Over the past decade-and-a-half, macroeconomists have prescribed increasing doses of government stimulus and central bank quantitative easing to pull economies out of recession. Within these escalating measures, the tenets of Modern Monetary Theory (MMT) are gradually shaping the contours of economic policy across the developed world.
The MMT’ers paradise is one where the state leverages its position as a monopoly issuer of legal currency to facilitate high spending and taxation. Those spearheading the MMT movement believe that the government has an almost unrestricted power to spend in the economy. The keyword here is almost, as MMT’ers do understand the very real risk of inflation by accepting that inflation is caused by too much money chasing too few goods. They argue that this typically happens through domestic distributional conflicts, or, excess demand being funnelled into foreign goods which depress exchange rates and raise import prices.
Now in the real world, we can already see that inflation is a significant problem which governments and central banks must account for when pumping money into the economy. Yet, one risk that the MMT utopia would eliminate is that of the investor as this class of individual demands money to turn a profit. This is opposed to the average citizen, who, according to MMT economists, demands money to repay a tax liability to the state.
Hence, we have already seen signs of MMT-like behaviour in economic strategies. The Truss & Kwarteng budget forced the Bank of England to perform a monetary experiment where quantitative easing was used to depress bond yields which spiked as a consequence of the mini-budget. Through this, the central bank effectively overruled market forces and undermined the leverage which investors exerted on the state to keep financial markets stable. Whether intentional or not, the Bank of England fulfilled one of the primary goals of MMT by removing the investor class from the government’s budgetary decision-making process. Thus, we can already see the underlying principles of MMT creeping into economic policy with governments slowly evading scrutiny from market forces.
Another shift which may seem subtle and academic at first comes from a recent International Monetary Fund paper that illuminated an intriguing shift in economic perception. It suggested that a higher profit share attributed to inflation could lead to an increased wage share, hence fuelling further inflation. This cycle, in effect, suggests that monetary policy neutrality – a cornerstone of mainstream economics – might be becoming obsolete. Notably, the non-neutrality of monetary policy is a key concept in heterodox schools of economic thought, such as Post-Keynesian Economics (PKE) where MMT holds its roots.
Moreover, the IMF paper also gives us a deeper insight into the ‘greedflation’ narrative that the left has used to explain the current inflationary epidemic we find ourselves in. With MMT explaining inflation as a distributional conflict between firms, workers, and classes, the ‘greedflation’ narrative fits well within the MMT view which advocates taxation as a remedy against said conflicts.
Consequently, we are witnessing a larger and gradual shift in the Overton window away from conventional economics which may generate sympathy for MMT or at least something approximating it. This paired with the willingness of institutions such as the Bank of England to distort the market mechanism shows that governments are gaining tremendous control over core economic resources. With MMT proponents believing that the origin of money is as a unit of account to repay tax liabilities to the state, the risk of citizens becoming mere cogs in the wheel of the state machinery becomes real.
As such, the genuine concern with MMT is not economic but ideological – it shifts substantial power from individuals and markets to the government, potentially undermining liberty and individual freedom. As a movement, MMT relies on the benevolence of the state, and one can imagine the result of such a dangerous experiment.
Hence, the right should not dismiss MMT as a fringe theory. Instead, it should critically engage with it, particularly given its growing influence. It is essential to account for the trade-off between the economic benefits of MMT (such as the increased scope for government intervention) and the potential loss of economic freedom. Considering the scarcity of our individual liberties and the extent of state power, we cannot let MMT creep into economic theory without rigorously scrutinising its implications.
