Modern Monetary Theory Debunked

The Modern Monetary Theory (MMT) is a famous macroeconomic framework defined by how economically powerful countries like the US, Canada, Japan, and the UK do not have to worry about federal government spending. These countries can essentially print money whenever they like. Deficits don’t matter, neither does the national debt. In essence, such governments do not rely on taxes or borrowing for spending since and therefore, their policies are not shaped by fears of rising national debt. 

MMT is big on promises, the common ones being it would build a more just economy that works for the many and afford to invest in health care, education, and resilient infrastructure. Unfortunately, government deficit spending is never sustainable. It’s often a hindrance to economic growth and a death sentence to future generations. And printing huge sums of money will inevitably lead to inflation, despite what most MMT promoters claim.

Understanding Velocity of Money

Velocity of money refers to the average number of times a single unit of money goes through people’s hands in a given period of time. Simply put, it’s a measurement of the rate at which money moves from one entity to another or how consumers and businesses collectively spend money in an economy. The velocity of money is essential because it’s used to help financial experts gauge the health and vitality of an economy. Low velocity of money is often associated with contractions and recensions. On the other hand, high velocity of money can be linked to a healthy, expanding economy. For example, the velocity of money in the US was incredibly low in early to mid-2020. This was probably due to the diminished activity of fear and restrictions during the COVID-19 pandemic. An increase in consumer savings caused by economic uncertainty might also be a possible explanation.

Links and Resources

• https://stephaniekelton.substack.com/p/how-do-you-solve-a-problem-like-inflation
• https://www.nytimes.com/2022/02/06/business/economy/modern-monetary-theory-stephanie-kelton.html
• https://noahpinion.substack.com/p/the-nyt-article-on-mmt-is-really
• https://www.nationalreview.com/2022/02/mmt-a-highway-to-hyperinflation/?utm_source=recirc-desktop&utm_medium=article&utm_campaign=river&utm_content=top-bar-latest&utm_term=fifth
• Capitalisn’t (capitalisnt.com)