Modern Monetary Stupidity

An economic notion, Modern Monetary Theory (MMT), has been pulled from the dustbin of history to serve as the foundation for a set political doctrines and proposals currently being espoused by the progressives in America. The word “theory” is the notion’s first distortion. Something that is a theory is testable, coherent with existing theories (themselves born of evidence), and it can be falsified (sometimes by only one person).

Really, MMT should be called “Modern Monetary Political Expediency” (MMPE). The notion has been built around a behavior, and touted by those who profit by that behavior (promises given to gain, and retain power). The expedient behavior part of the theory is testable: we have studied “the tragedy of the commons” enough to know that it really is a thing. There is no body of reproducible economic theories or analysis that has “proven” anything about MMT. That’s even if we leave off how far astray ALL reproducible studies have gone, in that over half of the hard science papers are not reproducible, and studies in humanities do far worse than that.

We have a historical precedent for the expedient manipulation of currency, right here in the USA. Nixon convened a conference of all of the great economists of the world. He polled: “what are the benefits and hazards of taking the USA off the Gold Standard?” He weighted heavily the risk of those answering that it was potentially very hazardous (it took practically a generation after Nixon to tame inflation). The ones who answered that it was beneficial were screened for their track record for being right, in the real world, in economic theory application. Their responses were weighted accordingly. The model was fed and correlated by the finest computer in the world. The data was publicly published, and all scientists everywhere were invited to falsify it.

Just kidding: Nixon pulled us out of the Gold Standard to loosen monetary policy he could get around monetary constraints to continue the Vietnam War (in part).

Once it was clear the Vietnam War was a futile waste, we then discarded the tool of fiscal expedience we used to fight it.

Just kidding: our currency has no real world peg to this very day (and everyone else pegs to us). Once a tool of political power is forged, it is never discarded. And MMT (MMPE) is very much a theory that emerged out of politics, to fit political conditions (more spending without more revenue). Right on cue, President-Elect Biden has appointed MMPE devotee Neera Tandeen to head his Office of Budget and Management.

History is replete with examples of economic ruination brought on by currency debouchment. Remember all those movies where we were bought out by Japan, and all the gnashing of teeth when they bought 30 Roc? That was at the height of the Japanese monetary bubble. It broke, and the Japanese have had a zombified economy for the last generation. Want to feel stoned without having to take drugs? Try to wrap your head around the implications of Japanese currency deflation. The Japanese have many economic experts, sitting in distinguished chairs at prestigious universities who have written many papers on monetary policy, who have won many prizes, too.

We absolutely know that the high tax, high regulatory model of the European system brings less economic growth (and creates less jobs) than our more-free system does. The EU is chockablock with politicians and economists that were put in their chairs on the assumption that they know what they are doing, but what they are doing somehow has nothing to do with chronic EU economic underperformance (and what fun it is to see such experts mystified when the electorate will literally vote in a slate of comedians, rather than keep these sorts of experts in power). There are good theories out there that the Roman Empire was laid low by currency debouchment.

What makes this notion that we have scientifically derived theories of economics even scarier, is that nobody really knows what makes an economy perform and grow. But we know for sure what ruins an economy. Ask the Communists about it, they ruin economies with predictability, always and everywhere, in a scientifically provable way. Given the amount of global poverty out there, and the predictable improvement that comes from an open economic system, based on free trade (with rule of law preferable), we can conclude that generally political theories are better at harming economies than helping them.

Take a convention of the top economic experts, get a consensus on what makes (or even constitutes) economic growth, and you’d have a shockingly different spread of conclusions than if you took the same poll of a convention of the world’s best endocrinologists on the management of diabetes. Be doubly shocked to see that if any one of the endocrinologists dropped a provable paper on how much of what they did was wrong, shockwaves would shake the room. Again, Einstein turned the entire world of physics upside down with one paper. If you tried to drop a paper like that on the Gold Standard on Nixon’s desk, you’d find yourself on an enemies list (and we are free people) (well, relatively).

Truly true, provable, and disprovable economic theories that succeed in one country in gaining economic success, are emulated in others. Just kidding again: the top performing countries in the world all have open, free economies. Here’s a fascinating (truly scientific) case: we have identical cultures cleaved by radically different governing systems (like how scientists love to study the effects of twins separated by birth) in the two Koreas. Same people, different political systems, but: different political systems must have different economic systems, yet endocrinologists treat diabetics the same way in North Korea as South Korea.

Economics is under politics, and politics is not, nor ever has been, scientific. The only political theory that is at all scientific comes in the American capability to evolve (which political power curtails more and more, like with MMT/MMPE). Proven economic methodology is not applied across political systems. Do the European (or Japanese) experts emulate the conditions that bring growth elsewhere scientifically? They do not. Experts ignored all data on the Greek economy in order to get them into their [monetary union][10], which was a purely political goal.

Yes, at this moment, we are able to borrow money at low (or zero) interest rates “for free.” To do that with a clear conscience, we ignore the conundrum of all this debt without any evidence of inflation. This bizarre outlier is presented as evidence that what we are doing is scientific. But in science, theories and outcomes must somehow correlate; “unexplained” cannot be placed in the “I am proven” category. If they cannot prove why we have such conditions, they cannot say they have a theory that explains them. But there is another true and well-established principal of human behavioral science that should apply here: the concept of risk compensation. Risks that are rewarded will continue until repercussions are realized. “Nothing bad has happened (yet)” is also not a scientific theory.

More medical analogies are useful here (besides medicine’s Prime Directive of “first do no harm”): I once had a mentor tell a story of how his dad, a country doctor, loved to tell how a family that gave a critically sick little girl an enema, swore that cured her. “You can bet that is one drippy-butt family; but a coincidence is not proof of a theory.”

Even at the low (or zero) interest rates we borrow money at, we still will have to pay it back, and debt service will soon [consume 10% of the Federal budget][12]. It’s not hard to imagine the scenario of a taxpayer, say, a half century from now, taxed ferociously on goods and services long ago seen by those that gained, but that the payers never will. We may soon have cities where the [lion’s share of their expenses][13] are absorbed by municipal retirees, which equals high taxes, with no high services, and hemorrhage of real money into the abstract void of MMPE.

The theory is a veneer of pseudo-scientific theory to hide the American grand compromise of everyone wanting free stuff but nobody wanting to pay.

[10][: https://www.spiegel.de/international/europe/spiegel-interview-with-helmut-schmidt-and-valery-giscard-d-estaing-a-855127.html
[12}: https://www.thebalance.com/interest-on-the-national-debt-4119024