Magic Money Tree (MMT) - Have I Got This Right?

Modern Monetary Theory (MMT or Magic Monetary Tree) is all in the air. I have spent a good amount of time understanding the idea. I think I get it.

• MMT advocates are solely on the "left," claiming that there is more "policy space" than traditional accounting methods show and that MMT provides the "space" for more spending on social problems, such as the Green New Deal.
• I find no inherent connection between the expansion of "policy space" and the use of this space to expand spending on social programs. Ronald Reagan expanded the "policy space" to vastly increase military spending along with a jaw-dropping deficit.
• The above observation leads me to see MMT as "motivated reasoning."
• Advocates of MMT obviously assume that they will also be in political power to institute "reforms" in, for example, the Federal Reserve and to spend the funds on programs advocated by the "left." I don't see why a Tea Party government could not use the same logic to eliminate taxes entirely. The deficit doesn't matter, right? Or do we assume that the "left" will somehow be permanently in power? Hmmm...

It should be noted that "Keynsean" policies have been used in the past to produce full employment, specifically to hire any able-bodied' person for the military in World War II. This, not the "new deal," brought the American economy back to life. Price stability was another matter ...

MMT promises to achieve price stability despite full employment. We are currently seeing how the "tight" labor market is contributing to record inflation. So one must wonder exactly how MMT achieves price stability or is this just a goal? It must be said that price stability is a goal of any economic policy. It turns out to be tricky. 

"Price stability" is not up to the government. There is a real, chaotic world out there where the prices of the "stuff" that money can buy is strongly affected by the details of delivering the "stuff" to market. In the real world, there are things like pandemics, climate change, supply chains, and politics. 

It must also be mentioned that "modern" economic models don't assume perfect knowledge, perfect competition, or rational actors. All this went into the trash bin with the advent of computer models. Whatever you might say about MMT, it has the air of quaint philosophy -- more at home in 1922 than in 2022. As a philosophy, it is talk about talk, not talk about the real world.

MMT in a category of theories that aim to control the economy and, through that control, make the world a better place. The world is simply too complex for any theory - economic or not - to achieve "control."

Just as a reality check, this is what the current US debt looks like:

Advocates of MMT propose to massively increase the national debt. Debt "service" is already a huge expense, crowding out the ability to finance new programs. Some advocates claim that massive new programs can be somehow funded without debt (by an implausible modification of how money works in the US). Even if this is possible, we can see that existing debt competes with any new programming. 

Finally, we know that "printing money" is just as popular with the "right" as it is with the "left." All arguments for the "Green New Deal" are also arguments for massive tax cuts, reduced services, and more military spending.

------------------ BUT! ---------------- 

All this ignores the wealth of the USA pubic sector. This is not to be confused with the net financial position of the government, which is easily found. Ironically, the biggest financial asset of the US government is student debt!

US Government assets (not including land) are about 762,622,087,000,000 or, to save you counting commas, 763 trillion dollars as compared to the approximately 3 trillion shown above in debt.

"Not including land" is important since government land can easily be turned into rent (income).

 

It is also important to see that assets other than land require maintenance - they "depreciate." A very conservative estimate would be 10% per year - %76 trillion. This may be at the heart of "build back better" since public assets such as roads, bridges, and buildings are famously in need of maintenance and upgrade.

I suspect the figure doesn't include military assets, which cost about 3% of the US GDP of $20 trillion. What they are worth is almost a theological exercise, but the value at least involves the 38 military bases on US soil, each a small town its own right, sitting on square miles of valuable land.

And then we need to toss in the wealth of the individual states, counties and cities...

For all intents and purposes, the wealth of the US (and Canada for that matter) is infinite. Many zillions. It is this wealth that "backs up" what we borrow, not "GDP", which is vaguely related to what we can tax. If you want to assess personal debt, you compare it to assets (wealth). The ability to "service" the debt is related to income, which, in the case of a Nation State, is "revenue". MMT tosses both debt and revenue into a deep fog, but you may be able to arrive at the same conclusions (build back better) by another road entirely. It's about upgrading, maintaining and protecting our vast resources. MtMT can therefore be seen as an effort to justify the right program for wrong reasons. In the words of Keyes himself, we need a more plausible lie.