Reps. Rashida Tlaib and Pramila Jayapal will save us all from crushing government debt — just make two coins worth $1 trillion each and parcel the money out! L. Randall Wray, a proponent of Modern Monetary Theory, disagrees. He says the Federal Reserve, not the U.S. Mint, should make lots of money and give it to all. The mistake here, as with all of Modern Monetary Theory (a.k.a. the Magic Money Tree), is to think that money is important.
It isn’t.
Sure, we’d all like to have more money. Send some in, and I’ll make sure it’s spent on happy things. That last part is the very proof of the failure of Modern Monetary Theory. Money is just the way we count, the way to keep score. What matters is the things that are available, the goods and services that people can actually consume. Creating more money doesn’t change how many valuable goods and services there are, therefore, it doesn’t change anything real. We can change baseball scoring so that every bunt is a three-run homer, but the Staten Island Yankees will still be minor league.
If we’re not creating more things, then more money just means everything gets more expensive. There will just be more money chasing that same number of things. We know this: It’s called inflation.
We even know that Modern Monetary Theory isn’t new or modern. We’ve called it “monetization of fiscal policy” for decades now. Our first recorded and written about example probably came from Diocletian, around 300 A.D. Henry VIII of the six wives tried it in the 16th century. “But that was centuries ago! The economy is different now,” you might cry. But both Zimbabwe and Venezuela are recent examples and look how they’re doing.
Print lots more money and money becomes worth, well, nearly nothing. The last run of Zimbabwe’s $100 trillion bills wasn’t worth enough to buy the ink for the next print run. Plus, the notes were too small to be more personally and directly useful.
Wray and other theorists (he does at least try to think, unlike Tlaib) tell us that there’s a solution to this too. As government just makes money by printing it, if there’s inflation, then they can tax it back. This destroys the money and kills the inflation. It’s quite true too, but more thought is needed here.
For that end result, how different is it from what we’re trying to escape? We end up in a high-tax, big-government world. Sure, now the tax is supposed to kill inflation from the money government is making, but it’s still a high-tax world with lots of government. The end result being no different from that old Democrat idea of taxing the heck out of everything first, then getting government to spend the money. Or even the Republican variant: don’t tax, spend and borrow instead, which then has to be paid back through taxation.
The reason we try to escape that world being, of course, the performance of government. The latest nuance is that the Centers for Disease Control and Prevention’s coronavirus tests didn’t work, the ones the Food and Drug Administration said everyone must use were actually contaminated with the virus themselves. Or if that’s a bit detailed, just try looking at any of the housing the Department of Housing and Urban Development has built over the years. Then think what it would be like if everything was that way, done the government way.
Money’s not the important thing, things are. Making more money doesn’t make more things that we can enjoy, and government spending more most certainly doesn’t. What it does do is mean that more of the things that are produced are done with government efficiency and to government standards. And anyone with any experience of government cheese knows we won’t enjoy more government.
Thus, playing around with money creation doesn’t solve any of our actual problems. Unless, of course, you are or want to be that government that gets to decide what everyone can have. That brings us to Kip Esquire’s Law: “Every would be central planner just knows they’ll be the one doing the planning.” The tragedy of that being that the rest of us end up being the planned.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at The Continental Telegraph.
