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A new report from the Progressive Policy Institute’s Center for Funding America’s Future dives into the economic and political debate around Modern Monetary Theory (MMT), looking closely at the challenges MMT advocates would have in delivering on their goals without drastically harming our economy. The report, authored by Dr. Eric Leeper of the University of Virginia, is titled “Modern Monetary Theory: The End of Policy Norms as We Know Them?”.
“Dynamic democracies should periodically reconsider existing policy norms to evaluate if they continue to serve policy goals well. If MMT seeks to change long-standing policy norms, the onus is on its advocates to persuade us that old norms do not serve us well and to communicate precisely what new norms will prevail and how they will affect the economy’s performance,” writes Eric Leeper in the report. “Until MMTers are ready to take these steps, their ideas must remain in the realm of guess and conjecture. In the meantime, we should apply to economic policy the basic principle we apply to health policy: follow the science. Economic science, such as it is, provides no support for MMT’s central claims."
This report breaks down several flaws in the economic thought behind MMT, including the constraints that ultimately finite resources place on governments, the inability of MMT to explain the relationship between inflation and demand when an economy is operating below its resource constraint, how it would overcome the structural and political challenges that prevent elected lawmakers from responsively managing inflation, and the indiscriminate approach it takes to the impact of different tax and spending policies, among others.
By Dr. Eric Leeper
Contributing Author
for the Progressive Policy Institute (PPI)
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