The results of modern monetary theory

Juliet Samuel writes in The Telegraph:

They have been awfully quiet recently, the purveyors of those “modern” and “progressive” economic theories that were so in vogue before the pandemic. Not long ago, after all, we were being forced to listen to proponents of ideas like “modern monetary theory” (MMT) and “universal basic income” (UBI) tell us why there was little practical constraint on printing or spending money and that the problem was that governments spend too little, not too much.

Then along came the pandemic and, quite suddenly, the moment arrived for us to experiment with these miraculous, economic cure-alls. Governments and central banks unleashed a wall of cash and for some of it, like furlough money, they had good reason. The chief advocate of MMT, a US professor called Stephanie Kelton, declared victory and told economists warning about the inflationary consequences to “take a hike”. Various forms of stimulus and furlough in the US and Europe were discussed as just the start of a massive expansion in the welfare state that would pay everyone to do nothing. Now, the reckoning has arrived. …

Likewise with the enormous expansion in quantitative easing (QE) by central banks during the course of the pandemic. MMT, a series of tautologies masquerading as a new economic theory, appeared to suggest that any government with its own currency could print money to its heart’s content and never worry about ballooning deficits. No wonder the idea was embraced by the Labour Party under Jeremy Corbyn, whose manifesto included a proposal for a “People’s QE” to fund all sorts of spending goodies. Not even in Mr Corbyn’s wildest dreams could he have imagined seeing a Conservative government effectively pursue the same policy – except that instead of spending the cash on infrastructure, as Labour was supposedly planning and which would in theory generate returns, it was handed out to households. Yet as The People’s QE has duly generated The People’s Inflation, promoters of MMT like Professor Kelton have begun to obfuscate and backtrack. She never said that inflation wasn’t a risk, she claims. All she meant was that governments could print and spend lots and lots more money without any ill effects. This is the rhetorical equivalent of a dog chasing its own tail. …

Few would argue that the Government should simply have done nothing in response to the pandemic. As the virus spread and the economy closed down, households needed emergency support to avoid catastrophic economic damage and it is likely they would have needed help even without the lockdowns imposed from above. But for a large segment of the British Left, pandemic relief schemes were not a one-off lifeline and a massive gamble. They were the fulfillment of long-held dreams about the way they want society to be governed.

It is only fair, then, to judge them on their outcomes. The resounding conclusion is that, far from being harmless and manageable, the vast expansion in state spending and monetary policy trialled by Covid policies have had profoundly damaging effects on the cost of living, the security of public finances and the resilience and working culture of our economy. Nor did it take years to generate this result. The effect has been almost immediate.

If this cabal of self-righteous spendthrifts had any sense of dignity left, they would take a well-earned break from dispensing advice on how to run the economy and stop trying to build a façade of intellectual credibility to disguise their pie-in-the-sky notions.

Instead, we have to listen to the Labour Party haranguing the Government simultaneously for failing to bring down the cost of living, not spending enough, and failing to address “climate justice” and “structural inequalities” all at the same time.

The Left, however, has failed to learn the lesson of its own delusions: if a pet theory looks too good to be true, then it’s almost certainly false. There is nothing progressive about crashing the economy