.S. currency, though they offer the passing caveat that the monetary expansion at the heart of the scheme can be theoretically reabsorbed at a later date through taxation.

The ability to exploit this posited monetary monopoly presumes an idealized political system in which credit issuance and taxation seamlessly operate as mechanical levers under expert guidance, not the political system we actually have, in which the same tools are highly susceptible to intruding interest groups. Even though MMTers have convinced themselves that the tax lever will provide a conceptual safeguard against the drift toward hyperinflation, the practical intrusions of politics would likely render it impotent.

The Strange Marketing of Fringe Economics

A dissection of the conceptual problems of MMT is not however my primary purpose here. At its core, MMT is anything but modern despite what its moniker claims and could be more accurately described as a naïve and simplistic rehashing of superseded doctrines from almost a century ago. Contrary to the insinuations of MMT’s many hashtag proselytizers, economists from across the political spectrum have given serious consideration to the merits of their arguments — and found them wanting.

By every conceivable measure, MMT is an extreme heterodox theory that falls well outside of the mainstream. Its advocates therefore carry the burden of making their case in a clear and accessible form and in suitable venues to a skeptical economics profession.

What one often finds in practice however is the exact opposite. Instead of making their arguments in an accessible manner aimed at converting their skeptics, MMT supporters display an unusual habit of presenting their idea as if it were a matter of settled and obvious economic truth. To them, the unconverted skeptics are the real outsiders, missing an obvious solution to the financial phantoms they believe to be created by adherence to budgetary conservatism.

A recent, widely circulated Twitter thread started by MMT theorist Stephanie Kelton exemplifies the problem. When asked if we can afford the Green New Deal, Kelton replies simply, “Yes. The federal government can afford to buy whatever is for sale in its own currency.” While conceding that “inflation is the limit” to this novel approach, she retreats from specifics beyond simply asserting the theory’s reliance upon the aforementioned use of taxation to reabsorb enough of the monetary expansion used to finance the spending spree before high inflation sets in. Where that inflation occurs and whether the government can even successfully pinpoint it are at best peripheral concerns. The typical MMT advocate thus proceeds by declamation of the theory as they want it to operate rather than by demonstrating its actual viability in practice.

Most efforts to convince skeptics of MMT take on a similar form of declaiming its alleged truths rather than presenting a carefully argued and coherent case for the position, let alone mustering empirical evidence in its favor. To many MMTers, these doubters (which, at the present, include the overwhelming majority of the economics profession) could not possibly have identified a fault in the simplistic or politically untenable propositions of MMT that are visible from the surface. Rather, they simply don’t understand what MMT is really about, or they haven’t taken the time to wade through decades of obscure MMT theorizing as presented by its advocates in low-quality heterodox journals or even self-published internet manifestos. If you do not #LearnMMT and then agree with all it has to offer, the fault is entirely your own.

In the case of the Green New Deal, this strange sense of confidence in MMT has morphed into an almost-comical hubris. Consider how the revised FAQ for this multi-trillion-dollar spending extravaganza addresses the question of its own finance: “As the post-2008 consensus among serious economists and financiers affirms,” we are told, the Green New Deal “does not require ‘new taxes’ unless inflation emerges.”

The referenced “consensus among serious economists,” of course, is a rhetorical appeal to legitimize MMT. It effectively seeks to repurpose the widespread economic belief that dramatic increase in spending without taxation will invite inflationary pressures into an exploitable limit, short of which MMT can be deployed to finance extravagance from the public treasury. This latter twist is neither a consensus position among economists nor a serious solution to the constraints scarcity imposes on public finance.

In a sense, the MMT/Green New Deal alliance is unavoidable. The only world in which the fiscal dimensions of the Green New Deal and its closely associated jobs-guarantee program are even conceivable is also a world that accepts the truth of MMT as a foundational axiom. That truth however is anything but established, and MMT remains an unconventional outside view that invests more effort in finding new adherents for its doctrines than in explaining, defending, and demonstrating their economic validity. The convenient conversion of Alexandria Ocasio-Cortez to MMT as the preferred and only method for advancing her spending agenda has done more to advance its popularity than any argument on merit offered in support of MMT to date.

The MMT Epistocracy

There is nonetheless method to the madness of the strange forms that MMT proselytization employs. The MMTers’ depiction of their theory as both obvious and true chafes with the reality that it has few adherents beyond the fringes of the profession and little in the way of scientific evidence to support its claims.

To reconcile the troubles caused by this epistemic divergence, MMTers therefore turn to a series of rhetorical strategies that are more commonly encountered in the world of postmodernist moral philosophy and particularly its close cousin, critical theory.

These movements, which swept up the academic humanities in the mid-20th century, were largely accompanied by an intellectual turn against evidence-based argumentation and scientific falsifiability as methods of testing ideas in a competitive environment. At the same time, postmodernists (even where they differ greatly in particulars) have a habit of aggressively embracing theories of knowledge that rely upon the mastery of obscure, jargon-cluttered concepts and inwardly referential citation patterns that develop within their own insular clusters of accepted thinkers and the students who trained under those thinkers.

The practical result has been the cultivation of exclusionary echo chambers of thought within entire academic disciplines that now depend upon acroamatic transmission to advance their ideas. That is to say, credibility within postmodernism derives from training under the right school of postmodern literary critics, historians, philosophers, and so forth. The products of this approach vary greatly in quality, but postmodernists’ worst habits have contributed to an intellectual malaise in many of the afflicted disciplines. Poor arguments thrive when impenetrable but vacuous jargon insulate them from scrutiny and the formidable entry barriers of having the right academic genealogy protect them.

Notice many of the same insularities are at play in the way that MMTers interact with the mainstream of the economics profession: refusal to engage scientific arguments from outside the MMT world, deployment of proprietary jargon around MMT, and insistence that a true understanding of MMT requires specialized training from an obscure and insular group of heterodox economists who also advocate MMT aggressively on the political front. In this sense, MMT economics is better understood as an attempt to carve out an obscurantist epistocracy of knowledge over a particular narrow slice of public finance.

The first word, obscurantist, refers to the strategy of epistemic defense employed by the MMTers. Simply put, they tend to adopt a strategy that eschews arguing for the merits of their ideas in a scientific discourse with competing monetary theories. Rather, the immediate impulse of the MMTers is to question the standing of their challengers to even engage in criticism.

As we were recently told following Paul Krugman’s critique of the idea, he is unsuited to challenge MMT because he doesn’t understand what MMT is all about or has confused its historical forebears in early 20th-century chartalism with the alleged improvements from an even more obscure specialist literature known to MMTers themselves. By questioning the standing of their critics to even criticize, absent their own pursuit of training in the deepest nuances of a fringe economic heterodoxy, the MMT obscurantists thereby avoid having to answer any substantive critique of their theory from outside of their own ranks.

The second word, epistocracy, refers to those same ranks of theorists — the tiny group of intensely committed MMT economists who received training at one of a handful of heterodox academic departments that specialize in its cultivation. As specialists in MMT, they take on a role of guardianship of its knowledge, including claimed possession of that knowledge.

The two attributes act in concert to first establish MMT as a proprietary domain of knowledge, and then exclude its challengers from that domain on account of a lack of standing to enter it. On account of its similarity to philosophical movements that employ similar strategies in the humanities and softer social sciences, allow me to suggest that MMT would be more appropriately designated Postmodern Monetary Theory.

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Phillip W. Magness

Phil Magness is a Senior Research Fellow at the American Institute for Economic Research. He is the author of numerous works on economic history, taxation, economic inequality, the history of slavery, and education policy in the United States.