Modern Monetary Theory (MMT) is something only economists could have dreamed up. It’s the laughable view that governments can spend without limit so long as they’re the sole issuer of their country’s currency. Except for one problem.
If governments were ever reliant on the printing press for their spending power, then it’s safe to say that those same governments would lack any spending power. Explained more briefly, governments that print their spending power have none.
That is so because markets are wise. They’re comprised of producers who want equal value for what they produce. Which means producers would never work for monetary mediums printed by governments to fund themselves precisely because those mediums wouldn’t exchange for equal value in the marketplace.
Those who work for or sell to government are no different. They want to get in return for what they provide. Which is just a reminder that precisely because MMT puts the printing press cart before the production horse, it in no way enhances the power of governments to spend. Quite the opposite if we’re being realistic.
All of which brings us to the Austrian School. The modern-day disciples of Ludwig von Mises claim central banks enable spending by government without limit. Mises thought markets incredibly wise, while his disciples write and talk as though markets are flamboyantly stupid.
The simple truth is that MMT presumes unsurpassed density on the part of markets, and it’s an MMT falsehood that Austrians are promoting. That they lament what they’re promoting (to cranky Austrians we’re seemingly always in the midst of hyperinflation) doesn’t alter the fact that Austrians routinely assert in straight-faced fashion that government growth is enabled by central banks and their printing presses.
No, only production enables demand and producers would never work for currencies printed by central banks to prop up governments. Just as production buys production, production sadly funds government.
Austrians of modern vintage think differently, which is simple evidence that as opposed to them discrediting MMT, they merely disdain it. To their leading lights, all a government needs is a central bank armed with a printing press.
Further evidence supporting this unfortunate description of modern Austrian School thought can be found in market signals themselves: the actual yields on Treasury debt. Presently the 10-year Treasury yields roughly 4.15% and the 30-year yields 4.43 percent. Those numbers indicate that Treasury is able to borrow very cheaply, which loudly signals that contra MMT theorists and their Austrian twins on the other side of the ideological spectrum, Treasury is decidedly not reliant on the printing press.
Except that Austrians imagine just that, that the Fed just funds Treasury with its printing press. They get things backwards. Precisely because there’s powerful global demand for Treasury debt, the Fed can buy what the whole world wants to own. In other words, the Fed isn’t monetizing Treasury as much as Treasury in no way requires monetization of its debt, hence the Fed can buy it.
Missed by the Austrians is that Treasury’s borrowing power has nothing to do with intensely simplistic notions about printing presses, and everything to do with the sad fact that Treasury has taxable access to the production of the most enterprising people on earth. MMT is but a left-wing variant of the Austrian School, and as Treasury yields loudly indicate.
