Modern Monetary Theory says that government can just print the money and spend it. MMT is quite right about this too. Older textbooks call it monetisation of fiscal policy and warn against it. Not because it’s wrong, but because it’s too tempting. Give a politician a free hand with spending and we get Weimar, Hungarian, Bolivarian socialist, levels of inflation to go with it. Not because MMT is wrong but because it’s right - sure govt can print money and spend it. But do we want it to?
So, having given the usual neoliberal scare stories, something more detailed. An explanation of why it really is all supply side, not MMT.
Thousands of women in England are being denied a “wonder drug” that can double life expectancy for terminal breast cancer patients, campaigners have said.
Women with incurable breast cancer could live for twice as long before their condition worsens, a trial of a drug known as Enhertu has found.
Formally known as trastuzumab deruxtecan, the drug has been shown to cut the risk of terminal breast cancer spreading or growing by 38 per cent compared with standard chemotherapy.
OK, that’s bad. Half the country is at risk of dying early because of a shortage of money. Hey, print more! Or even, the other half the country is at risk of losing its funbags so print more cash!
But MMT - when it’s anything more than just an idiocy, when MMT is being sensible and realistic - also says that printing more money only works when there are unused resources that can be goaded into action by that more printing. When the economy is already at capacity then the result of the money printing is just inflation. Which is OK, we can just increases taxes to take back out of circulation that newly printed money.
This is not an unfair description of MMT, it is what it really says. OK, but note what happens when we take the idea seriously. MMT is a description of how to manage the societal petty cash box, not an overall description of how to improve it. For, right now, we’ve inflation. So, printing more money to save funbags by buying more of this drug has to be balanced by higher taxes. MMT doesn’t give us a way out that is. Sure, we can have a higher taxes, higher government spend economy. Or we can have a lower taxes, lower confiscation of the fructifying in the peoples’ pockets economy. The same choice we’ve had all along. MMT hasn’t changed our options in the slightest.
Not even for funbags and their preservation.
The why we’re not buying the drug is because we are running up against that standard economic point - resources are scarce. NICE will approve a drug/treatment when the cost is below £30k for a year of good quality life (“qualy”). The drug ain’t, it’s £100k and more.
A pharma drug is a very useful example of the MMT problem in fact. We’ve not, not really, any shortage of resources here. It’s the patent that makes the cost so high. We’re not about to run out of the labs, the precursor chemicals of anything. It is purely the cash that’s in short supply. And we can print more - but inflation, so someone has to be taxed to remove the cash. OK, who gets taxed to preserve funbags?
MMT doesn’t solve our problem.
There are other solutions, of course there are. We could strive to be a richer society which could afford to make the NICE number £150k and so funbags are saved. We could kill the patent system and so this drug will be the price of the chemicals plus a bit - at the cost of never getting any new and other nice new drugs, sure, but we could do it. We could do all sorts of things in fact. Give people a tax break for spending their own money on health care.
But all those sorts of things are, in fact, reforms of the supply side of the economy.
And that’s the point for today. Modern Monetary Theory has a couple of interesting points to make. Not that they’re exactly new but it can be nice to see things being emphasised. However, MMT isn’t some overarching theory that breaks the bounds of constraint upon society. It’s still the supply side that matters, MMT is just a couple of details about society’s petty cash box.
"When the economy is already at capacity then the result of the money printing is just inflation. Which is OK, we can just increases taxes to take back out of circulation that newly printed money. "
With the side-effect that now the government is in control of a bigger proportion of the economy. Which is the real point, if your income is at all adjacent to the government.
“But MMT - when it’s anything more than just an idiocy, when MMT is being sensible and realistic…”
Your clear implication is that MMT often is pure idiocy and only sometimes sensible and realistic.
I follow lots of the arguments on X between John Hearn and the MMT fraternity and overall conclude that MMT is, in general, idiocy. But my economics aren’t strong enough to grasp all the subtleties.
Having prodded the waters of MMT today would you care to write a more wide ranging exposition of it?