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It’s one thing to joke that socialists know nothing about economics and think money comes from nothing, quite another for them to straight-up admit it.
Jacinda Ardern is a socialist. That’s not a smear, it’s self-evident in everything from her declaration that “capitalism has failed” to well, being president of the International Union of Socialist Youth (that last one’s a bit of a giveaway, nu?). That she struggles, to put it kindly, with economics is evidenced by her incomprehension of such a basic concept as GDP.
Socialists’ know-nothingness is also exemplified by their sudden enthusiasm for “Modern Monetary Theory”, which is just a fancy term for “printing money”.
Governments have become so pervasive it’s easy to forget they have no money of their own. They fund themselves in two ways: taxation and borrowing.
Modern Monetary Theory, a set of ideas with growing appeal, especially on the left of politics, posits a third way: simply creating money. Governments can instruct their central banks to create money, which their treasuries can spend on whatever they want, ideally soaking up spare capacity in the economy, so the argument goes. It would be wonderful were this true, but there is no third way.
MMT is the left-wing version of the extreme supply-side economics of the 1980s that propounded that government could raise tax revenue by lowering taxes.
We’ve also seen MMT being given the ol’ college try by European governments for years, under the equally fanciful euphemism “quantitative easing” (again, “printing money”).
If there really were a costless way to finance government spending it would have been discovered by now. In the economic menu of life there are lunches of varying costs, but there are still no free ones. “Money creation” is just another form of borrowing[…]But monetary-financed deficits are hardly the panacea MMT advocates think. The US, Japan and Europe have been giving “money creation” a red-hot go for at least a decade without making serious inroads into unemployment.
Of all people, The Hitchhiker’s Guide to the Galaxy author Douglas Adams, hardly a hardline righty, rubbished the basic idea of MMT in his 1980 novel, The Restaurant at the End of the Universe. The inhabitants of Golgafrinchan Ark Fleet Ship B – the useless “leaners” of Golgafrincham, essentially the sort of people who are Greens voters today – having crashed on prehistoric Earth, decide to make leaves their currency. The forests being full of leaves for the taking, hyper-inflation immediately sets in. “The current going rate has something like three deciduous forests buying one ship’s peanut,” a Management Consultant confesses.
Speaking of peanuts, the great minds at Stuff just lurve MMT, too. “A kinder, greener, fairer economics,” they gushed. But then, these are the sort of people who think Jacinda Ardern is a first-rate leader.
MMT advocates naively place too much faith in the skill of political leaders and policymakers. It would be the death of independent central banks if politicians were setting the scale of money creation. Once unemployment has been eroded by large monetary-financed deficits, policymakers would carefully rein in the ensuing inflation by paring back the budget deficits and lifting taxes, according to MMT. That ignores the political incentives governments face. Once inflation expectations have changed, they are hard to reset.
One only need look at the Morrison government’s methods of dealing with the economic chaos caused by government responses to the Wuhan pandemic. The government – supposedly hard-headed economic managers, remember, not giddy socialist fangirls – doubled dole payments and pensions “as a temporary measure”. Except that now, trying to reset them to pre-pandemic levels is proving a political nightmare. “Cutting pensions in half!” shriek the leaners.
But sure: let’s trust the government to print money out of nothing and not get carried away with political pork-barreling.
The Golganfrinchans solved their leaf-based hyperinflation by burning down the forests. They stand as sober fiscal conservatives compared to the MMT crowd.
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