Resolved, That the Senate–
(1) realizes that deficits are unsustainable,
irresponsible, and dangerous; and
(A) that the implementation of Modern Monetary Theory would
lead to higher deficits and higher inflation; and
(B) the duty of the Senate to condemn Modern Monetary
That’s from the text of a non-binding resolution backed by five Republican Senators who imagine it’s the duty of Congress to denounce an economic theory.
On Saturday evening, we delivered yet another fairly lengthy piece on modern monetary theory, despite not being particularly interested in fighting this battle on a weekly (let alone a daily) basis.
The problem with much of the criticism around MMT is that it’s packaged in the form of a logical fallacy where those chastising the theory implicitly (and in many cases explicitly) start with the assumption that it will inevitably cause hyper-inflation and then proceed from there.
To be clear, the notion that adopting MMT could risk disastrous outcomes doesn’t come completely out of left field. That is, there are good reasons for contending that runaway inflation could eventually ensue. That said, a hyper-inflationary outcome is far from a foregone conclusion, which is why it’s so absurd that the lion’s share of the criticism is couched in terms of inevitability. Think about it this way: We know that smoking causes cancer, but nobody would say that you will inevitably get cancer if you smoke cigarettes, because nothing is inevitable besides death and taxes (and if Donald Trump and Larry Kudlow had their way, the latter wouldn’t even be a sure thing).
That quip about supply-side economics is a great segue into a quick take on why it is patently absurd for Republicans to suggest that the Senate should openly declare a theory personae non gratae. The resolution cited here at the outset (and copied in full below) has the backing of David Perdue, Thom Tillis (R-NC), Jerry Moran (R-KS), Mike Braun (R-IN), and Joni Ernst (R-IA), all of whom (with the exception of Braun, who wasn’t around for the vote in 2017) backed Trump’s tax bill.
Of course Trump’s tax bill is one of the main reasons why the US budget deficit continues to widen. The shortfall hit $691 billion in H1 of this fiscal year, up 15% from the same October-March period from a year earlier. As Bloomberg reminds you, that “highlights the continued fallout on the government debt from President Trump’s tax cuts and the effects of an aging population.” In February, the US logged its largest monthly budget deficit ever as corporate tax revenue plunged 20%. The gap for February was $234 billion, blowing past the previous record of $231.7 billion logged seven years ago. Again, the proximate cause is Trump’s tax package.
Consider that Trump is now quite literally calling on the Fed to restart QE (i.e., Trump is effectively instructing the Fed to start buying US debt again, presumably in large amounts). Here, we’ll let him explain it to you:
So, there is Trump, insisting that if the Fed were to start monetizing (at arm’s length) the deficit again, you would “see a rocket ship” in the economy.
Hilariously, Perdue and Tillis have the nerve to not only ignore the fact that Trump’s policies have ballooned the deficit and that this president now holds the all-time record for most interest paid in a single year, but to also overlook his calls for a restart to QE, on the way to engaging in one of the worst examples of the pot calling the kettle black I have ever seen. Here’s Perdue:
In an effort to pay for their radical Socialist policies, Democrats are actually embracing the idea that our $22 trillion national debt doesn’t matter. Not only is Modern Monetary Theory questionable at best, it jeopardizes the United States’ economic security. Some in Washington still refuse to accept the fact that we are in a full-blown debt crisis. I never dreamed we would be debating socialism versus capitalism in America during my lifetime. Instead of wasting time on outrageous ‘spend-now, spend-later, spend-often’ policies, we should continue President Trump’s focus on implementing policies that will have a true impact on the nation’s debt, such as growing the economy.
Yes, we should “focus on implementing policies that will have a true impact on the nation’s debt” – and Perdue did just that, voting for the tax bill which has “impacted” the nation’s fiscal situation severely in the here and now, not in some hypothetical, future socialist hellscape the GOP imagines would result from the implementation of MMT.
Do try to let this sink in. Perdue is chastising MMT for the theoretical implications of implementing it to pay for things like the Green New Deal, healthcare and infrastructure, while completely ignoring the fact that in the present (i.e., right now, in real life, as we speak), Trump’s debt-funded tax cuts for the wealthy and for corporations are producing record budget shortfalls. Perdue is asking you to overlook a real fiscal boondoggle he helped create, and focus on a socialist dystopia that doesn’t exist.
For his part, Tillis took the fearmongering up another notch still. Just read this laughably ridiculous statement that accompanied the unveiling of the anti-MMT resolution this week:
As the radical left continues to push policy proposals that will explode our national debt, like the government take-over of health care and the Green New Deal, its embrace of Experimental Modern Monetary Theory and belief that the federal government can spend endless amounts of money without consequences will bring dangerous ramifications for American families. One look at the current humanitarian crisis in Venezuela is proof that this Experimental Modern Monetary Theory does not work, and I will continue to work to reduce our out-of-control spending so future generations are not burdened with overwhelming debt.
If you are naive enough to buy into that shameless (not to mention absurdly lazy) effort to demonize Democratic efforts to expand access to healthcare and work towards a future that doesn’t include climate destruction, then there’s little hope for you.
That statement from Tillis is the quintessential example of what we’ve been talking about in these pages with regard to MMT. He is quite literally saying that the only thing you need to do to understand an entire economic theory is “take one look at Venezuela”.
That kind of bombast and outright deception of the public is wholly unacceptable from a lawmaker and should, in and of itself, be cause for some kind of disciplinary action. Recall what we said late last month:
What the cacophony of criticism lacks in veracity, it tries to make up for with hyperbole, ad hominem and allusions to the Weimar Republic. In other words, critics have simply resorted to fearmongering, in part because the theory has found an audience with the likes of Alexandria Ocasio-Cortez who, along with other progressives, are threatening to upend capitalism, a system that works for virtually nobody and is injurious to many, but which is nevertheless worshipped uncritically by almost everyone (capitalism is a lot like religion in that regard).
Again, do not let it be lost on you that four of the five sponsors of this anti-MMT resolution voted for a $1.5 trillion tax-cuts package that disproportionately benefits the wealthy both directly (lower taxes) and indirectly (e.g., via the asset price inflation that goes along with incentivizing billions upon billions in stock buybacks). Those tax cuts are the proximate cause of America’s worsening fiscal trajectory and ballooning deficit.
In 20 years, what will the legacy of those tax cuts be? Spoiler alert: It will be the same legacy as other supply-side boondoggles throughout history. The rich will have gotten richer with little to no discernible trickle-down.
I implore you: Don’t be a moron. Just don’t do it. Don’t be that gullible. When somebody who voted for a tax package that does almost nothing for you while simultaneously enriching people like Donald Trump and imperiling America’s fiscal situation tells you that “one look at Venezuela” is all you need to understand why Alexandria Ocasio-Cortez is a socialist devil, go with your gut reaction which, hopefully, is screaming that the old white men are lying.
SENATE RESOLUTION 182--RECOGNIZING THE DUTY OF THE SENATE TO CONDEMN MODERN MONETARY THEORY AND RECOGNIZING MODERN MONETARY THEORY WOULD LEAD TO HIGHER DEFICITS AND HIGHER INFLATION Mr. PERDUE (for himself, Mr. Braun, Ms. Ernst, Mr. Moran, and Mr. Tillis) submitted the following resolution; which was referred to the Committee on Banking, Housing, and Urban Affairs: S. Res. 182 Whereas noted economists from across the political spectrum have warned that the implementation of Modern Monetary Theory (referred to in this preamble as ``MMT'') would pose a clear danger to the economy of the United States; Whereas, on March 4, 2019, former Secretary of the Treasury Lawrence H. Summers said that-- (1) MMT is fallacious at multiple levels; (2) past a certain point, MMT leads to hyperinflation; and (3) a policy of relying on a central bank to finance government deficits, as advocated by MMT theorists, would likely result in a collapsing exchange rate; Whereas, on February 26, 2019, Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, said: ``The idea that deficits don't matter for countries that can borrow in their own currency I think is just wrong''; Whereas, on March 25, 2019, Janet Yellen, former Chair of the Board of Governors of the Federal Reserve System, disagreed with those individuals promoting MMT who suggest that ``you don't have to worry about interest-rate payments because the central bank can buy the debt'', stating: ``That's a very wrong-minded theory because that's how you get hyper-inflation''; Whereas the March 2019 report entitled ``How Reliable is Modern Monetary Theory as a Guide to Policy?'' by Scott Sumner and Patrick Horan of the Mercatus Center at George Mason University found that-- (1) MMT-- (A) has a flawed model of inflation, which overestimates the importance of economic slack; (B) overestimates the revenue that can be earned from the creation of money; (C) overestimates the potency of fiscal policy, while underestimating the effectiveness of monetary policy; (D) overestimates the ability of fiscal authorities to control inflation; and (E) contains too few safeguards against the risks of excessive public debt; and (2) an MMT agenda of having fiscal authorities manage monetary policy would run the risk of-- (A) very high debts; (B) very high inflation; or (C) very high debts and very high inflation, each of which may be very harmful to the broader economy; Whereas the January 2019 report entitled ``Modern Monetary Theory and Policy'' by Stan Veuger of the American Enterprise Institute warned that ``hyperinflation becomes a real risk'' when a government attempts to pay for massive spending by printing money; and Whereas the September 2018 report entitled ``On Empty Purses and MMT Rhetoric'' by George Selgin of the Cato Institute warned that-- (1) when it comes to the ability of Congress to rely on the Treasury to cover expenditures, Congress is, in 1 crucial respect, more constrained than an ordinary household or business is when that household or business relies on a bank to cover expenditures because, if Congress is to avoid running out of money, Congress cannot write checks in amounts exceeding the balances in the general account of the Treasury; and (2) MMT theorists succeed in turning otherwise banal truths about the workings of contemporary monetary systems into novel policy pronouncements that, although tantalizing, are false: Now, therefore, be it Resolved, That the Senate-- (1) realizes that deficits are unsustainable, irresponsible, and dangerous; and (2) recognizes-- (A) that the implementation of Modern Monetary Theory would lead to higher deficits and higher inflation; and (B) the duty of the Senate to condemn Modern Monetary Theory.