Opinion - Markets

Op-ed: Pandemic moves Modern Monetary Theory from the fringes to actual US policy

Key Points
  • The total amount of government economic aid in response to the coronavirus downturn is expected to exceed $10 trillion.
  • Our actions today resemble Modern Monetary Theory, a belief that sovereign governments with sovereign currencies can "print" or "coin" money to support full employment or essentially any government program.
  • As we enter the post-pandemic world, do we stay with the MMT-based philosophy of spending, or do we transition to a philosophy that deficits are dangerous?
VIDEO8:1308:13
Former Nasdaq CEO Bob Greifeld on the Fed's role in responding to the pandemic

During this hyper-partisan age, Congress has acted in a rapid bipartisan fashion, enacting a range of support measures totaling over $3 trillion with plans for more.

The Federal Reserve has operated at a speed and scale that is breathtaking. It has backstopped state and local governments and more markets than myself and many others thought was possible.

The total amount of economic aid is expected to exceed $10 trillion.

The lines of cars at the local food bank and the realization that over 26 million Americans have lost their jobs in the last five weeks is heart-wrenching. With an economy decimated by an unseen virus, our policy makers are forced to respond in this human moment. When a vaccine is developed and our world returns to a better place, we will attempt to place our actions to survive the pandemic in the proper context.

People pick up food at the Food Bank For New York City mobile food pantry in Brooklyn on April 24.
Angela Weiss | AFP | Getty Images

One of these frameworks will have to be Modern Monetary Theory (MMT). This theory has received increased publicity over the past three years as politicians realized there was not a plausible plan to raise the funds necessary to fund "Healthcare for All," the "Green New Deal," free college and other initiatives through taxes alone.

The core principle of MMT is that sovereign governments with sovereign currencies can "print" or "coin" money to support full employment or essentially any government program that would benefit society in the here and now. Critics have labeled it the "Magic Money Tree Theory." Those detractors include Keynesian and Monetarist economists, who cite Hungary in the 1840's, Brazil in the 80's, Mexico in the 90's as examples of where easy money policies led to hyperinflation.

Warren Mosler was one of the founders of MMT, and what is known as `Mosler's law' states: "No financial crisis is so deep that a sufficiently large increase in public spending cannot deal with it." These words fundamentally represent the actions our policy makers have taken in response to the virus. This pandemic has moved MMT from the fringes to the dead center as the actual monetary policy of the United States.

Post-pandemic, our national debt will approach $30 trillion, and talk of the burden we are leaving our grandchildren will inevitably return. I assume MMT'ers care about their grandchildren as much as anybody, but they do not see debts and deficits as bills to be paid. Deficit spending represents a transfer of wealth to the private sector. Deficit spending in MMT only decreases as a consequence of raising taxes to control inflation. It is never seen as a problem. Rather, the primary use of the deficit as a tool is to ensure full employment.

As we enter the post-pandemic world, with a V-, a U- or W-shaped recovery, do we stay with the MMT-based philosophy of spending what it takes to make the economy whole, or do we transition to a philosophy that deficits are dangerous and need to be controlled? Considering we were running trillion-dollar deficits with a great economy before the pandemic and the societal pressure was to spend more, not less, it seems obvious that we will all be MMT'ers for quite a while.